I personally love the following story of Mitt Romney and Staples. It embodies my passion for VC. The video is also a true testament to innovation and ingenuity that Venture Capital community brings into our society.
Two years since Bill Bain had offered Romney the chance to head a new venture that would invest in companies and apply Bain’s consulting techniques to improve operations, Bain Capital had been struggling and yet to find its first big exit.
In 1986, all that changed when two entrepreneurs pitched Romney an idea of selling office supplies. While the idea sounded intriguing to a price-conscious Romney, he was not entirely convinced by the provided evidence. In the next few months, the firm would embark on a study of American businesses, asking a simple question: How much do your supplies cost you?
“They didn’t realize how much money it was costing them.” Tom Stemberg, Staples co-founder recalled. “And in Mitt’s case, he is so cheap, the idea immediately resonated with him.”
The night before the first store opened, Romney surprised the Staples staff with pizza. He told them a favorite joke about a Texan and a polar bear, and then explained why he felt the chain was worth putting his firm’s “heart and soul into, or money.” In the end, Romney said, “We all should get a very handsome return on it, and we also should have a great time doing it.”
Romney’s gamble finally paid off. In 1992 the VC firm sold a part of its stake in Staples for roughly $14mln, not bad considering its original investment of 2mln. A year later Romney would become the head of his private-equity firm.
The Staples deal was a critical moment in Romney’s career. More importantly for the risk-averse Romney the deal symbolized a powerful lesson that those wanting a successful career in venture capital should embrace ambiguity, as it’s an inextricable part of the entrepreneurial life. But they also should use qualitative methods to manage and reduce it.
[Ahh, and what is not to like about this story…]