If you want to talk about being an opportunist—about making the most of a situation where it seemed as though no opportunity was anywhere in sight—let me take you back to the 1980s in Houston, Texas.
When I was in my late twenties, about the time I was experiencing some business success, there were hundreds of banks across Houston. In many ways, it was a buyer’s market for companies in need of financing. With so many institutions competing against one another for business, it was a great time for entrepreneurs to look for funding and other means of financial assistance to start or grow a company. Banks and lenders were fighting tooth and nail for every bit of business they could land.
Going back a bit further to the 1970s, Texas had the most banks of any state in America. Not only was the oil business going great guns, local legislators had limited outside competition by prohibiting any lender outside the state from doing business here. That made for a closed, competitive market.
But it didn’t last. After embargoes were removed in the 1980s, the price of oil plummeted. Eager to pick up the slack, banks began shifting their attention away from the oil industry and into the commercial real estate market. But after incentives were eliminated in real estate, that portion of banks’ portfolios also began to fall apart.
The aftershocks were enormous. From 1980 to 1989, 425 Texas commercial banks failed. That included nine of the ten biggest ones. In 1988 alone, 175 Texas banks went under—representing $47.3 billion, about 25 percent of the entire state’s banking assets.
You had banks collapsing across the board. Every savings and loan failed. Every Tuesday the FDIC would come in and close three or four more banks in town. You could almost set your watch to it.
This went on for two years.
It was horrific to watch, and it also resulted in an enormous shift in the banking industry, which was boiled down and consolidated. That’s why you have banks today with trillions of dollars in assets, which are too big to fail because the government came in and helped them take over other banks. They’re basically rollups of all the banks that existed back then.
When all was said and done, after the world basically fell apart, every bank in Houston had failed except five or six. And, as I said earlier, every savings and loan failed.
I didn’t realize at the time how much I would learn from the experience—as useful a lesson as I have ever received. In my case, I had loans at eight to nine different banks, totaling about $2 million. Like a lot of other people, I scrambled and made deals whenever and however I could. I kept fighting and fighting. I worked out interest-only deals at a few banks and consolidated loans at others. It was a never-ending juggling act. I was trying to stay alive, and some days the prognosis didn’t look especially good.
In fact, one time I switched watches with my lawyer Steve Scheinthal in the elevator on the way up to talk with bankers. I thought it better that the guy asking for a deal was wearing a little Seiko watch instead of some fancy gold Rolex!
But, in its own way, the situation worked out. Simply put, every bank with which I was doing business failed. As a result, I didn’t have to make any debt payments—there was no one to make payments to.
As it turned out, the bureaucracy and mechanics of banking and government worked in my favor. Given all the time and energy required to shut down all the banks and reallocate all the funds, it took them five years to get to me! They had bigger issues to worry about.
That gave me an invaluable five-year reprieve during which I had a lot more cash to work with, since I wasn’t making loan payments. And in that five-year period, I built Landry’s locations in Galveston, Corpus Christi, San Antonio, Kemah, and Dallas.
Not a bad run of success when everything else seemed to be going straight to hell. And the fact that I had cash-flow businesses ensured my growth, while others operating on an accounts-receivable basis (where you wait to be paid) were struggling.
Even though that five-year window of opportunity gave me the chance to go on a roll, that’s not to say it was easy. Finding funds to pay for the kind of expansion I wanted to pursue was incredibly difficult. I used credit cards, cash, equipment leases, and most anything else I could get my hands on. I couldn’t go to any banks because there were essentially no banks to go to. Whatever money I found to fund my business, I had to piece it together on my own. Since funding had been readily available not long before, the scramble to track down what I needed was both exciting and scary—exciting because I had spotted opportunity and was trying to make the most of it, and scary because leveraging that opportunity involved a whole new playing field.
Of course, my five-year break didn’t last forever. The FDIC did eventually get around to me. Still, it was a great deal. In 1991, they agreed to waive all interest charges on what I owed. I wrote them a check for $2 million, and that was that. It was interest-free money for five years.
Naturally, this entire situation involved a fair degree of luck on my part. Since the government had much bigger players than me to focus on, I was lucky they took as long as they did to address my situation. I wasn’t big enough to be at the front of the line.
But this story is also a great illustration of recognizing opportunity and making the most of it. Since the financial world was going to hell, it would’ve been understandable to panic, assume that finances would never be the same as they once were, and throw in the towel. You could see evidence of that everywhere. Apartment buildings were being left only partially built. Office buildings remained vacant. Residential projects had roads put in, but no houses constructed. It was scary and depressing, and it would have been simple to give up—especially if you wanted to grow like I wanted to. But there were hardly any banks to approach.
I didn’t throw in the towel. One reason was a truth that I had come to learn and that I’ve never forgotten.
LISTEN!
When things are bad, we often tend to forget that they’re going to be good again. Further, when things are good, we forget that they’re going to be bad again. You need to prepare for both types of situations, because they’re both headed your way, sooner or later.
Granted, this was an extreme environment in which it was definitely hard to keep the faith. If nothing else, having watched hundreds of banks go out of business, and seeing businesses of all sorts collapse as a result, it wasn’t easy to keep watching and waiting for things to get better. Fortunately, I was able to do so.
Again, having cash-flow businesses where customers pay on the spot—order a meal, pay for it—helped me when the economy struggled. In fact, every time there was a hiccup in the economy, I grew because I had the cash on hand to capitalize when my competitors didn’t. If yours is a cash-flow operation, you can do the same—just make certain to accumulate as much cash as possible when conditions are good.
If yours isn’t a cash-flow operation, you may not find out things are bad until thirty, sixty, or ninety days after you sent your last invoice, so you need to make even more of an effort to accumulate cash or have a revolving line of credit in place to access cash during the bad times. Then, when all of your competitors don’t have the cash to fill a big order that could save their business, you’ll have access to cash to capitalize and either take that business or buy out your competitor. Like I said in an earlier chapter, when things are bad, eat the weak and grow your business—but that takes cash.
Looking back, the banking crisis was just a natural continuation of a pattern of success and struggle. Before the banking collapse took hold, people in Houston and throughout Texas were enjoying genuine boom times. Construction was thriving, and memberships at expensive country clubs soared. Expensive cars filled the streets, and private jets were ready for travel at a moment’s notice.
At the time, did a lot of people forget that just as the bad times never last forever, the good times also don’t go on endlessly?
I think a lot of them did. But I was determined not to fall victim to this mentality.
That’s the kind of perspective that can help any entrepreneur spot opportunity, no matter the current circumstances. Regardless if things are good or bad, most of us have a tendency to assume that whatever’s happening now is going to continue forever. We should know better than that, but a lot of us do it anyway.
That’s why, as an entrepreneur, it’s always critical to try to see the bigger picture. Perspective is everything. Never forget the ebb and flow of good times and bad. Talk to your partners, employees, advisors, customers, and others to broaden your view. What can they share to help you gain a more complete understanding of the situation? Do they see positive signs or hints of opportunity? Almost every environment, no matter how crazy or chaotic it may seem, contains opportunity for those who are willing to take a deep breath and try to see what others may be missing.
The experience with the banks also taught me another valuable lesson regarding opportunity, which I also discussed earlier, in the context of having enough working capital. Borrow money when you don’t need it, because when you need it, you might not be able to borrow it. That was a lesson in opportunity that paid off handsomely further down the line.
A few years ago, I had banks throwing money at me. I decided to borrow, even though I didn’t need the money at the time, and in so doing, I greatly boosted my interest costs. But all of a sudden, a large casino under construction in Lake Charles, Louisiana, became available. I was able to act faster than anybody else to acquire it, because I had the cash.
This story also illustrates that opportunity is there, no matter how big or small your business might be. During the banking crisis, I was the little fish that could be ignored for a few years, while the banking regulators took care of the bigger fish in the pond. As it happened, my size worked to my advantage.
Take that as a lesson in your own business. Even if you’re small, you can still spot great opportunities that you can leverage to build your business. In my case, I was given that opportunity because I was relatively small. And since a small business can react faster than many larger operations, you’re in a better position to quickly take advantage of any opportunity you see.
LISTEN!
Always remember that the greatest opportunities are in bad times.
TILMAN’S TARGETS
• Opportunity is always there, no matter what the current conditions may be.
• When times are good, we tend to forget that at some point they’re going to be bad.
• Borrow money when you don’t need it, and build cash when times are good, so you can take advantage when times are bad.
• Spotting opportunity requires patience. There’s always another deal.