We had the rare opportunity last week to sit down at 1871 with Joe Mansueto, the founder, and CEO of Morningstar, for a fireside chat. Having known Joe for more than 30 years now, and given the astonishing growth and success of his various business ventures, I’m always amazed at how modest and accessible he remains and what a great booster of Chicago and its entrepreneurs he has always been.
When we finally wrapped up our own conversation, he made time to chat with more than a dozen of our member companies, to answer their questions, and pose for a few selfies as well.
In fact, when I had asked him earlier in our conversation about how he came to acquire INC. Magazine and Fast Company (eleven years after starting Morningstar) which seemed at the time like such traditional, old-line, media properties, he said these were personal investments and that he had decided to do the deal (which was completed in about 30 days) because he believed so strongly in the missions of those magazines (both of which had been languishing under their prior ownership) and he wanted to help make them grow and prosper. He smiled and pointed out that his wife said at the time “at least he hadn’t bought a sports team” although, in retrospect, it seems like that might have been a better financial investment.
We covered a lot of ground in our chat (including the fact that the name Morningstar came from the last line in Thoreau’s Walden), but there were a few of Joe’s observations and comments that were somewhat surprising and really stood out for me. Here are the 5 that I think are valuable for every entrepreneur to keep in mind.
(1) He’s Still Solo
While he regularly makes outside investments with a group of other investors for his own personal account, he made it clear that – even in this day and age when everyone is looking for strategic partners, joint ventures, and hoping to use OPM – when it’s his own business, he prefers to own 100% of the opportunity and go it alone mainly for two reasons: (a) to avoid conflicts and different agendas or inconsistent views on how to move the business forward sometime down the line, and (b) because, if you’re all-in, the rewards (when they’re there) are much greater than if you hedge your bets and share the risks, but (by doing so) limit your upside which then has to be shared by co-investors and partners.
(2) He’s Still Selling
When I asked him if he still believed that mutual funds were the best investment vehicle for 90% of the investing public, he said that – as the CEO of Morningstar which tracks fund performance – what else could he possibly say? Of course, he also invests directly in stocks which he says he does because it’s fun. I asked him for some investing tips and – with appropriate disclaimers - he went on to talk about what he looks for in companies and investments and – highest on his list – were businesses with sustainable competitive advantages (if there’s any longer any such thing these days) including effective barriers to entry or “moats” as he called them which made the companies’ market positions defensible. Examples he cited included high switching costs, strong brands, patent protection, etc. (See http://www.inc.com/howard-tullman/to-keep-your-customers-build-more-moats.html.)
(3) He’s Still Scared
Taking a page from Andy Grove’s preaching on paranoia, Joe said that when he is looking at new businesses, he always asks himself the question: “how is Amazon not going to kill this business?” As we have all learned, it’s not about how you start the race that matters, it’s how the race ends up that separates the winners from the crowd of wanna-bes. It’s great to invent something new and be the first mover, but you’ve got to keep looking over your shoulder for the fast followers running right behind you and make sure that you have a plan to keep ahead of the pack. (See http://www.inc.com/howard-tullman/first-mover-advantage-maybe-but-be-smart-about-it.html.)
(4) He’s Still Hiring
I was a little surprised to hear that – even with all of his other responsibilities - Joe is still actively involved in doing college recruiting for the company. I’ve said before that I’m not even sure that most CEOs should be doing any hiring for their businesses, but he says that there’s nothing more important to the future of Morningstar than attracting and retaining top talent. I agree with the goal – my issue in many cases is with the guy or girl doing the job. (See http://www.inc.com/howard-tullman/how-to-make-smart-hires-even-if-youre-a-ceo.html.) Just like everywhere else in life, it turns out that the best person in the business isn’t necessarily the best person for a specific job or for every job. (See http://www.inc.com/howard-tullman/bring-back-the-peter-principle-please.html.) Of course, I’d be happy to have Joe doing the hiring for me any time.
(5) He’s Still Strategic
When I asked him about his role as CEO and especially what his priorities are right now (and whether they’ve changed over the years), he said he was focused on 4 areas. Talent, as noted above. Culture and creating an environment supportive of his people and conducive to their doing great work. Allocation of capital among competing priorities. And, top of the list, strategy, which, of course, is a critical determinant of all of the others as well. If you get the strategy and the values of the business right, the execution – while no less challenging – is at least a little easier to pull off. Strategy in cases like this is as much about saying “No” to things as it is about embarking on new initiatives. I got the impression that setting the course and then stepping back and letting his team get the job done was the basic philosophy which had clearly served him well.
As we wrapped up, I asked Joe about how strongly he relies on market research, focus groups, and other third party tools and input in evaluating and determining whether to launch new products. He said something that should ring true for every entrepreneur who’s ever had to overcome the “wisdom” of the crowd or the mediocrity of the marketplace. He said – and I’m paraphrasing here - the next great American novel (or next great business) won’t be written by a focus group or a committee, but by a committed and passionate individual writing from the heart and not for the herd. Thoreau couldn’t have said it better.
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