May 2005
Lecture
Supporting Risk-Takers
http://www.uoc.edu/symposia/caixamanresa/jornadaeconomia/2005/eng/twaalfhoven.pdf
Bert Twaalfhoven
May 2005
Lecture
Supporting Risk-Takers
http://www.uoc.edu/symposia/caixamanresa/jornadaeconomia/2005/eng/Twaalfhoven.pdf
Bert Twaalfhoven
Abstract
In 40 years I have created 54 different companies in 11 countries, looking for market niches, and I have worked for
28 universities in 10 countries. Some of the companies were a failure, others were successful. 36 successes and 18
failures, with a $55 million loss in the initial phase.
Who creates jobs? Dynamic entrepreneurs create 85% of all jobs. In the US, the rapid growth of medium-sized companies has generated 80% of the new jobs. In the US, one in five medium-sized companies experiences a rapid
growth; in contrast, only one in twenty-five European companies grows rapidly. There are not enough companies
growing rapidly in Europe. and there should be more. Meanwhile, unemployment is high and growing in Europe: we
have to do something to reverse this trend.
Setting up a company is a difficult long process; otherwise everybody would create one. The new European entrepreneurs
do not experience a rapid growth and most do not grow beyond their borders. The young American entrepreneurs (the
“gazelles”) go round the world, whereas the Europeans stick to their own territories instead. The 1990s bubble has shortened the lifespan of companies. The average lifespan of a company is 12 years, 25 years for big companies, and employment in big companies decreases rapidly. Unemployment is way too high. We need risk-taking entrepreneurs to reduce
unemployment, students and teachers encouraging entrepreneurship, and financial support for start-ups.
Most of the initial investment for start-ups comes from family and friends. In a second phase, funds can come from
family and “business angels.” In a third phase, funds will not come from family, but from venture capitalists and
banks. In a fourth phase, you cannot count on funds from friends or “angels,” you can only count on banks, as
creditors. Meanwhile, initial forecasts for the period with losses before making any profits keep increasingly stretching. In a few words, 80% of the initial capital is lost and you need 60 months to recover the loss.
“Failure is the mother of success.” Young talent is the future. But we have to educate, train and advise potential
entrepreneurs: this should be the role of universities, as it is the role of business schools. Dynamic entrepreneurs create 85% of all jobs. The question is: “Do you want to be an entrepreneur?” We need more business schools in
Western and Central Europe, as part of the 120 existing universities. Entrepreneurs should be given support to go to
other countries (Europe is lagging behind in this). It is important to look for local talent where the company wants to
establish itself, because locals will have a better understanding of the country. The successful entrepreneur’s cycle is:
learn to earn and get a return on the investment.
Keywords
Niche, gazelle, failure, venture capital, bubble, entrepreneur, business school
Introduction
Bert Twaalfhoven
For those of you who have not been to China, and who work
primarily in this area of the textile and furniture industry, taking into account the fact that professor Pedro Nueno is there
several times a year, I would recommend that you take a del© 2005 by Bert Twaalfhoven
© 2005 by Caixa Manresa and FUOC
egation of Caixa clients to China; not to have fun, but to see
how the competition looks like. My son Mark works for an
American company and he has 20,000 employees there who
work in three shifts, and there are three girls to one bed. People work so hard there! The other thing is, there are more
Chinese people who speak English than there are Americans.
Now, how many of you speak Chinese? [laughter from the
audience] Don’t worry, this is competition!
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Supporting Risk-Takers
I’d like to talk for a couple of hours on five issues:
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Who are my companies?
Job creation
Risk taking
Education
And some advice, because I’m seventy-five and I’m
allowed to give advice, right?
First of all, I’m a Dutchman, I’m from Holland. We are
great friends with you Spaniards. As you know, we keep
sending football coaches to Barcelona. Now, I wonder, how
many of you in your company have Dutchmen, or have
Dutchmen as members of your board. One of the things I
wanted to tell you is that on my board I have five
nationalities. No Dutchmen. This is due to the fact that I
want to conquer the world. And the only way for me to go
to China or to go to Germany or to England is to have a
board member and managers of these nationalities.
The relationship between Spain and Holland has been a
long one. We took your silver, you tried to conquer Holland
years ago in the sixteenth century, you kicked us out of
Brazil. Piet Heyn conquered the Spanish fleet in 1628 and
now we are going to try to take over Barcelona because we
already have the coach here [laughter from audience].
My companies
Companies and niches
I started 54 companies over 40 years in eleven countries and
I concentrated always on the niches. Like I told you right
from the start, I have had multinationals with people of
many nationalities, five as members of my board, twelve at
the management level, including an Iranian from Teheran
and a Chinese manager, of course, and 25 nationalities at
operating level.
I started 54 companies over 40
years in eleven countries and I
concentrated always on the niches.
Because mine is a relatively much smaller company than
Vicky’s, I cannot afford fancy R&D, so I work with
universities, and I’ve worked with the university in China,
the one in Singapore, of course, in Germany: all over the
place. And by the way, I love young students. I’ve hired in
my life 650 students. Twenty of them are millionaires, one of
them is a billionaire. One was in charge of Amsterdam
Airport, another one was in charge of Fortis Bank, but I hired
© 2005 by Bert Twaalfhoven
© 2005 by Caixa Manresa and FUOC
them when they were 19 and 21, because young talent is
the future of this world.
So, when starting all of my companies I lost a lot of
money, and of course I paid for these losses using my
successes. I also know a little bit about banking. I’m the
founder of the first venture capital company in Holland
called Gilde, which was taken over by the Rabobank, but
here you see a list of the banks with whom I was partner,
including the Economic Development Board in Singapore,
which was run by the wife of the prime minister. So, it’s not
what you know, but who you know.
Out of my fifty-four start-ups, sixteen became joint
ventures, seventeen were failures, eighteen became
acquisitions. Most of the failures were paid by the winners,
of course. Today the annual revenue is two hundred million,
and if I add the companies where I lost out, it’s half a billion.
We made a net return of twenty percent over forty years
compound interest. At the bank today I get 2.3 percent.
Out of my fifty-four start-ups,
sixteen became joint ventures,
seventeen were failures, eighteen
became acquisitions.
First steps in the world of business
Now, when I came out of Harvard Business School, and
before that I went to the friends of ESADE, the Jesuits in
New York, and the Jesuits at that time knew nothing about
business so I had to go to Harvard. I didn’t have any money,
I had scholarships, but I had a couple of washing machines.
At the time there were no automatic washing machines in
Europe, except in England and in Denmark. So I started the
first coin-op laundry. And that was extremely difficult
because American washing machines did not wash Dutch
clothes clean. Because in Holland at the time this was
[pointing to his shirt sleeve] Monday, Tuesday, Wednesday,
Thursday [laughter from audience], Friday. So anyway, I set
up 350 laundry stores across Europe, and now of course
everybody has this stuff.
Failures
My first failure was an aluminum extrusion factory in
Holland, which today is very successful and is owned by
another company, but for me it was a failure. I slowly
expanded. In the early period I was just in Holland and then
I went with my coin-op laundries and with my aluminum
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Supporting Risk-Takers
tools (tools for aluminum) across Europe. Then I had a fire,
and out of the fire there grew a niche technology, and the
niche technology is drilling holes with a laser in jet engine
blades. Now, who ever thought of that kind of business? We
had as first year sales a hundred thousand dollars, and last
year’s sales were twenty-five million dollars. The Japanese
come to us, and the Americans come to us, because we
know how to drill cooling holes in jet engine blades. This is a
tremendously small niche. And in the early ‘90s I went to
Moscow because my daughter was there. She set up the
first Levi store, and then I started in jet engine repair
company. We went to Shin Dao in 1992, where you can
drink the best beer, Shin Dao beer. We had a wonderful
factory, which was a partnership with the government. We
sold it then. To Singapore I went earlier. I became partners
with the Singapore government, and to Slovenia, which is
not far from here, I went also in ‘92.
When you look at my activities, we have what I call
niches. Let me give you the one example: ion-beam
honeycomb. Now, ion-beam honeycomb is a jet engine part
of titanium connected by very sophisticated welding. Procter
& Gamble came to us and said: ‘We need that in our
machines to make pampers’. So now I’m the largest
producer of this special tool to make pampers, diapers. My
twenty grandchildren have used them also. But we make
these tools in Boston and in Holland for the Polish market,
for the American market, and now we work not just for
Procter & Gamble. But that is what I call a highly-specialized
niche, and very profitable. I think I have only one
competitor.
These were my failures. I’m not going to talk in detail
about them, I showed you one. But many of the failures had
to do with culture, not knowing how to operate in France,
not knowing how to master the technology. And of course
working in the Ukraine, where the old communist system
did not have people working as hard as the Chinese did. We
finally had to close it. But these were our failures. This is an
example.
Many of the failures had to do with
culture.
This device is under the Boeing 747 and the 777. Each
engine costs ten million dollars. The costs for developing
them are three billion and the total market is seventy billion.
I own one percent of it. But to own one percent you have to
pay one percent out of three billion, which is thirty million
dollars, which in 1984 I did not have. This product has a life
cycle of almost 50 years, and I participated in ‘86, and then
the project was delayed. You won’t believe it: In order for
© 2005 by Bert Twaalfhoven
© 2005 by Caixa Manresa and FUOC
Iberia to switch to this engine away from General Electric,
Pratt & Whitney who makes these engines said: ‘We will
give you a discount. Not 20%, not 40%, not 60%. To Thai
Airways this was 100%. And Bert had to pay his 1%. So
instead of making money, making 750 parts (there are
25,000 parts in this engine) I had to pay money. So I almost
went bust. And then you had the airline crisis, which could
come again. 150 airlines went out of business. The banks
backed out, lost 50 million dollars, and then suddenly we
had a boom in aircraft engines, and they discovered then
that you could fly with only two engines across the ocean.
That had been never thought about before. So the moment
it happened the whole engine and the aircraft business
changed. So this is my story.
Job creation
Now, let’s talk about job creation. In Europe you have 13
million companies with less than 10 people. You have a
million companies with 10 to 500 people and you only have
12,000 companies with more than 500 people. Of those
12,000 one quarter will disappear in 10 or 15 years. Who’s
going to replace them? The gazelles.
You only have 12,000 companies
with more than 500 people. Of
those 12,000 one quarter will
disappear in 10 or 15 years. Who’s
going to replace them? The
gazelles.
Of the 13 million companies only 3% grow, and that is
where this capital has to participate. That is where angel
money has to participate. But we need in Europe (and you
have it) every ten years 3,000 companies with more than
500 employees. So there’s an enormous gap because we in
Europe are not willing to take risks. The key to employment
growth is these fast-growing companies. And I am wearing
my European tie. How many of you have another factory
outside of Spain? Please put up your hands. [he looks
around]. In my book you will not survive unless you are
broader than you are today. And the banks ought to help
you. Caixa Manresa, who has organized this marvelous
event -all my compliments to them-, ought to understand
German, ought to understand French, ought to understand
America. That is our challenge. Because, I warn you, the
Chinese are going to be around here soon. American
gazelles jump all across the United States. When I started a
company in Los Angeles or in Boston the American market
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Supporting Risk-Takers
was my whole market. Vicky is working in China, where
there are 1.2 billion people. You cannot exist just in the local
market in today’s world.
You cannot exist just in the local
market in today’s world.
Risk taking
In Europe our gazelles are local. The Germans don’t know how
to come to Spain except for tourism, and the Spanish don’t
know how to go to Germany. You have exceptions, of course,
like Telefónica and others. But we must understand each other,
otherwise America and China are going to overtake us.
How are we going to do that? Who is going to take
risks? Why take risks? Can you make money if you take risk
or are you taxed away? And is failure an asset? Now let me
show you some statistics that are hardly ever understood.
We need in Europe annually 10 billion dollars. Where do
they come from? Very little comes from venture capital. It all
comes from family and friends, and that applies to China
and to America. But what tax incentives do we have to
invest in our sons and daughters and cousins? Very little.
Moreover it is disappearing in Europe. We had a tremendous
bubble recently. I will talk briefly about the bubble, and the
stock market collapse, of new companies that have dried up
venture capital. We need the European Commission and the
governments have to do something about it. Let me tell you
a little about the bubble, how it went, and the lessons we
learnt from it.
This is my first business plan. You know all these smart
students at the IESE and ESADE that make business plans.
You will be a millionaire after twelve months. [Pointing to
the projector slide] Red is loss, green is plus. The family helps
you, they take a mortgage on your home and here is the
successful Bert entrepreneur, but the technical developments
take longer. We lose a little bit more money, we need more
money. And my budget looks much worse. So I need
another million dollars, and I make a new business plan.
Now I will make it to millionaire after 24 months. So, who’s
going to give me that money? My angels! You know, my
friends from the IESE and the successful guys in my
neighborhood. And I only have now 50%. But the market
takes a little longer to accept my products, so I lose more
money and I need more capital, and my business plan looks
much worse. Ladies and gentlemen, this is reality!
Now I’m going to be millionaire in 36 months’ time, and
who’s going to supply that money? My friendly banker.
[laughter from audience] My family is out of the picture.
© 2005 by Bert Twaalfhoven
© 2005 by Caixa Manresa and FUOC
They don’t talk to me anymore. [laughter from audience].
It’s no joke, I had two sons whom I did not support
anymore, and they had to go out on their own. Now we are
friends again. Well, anyway, by that time I’m really using a
lot of money and I make a new business plan. Management
walks out, they thought they were also going to be
millionaires, I have larger losses and I need new capital. This
graph is my own experience. This graph is the experience of
200 companies I followed and studied with some Harvard
students, both in Chicago and in Holland. The same with
government-funded. It takes five years. How long does a
government last? Four years. What can the government
expect? Nothing! So, we need a big change in mentality.
And who is the winner? The venture capitalist and the
banker. And I, the poor entrepreneur, have only 12%.
So what are the lessons learnt? Make a negative plan.
Make certain that when you borrow money or you have
money from your rich aunt or uncle, or your cousin or your
friends, that they understand it is a long process. If it is easy,
anybody will go in there. But I’m talking about difficult
things to make your company grow like the health exercise
of Gabriel showed us. 80% of the capital is lost. “You have
30 months of losses” is what I will tell you 60 months before
recovery. It’s a key issue, and this is the same as my own
experience. But in China they say “failure is the mother of
success”. If you win, you should win from your failures. If
somebody comes to me, aged 30-35 and he is the best at
the IESE, he was the best in basketball, he’s a super writer
and etcetera, I will ask him “have you ever had any
failures?”, and if he answers “none, ever”, then he can’t
work for me. No way.
But in China they say “failure is the
mother of success”. If you win,
you should win from your failures.
Business schools
Now, one of my hobbies with which I spent all my spare
time was finding the answer to the question “What should
the business schools do in this area?”. Don’t talk about
business plans where you say we will become a millionaire in
one or two years. Show how difficult it is to face reality. I
trained students for Telefónica, for Caixa, for Accenture and
also to be an entrepreneur. I don’t want a student at twentyfive to be an entrepreneur, I want the student first to work
for Caixa, or first to work for Telefónica, and then when he
has experience, and he finds out that there is only one
president at Caixa he might decide to go out on his own.
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Supporting Risk-Takers
We conducted a study, and that’s my other hobby, it’s
not very relevant here, but in America there are 1,200
professors of entrepreneurship. In Europe less than 500. And
most professors of entrepreneurship, even in Spain, know
nothing about Germany! Know nothing about England! So
how can I learn at the universities about other countries?
And this is a challenge which I have been discussing with the
European Community. We’re now going to train two other
professors of entrepreneurship at Harvard who are from
Europe. That’s a program I’m supporting, and we’re already
starting the first fifty, ESADE is sending three professors. And
why is Harvard doing it? Well, Harvard has a very
international dimension and tremendous resources.
Conclusion
So, what can I tell you at the end of my speech? When you
go to China or you go to Germany do it with a local partner.
Outsource the risk, because, like Pedro says, the world is
flat. That’s what the book by Thomas Friedmann states.
When you make your budget, do it monthly, quarterly,
annually. And also make a negative budget. And be brave
enough to show it to your bank. Maybe it takes me two or
three years longer. Then when I go to the bank for venture
capital, and they say “I want to participate with you in
Germany”, what can a bank can know about Germany?
This is fairly important. Board members get them from
another country, from the European business sector. I’m
sorry, but you can only go to the big ones because they
know the local thing. Search for local talent. And look for
students from the best business schools. 75% of the
students at IESE are international students, so if you want to
do something about Germany or China, hire one of their
students! It’s very simple. I’ve hired 650 students, and I’ve
learnt so much from their intellectual talent.
Another thing: I held board meetings in Los Angeles,
Singapore, China and Hamburg in order to allow the board
members to understand the local country. My final message
is that there is no substitute for hard work, and for you who
are successful, learn, earn and give back. Thank you very
much. [loud applause from audience]
Questions from the audience
Question
Al Bert li voldria fer una pregunta molt simple, perquè ens ha
parlat de les seves inversions a tot el món: Why not Spain?
Per què no Espanya?
Bert Twaalfhoven
In the sixties and the seventies I was truly diversified. And of
course I looked towards Spain, but I had a bad experience in
France and a bad experience in Italy, so I went to America at
that time. But later on I focused only on power stations and
jet engines, and there is no company in Spain in that field, so
I went to America and I was invited by Singapore and all
that.
Where would I invest today, Pedro asked, also for my
kids… Eastern Europe, with no doubt. Eastern Europe is
Europe. Don’t underestimate the Czech Republic, Slovakia,
Hungary and Slovenia. They present tremendous
opportunities. Secondly Russia. Next week I will be in Russia
and will invest there. I can assure you the press is absolutely
wrong.
Eastern Europe is Europe. Don’t
underestimate the Czech Republic,
Slovakia, Hungary and Slovenia.
They present tremendous
opportunities.
There is a new group of entrepreneurs like in China with
whom you can do business. And thirdly I would invest in
China. Actually I am already an investor in China. As to the
question of setting up factories in China, I can tell you we
did just that. But we did a joint venture with the government
because there were very high-tech inspection robots, they
cost a quarter of a million each, which are used in space and
in aircraft engines, and I forbid my management to export
because the Chinese demand was enormous. We had a joint
venture and we took 20 Chinese workers to Singapore
because they speak Chinese. So that was our solution to get
off the ground, but it still took four years before we made
money. But the best thing to do is to invest in China and
Russia if you want to make a lot of money.
Moderator
Question
Thank you Bert… for putting things difficult for us, for
everybody here. [laughter from audience] Challenging us.
Primero quiero decir que me encantó su presentación. Me
gustaría tener una transcripción completa para pasarla a mis
© 2005 by Bert Twaalfhoven
© 2005 by Caixa Manresa and FUOC
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Supporting Risk-Takers
colegas. Después quiero dar las gracias a Bert por no estar
en España, porque no hubiese tenido la oportunidad de
asociarme con Gabriel Masfurroll. [laughter from audience]
Todo el mundo lleva mucho tiempo hablando de
globalización. A mí me preocupa que hasta del venture capital
habla de globalización. Con lo que ya cuesta entender a veces
a mi propio país, al País Vasco o a Cataluña no veo cómo
podría hacer una joint venture en China o en Rusia. Creo que
todo tiene una limitación: la de las propias capacidades.
Esta mañana mientras estaba desayunando leía en el
periódico económico una entrevista a un empresario en la
cual habla de los países fuera de España, o sea, de
exportación y posicionamiento fuera de España. He visto
una afirmación que me ha hecho muchísima gracia y que
además creo que es cierta. Concretamente, que para ganar
la liga hay que ganar siempre en casa. Creo que eso se aplica
a casi todos los negocios: para globalizar hay que ser un líder
o formar parte del liderazgo en tu sector en tu propio país.
¿Cuál es tu opinión?
the team of Ajax is composed of foreigners. And you just
hired another Dutchman. So, I only believe in multinationals,
and we in Europe are behind. We become protective. But
within your area, Catalonia being at the top of the economic
ladder, things look pretty good. Look at Telefónica. So, I
believe venture capitalists like yourself should help me as
Catalan entrepreneur to go to another country. America is
easy for you. South America is easy, but China… but then all
you have to do is hire a couple of Chinese students, smart
students from him.
Moderator
Con relación a la otra pregunta de la presentación de Bert, si
lo has seguido bien, pues ya sabes que se puede comprar.
[laughter from audience] Em sembla que hem de tallar aquí.
Related links
X Jornada d’Economia de Caixa Manresa
Bert Twaalfhoven
http:\\www.caixamanresa.es/jornadaeconomia
Well, this would require a separate conference, but let me
tell you that the coach in Barcelona is a Dutchman. And half
To cite this document, you could use the following reference:
TWAALFHOVEN, Bert (2005). «Supporting Risk-Takers». In: X Jornada d’Economia de Caixa Manresa (2005: Manresa) [article on
line]. Caixa Manresa. [date of consulting: dd/mm/yy].
<http://www.uoc.edu/symposia/caixamanresa/jornadaeconomia/eng/twaalfhoven.pdf>
Bert Twaalfhoven
President of the European Foundation for Entrepreneurship Research (EFER)
Former President of Indivers BV. Founder of EFER and pioneer of EASDAQ. Founding member and Board member of Europe’s
500, now known as Growth Plus (Europe´s association for dynamic entrepreneurs). Board member of Fordham Graduate School
of Business, New York, and Board member of the International Advisory Board of the Netherlands Business School. Board
member of United World College India and of GEA College of Entrepreneurship, Portoroz, Slovenia.
© 2005 by Bert Twaalfhoven
© 2005 by Caixa Manresa and FUOC
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