John McCormack was a New York City police officer-turned-stockbroker who made a million bucks before age 30, and then lost it all. His wife owned a hair salon. With a little time on his hands and not really sure how he’d make his comeback, he began pitching in a little around the salon. A few improvements here, a few there. He discovered it could be a profitable business, and felt the industry seemed ripe for innovation. Fifteen years later, Visible Changes was arguably the largest and most respected upscale hair salon chain in the United States. And John McCormack was named the 1988 Inc. Magazine Entrepreneur of the Year. I met him in person. He said there is one, and only one, imperative above all others for the aspiring entrepreneur. That is:

Spend less than you make.

How much less?

He said if you spend more than 70% of what you make, you’re risking it. But save (and reinvest) 30% or more of your annual income, no matter how large or small your income is, and you’ll soon be making more money than you ever imagined.

D. Wayne Lukas grew up in a very small town in Wisconsin. His grade school class had two – him and one other. He dreamed of being a basketball coach. He also dreamed of owning and racing a horse that would win a local pari-mutual. He became a school teacher and basketball coach, and later decided to try his hand at training horses. He soon raised his aspirations to winning a triple-crown race. One hundred fifty thousand hours of work later, he reached his goal. Many wins would follow, and today he is the winningest horse trainer of all time – 13 Triple Crown wins; 17 Breeder’s Cup wins; 14 times named U.S. trainer of the year; and $250 million in lifetime winnings, more than double any other trainer in history.

Make no mistake – horse training and racing is a business just as any other. Lukas Racing started with one client, one horse and very little else. Let’s take a look into the man and his business, and into the philosophies that have allowed him to change and dominate an entire industry.

The Business of Horse Training. Lukas Racing is in the business of training thoroughbred race horses. Lukas’ customers are owners of horses – typically wealthy individuals who invest in race horses for the fun, prestige and profit. Horse trainers, like Lukas, make money by getting hired to train horses. They are paid a daily fee for managing, feeding, sheltering, caring for, training and racing the assets pledged to their care. Trainers, such as Lukas, also typically get a cut of purses won.

Bucking the Status Quo: Noteworthy success is typically found by doing things a little different – by finding a better way and cutting a new path. The Lukas Racing story is no different. As Lukas struggled to differentiate his offering and give owners compelling reasons to hire him, he kept things simple (one of his primary tenets). His clients simply wanted to hire the trainer that would win races. Lukas noticed that trainers tended to enter their horses in local or regional races only, rarely transporting their horses to complete in races held far away. He lamented that at times a horse of his would be outclassed in a local race but would have far better odds in an out-of-region race. For example, he’d have a sprinter but the local race would be an endurance test. Why not simply transport the horse to a place and race at which it could win? Take that sprinter to a sprinter’s race. Painfully simple, yes, but (unbelievably) such was not the common practice of the time.

And so it began. By discontinuing the practice of blindly entering horses in local races – regardless of ability to place in the money – Lukas began to tactically rationalize his stable of horses across races in which they were most competitive. The result was a winning percentage and purse yield that caught the attention of everyone.

Building and Continually Fortifying a Competitive Advantage. Lukas found a way to win (a competitive advantage) – in being willing to transport his horses over long distances so that they could run in races that matched their abilities. The result was more wins and more purse money. More and better customers followed and profits surged. But as competing trainers figured out the Lukas strategy and began to emulate it, the competitive advantage and profit windfall come under siege. Unsatisfied with short-term success, however, and incredibly disciplined, Lukas resisted the temptation to squander the newfound monies on luxury items. Instead, he invested his early profits back into his business – upgrading facilities, personnel and programs that would contribute to race wins in a manner that would be much harder for his competitors to emulate. The strategy has worked amazingly well.

Find Persons and Horses, with God-Given Talent: In selecting winning horses and people, you need an eye for spotting God-given talent. Once you have someone with natural ability, the task is to give him what he needs to get him to the winner’s circle.

Great Training and Managing, Comes from a Deep Knowledge of the Subject: Every horse and person, has unique strengths, weaknesses, tendencies and sensitivities. The only way to draw out top performance is to get to know, in a very deep way, the subject’s unique characteristics and, with that knowledge:

a.    Design a training program to which the talent will best respond, and

b.    Place the talent in positions that enable their unique skills to shine and their weaknesses to be least damaging.

So the key is to spend a lot of time with your human or equine talent, observing and looking for clues to what makes him tick. Lukas says he can spot even minute changes in his horses, such as a few pounds gained or lost or subtle changes in disposition.

Mind over Matter: “The mental state is three-to-one more important than the physical state,” says Lukas. Both people and horse are complex and sensitive creatures. They react to every stimulus, positively or negatively. And when bad things happen, the detrimental affects tend to stick around much longer than the effects of the positive.  He says, “One of the things that we tell our people is ‘never take the try out of the horse.’ If he loses the try, the joy of participating and competing, you’re in trouble.  Yet, you still have to bear down on him to the point that he’s fit enough to go a mile and a quarter. So therein lies the problem.”

Leading by Example: “You, the leader, must set the example. There is absolutely no excuse for being outworked,” Lukas imposes. He says he has only missed seven days of work in the past 14 years, and that includes holidays and weekends! Pretty impressive for anyone, and Lukas is 69. He continues, “To succeed, you have to be right in the middle of the deal. You have to be very, very intense and involved. For those people who don’t succeed the thing that usually undoes them is that they can’t handle 365- days-a-year, 18-hour days.”

Staying Informed And Being “On The Job”: Lukas Racing has 90 employees, five of whom report directly to Lukas. “Each of them has to call me between 4 a.m. and 5  a.m. each day, again between 11 a.m. and 1 p.m. and again right before they lay their head down to sleep,” says Lukas. “I don’t want any surprises and I want to know what is going on.”

Demanding Excellence: “People crave discipline,” says Lukas. “They want to be dedicated and focused. Require that of them and they will learn to love you for it.” Lukas accommodates this need by demanding discipline and excellence in every facet of Lukas Racing. The barns must be perfect at all times, as do the clothes of every employee. He demands that everyone write neatly, speak clearly and answer the telephone in just the right way. He says, “We keep everything spotless, not because it will make our horses run faster but because that discipline will carry over into the things that DO matter.”

Find out What Drives Your Economic Engine: Lukas says he’s actually never made any money by training and racing horses. He says it’s really tough to get enough in training fees and purse percentages to cover his substantial costs. He figured out, however, that the money is in the stud fees. Train a winner and the stud fees are where the big money is. “We could have tried to really increase what we charge to train horses, but we decided to offer a compelling value proposition to the horse owners. When we get the best talent and train them to be winners, we make money on the back end. A lot of money.”

Additional Quotes from D. Wayne Lukas:

“I ask my employees to, when they see a problem, give it to me straight. I want to hear the bad news first and then the solution you propose.”

“Praise performance, give credit and share the rewards of success.”

“Always ask why. I want my employees to learn how to think. If they just do as they’re told, they won’t learn why. They must question, ask questions and learn the answers.”

“I had an employee call me and say he couldn’t sleep for worrying about what he might have forgotten, what he needs to do and where he’s supposed to be. I said, ‘Perfect, you’re coming along just fine’.”

“I like to kick their ass whenever I can. I go after them every day – and I like to keep score, too, because that’s what motivates me.”

“Being born a man or a woman is a chance. Being a man or a woman is a choice.”

“Take the tension out. Tension drains performance, in humans and horses.  Have fun and be loose.”

“I tell my new hires, ‘Don’t buy a new set of clothes because you’ll be a size smaller in 30 days’.”

“Just because you win doesn’t make you a winner; and just because you lose doesn’t make you a loser – It’s how you prepare and dedicate yourself, how much you improve.”

“We’ve never been real interested in the status quo, just interested in winning.”

This article was written from discussions with Mr. Lukas, notes from his keynote address to the Newsletter and Electronic Publishers Association (NEPA), and an article that appeared in the May 2004 issue of the Harvard Business Review.

The professor stood before his class of 30 senior molecular biology students, about to pass out the final exam. “I have been privileged to be your instructor this semester, and I know how hard you have all worked to prepare for this test. I also know most of you are off to medical school or grad school next fall,” he said to them.

“I am well aware of how much pressure you are under to keep your GPAs up, and because I know you are all capable of understanding this material, I am prepared to offer an automatic ‘B’ to anyone who would prefer not to take the final.”

The relief was audible as a number of students jumped up to thank the professor and departed from class. The professor looked at the handful of students who remained, and offered again, “Any other takers? This is your last opportunity.”  One more student decided to go.

Seven students remained. The professor closed the door and took attendance. Then he handed out the final exam.  There were two sentences typed on the paper:  “Congratulations, you have just received an ‘A’ in this class.  Keep believing in yourself.”

I never had a professor who gave a test like that. It may seem like the easy way out of grading a bunch of exams, but it’s a test that any teacher in any discipline could and should give. Students who don’t have confidence in what they’ve learned are “B” students at best. The same is true for students of real life. The “A” students are those who believe in what they’re doing because they’ve learned from both successes and failures. They’ve absorbed life’s lessons, whether from formal education or the school of hard knocks, and become better people. Those are the people who you look for when you’re hiring or promoting, and the ones you keep if you’re downsizing.  Your organization needs their brand of thinking.

Psychologists say that by the age of two, 50 percent of what we ever believe about ourselves has been formed; by age six, 60 percent, and at eight years, 80 percent. Wouldn’t you love to have the energy and optimism of a little kid? There is nothing you couldn’t do or learn or be.

But you’re a big kid now, and you realize you have some limits. Don’t let the biggest limit be yourself.

Take your cue from Sir Edmund Hillary, the first person to reach the summit of Mount Everest:  “It’s not the mountain we conquer, but ourselves.” Believing in yourself comes from knowing what you are really capable of doing. When it’s your turn to step up to the plate, realize that you won’t hit a homerun every time. Baseball superstar Mickey Mantle struck out more than 1,700 times, but it didn’t stop him from excelling at baseball. He believed in himself, and he knew his fans believed in him.

Surround yourself with positive people – they know the importance of confidence and will help you keep focused on what you can do instead of what you can’t. Who you surround yourself with is who you become.

Never stop learning! I would work this advice into every column if I could; it’s that important.  Don’t limit yourself only to work-related classes, either. Learn everything about every subject that you can.  When you know what you’re talking about, it shows.

Be very careful not to confuse confidence with a big ego. If you want people to believe in you, you also have to believe in them. Understand well that those around you also have much to contribute, and they deserve your support. Without faith in yourself and others, success is impossible.

At the end of a particularly frustrating practice one day, a football coach dismissed his players by yelling, “Now all you idiots, go take a shower!” All but one player headed toward the locker room. The coach glared at him and asked why he was still there. “You told all the idiots to go, sir,” the player replied, “and there sure seems to be a lot of them. But I am not an idiot.”

Confident? You bet. And smart enough to coach that team some day.

Mackay’s Moral: Believe in yourself, even when no one else does.

Reprinted with permission from nationally syndicated columnist Harvey Mackay, author of the New York Times bestsellers “Swim With The Sharks Without Being Eaten Alive” and “Pushing The Envelope.”