WILLIAM DONALDSON INTERVIEW
On His Experiences, Entrepreneurship, and Life

I came across this interview while doing some research for work. Great stories by Donaldson, who was one of the founders of DLJ. Impressive man and entrepreneur, and what a storied career. Excerpts of the interview for HBS:

The Honorable William "Bill" Donaldson (Donaldson, Lufkin & Jenrette), HBS 1958, was one of the founders of DLJ. He saw that a new breed of institutional fund manager was emerging who would need higher quality research on firms' projected stock price performance than was being offered on Wall Street at the time. DLJ was set up to meet that need. Bill also made sure the firm had a seat on the New York Stock Exchange, and he later helped overturn regulations so DLJ could be the first investment bank to go public on the NYSE. Bill went on to co-found Yale's School of Management, to head the NYSE, and, among other leadership roles in business, philanthropy and academia, he was selected in 2001 to lead the Securities and Exchange Commission under President George W. Bush. Bill described his experiences in a video interview in his office in Manhattan, March 2002. Interviewer: Amy Blitz, HBS Director of Media Development for Entrepreneurial Management.

I was brought up in Buffalo, New York. I was born in 1931, right at the height of the Depression. I grew up under relatively modest circumstances...

We had two thoughts that led us to form DLJ. The first was that we were seeing the emergence of the institutional investor. During the war, most everybody put their money in bonds. Coming out of the war, the banks were the last to go into stocks. Mutuals funds were just getting started, and with them emerged a new breed of institutional investor... When we first started our business, I think the statistic was something like 95 percent of the stock in this country was owned by individual investors...

Our second thought was about the need to deliver analyses that would be a lot closer to what a McKinsey might do than just a Standard & Poor's recommendation of the week. The reports would give an understanding of a business, not just an analysis of the numbers, to a prospective buyer of a stock. Of course the numbers are important, but we were interested in doing what we called scuttlebutt research, like talking with the marketing vice president. We were out calling on competitors and suppliers and really understanding the economics of the marketplace so that we could make a judgement on where the company fit in, where it fit in with its competitors, why it was doing things with way it was doing them, and why it was being criticized by its competitors.
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Our success had a lot to do with the type of people that we hired. We only got the smartest men and women we possibly could. I think we were way ahead of our time in that we had a lot of women working at DLJ in the early days... The other structural thing about DLJ was that it was a very level organization in terms of partnership. We were a corporation but we acted like a parthership. We had all sorts of incentives to motivate people to be part of a team. Only a part of the incentives were monetary. I think we were all highly motivated to take on the world and do things differently.
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I think I've always had entrepreneurial instincts. They go back to the time of the lemonade stand... I've always been interested in entrepreneurial undertakings. I don't think I was moved by the idea that we were going to start an investment banking firm. I was moved by the idea that I wanted to help start something new. I was heavily influenced by the concept of team effort.

We didn't have any money to begin with. We had to go out and raise the money. We got into a car and drove around to talk with friends and classmates and people we'd grown up with and people who had some confidence in us. We told them we were thinking of starting this business and we laid out the business plan. A number of people invested in us. Some didn't because they were advised by people on Wall Street that we weren't going to be successful and they would be crazy to invest in a new Wall Street firm when there were already big firms down there. I think the people who invested were people who knew us pretty well. Our story was that we were going to build something for the long haul. We were not building a company just to sell it. We wanted to build a great organization and we wanted to apply a lot of our theories while building the organization. I think our mission was appealing to certain people.
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We started the Alliance Management Company and we essentially built it around a major thrust into the pension fund market. We very quickly became the largest non-bank manager of pension funds in the 1960s and early 1970s. Alliance was a diversifcation effort and we ran it as a separate division. Today, Alliance is big - one of the top four or five mutual fund companies.

There were a couple people at DLJ who said the agency business - running other people's money and selling research to other people - is never going to be as profitable a business as investing our own money. They also pointed out that agency work is hard work. They said let's take the capital we've created and invest in ourselves. Let's get into the leverage buy-out business. Let's get into businesses where we can make huge capital gains and we can do it with a lot fewer people. We had a battle over this idea. Those of us who saw the firm as being more than just a money machine prevailed. We said, "No. We want to build a major investment banking firm. We've only just started. We don't want to just turn ourselves inward and invest our own money." We made a tough decision.

I think we actually would have started to attract different sorts of people had we not launched Alliance. I think we would have killed the joy and the esprit de corps of building something, of building an investment banking firm that was starting to compete with the biggest and the best. I think those of us who helped decide to stay on track didn't want to shrink ourselves down to be a hedge fund or an LBO fund or something. At that time, we wanted to build a business, expand it, and diversify it. And, although it's a cliche to say, I think money is chips in the game. If you don't have a successful business, if you're not making money, you don't deserve to exist. But I don't think money was the principal objective. I think there was the challenge of what we were doing, the challenge of building something, and the challenge of not only our product line and diversification, but also of bringing together people in an organization that had esprit de corps.
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I've done a lot of thinking about entrepreneurship. When I was Dean at Yale, I taught a course on the subject. I fee. that entrepreneurship is too narrowly defined and that there are a set of entrepreneurial principles that apply not just to starting a business but also to managing large organizations. We ran a course in which I invited all sorts of people who, in my definition, were entrepreneurs. We were seeking common denominators between entrepreneurs who ran large organizations and those who started businesses. I think the first common denominator is that entrepreneurs have a lot of energy. That energy can come in very different packages. The most energetic man I know is Henry Kissinger. He does not look like he has the package, but he's a dynamo inside. I think you can do something about energy by taking care of yourself physically, and I have yet to meet a successful enterpreneur who is lazy or doesn't have a lot of energy.

The second common denominator I have seen among the entrepreneurs I've met is that they see the world in a slightly different way. In my example, we at DLJ saw the investment world in a slightly different way. We saw the opportunity that was there for anybody to see. Fred Smith of Federal Express is a perfect example. He saw all the planes in the airline industry sitting on the ground at night. By looking at the situation from a slightly different angle, Fred saw the ability to move packages at night. Actually, I've seen how great artists see things slightly differently. What is a great work of art, but the work of somebody who sees something slightly differently and creates that vision?

Most people think of entrepreneurs as people who shoot for the moon and, if they don't succeed, they move on to the next thing. I think entrepreneurs have to be very careful about having a fall-back position. They have to use their "peripheral vision" or knowledge and think one or two steps ahead so that they know what they're going to do when the first setback comes. They have to finance themselves well enough so that they're not left out on a limb. At the same time, entrepreneurs are analytical up to a point and then they say, "To hell with it. I'm going to go ahead with the project." In other words, they're out there finding out as much as they can and focusing on their business plan, but at some point they just don't want to hear another person say they can't do it. They go do it. They finally leap and do it. I think it's very important to be able to do that because there are always going to be reasons people will use to talk to you out of going ahead. You just have to have courage. It's not that you just jump in blindly, because you will have a fall-back position mixed in.
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Finally, to be a successful entrepreneur, I think you have to have a real urge in the pit of your stomach. I think you have to have a thick enough skin to handle criticism and adversity, to know that it isn't straight up. I think you have to be willing to make the inevitable compromises in family and lifestyle. If you're going to start something and build it, it doesn't leave a lot of time to do other things. There's a certain amount of sacrifice and you have to learn to live with that from the family point of view. The time commitment might lessen as you get older, but there are sacrifices.

They say, "Man's reach must exceed his grasp or what's a heaven for?" I really believe in that statement.