📚How Fortunes Are Made: Revisiting From Predators to Icons
"The entire difficulty consists in combining the rapid accumulation of economic capital with the accumulation of symbolic capital - a good reputation in business."
In the 1970s, a young Bernard Arnault traveled to New York and had a fateful conversation. Arnault asked a cab driver about France. Did the driver know much about the country and its politics? No. But he knew Christian Dior. Arnault would never forget about the reach and power of iconic brands.
Or so the story goes. One has to be careful with the origin stories of great fortunes. They can be carefully crafted, enriched with apocryphal anecdotes, polished and cleaned of unsavory deals or behavior. That’s the argument presented in an obscure book called From Predators to Icons (my original post) recommended to me years ago by Alix. The authors, two French academics, looked for shared characteristics and patterns in a sample of self-made billionaires.
What they found was not a rags-to-riches tale. Instead, they argued, great fortunes arise from a set of favorable initial conditions (perhaps today they would use the term ‘privilege’) in combination with Strategic Intuition, the ability to recognize and take advantage of extraordinary opportunities that lead to an “intense accumulation of capital.” The authors called these moments the “good deal,” the career-defining moment in which a transaction (or sequence of transactions) leads to break out success (a kind of ‘zero to one’ moment in Peter Thiel speak; in the terms of my simple wealth framework, a moment in which a great amount of value is either created, say by innovation, or captured, for example by taking control of a deeply undervalued asset).
From Predators to Icons was also the book that introduced me to Arnault, who has since received a lot of attention.
His life illustrates several of the book’s key ideas. Arnault was born into a well-off family, received an excellent education, and gained early experience in the family business. He had influential mentors and allies and used invaluable networks. When a unique opportunity presented itself, he was able to recognize it and take full advantage (see my post).
In the early 1980s, Arnault had chosen exile. France had elected a socialist government and Arnault joined other French expats in the US where he tried his hand at real estate development. His neighbor in New Rochelle was media dealmaker and Milken/Drexel client John Kluge and Arnault witnessed the rise of LBOs, junk bonds, and financial engineering. Frustrated by his lack of success in the States, he used his network to source a ‘good deal’, the takeover and restructuring of a bankrupt French textile conglomerate which owned Dior. This was a classic case of what Munger called the ‘cancer surgery’ formula: Arnault divested the money-losing textile plants and kept Dior. This was followed by another key transaction, taking control of LVMH.
Arnault combined the ingenuity and aggressiveness of America’s new takeover artists with his own training as an engineer and his appreciation of brands and their potential in a globalizing consumer society. While taking over LVMH, he learned from the firm’s executives about the value of control and integration in the luxury value chain (the excellent LVMH Acquired episode goes into detail on this). I see this as an example of Strategic Intuition, a playbook he pursued for decades while assembling his luxury conglomerate.
Why is this important?
I just finished Sam Zell’s autobiography Am I Being Too Subtle and found myself mentally ticking a lot of the boxes brought up in From Predators to Icons. It’s a valuable addition to the framework because it emphasizes a story’s context and conditions, not just actions. It quickly allows us to spot instantiations, fragments to extract from a story.
And even though we can’t replicate many of these initial conditions, depending on one’s age, it is still possible to identify key missing ingredients which may hinder one’s success.
Alright, let’s look at the key patterns as well as the book’s set of examples.
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