Business's Bold New Face
Washington Post Staff Writer
Monday, April 27, 1998;
Take a careful look at the nine faces on this page: They represent a changing of the guard in Washington business. They're young, most in their forties. They're building new businesses on the cutting edge of technology and finance. They're having fun just look at those smiles. And why not? They're creating wealth on a scale this region has never seen.
Consider this fact: The median net worth of the entrepreneurs pictured is roughly $200 million, with the individual fortunes ranging from $15 million to $780 million.
These nine people embody a revolution that is transforming the business culture of Washington. The old business leadership names like John Hechinger in hardware, Izzy Cohen in the grocery business, Joe Allbritton in banking, Oliver Carr in real estate grew handsomely with the region. Their Washington was a comfy, sheltered market a place to do good business and make solid if unspectacular profits.
But that old world is giving way to an aggressive new group of entrepreneurs who are closer emotionally to the turmoil of Wall Street and Silicon Valley than to the green lawns of the Chevy Chase Club.
The members of the New Guard wear open-neck denim instead of starched white shirts. For them, business is a thrill ride, rather than an afternoon of golf. They're risk-takers, whose fortunes have come from selling stock in their companies during the bull market of the 1990s. Security bores them; they like living on the knife edge of change. And much as the entrepreneurs of Silicon Valley transformed their world a decade ago, these new tycoons are turning the local business scene upside down.
These nine were selected by Washington Post local business reporters as representative of the changing business culture. And there are several dozen others who've built businesses ranging from biotechnology to systems integration who could join the list.
To understand our new business community, consider how these nine people have ridden the tidal wave of change to create their amazing success stories:
In 1980, a black entrepreneur named Robert L. Johnson raised $500,000 in seed money to finance his dream of a cable network for African Americans. Today, Black Entertainment Television is worth roughly $1.2 billion. As Johnson prepares to take the company private this summer, his share will be worth about $780 million, he says.
The simple secret of his success, Johnson says, is that "our business grew with the new technology" of cable and satellite television.
Johnson's quandary, one shared by many of his New Guard colleagues, is deciding what to do with his money. "You know you can't die and take it with you," says the 52-year-old executive. "You know you can leave your kids comfortable and still have a lot left over. What do you do with it?" One possible answer: Help endow a museum on the Mall to remember slavery and black people's triumph over it.
Another local visionary is Steve Case. Back in 1985, he foresaw the commercial possibilities of what became the Internet. He began by creating online services for larger computer companies, and then launched his own brand, America Online Inc. When AOL went public in 1992, it had just 200,000 subscribers and about $30 million in annual revenue.
Today, AOL has more than 12 million subscribers; its revenue tops $2 billion. The stock price has soared as the company has grown and AOL today is worth more than $15 billion. Case, 39, says his own share is roughly 2 percent putting his net worth at more than $200 million.
"One of the benefits of having done this for a while," says Case, "is that you realize it's a bit of a roller coaster. You try to normalize the highs and lows. When people are putting you on the cover of magazines and telling you how smart you are, you take that with a grain of salt because you know that a year from now, they'll be saying how dumb you are."
The man building the infrastructure of the information superhighway laying the cables and connecting the computers is John W. Sidgmore. Like Case, he was early to see the implications of the Internet, and he turned UUNet Technologies into a billion-dollar company in the space of a few years.
When Sidgmore took over UUNet in 1994, it was a small company with just $6 million in revenue. Now, the total is more than $1 billion. Along the way, UUNet was acquired by WorldCom Inc., which also is trying to buy local telecom giant MCI Communications Corp. Sidgmore, 47, says his own net worth is roughly $130 million.
"What drives me and Steve Case is that we're creating something new," says Sidgmore. "You get this tremendous intellectual stimulation from doing something no one has ever done before. There's a thrill-ride effect you get from being in an environment that's growing so fast."
Jeong H. Kim, 37, is the high-tech version of the classic immigrant story. He arrived with his family from Seoul when he was 14, braved the taunts of classmates who said he looked and talked funny, and worked all night and weekends to help support himself. He studied electrical engineering at Johns Hopkins University on a scholarship, then spent seven years as a submarine officer in the Navy. When he got out, all he wanted to do was start his own company.
Yurie Systems Inc. (named for Kim's eldest daughter) sells electronic hardware that allows faster communication between local-area networks and the broader Internet. Just three years after selling its first product, it is now the leader in that market, Kim says. The company went public last year, and Kim says his 50 percent share is worth about $380 million.
"So many people have done better than I," he says modestly. "I work hard, but I'm not the smartest. I listen harder. I listen really hard."
Washington's leading turnaround artist may be Stephen M. Wolf, chief executive of US Airways. When he came to the airline just over two years ago, it was in a nose dive toward bankruptcy. He worked to improve employee morale and performance boosting it to a No. 1 rank among the largest carriers last year in on-time arrivals and baggage handling and Wall Street began to pay attention. The company's market capitalization (a measure of its stock price times its shares outstanding) soared from $793 million when Wolf arrived to $8.1 billion today. The value of Wolf's US Airways stock options is $85.6 million, but industry experts estimate that his net worth is at least double that.
US Airways capped its comeback with an announcement last week of an alliance with industry leader American Airlines that eventually will treat their respective routes as a single airline. The best thing about the turnaround, says Wolf, 56, is that he no longer feels sheepish about telling people where he works.
Katherine K. Clark also had to become a turnaround artist to keep Landmark Systems alive. She founded the company in 1983 to sell a special software product that helped monitor the performance of mainframe computers. By 1990, revenue had risen to more than $30 million. But when the mainframe market began to collapse, Landmark Systems fell, too. Clark, 41, had to lay off longtime employees an experience she describes as "awful" and she ran losses for four years.
But Clark reinvented Landmark Systems' product line so that it could be used with network servers and PCs. Last year, revenue had climbed back to $43 million and Clark forecasts it will top $50 million this year. The company made a successful initial public offering of stock last year, and Clark says her share of the company is now worth roughly $15 million.
Clark's biggest eccentricity may be her voice-mail messages, which change regularly. Last week's message began: "Great minds discuss ideas. Average minds discuss events. Small minds discuss people. This is Kathy and you can leave me a confidential message at the tone."
Clark's all-time favorite voice-mail message was this quote from Bill Cosby: "I don't know the key to success, but the key to failure is trying to please everyone."
The hottest hand in local real estate is Joseph E. Robert Jr. His privately held firm specializes in complex transactions such as purchase and management of nonperforming commercial loans and other arcane areas of real estate and he isn't well known to the public. But industry experts rate J.E. Robert Cos. as one of the country's most sophisticated real estate operations competing with huge Wall Street firms such as Goldman Sachs & Co. and Salomon Smith Barney.
Like most of the New Guard, Robert, 46, encountered bumps along the way. He was kicked out of college, fired by his own father 17 years ago (they've long since reconciled) and lost a big chunk of his company's assets in the 1987 stock crash. But in recent years, it has been smooth sailing, indeed. Robert says that in its 17 years, his firm has averaged more than a 30 percent annual return on capital, and over the past six years, returns of more than 60 percent. The firm typically invests about $2 billion a year, and it currently manages a portfolio of about $2.5 billion.
Industry experts estimate Robert's own net worth at roughly $250 million. Despite his wealth, Robert says, "I am just as filled with anxiety, ambition and fear as I was 10 years ago. . . . There's still that lingering, gnawing fear that you could be back where you started."
Jonathan Ledecky made his fortune by creating a new kind of business the "roll-up." His flagship U.S. Office Products Co. rolled about 220 small, family-owned office products companies into one giant $4 billion firm.
Ledecky, 40, loves to recite the Horatio Alger details of his story: how he struggled unsuccessfully for five years to interest local investors in his concept; how he stayed afloat by maxing out a string of credit cards; how he was turned down by 40 investment banks before finally finding an underwriter for his IPO; how he got mutual fund giant Fidelity to invest because he once dated the fund manager's sister. It's a great tale, and it ends with great success. Ledecky estimates his net worth at about $200 million.
Asked what dating is like for a bachelor with $200 million, Ledecky answers: "I go to parties and women ask, 'Jon, what do you do?' I say, 'I sell office products,' and the women leave. I'm trying to find the woman who will stay and talk to me."
A final example of Washington's arrival as a financial center is Emanuel J. Friedman, the chief executive of Friedman, Billings, Ramsey Group, the Arlington investment bank. He and his partners founded FBR in 1989 with $1 million, mostly borrowed. The firm specialized in structuring complex financing arrangements for thrifts and, later, high-tech companies. Today FBR is valued at more than $1 billion, with Friedman's share worth about $200 million.
Friedman says the secret of business success is to "get the powerful trend right. In this market, the powerful trend is the explosion of communications and technology companies."
But Friedman, 52, cautions against the hubris of the region's recent success. "Let's not get too carried away with this 'new elite,'‚" he says. "If you're at the right place at the right time, you get lifted up. If people think they got it by being geniuses, they're fools. All of us got very lucky."
What a change from the old days.
Until the 1980s, Washington business was largely a family affair. It was dominated by a series of well-run, family-managed companies Hechinger, Giant Food, Riggs Bank, Carr Real Estate, Marriott, The Washington Post. They were generally good places to work with the paternalistic management style of family-run companies and they made good money. Washington was prospering, and local companies grew with the region.
The old Washington was a sheltered world, at least in business terms. Retail competition wasn't as intense here as in some parts of the country, and margins were high. Companies could make good profits without being lean and mean. Wall Street, with its huge risks and equally huge rewards, was far away.
"I've always viewed Washington as a slow-track relative to other big cities," says Rick Hindin, chief executive of Adworks, a local advertising agency. "You only needed to be a little faster a little fast horse and you could win big."
Joe L. Allbritton, 73, chief executive of Riggs National Bank, remembers when he arrived here in 1973 from Texas. He bought a venerable newspaper, the Washington Star, and later the most prominent bank in town, Riggs. "You didn't have to be an Einstein here to make a profit," he says. "I found it a very soft landing."
In those days, Allbritton recalls, the local banking establishment would repair each year to the Greenbrier, a grand old resort in West Virginia, to play golf and divvy up business for the coming year. Allbritton concluded that the Bankers Association "just didn't make sense in a competitive world," and resigned. "Candidly," he says, "the competition, while not easy, was not difficult."
The dominant retailer in the Washington business was probably Giant Food Inc., a quirky but highly profitable grocery chain. It was run for decades by Israel "Izzy" Cohen, who managed it like his own family.
Cohen, who died in 1995 at the age of 83, liked to do as much as possible in-house, including advertising, milk production, even store design even as other companies were moving to cut costs by outsourcing. He was a leader in adopting new technology in the 1960s and '70s, but lagged in later years.
"If Izzy were alive today, he might not like some of the changes, but he would embrace them because he wanted to see the company he founded perpetuate itself into the future," says Pete L. Manos, 61, Giant's current chief executive.
Other Old Guard companies are also adapting to the new business world.
Take the Oliver Carr Co., perhaps the most famous name in local commercial real estate.
Carr has prospered by breaking out of the old Washington insularity transforming itself into CarrAmerica Realty Corp., a real estate investment trust with national reach. At the end of 1994, CarrAmerica owned 16 office buildings in just one market, Washington. Its market capitalization back then was $582 million. By the end of 1997, CarrAmerica owned 255 office buildings in 16 markets. Its market cap had grown to $3.6 billion.
Another company that has brilliantly adapted to change is Marriott. It used its Washington base almost as a business laboratory, growing with the region and experimenting early, in the 1950s, with building hotels in the suburbs. From this base, the company expanded to all 50 states and 53 foreign countries. "We sort of used Washington as a model to expand to the world," says J.W. "Bill" Marriott.
Marriott prospered by understanding Wall Street. Recognizing that the market was punishing public hotel companies that owned real estate, Marriott in 1993 split into two companies: one that operated the hotels and another that owned the real estate. A third company, managing the Marriott catering business, was spun off later.
This sophisticated business strategy has made the Marriotts very rich. The value of their stake in the combined businesses has grown from $200 million in 1990 to $2.5 billion today, Marriott estimates.
"We haven't changed our lifestyle," says the 66-year-old chief executive. "I still work 70 hours a week trying to grow the business."
That love of business is what characterizes Washington's most successful executives, Old Guard and New. They do what they do not for the wealth it brings, but for the excitement and satisfaction. They talk about their work the way writers or artists do and they seem to lose themselves in the pleasure of creating new things.
Joe Robert likens the intensity of his work to when he was a kid playing basketball. He'd get to the court first thing in the morning, and stay all day until the sun went down. "I feel the same way about business."
The New Guarders say their lifestyles haven't changed that much now that they're rich. Sidgmore still lives in the same house he bought eight years ago. Ledecky still drives the same 12-year-old car, lives in the same house and wears the same Timex watch. Wolf, who was already wealthy before he came to US Airways, reckons he'll end up giving away all the money he has made there.
"You don't have time to think of net worth," says Kim. "It's all paper money anyway. . . . Most people who are successful are so because they like what they do. Money comes as a side benefit."
To be sure, it's nice to have money. Sidgmore bought a house for his parents. So did Ledecky and some of the others. And there is, as Bob Johnson says, "a certain peace of mind. . . . You know if the furnace goes, you can pick up the phone, and if they say it's $6,000, you can say: 'Fix the thing.'"
Asked what he does for fun, AOL's Case answers: "I go to McDonald's and get the Happy Meal." Try again. What about sports, he's asked, but Case is still dismissive. And it becomes obvious that his sport, his fun, is his business.
"I have decided not to focus on golf," he says "because it seems that once you focus on it, you become obsessive. And I don't have time for any additional obsessions. That's the time you should short AOL stock when you read I've taken up golf."
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