The Magic business potion: Invest in urban America

Investing in urban America is a good thing, and Black businesses must deliver what they promise, says NBA legend turned successful businessman Earvin “Magic” Johnson.

Johnson spoke September 23 to a mixed audience of corporate members and small business owners of color attending the 2010 Midwest Minority Supplier Development Council (MMSDC) Midwest Business Opportunity Fair in St. Paul’s downtown RiverCentre. The MMSDC certifies Minority Business Enterprises (MBE) locally and throughout the state of Minnesota, as well as in Iowa, Nebraska, and North and South Dakota, helping them connect with corporations and other businesses searching for minority vendors.

Magic Johnson Enterprises (MJE), formed by Johnson in 1987, particularly focuses on ethnically diverse urban communities in 85 cities and 21 states around the country. His portfolio includes partnerships with Starbucks and AMC Theatres.

“It makes good business sense to do [business] with Blacks and other people of color,” Johnson told the 100-plus audience. He explained during his 30-minute speech how he used his own as well as “other people’s money” to get started.

Being an NBA star didn’t automatically open doors for him, he admitted. “I’d go before the board [asking] for $150 million, and the board would say, ‘Magic, you play that basketball game great. I want to take a picture with you, and my son wants an autograph. But we got to turn you down.’

“I dealt with that for three years,” said Johnson, adding that on his third attempt he was asked, “If your business strategy and business plan is so sound, and you want to invest in urban America, why hasn’t somebody else come here and asked us for money?’ I didn’t know what to say to them.”

The group eventually agreed to give him $50 million, “and if you can make good with this $50 million, you can come back for the other $100 [million].”

He bought a shopping center for $22 million, increased its occupancy from 40 to 100 percent, and then sold it for $48 million. He “took that nice $26 million dollars back to Sacramento” and got the remaining amount he originally asked for – “and I was off and running.”

Johnson recalled how he sealed a deal with Starbucks founder Howard Schulz by inviting him to a showing of Waiting to Exhale at his theater, which was located in South Central Los Angeles. “I had about 500 Black women [in attendance],” recalled Johnson. “I tried to warn him that we [Blacks] go to the movies a little differently than [Whites]. The women all thought they knew Whitney Houston personally: ‘Dump him… Why are you still with him, Whitney?’ they were saying.

“Howard says to me, ‘I never had a movie-going experience quite like this,” Johnson continued. “He came out and gave me the deal. We started with three [Starbucks], and I told him that we would be number one, and sure enough, all three were number one. We went from three to 125. I’ve just sold my 105 Starbucks back to Starbucks – a $405,000 investment paid off about $75 million.”

Johnson said he was oft-warned that a Starbucks wouldn’t work in the Black community. “Yes, we will pay $3 for a cup of coffee – we just don’t eat scones,” he said amidst laughter. “We don’t know what scones are in my community. You take those scones out and [put in] sweet potato pie, pound cake and sock-it-to-me cake – things that resonate with my customer base. When I did that, my customer base grew.”

Black businesses and small businesses of color should not promise what they cannot deliver, advised Johnson. “I over-delivered to Howard Schultz and Starbucks, and because I over-delivered, that led me to the next business opportunity. You have to over-deliver when you get these contracts, because it is not enough in today’s marketplace to just deliver.”

His second advice to Black businesses is, “Listen to that corporation, what their values are, what they believe in, and how can you bring added value to that corporation.”

Third, MBEs must assemble the right management team. “Make sure that if you are to deliver 1,000 napkins, that you deliver that thousand on time – in fact, deliver two to three weeks ahead of time, then go over and make sure the delivery is there.”

Finally, Black businesses must prove “how you can make money” for corporate America, continued Johnson. “Then you still would be doing good for the community at the same time.”

He then advised corporate America that they must “open up” more to small businesses owned by Blacks and other people of color. “We are looking for big opportunities, just like you give all the other companies you deal with.

Don’t just give us the small contracts, because a lot of time you put us in a box, and that’s not fair.

“We proved that you can do business in urban America – you can do business with an MBE like myself,” said Johnson.

His proven success has allowed him to move on to new business ventures, such as partnerships with Sodexo, which supplies food and facilities management services, and with Best Buy to implement diversity outreach to multicultural consumers and urban retail growth strategies.

“Don’t be afraid to partner,” Johnson told the MBEs. “I believe in partnerships – I have partnered my whole life. There is someone sitting there with expertise I can learn from, and they can learn from me. Then I can bring [that] back to those who live in urban America.”

Johnson also started Canyon-Johnson Urban Fund, a private real estate fund “with a billion dollars in cash” that focuses on underserved communities, and Yucaipa Johnson Corporate Growth Fund, a private equity fund that “either buys urban-based businesses or invests in urban-based businesses.” He recently started TCW CapitalAssist Fund.

“We have about $200 million committed and want to raise a billion dollars so we can start loaning to urban-based [and other] businesses. Everybody needs money right now, and banks aren’t loaning any at this time.”

Black Music America founder Pete Rhodes asked Johnson’s advice on growing his business. “It might be hard, but don’t say can’t,” Johnson advised.

“You can knock on doors just like I can knock on doors. You maybe can’t get to the person I can get to, but you can still knock on the door, because there’s somebody in between those people.”

Asked if his future expansion plans include Minnesota, Johnson said, “We haven’t found the right thing yet, but we’re looking. The economy has got us holding on big-time investments right now, because our partners want us to be really careful right now. But I think next year you will see us start opening up and starting new investments.

“So when we [do] come to Minnesota, we look forward to working with you,” Johnson said. “What we try to do is put money back into that same community that we invested in.”

Said Rhodes of Magic’s advice, “He gave me some good insight on the real nuts and bolts of building a business from the bottom up.”

Charles Hallman welcomes reader responses to challman@spokesman-recorder.com.