Tuesday, January 07, 2014

Morningstar's Mansueto: 'Think of a castle protected by a moat'

Morningstar's Mansueto: 'Think of a castle protected by a moat'

Morningstar founder Joe Mansueto is pictured in 2012 in the firm's Chicago headquarters. (Chris Walker / Chicago Tribune)

By Kate MacArthur , Special to Blue Sky
Jan. 7, 2014, 9 a.m.
It might be easy to forget that Joe Mansueto’s investment-research firm, Morningstar Inc., began as a startup in his Chicago-apartment kitchen 30 years ago. But the self-made billionaire is still focused on entrepreneurship through his Inc. and Fast Company magazines and his investments in media and information companies such as Wrapports LLC, which owns the Chicago Sun-Times and Chicago Reader, and Viewpoints LLC. He offers advice on what he’d do differently today as a founder.
Q: Who’s been the most influential person to you as an entrepreneur, and what did he or she teach you?
A: Warren Buffet, mainly through reading his Berkshire Hathaway annual report letter where he talks about his philosophy of investing and business. The key to that is finding businesses with a wide moat around them. So if you think of a castle protected by a moat, what are its sustainable competitive advantages that allow them to earn above-average return on capital? Coca-Cola has a great brand as a source of a moat, or it could be the network effect of something like Facebook, which gives them an advantage that’s very hard to replicate. It influences how we run Morningstar. Our strategy group is thinking about how can we every year widen our moat. That includes things like building up our brand and reputation, the audiences that we have of individuals and advisors, which makes us appealing for institutions to engage with us, and the quality and depth of our databases is hard to replicate so (we’re) building on those.
Q: If you were starting out today, what would you do differently?
A: I probably would separate my work from my home earlier and have the community of entrepreneurs to connect with. I think I would look at 1871 to get started. I don't think I would change my approach of a bootstrapped start-up. The bar in many ways is lower in terms of capital required to start a business. You can do everything in the cloud. Email is free. A lot of what you need, you don't have to make capital investments in hardware to get it done.
Q: What do you think about raising money versus self-funding?
A: My approach is to go slower, build it organically. I think a lot of people raise too much money too quickly, give away too much equity and essentially lose control of the business. They might not know how to spend the money until they really get to know their customers, maybe have a few iterations of their product. I think that whatever you can do to keep capital costs down and really understand the marketplace and improve product before you raise capital - and hopefully you don't ever have to raise capital at all, but certainly before you raise it - would be advantageous. But people raise a lot of money from the get-go, and there’s nothing wrong with that either.
Q: What do you think drives the demand for information on entrepreneurship and innovation?
A: What's driving the demand is the barriers are lower for entrepreneurship than they’ve ever been. There are a lot of role models out there like the Mark Zuckerbergs and Pinterest that inspire a lot of younger people. It’s very possible to start a business at young age with little capital and do extremely well. So with lower startup costs and very successful role models where a lot of people have created a lot of value in a short time, it draws in a lot of people to follow similar pursuits. I think there's a desire for many people to have independence, express their creativity and really create their own destiny and not be beholden to someone.

Q: As the guy who is synonymous with the idea of the modern workplace, how do you define the modern workplace?
A: To me, a modern workplace is very collaborative. It's transparent, nimble, fast-moving and non-hierarchical. It's diverse culturally, diverse in every which way, gender, ethnically, age. I think diversity is stimulating and makes a company more creative and innovative. To be more innovative for us, there’s a lot of cross-disciplinary work that tends to spawn innovation. The way we try and do that is through three disciplines: investment research, technology and design. So when we create a new product, we bring experts in those disciplines together. I think you also have to have the mindset of a willingness to experiment, a willingness to fail at those times, that if you’re going to be successful and creative, you have to try a lot of things and you have to recognize that not everything is going to work. If your mindset is that failure won't be tolerated, you’re not going to have an innovative workplace.
Q: What’s your best entrepreneurial advice?

A: A lot of entrepreneurs might get shaken off during a downturn. They read the business press about a Groupon or Facebook, and it zooms up to billions in sales. But most businesses aren't like that. It takes really a decade to grow a business. I've been at it 30 years and we still have a lot of things ahead of us. It’s really going to take at least five years for it to become a solid, profitable enterprise. A lot of times people get too impatient. So make sure you think long-term and that you've got the perseverance and grit to really stick through it. 

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