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Capital One's Fairbank Offers a Recipe for Building a Successful Business

September 2005


Fairbank

STANFORD GRADUATE SCHOOL OF BUSINESS—No experience? No money? No idea? No problem. Richard Fairbank, co-founder and chief executive of the financial services giant Capital One Financial Corp., says he lacked all of the above when he graduated from the Stanford Graduate School of Business in 1981. In spite of the holes in his resume, he built a Fortune 200 company that transformed lending practices in the credit card industry and became hugely influential in establishing low-risk ways of issuing credit to people of all demographics and income levels.

Fairbank, who received a standing ovation at the end of his September talk, recalled how his lack of experience and the ignorance that came with it in some ways enabled him to retain a wide-eyed optimism and a driving determination through countless setbacks and near-death business experiences.

Kicking off the student-run View from the Top speaker series, Fairbank focused much of his talk on disabusing students of the notion that building a business is a quick or easy process. He argued that leadership skills and an ability to understand market forces and roll with the punches are key to the success of any entrepreneurial pursuit.

"I do appreciate the whisker of a difference between Capital One and the graveyard," he said, describing how the creation of his company took five years from concept to launch. "It is an unbelievably nonlinear process."

Over the years he learned to appreciate a number of key leadership qualities, including the ability to recruit excellent people and to capture the hearts and the loyalty of employees. While such traits will serve any leader in any industry, they can be particularly critical during the early touch-and-go days of getting a young business off the ground, he said.

"When a leader is truly authentic, magical things happen," he said. "If you have strong values, people will root for you and cut you slack and forgive your mistakes."

If all that sounds obvious to ambitious entrepreneurs-in-training who have limited experience in the trenches, Fairbank also touched on the dark side of management: an inability to seek out criticism, a willingness to settle for a good rather than a great team, or a single-minded focus on short-term financial success at the expense of the underlying vision and mission. "People can smell a phony 100 miles away," he said.

Offering nuts-and-bolts business advice on choosing entrepreneurial projects to pursue, he urged students to think beyond sexy industries and seek out those that are most in need of change. Because of his lack of entrepreneurial experience when he graduated from the Business School, Fairbank initially took a job in consulting. It was not his dream job by a long shot, he said, but proved to be "massively influential" in teaching him about basic industry structures that were often more powerful than individual leaders in determining the success of a business venture.

In a very honest take on the barriers to success in the most challenging fields—like the airline industry—he said: "I'd rather be a bad manager in a great industry than a great manager in a bad industry. There is just an awful lot of blood in the airline industry."

Another valuable lesson involved the timing of launching new ventures. "When the world is about to change, the last people who know it are the people in the thick of it," said Fairbank. That was his experience launching Capital One in 1991—a time when virtually all credit cards charged users an identical $20 annual fee and 19.8 percent interest rate. His idea to set charges based on individual customer profiles initially was viewed as far too risky. It has since come to be seen as the logical practice for an industry.

He told students that their best opportunities for entrepreneurial success would come from seeking out industries overdue for an overhaul. Turning to his audience, Fairbank asked for a show of hands of how many students were interested in working in auto finance. When not a single student's hand went up, he pointed out the folly.

"At Capital One, people are lining up to go into auto finance," he said. "Setting out to reinvent an industry that people hate is pretty exciting."

—Andrea Orr

Related Links

Fairbank profile in Stanford Business magazine (May 2001)
Other View from the Top speakers