FT: The reflective route to success

The reflective route to success

By Richard Waters

Published: April 30 2008 03:00 | Last updated: April 30 2008 03:00

Never undersell yourself. That was the first business lesson learnt by a young Pat McGovern, at the time an undergraduate at Massachusetts Institute of Technology. More than four decades later, it is one of a handful of basic business principles, followed with uncanny single-mindedness, that has enabled the 70-year-old Bostonian to build one of the publishing world's biggest fortunes.

Mr McGovern, who had landed a job with a computing magazine in the early 1960s, had gone to meet the head of one of the biggest computer makers of the day. His interviewee asked him to carry out a census of the technology used by the rudimentary information technology departments - something the would-be journalist agreed to do for him for $40,000.

"He said, 'Pat, you don't understand - nobody would believe and use information as cheap as you're proposing to provide it. Double your price, make it $80,000, and then people will take it seriously'."

The next tip was equally valuable. Do not work just for one company: sell the research to other computer makers as well. He followed the advice, asking would-be customers for a 50 per cent down payment - and within days found himself with nine $40,000 cheques.

Mr McGovern, founder and chairman of International Data Group, has made a habit of listening to what his customers say. It may be a classic business truism but few have pursued it so rigorously. His biggest mistakes, he says, have come from not listening to customers closely enough - and from over-extending in pursuit of new markets (see below).

IDG, the private company in which he owns 80 per cent of the shares, produces revenues of $3bn and has become, among other things, one of the leading foreign media concerns and venture capitalists in China.

The sheer range of those operations - IDG comprises more than 100 separate businesses - is a testament to an approach perfected early on. Following his customers and researching the next big markets has freed Mr McGovern from one of the most common traps in business: clinging too long to one successful idea or geographic region, even as markets change.

His first market research business brought him into contact with the IT managers who were to become his next customers. Talking to the users of technology on behalf of the computer makers, he quickly found they had a burning need to understand how their counterparts were using technology. That led to a magazine for the fledgling industry, Computerworld.

Having defined his business aim as providing education about technology (it was Thomas Watson of IBM who told him there would be great demand for this), it was only natural to expand into conferences and other events, which now make up a quarter of revenues.

With its roots in market research, IDG also set about analysing where future markets would lie. The result: in 1972, after only eight years in business and with about $20m in revenues, IDG began launching technology magazines internationally, starting with Japan and working down the list of the world's biggest economies. By 1980, Mr McGovern had alighted in China - at a time when others were still treading carefully there.

"[Other US companies] brought along three staff people, a lawyer and an accountant, and they started negotiations - so of course the Chinese brought out their staff and it took three years," he says. "I came over by myself, as the founder, and I was ready to do a deal. What happens is [the Chinese] will produce the president at your level. If you have the CEO come over, they'll have the head minister come."

All this was made possible by a financing model that most entrepreneurs would envy. From those first nine cheques for advance payment, all IDG's businesses have involved collecting revenue before incurring costs, producing enough cash flow to save him from looking for outside capital. (The only up-front investment came from the sale of his car for $5,000, he says.)

Mr McGovern says another principle has served him well: when a business starts to get too big, break it into smaller units, hire and motivate others to lead the new operations, and step back.

"The importance of speed to market really occurred to me back in 1969," he says. "I'd been away for a couple of weeks, and there was a big stack in my in-basket. People were waiting for me to approve a personnel hire, or buy some new office equipment, or something."

Many entrepreneurs find it hard to take the logical next step and delegate, but it seems to have come naturally to a man who cultivates an unassuming manner.

"All of those management books are written about how you, as the manager, are the key person controlling everything: you're a master strategist," he says. "It is great for the ego of the book buyer, but in reality, you can see that the best returns on capital are not achieved by bigger companies. They are achieved by venture capitalists, who are always starting small, passionate companies."

The aspiring publisher quickly adopted the same approach for developing his own businesses. "It became my new philosophy: find a market, get a leader, give them the resources they want, then get out of the way and be a cheerleader."

Perhaps it is not surprising that this business style has led Mr McGovern into venture capital itself, turning IDG into one of China's most successful start-up investors. It began almost by chance. With the early success of the Chinese version of Computerworld, "our immediate profits [in China] were growing faster than we could find things to invest them in in the media business," he says. So IDG did the next logical thing, using the surplus to back internet and media entrepreneurs who were finding it hard to raise capital.

The $400m that IDG put to work in nearly 200 start-ups has since returned $1.6bn, Mr McGovern says. That has drawn the attention of other foreign investors and IDG is now looking to expand its Chinese investment funds to include later-stage and buy-out funds.

Others in his position would have retired to the golf course long ago, but Mr McGovern is still looking for business opportunities. He says he will continue until 2020, when he plans to focus full-time on philanthropy.

"I think the Buddhist statement that the journey is the reward is very true," he remarks. "When you're doing something you're proud of and happy to do, you're having a great time. When you reach the destination, depression sets in because there's nothing more."

Take the cues from your customers, not your competitors

Pat McGovern believes it is when you stop listening to customers and start taking your cues from competitors that things go wrong.

"When we presumed our competition knew what the market wants and we imitated them, we typically had problems," the founder of IDG says. Yet listening to customers alone is not enough: poor market research can blind a business to its own customers' wishful thinking.

That was the case with IDG's venture into television in the early 1980s, a move welcomed by the publisher's traditional print advertisers. Those customers, however, had not taken into account the full cost of making television ads and quickly backtracked, leaving the venture high and dry. The first technology bubble at the end of the 1960s also brought a sobering lesson in the need to look beyond customers' immediate demands. At the peak, Mr McGovern says he came close to expanding Computerworld from a weekly to a daily publication - a move that could have saddled his young business with massive overheads.

"Our business was growing 20 per cent a month for a year - and then it dropped 20 per cent a month for a year," he says. "Don't expect these things to last, and don't make any large permanent capital commitments."

That was a lesson that Mr McGovern himself failed to heed in another technology bubble, at the end of the 1990s. The Industry Standard, IDG's internet magazine, went from boom to collapse as fast as the industry it covered.

"We went from [revenues of] $25m to $200m in one year, and then we built in $120m of fixed costs. Then the next year, revenues went down to $60m. We still had the $120m of fixed costs - it was an impossible situation."

Copyright The Financial Times Limited 2008