Things They Never Taught You at Harvard Business School — Part 1

Or never do business with Princes or Kings.

I’d like to share with you some of the more unusual experiences that I had in the world of finance and commerce. I spent 27 years of my career in the Arabian Gulf, where I encountered a world and cultural environment for which no US business school could have prepared me. My experience was unusual inasmuch as I never worked for a western company that was operating in the region. I worked only for Arab companies, Palestinians, Libyans, Kuwaitis and then Saudis. I developed extensive experience in Saudi Arabia and all of the Gulf Emirates, as well as Jordan and Egypt. It was an intense learning experience of high magnitude and with a couple of notable exceptions, I was able to negotiate the unusual and sometimes difficult environment in which I found myself. Some of the lessons I learned are unique to that part of the world. Some are universal.

You may recall in the TV series Star Trek: The Next Generation, a group of aliens known as the Ferengi. You will recall, if you saw the series, that the Ferengi were highly materialistic and had a business code called The Rules of Acquisition. In the allegorical world of Star Trek coming out of the Cold War as it did, it was always fairly clear that the Klingons were the Soviets and that the Romulans were the Chinese. Well, I’m convinced that the Ferengi represented the Lebanese. The Lebanese are renowned traders and businessmen and are very often able to insert themselves on both sides of a deal. Drawing on my experience with them and with other Levantines as well as the traders of the Gulf, I have, in homage to the Ferengi, developed my own rules of business which I would like to share with you.

Rule number 1: Never do business with Princes or Kings.

This is the absolute first rule of all business dealings, anywhere. Why is this? Because if anything goes wrong, you have no recourse. An absolute ruler can do whatever he wants. For example, say you are one of the country’s leading merchants and you refuse to sell your hotel to the brother of the Prince. There’s nothing to stop the brother from taking a Kalashnikov and shooting up the lobby of your hotel and then your Rolls Royce. If this is all that happened, you got off easy. An English businessman I know is sitting in jail in one of the Gulf states sentenced to 10 years for getting on the wrong side of a business deal involving the ruler of that country. He was held for 2 years without even being charged. When it looked like the judge might let him off, the ruler simply changed the judge. When he finished his 10-year sentence, the ruler arbitrarily gave him another 15 years. He’s still in jail. You have no recourse, and your own country will not help you out if you have a problem. More often than not, they are deeply in bed with these regimes and maintaining lucrative arms sales, sharing intelligence and have other commercial contracts with the countries involved which are far more important to the people in power than the rights of any single citizen.

Rule number 2: Always cut out the middleman.

This is fairly obvious. Why pay commissions when you don’t have to? Particularly when the commission agent is invariably trying to take a commission from each side of the deal he is trying to put together. Sometimes it’s not possible to do this as some of these commission men are gatekeepers and have a special relationship which allows them to block and tackle anybody trying to get at the principal. Adnan Khashoggi is a good example of this. Khashoggi’s father was the personal physician to King Abdul Aziz Al Sa’ud. He grew up in the royal palace in Riyadh and, as a result, was known and trusted by a number of the senior princes of the Al Sa’ud family. Thus, what he had that was of value to firms such as Lockheed that were trying to sell in the Kingdom was access. A gatekeeper doesn’t need to have any skills at all, just know and be trusted by the right people. Just make sure that when you pay him his tip that he lets you in through the right door. This phenomenon is universal.

Rule 3: There are really only two elements involved in every business deal or venture, revenues and costs.

In some respects, all businesses are really very simple. You need to generate more revenues than costs. If you can do this, you will make a profit and be able to stay in business. The devil, as they always say, is in the details. Most businesses fail due to a lack of adequate capital. The primary reason for this is that human beings delude themselves in the search for success and riches. Since we want to achieve, we project our hopes into our business models and, as a result, we more often than not get it wrong because our aspirations blind us to the realities and complexities of most endeavors. This is hard to avoid and the only way to try is to be as hardheaded and unsentimental as possible about everything we attempt in business. If you can’t do that, then hire an Armenian, as they are the only people in the world who can buy from a Jew and sell to a Scotsman and still make a profit.

Rule number 4: Everything takes longer and costs more than you think it’s going to.

I don’t care what it is. This is an absolute truism. Budgets and projections are all well and good, but they will never be accurate. Always make sure that you have more capital or financing in reserve for any project you undertake. As stated before, the biggest reason businesses fail is due to inadequate capital. You’re all familiar with Murphy’s law. Well, it’s pretty much true and invariably something unanticipated will arise that will create problems. Trust me on this one.

Find all chapters here.