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Fred Gratzon: the world's laziest man

(Interviewed on 30th January 2004)

[At Fred's insistence, this observation has been added from Sunthar's post to the Abhinava forum, announcing this interview: "Fred Gratzon is a natural-born American Taoist, adept of 'non-doing' (wu-wei = no way!), who deserves to be crowned honorary 'do-nothing' mayor of Benares, the holy city of the Hindus. The 'Lord of the Universe' (Vishvanâtha), addicted to 'idle intoxication' (bahri alang), would have surely approved..."]

Paul Wilson

For my venture strategy class, I was supposed to interview an entrepreneur this week, and I chose Fred Gratzon, founder of Fairfield's (Iowa) Great Midwestern Ice Cream and Telegroup. From his Web site:

Fred Gratzon is an entrepreneur raconteur provocateur.

In 1968 Fred graduated sine laude whatsoever from Rutgers University as a Fine Art major. He never held a job for more than two months and is one of only five people in the entire history of the United States Government to have been fired from a civil service job. In 1979 with no money, no experience, and no knowledge of how to make ice cream, he founded The Great Midwestern Ice Cream Company. In 1984 his ice cream was judged by People magazine to be the best ice cream in America. Playboy made the same declaration in 1986. In 1989, again with no money and no knowledge or experience of telecommunications Fred founded Telegroup in a spare room in his house. Telegroup became an international long distance carrier and grew to 1100 employees with $400 million in annual sales. Fred's companies have appeared on Inc magazine's list of the 500 fastest growing companies in America four times. In 1995 Telegroup was the second fastest.

Fred, ever the entrepreneurial pyromaniac, is currently lighting new fires and using The Lazy Way to Success as his invincible formula.

This is the text of my interview with Fred:

 

Why did you start Great Midwestern Ice Cream and Telegroup?
Financial desperation.

What risks did you envision when you got involved?
None.

Was that accurate?
Of course not.

Tell me about some of the risks that ended up happening.
Time, money, ego, finances, life direction—whatever there was to risk, it was risked.

Did you end up getting rewards that balanced the risks?
Vastly exceeded.

Would you like to start another business that grows to be big?
Yes and no. Yes, because of the exhilaration and because of some of the extraordinary things one can do with money—I don't mean in terms of spending it on oneself, but creating a better world. No, because I'm almost 58, and who needs it already? Been there done that. I don't like to work, don't like to travel. I refuse to work.

I heard you once say that you were the most unemployable person around.
Now it's worse. I'm lazy, anti-authoritarian, and despise routine work. And, I have a short attention span.

That ties in to the next question. How hard do you work, and how much time do you put in?
I absolutely refuse to work—have not, will not work. It's a waste of time. It's a waste of life. It's just a waste on every level, and it's the wrong way to be successful. One does not get successful by working. No matter what anyone else says, and if they say that, they're wrong.

How do you define success?
Everyone defines to their own satisfaction, in terms of money, health, fulfillment.

How do you define it?
All of the above.

I have never wanted to boss people. I've just said, "Here's the job to be done, and you should just get it done. I don't care how it gets done; I don't care how long it takes." But, you have to have fun. It has to be more play, an expression of love, more than any kind of work. I define work as "If you'd rather be doing something else, then it's work." Life should be filled with passion and playfulness and all of that.


Do you believe that people should go home at the end of their workday with more energy than they had when they started the day?
I quibble with the word "workday." I don't believe that there should be a workday. There should be a playday. Work is hideous.

What did you learn about yourself in the process of starting and running your new businesses?

I learned about my strengths. I learned about my blind spots, or my weaknesses. I learned about the kinds of people that are good complements to me, and the kinds of people that are bad complements. I learned about the joys and the huge personal value of generosity, of giving. That was probably my most important lesson.


Did you have any formal business training?
None.

Did you find that it was beneficial not to have any?
Yes. My innocence was preserved. I did not know that there were things that I could not reasonably accomplish. In both of the businesses that I started, I had no prior knowledge or experience. I had no clue about how to make ice cream. I had no money. I was just zeroes across the board. Same thing in telecommunications. I didn't know the first thing about it. Having that kind of clean slate, that innocence, but also the ambition and the drive. Whatever I didn't know I just learned. Whatever I didn't have the aptitude for, which was just about everything, I'd find great people who could do it.

So, you partnered with people who had the skills that you realized that you didn't have.
Yes. I had very few business skills, very few, in terms of day-to-day management and operations.

For either of those businesses, did you prepare a business plan, and if so, was it useful?
With Telegroup, there was zero business plan until we went out to look for investment banks who could take us public. I put together a business plan for that purpose only, not because we intended to follow it, but because it was a requirement, the language that the banks spoke. Only when I wanted to expand did I try to put something together. But, it was a Fred-type business plan, without business-speak.

How did you go about financing the businesses?

With the ice cream company, I took investors, like my mom and friends, from the very beginning, and that gave enough to get started, and there were bank loans. When I wanted to build a factory, it was a combination of a larger investor and then bank loans and then big-time venture capital after that. With Telegroup, it started out with zero capital, literally zero—not enough money to pay for a long-distance call, and I was starting out a long-distance business. That's how zero it was. After about a month or two, a little money dribbled in, and then a little bit more, from a loan initially and then an investor—very small amount though, like $30,000—and then bank loans. Because Telegroup was so incredibly profitable, the margins were very high in those days. Not like now in telecom. We were able to pay the salespeople huge, ongoing, evergreen commissions. We got the best salespeople, and they added a huge amount of business, so it really helped. It just exploded. Lines of credit were necessary. It was a constant thing, asking for extensions. We were just growing so fast that extending the line of credit on a regular basis was necessary. Then, just before going public, we had a $20 million mezzanine, one of those investments from one of those mezzanine kind-of guys, a rich financier, then there was a public offering and big bond offerings. Altogether, in terms of the mezzanine, and the bond offerings, and the public offering, about $200 million was invested.

This happened over what period of time?
It started in 1996, and the big bond offerings happened in 1998.

That was really fast.
Yeah, we were growing like a weed. We were the 2nd fastest growing company in America, according to Inc. magazine.

Is it true that cash flow is king when you start a business?
Yes, cash flow is king. Cash is king, no matter what business you're in.

Do you think that you made any key mistakes when you started either business?
Yes. At every step of the way, there are mistakes, big and little. I started an ice cream company in the middle of an Iowa winter.

 

With Telegroup, we were a fast-growing company, and as you get big and rich and powerful, there are a lot of people who become greedy and arrogant, and they grab for power.

Is that why Telegroup failed?
Arrogance and greed, yeah, I guess so.

If you could do Telegroup over again, is there any strategy that you would use to overcome these problems?

This is deep wisdom that I'm going to give to you. Everyone is flawed. Almost always, your greatest asset is also your greatest liability. When you add a lot of money into the formula, character flaws that were not very detectable in the early days become very detectable as it grows. You don't know. My greatest asset is my innocence. It's also my greatest weakness. I'm easily taken advantage of. I'm easily pushed around. But, on the other side, innocence is like a conduit for good luck. It's about integrity. I cannot, physiologically, psychologically, or emotionally, be devious, manipulating, to sell something that's not 100% wonderful, that's not good for the environment, that's not good for everyone. Maybe it's not good for AT&T, but I don't care about them (laughs).


Good luck flowed through me. I brought the good luck to the business. I did not bring the brains to business. I did not bring the skill. I did not organize the finances, the legal. I could not talk Wall Street. I couldn't organize the people. I attracted great people. That's what I attracted. I attracted the resources and the ideas. In terms of "what good am I?" from a hard-core, Wall Street perspective, I was like a spare part.  But, one would have to appreciate what I brought to the business, because when I was maneuvered out in the end, and that's a long story, good luck went away, in both companies. The whole thing collapsed. It was like things happened within weeks of each other.

When you got your really good people together, did you have any MBAs?
Yes. Telegroup had a Baker scholar from Harvard. He was one of the conduits for disaster. He overlooked some things that shouldn't have been overlooked, not doing due diligence properly. He trusted an investment banker.

What is the difference between starting a business and running a business?
It's the difference between lighting a match and sawing firewood. Huge difference. It's on the order of orientation. I'm really good at starting things, but then I need someone to bring the firewood. I do it to a certain extent. You have to. You have to kind of do everything in the beginning, and it's good to do everything in the beginning because you learn everything. I like to get into the state where it quickly outgrows my capabilities. Other people have to do it, because I don't really want to do it forever.

What advice would you give to an MBA class of eager entrepreneurs?
TM-AM-PM, without exception*. And, if your focus is money, I wouldn't bet 2 cents on you. If you're driven by passion, however, that's the kind of person who I want on my team.

 

*See The Lazy Way to Success: How to Do Nothing and Accomplish Everything, Fred's new book, for an explanation.