In November 2011, Shahid Khan bought the Jacksonville Jaguars for $770 million. He was the first ethnic minority to own a team in the NFL. Forbes lists Shahid Khan’s net worth at $7.4 billion.
Who is Shahid Khan?
Shahid Khan (born July 18, 1950) grew up in a middle class family in Lahore, Pakistan. The family worked in construction, while his mother was a math teacher. As a child, he proved to have a business mind. He built and sold radios and made his friends pay to borrow his comic books.
In 1967, he was accepted to study mechanical engineering at the University of Illinois in Champaign-Urbana.
By himself, with only $500 in his pocket, he set out for America. He spent his first night at the local YMCA. He was afraid of running out of money, so the next day he found a job as a dishwasher paying $1.20/ hour.
Here we get a glimpse of what separated Khan from others when he was asked about this experience in a recent interview:
"Wow, I think I’m gonna make it. This is my liberation. I control my destiny. $1.20 an hour, that’s big money, I mean, more than what 99 percent of the people in Pakistan were making. I can control my destiny, I control my life.”
Surprisingly this teenager from Pakistan with no support made friends quickly. He adapted easily to life on the Illinois campus. Ironically enough he was even invited to join the highly selective, and all-white, Beta Theta Pi fraternity.
After graduation he joined a local aftermarket parts company, Flex-N-Gate, as an engineering manager. The company manufactured auto bumpers through an inefficient process of welding together as many as 15 individual parts. “You look back at it now,” Khan says, “and you ask, what the hell were they doing?”
He oversaw production at Flex-N-Gate for 7 years. Over time he was turned off by the business. No one cared about inventing new and better ways to make these bumpers. He needed to be out on his own to innovate and to work with the customers directly.
In 1978, he borrowed $50,000 from the Small Business Loan corporation and took $16,000 of his own savings to establish Bumper Works in Danville, Illinois. He had been working on a design that would stamp a bumper out of a single piece of steel. The result was a smaller, stronger bumper, that also allowed trucks to be built smaller.
Just one week after leaving Flex-N-Gate, the company sued him for stealing trade secrets. An injunction could have killed Bumper Works at the time. He hired the cheapest lawyer he could find, but basically ran the defense himself. He spent most nights at the law library teaching himself law while overseeing production at Bumper Works during the day.
For two years, Khan fought the lawsuit and won round after round. Finally the Illinois Supreme Court refused to hear Flex-N-Gate’s second appeal in 1980. And ironically enough, Flex-N-Gate was losing $50,000 per month, just as Bumper Works was taking off. Khan bought Flex-N-Gate for nothing more than the value of their assets.
Khan has a saying about the auto parts business that seems appropriate for most fields: You don’t have to outrun the bear, just the other guy. He used to carry around a list of 19 competitors until all of them went out of business.
He renamed the company under the Flex-N-Gate name.
It wasn’t long after that Khan got a call from GM who loved his new bumper design. The bad news was Flex-N-Gate was just too small. They could make 200 bumpers per day, not 40,000. GM would take the design and make it themselves. GM got the designs because of a contract that relinquished his IP. They didn’t need him. This was just one of the ways the old school car manufactures could screw over small suppliers. They had a history of doing so.
Khan turned it into a positive by asking GM for a contact person at Isuzu who was going to be exporting cars to the US. GM agreed and gave him the contact information. He then recruited some Japanese computer science Ph.D students to travel with him as interpreters. He slowly but surely started gaining trust with Isuzu. It was perfect timing too because this was when Japanese auto manufacturers were making their move into the US.
He landed Isuzu. He then landed Mazda. Then Toyota came calling.
The story of Toyota and Flex-N-Gate is the perfect case study in doing whatever it takes for the customer.
Between 1980 and 1985 Kahn approached Toyota, but without much luck. In 1987, Toyota called together a group of 100 potential suppliers and released their design, quality, quantity, and price range specifications for the product. The officials at Toyota also indicated that they expected increased quality and reduction in price each year from the supplier.
By late 1988, only Khan’s Flex-N-Gate could meet Toyota’s requirements. But the negotiations failed because Kahn couldn’t produce 20 different sized bumpers and ship them in a single day.
Khan realized he needed to switch his factory from mass production to batch production. This was no easy task. Flex-N-Gate and Toyota worked together to study, simplify, and restructure production to allow for batch production. Khan remodeled his assembly line. For six months employees with stopwatches and cost sheets observed the process and benchmarked its operations against Toyota’s standards. But they still couldn’t meet the standards.
Toyota sent another team over to Flex-N-Gate to watch and provide insights. Finally after six more months of fine tuning, where Toyota literally sent a team over to retrain Flex-N-Gate workers, they met the requirements.
The new Flex-N-Gate production line increased productivity 60% over the previous year, decreased defects by 80%, cut delivery time by 85%, and cut waste materials cost by 50%. They continued to increase quality and decrease costs every year. This would form not only a relationship with Toyota that would last for decades but a production process that no competitor would ever match. By 2001, Flex-N-Gate’s sales topped $1 billion.
Today Flex-N-Gate does $6.8 billion in sales, employs over 25,000 people, and has 66 manufacturing plants around the world. Not bad for an immigrant who showed up with $500 in his pocket.
The one thing that history teaches us is that greatness almost always forms from humble beginnings.
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Here is a recent interview with Shahid Khan.
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