#433 How Michael Bloomberg Works

23:31So it's like, okay, we sell this product doesn't exist. And we say, don't worry, it doesn't exist. You're going to have it six months from now. He just made up the day. As developers were magicians, not miracle workers month after month. As we worked, our mood alternated between elation and the feeling of an impending disaster. We weren't just putting out fires. We were adjusting to major earthquakes when some new software bug forced us to start over. But every day we got closer to building the machine that we promised. At the time, he's also building hardware, which we'll talk about. He's got a lot of great ideas about that, by the way.

24:02Essentially, he looks at his business as just content like data and analytics. And he built hardware when he needed to build hardware. But once somebody came along that could build a better hardware than him, he just focused on what his actual business was. And he never confused what his business was with the device that delivered it. He has some great lines on that, which we'll get to in a minute. Our style then was pretty much the same as today. We took the problem and broke it down into little, manageable, digestible, pieces. Then each of us took responsibility for the one we were best suited to do.

24:31And then he goes back to this idea, get action. We acted from day one, others plan to plan for months. I must admit, I was worried. Remember, he started the company with 300 ,000 of his own money. Now he's 4 million into this thing. He only has 10 million to his name. We were spending what would grow to be a$4 million investment of my$10 million. Simultaneously, I was becoming responsible for families of almost two dozen company employees. I convinced these people to follow me, and if the venture had not succeeded, I would have failed them, their spouses and their children, as well as our prospective customers.

25:04Yet we plowed ahead. From the beginning, I was convinced we were doing something that nobody else could do, nor was anyone even trying. Our product would be the first in the investment business where normal people without specialized training could sit down, hit a key, and get an answer to financial questions, some of which they didn't even know they should ask. Over time, the Bloomberg terminal evolved to allow users to run an ever wider array of functions developed by our more than 5 ,000 programmers and engineers. But it all began with a simple premise, putting more information at people's fingertips, more quickly and more accurately than they could otherwise get it.

25:44That is still the heart of our business. And then I absolutely love this part because this describes the beginning of his business. Finally, the day arrived, almost. The six-month promise ran out on a Saturday, so we could postpone delivery until Monday. So now we're at six months and two days. And Monday didn't necessarily mean Monday morning. It could be Monday afternoon. We were constantly having to fix the software, rewriting it again and again to deliver the consistency needed for reliable real-time analysis. We're out of control, I would shout, as each software bug surfaced. We're going to be out of business if this continues.

26:18I still say the same things today. It was June 1983, and we had delivered something on time, close to, something that worked, sort of, and a machine that would be useful, somewhat. So then we get to the very important role that Merrill Lynch plays in Bloomberg Stories, not only their first customer, but their first major investor. So in 1982, this is going to blow your mind. 1982, they buy 30 % of the company for$30 million. Okay. That's in 1982. And around 1996, Michael Bloomberg buys back 10 % of the 30%. Okay. 10 % for 200 million. So then about 10 years later in 2008, Michael Bloomberg buys the remaining 20 % that Merrill Lynch still owned from this investment they made in 1982 for$4.4 billion.

27:13So a way to think about that is for$30 million invested in 1982, Merrill Lynch makes what? About$4.6 billion. Not only that, they helped him understand the product he was building. And so he has two traders working at Merrill Lynch that are essentially telling him everything about the product that needs to be fixed so it's useful to them. And therefore, it's useful to them. It could be useful to future tens of thousands, maybe hundreds of thousands of people just like them. When we first installed it, Merrill assigned two traders to work with us. I thought they'd be real pains and second-guess us every step of the way.

27:45Was I wrong? It turned out both of them were as responsible for success as anyone. They were nitpickers, but not in a nasty way. They wanted us to succeed. When they said something didn't work, they could show us it didn't work. So we knew for sure it didn't work. And more important, to help fix the problem under what specific circumstances it didn't work. Every day, our system got better as we fixed each problem they pointed out. I'd always rather have a smart, fair, honest, demanding client than a nasty dummy or an I don't care user. And then more about the early days, which I think were his favorite part of the company, the fact that you should be doing everything yourselves at the beginning.

28:24For our first three or four years in business, I did all of these functions. I worked full time selling our services, negotiating all of our supplier and customer contracts and running the company. Never before or since did I have as much fun and as challenging a time in business. Back when we started, the original half dozen of us, after finishing our regular jobs, would go into clients' offices on the weekends. We would crawl under the new customers' desks and we'd lay our own cables. We would drag wires, stuffing the cables through holes that we drilled in other people's furnitures, all without permission, without giving any thought to any fire law or building code.

29:02it's amazing we didn't burn down some office or electrocute ourselves at the end of the day 10 or 11 o 'clock at night we'd turn it on and watch what we created come alive it was so satisfying we improvised everything as we went along i gotta stop there he's used the word improvise steering the boat you know a little bit every day just to use the words of henry singleton he uses that over and over again we improvised every day we just came and we we iterated and got better every day. The difference is he iterated, got better every day and didn't stop for 50 years. I used to write all the checks myself.

29:38I signed every contract. I paid every bill. I did the hiring and firing. I bought the coffee, soda, cookies, and chips. I emptied the waste paper baskets. I dusted the window sales. I wrote and handed out the paychecks personally. Those were the best days. The first few years in the early 1980s, we were involved in every aspect of our company. As we grew and turned these functions over to newly hired specialists, I felt like I was losing a child to adolescence. Good for the kid, but painful for the parent. So then we get to one of my favorite parts of the book, and this is where he starts building out the media part of his company.

30:12Starts with this guy named Matt Winkler, who's a reporter at the Wall Street Journal. Keeps hearing about Bloomberg and this Bloomberg terminal and trying to figure out, okay, what's going on? Like he's hearing about it throughout the finance industry. and he's like, okay, I'm going to go and like interview Michael Bloomberg. And so in this part of the book, this is where Bloomberg is describing this first meeting they have. He says, when they arrived in my office, I offered them the same speech that I used to convince people to take jobs with us. We've got the best people in the world working here.

30:40All of them think they walk on water. All of them are workaholics. Once they come, they stay for the rest of their lives because they love it. They've built the better mousetrap. They're doing something important. They're giving the little guy information he needs to fight. and he's saying, you know, one thing for him to say that he's got the best product, the best people, but he said, you don't have to believe me. Here, he does something really smart and he actually, it's a good idea whether you're talking to, I guess, a reporter or even trying to recruit somebody to join your company. And he comes into, leaves the room, comes back with this big, thick printout.

31:11And he goes, here's every customer we have by name, by firm, and by phone number. Call them yourself. And essentially verify everything I just told you is true. And so as Michael Bloomberg builds a relationship with Matt Winkler, he starts seeking Matt's advice. And really the main point of this section, I think, is really important. It's like, hey, your company likely has information that no one else has. Start thinking about how you can repurpose it to benefit other people and then achieve your objective. So he's on the phone with Matt and he goes, hey, I want to make our terminal indispensable to stock as well as bond traders.

31:43Should we get into the text news business? His answer wasn't what I expected, although it encouraged me to keep the conversation going. Mike, he said,

32:19So he says, history shows that any gutsy entrepreneur, Joseph Pulitzer, William Randolph Hearst, Henry Looch, B.C. Forbes, Ted Turner, Rupert Murdoch, and Oprah Winfrey can enter the news business any time. And then he compares his advantage that he has that these other historical figures did not. Best of all, we had revenue from terminal rentals, which meant we didn't have to worry about a news service paying for itself as a standalone product. one hack of an advantage. Fundamentally, at Bloomberg, we're builders, not buyers. So it has never occurred to me to acquire a news organization as a starting point.

32:53It's always more fun to create from scratch and a lot less risky. And so this is the initial idea of this media business that he begins to build. I handed him a three-page list of what Bloomberg News should be doing. Our purpose was to do more than just collect and relay news. It should also advertise the analytical and computational powers of the Bloomberg Terminal by highlighting its capabilities in each news story. With our terminal functions included, each of our news stories would be more informative than the competitors and more people would want to access them. This meant more revenue, which in turn meant we could afford more reporters and have more news and so on.

33:29So think about it. Each news story is a product demo. More demos lead to more revenue. More revenue leads to more stories and even more revenue. And so this is the part I mentioned earlier about really understanding what the actual business that you're in. When we first began, we manufactured computers and keyboards because we had to. Personal computers didn't really exist in order to deliver our product. But we never made the mistake of believing that we were in the hardware business. We are in the business of producing and distributing the world's most accurate, reliable, comprehensive, up-to-the-second information and analysis.

34:00This has been our mission from day one, and it has never changed. Technology will continuously revolutionize distribution. But our product is content. It remains consistent. Much of that content sits behind the media world's most expensive paywall. A subscription to Bloomberg costs about$22 ,000 a year. This book, I think it's almost 20 years old. I think the price is over$30 ,000 a year, if I'm not mistaken. That works out to be about $80 to$8 per workday. When customers complain that it's expensive, we tell them, if you can't make$88 a day using Bloomberg, you have a bigger problem than our bill.

34:37I mean, he's got some great advice on how to make your product or your company stand out. I should say at this point in the story, his company is not called Bloomberg. It's called Innovative Market Systems, and he's about to change that. So he says, entrepreneurs in the booming 1980s were commonplace. My company was small and virtually anonymous. Our product, the market data terminal that we were selling, was called Market Master, and it could have been confused with a kitchen appliance. No one knew us. No one cared about me. But by 1984, this was about to change. Those were the days when Ronald Reagan proved how marketable ideas could be when they were peddled with charisma.

35:12You needed a spokesperson for mass appeal. Consumers and the media identified products and policies with the people who pitched them. That's actually a very old idea. You and I have talked about David Ogilvie, Albert Lasker, Claude Hopkins. In any case, they tried to get away from the company and basically have like a spokesperson, even if it wasn't the founder. But they wanted, they said people identify with people, not products and not companies. And essentially, were what, 60 years later than Albert Lasser and Claude Hopkins were applying that same exact idea to all kinds of different products.

35:45He just happens to apply it to his own product. So you need a spokesperson for mass appeal. Consumers and the media identify products and policies with people who pitch them. Nike didn't just make sneakers. It pushed them with the mystique that could only come from Michael Jordan. To have the best mousetrap wasn't enough. Success was delivered by people promotion. If we were going to build our business, we too needed a personality. The obvious choice, me. Our competitors' founders were all dead. I, on the other hand, were alive and out making speeches and sales calls every day in city after city around the world, turning my name and work into a great weapon that others in the financial news and market data businesses could not match.

36:23And since I'd spent so much time demonstrating our product, people had begun to mentally interchange me with the terminal. So they were already, Before they were called Bloomberg Terminals, they'd say, hey, give me, instead of saying, what was his name, Market Master, which is a terrible name, by the way, or even they're using the word terminal, they're just like, hey, give me some of these Bloombergs. I acquiesced to a decision that the marketplace already had made. Henceforth, the product and the company itself would be Bloomberg. And then he has a hilarious line here. I would become the Colonel Sanders of Financial Information Services.

36:55As the owner, by definition, I spoke with authority. and to make good copy, I gave the press a colorful personality to focus on. You kind of see, obviously, I think if you're listening to this, you probably already know, you've heard his name, you know about his business, but you can see he's, you know, he likes to, he has a colorful personality. He's unapologetically extreme. He talks a lot of shit throughout this book. He has a perspective, a point of view, and he used that perspective, that personality, that point of view to build his company. And so then he talks about this very important extension for his media business where he expands into television and radio.

37:28And the interesting part about this, and it goes against his idea that he doesn't want to buy things. He wants to build them. So one, he didn't want to do television or radio. I think the person had asked him three times. And then two, he realizes, oh, it's actually smarter in this case. I can buy something that I kind of jumpstart this process. And again, it goes back to this flexibility that, you know, he has this goal, this end goal. He has a basic idea of where he's going to go, but he doesn't know how he's going to get there. And he's willing to be flexible every day. So this guy named John Fram calls him.

37:54John was an employee at the FNN. FNN. The FNN was the financial news network. It was a television channel whose parent was in bankruptcy. He told me I should buy FNN. Mike, what you really need to do is get into television. It will create synergies with everything else you're doing. What a dumb idea, I said, cutting him off. My operating principle has always been build, don't buy. Besides, what did I have to do with television? And I think the price of this television network at the time was$200 million. She's like, listen, we're not going to buy. I'm not spending$200 million on this, no matter what you say.

38:24You're crazy. Guy calls him back the next day, starts talking to him as if we're old friends. He suggested now instead of he goes, so you should buy this. But then you also need somebody in-house to develop audio and video programming at Bloomberg. And you should hire me and two other guys to do this. Once again, I said television and radio makes no sense for Bloomberg. And I hung up the phone. A few days passed and then I got another call from him. And as I listened to a longer version of the pitch he made a few days earlier, it occurred to me, One of us is stupid and it isn't him. So I hired the three of them that day.

38:58And so the first thing they do is they start going out and buying radio stations. And then from radio, they start pushing and extending into television. And he talks about this. And again, this is, I think, one of the most important parts of the book. He's got like a lot of these like roundabout ways to get in front of potential customers. I think this is maybe one of the most genius things he's ever done. It's obviously the media component of his business. He says, people often ask me why Bloomberg ventured into radio and TV. was there some hidden motive. And the motive wasn't hidden. The motive was to sell more subscriptions.

39:27That's what his entire business runs on. And he talks about why he has an advantage of doing this. He says, we have the necessary information and the technical know-how. So broadcasting is an easy extension of what we're doing elsewhere. Radio and television provide our company with instant visibility. The media like nothing better than writing about themselves. The more exposure Bloomberg has to the fourth estate, the more they'll promote us to the general public. To reach potential customers who don't yet subscribe to our print products, radio and TV help us get our message out. The people who lease our terminals are part of radio and television's masses.

40:02They need news while jogging, showering, driving, or sitting at home. And we've got to give them what they need where they are. Radio and television simply became another delivery mechanism for the same content. And every piece of content he produces is an ad for the Bloomberg subscription. And he talks about the same idea a few pages later. Again, everything they do increases the likelihood of selling Bloomberg subscriptions. TV stories relate to magazine articles that relate to the computer data. And he's got a great idea on how to pick the person that should lead the project, any new project inside your organization.

40:37As a true capitalist, I've always believed in the market's ability to make efficient selections. In many of our new ventures, we do not appoint a manager at the beginning. We simply throw everyone interested into the deep end of the pool, as it were, and stand back. It becomes obvious very quickly who the best swimmers are. We just watch who people go to for help and advice. And later, when we formalize a management appointment, no one's ever surprised. The leverage we gain from employing creative people and letting them do their own thing is incredible. A few pages later, it goes back again to that idea.

41:09Everything we're doing is just increasing the likelihood of selling more Bloomberg subscriptions. our business is information, not the medium that the information is delivered into. You see, he's already been flexible about this multiple times. Why use all forms of media rather than focus on just one? What business are we in? Some companies declare themselves to be in radio or in television or newspapers and so on. We have a greater vision. Bloomberg is in the business of giving its customers the information they need in whatever form is most appropriate. With all methods are at disposal, we do better.

41:40We create or adopt a new medium. We do not ask our customers to accept less. And then I think this paragraph is interesting because he talks about the necessity for having a lot of self-confidence, having a big ego, but not making sure your ego is not too big. And so he talked about, you know, the fact is he likes, he was a micromanager. He had a really hard time delegating. And so he says, I was there in the beginning and I too think I could do everything better than anyone else. I believe in my design instincts and my sales savvy and my management skills are the best around. Still, my ego does allow for the remote possibility that someone might be as good at one or two little things.

42:15I've admitted there's a slim chance that ideas coming from others could be valuable as well. In other words, I'm the same as every other entrepreneur, but at least I know what I don't know. And then it goes back to this aggressive personality that he has, the fact that he's unapologetically extreme. He considers his competitors as if they're trying to starve his children. Every day at Bloomberg, we face challenges that jeopardize our comfortable life. We constantly have to fight established competitors trying to take food out of our children's mouths. And then there are the startups that want to destroy everything that we've built.

42:49Another thing that he repeats he has in common with Edmund Land and Peter Thiel, this idea that you should not be making Me Too products. Edmund Land says, don't waste your talents on MeToo products. Peter Thiel says don't build an undifferentiated commodity business. Michael Bloomberg says what can we do that our competitors can't? There's no reason to do a copycat product. Consumers can just as easily buy from others. And then he goes back to what he was saying at the beginning of the book that he prefers a lot of these small bets with limited downside and uncapped upside. Our modus operandi remains building from within which avoids the bet the store high risk gambles that often characterize large takeovers such as the disastrous Time Warner AOL deal.

43:26Maybe I'm just not that smart. When I'm looking to expand, I prefer starting with a little capital that we can afford to lose and a few people we can always reassign to other projects. This way, we never feel we've committed to stay with our mistakes, nor are we so overextended we can't handle other additional experimental ventures simultaneously. And so then there's some hints in the book of just this unreal financial performance. Again, I think he was like 98 or he might own 100 % of the business now or like something like 98%. uh even and he was like wildly successful almost from the beginning so a few years after founding bloomberg i think it was in the 90s he was making so much money in cash he was giving away 200 million dollars a year at charity i think uh in the early 2000s he was donating like 700 million a year i think he's given something like over 10 billion dollars a year to like philanthropic uh different like uh like charities and philanthropic endeavors that he was interested in um at the same time scattered throughout the book.

44:22He's got these just like very, again, unapologetically extreme perspectives. This is one of my favorite. He says, since Bloomberg was always up against companies many times our size, we had to enter each commercial fight with an advantage. I don't believe that business battles should ever be even. At Bloomberg, we do not want fair fights. We want to go into contests with an advantage. And so this made me think of, when I got to this section, Jeff Bezos said something that was very similar. So I asked Sage about this. And I asked, like, what did Jeff Bezos say about not wanting to fight a competitor as strong as you are?

44:54And it pulled a quote from one of his past episodes. And it says, when it comes to competition, this is Jeff Bezos now. When it comes to competition, being one of the best is not good enough. Do you really want to plan for a future in which you might have to fight with somebody who is just as good as you are? I wouldn't. Bloomberg is saying the exact same thing. We want to go into all these contests with an unfair advantage. I do not believe that business battles should be even. And then he talks about the importance of persistence, of resourcefulness. He says, most fortunes are built by entrepreneurs who started with nothing and generally got fired once or twice in their careers.

45:27And throughout history, the vast majority of great writers, artists, musicians, dancers, and athletes have come from the less financially secure families. The CEOs of many Fortune 500 companies went to a state university rather than an Ivy League school. The rewards almost always go to those who outwork the others. The time you put in is the single most important controllable variable determining your future. Communists tried to eliminate any form of meritocracy for 70 years, and in addition to wrecking their economies, they starved millions of people to death in the process. And then finally, he has some great advice for the future generations of entrepreneurs.

46:07Periodically, while surrounded by the fruits of our success, the profits, the power, the notoriety, I get frustrated and dream of starting again. But something stops me. Perhaps I'm too old. Perhaps I'm afraid it was all luck. Or maybe deep down inside, I really do like the trappings that have accumulated. Nevertheless, when I find we have to clear it with legal, or had a meeting just to keep others in the loop, or justifying staff versus producers, I want to scream. We used to have the Nike motto attitude. We just did it. Now there's a why we can't lurking in the background. Keeping it from coming out while we grow is our number one management focus today.

46:45What started simple with time has become complex. A single straightforward policy has picked up exception after exception over time. Products have grown to overlap. No one's got an excuse, but everyone's got a reason. This is maddening. Why not just quit then? Chuck it all. Sell the business. Take the money and run. Why not cash in? Play it conservative. Relax. Real entrepreneurs never do, and I haven't either. Real builders are so focused and dedicated they'd have a nervous breakdown after two weeks of sitting around. Their challenge, even their reason for living, would be gone. Why swap fun, influence, challenge, and more money than you could ever spend for only a multiple of more money than you can ever spend.

47:35I can't think of anything better than my current situation. And why would I take the company public? Why would I have to answer to more partners, stockholders, and security and analysts? I know why the investment bankers want me to issue stock, but why would we want to do it? We're going in the other direction. We've already bought back Merrill's 30 % investment in our company. The first 10 % for$200 million in 1996, and the second 20 % for$4.5 billion in 2008. not a bad return on the original investment of about 30 million dollars so why not sell no thanks answering to no one is the ultimate situation so back on the treadmill ratchet up the risk enter a new medium start another project improve develop expand go and that is where i'll leave it for the full story.

48:28I highly recommend reading the book. That is 433 books down, 1 ,000 to go, and I'll talk to you again soon.