Fred Schaufeld doesn’t get the ink or airtime that Ted Leonsis, Steve Case and some other Washington success stories collect. All the same, his story from middle-class Long Islander to centimillionaire is unusually compelling.
Schaufeld started and sold a consumer-electronics warranty company. Made a ton. He bought a piece of the Nationals, Wizards, Capitals and Verizon Center. He and his business partners started an investment firm, Swan & Legend. It owns stakes in José Andrés restaurants, Kind snacks, CustomInk T-shirts, a skin-care company and an education firm.
Schaufeld and Swan even dipped their investment portfolio into Hollywood glitter. They invested in Anonymous Content, a Los Angeles film-and-television production company that manages hundreds of actors, directors and writers, and had a hand in the movies “Spotlight” and “Revenant” (both Academy Award winners this year).
Pretty cool stuff, but as with most people I interview and read about, I found Schaufeld’s formative years as an entrepreneur — when he scraped his way out of obscurity — the most riveting.
Schaufeld’s trajectory was born from his father’s death when he was 20 years old and a junior studying government at Lehigh University.
It left his family broke.
“I had to go to a dean and tell him the situation,” Schaufeld said recently. “They put me on full financial aid and scholarship.”
The event triggered an epiphany.
“When you lose a parent at a young age, you realize that things are finite,” said Schaufeld, 56. “It’s wisdom you don’t wish on anybody. If you’re going to have a chance at something and you don’t take it, you may never get that chance again.”
So Schaufeld ran for election as Lehigh’s concert chairman, giving him responsibility for selecting and producing live concerts at the school’s fancy new 6,800-seat arena.
“The only thing I had to lose was embarrassment,” he said of his candidacy. “I would never have run for that election prior to losing my father.”
He won. And became a businessman overnight.
Because of where the then-new Lehigh venue was located (in east-central Pennsylvania, between New York City and Philadelphia), he said concert promoters flocked to him: “I was in the right place at the right time.”
He hired, promoted and ran logistics for some of the hottest entertainment acts of that era. The Allman Brothers Band, Yes, Cheap Trick, Hall & Oates, James Taylor, 38 Special and even comedian Rodney Dangerfield (one of my favorites) became part of the Schaufeld oeuvre.
“I got to promote every act beneath Bruce Springsteen and the Rolling Stones touring between New York City and Philly,” Schaufeld said.
Hundreds of thousands of dollars were at stake with each show.
“Every time we ran a concert, for the six weeks leading up to that concert, was like the entire life cycle of a business,” he said. “When the talent took the stage and the music started, there was going to be no more revenue.”
It was a business lesson you could not get in a classroom.
He dealt with competing concert promoters, soaking up everything he could about the business. One facilities manager taught him the commercial value of owning or controlling a venue, which stays with Schaufeld to this day in his role as an investor in sports teams.
The manager “really understood the world of rock-and-roll and how the venue puts you in the safest position of any player in the food chain,” Schaufeld said. “When you have assets that are absolutely needed, like an arms dealer, it puts you in a better financial position than being participants in the war.”
Other lessons were less tangible. Schaufeld recalled one livid promoter who lost a bidding war for a James Taylor concert. “ ‘To you this is just fun and games,’ ” he said the promoter told him while sitting in Schaufeld’s campus office. “ ‘But to me, you are taking food out of my kids’ mouths.’ ”
Well, not exactly. Schaufeld recalled that the promoter drove a Mercedes the size of an aircraft carrier: “I realized he had to have that killer mentality to succeed. Just because you are born on third base doesn’t mean you hit a triple.”
Coming out of Lehigh after his years as a mini-mogul, he was hungry for opportunity.
His résumé earned him a coveted interview at ICM, to this day one of the most powerful talent agencies on the planet.
Schaufeld said he was in discussions about a job in the mailroom, the bottom rung where many successful agents and entertainment executives began their careers. But the newly minted college graduate, who weeks earlier was negotiating deals with big-time promoters, thought he deserved something better.
“I had just finished a year of being a big shot,” he said. “I was a college graduate. I told the [ICM] receptionist that. Her response was, and I quote, ‘Then you ought to be able to read the Zip codes.’ I let my ego get in the way.”
He wouldn’t make that mistake again.
Schaufeld moved in with his sister and mother in Washington and answered a Washington Post ad for a commission sales job that paid “$50,000 to $100,000 a year.”
He sold extended car warranties to dealers in the region, earning $35,000 his first year. Schaufeld bought a new Fiat, rented an apartment in the District and enrolled in American University law school at night.
He quickly saw how some warranty companies made money by underpaying the claims and pocketing the rest of the money. He also realized there was a good business behind warranties if you wanted to take the time to do it honestly and efficiently, without pressuring the customer.
He decided to apply the model to the consumer-electronics industry, where people bought insurance to cover breakage or malfunctions on their Nintendo Game Boys, power drills, microwave ovens, printers and television sets.
Many customers disliked the high-pressure sales from retailers such as Circuit City. And when they brought the products back for repairs or replacement, the customers were often disappointed to learn that a particular repair wasn’t covered.
His business plan was simple.
“We covered anything that could go possibly wrong,” he said. “It was a novel concept. If it was done right, you create a lot of happy customers.”
And happy investors.
At just 23, he incorporated in 1983 under the name N.E.W., for National Electronics Warranty Corp. The company eventually parked itself in Dulles, Va., where it became the biggest independent provider of extended-service warranties for thousands of consumer products, backing sales at giants such as Walmart and Best Buy.
A Boston private-equity firm took notice and bought a big chunk of N.E.W. Customer Service Cos. in 2006 for $1.2 billion — making Schaufeld wealthy enough to invest in sports teams and Hollywood blockbusters.
“We made a lot of millionaires in Virginia,” said Schaufeld, who admitted that he had a lot of help in the business from friends, relatives and partners. “We paid for a lot of houses and college educations.”
Going to college is important, but as Schaufeld can attest, not all the learning happens in the classroom.