Mark Cuban: From Neighborhood VAR To Internet Czar

It took Bill Gates the better part of a decade to amass a billion-dollar fortune with a single company. Mark Cuban did it in four.

By getting behind an idea whose time had come, broadcasting live events over the Internet,Cuban attracted more partners, customers and investors than his company, Broadcast.com, could alone handle. This summer, he and co-founder Todd Wagner sold the company they founded in 1995 to Yahoo! Inc. for approximately $6 billion.

The transaction landed Cuban a spot on Forbes magazine's list of the 400 richest Americans and put the entrepreneur back in the spotlight. A new Internet whiz kid, some called him. Those who have followed him know otherwise.

Broadcast.com is actually Cuban's fourth stop in computing. His career dates back to 1981, the year he graduated from Indiana University with a business degree. Stops No. 2 and No. 3, channel insiders may recall, involved the reseller/distribution channel in a big way. They were seminal years for Cuban, who says he operates as though he's still running a VAR business to this day.

Why not? The lessons he learned in the 1980s and early 1990s still apply today, he insists. He certainly proved that when he took Broadcast.com public in 1998 and again this summer when he tied his Web site to one of the most visited portals on the Internet.

This is the story of Mark Cuban and the lessons he learned that helped transform him from local VAR to Internet czar. It's a business history every VAR should know.

Humble Beginnings

Though he's made a fortune with technology, Cuban has no formal background in it. At I.U., he took just one computer course, a class on Fortran, and he cheated to get by. "I could never get my punch cards right, so I had to have someone else dupe their deck. That's how I got through," he says.

His first job after college was in Pittsburgh with Mellon Bank. The assignment: help Mellon automate manual processes. A snoozer, Cuban thought. He soon returned to I.U. in Bloomington, Ind., where several friends convinced him that the great fortunes of the 1980s would be made in Dallas. So off they went.

Like many young people, Cuban had the basics of a career in mind, but no idea how to get started. For example, he made a list of several industries that he thought were worthwhile. The first opening in any one of them, he told himself, he would fill. For a month, the only filling he did was pouring rounds for patrons at a Dallas nightspot. Cuban, who was living with five other guys in a three-bedroom apartment, had no closet for his clothes and no bed of his own.

Then Cuban's break came. He was offered a job at a software retailer known as "Your Business Software." The company was one of the first software retailers in Texas and one of the first in the nation to try mail order. He jumped at the opportunity.

"The good thing about computers then," he recalls, "was that the PC rendered meaningless the advantages that those who were older and more experienced had. Everyone was literally starting at ground zero."

Given a level playing field, there was no way he was going to fail, says his mother, Shirley. She remembers Norton, her husband, taking his young son to massive stamp collecting shows where he would buy items from sellers on one floor and then sell them for a profit on another. "Mark was born that way," she says. The eldest of three sons, she says Mark was keen on proving his worth.

With almost no PC experience, Cuban set out to become an expert. Lacking money for a computer of his own, he persuaded customers of the software retailer to give him their new machines so he could take them home and "set them up." He spent nights installing Lotus 1-2-3, writing macros and getting accustomed to DOS.

His hands-on technical skills quickly made him one of the company's top salesmen. Cuban's boss wanted a team player who would sweep floors. But Cuban was a star. Weary from late nights in front of a green screen, Cuban clashed with the manager. And he was soon fired.

By then, however, Cuban had amassed enough contacts to fill a Rolodex. Working from his apartment, he rolled calls until one customer,

Architectural Lighting, agreed to his intriguing offer to service its computers: satisfaction or your money back. Cuban, of course, had no money to back his guarantee, but he began building a business nevertheless. Whenever a new customer sent him a check, Cuban would pay the oldest bill he had. "It was like a check-kiting scheme," he concedes. Architectural Lighting eventually asked for and received its money back from Cuban. But few others did, and MicroSolutions, Cuban's new company, blossomed.

Still in need of an office, Cuban turned to one of his customers for help. The customer had a son who agreed to let Cuban use his office at night for computer work. Another customer, Martin Woodall, eventually bought into MicroSolutions and soon became an equal partner.

By the time the two men sold their company to CompuServe in 1990, MicroSolutions was generating $30 million in annual sales.

Looking back, Cuban says MicroSolutions thrived by following traditional business strategies. Employees worked late. They promised the moon. They offered competitive prices, and they provided a high level of customer service. But that's not what made MicroSolutions one of the most successful VAR businesses in Texas. MicroSolutions stood out because it applied a handful of unproven conventions that Cuban believes in to this day. It revolves around building a brand, taking chances with new innovations, relying on partners to an extraordinary degree, and competing as if your rent money depends on winning. For much of his early career, it did.

The Cuban Way

Early on, Cuban quickly recognized there was little to lose by managing a company on the fringe of technology. When most retailers were hooking up their first laser printers, he was already a leader in local area networks. He tried virtually every new device and piece of software he could get his hands on. He became a beta tester and proving ground for innovations. Others worried about getting behind platforms that could fail commercially. They worried about delivering innovations that might give customers headaches. But Cuban insisted that MicroSolutions be the one to introduce customers to new things. That put him on the short list of vendors who sought pioneers, and it provided his company unrivaled access to technology enthusiasts inside local businesses.

In addition, Cuban and Woodall hired disproportionately more salespeople than their rivals.

Others boasted more technically experienced or capable personnel, but Cuban's company always had more feet on the street. They could respond to more opportunities, knock on more doors and learn about more customers' businesses. In addition, Cuban spent a great deal of time on marketing. He and Woodall advertised more than competitors. And they quickly recognized the value (and money) in trade events. They helped organize the first Network World trade show, for example.

Cuban also recognized that winning companies weren't necessarily the ones that provided the best services at the lowest prices, or the ones who could solve customer problems that confounded everyone else. At a time when many VARs and small market resellers were run by technologists or one-time hobbyists, Cuban surmised that entrepreneurs had the best chance to survive what the industry had in store.

Cuban began reading more business books. He studied Wall Street and pored over market research. Though somewhat more geeky than before, Cuban recognized that computers were a business first, a science second. To succeed, he concluded, he needed a high-profile image,the bigger, the better. While other companies swapped high-profile retail locales for less expensive environs, Cuban rented space in the Dallas Infomart, a gleaming, glass-jewel of a building that serves as a nucleus of Dallas' high-tech base. Giants, including Apple Computer Inc. and MCI WorldCom Inc., have offices there. So does Xerox Corp. But the name "MicroSolutions" appeared just as big as the others on the lobby directory.

Not only did Cuban position his young company as a serious player, he also got others to help defray his costs. Several companies helped subsidize his rent and other activities, for example, through the co-op and MDF programs. That, by the way, is one of Cuban's rules for success: If someone offers a scholarship or subsidy, take it.

In a relatively short period of time, Cuban rose from an unknown nobody to a regional player in personal computers. His good looks and easy charm earned him invites to soirees with key vendors at Comdex and a guest column in Computer Reseller News, the sister publication to VARBusiness.

After selling his company to CompuServe, Cuban traveled and traded stocks. Over one stretch, he visited 11 countries in 11 months. In another, he made 100 percent returns from trading shares of high-tech stocks. He applied what he learned from running a channel company, and he made a fortune with a new venture called Radical Computing. Knowing how distribution worked, for example, he shorted reseller stocks when major vendors announced they would embrace open sourcing. He made additional gains by investing in companies that would profit from the industry consolidation he figured would inevitably occur.

Arrogant? Perhaps. But Cuban has a knack for staying one step ahead. He always did, remembers JoeAnn Stahel, retired head of StoreBoard Inc., one of the early pioneers in channel market research. Stahel remembers meeting a 20-something Cuban on a bus at Comdex in 1986. Something about the young man in parachute pants and T-shirt stood out. The pants aside, Cuban had "an uncanny feel for the future," she recalls.

No wonder he gave up trading stocks for the Internet. The money he made from the Web dwarfs the fortune he made in the reseller channel. But it wouldn't have been possible without the time he spent running a VAR shop, he says.

"The ironic thing about the Web is that it is like the channel in many ways. The same rules of branding, finance, technology adoption and customer service apply. Only you have to move faster," he says. And get there early.

Billionaire In Blue Jeans

Cuban and Wagner, a lawyer friend from I.U., who also migrated to Texas, co-founded AudioNet in 1995. That was after Cuban took acting lessons, but well before most Americans ever heard of the World Wide Web and well in advance of when industry insiders, including IBM and Microsoft, appreciated its potential.

Instead of browser battles, Wagner convinced Cuban that there was a great opportunity in providing homesick consumers a way to listen to hometown sports teams over the Web. Cuban saw the potential for delivering real-time audio content to business users. Research revealed that less than a third had radios on their desks; far fewer had TVs. "The PC is the multimedia device of the office," he concluded.

Rather than focus on technology, the duo instead focused on partnerships, secure alliances with someone else to develop software. RealAudio did its part and Cuban, who once sold trashbags door-to-door, did his. He helped establish ties to radio stations and sports enterprises. He insisted, much to Wagner's initial dismay, not to bother with formal contracts but instead establish alliances quickly. That put the company ahead of early rivals. With momentum building, AudioNet changed its name to Broadcast.com in 1998, and the business took off.

Today, the company's offices occupy nearly a block of low-slung, one and two story industrial buildings in north Dallas. The tan, metal door that serves as the entrance to Yahoo! Broadcast would hardly look out of place with the words "industrial supply" stenciled on the front.

Massive satellite dishes on top of the building hint at what's really going on inside. That's where 300 men and women are hunkered down in a massive block of cubicles. Technicians man the massive server room where much of the audio content is stored for various customers. Salespeople roll calls to content providers,everyone from radio stations to sports teams to news outlets. Service people, meanwhile, help corporate customers deliver tailored messages to target audiences, their own employees primarily.

As for Cuban, he's there every day when he's not traveling. He oversees a crew of young people, some of whom are almost two decades younger than he. Though he stays fit, parties to the brink and still pulls all-nighters, the fact is he's playing a young man's game. For a guy who once thought he'd retire at 35, that's unsettling.

Cuban says he's enjoying his current role, but you have to wonder if he pines for change. Why should he? He still wears jeans to the office. He drives the same Lexus he's had for some time. And he still hangs out with the same fellas he's known since college. "Oh, and I did try to buy the Pittsburgh Penguins," he says matter-of-factly, "but otherwise, I'm still the same VAR, entrepreneur guy at heart."

Perhaps. But unlike most people, Cuban keeps a rare, American Airlines travel card in his wallet that allows him to fly anywhere in the world for free for the rest of his life. It cost Cuban $125,000. For a billionaire with mounting responsibilities, freedom doesn't come any cheaper.

Cubisms

Cuban on competing:

"You have to be in this to win. Give me my Congressional hearing! When you find yourself in Washington defending your monopoly, then you know you're winning."

Cuban on his decision to sell to Yahoo! Inc.:

"We thought advertising initially. Then services. Ultimately, we would need to build a portal of our own, or marry with one of the most popular sites on the Web. Which decision would you have made?"

Cuban on turning 40:

"Now I'm the old guy in this industry. Everybody is now 21, 22 or 23. It's kind of bizarre. But, hey, it happens to everybody."

Cuban on having wealth:

"It's funny. The day we sold [Broadcast.com], I took a Southwest flight home. A guy recognizes me from a TV spot. Cool. Then I take the last seat on a budget airline. Changed my life? You bet."

Cuban on the future of entertainment:

"Broadcast.com is putting out movies at 1 megabit...If this isn't scaring [current companies], it should. The PC-based home theater could be the next big VAR opportunity."

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