Sol Price Part X: Keep the Ideas Focused
It's easy enough to say you should encourage creativity, but even good ideas have to be used wisely. It takes time to execute any idea, and that can take your focus off your Main Business Objective--what we've been calling your "dot." Yes, Sol Price recalls fondly the freewheeling early Fedmart days. Yet he now admits that many of those ventures, exciting as they may have been, really drew his focus away from his main business, and so, overall, hurt the business more than they helped it.
Today Mr. Price tries to focus his creativity more precisely. For example, one of the Price Club's earliest strengths was its real estate strategy: It bought out-of-the-way land dirt cheap and then made it valuable by building its stores on it. Investing cash flow in fast-appreciating real estate, rather than reporting it as taxable earnings was a great way to build and preserve corporate wealth.
But by the late 1980s pressure was growing to build Price Clubs faster and faster. That took money--and borrowing money is expensive. Sol Price's solution was to create a REIT (real estate investment trust). The REIT will sell shares to raise money and then use the money to buy Price Club properties. The REIT will make money for its shareholders by renting the properties back to the Price Clubs, and perhaps, in the future, by selling the properties at a profit, or by co-developing new Price Club sites.
That means people unwilling to take the risks of buying stock can invest in teh Price Club formula tangentially. Mr. Price went a step further, structuring the deal so REIT shareholders had preferential protection in case any of the properties got into trouble.
Excerpted from
The Great American Idea Book: How to Make Money from Your Ideas for Movies, Music, Books, Inventions, Businesses and Almost Anything Else!
Authors: Bob Coleman & Deborah Neville
Publisher: WW Norton
Copyright: 1993; 1995
All Rights Reserved
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