Ross Perot: Shorty Got Game

Well, morning folks, and welcome to today's episode. I've called it Ross Perot: Shorty Got Game. And, you know, I'm having a bit of a dig at Ross Perot's height, but for a little guy, this guy, he had a lot of game. Not just as a businessman, this guy could have been the US President.

And here is a quote from Time Magazine from 1992, when he threw his hat into the ring to become president: "It's hard to envision a seriously short guy who sounds like a chihuahua as a charismatic threat to democracy, but it is delicious to watch the thrills of horror running through the establishment at the mere thought," because, as we'll see in the story, Perot came this close to becoming the President of the United States in 1992.

But this is a business story, so we also, of course, will be talking about his business achievements, which are just as big. He was IBM's top salesman. He kind of coined the term facilities management and created the first professional business model for it. Then he built and sold two multi-billion-dollar companies, and even more intriguingly, he hired a special ops commander who then trained some of his own employees, and then they flew into Tehran and helped break two of Perot's employees out of a jail in Iran. I mean, this story has it all. It is brilliant. Enjoy.

So Ross Perot, and he's commonly known as H. Ross Perot. It was the media who put that H in front of his name, and apparently Perot hated it, so I'm just gonna call him Ross Perot.

So he was born on the 27th of June, 1930, in a place called Texarkana. So it was a Texas border town that straddled Texas and Arkansas, and he was actually christened Henry Ray Perot, but he changed it when he was 12 to honor his older brother, who died when he was three. And he also had a sister called Bette, or Betty, I'm not too sure, and she remained very loyal to Perot all her life, was a director in EDS, the first company that he formed that we'll be getting into.

His father, Gabriel, was a cotton broker, also worked part-time as a horse trader and dealer, while his mother, Lulu, worked as a secretary in a local lumber company. And as you can imagine, this is 1930, so the country is in free fall. This is at the height of the Great Depression. You've got unemployment at 25%. So this is a time where families really had to knuckle down to make money, and Perot really did knuckle down. His father brought him to these horse and cattle auctions when he's just 10 years old. And at these auctions also, there was an awful lot of equipment, like bridles and saddles, that kind of stuff. And Perot would get to the auction early. He'd pick up the bridles and other equipment that were being sold early in the evening. And then his father had the rule that you never bring home what you buy. So Perot then had to sell it later on that evening at a profit. And as he said himself, this was his, his PhD in business.

He got a paper round at 12, and for the paper round, most of the paper boys were doing established neighborhoods, but Perot went after lower-income neighborhoods because the commission was bigger, because the paper thought, well, nobody's gonna buy our paper in these lower-income neighborhoods. But Perot was obviously a fantastic salesman because his paper round commissions were at $25 a week, whereas the standard paper boy was earning just $5 a week. So the circulation managers, they try to cut his rates. Perot goes straight to the publisher and argues his case, and the publisher sides with him. So it shows how strong a character and how independent he was even at that age.

At the age of 19, then he gets accepted to the US Naval Academy. He had spent the previous three years writing to every member of the Texas Congress because I didn't know this, but it's not easy to get into these Naval Academies because each Congress member can only have five constituents in the academy at any one time. So Perot puts his ability, or his achievement, to get into the Naval Academy down to his persistence. And like any great salesman, he is persistent.

And here's a quote from him. He says, "Most people give up when they're about to achieve success. They give up at the last minute of the game, one foot from a winning touchdown." Now, of course, the question is, how do you know you're only one foot from the line? Because unlike a game of football, you can't actually see the line in real life, so I think you have to marry persistence with optimism, the belief that you're almost there. I think that's what every entrepreneur has within them, this persistence and this eternal optimism.

Anyway, at the Naval Academy, academically he's only okay, he finishes middle of the class, but he becomes class president, he becomes battalion commander, and he's also tasked with rewriting, or writing, I suppose, anew, the Academy's ethical framework. And the reason why he had to write it was apparently there was loads of cheating going on at exam time at these academies. But Perot, instead of writing really rigid rules, he created this kind of flexible framework that was called the honor concept, where cadets were expected to police themselves, like confronting each other and giving each other a chance to correct their behavior if they've done something wrong. And the system worked, and the core of this system still exists today within the academies.

So he goes out to sea, but after four years at sea he becomes disillusioned. There's a few things that happen that give you an idea of Perot's personality, of his high ethics, because he does have these incredibly high standards of ethics. So first of all, as we said, he grew up during the Depression and he never had more than one pair of shoes, but when he joined the Navy, he was kind of shocked that he was issued with several pairs of shoes. And he later pointed out that this was the first example of government waste.

And then in letters to his father, Perot would write about the culture within the Navy. He described it as being godless, and he wrote that he was always offended by, and these are his quotes, "the blasphemous language and moral laxity" of his crewmates. But the straw, I suppose, that broke the camel's back, as it were, was when a commanding officer tried to put pressure on Perot to move money from a sailor's recreation fund to a fund to decorate the commander's personal quarters, and Perot refused.

And so at around this time, an IBM executive was touring Perot's ship and he was really impressed with the young Lieutenant Perot, and he offered Perot a job, and Perot accepted. And then, so this is 1957, and Perot moves to Dallas, works with IBM.

Now, the company, fascinating company, and I'll definitely be doing a story on it. It had been founded decades earlier by Thomas J. Watson Sr., very interesting character. He got IBM together by merging three small companies together in 1911, and then created this global powerhouse with very, very strict culture practices. It was all focused on respect, excellence, kind of a religious commitment to the customer. And there was a look, a uniform nearly: dark suits, white shirts, conservative ties, very clean-cut, no beards, very predictable. IBM didn't want strong personalities. It wanted consistency.

And at the time when Perot joined, it was selling these huge mainframes that would cost up to $2 million, or they'd be leased out to companies at several thousand dollars a month. And crucially, and this is very interesting, IBM believed that the real value was in hardware. Software wasn't really thought about. It was an afterthought. It was something you gave away to move machines. And of course this is what ultimately led to Microsoft being able to blindside IBM when they agreed to let Microsoft put their software on their computers and also hold onto the license. But that's a few decades down the line.

But while Perot, obviously, he fit the IBM look in terms of the clean-cut, the dark suits, all that, he was too much of a maverick. He was too much of an individual to really fit into the IBM culture. He didn't mix a whole lot. He'd skip the mid-morning coffee sessions, and he wasn't a team player. He was seen by his colleagues as being money-hungry, willing to use his elbows. He was strongly disliked or distrusted by his fellow salespeople, but there was also a grudging respect for him because he was a fantastic salesman.

Because Perot would spend weeks analyzing the biggest potential clients. He would investigate how their businesses operate, what their needs were, and as a result he started landing the biggest clients, and he quickly became one of IBM's top salespeople. And in 1961, he entered IBM lore, or legend, when he fulfilled his annual sales quota within the first 19 days of that year by landing one huge sale. And his commissions became so big, we're talking about $30,000, which in today's money is about $300,000, which back then was a huge amount. Well, they became so big that it actually forced IBM to put a cap on sales commissions.

And because he's spending so much time to understand the customer and what their needs were, he realized that IBM wasn't solving an awful lot of their problems. It was just really selling equipment. But then the purchaser had to find people to actually code it and to run it and to fix it and all that. So Perot thought, this isn't a good model. And he continually approached his managers in IBM and was kind of saying, why don't we bundle hardware with software applications and tech support? But he kept getting shot down, so he was becoming increasingly frustrated.

And then came the breaking point. So apparently Perot, he was sitting in a barbershop and he picks up a copy of Reader's Digest and he reads a quote from a guy called Henry David Thoreau, apparently a very prominent American writer and philosopher. I never heard of him. I mean, that doesn't mean he's not prominent. I think that just shows how little I know. But the quote that really hit him was that "the mass of men lead lives of quiet desperation." And Perot realized that if I stay at IBM, this is going to be my future. I am going to lead a life of quiet desperation.

So he took the plan that he had been promoting and kept getting shot down with at IBM, this concept of information technology services, or what he called facilities management. So instead of just selling hardware, as IBM was doing, he would sell a full service contract: the design, installation, and actually operate the data systems for clients. And he called the company EDS, Electronic Data Systems, launched on his 32nd birthday. This is 1962, with a starting capital of just a thousand dollars that he got from his wife, Margot. It was her savings as a schoolteacher.

And again, as a demonstration of his persistence, he got 77 consecutive rejections before he landed his first client, a large contractor who was working with the US Air Force and with NASA, and this contractor was just drowning in tons and tons of data.

Now, he couldn't afford to buy or even lease one of the IBM mainframes that were costing thousands of dollars a month or $2 million up front. But he had a clever plan. He obviously knew loads of companies that were using IBM computers, and he approached one of them, an insurance company in Dallas, and he knew their computer was idle during the middle of the night. So he bought that unused time from them at a cheap price. He hired two part-time people to do the actual data processing. That first contract took six weeks, and when it was done, he had enough money to hire a full-time team. And then more contracts started coming in.

And you can imagine this was a great business model. By 1965, EDS had a few hundred employees. Revenue was in the low millions. And he was positioned in exactly the right place at exactly the right time because that summer President Lyndon Johnson, he passed two government-run health insurance programs. There was Medicare, which covered people 65 and over. And then there was Medicaid, which covered low-income individuals. And as a result of this, overnight the government had about 19 million people that needed coverage, and they had systems that just couldn't process or handle all these claims. So EDS filled that gap, and they grew massively, becoming the leading IT services company in the US.

And of course, all this attention naturally caught the eye of Wall Street, and in September 1968 EDS went public. The market at that time was in a frenzy over tech stocks, so the share price just shot up. Perot had an 81% stake at this time. He diluted over the years, as we shall see, but his 81% at that time was worth over a billion dollars. So he was just 39 years old, and it made him probably the most famous new-money billionaire in the world at that time. Fortune Magazine put him on the cover and dubbed him "fastest, richest Texan ever."

Now, that didn't last because in 1970 there was a correction in the tech sector, short sellers targeted EDS, and in a single day Perot, his wealth fell by $445 million. That was the largest single-day loss of wealth by an individual in history up to then. But yeah, the shares were overpriced, but the company was on solid foundations. It continued to grow, and by 1976 it had revenues of $250 million, around 8,000 employees.

Now, in terms of working for Perot, a difficult man to work with, I would say. It was all about results and very, very strict discipline. Perot had no time for committees. I love that. People who got results moved up the ladder quickly, and they could make a lot of money through stock and bonuses. So he handsomely rewarded his top performers. But there was the discipline. You know, like IBM, the dress code was really strict: dark suits, white shirts, short hair, no facial hair, no exceptions. Women had to wear slacks unless it was freezing. And this one, no marital infidelities. I mean, not that I'd ever cheat on my wife, but you know, I think that's straying a bit too much into your employees' personal lives.

Now, to ensure that these criteria were met, by and large Perot really focused in on recruiting ex-military people because his belief was that if you can handle the pressure of a war zone, then a 16-hour workday is a cakewalk. And another aspect of working for Perot, which I find a bit disconcerting, was that employees were tied into these contracts that made it really expensive to leave early. So new hires, they had to sign a contract that stipulated that if they quit or were fired for probable cause within their first two years, they had to pay EDS up to $9,000, which is roughly about $40,000 to $50,000 today, in training expenses.

But now hiring these army vets, it definitely came in handy as we get to one of the most dramatic and fascinating stories in Perot's business life. So for a bit of context, in 1975 EDS started expanding internationally, and one of the biggest contracts they landed was in Iran. Now, Iran at that time was still under the rule of the Shah. He was a US-backed monarch, and he was trying to modernize the country. So oil money was pouring in, and the government was spending an awful lot of money on infrastructure, on technology, on Western expertise, and EDS won a contract to build this nationwide computerized health insurance system.

But by 1978, Iran was in a mess. It was in turmoil. There were mass protests, strikes, an awful lot of anger at the Shah's corruption and his authoritarian rule. And in 1978, two senior US EDS executives who were based in Iran, they're arrested in Tehran, and the official charge is financial crimes, allegedly diverting millions from the Iranian treasury. But this was a shakedown, really. And this is how Perot saw it. It was a ransom, and he was right. When you look at the bail, the bail was set at $12.75 million.

Now, Washington tries to get involved. It tries to use its back channels and diplomacy, but there's no joy because of the turmoil that's in Iran. There's no real single authority fully in charge at this time. So Perot decides he's going to rescue the two executives himself, and he hires a guy called Colonel Arthur "Bull" Simons.

So Perot knew of Simons because Perot had been a very, very big advocate of prisoners of war during the Vietnam era, because throughout the Vietnam War he was really angered about how little visibility the prisoners of war had. So he funded campaigns to keep their situation in the public eye, and that's how he came in contact with Simons.

And this Simons guy, he is some character. So he was this legendary US Army Special Forces officer. And here's an account of him capturing a Japanese radio tower in World War II. So I'm gonna quote from the article. "Simons knew from his observations that the guard never looked down the cliff, so he climbed the cliff with explosives on his back, and a knife, caught the guards totally by surprise, took him out with the knife, then took the guard's rifle, went into the Japanese barracks, and shot the other 15 Japanese soldiers in their sleep." As Simons explained, "When you're in combat, you don't wake up your enemy and say, let's fight."

So this is the guy that Perot hires, and Simons puts together a team of EDS employees. Remember, they're former army vets themselves. They train quietly in Dallas. Then Perot himself flies into Iran under disguise as an NBC courier because he wants to see the situation on the ground, and he actually visits the two employees in jail. So now he has an idea of what the jail is like, and he clocks everything that's happening within the jail and the setup of the jail, all that. And then he reports back to Simons with details about the prison.

Now at the same time, Simons had gotten this EDS Iranian employee to infiltrate a revolutionary militia team because there were loads of militias getting together in Iran at that time, and there was a lot of confusion. And this Iranian EDS employee, he bribed a local police chief with a hundred dollars to leave the police armory door open. So he and a few from the militia, they got loads of guns, and this of course increased his credibility with the other militias. So now he had a large following. Like, remember, this is an EDS employee. I mean, would you start a militia for your boss? Like, it's nuts.

Then on February the 11th, 1979, the Shah's regime collapses and Tehran descends into chaos. This is the moment. This is the opportunity to strike. So the Iranian EDS employee slash militia leader, he directs his men and a large crowd of civilians to march on the prison. And by the time they reach the prison, there are thousands of them, and they overwhelm the guards and storm the jail. All of the prisoners are freed, including the two US EDS employees, and they break out. They make their way to a prearranged rendezvous with Simons and the rest of the rescue team.

Now they need to get to Turkey, and this journey itself is like so many near misses along the way, so many close calls, checkpoints, moments where everything could have fallen apart, but they eventually get to Turkey. From there, they fly to London, and finally on February the 18th they land in Dallas, and it makes the headlines worldwide.

Perot's actions were widely celebrated in America at that time because you gotta remember, at this time the Carter administration were being lampooned and were being viewed as being weak and incompetent. And the whole Iranian affair actually led to the downfall of the Carter administration, in that he didn't get reelected because of this.

And of course, this is such a great story that it's no surprise that Ken Follett, the author, wrote a book on it called On Wings of Eagles. It became an international bestseller. It was also made into a miniseries. And also, of course, it massively helps Perot's profile as a man of action.

Now, through all of this, EDS is still growing. By the early eighties, revenues are at $800 million. They've got over 10,000 employees. And they catch the eye of General Motors. General Motors at this time is enormous, but also enormously inefficient. They're spending billions on their overall operations, and a large chunk of that is tied up in fragmented, outdated data systems. So GM believed that technology, if properly implemented, could transform GM's competitiveness, and they believe EDS is the answer. So in 1984, they buy EDS for $2.5 billion, the largest deal of its kind at that time.

And by this point, Perot, who has diluted his shares over time, has about a 40% stake, so worth about a billion. So he takes a combination of cash and shares, and he joins GM's board as its largest individual shareholder. But almost immediately the relationship starts to unravel. It's a culture problem because EDS is fast, it moves quickly, and it's disciplined, and it's performance-driven, whereas GM is slow, bureaucratic, loads of committees that Perot just despises. And Perot begins openly attacking the company, and I love some of these quotes. He says, "GM is five years behind the refrigerator." He says, "Revitalizing GM is like teaching an elephant to tap dance."

So by 1986, two years after the deal was done, the relationship is finished, and GM decides to buy out Perot. They pay him $742 million to take back his remaining shares, effectively paying a premium just to get rid of him. So in total he makes over a billion from the deal.

Now we move on a few months later after leaving GM. Another intriguing story in Perot's career, and this is where Perot meets and invests in Steve Jobs. I mean, what an unlikely pairing. So for context, Perot had previously passed on an opportunity to invest in Microsoft, and he was kicking himself over that. He knew that was a good opportunity. And then he saw a PBS documentary called Entrepreneurs and it featured Steve Jobs. And Perot was just intrigued by Jobs. And it's hard not to be, isn't it?

I mean, the first time I saw Jobs properly being interviewed is in the fantastic 1996 documentary called Triumph of the Nerds. If you haven't seen it, I really recommend it. There are some great interviews with the top people at that time. You've got Gates, Ballmer, Wozniak, Ellison. But of all of them, in my memory, Jobs just stood out. He just had this charisma. He was so engaging, and Perot was equally engaged.

So after seeing Entrepreneurs on PBS, he cold-called Jobs, and they set up a meeting at the NeXT offices. This was the company that Jobs had founded after leaving Apple. Now, Jobs at this point, he was viewed by most in Silicon Valley as brilliant but a risky bet because NeXT had no revenue. Jobs was funding it himself out of his own pocket. He'd already spent, and you know, this is typical Jobs, he'd already spent a hundred thousand dollars on just the brand identity. He'd moved NeXT into these really swanky, architecturally designed offices. So all of this is the antithesis of Perot.

And there's also a funny story that Jobs, realizing that all this opulence in the office might turn Perot off, he panicked, and just before Perot arrived, he moved his brand new Porsche from outside the office and kind of hid it from Perot. But he needn't have worried because Perot just believed in Jobs. He just thought Jobs had something, and he invested $20 million for a 16% stake and sat on the board of NeXT up until 1991, when he left to focus on his new business.

Now, apparently he diluted his stake over time and he made some money back. I couldn't get an exact figure, but I believe he made either $40 million to $60 million back. But what I like about this story, and why I think it's important, too often Perot is characterized as this stereotypical country bumpkin, but he was a brilliant businessman. And he also recognized the brilliance in others. And the fact that he and Jobs got along so well, two total opposites, it tells you a lot about both of them.

Anyway, getting back to Perot's second multi-billion-dollar company, so he had signed a non-compete agreement after leaving GM, so in 1988 he launched Perot Systems. And he had a workaround to get around this non-compete. He launched the company as a non-profit, so he was offering his services at cost so that he could go after EDS clients without technically competing. And he also poached top EDS executives and salespeople. So he was basically laying the groundwork. He was lining up people, clients, and contracts for the moment that the non-compete expired, which is in 1989.

But of course, GM sued because, okay, technically he mightn't have been competing, but he was actually competing. And Perot eventually agreed to stop what he was doing. And then when the non-compete clause ended in 1989, he went after and won a huge contract with the US Postal Service. But after heavy lobbying by GM and a lot of legal maneuvering, which I won't get into, the contract with Perot and the US Postal Service was canceled. And this is a vital moment because for Perot, that was proof that big business and government were protecting each other, and it's one of the things that pushed him towards politics.

Now, it should be noted, he had already been involved in politics. He had been active in the war on drugs in Texas, and he'd also been active in reforming the Texas education system. He'd been asked by the Texas governor to help in that. But this run-in with GM and the Washington lobbyists, this pushed Perot to think, you know what, I'm gonna get more involved in national politics.

And throughout 1991, Perot starts appearing regularly on talk shows, initially opposing the Gulf War. But then in February 1992, on the Larry King show, when he was asked if he'd run for president, he puts out a challenge, and I quote, "I don't wanna run, but if ordinary people sign petitions in 50 states, I'll run." And he promised to also use his own money to finance it so he wouldn't be influenced by big companies and all that kind of stuff. And supporters collected 5.3 million signatures across 50 states. So he enters the race.

And here's a quote from the New York Times when he entered the race. "He seems all wrong. Like a cartoon character sprung to life, an elf, five foot six inches and 144 pounds, with a 1950s crew cut, a squeaky nasal country-boy twang and ears that stick out. Stiff-necked, cantankerous, impetuous, often sentimental. He was given to home spun epigrams. Like if you see a snake, just kill it. Don't appoint a committee on snakes.”

So that was from the New York Times at that time.

Now, he wasn't advocating to kill snakes. He was actually advocating for balanced budgets. He was calling for the end of outsourcing of jobs abroad. So he built a really big, dedicated following with his populist, small-government, anti-globalist rhetoric, I suppose. Or as John Harris in Politico put it recently, "A quarter of a century before Donald Trump, Perot was a brash, can-do showman who expressed contempt for politics as usual, and promised voters who shared his disdain that the path to national greatness was to send an autocratic businessman with a touch of jingo to the White House to kick ass in Washington."

And there is some truth to that. In a sense, he did foreshadow Trump, but it's not fair to say that he was Trumpian in the modern sense. Perot was very focused on economic and structural change, not on culture- or identity-driven politics. He was talking about America as a team that needed to function properly, not as a country divided against itself. And he'd often framed diversity as a strength. And here's a quote from him: "United teams win. Divided teams lose. Play to our multicultural strengths."

Anyway, by May 1992, Perot was leading. He was beating both George H.W. Bush and Bill Clinton in national polls. And what's really unusual as well is his political campaign and the adverts he used. So he would have these 30-minute primetime infomercials, basically him at a desk with a wooden pointer and hand-drawn charts where he'd talk about the national debt. I mean, something like that, in my mind, would be unwatchable. But millions of people watched this.

And then inexplicably, out of nowhere, on July 16th, 1992, the day that Bill Clinton accepted the Democratic nomination, Perot held a press conference where he announced he was pulling out of the race. And the reason he gave at the time was he said that the Democratic Party had revitalized itself and he didn't want to cause an electoral deadlock. I mean, for context, he wanted Democrats to win because he hated George Bush. He saw George Bush as an elite.

But the real story he gave in private for leaving the race was he claimed that the Republican Party were in the process of a dirty tricks operation that would target his daughter's upcoming wedding. He also claimed that his offices were being bugged by the Republican Party. Now, the FBI investigated these claims. No evidence was ever found, and the whole thing, it painted Perot as some sort of paranoid conspiracy theorist, so it definitely damaged his image.

And then, even more confusingly, one month before election day, at the urging of his supporters, he got back into the race. Now, he ended up with just under 19% of the popular vote, like nearly 20 million votes. That was the strongest third-party performance since 1912, and he spent around $65 million of his own money.

And it's interesting to imagine, like, if he hadn't dropped out the first time, could he have won? Who knows? It's impossible to say. But can you imagine if he had won? How different America might be now as a result.

Anyway, he did run again in 1996, but he just got 8% of the vote, and that was the end of his presidential campaigns, and he went back to running Perot Systems. By this stage it had a billion in revenue, 7,500 employees. It went public in 1999, and in 2000 he handed the CEO role to his son, Ross Jr., who did a pretty good job because by 2009 it had revenues of 2.8 billion, and it was then bought by Michael Dell for 3.9 billion in an all-cash deal.

And Perot then spent the last 20 years of his life very, very active in philanthropy. He gave tens of millions to Boy Scouts and Girl Scouts because he believed that scouts could help children, especially those from broken homes, to give their lives a bit more structure. And there are also apparently countless stories of army veterans and schools getting personal checks from Perot with a note saying, "Don't tell anyone where this came from."

Perot died of leukemia at his Dallas home on the 9th of July, 2019, at the age of 89.

And I gotta say, like, I don't think I'd have liked to work for Perot, and I don't think I'd have voted for him back then, but I still really liked the guy. He was single-minded. He was a brilliant businessman. A man of action. Yeah, he was uncompromising, but like any great businessperson, he was also open-minded. And I think the main reason why I like him is he comes across as, yeah, tough, but also very honest and fair.

And in terms of his achievements, like, how many other people can say that they built and sold two multi-billion-dollar businesses, sent their own mini army into Iran to stage a prison break, and almost became President of the United States? I mean, it's an extraordinary story.

Anyway, that brings us to listeners' emails. And actually, this isn't an email, it's a comment from Flavio, and he recommends that I check out the story of Banco Master, a huge banking scandal in Brazil that I wasn't aware of. So thanks for listening, Flavio, and for that suggestion.

And remember, if you have any comments, any corrections, or any story that you'd like me to cover, email me at info@gbspod.com.

All the best, folks.