WHITTLE: There weren't many. Remember, we have a lot of experience with partnerships. In 1977 we sold 50% of our company to the Bonnier Magazine Group, which is Scandinavia's largest publisher. Then in 1979 we repurchased that 50% and sold it to the Associated Newspaper Group in London. They still own 33% of the company. I have 11%, our key executives have 6%, and Time has the rest. So this is the third time we've sold 50% of the company. In retrospect, we undersold. If I were doing it today, a year later, I would change the number.
(continued)
INC.: How much do you think you should have asked?
WHITTLE: Well, $185 million for 50% of the company came out to about 50 times the prior year's earnings. Now, I'd say the price should have been 20% to 25% higher.
INC.: That sounds pretty steep.
WHITTLE: Yes, but I have to say we have always underestimated our potential from day one. As a result, we've sold significantly below what we should have in at least three cases. Then again, our investors have done well, and that is one of the real joys of entrepreneuring -- winning for investors. I take a great deal of pleasure in knowing that every investor in Whittle over the past 20 years has made lots of money.
INC.: Did you have outside investors in the early days of the company?
WHITTLE: Yeah. We were in college then, and we scurried around and raised money from everyone we could. There were about 15 of our friends who put in $10,000 each -- all about our own age, between 22 and 24, just out of school. Most of them borrowed the money from their parents. In 1986 we bought out all the original investors. That $10,000 in 1971 returned about $990,000 over a 15-year period. Almost all of the original people were still around, too.
INC.: Let's go back to your corporate partnerships. You seem very relaxed about doing deals with much larger companies. Don't you worry that the partnership may go bad?
WHITTLE: If it goes bad, you change it. A lot of people view every deal in life as the final deal. I don't think there are any final deals. That doesn't mean I'm cavalier about a transaction, but I know that every relationship must adapt to new circumstances. To view equity transactions as static is just incorrect. If circumstances change and a deal stops working, you fix it. You have to have faith in your own company's strengths, in what you yourself bring to the party.
INC.: And what exactly do you consider your strengths when it comes to renegotiating a deal?
WHITTLE: In my view, there is only one major strength in business, and that is the ability to produce. Some people would say, wait; there are other strengths, such as ownership -- legal ownership is a strength. That's true, but I've always thought that the ability to produce is the most powerful factor. As long as you have that, you have as much control over your destiny as you need. If you can grow something, you can control your destiny. You can certainly alter a transaction that isn't working out -- alter it in ways that work for everybody. We've operated like that for 20 years, and it's always worked out.
INC.: That's a very unusual attitude. Most owners we know go into deals like this with the sense that it's irrevocable, that they're selling a part of themselves.
WHITTLE: Not only owners, but key people in the company. Employees are very anxious, too. They wonder, "What does all this mean to me? What's happening?"
INC.: But don't you ever worry about losing control of a situation?
WHITTLE: Maybe I'm naïve in this regard, but I believe that, ultimately, performance controls. A lot of people put their faith in legal documents, which can't be ignored. But I tend to put my faith in what we do and in what I do. As long as someone can do the job, everything else is secondary. And I believe that intelligent people will understand that the most important asset is the ability to deliver. That asset prevails over any technical language in a contract. I'm not at all paranoid about what goes into a legal document. In fact, I didn't even read the final Time contract. I trusted someone in the company to read it and tell me it was OK to sign.
INC.: I wonder if that attitude doesn't also affect your feelings about equity. To many people, sharing equity with anybody under any circumstances is a huge hurdle -- a legal, managerial, and emotional hurdle. For you, it seems not to have been much of a hurdle at all.
WHITTLE: No, it wasn't. Of course, you have to remember that we had 20 or so shareholders from the very early days of the company. The original 5 guys all had equity, and then there were the 15 outside investors. So we were kind of used to the idea of sharing equity. We also knew the importance of having a group. I don't think there's any question that we would have failed as an enterprise without that group of 5 people.
INC.: Why would you have failed?
WHITTLE: Because our original idea didn't work. We did a magazine, Knoxville in a Nutshell, that was designed to orient new students to the University of Tennessee. We were all student leaders there, and a couple of us were involved in student orientation. So one of the group, Phillip Moffitt, came up with this idea. Nutshell made money the first year, and it lost money thereafter. Maybe in the sixth or seventh year it made a little money, but not much, and it lost lots of money in the first five years.
INC.: How did the group save you?
WHITTLE: First of all, it gave us five times the borrowing power, meaning that all the families got hit up as hard as they could be. And it also gave us five times as many friends to borrow from.
INC.: I guess that's nothing to sneeze at.
WHITTLE: Not in our condition, it wasn't. But, seriously, the group was most important because it allowed us to divide the labor. One person took distribution, one took finance, one took editorial, one took sales.
INC.: You were all still undergraduates in college at the time, weren't you?
WHITTLE: Two were undergraduates; three were graduate students. I was a senior, and I left when I graduated. I sold my equity for $2,500 and went to Columbia Law School, where I lasted a couple of weeks. After that, I worked in a political campaign and traveled for a year. I was on my way to teach history at a private school when the other four guys took me out to dinner and said, "We really need you to come back." They probably just needed my borrowing power. But they were my best friends, and I liked the idea of doing this venture with them. We thought we'd work for three or four years, make it a success, retire at the age of 26, and go on to the rest of our lives. So I bought back in at a much lower level and became the number-five partner. Three or four years later I was up to my eyeballs in debt, and I couldn't afford to leave.
