Henry Ross Perot

Henry Ross Perot. His rise to billionaire status. Can we emulate his success?

H Ross Perot, a multibillionaire worth 4.4 billion in 2007, is the 76th richest person in the United States. The turning point that propelled him to success is important for us to understand: He realized that he had to go into business for himself when, at a barbershop, a quotation from Henry David Thoreau reprinted in Reader’s Digest caught his eye: ‘The mass of men lead lives of quiet desperation.’

Perot resolved never to let that phrase apply to himself and decided to quit IBM and start his own business, Electronic Data Systems (EDS). Moving from being an employee to being a business owner was crucial to his rise to success.

H Ross Perot: Innovation in Business

How was Perot’s business different? When EDS was first incorporated, company industry services were usually only restricted to basic processes such as billing and payroll. Perot differentiated his business by tackling more complex tasks: installation of systems, facilitating the switch from manual to automated data processing. These unique capabilities then prepared Perot for success when the Fed introduced Medicare in 1965.

As an unexpected flood of claims swamped health insurance providers, the EDS-designed Texas Blue Cross-Blue Shield Medicare program became an exemplar of efficiency in computer processing.

EDS also pioneered in several other areas: facilities management, where Perot did a complete overhaul of the previously inefficient operations systems in many companies and replaced them with new-efficiency services.

H Ross Perot Leadership in Business

Leadership in business is another crucial ingredient for success. Perot stressed that authority to make decisions should remain in the field instead of in the corporate bureaucracy. The EDS procedural manual is starkly simple: ‘Do what makes sense’.

His personal charisma and inspirational leadership was also important. He inspired with his tenacity and personal mottos such as ‘Eagles don’t flock. You have to find them one at a time.’

Similarly, Henry Ross Perot emphasized giving employees ownership of the company. The company’s compensation plan emphasized stock options, resulting in the creation of more than a hundred millionaires at the company. Employees naturally responded to these financial incentives positively: they followed the motto ‘whatever it takes’ and were not afraid to put in extremely long hours for difficult projects. In essence, they had a stake in the company’s success, and naturally would want to work hard as possible so their options would hit the strike prices! (Options are a creative way to set financial goals for the company!)

The same applied to the company’s acquisition of top talents. When the EDS stock went public, Perot lured engineers to the company with equity participation.

Building personal relationships to foster loyalty

Henry Ross Perot also took a personal commitment to his employees’ well-being. He showed appreciation for spouses who had to endure the side effects of the intense work hours at EDS, and occasionally would even show up at the maternity ward when a child was born in the EDS family. Operation HOTFOOT (Help Our Two Friends out of Teheran) was even more dramatic; it was a 1979 rescue of two EDS employees held unlawfully in an Iranian prison.

Low Overheads

The EDS consultant teams worked on customers’ premises, thereby needing no office space. Staff meetings were held in Perot’s Blue cross office, which was rented for only $100 a month.

IPO to Success

Listing on the public market was explained much of Perot’s dramatic rise to billionaire status. As Fridson noted, EDS came to market at a near-record 118 time earnings, or $16.50 a share.

Although H Ross Perot insisted on underwriting the highest valuations of his stock possible, prices climbed enormously in the frenzied buying of high-tech stocks. Within a year, EDS rose to $160 a share, resulting in a price-earnings multiple of 500. He effectively became a billionaire by 1969, while Henry Ross Perot’s nine million EDS shares were worth almost $1.5 billion on paper.

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