Business Blunders and Booby Traps

Everyone makes mistakes. Businessmen, young or old, are no exceptions to this rule. And neither am I. Like most people, I'd much prefer to have the memories of my mistakes fade quietly into oblivion, but there are many I cannot forget. Among them are three monumental blunders I shall always remember.

The first dates back to the days when I was a tyro wildcatting operator in the Oklahoma oil fields. Buying the oil lease on a property located in an area later known as the "Yale Pool," I hired a geologist to inspect the site and to recommend whether or not I should drill.

"There's no oil on the land," he reported. "The property is worthless. The best thing you can do is get rid of the lease!" I followed his advice and sold. A short time later, the Yale Pool proved to be a rich oil-producing area. I'd thrown away a fortune.

My second giant--but hardly economy-sized--blunder was made in 1931. Firms in which I already held substantial interests and I bought more than two million dollars' worth of Mexican Seaboard Oil Company common at prevailing Depression-era lows. Then, the stock market took another downturn. I was certain we'd made a safe and sound investment in Mexican Seaboard, but my fellow-directors feared that the market would go even lower.

"We can't take any more risks," they argued. "We have to unload." Outvoted, I finally went along with the majority. The firms--and I--sold our Mexican Seaboard stock.

Had we held the shares we already owned and bought more in 1931, we could have acquired control of the company at a fantastic bargain price. Mexican Seaboard common's subsequent performance proved that this would have been a major financial coup--and that I would have made millions.

I pulled my worst boner in 1932. I was interested in obtaining an oil concession in Iraq, where geological surveys and exploration operations indicated the presence of vast oil deposits beneath the hell-hot desert sands. My representative, conducting negotiations with Iraqi government officials in Baghdad, reported that a tempting concession was available for a price that could be tallied in tens of thousands of dollars.

Just then, the U.S. crude-oil price broke; East Texas crude plummeted to ten cents a barrel -- and the petroleum industry was in a panic. Fearing to risk capital outlays under those circumstances, I ordered my agent in Baghdad to halt all negotiations.

The next time I had an opportunity to buy a Middle Eastern oil concession, in 1949, I seized it unhesitatingly. Conditions were far different than they had been seventeen years earlier, however. In 1949, I had to pay $12,500,000 in cash upon signing the concession agreement!

Bad as they were, it would be solacing to think these were my only errors, but I made many others and will doubtless make many more. As I've said before, businessmen are no exceptions to the rule that everyone makes mistakes. But personal experience and observation during more than forty years in the business world have taught me that most mistakes made by businessmen and executives fall into certain broad, though readily definable, categories.

Naturally enough, it is the young businessman who, through inexperience or immaturity, usually makes the most errors. Some of his blunders are inadvertent, not very serious and entirely understandable and excusable. Other errors are the results of inadequate training or insufficient or faulty understanding of business in general or of his own business in particular. Yet other blunders stem from out-and-out inaptitude or incompetence -- but these, needless to say, soon prove fatal to any business career.

The examples I've cited from personal experience serve to illustrate three of the major categories of mistakes I've found are most commonly and most often made by businessmen, especially when they are relatively inexperienced and unseasoned.

The first of these is the failure -- or the inability -- to distinguish between what is fact and what is opinion. Though it may be carefully considered and based on fact, opinion nonetheless remains opinion -- and it is very seldom infallible. Opinion is never better than the information on which it is based, the qualifications of the person voicing it and his ability to correctly interpret the information at his disposal. Businessmen are sometimes inclined to read or hear opinions and accept them as facts upon which to base their plans or make their decisions without further investigation or study. Such was the error I made when I sold my lease on the Yale Pool property. Although I was well aware that in those days geology was far from being the most (continued on page 92)Booby Trapscontinued from page 87) exact of sciences, I blindly accepted the word -- the opinion -- of the geologist who inspected the property. I did not take the time nor the trouble to consult anyone else to obtain a "cross-reading" on the single "expert's" judgment. I cannot blame the geologist for making a wrong recommendation. I can blame only myself for accepting it without question.

The predilection for accepting opinion or even rumor as fact is a fairly familiar and widespread human failing. Anyone harboring doubts on this score need only reflect on how often he has heard individuals repeat as fact the opinionated statements they read in highly biased newspaper editorials, gleaned from propaganda handouts of one kind or another or heard as rumors in the streets.

Remember the perennial tale of the leprous Chinese cook's thumb that turned up in a bowl of chow mein at the (usually local) chop suey parlor? That particular yarn was already hoary with age when I was a boy -- yet it's still making the rounds, and it's still being given credence by the gullible.

This, of course, is an extreme example, but businessmen frequently allow their judgment to be influenced by opinions and rumors which, in their own way, are no less factitious than this unappetizing fable. Many otherwise astute businessmen will buy or sell sizable blocks of stock merely because they "hear" that certain issues are "due" to go up or down on the Stock Exchange. Nine times out of ten, they find that they've done the wrong thing because they listened to opinions or rumors rather than determine the facts for themselves.

A short time ago, a manufacturer I know spent nearly $100,000 tooling up and buying the raw materials to produce a novelty item which, according to trade journal articles he'd read, was in great demand. Not until he was ready to go into production did he discover that half-a-dozen other firms were ahead of him and beginning to distribute the item. The market was saturated even before his salesmen could start selling his product. He was badly stuck. This could not have happened had he checked all the facts before leaping into a clearly stupid business situation.

There may be some substitute for hard facts and factual information, but if there is, I have no idea what it can be. It certainly isn't rumor or opinion that has been camouflaged as fact. In order to succeed in any "deal," project or endeavor, the businessman must assemble all the available pertinent hard facts and study and analyze them himself. There's nothing wrong in asking the opinions of others and in taking them into consideration. The mistake lies in accepting and following other people's advice blindly, in accepting their opinions without first determining if they are backed up by facts. This is one of the first lessons young businessmen and executives should learn -- or they will find themselves being taught it the hard way!

Once satisfied that he has made a sound decision based on sound judgment of the facts, the businessman can plot the course whereby he will implement his decisions or programs. And, he should stick to that course and follow it through. The failure to do this is another of the blunders often made by young businessmen -- and by some who are not so young.

That's where I made my big error in 1931. I did not have the courage of my convictions. and I failed to stick by my decisions and to my plans. I was convinced that Mexican Seaboard common was a good -- an unusually good -- investment. I had made careful, painstaking studies of the company's history, its organizational, financial and debt structure, its potential and all other conceivably pertinent factors. It was only after I'd done all this that I bought large blocks of Mexican Seaboard stock on my own account and used my influence to encourage the firms in which I held substantial interests to do likewise. When Mexican Seaboard shares dropped a few points, the directors of the boards on which I also sat became nervous and voted to sell out the firms' holdings. My arguments were unavailing, and the firms sold their Mexican Seaboard stock. Whereupon, instead of hewing to my original plans, I followed suit. I "dumped" my own shares. I suffered a considerable loss on my original investment, for the stock was selling for less than what I had paid for it. Far more serious was the loss of the very large potential profit that would have accrued to me in the ensuing years. when the stock multiplied many times in value, just as I had reasoned it would -- as I knew from my careful studies of the company that it must.

This was a stock transaction. It is not difficult to find analogous situations in commerce and industry. Quite often, businessmen become frightened at the very first signs of slowdowns or setbacks after they have launched a well-planned and organized production or sales program. They hit the panic button and scrap the entire program, suffering heavy financial losses as a result. This is particularly true of unseasoned men who do not have the calm, cool patience to wait until more returns come in nor the experience to understand that a redoubling of efforts or even some slightmodification in plan might make the program a complete success, or at least carry it through to conclusion without loss.

It has always been my contention that if corporate books were kept properly, there would be a separate ledger in which accountants entered the dollarsand-cents costs of executives' and businessmen's errors and mistakes. Certainly, there would be few entries in such ledgers that would show up more glaringly than the cost of premature, defeatist cancellations of plans and programs already under way.

My 1932 bobble in turning down the Iraqi oil concession illustrates another blunder frequently made by businessmen -- namely, their reluctance to take risks. A businessman has to be willing to take risks. They may be planned and calculated, but they're risks just the same. The shrewd businessman weighs all the known and, to his knowledge, possible factors in a given situation. He tries to allow for all the variables, but he is well aware that he cannot think of nor insure against every contingency. He accepts the idea that there is always a possibility that some completely unforeseen element or development will turn up to alter or even wreck his plans. He is, however, secure in the knowledge that he has done everything within his power to tip the odds for success in his own favor.

Obviously, I was not very shrewd in 1932. Had I stopped to reason things out, I would have realized that the crude-oil price-break was only a temporary problem, that the price of crude would have to go higher -- much higher. I should have also realized that the demand for petroleum products would continue to increase throughout the years, and that it would be only a matter of time before the world would see a mad scramble as oil companies sought new sources of crude-oil production. Considering-the bargain-basement price at which the Iraqi concession was being offered, the risks involved in buying it would have been more than offset by the potentials for eventual profit.

The businessman who is able to calculate his risks -- and then is willing to take them -- has his battle for success nine-tenths won. The remaining one tenth is the unknown variable, the unpredictable factor that puts the zest and excitement into the game. Without that "x" factor, business would be hopelessly dull, routine and uninteresting.

Young businessmen and executives make other mistakes than those I've already discussed. Often, the fault is not theirs at all. Young men generally start out in the business world today as strictly disciplined and as passively obeisant as the novices of some pagan cult. By the (continued on page 130)Booby Traps(continued from page 92) time they leave their schools and colleges, where they receive over-specialized educations, they are virtually consecrated to the Moloch of "Organization" and dedicated to serving the complex rituals of memorandum and buck-passing. They are -- and remain forever -- cloistered from the unanointed laity of the rank-and-file production workers. The organization chart -- the more complex the better -- is their Grand Totem. Whole volumes--or preferably entire shelves -- of procedural rules are their most honored fetishes. They are conditioned to meet periodically in solemn conclave and pore over the esoterica of statistical tables and committee reports. They are as far removed from the harsh, mundane realities of commerce and industry as Egyptian priests arguing abstruse theological doctrines in the sanctum of the inner temple.

I made my first million dollars in the front seat of a battered, secondhand Model T Ford. The flivver served as my executive office and field headquarters -- sometimes even as my bedroom -- during my early days as a wildcatter in the Oklahoma oil fields. I transacted enormous amounts of business and signed many important leases, contracts and agreements in the front seat of the mud-splattered tin lizzy. When it was necessary to have documents witnessed, one or two of my drillers or roustabouts scrawled their signatures on the papers, using the jalopy's wrinkled fenders as writing surfaces. There wasn't anything unusual about any of this. Almost every independent operator -- the wildcatter -- who prospected and drilled for oil during the early days in Oklahoma operated in much the same manner. He had no fixed hours, no five-day week. He bad to be his own promoter, geologist, legal advisor, explosives expert, drilling superintendent and jack-of-all-trades. Most of his time was spent in the field, working alongside -- and just as hard as -- the men who formed his prospecting and drilling crews. He often went for days without any sleep save for what naps he could take on the drilling rig or curled up in his automobile.

The wildcatter operated on a perpetually frayed shoestring budget -- at least until he brought in his first big producer. He constantly faced heavy competition from the major oil companies. His business was fraught with innumerable financial perils and pitfalls. As a natural consequence, he developed certain traits and techniques awl learned certain lessons which. I'm afraid, today's young businessmen have little opportunity to develop or learn.

We, the "independents," eliminated all unnecessary administrative overhead expenses in our operations. We scorned renting offices in the boom towns that burgeoned around the oil fields, partly because we didn't want to spend the extra money on what we considered an unnecessary frill. but mainly because we knew that it was impossible to run our operations properly front behind a desk. We familiarized ourselves thoroughly with all aspects of our business and kept all our costs down by exercising unceasing and vigilant supervision over every phase of our operations. We often worked employee-morale and production miracles by donning overalls and sweating and grunting along with our men even on the toughest and dirtiest jobs.

It wasn't until I'd brought in a few producing wells that I thought to trade my Model T for a new Dodge and to rent desk space in someone else's Tulsa office. By then, I was worth a million dollars -- on paper. Nonetheless, I still wore work clothes more often than I did business suits. I was running three strings of rotary tools -- drilling three wells -- simultaneously and acting as my own financial manager, purchasing agent, tool-pusher and drilling superintendent. There were often times when I'd work around several clocks without sleep to keep things moving on the drilling sites.

Is this boasting? I think not; as I've said, most independent operators worked the same way.

Bill and Charles Roeser, R. M. McFarlin, George Forman, Josh Cosden, Bill Skelly -- these were only a few of the countless others who retained their basic outlooks and attitudes toward business even after they'd made their million or millions.

What I'm trying to point out with all this are some of the differences between the businessmen of that era and those of today. I'm also attempting to point up what I consider some of the glaring errors made by today's young businessmen and, for that matter, by American business firms and American business as a whole.

First of all, there is the attitude toward administrative overhead. Years ago, businessmen automatically kept administrative overhead to an absolute minimum. The present-day trend is in exactly the opposite direction. The modern business mania is to build greater and ever greater paper-shuffling empires. Many business firms employ battalions of super-specialized executives, reinforce them with regiments of office-working drones, give them all grandiloquent titles -- and then mire them down in bottomless quagmires of forms, reports, memoranda, "studies" and "surveys."

Thus, it is hardly surprising that so many young men start their business careers with the idea that "administration" is not only the tail that wags the whole business dog, but that it is, in itself, the whole animal. These young men will spend half their time trying to find out what they're doing through studies and surveys, then spend the other half informing each other about what -- if anything -- they've learned through the media of committee meetings and interoffice memoranda.

I'm still a wildcatter at heart, I suppose. I don't hold with the ultra-organization and super-administration theories at. I still believe that the less overhead! there is in business, the better. The world-wide complex of firms I control manages to function beautifully with a modicum of administrative detail anti paperwork. For example, there are fewer than fifty people doing administrative work in our entire Middle Eastern operation. The Getty Oil Company of Italy; which, in addition to its other operations, runs a 40,000-barrel-a-day refinery and a 1,300,000-barrel-capacity tank farm -- has an administrative staff of only fifteen persons. This proves -- at least to my associates and me -- that businesses can be operated successfully without proliferating paper-work empires. The thought may not please exponents of the "Everything in Quintuplicate" school, but the system certainly improves efficiency and boosts production. The resultant savings and increased profits make our stockholders very happy, indeed.

Yet another of the blunders of young businessmen and executives is their constantly increasing tendency to overspecialize. The young man who understands all aspects and phases of business is a rare bird these clays. The average young executive has a thorough theoretical knowledge of one single facet of business but knows little or nothing about what goes on in any office or department save his own. He is like the mythical medical specialist who is so specialized that he only examines left nostrils.

If the trend continues, the real businessman -- the man who can actually coordinate and run a business because he knows what snakes it tick and how it operates -- will disappear frown the scene entirely. His place will no doubt be taken by some sort of super-cybernetic machine. The machine will establish policy, make final decisions and give orders after bits and pieces of information encoded on punched tapes are fed into it by ultra-specialized company executives.

As I see it, the aims and purposes of any business enterprise are to provide more and better goods or services for snore people at lower cost, and still make a profit sufficiently large to give stockholders a fair return on their investment. To succeed in a business, to reach the top, an individual must know all it is possible to know about that business. He must be acquainted with the duties and responsibilities of each and every section, office and department of the firm. He must know something-- the store the better -- about accounting as well as production, about sales as well as purchasing. about the old-time wildcatters, he should know a dozen -- or a hundred -- different jobs well enough so that he can exercise direct supervision, increase efficiency and product quality, reduce costs and still make a profit and continue to expand.

Any executive can do a much better job if he peels off his business suit once in a while, climbs into a set of overalls and gets his hands dirty clown in the plant. The vice-president in charge of purchasing who has fed the raw materials he buys into a processing vat or a molding oven can do a much better job of purchasing. He can often learn more by listening to the conversation of a few production workers for an hour than he can by reading ten thousand specification sheets. Advertising and sales managers who have operated a lathe or punch press and have actually made a component of the product about which they rhapsodize will be much more convincing and successful in their sales campaigns. The employee-relations expert will have a much clearer and better understanding of employee problems and psychology if he spends more time among the employees and less in his paneled office dreaming up new "morale-building" gimmicks or bowling parties.

I don't suppose there are any finer examples to prove my point than the companies in the Bell Telephone System. There are few Bell System companies in which the top executives didn't work their way up through the ranks. They began as linemen, cable-splicers, book-keepers. They generally moved around as well as up during their careers. Consequently, they run their operations with remarkable efficiency.

Walter Munford, the late president of U.S. Steel, began his career as a diereamer, working seventy-eight hours per week -- and came up the hard way. Harry B. Cunningham, president of S. S. Kresge, started as a stock boy and worked his way up through the various departments and levels of the giant retail chain. The list of such examples could be extended indefinitely, but the point, I think, is clear.

Another error that unseasoned businessmen stake is that they relegate, rather than delegate, authority. I suppose it's natural for an executive or a man who owns a business to feel that he should take things as easily as possible. That's human nature -- but it's hardly good business. A businessman can never afford to let down -- nor can he afford to relegate his authority. If he allows others to run his business without maintaining close and constant supervision over their policies and operations, he's most likely to find that he has made a mistake and that he and his business are in trouble. All too often, by the time he makes that discovery, it's too late to do anything about it.

"If you have a business, make sure that you're the one who's running it," is a piece of advice I received many years ago. "If you don't want to accept the headaches of being boss, then either close the business down or sell it to someone who will accept the responsibilities." I've found this to be sound counsel. A businessman should delegate authority -- he must, in fact, for no one man can be everywhere and do everything. But he must also remember that the final responsibility is his -- and thus, he should always retain final authority.

This brings me to the last of the mistakes I've observed that young businessmen stake frequently: their growing habit of pampering themselves -- complaining that they're overworked and constantly laboring under "terrific strain and tension." They flaunt their real or imagined ailments -- particularly their ulcers -- as badges of honor. They spend huge amounts of time and money on medical checkups, cardiograms, X rays and tests and examinations of every conceivable kind. Nothing could be more nonsensical.

The National Office of Vital Statistics reveals that "men of the managerial, technical and administrative level as a whole have lower … than … average mortality rates." Business executives enjoy the lowest rates when buying life insurance. Medical studies indicate they are less susceptible to heart trouble -- a favorite executive's bugaboo -- than clerks or laborers, no more inclined to contract cancer or most other fatal diseases than bricklayers or streetcar conductors.

"There's nothing really wrong with most executives," the head of a famous clinic once remarked to me. "They aren't overworked or overstrained. They're just overworried about holding their jobs and become nervous wrecks as a result of the office politics they so often play." Other doctors have told me they believe that many executives' morbid preoccupation with their health is a by-product of the status-seeking mania.

"Executives who are secretly afraid they aren't good enough to be promoted build up health-alibis in advance," is the way one physician explained it. "In the event they fail to make good, they can convince their wives, their friends -- and themselves -- that their health, not their incompetence, was responsible for their failure."

One doctor even says that many executives who claim to have ulcers have nothing of the kind. "Having ulcers has become a status symbol," he grins. "There are certain types of executives who would rather die than admit they have nothing wrong with their stomachs."That would be tantamount to admitting that they were like the hoi polloi!"

Not being a medical authority, I can hardly pass judgment on any of these theories. I can, however, enjoy a hearty, private laugh whenever I hear a twenty-eight- or thirty-year-old executive who works at most forty-eight hours a week -- less the time he spends having three-hour "business lunches" and playing golf -- wail that he's "overworked" or '"laboring under terrific strain." The truly great giants and geniuses of American business habitually worked sixteen- and eighteen-hour days -- often seven days a week -- and seldom took vacations. As a result, most of them lived to a ripe old age.

For example, Andrew Mellon was eighty-two when he died, Andrew Carnegie and Henry Ford lived to be eighty-four, George L. Hartford and Samuel H. Kress died at ninety-two. John D. Rockefeller, Sr., was ninety-eight when he died.

Nor is this true only of businessmen of the past. Hugh Robertson was seventy-two in 1959 when he turned over the presidency of the Zenith Radio Corporation to Joseph S. Wright, and moved up to be a very active chairman of the board. Seventy-six-year-old Walter Johnson is famous for the energy and ambition with which he runs two giant companies -- Friden, Inc. and the American Forest Products Co. There are uncounted others like them.

The "half-strength" executive who complains about his "overwork" and its menace to his health would do well to buy a Who's Who of American Businessmen and study it carefully. He'd find that the hardest-working and most successful businessmen most often live longest.

These, then, are the various categories of blunders I've seen young businessmen make so frequently during my more than forty years in the business world. Some are mistakes that a beginner will almost inevitably make until he is seasoned and matured in business. Others are errors . that can be avoided, particularly if an individual is forewarned about them. Most of the blunders I've listed are errors I've committed myself at one time or another. In business or out of it, there's nothing unusual or shameful about making a mistake -- once. But, as Cicero said, to stumble twice against the same stone is a proverbial disgrace.