Magic Johnson Enterprises is renowned for its success in developing movie theaters, Starbucks outlets, restaurants and fitness centers in urban communities around the U.S., but its namesake learned a painful lesson when he first tried his hand at business.
One of Johnson’s first efforts after leaving the NBA was selling athletic apparel, he said at an event Thursday in Highland sponsored by the Economic Development Agency of San Bernardino County. The idea seemed natural for one of the best and most successful players in basketball history.
But, after buying a massive amount of hats, jackets and other goods, Johnson was befuddled when, two months later, the merchandise remained largely unsold. The problem, he said, is that he bought what he would want to buy, not what the customer would necessarily want to buy.
“That was a $200,000 mistake, but it taught me to make my business about the customer,” said Johnson, now one of the most recognizable business people in the world. “Never make your business about you. Just because you like red doesn’t mean you need to have red in your business, unless your customer wants red.”
Johnson spoke as part of the Business Insight Series held at San Manuel Indian Bingo & Casino. The series, hosted by Estrada Strategies LLC, is scheduled to return this fall.
The series provides vital information to help companies “survive and thrive, despite a turbulent economy,” San Bernardino County Supervisor Neil Derry said.
Ruben Estrada, President/CEO of Estrada Strategies, said “lessons learned” has been a recurring theme.
“It’s all about providing that golden nugget (of information) that people can take back to their business,” Estrada said.
Johnson said he started becoming successful in the business world by meeting with 20 CEOs and asking them to mentor him.
“I knew how to play basketball, but at that time, I did not know how to start a business,” Johnson said. “If you want to get into business, get yourself a mentor.”
He took a different approach in his next venture, a Pepsi distributorship. This time, the worldwide celebrity hopped into a Pepsi truck with route drivers at and made the rounds, talking with store managers who would make the decisions about where his product would be placed in the store.
That attention to detail and a relentless focus on building the business around the customers’ needs has allowed Johnson to succeed in neighborhoods that for years had been scorned by large retailers. Told that areas with below-average household incomes would never support certain stores, Johnson persevered--and succeeded. The key, he said, is knowing your customers and giving them what they want.
For example, when he opened his first movie theater, Johnson questioned whether the concession stands had enough hot dogs. Relax, he was told, there are enough for the next month. They sold out of hot dogs that night.
The difference, Johnson said, was that while a suburbanite may go to dinner and a movie, the urban movie-goer on a more limited budget combines the two by eating dinner at the theater, hence the need for more hot dogs. He also demanded that the drink concession include the grape, orange and cherry drinks he remembered drinking as a kid.
Johnson applied the same principles when he persuaded Starbucks to allow him to open stores in urban areas.
“People told me, ‘No way that African-Americans and Latinos are going to spend $3 for a cup of coffee,’” Johnson said. “Well, we will pay $3 for a cup of coffee, but we will not eat a scone. We don’t even know what that is, but we will buy a piece of pound cake or a piece of sweet potato pie.”
With familiar foods in the snack case, the right music playing and the right atmosphere, Johnson’s Starbucks outlets reported higher-than-average per capita sales, he said.
“We give you a home-away-from-home experience,” Johnson said. “I took out the Lawrence Welk and now we have some R&B playing, because if you are lounging, you are not making one purchase, but two. If you are staying around and looking at that dessert, you’re going to want one.”
His 24-Hour Fitness clubs include kids’ clubs so that single parents can work out while their children play on-site. His T.G.I. Friday’s restaurant features multiple flat-screen televisions and stocks Cristal and Dom Perignon for the man who wants to make a statement about status.
“You have to know what the customers want,” Johnson said. “When the Lakers are on, you better be at my door by , or you will not get in.”
After using his own money to do business, Johnson said he advanced to “using other people’s money,” which required some convincing of those other people. He sought $150 million from a major pension fund and did not get funded until the third attempt, and only for $50 million. But he used that $50 million to buy a shopping center for $22 million, built up the center until it was fully leased, then sold it for $48 million.
“You have to over-deliver. You can’t just deliver anymore,” Johnson said. “That’s out. That went away two years ago.”
Next time out, investors came up with $300 million, and he delivered a 30 percent return, Johnson said. After that, he raised $600 million in eight months and returned 22 percent returns when his partners had been happy with 8 percent. His real estate fund had commitments of $2 billion, but he only accessed half that because there were only enough projects for $1 billion.
“When was the last time you looked at a black man who could turn down $1 billion?” Johnson asked. “Did I want that $2 billion? Yes, but you have to stay disciplined.”
Johnson’s remarks were almost exclusively about business. When he referenced his former life as one of the greatest basketball players in history, it was mainly as a stepping stone to make another point about business. He pointed out that “a kid from the ghetto, a guy who used to dribble a basketball” now has a food service/facilities management joint venture, Sodexo Magic, that counts Disneyland as a client.
“Mickey and Minnie are eating my food,” Johnson said. “We’re growing even faster than Sodexo imagined. I mean, people gotta eat, right?”
Johnson urged business people to partner together for success and not worry about who gets the credit.
“Fifty percent of something is better than 50 percent of nothing, so partner, partner, partner,” Johnson said. “You are in a successful business, that’s all that matters.”
He also stressed the importance of knowing the culture of a company you are partnering with, and knowing how you can add value to that company.
“I’ve been in business with Starbucks for more than 10 years because I have over-delivered,” Johnson said. “Make sure you deliver to those who have invested with you. That’s what I live by--making sure my partners are successful.”
In closing, Johnson encouraged business owners to remain focused.
“You’ve got to stay on the hustle, stay on the grind,” Johnson said. “Just because you have a successful business, don’t rest, because you can lose it all tomorrow. I’m a control freak, and I don’t apologize for it, because if it’s my hands, we’re going to win it.”