Blood, Sweat and Tears - but Very Little Risk

They dare all. They throw themselves over the brink, laughing all the way. They play poker. They have nerves of steel and sleep two hours a night. That's the way to make the big leagues.

That, in a nutshell, is the clich? about the world's biggest businessmen: Behind each is a huge gamble that could have broken them, and that lesser men wouldn't dare to take.

It's comforting for the lesser of fortune among us to say, well, we aren't prepared to take that kind of risk. The tycoons probably also rather like that image of derring-do. It's convenient at another level, too: As social gaps widen and they grow richer while the masses grow poorer, people figure - well, they threw the dice and they deserve to win the jackpot. They bet everything they had and won. Kudos.

But it isn't true. The reality of how the big businessmen made it generally isn't a romantic story about tossing themselves over cliffs using a handkerchief as a parachute. It's usually rather dull and very complex.

Mort Mandel, who built up a fortune of billions of dollars and who granted an interview to TheMarker, appearing in the coming Week's End, never took a risk in his life, he told us. There was no single great deal that made him. In fact he's risk averse, as they say. His entire business career was based on very clear rules, and "vision" isn't a word he uses.

I believe him. Most of the successful businessmen I have met over the past 20 years belonged to one of two camps: risk haters who slowly but steadily advanced onward and upward, and risk haters who boast that they dare all but that isn't, actually, how they made it.

Yes, there is a third group, of people who love danger and did take risks. This group can be divided into two sub-groups: 1) People who are characterized by taking risks. They usually fall on their faces. 2) People who made it despite taking risks, not because they took risks.

Take energy and real estate magnate Yitzhak Tshuva. People like to say he's a gambler, living on the knife's edge. That's how he made it, they like to say.

The reality is more complicated. The deal that made Tshuva, his hostile takeover of Delek Group, was not a particularly risky one. Billionaire businessman Ted Arison decided that he wanted to teach the Recanati family a lesson, and sought a buyer for Delek Group shares held by Bank Hapoalim, which he controlled. The Recanatis wanted those shares,. but what Arison wanted was to sell the Delek shares to anybody but them: He was even prepared to lend money to the buyer.

Tshuva at the time was a medium-sized builder in Netanya, not one of Israel's business elite. As such, he wasn't concerned about thumbing his nose at the Recanatis, who definitely were in the business elite of Israel. The price he paid for the Delek interest wasn't high and the risk Tshuva undertook was much lower than it may have seemed from the outside.

The deal that made him the highest profit in the 12 years since he bought Delek Group was to import Mazda and Ford vehicles to Israel, which he does through subsidiary Delek Automotive. Importing cars isn't a risky business. It is a relatively safe business and Tshuva had the horse sense to hold on to the company's talented manager, Gil Agmon, and to reward him handsomely for his pains.

There was one very risky deal that Tshuva did. It was in May 2007, and he did it together with another successful Israeli businessman, Nochi Dankner. He paid $1.2 billion for a piece of land on the Las Vegas strip. He had vision, he had a dream, of building a chain of Plaza hotels around the world. What he didn't have was any particular advantage compared with the other people vying to buy that piece of land. He didn't have any particular plan for how to reduce his risk. And right now, it looks like being the worst deal he made in the last 12 years.

Risky business

As for Nochi Dankner, he also has the image of an intrepid businessman who loves risk and has nerves of steel. He invested NIS 5 billion on Credit Suisse at the height of the financial crisis, and earned NIS 3 billion inside a year on that gamble alone. You need ultra-coolth to do that, marvel his admirers. His detractors think it was a stupid gamble for a sprawling holding company like IDB, that happened to pay off.

But his real success had nothing to do with speculating in the stock of a Swiss bank. On the contrary. IDB's investments portfolio has a selection of some of the lowest-risk companies around: the mobile services provider Cellcom, supermarket chain Super-Sol, Clal Insurance, cement monopoly Nesher, Internet service provider Netvision, and so on. They are the basis of Dankner's success.

The gamble on Credit Suisse was precisely that - a gamble. If Dankner broadens his taste for leverage or risk, he may well lose much of his group's value.

If there's a risk lover among the big players, it's Eliezer Fishman, but he succeeded despite his taste for adventure, not because of it. The deal that made Fishman 22 years ago, buying the real estate company Jerusalem Economic Corporation from the state, was very low-risk. He paid pennies, returned the investment in no time and built up a real estate empire.

Fishman has a rare talent for financing, which helped him flourish in the real estate sector over the years. But his fondness for risk led him into financial flings, mainly in the forex market, that generally ended in painful losses. His giant bet on the Turkish lira in 2005 ended in a loss of hundreds of millions of dollars, wiping out much of the wealth he'd accrued over years of hard work.

What you don't want others to do unto you

Most of Israel's biggest businessmen, in short, wouldn't dip a toe into the water without putting on their boots first. Great wealth isn't accrued by daring all - it's accrued by hard work and not taking risks, even if they appear to be daring all.

This isn't a characteristic of Israeli businessmen, naturally. The English author Malcolm Gladwell, who wrote the bestsellers "Blink" and "The Tipping Point", wrote two years ago in his book "Outliers: The Story of Success" about surprising patterns one can find among the world's greatest successes in various areas of their lives. His conclusion was that they weren't blessed by luck and had no great inborn talent or skill. What they had in common was hard, hard work. Gladwell even came up with a new axiom that he called the "10,000 hour rule". Which is, to attain excellence at something, you have to practice it for 10,000 hours. If you have any particular talent, think about it - and you may find you achieved your greatness after 10,000 hours.

Gladwell recently tried to apply his insights to the success stories of America, and discovered that behind the great men who sported the appearances of risk-takers was a complex story behind which lay a simple truth: They didn't take risks. They did the opposite.

They worked like dogs. They did their homework.

What was their homework? It was to develop an added advantage against the competition. It means figuring out or finding out something that the others don't know. It means when buying a business, knowing in advance who's going to buy it from you, for more than you paid. It means do unto others: Structure the deal to neutralize your risk and pass it onto others.

In the more extreme cases, we find businessmen who bought out their partners in deals for almost nothing. Which partners? The ones who had undertaken the risk; who had financed the deal when it was still risky.

In the stories of Israeli successes such as Mozi Wertheim and Zadik Bino, to take two of many, there were critical moments when they shed their partners, which is generally the point from which their real riches began to accumulate. In Wertheim's case it was in 2001, when be bought out the Feinbergs from the Central Bottling Company (Coca Cola Israel) and Bank Mizrahi. For Bino, it was when he bought out the Liberman family from Paz Oil.

What about all those stories of mortgaging the home to open a business, gambling every penny on an invention? Some succeeded. Some didn't. Sometimes it's a smokescreen behind which lies an inconvenient truth - insider information, sweetheart contacts in government.

The next time you read some gasp-inspiring story about the great risks taken by some great man or other, cool your jets. It's probably not true. The truth is probably that either the guy had a little luck plus a little risk, some contacts, much skill and a lot of hard, hard work - or that there's something fishy going on that's being concealed behind the smoke screen of fiction.