Editor's Note: To celebrate Inc.'s 35th anniversary, Inc.com is showcasing highlights of our coverage of incredible innovators, risk takers, company builders, and thought leaders since 1979. Here, an article from our archives.

Charles "Chuck" Schwab didn't realize it at the time -- he was only 12, after all -- but his first business was a fully integrated operation. Not content with just selling eggs, as many enterprising youngsters do, he also sold chicken droppings to neighbors to fertilize their gardens. When the chickens got too old to lay eggs, he sold fryers.

Today, 35 years later, Schwab is chairman and chief executive officer of the largest discount brokerage house in the country. Charles Schwab & Co., based in San Francisco, executes orders for more than a million clients; later year, it generated some $148 millionj in revenues. Since 1983, it has been owned by BankAmerica Corp., parent of Bank of America, another fully integrated operation. BankAmerica bought the company from Schwab for $53 million worth of BankAmerica stock.

Success to success, right? The typical entrepreneurial saga? Not quite. Schwab is evidently a rich man now, as well as an accomplished businessman. But when he relates his business history, the failures seem to engage him as much as the successes. The same is true when he talks about his investments, which in many ways parallel his entrepreneurial ventures. A few worked. A lot didn't.

That chicken business, for example, made its proprietor a few bucks. But Schwab's first grown-up company, an investment newsletter that spawned a mutual fund, ran into trouble. Schwab and his partners had signed up investors all over the country, reaching some $20 million in assets, when he was charged with failing to register the fund properly in Texas. Before he could register, however, he had to pay back all his Texas shareholders their original investment, along with 6% interest, regardless of what their shares were worth at the time. In addition, the Securities & Exchange Commission forced suspension of sales. After a lengthy and expensive legal battle, the fund closed in 1972.

Then there was Uncle Bill. Schwab started First Commander Corp., the company that would eventually become Charles Schwab & Co., with $100,000 borrowed from his Uncle Bill. After a year, the company seemed so unstable that Uncle Bill got fed up and sold out, and in another year, Schwab had lost his other two partners as well. Then, when brokerage commissions were deregulated on May 1, 1975, Schwab began his discount brokerage operation, undercutting full-service brokers' commissions by as much as 75%. Uncle Bill was back on board, but by then an ethics committee of the Pacific Stock Exchange had decided that Schwab was violating its "know your customer" rule. Around the same time, Crocker Bank broke off a 14-year relationship with Schwab, and Bank of America twice denied him a loan. No one, it seemed, was very happy with an untried concept like discount brokerage.

Maybe the setbacks in business prepared Schwab for his investment failures -- or maybe it was the other way around. Back when Schwab was getting his brokerage going, for instance, he heard about Congoland, USA. The plan was to open a wild-animal drive-through park in San Jose, Calif. It wasn't really an untried concept -- the idea had worked elsewhere -- but no one so far had done such a venture in the San Francisco Bay area. Schwab, his secretary, and others he knew invested with enthusiasm. The result? Phhht. "The promoter was the only guy who got anything out of it," winces Schwab. "I got a total write-off."

Schwab's belief in himself helped keep his business going despite the difficulties. His belief in other entrepreneurs cost him money. "When you have an entrepreneurial streak, you also have this incredible ability to understand the entrepreneur, or deal guy, very quickly. You understand the concept and get very excited about another guy's deal," he says. Schwab was never so exicted as he was about Music Expo 1972, a venture in which he served as both general partner and limited partner. It was a three-day musical extravaganza held in San Francisco's giant Cow Palace. The first day, Friday, 15,000 children were bused in to learn a cappella singing from the Roger Wagner Chorale. Friday night was reserved for jazz; Saturday featured such rock-and-roll veterans as Chuck Berry; Sunday was all country and western. Besides the live entertainment, the show offered a state-of-the-art display of hi-fis, televisions, and other electronic equipment. If the show was a hit, Schwab and his partners figured, Music Expo 1972 would go national.

It barely went local. When the receipts were counted up, the venture had lost the $80,000 Schwab and his associates had raised, and another $80,000 besides. "Guess who had to absorb the whole thing?" Schwab asks, pointing to himself. "The other guys took off." Looking back, Schwab attributes that project's failure to a weak general manager and a weak marketing campaign. But, he asks ruefully, how do you assess the management of a brand-new kind of business? "If someone said to me, when I set up my discount brokerage business, 'Show me what you've done in discount brokerage,' I'd have had to answer that I'd done nothing in discount brokerage."

At least, Schwab figured, the eventual success of his brokerage firm -- it turned a profit in 1976 and has made money every year thereafter -- clued him into some worthwhile investment opportunities. In 1979, for instance, some friends from his racquet club came to him with a deal that reminded him of his own situation. The Supreme Court had recently issued a decision that allowed attorneys to advertise, and a San Francisco law firm, Yanellow and Flippen, was looking for money to take advantage of the ruling and expand its operation."The timing was perfect, and I knew the power of low-cost service because of the success that I was having," Schwab recalls. He invested $80,000 again, although his friends from the club invested nothing. Within four months, says Schwab, it became evident that the company was on a fast track to bankruptcy. "Again, the concept was fine, but they were inexperienced and didn't have the correct financial controls."

The lessons of all these mishaps? "There's a big difference between concept and execution," Schwab says with a chuckle. "You see so many people as you go through life who say they are going to do something, but have no clue as to how they are going to implement it. Some can do it. Others can't. What's the formula? I don't know." Even today he finds it difficult, he says, to evaluate the venture deals that cross his desk. "With these types of investments, you've got to have a minimal expectation of 10 times the return on your investment. You are better shooting for 15 or 20 times, because even if everything looks perfect, well over half of them will not succeed."

Until recently, most of Schwab's investment portfolio was in BankAmerica stock, thanks to the buyout of his company. Last June, however, he quickly divested himself of 403,057 shares -- shortly after BankAmerica had predicted a lackluster second quarter and shortly before the company's actual second-quarter record turned out to be a dismal $338-million loss. (Schwab, who sits on the executive committee of the BankAmerica board of directors, claims that neither he nor the rest of the board knew anything about the magnitude of the impending losses. The SEC, which monitors stock trading by corporate insiders, wouldn't comment on whether it was investigating Schwab's sale for possible violation of insider trading laws.)

Most of the proceeds of the sale, says Schwab, will go to real estate, mutual fund investments, and repayment of debts. Sadder but wiser when it comes to venture investments, he restricts them to 5% of his portfolio, and even then he tends to be cautious. Among his current projects: a Silicon Valley company that makes computer cabinets, not computers; and a single-family housing development, which Schwab expects to return double his money in two years.

Still, there are some projects that hearken back to the chicken business, and to the early years of living dangerously. Back in 1974, Schwab and some friends invested in a rice ranch in California, and when they sold the farm three years later, Schwab realized an easy 60% return on his investment. Now, he announces, "I'm going into the rice business again." Farmland is cheap, he says, and he plans to combine rice growing with a processing mill, whose output he will market primarily to California's large and growing Asian-American population.

It is to be a fully integrated operation -- with a twist. Schwab loves to go duck hunting, and what better place to do it than a rice ranch? "I sometimes wonder," he muses, "if I bought a rice ranch or a duck-hunting ranch."

Maybe he can find a way to sell those ducks along with the rice.

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