The Secrets of the World's Richest Man

Mexico's Carlos Slim makes his billions the old-fashioned way: monopolies

By DAVID LUHNOW
August 4, 2007

(See Corrections & Amplifications item below.)

Mexico City

Carlos Slim is Mexico's Mr. Monopoly.

It's hard to spend a day in Mexico and not put money in his pocket. The 67-year-old tycoon controls more than 200 companies -- he says he's "lost count" -- in telecommunications, cigarettes, construction, mining, bicycles, soft-drinks, airlines, hotels, railways, banking and printing. In all, his companies account for more than a third of the total value of Mexico's leading stock market index, while his fortune represents 7% of the country's annual economic output. (At his height, John D. Rockefeller's wealth was equal to 2.5% of U.S. gross domestic product.)

As one Mexico City eatery jokes on its menu: "This restaurant is the only place in Mexico not owned by Carlos Slim."

Mr. Slim's fortune has grown faster than any in the world during the past two years, rising by more than $20 billion to about $60 billion currently. While the market value of his stake in publicly traded companies could decline at any time, at the moment he is probably wealthier than Bill Gates, whom Forbes magazine estimated at $56 billion last March. This would mark the first time that a person from the developing world held the top spot since Forbes started tracking the wealthy outside the U.S. in the 1990s.

"It's not a competition," Mr. Slim said in a recent interview, fiddling with an unlit Cuban cigar in a second-story office decorated with 19th century Mexican landscape paintings. A relatively modest man who wears ties from his own stores, the mogul says he doesn't feel any richer just because he is wealthier on paper.

How did a Mexican son of Lebanese immigrants rise to such heights? By putting together monopolies, much like John D. Rockefeller did when he developed a stranglehold on refining oil in the industrial era. In the post-industrial world, Mr. Slim has a stranglehold on Mexico's telephones. His Teléfonos de México SAB and its cellphone affiliate Telcel have 92% of all fixed-lines and 73% of all cellphones. As Mr. Rockefeller did before him, Mr. Slim has accumulated so much power that he is considered untouchable in his native land, a force as great as the state itself.

The portly Mr. Slim is a study in contradiction. He says he likes competition in business, but blocks it at every turn. He loves talking about technology, but doesn't use a computer and prefers pen and paper. He hosts everyone from Bill Clinton to author Gabriel García Márquez at his Mexico City mansion, but is provincial in many ways, doesn't travel widely, and proudly says he owns no homes outside of Mexico. In a country of soccer fans, he likes baseball. He roots for the sport's richest team, the New York Yankees.

INTERVIEW EXCERPTS

"This isn't a competition. Being a businessman isn't about that kind of competition. It's a competition for the marketplace."

-- Carlos Slim, in a discussion with The Wall Street Journal. Read the edited excerpts.

Admirers say the hard-charging Mr. Slim, an insomniac who stays up late reading history and has a fondness for reading about Ghengis Khan and his deceptive military strategies, embodies Mexico's potential to become a Latin tiger. His thrift in both his businesses and personal life is a model of restraint in a region where flamboyant Latin American business tycoons build lavish corporate headquarters and fly to Africa on hunting jaunts.

To critics, however, Mr. Slim's rise says a lot about Mexico's deepest problems, including the gap between rich and poor. The latest U.N. rankings place Mexico at 103 out of 126 nations measured in terms of equality. During the past two years, Mr. Slim has made about $27 million a day, while a fifth of the country gets by on less than $2 a day.

"It's like the U.S. and the robber barons in the 1890s. Only Slim is Rockefeller, Carnegie, and J.P. Morgan all rolled up into one person," says David Martínez, a Mexican investor who lives in Manhattan.

Monopolies have long been a feature of Mexico's economy. But in the past, politicians acted as a brake on big business to ensure that the business class didn't threaten their power. But political control faded in the 1990s with the privatization of much of the economy and the slow death of the Institutional Revolutionary Party, which held power for 71 years until 2000.

"It is surprising how big companies have captured the Mexican state. This is a risk to our democracy, and is suffocating our economy," says Eduardo Perez Motta, the country's antitrust chief.

As the face of the new elite, Mr. Slim presents an acute challenge for the country's young president, Felipe Calderón. He must decide whether to try and rein in Mr. Slim despite the mogul's standing as the country's largest private employer and taxpayer. Congress routinely kills legislation that threatens his interests, and his firms account for a chunk of the nation's advertising revenue, making the media reluctant to criticize him.

During the past few months, Mr. Calderón has looked to cut a backdoor deal with Mr. Slim. In a series of face-to face meetings -- the details of which have surfaced for the first time -- the president has tried to convince Mr. Slim to accept greater competition, according to people familiar with the talks. The government holds an important card: Mr. Slim can't offer video on his network -- a big potential market -- without government approval.

But even some within Mr. Calderón's camp privately say the closed-door talks play into Mr. Slim's hands by letting him circumvent the country's regulators, underscoring the weakness of Mexico's democratic institutions. Unless Mr. Calderón extracts big concessions from the mogul, they say, he may become too powerful to control. For his part, Mr. Slim says that his companies are "in constant contact" with regulators, but played down the notion of a secret negotiation.

A talkative man who is generally avuncular but who can easily lose his temper, Mr. Slim rejects the monopolist label. "I like competition. We need more competition," he says, sipping a Diet Coke. He stressed that many of his companies operate in competitive markets, and pointed out that Mexico accounts for only a third of sales at his cellphone company América Móvil SAB, which has clients from San Francisco to Sao Paolo.

Mr. Slim's strategy has been consistent over his long career: Buy companies on the cheap, whip them into shape, and ruthlessly drive competitors out of business. After Mr. Slim got control of Telmex in 1990, he quickly cornered the market for copper cables used by Telmex for telephone wires. He bought one of the two main suppliers and made sure Telmex didn't buy any cable from the other big supplier, eventually prompting the owners to sell the company to him.

His control of Mexico's telephone system has slowed the nation's development. While telephones have long been standard in any American home, only about half of Mexican homes have them. Only 4% of Mexicans have broadband access. Mexican consumers and businesses also pay above-average prices for telephone calls, according to the Organization for Cooperation and Economic Development.

Mr. Slim agrees that many industries in Mexico are dominated by big companies. But he sees no harm as long as they offer good service and prices. "If a beer in Mexico costs 1 peso and in the U.S. it costs 2 pesos, then I don't see the problem," he says.

Despite countless measures over the years that show his companies charge high prices, Mr. Slim steadfastly rejects that notion. During an interview, he orders an aide to fetch his own telephone bills. "See? We charge $14 per month for basic phone rental, cheaper than the U.S.," he says, pulling up a seat next to the reporter. That may be so, but additional fees in Mexico make most phone bills more expensive than in the U.S. Mr. Slim's total phone bill at his own house was a whopping $470 last month. "I have a lot of maids and my sons make calls," he says.

Mr. Slim says his success comes from spotting opportunity early, something he learned in part from reading futurist writer Alvin Toffler, who wrote the best-seller "Future Shock" in the 1970s, and who sends the mogul manuscripts to review. Pulling a dog-eared copy of Mr. Toffler's last book, "Revolutionary Wealth," Mr. Slim leafs through it and shows off his comments in the margins. "Some of his numbers were out of date," he mutters.

Mr. Toffler says he first met Mr. Slim on a trip to Mexico in 1993. Mr. Slim approached him after a speech, surrounded by his family and carrying one of Mr. Toffler's books, heavily underlined. The two have been friends ever since. "If you didn't know he was the richest guy in the world, you'd just think he was a likeable and intelligent guy," says Mr. Toffler.

The fifth of six children, Mr. Slim was born wealthy. His father, Julian Slim, made his fortune on a general store in downtown Mexico City called "The Orient Star." His father died when Mr. Slim was only 13.

THE FOUR D'S

Companies that dominate their industries often resort to the four D's to defend their turf when facing competition for the first time.

Deny -- When Mexico's long-distance market opened to competition in 1997, Telmex at first denied access to its network, arguing that rivals didn't have the legal authorization to operate in the country, say rivals. In recent years, Telmex has tried to block Internet calling service Skype's entry into Mexico, arguing it needs a government concession to enter the market. Telmex says it follows legal procedure.

Delay -- Telmex dragged its feet on allowing access to its network, often not returning calls from executives of rival companies or not showing up at meetings, rivals say. When Mexico's telephone regulator, Cofetel, tried to regulate Telmex in the following years, the company took it to court nearly every single time, tying up the regulator's rulings for years.

Deteriorate -- Rivals complain that Telmex hurt competitors' service. One small rival, MCM Telecom, says Telmex would route all of its calls through one particular station to overload the calls and create busy signals. Telmex says any such move was inadvertent.

Dump -- Mr. Slim's companies can put the squeeze on rivals. Since his Mexican cellphone company, Telcel, has more than 70% of the market, it collects high interconnection fees for calls between networks roughly seven in every 10 times. Rivals, however, have to pay the fee most of the time, making it hard for them to undercut Telcel's prices and gain market share.

Early on, Mr. Slim showed an aptitude for numbers that would help his career. He taught algebra at Mexico's largest public university while finishing his thesis, titled "Applications of Linear Theory in Civil Engineering." His love of numbers also drew him to baseball, a lifelong hobby. "In baseball...numbers talk," he once wrote. Even today, he enjoys discussing baseball, telling a reporter that slugger Barry Bonds should be remembered more for his walk ratio than his home runs.

After college, Mr. Slim and some friends became stockbrokers in the country's fledgling market. Trading by day and playing dominoes by night, the clique became known as "Los Casabolseros," or "The Stock Market Boys." Despite the success, friends say Mr. Slim, less of a party boy and more private than the rest, wanted to run companies rather than trade. "He never liked money as much as the rest of us. He just wanted to be a good businessman," says Enrique Trigueros, one of the casabolseros.

Mr. Slim soon got his chance. After turning around a soft-drink company and a printing firm in the late 1960s and mid 1970s, he made his first big move in 1981, buying a big stake in Mexico's second-biggest tobacco company, Cigatam, maker of Marlboro cigarettes in Mexico. The company generated the cash Mr. Slim needed to go on a buying spree.

A good time to buy came in 1982, a year that would shape Mr. Slim's destiny. That year, the collapsing price of oil threw Mexico into a tailspin. When departing president José López Portillo nationalized Mexico's banks, the traditional business elite feared the country was becoming socialist, and ran for the exits. Companies were selling for as little as 5% of their book value. Mr. Slim picked up dozens of leading firms for bargain-basement prices, a move that paid off when the economy recovered in the following years. He bought Mexico's largest insurer, Seguros de México, for $44 million. Today, the company is worth at least $2.5 billion.

"Countries don't go broke," an unflappable Mr. Slim told friends at the time. Indeed, Mr. Slim always says his inspiration to invest during the downturn came from his father, who bought out his partner in their general store during the worst days of the 1910-1917 Mexican revolution -- a bet that made his father a fortune when the fighting ended.

Mr. Slim still spots good values. From 2002 to 2004, he amassed a 13% stake in bankrupt carrier MCI, later selling it to Verizon Communications Corp. for $1.3 billion. "He has never overpaid for anything," says Hector Aguilar Camín, a historian and friend. While the pair were on holiday in Venice, Mr. Slim once haggled with a store owner for several hours to get a $10 discount on a tie.

Despite his abilities, many here believe his biggest break was the rise to power in 1988 of Carlos Salinas, a Harvard-educated technocrat bent on modernizing the country. The two men had struck up a friendship in the mid-1980s, and Mr. Salinas spoke of Mr. Slim as the country's brightest young businessman. Local wags dubbed the pair "Carlos and Charlies," after a popular local restaurant chain.

Under Mr. Salinas, hundreds of state companies were sold, including Telmex in 1990. Mr. Slim, together with Southwestern Bell and France Telecom, won the bid over one of his closest friends, Roberto Hernandez, who got together with GTE Corp. Mr. Hernandez later suggested the auction was rigged, something both Mr. Slim and Mr. Salinas have long denied. Regardless of whether there was favoritism in the sale of Telmex, the privatization process created a new class of super-rich in Mexico. In 1991, the country had two billionaires on the Forbes list. By 1994, at the end of Mr. Salinas's six-year term, there were 24. The richest of them all was Mr. Slim.

In retrospect, it is easy to see why Messrs. Slim and Hernandez considered Telmex a prize worth losing their friendship. Although countries like Brazil and the U.S. broke up state monopolies into a number of competing firms, Mexico sold its monopoly intact, barring competition during the first six years. And while countries like the U.S. initially barred local "baby bell" carriers from offering long-distance and cellular service in their same area, Telmex got to do all three at once, and across the entire country. Indeed, it won the only nationwide cellular-telephone concession, while rivals had to settle for concessions that were limited to certain regions. When competition was allowed in long distance, foreign carriers were limited to a minority stake in the fixed-line business. Mexico didn't even bother to set up a telephone regulator until three years after the sale.

Dan Crawford was one of those who took on Mr. Slim and lost. In 1995, the California native became chief operating officer of Avantel, a long-distance company partly owned by MCI and the bank of Mr. Hernandez, Mr. Slim's erstwhile friend. Avantel spent around $1 billion building a new network, but it soon ran into trouble trying to connect to Telmex's network -- something it needed to complete calls to and from Telmex clients. Telmex executives simply ignored phone calls or failed to turn up for meetings, Mr. Crawford recalls.

When Telmex did connect the calls nearly a year later, the price was so high that Avantel paid 70 cents of every dollar it made to Mr. Slim's company, according to Mr. Crawford. When Avantel took Telmex to court for monopolistic practices, Telmex responded by asking a judge to issue an arrest warrant for Avantel's top lawyer in Mexico, Luis Mancera, on trumped up charges, Mr. Crawford says. Mr. Slim confirms the story, but says a Telmex lawyer acted rashly, and that the judicial proceeding was dropped. Mr. Mancera declined to comment.

"Slim is very aggressive," says Mr. Crawford, who recently retired from MCI. Avantel eventually defaulted on its debts in 2001, much of which were scooped up by Mr. Slim and later sold for a profit. Avantel was sold recently to another Mexican firm for $485 million -- a fraction of what it invested in Mexico.

For his part, Mr. Slim says Avantel and others mistakenly focused on the long-distance market, which was in decline, rather than wireless, which was growing.

It hasn't been much easier taking on Mr. Slim in the wireless market either. In 2004, Spain's Telefónica SA began selling handsets at a loss here to build market share. But it soon realized that tens of thousands of phones were purchased but never used. According to a case currently at Mexico's antitrust agency, Telefónica says that Telcel distributors bought the phones to keep them off the market, in some cases swapping the phone's existing chip with their own and reselling the handset.

When asked about this practice, Mr. Slim says "It could be. That happens to all of us. If you sell something for $50 or $20 that costs $100, someone's going to buy it." His spokesman and son-in-law, Arturo Elías, says the distributors acted without Telcel's knowledge.

Attempts to regulate Mr. Slim's companies have largely failed over the years. Mexico's telephone regulator, Cofetel, was so weak in the 1990s that Telmex's rivals dubbed it "Cofetelmex." When the regulator did try to act, Mr. Slim's lawyers blocked it in the country's Byzantine courts.

The Telmex chief also had friends in high places. Vicente Fox, Mexico's first opposition president when he won in 2000, tapped a former Telmex employee, Pedro Cerisola, to be his minister of communications and transport. During his tenure, Mr. Cerisola rarely moved against Telmex, say executives from rival telephone companies. Mr. Cerisola declined to comment.

Using money from his telephone empire, Mr. Slim has expanded into Latin American markets as well as new industries in Mexico. His cellphone company América Móvil has 124 million customers and operates in more than a dozen Latin American nations. In Mexico, he has focused on industries that depend on government contracts. His new construction company, Ideal SAB, is currently bidding to run some of Mexico's biggest highways. His new oil-services company recently built the country's biggest oil platform.

Some of Mexico's business leaders say in private that they feel Mr. Slim has grown too greedy. The death of his wife, Soumaya, from kidney disease in 1999 left him without an anchor, says Mr. Trigueros, Mr. Slim's friend from his stockbroker days. "She was a special woman, the kind who keeps a guy in line. Nowadays, he only has business to think about," he says.

Mr. Slim's empire is so vast here now that doing business without him can be difficult. Two years ago, Hutchison Port Holdings and U.S. railroad Union Pacific teamed up to bid on a $6 billion port and railway in Baja California to compete with Long Beach port. But Mr. Slim felt the project had been arranged behind closed doors and was against the idea of the country's biggest project going to foreigners. He made his feelings known to the Baja California governor and the project was stalled. Mr. Slim has since worked to put together a rival consortium, which includes Mexican rail company Grupo Mexico and U.S. railroad Burlington-Northern. He says his potential bid is a better option for the country because the railroad will run along Mexico's north and help spur development. Union Pacific and Hutchison both declined to comment.

Mr. Slim has recently given more money to philanthropy, but he has often said his most important legacy is his family. In 2000, a few years after heart surgery, he put his sons and sons-in-law in charge of his businesses. He also started a group called "Fathers and Sons" that invites Latin American billionaires and their heirs for annual meetings, where they sip fine wines and attend seminars like "How to Run a Family Business."

There is no obvious successor to the patriarch's empire. That gives some Mexican officials hope that one day the state can regulate his companies. Says one high-ranking official: "When Slim dies, we can finally regulate his kids."

Write to David Luhnow at david.luhnow@wsj.com

Corrections & Amplifications:

About half of Mexican homes have telephone lines, according to the World Bank. This article about Mexican telecom magnate Carlos Slim incorrectly said only 20% of Mexican homes have phone lines.

Increasing Traffic to Your Internet Business

Kelly Spors answers questions from readers about entrepreneurship
July 31, 2007

Start by figuring out what phrases people are typing into search engines when looking for your type of products online. Once you know that, you can buy paid search ads, such as pay-per-click ads, using those phrases and pepper your site with them to boost its search-engine rankings.

Showing up high in search-engine rankings is very important since most people use search engines to shop for products online.

There are some key-word suggestion tools that help identify popular search phrases, usually available free. For instance, Google Inc.'s AdWords Keyword Tool and Wordtracker.com let you type in words and see which related phrases get searched most often. Type "Made in America" into the AdWords Keyword Tool, for instance, and you see phrases like "clothing made in America" and "toys made in the usa" have been searched fairly often recently. But "toys made in America" was searched hardly at all.

You also can experiment with various search phrases by signing up for an advertising program, like Google AdWords. The programs let you bid on various phrases. The price you bid is what you pay the search-engine provider each time someone clicks on your ad. The more you bid, the higher an ad for your site appears on the right-hand side of a search-results page. These programs have monitoring programs that let you see what phrases are most effective in generating traffic and customers on your site.

Another way to get attention is to position yourself as an expert on the benefits of buying American, says Aaron Wall, an Oakland, Calif., search marketing expert. You might, he suggests, write a blog on your site with daily updates on timely issues that people who buy American goods care about, such as U.S. manufacturing trends and product safety. A blog should draw more traffic and links to your site, which, in turn, should boost your site's ranking on search engines.

How to Get a Children's Book Printed

Kelly Spors answers questions from readers about entrepreneurship
August 7, 2007

Finding a publisher requires some perseverance, research and, yes, superb writing. A good start is checking out the library to read the most popular children's books and seeing what publishers are behind books most similar to yours. You can then put together a list of those most likely to publish your book.

Many people have written children's books, but few meet a publisher's standards: manuscripts offering intriguing characters with a unique vision. But coming up with that next "Where the Wild Things Are" requires you to understand the publishing world and what sells.

There are numerous classes for aspiring children's authors, but you might also find a writing mentor or two by joining groups like the Society of Children's Book Writers and Illustrators, a Los Angeles-based organization that hosts seminars and networking events for people trying to become children's book writers.

Once you have a manuscript in polished form, send a typed copy, a short cover letter and a self-addressed stamped envelope to publishers. You can find one of the most comprehensive lists of publishers and their submission guidelines in the Childrens Writers and Illustrators Market 2007, a guidebook for children's book publishing. Some publishers allow you to send manuscripts you've sent elsewhere while others want exclusive dibs, so know the policies of each one before sending them your manuscript. Others suggest you send a query letter first.

If, after two months, you still have no response, contact the publisher to inquire. If you still don't hear back, you might write a letter withdrawing your submission and send it to the next one.

You don't need to send illustrations with your manuscript -- unless you happen to be a professional illustrator. Most children's book publishers have a pool of illustrators they work with and prefer lining up their own.

Having a literary agent also will greatly boost your odds of selling your manuscript, because they are attuned to working with the major publishing houses and know what it takes to get a book published. Most literary agents take a 10% to 15% cut of your profits. You can find lists of agents in the Literary Market Place, available at literarymarketplace.com. You also could check the "Acknowledgements" section of books similar to yours.

From Parties to Payoff

By SIMONA COVEL
July 21, 2007

(See Corrections & Amplifications item below.)

Just days after Laurel Touby's bank account grew -- by a lot -- the mediabistro.com inc. founder sounds exhilarated and still a bit unbelieving. This week, Jupitermedia Corp. said it agreed to pay $20 million in cash plus a possible $3 million over the next two years for the business Ms. Touby started in the mid-1990s by hosting cocktail parties.

Gary He

Laurel Touby

Ms. Touby kicked off her venture when she mailed postcards to friends and acquaintances in the media industry, inviting them to gatherings to network and socialize. Sometimes, she walked around the bar with a hat, collecting contributions to cover the tab. "People got married, people got jobs, people got free-lance work," recalls Ms. Touby, who says she's "a broker of people."

By 1997, she was sending an email newsletter. In 1999, she built a Web site -- with the help of a friend's boyfriend -- and its job listings took off. Today, mediabistro.com, with close to $10 million in annual revenue, makes money mostly through job listings, ad sales, membership fees and writing classes.

The Wall Street Journal talked with the 44-year-old Ms. Touby, who once covered small business as a journalist, about how she funded her business.

The Wall Street Journal: In 1999, you had an idea that job listings could be the cornerstone of an online business, but you didn't want to go to friends or family for money. What did you do?

Ms. Touby: I started talking to everyone I knew. One thing I learned writing about small business is that you don't want to be undercapitalized. I got into the old-boy network. I met this guy … he was cute, and we got to chatting. He looked like the young-old-boy network. He agreed to let me take him to lunch. I agreed to pay him a finder's fee, and he introduced me to his ex-girlfriend's father. This guy was my first serious meeting -- I wore my million-dollar suit. I was charging for the job listings and [the investor] had the vision to look at this crazy plan … It took him five minutes, and he was like, "I'm in."

He put in $250,000. I said, "Do you know any leads [for more investors]?" I wanted someone who would be arm's length, not angels who often want too much control. Well, the old-boy network really works. He introduced me to [the person who would become] the lead investor, and he put in $750,000.

He put me through the ringer -- he didn't know media. They only gave me half of the money upfront, and wanted certain milestones, like revenues and profits -- hard things to do!

WSJ: Two years later, the dot-com bubble was deflating, followed soon by Sept. 11, 2001. What happened?

Ms. Touby: I was running out of money. I went back, hat in hand, to get the other half of the promised money [from the investors]. They gave me around $50,000 -- enough to get through the panic. It basically bought two months. For three months, I took a pay cut to zero. Much of my staff took a 20% pay cut. I put up my apartment for a $100,000 line of credit, though I ended up not having to use it.

WSJ: How did you turn things around?

Ms. Touby: We launched classes and seminars, and I realized this makes money. People loved it. In 2003, we had our first profitable month. By the end of 2003, we were really [consistently] profitable. Now, 15,000 people have gone through the classes.

FACT BOX

Company: mediabistro.com inc.

Founded: 1997

Employees: 27

Executive: Laurel Touby

Title: Founder and senior vice president

Age: 44

Years in position: 10

Biggest hurdle overcome: The Internet crash and Sept. 11, by launching a series of offline classes and seminars.

Biggest success: Growing by 30%-plus for several years.

WSJ: Did you go out looking for a potential buyer?

Ms. Touby: I don't just go knocking on doors. That's lame. But I'm always at conferences, always running into people. I was always friendly to potential buyers. I've been out and about -- speaking at conferences, on panel discussions. One reason you do that is to get your name and your company out there for a potential sale. I've always been strategic.

WSJ: When did buyers start coming around?

Ms. Touby: Over the past few years, we had a few hard offers and a bunch of whisper offers. Financial buyers wanted to pay low and sell in a few years. I always wanted a strategic buyer who would help achieve my goals, and I always knew in my head I wasn't going to sell for less than a certain number. We were growing at 30% each year, so it made sense to wait [for the right buyer]. Discussions started with Jupiter on March 16. We had lunch and argued. I think they got a bargain compared to what I wanted. But I think I'm going to get more out of working with them than going at it alone. I never really believed it until the money hit the bank. I was sure someone was going to snatch it out of my hands.

Write to Simona Covel at simona.covel@wsj.com

Corrections & Amplifications:

Jupitermedia agreed to pay $20 million in cash plus a possible $3 million over the next two years for mediabistro.com. An earlier version of the story incorrectly stated the possible $3 million additional payment would be over three years.

Q&A: Building a Brand Around a Personality

By LAURA LORBER
July 2, 2007

Uncle Wally's may not be as famous as Famous Amos, but the same person is behind both brands: Wally Amos.

Once a show-business promoter, Mr. Amos started selling chocolate-chip cookies in 1975 in his store in Hollywood, Calif. The business took off, as Mr. Amos rode a gourmet cookie craze and advocated for adult literacy. Mr. Amos eventually lost the business and became its paid spokesman. It changed hands several times, and now is owned by Kellogg Co.'s Keebler brand.

Rosica Public Relations

Wally Amos with Uncle Wally's Muffins

After false starts with two new companies, in 1992 he co-founded Uncle Wally's Muffins Corp., a firm in Shirley, N.Y. He's chairman and spokesman for the firm, which has 140 employees. Mr. Amos, 71, also owns Chip and Cookie, a cookie store in Kailua, Hawaii, with his wife Christine, and is the founder of the Chip and Cookie Read Aloud Foundation. We spoke with Mr. Amos about building a product brand identity around a personality.

WSJ: What's key to branding a product around a person?

Wally Amos: Here's Wally Amos's philosophy: You're in business to make friends. For someone to buy your product, they really have to like you, which is key to personality branding.

If I'm your friend, you're going to do whatever you can to help me. As a business owner, I have a responsibility in that, though. I have to honor the friendship with my customer by producing a quality product, with integrity, by doing what I say I'm going to do, by being a company that gives back to the community, by being a civic-minded company.

Sure, you're in business to make money. And you have to make a profit, but what are you going to do for the customers? Why would the customer buy your product over another product? What if you have two muffins and both of them taste good? I would believe that if someone had their choice between two muffins or two cookies that both tasted great that they would choose the Wally Amos product.

That's what branding is -- the brand stands for something. The brand creates the income. People buy the product, because they know that the brand has integrity, has credibility, and the company stands behind it. If customers have a problem with the product, they can pick up the phone and get satisfaction. But all of those things create profits.

Why should someone buy your product? It satisfies a need that they have. There are so many choices today. What are you going to do to stand out?

WSJ: What's the hardest part of building a personality-based brand?

Mr. Amos: I've always operated on a very personal level. Because if I can meet you, one-on-one, I'm going to be your friend. I'm going to win you over. You're going to taste my product, and you're going to like my product, and you're going to like me, and that's genuine.

You've got to have a personality. You have to be somewhat of an extrovert, because you're before the public all the time. And you have to be passionate about your product. This doesn't work for everybody, everybody doesn't have the personality to be out front.

When you put your name and your picture on a product, it's a double-edged sword. If people don't like you, or you do something that discourages them or that is not ethical, you can go out of business. When you and the brand become one, whatever you do will ultimately affect the brand. If you're exposed to something other than credibility and integrity, then ultimately your brand is affected.

WSJ: How does Uncle Wally's build its brand?

Mr. Amos: Word of mouth is huge. Word of mouth is the best way to promote a product or to brand a product, which is what I did with Famous Amos. We had huge word of mouth. We had a lot of media attention, because I opened a store selling only chocolate-chip cookies, and we tied Famous Amos in with literacy. To use all of those avenues to bring attention to your product is important.

Public relations becomes a huge part of that. That's why we've always used cause marketing. When I had Famous Amos, I hooked up with Literacy Volunteers of America. I became as identified with adult literacy as I did with cookies, and that endeared me to people, because they knew that I meant it.

WSJ: What's different about how you promote Uncle Wally's, compared to how Famous Amos was promoted?

Mr. Amos: I don't know that there is anything different. With Uncle Wally's, we believe in giving muffins away and letting people taste muffins, because the best way to sell a food product is to let someone taste it. I always tell people: You can't fool your mouth. We align ourselves with nonprofit groups to help their causes, which helps our cause, and it helps their audience taste our product. We'll give away muffins in a heartbeat -- to charities, sometimes at events. It's all basic common sense stuff.

There are a lot of companies that sell muffins. There were no cookie stores. There are some limitations. I can carry cookies around very easily. I can't carry muffins. Muffins are more of a breakfast food, rather than a snack that you can eat all day. Ideas are not all transferable from one product to the next, just because you do it with one thing, doesn't mean that you do it with another.

Even with cookies, I thought starting Chip and Cookie would be a breeze. It's almost two years, and we haven't had a profit yet. We had a big opening party, and I said, 'OK, this is going to catapult me.' But it didn't. It did when I had Famous Amos, but these are different times. It's a different location. I'm in Hawaii. With Famous Amos, I was in Hollywood. Everything is different. It was 30 years later when I started Chip and Cookie. It's a whole different audience.

WSJ: What advice do you have for small-business owners looking to brand a product around their personality?

Mr. Amos: You can't compete with the big guys. So don't even attempt to do that. You don't have the money, you don't have the resources. But many small businesses today, because they don't have the budgets and they can't compete with all these big companies, are personalizing their business.

In this day and age when everything is so big, big is not better. Big is just bigger. People buy from other people. People do business with other people. If you have a product that lends itself to you being the spokesperson for it, you can be the person out front.

Be consistent in who you are. You have to use what you sell, and you're going to have to know everything there is to know about what you sell. You have to be passionate about what you're doing, because otherwise you're not going to be able to convince people to buy it.

You need to do what you like. Too many people get in business to make money. You have to make money. But if that's your single motivation, that's not enough. It's important to have fun. If you don't have fun, I don't give a damn what you're selling, you're not going to be successful with it. I know a lot of people who have a lot of money who are miserable. And I don't want to be one of them.

Write to Laura Lorber at laura.lorber@wsj.com

Making the Most of Online Matchmaking for Small Firms

By SIMONA COVEL
July 30, 2007

Wil Schroter has started nine companies -- some successful, others not. Over the years, the entrepreneur has developed a network of investors, software developers and others who might be able to help out with his businesses. He says friends and acquaintances began to come to him on a regular basis, asking him to put them in touch with advisers or job candidates he knows.

Wil Schroter

"It dawned on me that there was no central Rolodex where anyone who's looking to start a company could come for information," says Mr. Schroter, 32.

Go Big Network LLC was born from that realization. The Web site, www.gobignetwork.com, launched in early 2006, is structured like a dating site for start-ups, where entrepreneurs can create profiles and post ads looking for investors and others to help start their businesses. Posting a profile is free, but users pay a subscription  an average of $49 a month -- to contact someone on the site, says Mr. Schroter, who is based in Columbus, Ohio.

Several lender-borrower matchmaking sites have popped up in recent months. Like Go Big, RaiseCapital.com and FundingUniverse.com are designed for small companies seeking a cash infusion. Prosper.com focuses on individuals looking for money. WSJ.com talked with Mr. Schroter about what works and what doesn't for business owners using his service and how he funded his start-ups.

WSJ: Paint a picture of the typical investor on gobignetwork.com.

Mr. Schroter: The average investor on the site is a wealthy individual. They probably have as much investment capital as an angel investor, but our investor is more likely someone who has a full-time job, but also wants to place an investment in a start-up or film or what have you.

WSJ: There are 10,000 active listings on the site, and it seems most are companies looking for funding. What's the best way to stand out?

Mr. Schroter: There are 99 companies looking for funding for every investor. The best postings are short ads that are really to the point. Four sentences that are well-composed will beat four paragraphs every time. It should say: "This is the industry we're serving. This is the problem we're solving. And this is how we make money doing it."

A bad posting doesn't give any indication to the investor why they would want to invest in that company. It's: "We want to create a great company. We need more money. Invest in us." Instead, they should say: "We're going to be in the health-care industry. We found a cure for cancer. We're going to sell cancer pills for a dollar and make 90 cents on each one." An investor gets that.

WSJ: How often do companies find funding through the site?

Mr. Schroter: We don't have a way to track that. But when the average person posts, they receive three responses. There are 10,000 active listings  including people looking for funding and people looking to fund. People need to be in it for the long haul. You're not shopping for a mortgage  you're talking about a highly-specific fit.

WSJ: How did you fund your first business?

Mr. Schroter: I was 19. I talked to a couple of venture-capital companies and they laughed at me -- my projections didn't go past one year, and I had left things out like the cost of health benefits for employees. After three years, I had about $100,000 in debt -- a combination of credit cards and personal loans.

WSJ: How did you fund your most recent company, Go Big?

Mr. Schroter: Over time, I realized that sometimes you don't really need to raise money, but to convince people to do things for you, like build a Web site. I launched Go Big with less than $50,000. I brought together lots of people who were willing to participate [in exchange for] for stock. I employ 12 people, and they all have options in the company.

People should also pitch everyone all the time. I was in San Francisco last week, and every single person I ran into, I pitched my business. You never know, they might say, "Oh, my best friend happens to be a Java programmer."

Write to Simona Covel at simona.covel@wsj.com

Venture Loan Gives Software Firm - Needed Funding with Fewer Strings

By SIMONA COVEL
July 30, 2007

Matt Glickman didn't want his software company to take on debt.

As he watched one debt-laden company in Silicon Valley after another sink around him back in 2001, Mr. Glickman was convinced that paying back a loan "can force a company into bankruptcy that could otherwise do well."

Merced Systems Inc.

Matt Glickman

And the co-founder and chief executive of Merced Systems Inc. didn't want to sell any more equity. In return for $2.5 million in venture capital, the company had turned over to investors about a third of the company, which is now six years old. That money was used to develop a product that was being installed at corporate call centers.

But the Redwood Shores, Calif., company needed more money to improve the product and grow the business.

So at the urging of an old business-school friend who had gone into technology investing, Mr. Glickman became a somewhat wary participant in the market for venture debt.

More Risk, Higher Rate

Venture-capital firms are known for giving money to young companies, particularly in high-tech industries, in exchange for a piece of the business. Venture debt, however, generally functions like a bank loan but the lenders are willing to take on much more risk than traditional bankers in exchange for a higher interest rate and the right to buy shares.

If a young company can convince a venture-debt firm that management is strong and cash-flow prospects are healthy, it may be able to hang onto a bigger chunk of its business. "The longer they can put off [selling] equity," the more money founders are likely to end up with in their pockets, says John Richards, associate director of the Center for Entrepreneurship at the Marriott School of Management at Brigham Young University in Provo, Utah.

With some hesitation, Mr. Glickman says he met with Maurice Werdegar, a partner at venture-debt firm Western Technology Investment and former Stanford Graduate Business School classmate.

Mr. Glickman also looked into bank loans, but quickly found that "banks are set up to loan to companies with assets," not to risky young software companies, he says. "I needed someone who understood the dynamics of the business."

After crunching numbers and some cajoling from Mr. Werdegar, Mr. Glickman says he and the board "came to the conclusion that debt used appropriately... is a perfectly good vehicle" because unlike the bankers he talked to, Western Technology wouldn't demand that the company cross certain earnings hurdles at certain times.

Fewer Hurdles

FACT BOX

Company: Merced Systems Inc.

Founded: 2001

2006 Annual revenues: More than $20 million

Employees: 100

Executive: Matt Glickman

Title: Co-founder and chief executive officer

Age: 41

Years in position: six

Biggest hurdle overcome: Leapfrogging competitors to become market leader.

Biggest success: Becoming the enterprise standard for operations-performance management for many Fortune 500 companies.

In December 2001, Western Technology lent $1.25 million to Merced Systems, leaving the company with $2 in equity for every $1 in debt a ratio Mr. Glickman was comfortable with.

The annual interest rate on the loan was around 10%, higher than a low-risk loan but lower than rates on some unsecured loans given to young and unproven companies. In addition to the interest, Western Technology received warrants, or the right to buy Merced stock at a certain price. While that means possibly giving up some shares, it's a far smaller chunk than an equity investor would take and Western Technology doesn't have a say in how the business is run.

Unlike a bank, which might demand that a company meet earnings or cash-flow requirements, Western Technology would allow Merced to use the money as long as the company was still in business. Venture-debt firms are willing to waive those kinds of requirements because the lenders believe they know the patterns of growth a young technology company goes through.

Merced paid back the debt over 2 1/2 years, making monthly payments from its growing operating cash flow. The company, which now has 100 employees, posted more than $20 million in revenues last year and hasn't needed to take on more venture debt or more venture capital.

In the end, Mr. Glickman says, taking on debt "was a great way" to hold onto more of the business.

Not every business grows so quickly, however. Mr. Werdegar notes that many companies turn to a venture-debt firm looking for a line of credit to hold them until they're able to secure another round of venture-capital funding. "People look at it as six months of extra time," he says. As a debt investor, "the bet we're making is that a company can raise additional capital."

Do's and Don'ts for Wooing Angel Investors

By SIMONA COVEL - July 30, 2007

For a young business, it can be alluring: Find an "angel" investor to swoop in and help fund your growing company. With millions of small businesses and only a few hundred organized angel groups, where do you begin?

WSJ.com spoke with Knox Massey, a longtime angel investor, about getting started. Mr. Massey, a former senior salesman at AOL, is executive director of Atlanta Technology Angels, a private angel group that invests up to $4 million each year in young technology-focused companies.

Here is Mr. Massey's advice on what a small-business owner should - and shouldn't - do when searching for angel funding.

Research the investors. If your company is a manufacturer, don't approach a technology-focused angel group. Make sure the people you're talking to understand your business. Looking for an angel investor should be as intensive as searching for a new job, Mr. Massey says.

The best-prepared business owners, he says, know what types of companies his group has helped fund in the past. "I'm always astounded at the companies that use the shotgun approach," says Mr. Massey. "They say, 'You guys have money, let's talk.' "

Don't expect to get funding right away. Seek out investors early as possible. It could take several months to meet with different individuals or groups and answer all of their questions. "We're not going to drop everything we're doing and immediately address what that [one] company needs," says Mr. Massey.

Network. Check out associations for your industry or local trade groups. By talking with their members and officials, you may find people who can point you in the direction of investors in your industry. Call economic-development groups -- their officials might be able to direct you to potential investor organizations. Some states have incubator organizations for young businesses, like Georgia's Advanced Technology Development Center, which has several locations throughout the state.

Treat your initial interactions as the first step in a long-term relationship. "It's a partnership -- almost like a marriage," says Mr. Massey. If you're thinking about taking money from an angel group, remember that you're going to be talking to the investors on a regular basis for years, so make sure you're comfortable with them.

Don't forget about your long-term plan. "You're focusing on the fact that 'I need that half-million dollars.' But that's not the most important thing," Mr. Massey says. Think about what you're going to do after you have the money, and focus on executing that multiyear plan.

Look at your investors as potential mentors. Many angel investors are former business owners who want to help people like themselves. "We look for an entrepreneur's ability to listen," Mr. Massey says. "You can really tell that early -- if they have a tough time listening, or let [advice] fly over their head."

Write to Simona Covel at simona.covel@wsj.com