Paralyzed by Fear of Loss: The Man Who Sold 10% of Apple for $800

Gary North

Nov. 26, 2011

Some fishermen tell stories of the one that got away. I have heard of nothing to match this.

Ron Wayne went into business with Steve Jobs and Steve Wosniak in 1976. He knew they were bright, innovative guys. Too innovative, he thought. We read on Wikipedia,

Wayne also stated that he felt the Apple enterprise "would be successful, but at the same time there would be bumps along the way and I couldn't risk it. I had already had a rather unfortunate business experience before. I was getting too old and those two were whirlwinds. It was like having a tiger by the tail and I couldn't keep up with these guys."

He was afraid of being in business with them. He helped them get started, but he immediately got cold feet.

He was 41 years old. He lived with his mother. He had a few assets. In a partnership, he could lose everything he had if either of the others went bankrupt. They had no assets.

They set up the company on April 1, 1976. The risk seemed too great. He sold his share for $800 twelve days later. A year later, they incorporated, thereby removing the threat of personal liability. They sent him another $1,500 for written statement that he owned none of the firm. That was gravy, he probably thought. Something for nothing. A little walking-around money.

In its first year of operations (1976), Apple's sales reached $174,000. In 1977, sales rose to $2.7 million, in 1978 to $7.8 million, and in 1980 to $117 million. By 1982 Apple had a billion dollars in annual sales. He claimed that he did not regret selling the stock as he had made the "best decision with the information available to me at the time."

Today, 10% of Apple would be worth $34 billion. Of course, he would had to relinquish a lot of that percentage when the company took on venture capital. Maybe he would only be worth $200 million.

In 1976, he had almost no assets. He hung onto them for dear life. Today, in the late seventies, he has almost no assets. He lives on Social Security, plus a little money from selling gold coins and stamps out of his home in Nevada.

He says this:

"I don't waste my time getting frustrated about things that didn't work out," he says. "I left Apple for reasons that seemed sound to me at the time. Why should I go back and 'what if' myself? If I did, I'd be in a rubber room by now."

Moments later, however, he turns somber. "Unfortunately, my whole life has been a day late and a dollar short," Wayne says.

What undermined him? He says that it was a previous business failure five years earlier. He was involved in a slot machine company. It went bust.

Today, he gambles at the penny slots from 1 a.m. to 3 a.m.

Slot machines have cost him dearly. He should have avoided gambling.

He has never figured out the difference between gambling and business. Gambling is a zero-sum game played for its own sake. Zero-sum means that winners make money by losses experienced by losers. It's win-lose. The losers refuse to see that the odds are against them. They keep playing.

In contrast, business is about working to meet future desires by customers. It does not create needless risks, as a game does. It overcomes the inescapable uncertainties of life. It's win-win when it is successful.

"There were at least six times in my life when I really thought that I had the world by the tail," Wayne says, "when I thought, 'I have an invention here that's going to make me a fortune.' And six times it blew up. I don't know why, it just never happened. It's probably because I'm not the businessman I should be."

His story is here. This is a cautionary tale. Don't imitate it.

How can you avoid imitating it? First, start with a corporation or L.L.C. from the beginning. They are cheap to set up in Delaware: www.corporation.com. Second, when you see that you may be able to improve other people's lives by taking on uncertainty on their behalf, do it. Third, when you are young, don't hang on for dear life to whatever you own if this means walking away from an opportunity to serve customers. Fourth, start small, work hard, and reinvest any profits for five years. Get compound growth working for you.

In short, don't play the penny slots in life. If you do, you will short-change yourself.