BC Business
Lessons from losing
How many times are you going to rewind that moment? What you said. What they said. What you could have said. Maybe if you could just talk it out with someone who would understand, someone else who has lost, and lost big time.
Maybe the retailer who lost The Bay or the adman who lost Sharon Stone. The politician whose defeat sank a political party or the investor who could have owned Canada’s largest tech company. What would they say about loss and the lessons they’ve learned?
You might be surprised. This was the day you lost. The promotion. The client. The job. Maybe everything you’ve worked for – for how many years? Gone. Maybe you sucked it up and didn’t betray how you felt when you saw it go, in slow motion, in that crystalline instant you knew.
Today philanthropist Joseph Segal is chair of the investment firm Kingswood Capital Corp., Member of the Order of Canada and Chancellor Emeritus at SFU. But in 1979 he was just Joe, a discount retailer entering the big time.
Segal was flying into Winnipeg to buy Hudson’s Bay Co., but he had a problem. He’d taken over Zellers Inc. three years before and had turned the company from a near-bankrupt $300-million loser to an $800-million success; the Bay shared the same kind of problems as Zellers had, and Segal was sure he knew how to turn around HBC too.
The problem wasn’t money. Segal had been buying HBC stock secretly through a Montreal broker for the past few years and now owned virtually all outstanding shares, about a million of them. He’d arranged a meeting with the chair of the Bank of Montreal for a $400-million loan to complete the deal for majority ownership. The chair had said, “Joe, you’ll need $500 million” – and he’d given it to him.
No, the problem was that Segal’s wife, Rosalie, didn’t want to move to Toronto. (While HBC heralded Winnipeg as the “traditional” headquarters, the company was managed nationally from Toronto.) Up to that point, Rosalie had been at his side in all the major business events of his life, including when he managed to secure Zellers in a New York City court auction and when he flew to Montreal to take over the company. The deal closed on the day the Parti Québécois came into power. Segal says that at that moment he questioned the wisdom of buying Zellers in the first place: “We felt like outsiders and we hadn’t even landed yet.”
As it turned out, it wasn’t the francophones, it was the anglophones – the Eastern establishment, the people from the best schools with the best manners – who ran the Zellers head office and who shut him out of their society. Segal didn’t really care – he had a company to turn around. But it was hard on Rosalie. She always had social flair and was a natural-born hostess, and three years splitting time between Vancouver and a hotel in Montreal – disconnected from friends and family, long days alone and eating in restaurants – had been a lot to ask.
Segal, on the other hand, saw the Bay as “a great opportunity” financially. Not only that, it was Canada’s most prestigious retailer – “the oldest continuous capitalist corporation in the world,” according to Peter C. Newman. HBC’s warehoused ship logs, journals, ledgers and diaries – 68 tonnes of archives – reached back more than three centuries. Taking charge of Hudson’s Bay Co. wasn’t bad for a boy from Vegreville, Alberta, who, at 14, began peddling frozen fish door-to-door to help the family after his father died.
Now in the Bay’s Winnipeg offices with his lawyer and senior company executives, including the Bay’s governor (other companies have CEOs; HBC has governors), Segal was faced with his choice – lose the deal or lose the next few years with Rosalie. When the governor asked him, “Why don’t we take you over?” Segal seized the opportunity and let the prize go. “I don’t care who takes over whom,” he said. “I just want to see these companies come together.”
John Buchan, the governor general of Canada in the 1930s, said the Bay was “a kind of kingdom” that needed a statesman to run it. Segal knew he was just the man to do it – the only Canadian with the finances and retail know-how. Now he had given up the chance. He would never be The Man Who Bought the Bay. Still, he knew he was right. He tried to explain – to the Bay’s executives, to the governor – that it would cost them more if they waited, but they bought only 50.1 per cent, the barest majority of Zellers stock, at $12 a share. Less than a year later, they would pay $19 a share for the balance – a mistake that earned Segal millions more.
It was the only time Rosalie Segal ever asked her husband not to buy a company. Segal lost the Bay – but profitably. His lesson: life with Rosalie was worth more than the “kingdom.”
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Grace McCarthy and the lost election
Grace McCarthy is the chair of CHILD, the Children with Intestinal and Liver Disorders Foundation, and the grand dame of B.C. politics. She served in Social Credit cabinets from 1966 to 1988, including as deputy premier. In the 1970s, after the defeat of W.A.C. Bennett, a provincewide McCarthy-driven membership campaign was credited with reviving the Socred party, but the end of her political career was a grim, wintery affair.
McCarthy clutched the podium. “I won’t be sick, I won’t pass out,” she told herself. Here she was in Matsqui – in the middle of January 1994, fighting snow, rain and sleet, not to mention pneumonia and, worst of all, her own party, the party she was supposed to be saving.
Holding tightly, she tried to share her vision with the small crowd, the vision she had first articulated in the Social Credit leadership campaign – the one she lost three years earlier in 1991 to Rita Johnson, the one that would have made McCarthy the first woman premier in B.C. Every child in B.C. could have access to a computer, she said, not just children of wealthy families or students in well-off school districts. She assured the crowd the province could afford it. The province could be the educational leader of North America, of the world.
But this byelection campaign wasn’t about vision; it was about tactics. Running here hadn’t been her idea, after all, but that of her advisers. When the party collapsed after Johnson’s defeat in the ’91 provincial election, McCarthy had been voted the Socreds’ new president. Her goal was to rebuild the party just as she had once before, after W.A.C. Bennett’s defeat in 1972 – but when the Matsqui byelection suddenly came up, she was encouraged to run to gain a seat as leader in the legislature.
Meanwhile, the party was splintering around her. Within the year, five Socred members would cross the floor to join the new (and now forgotten) B.C. Reform Party; others loyal to former premiers Johnson and Bill Vander Zalm angrily plotted to move Socred votes to the Liberal candidate. McCarthy was cast as a parachute candidate, slick and politically ambitious. When a reporter asked her if she’d live in Matsqui if she won the byelection, she had said no. Though she wasn’t going to leave her home in Vancouver, she could’ve been more the political operative she was cast to be – talk about a summer home there, emphasize the constituency office, anything. But flu and queasiness had taken their toll.
On election night, McCarthy and her staff watched the local TV news from a Matsqui motel boardroom as it was reported she had lost to the Liberal candidate by 55 votes. It was better than most politicos had predicted, but a defeat nonetheless. Politically, it was the last stand for McCarthy and effectively the end of the Social Credit party in B.C. You might expect bitterness, defiance or resignation, but instead McCarthy felt liberated from the past and unburdened by the expectations of her political future. She left the motel basking in a sense of freedom, a kind of bliss.
Driving into Vancouver, McCarthy and her husband stopped for lunch at one of her favourite restaurants, Dario’s La Piazza Ristorante in the Italian Cultural Centre. As she entered, a woman at one of the tables recognized her and stood, applauding. Waiters turned, kitchen staff leaned through the doors to see what the commotion was about, and in a moment, the entire restaurant was on its feet in ovation. Politics and the Social Credit party had once meant everything to McCarthy, but as she was ushered to her table at Dario’s, she began to understand the gift of losing. She was free now to imagine any life she wished.
Mike Volker and the lost agreement
Michael Volker, 60, is a high-tech entrepreneur and investor involved in the development of technology-based businesses. He founded the Western Universities Technology Innovation Fund, manages the Vancouver Technology Angel Network and has been director of SFU’s Industry Liaison Office since 1996. But in 1988, he was an angel investor in Waterloo, Ontario, looking for tech companies that needed money and mentors.
When Volker recently mentioned to an associate that he’d found “the agreement” in some old files, the associate expressed skepticism. Then, a few weeks later at a board meeting (Volker sits on a number of boards including Plutonic Power Corp. Inc., Visiphor Corp. and GraphOn Corp.), Volker took the 20-year-old document from his briefcase and passed the single piece of paper across the boardroom table. There it was, like a map to King Solomon’s mines. Everyone at the table looked on, amazed.
Volker was 25, an engineering graduate from the University of Waterloo, when he founded the computer terminals company, Volker-Craig, in 1973. He sold the company quite profitably eight years later and remained active at the university, where he would later serve as its governor for six years. Volker liked the role of angel investor and began investing in (and advising) other high-tech startups. Then as now, the tech community around Waterloo was like a mini-Silicon Valley, attracting some of Canada’s most innovative and entrepreneurial talents, so Volker had a lot of possibilities to choose from.
One of the startups that caught Volker’s attention in 1988 was a little tech research company working out of offices in a strip mall above a 7-Eleven. The company was still a long way from product development, but Volker liked its management, particularly its young founder and president, who had dropped out of the University of Waterloo to run it. Most angel investors will tell you it’s the people as much as the product they invest in. Not surprisingly, the young company needed investment capital and marketing experience, which Volker agreed to provide. The company had a valuation of about $200,000 and the one-page agreement they signed gave Volker 15 per cent of the company in exchange for $30,000 and marketing expertise.
The same year, Volker decided to move his family to B.C. to become the executive director (later chair) of the B.C. Advanced Systems Institute – an organization designed to invest in and nurture technology development on the West Coast. The move meant, however, that he could no longer offer the hands-on advisory role he’d agreed to provide the startup. At the same time, the young company won a contract that came with a substantial advance, and most of its employees agreed to take stock options, so the need for cash was no longer desperate. Volker and Mike Lazaridis, the company’s president, decided to allow the agreement to lapse.
That’s why today Volker owns an astonishing piece of paper and not 15 per cent of Research In Motion Ltd. (RIM) – now valued at over $75 billion and one of the largest and most successful companies in Canada.
Volker is blessed with the vision shared by most investors: they keep their eyes off the rear-view mirror. About RIM, he now says, philosophically, “It shows the potential of the market. You never know which product will be successful.”
As the result of his choice to move to B.C., he’s a wealthy man whose investments include such winners as Sierra Wireless; he’s a large player in a smaller but increasingly growing high-tech community in B.C.; he’s had the satisfaction of assisting countless other entrepreneurs and new tech break-outs; and he’s raised his family in the climate and social environment he wanted – all in all, nearly anyone’s definition of success. For him, RIM is the loss that proved money isn’t everything, and certainly not the only thing.
He allows, however, that sometimes just seeing a BlackBerry can raise the hair on the back of his neck.
David Martin and the lost campaign
David Martin opened his Vancouver-based agency, Hyphen Communications Inc. – the agency of record for the 2010 Olympic Winter Games – in 2004. Earlier in his career, in 1993, Martin was 32 and working for the now-defunct Toronto ad agency, Scali McCabe Sloves, as associate creative director for Labatt Breweries.
Martin was on the phone with David Fincher in Los Angeles, explaining the importance of keeping secret the television commercial they were discussing for a new ice beer. Fincher had recently directed Alien 3 and previously had directed videos for Madonna, Aerosmith and Michael Jackson. (Later, he’d direct Fight Club, The Game and Se7en.) He was hot. Just getting a conference call was a coup.
Martin told Fincher he had spoken about the TV commercial script with Sharon Stone some weeks before. Stone had become a star the previous year in Basic Instinct; she’d seen the script (based on her famous leg-crossing scene in the movie) and had agreed to do Martin’s commercial for a half-million dollars. In the commercial, Stone would talk directly to the camera and would presumably seduce beer drinkers just as she had Michael Douglas. Fincher had some other ideas. He saw Stone more a Grace Kelly type and the script as a retro Rear Window. Martin agreed. Who was going to argue with Hollywood’s new wunderkind?
This was the time of the “Ice Wars,” when Labatt Breweries of Canada and Molson Canada were both introducing ice beers: beers chilled to -2 degrees Celsius in the brewing process, at which point some water turns into ice crystals and is filtered out, leaving a higher alcohol content (and, if you believed the TV ads, a “smoother” taste). In terms of marketing, ice beer was all about finding an edge and giving the market something new to talk about – and as it turned out, ice beer went down well with consumers. Introduced in 1993, ice beer accounted for 10 per cent of Canada’s beer sales by the mid-’90s – a sizeable chunk of a market the companies fought tooth-and-nail to dominate.
This new product, as Martin explained it, was a radically new ice beer. Quite the opposite of the recent introduction of ice beer, this new product would actually have a lower alcohol content – about 4.2 per cent alcohol, compared with five per cent in regular beer. Ice Light, as it was called, would be marketed to women. Martin explained that labels and ads had been shown to focus groups, mainly women and “lite” beer drinkers, and reaction was positive. Fincher was interested. The conference call concluded with a proposed budget of $1 million to shoot the commercial and the promise of absolute secrecy about the product and its advertising campaign.
Martin left the boardroom wondering how long it would take Molson to hear about the Fincher conversation. Hours? A day? Likely it would be leaked by Fincher’s agent, who would use a $1-million commercial as leverage for Fincher’s next project, whatever it was. There was no way they weren’t going to lose the element of surprise and catch Molson off guard with Ice Light – not in a community where ad agency types drank in the same bars and where agents used everything they could to leverage their clients. But in this case, losing was exactly what Martin had in mind.Advertising is a business of misdirection and omission – and Labatt Ice Light was just the brew for the job. It was all part of Martin’s strategy of obfuscation: the packaging, labels, TV storyboards and print-layouts “accidentally” left behind in the focus sessions; the conversations about million-dollar ads with Hollywood movie directors and movie star endorsements. It had all been just real enough to make Molson and its advertising agency believe Labatt had a secret campaign to market a light ice beer . . . and had lost it.
So what did they do? Labatt introduced, as originally planned, the exact opposite of light beer: Maximum Ice, the high-test, 7.2 per cent alcohol ice beer intended for young males and heavy beer drinkers. Martin remembers Max Ice did well for a while, particularly without a rival maximum beer product from Molson (whose executives were, not so surprisingly, caught off guard by the Max Ice introduction). “I think it’s still on the shelves somewhere,” Martin says of Maximum Ice.Meanwhile, Ice Light is still on the shelves, too – the labels, the layouts, the TV script, the storyboards – in Martin’s office at Hyphen, a constant reminder losing sometimes is simply an illusion.