Magic Johnson on Understanding Your Customers and Over-delivering


#1

In 2009, Sports Illustrated estimated that within five years of retirement, an estimated 60% of former National Basketball Association (NBA) players are broke. The same financial pandemic is felt by athletes in the National Football League (NFL), and Major League Baseball (MLB).

Despite these grim facts, a rare few athletes have bucked the trend. Earvin “Magic” Johnson is one stunning example. ESPN, among others, consider Magic Johnson to be one of the greatest point guards in basketball history. Since retiring Magic has translated what helped him become a world leading athlete into the business world. Today, Magic Johnson is worth around ~$500 million.

Below Magic Johnson describes how he made the transition from basketball to business. Then he described one of the most important lessons that has helped him in business: understanding your customers and over-delivering.

Interviewer: Many people may not realize that you actually began preparing for your second career, your career in business, while you were still in the NBA.

Can you tell us what that preparation looked like and what motivated you?

Magic: Well, first we have to understand that the same principles really apply from being a basketball
player as well as a CEO.

When you think about focus, strategy, discipline, so I’m still that same guy that has those same principles as a CEO. And what I was doing as a basketball player first and also a competitor. because I hate to lose at anything, all right?

Like my wife encouraged me to play my daughter one on one when she was about 15, 16 years old. You know, I play her you know, we go to ten. I let her get to nine. And then I gotta to crush her.

And if I was playing my mother, I would let her get to nine and a half, and then I’d crush her too.

I love winning. And I took that same competitive spirit to the boardroom as well.

I’m a perfectionist. So I was a perfectionist as a basketball player. I did the drills over, and over, and over again.

And even today, I’m a perfectionist. And I want to do everything the right way.

So when you think about principles of being an athlete or a basketball player, it’s the same thing as a CEO. I am a guy who is going to get there early. I am not about, I’m a professional. Today they said, okay about 11:30. Well I got on campus at five to 11. I just sat at the chapel for a half hour waiting. But, that’s who I am.

And so I think that I was preparing. What I did was asked Dr. Bus I said, my dream is not to just win championships, but I want to become a businessman after my basketball career with the Lakers. And he took me up under his wing and became my mentor. One of my many mentors. And so he taught me Laker business, opened the books up to me, let me see how the Laker business was being run day to day.

Then I took, and I was one of these guys that was crazy so I called the PR man from the Lakers and I said look I want to know, all the people who sit on the floor, I want to know their phone numbers and names.

So I cold called 20 people, and said, will you go to lunch with me? And they said yeah, so.

Int: Surprise surprise.

Magic: I took advantage of my platform, trust me. And so I picked their brain about business, what made them successful and I incorporated it into my own style.

So while I was playing basketball, yes, I was getting ready.

But make no mistake about it, I was 150% in with being a Laker and being the best basketball player I could be. In the off-season, I was preparing for this life after basketball. But I was a crazy basketball player,
much like I am CEO. Because, when you’re trying to prove people wrong. First they said I wouldn’t be
able to play point guard at 6’9". So I had to prove them wrong. Then, they said I couldn’t go from the basketball court to the boardroom. And it’s been my pleasure proving them wrong again. And so, I’m a guy who goes all the way in. And I love doing what I’m doing, but basketball prepared me for the business room. No question about it. If it wasn’t for basketball, I don’t think I could be the CEO that I am today.

Int: Well you did become very successful. And I want to play back to earlier in your career. You had an early partnership with Starbucks, and around 1998, you opened 125 stores for them in low income neighborhoods.

It was the first time Starbucks had done something like that. Your stores were more successful than the national average. You don’t own those anymore, but can you talk about how important that deal was in your career?

Magic: Well, let me go back before that one because actually the Magic Johnson Theatre set up that one. And I did my homework and research and found out minorities were the number one group of people going to the movies at that time, but we didn’t have no theaters built in our community.

And I said wow, if we’re the number one people going to the theater, to the movies, if I build them, they will come. The demand was already there. So I met with the Sony execs and told them, look, the growth of your business has to be through urban America.

We’ve got an unbelievable spending power. Look at our spending power right now. African Americans, a trillion dollars spending power, Latinos, another trillion dollars spending power, and growing.

And I’m sitting there saying, wow, that’s a lot of disposable income, and that could make my business become successful very quick. And so they said let’s do it. I put up half the money. They put up half the money. And the first thing people said, oh, no way. They’re going to tear it up. Graffiti going to be all on the walls.

And what happened was my first theater in Crenshaw in LA was in the top ten highest grossing theaters in the nation. And what we had to do was tweak the concession stand a little bit.

because minorities, we’re a little bit different than everybody else, so. We grew up on Kool-Aid, so I had to have strawberry, grape, orange, soda. We don’t drink just coke. Yeah. So. Now, the reason I said that because my per caps were some of the highest in the industry. Wait a minute, so if I keep that coke just in there, and my customer base don’t drink coke, I’m not successful, right?

Then I had a spicier hot dog. Some jalapeno peppers, that was the first time in theater history that ever happened, right? And so I was able to understand my customer base and overdeliver to them. And I’m going to use that word all the time, and you students out there, I want you to write that word down, and that’s overdeliver. because if you going to be in business, and especially today’s marketplace, you gotta overdeliver to the consumer.

Or guess what, they’re going to leave you that fast. I have overdelivered to my customer base for 30 years. That’s why I have the number one brand in urban America. And so, if I had have just kept coke in there, not the hot dog change, it would have been a problem.

Let me tell you a little quick story about how they looked at me as a basketball player. So we’re about to open my first theater on Crenshaw in LA. And I asked the food buyer from Sony, I said, how many hot dogs do we have for the opening? So he’s like, man, the same amount we are going to give you is the same
amount we have in our suburban theaters. We opened the theater on Friday, we sold out all the hot dogs that normally take a month to sell out in suburban, sold out in one night.

Why? Because minorities, we’re not going to go to dinner and a movie. We’re going to have dinner where?
At the movies. I can’t hear you. At the movies. So that’s another reason my per caps were so high.

You have to have an understanding of your customer base. And I know what urban consumers want,
and I deliver that. So because we were very successful with the Magic Johnson Theatres, I went up to Seattle because I saw this long line outside this coffee place called Starbucks. I’m like, man,
what kind of coffee they serving in there? So I said, I gotta get in that line, I gotta see what’s going on.

So I got in the line and waiting and waiting and waiting. I finally got up there, and I don’t drink coffee, I drink tea. So I said, man, let me have your best tea, whatever. I took a sip of that tea. I said, wow. No wonder. I said, man, that’s the next successful thing that can happen in urban America.

So I cold called Howard Schultz, CEO of Starbucks and said look, I want to come up and see you. So I flew up to Seattle, and we had a meeting, and thank god, he was a basketball fan and a season ticket holder of Seattle SuperSonics. And we sat down and talked. And I told him the growth of this business would be through urban America. because Starbucks got a store, man, they saturate the market, which is great. They dominate the market.

I said, but there’s none in urban America, and we got this great spending power, and I knew that it would be successful in urban America. He said, well, we don’t do franchisees. I said, I’m not here to become one. I want to be your partner. I’ll put up half the money, you put up half the money. So, he said, well,
I’ve got to sell it to the board, let’s have a couple more meetings.

So long story short, we had about four more meetings, and then he finally decided to come down and
see how we managed my theaters. And this is really important to a lot of you young people out there. You’ve got to make sure that what you selling and what you tell people is going to be the truth, right? When they come and see what your business looks like, everything that you told them, it sure better look like that.

So sure enough, he comes down on a Friday night, and thank god, Whitney Houston’s first movie
was coming out, Waiting to Exhale. So I had about 4 or 5,000 African American women wrapped
around the corner trying to get in. To see this movie. So Howard comes, we come around the corner.

He’s like wow, man. He was amazed we had this many people waiting to see this movie. Got inside, the concession stand was just, I mean we were making money like crazy because everybody was ordering something. And then finally, the movie started, so we sat in one of my biggest house was like 500 seats.
And the movie got going, about 20 minutes in. And every African American woman in there thought they knew Whitney Houston personally, so they start talking to the screen.

Girl, why you still with him? You should dump him. And so Howard grabs me out the theater. True story.
And said, Irving, I’ve never had a movie going experience quite like this. And he said, you got the deal.

So we did three as a test. And this is where that word comes in young people. So he gave me three to test. And I had to overdeliver with the three. So when I looked up, I said okay, we gotta tweak Starbucks just a little bit to fit In urban America, the coffee was great, but the dessert was not. We don’t quite know what scones are. So I had to take the scone’s out of my Starbucks and put sweet potato pie, pound cakes, sock it to me cake, peach cobbler.

They said no way minorities will pay $3 for a cup of coffee. Well, we proved everybody wrong. My per caps were higher than his per caps. And, it went from building 3 to building 125.

The multiple was already negotiated. So when my contract was up in terms of the number, 125, I sold them all back to Howard. And I walked away, with a big smile on my face. And he did too. Because he says already, in all the interviews that he’s been able to do after our partnership, he said how our stores really changed Starbucks. Brought in a lot of minority managers, district managers, employees.

And now he’s built now, 500 to a 1000 stores in urban America. And it’s great. So its great for me to be the guy who opened the door for Starbucks going into urban America. And we should clap for that because that’s that’s a great thing.

So, it’s still about overdelivering. See, if I had of kept those scones in there, my per caps wouldn’t have been 459. It wouldn’t have been that high. So, because I changed out those desserts and then I also took out the Lawrence Welk music that they played in The regular Starbucks and I put in Prince, Motown music, Earth, Wind, and Fire, things that resonate with the urban consumer.

So now if I got you sitting there, and you made your first purchase, and you’re comfortable. And you got your head moving, and you’ve got your favorite drink next to you, you’re going to sit there long enough to make your second purchase.

And then minorities, if we call a place, that’s my place. Like, that’s my restaurant, that’s my burger place. Whatever it is, that’s where we’re going to go all the time because they’ve overdelivered to us.

And you’re the same way.

And so, that’s why you have to overdeliver. And also, stay in touch with that customer base.


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#2

@seaniddings thank you.

To paraphrase Magic, it’s pretty remarkable what can happen if a company understands, overdelivers and stays in touch with its customer base.

Also, to quote you “Fanatics are fanatics because they’re fanatic about the details.” Multiple examples of that in action here:

“I’m a perfectionist. So I was a perfectionist as a basketball player. I did the drills over, and over, and over again. And even today, I’m a perfectionist. And I want to do everything the right way.”

“I am a guy who is going to get there early. I am not about, I’m a professional. Today they said, okay about 11:30. Well I got on campus at five to 11. I just sat at the chapel for a half hour waiting. But, that’s who I am.”


#3

Great interview and interesting to read/hear about his progression. There were several quick key takeaways:

  1. Do business in what you know. Magic tried to do business in what he knows, paying attention to demographics. But, like Peter Lynch, he also looked around and saw opportunities in everyday things (e.g., the long line outside of Starbucks)
  2. Use what you got, to get what you want. Magic wasn’t scared to use his platform (e.g., PR contacts to get Lakers floor seat holder information, cold calling Howard Schultz after Magic saw the long lines).
  3. Adapt and adjust. He tailored and adjusted the model to fit the audience, not the other way around which is often the problem with many businesses (e.g., changed the concession stand contents in the movie theaters, changed the Starbucks dessert offerings and music).
  4. Know the leverage points. He focused on the key leverage points of the business—concession stands in the theater, for example. Also, he knew the metrics and numbers that mattered.
  5. No shame and don’t be shy. Magic wasn’t shy and had no shame—no shame in asking for help, asking for mentorship, asking for opportunities via cold calling.
  6. Be honest. “You’ve got to make sure that what you selling and what you tell people is going to be the truth, right? When they come and see what your business looks like, everything that you told them, it sure better look like that.” I thought his advice to the audience about better having the goods to show if selling something is particularly insightful given the recent high profile Theranos debacle.

#4

Excellent points @rileynewport and @Emanuel.

If you look at the elite athletes who’ve done horribly in business after retiring, they’ve done the exact opposite of what Magic did. They couldn’t transition what they did so well in a different domain, business. And I think they lack proper understanding the power of multiplying by zero as Magic does. That being integrity. Without integrity, you’re left with nothing.

Magic surrounded himself with the business leaders who’ve been successful and had utmost integrity (Schultz and others). Magic has integrity so he can scope it out in other people. Other athletes tend to have a poor feel for those with integrity. They often lack integrity themselves, so how can they see it in others? They focus instead on trusting people they know and are most similar to them.

There is a story of a former Major League Baseball (MLB) player from the Dominican Republic whose adviser took care of all of his financial matters. One day the player’s mail came to the clubhouse and Torii Hunter playfully asked to see it. Torii said, “It turns out he was paying this guy $5k a month on insurance for two cars in the Dominican Republic. I got three cars, and I only pay $250 a month. He’d been with and trusted this guy [for almost 18 years]!”