All you need to make an amazing “Switchboard Profit” Model

The Short Version:

What if there was a magic model to become rich and powerful. That anybody could use – without any talent. What if this model could make you one of the richest and most powerful people in the history of Hollywood (with no acting, directing, writing or producing talent)? What if you could use the exact model to facilitate the hottest and biggest investment banking deal of the time (with no experience as an investment banker)? And then use the model to conquer Madison Avenue to make one of the most memorable campaigns for Coca Cola? What if you could just use the same model over and over again on whatever took your interest, and have unprecented success?

This post will show you exactly how to do it. Well, at least, how one guy exactly did it.


I was introduced to the absolute magic of Michael Ovitz’s  business model from a book called The Art of Profitability by Adrian Slywotsky. I loved the concept, so bought his prescribed book Power to Burn by Stephen Singular which chronicled Ovitz and his company Creative Artists Agency (CAA) in the 1980s and 1990s.


Slywotsky uses Michael Ovitz’s CAA agency model to describe “Switchboard Profit” model:


Sellers: Actors, Writers, Producers, Directors

Middle: Micahel Ovitz (Agency)

Buyers: TV Studios

Switchboard profit is to act as an intermediary between buyers and sellers. A match-making service. Think any kind of agency – real estate, recruitment, sports agents, even investment banking.

“TV Packaging” was when an agency packaged a group of actors, writers, producers and directors to sell a new show to a studio. Most TV you saw from the 1960s on was done this way.

So what was so special about Ovitz?


Ovitz took the model for TV packaging and applied it to movies –  never done before successfully.

Then he applied this to Investment Banking: He sold the media company MCA/Universal to Matsushita, a job usually pinned for investment banks – and collected bankers’ fees along the way. And successfully annoyed investment banks.

Then he applied this logic to become a sports agent. Then to TV Commercials.

But how did he gather such momentum? How did he keep the supply?


Before each meeting with a potential client to sign up, Ovitz researched the target heavily. He knew the background of each actor, director, writer – everything they had accomplished. He even applied this when he was trying to win the design of famed architect I. M. Pei for his LA Headquarters – and won it despite Pei’s complete reluctance to take a project like that on.

He knew all the gripes, the insecurities, the anxieties that his customer segment had. Actors are always worried about their next job – where was it going to come from? Ovitz built confidence that he would take on the “work” pipeline, and they just had to concentrate on what their art – the acting. How did he do this? Like this:


His transition from the model from TV to Movies wouldn’t be easy. He signed up veteran of the film industry Marty Baum and made him a partner at CAA. When he was building the model for movie packaging, he probed Marty constantly. What are the fears and insecurities of stars, directors and producers? What makes a good script? Where did the money come from to make a movie?


Ovitz kept clear goals and ruthlessly executed them. He redefined goals month by month.


Ovitz was not always doing deals. He called around town constantly to find out which business manager and lawyers were representing which actors and directors. He was not always selling. He found out which networks and studio executives were looking for work and asked if he could help them find employment now or in the future.


Ovitz knew that the model required the right clients and quickly learned that signing literary agent Morton Janklow would be key to sell TV packages to networks (it was…)


He acted like he owned the place and exuded confidence, even when the agency was nothing. When courting the literary agent Janklow, he told them that his agency was going to be the biggest in the world, despite the fact that at the time they were barely even a company. Despite getting laughed at, he got their attention.


Despite Janklow’s lack of enthusiasm, he persisted by calling again and again. He flew to New York to get half hour of the agency’s time, and literally put the watch on the manager’s desk. He then said he’d call twice a week asking for a manuscript.


It’s hard to imagine in current days of endless self-promotion via Linkedin posts, podcasts and interviews that someone would opt to take a quiet profile. Ovitz was obsessed with keeping himself out of the spotlight. Why? He didn’t want to reveal his strategy, his secrets. Though continually pestered for interviews, he refused most of them – he even refused Stephen Singular’s request to help write the book for a while.

There’s no credible quick way to riches in busines. But before you start anything, the first thing you should do is look at your “profit model”. This is not the business model – it goes way beyond this.




Nobody is believable.

“Remember that believable opinions are most likely to come from people 1) who have successfully accomplished the thing in question at least three times, and 2) who have great explanations of the cause-effect relationships that lead them to their conclusions.”

I love this quote from Principles: Life and Work by Ray Dalio.

Too often at work we believe the wrong people. People who lack credibility. People who are dangerously overconfident in themselves yet completely unqualified.

So wrong decisions are made. Things fall over. Blame is allocated elsewhere.

The above quote is a quick and easy lens to apply when you’re trying to do something that you have no idea about (which is most of the time).


“The Goal” and its implications for creative production

I’ve talked previously on The Goal by Eliyahu Goldratt.

The book was aimed at manufacturing but it has larger implications.

To recap what “The Goal” is:

The Goal = to make money


“To reduce operational expense and reduce inventory while simultaneously increasing throughput.”

Operational Expense = What it costs (e.g. labour) to make a product

Inventory = Work in progress (WIP)

Throughput = Sales

Let’s look at this at something I’m trying to do – write music.

The Goal = to write great songs

(full disclaimer – i’ve just embarked on this journey and haven’t yet done this or even got close)

Operational Expense = My time and effort

Inventory = Song ideas (riffs, lyrics, melodies, etc.)

Throughput = Published Songs

So to maximise creativity, I need to optimise the above three things. Anchoring it to the original sentence in the book:
“To reduce operational expense and reduce inventory while simultaneously increasing throughput.”
What does this mean for my song writing?
Inventory – Don’t spend too long trying to perfect a song or section. WIP must be shipped out quickly!
Operational Expense – With every iteration of making a song, I get faster, Creativity is a process as much as it is a conjuring of ideas.
Throughput – This will increase as I manage Inventory and Operational Expense (Song pipelines)
Then next time and next time I’ll be able to do it faster and faster and then I can spend more time optimising inventory and writing better songs more quickly.
I’ll write more as I see how I go.

Australian companies can’t compete.

Peter Lynch’s timeless book One Up On Wall Street outlines five main ways that companies reward investors:

  1. Share buybacks
  2. Raise Dividends
  3. Develop New Products
  4. Start New Operations
  5. Make Acquisitions

Lynch defines the new way of “rewarding investors” as increasing Earnings Per Share (EPS). This increases the share price.

Australia’s companies, as veteran financial commentator Alan Kohler recently wrote, have been on a dividend distribution binge. Australia has twice dividend yield of US, at 4%. This is great for revenue investors. It’s not good for growth or value investors. Moreover, it’s not good for Australian firms’ prospects to compete.

Australian companies need to do more 3, 4 and 5 of the above or risk being left behind from the new era of technology. Whilst “Dividend imputation” was a great thing in 1987 when Paul Keating introduced it, it is not serving a purpose for the future for Australian companies now or in the future.

Vigilant Leadership is a cornerstone of value investing. Warren Buffett bases this largely on Strong and Consistent Return on Equity. If cash is used to pay dividends and not to develop new products, start new operations or make acquisitions, what chance do Australian companies have?


Success – the stupidest word in the world

I fucking hate the word “success”. And any deviation of it. “Successful”.

“He’s so successful.

“What are the secrets of your success?”

“Nothing can stop me from your dreams of success.”

“I have dreams of wild success and retiring at 40.”

“I interview successful people to learn their tricks.”

All of this is bullshit. It’s all misguided.

By what measure is success defined?

A stupid rhetoric question that I know the answer to it. Rich, fame, adulation, status, etc.

Everybody seems to think that once you get A, B and C to happen, everything will be great. So all I do is work to get A, B and C to happen – then life all works out magically.

Life sucks now but I’ll block all that out now to get A, B and C to happen. Then –

No more worrying. Fulfilment. Roll Credits. Done.

Agassi’s autobiography Open should be required reading for anyone who’s ever had any of the above thoughts. Especially young people.

Dream big, but realising them isn’t your key to happiness.

Happiness is appreciating the present. Not some future circumstance that you can’t control and have no idea of.

Agassi was miserable throughout his life. Despite all his success in tennis. His lack of childhood resembles Michael Jackson’s – something he admits in the book.

Whatever feeling of victory in tennis he has quickly disappears. He feels nothing. His Wimbledon victory. His Olympics victory. Countless others.

All of this a path he took, or was ordered to take, and all it did was make him feel empty.





What do Warren Buffett and Peter Thiel NOT have in common?

Below is a summary of Warren Buffett’s Principles and Rules from Warren Buffett Accounting Book. This book is the best book I’ve read on reading / understanding financial statements.

I finally think I understand the three statements –  and I’ve done an MBA. The book provides the perfect balance of simplicity without being condescending – a difficult feat, especially in finance literature.

Buffett’s Principles of Valuing Companies:

Principle 1: Vigilant Leaders
Rule 1 Low Debt
Rule 2 High Current Ratio
Rule 3 Strong & Consistent Return on Equity
Rule 4 Management based on Long Term Goals
Principle 2: Long Term Prospects
Rule 1 Company Must Have Persistent Products
Rule 2 Minimise Taxes
Principle 3: A Company Must Be Stable & Understandable
Rule 1 Stable Book Value Growth from Owner’s Earnings
Rule 2 Sustainable Competitive Advantage (“Moat”)
Principle 4: Buy at Attractive Prices
Rule 1 High Margin of Safety
Rule 2 Low Price to Earnings Ratio
Rule 3 Low Price to Book Ratio
Rule 4 Set a Safe Discount Rate
Rule 5 Buy Undervalued Stocks

Contrast these rules to Peter Thiel’s Zero To One, a book which covers tech investments – something that until recently Buffett wouldn’t touch.

Thiel’s summary quote on tech investments: “Most of a tech company’s value will come at least 10 to 15 years in the future. Thiel’s valuation rests on his “11 Key Questions to ask” one of which is “Durability” i.e. Will your market position be defensible 10 and 20 years into the future?

So using the model above, could you successfully value a tech company?

No. Why? Two major metric cannot be determined – Revenue and Free Cash Flow.

To place Thiel’s theories over Buffett’s Principles above, here’s where it falls over:

Principle 1 Rule 3 : Strong & Consistent Return on Equity (ROE)

  • No historical data available!

Principle 3 Rule 1 : Stable Book Value Growth from Owner’s Earnings

  • No historical data available!

You also can’t calculate:

Principle 4 Rule 5: Buy Undervalued Stock

This Rule is based on a Discounted Cash Flow Model. Determining this rests on working out the historical free cash flow (FCF) rate.

The best that Thiel’s model provides is a good assessment of the “Discount Perpetuity Cash Flow”

An understanding of past earnings and future earnings is so critical in investing.

Peter Lynch, one of my favourite investor’s says in One Up On Wall Street “If you can follow only one bit of data, follow the earnings – assuming the company in question has earnings…. sooner or later earnings make or break an investment in equities.”

Happy hunting.

3 Things Australian Companies Needs To Do To Attract Chinese Investment

Australia has a golden opportunity. A historic chance to be a global trade leader when the very concept is under strain in many parts of the world. China is at an unprecedented phase of outbound investment. For Australia, this is big news. As the Foreign Investment Review Board reports, Chinese investment planned $46 Billion of investment into Australia in 2015, twice that of 2014. Australian companies in the property, agribusiness, energy and healthcare sectors among many others have a unique chance to benefit for many years from this new phase of China’s development. But Australia must not fall into the trap of being enticed by numbers like these without realising the changes required to successfully attract Chinese clients.

Most companies tend to overestimate the short term and underestimate the long term when it comes to doing business with China. Dazzling market potential figures spur on China Strategies, which are too often eventually withdrawn for many reasons – frustrated shareholders, confusing business practices, ever-changing rules. It’s no surprise that many major companies give up ambitions on growing business in the country.

So what chance do Australian businesses have in engaging with China as they invest globally? Thankfully, the task is easier than it looks. There are three things that Australian businesses need to do:

  1. Sell Expertise,  Not Products
  2. Manage Pipelines
  3. See A Bigger Picture

1. Sell Expertise, Not Products

The real value that Australian companies are selling is not the product or service they provide. They are selling “Doing Business in Australia”. Doing business in China is a huge challenge – working in a completely foreign environment can be disorientating. By the same token, incoming Chinese investors have limited knowledge of the rules, regulations and processes that would seem perfectly normal to Australians.

My Chinese clients have entered Australia only in the past three to four years – some only within the last year. When I took away assumptions of what they knew about doing business here, I was in a position to teach them something valuable. Explaining how my industry worked in Australia and providing them with unique insights helped them to understand why certain things happened here, and what they needed to change in their approach.

The best part is that Chinese investors are eager to learn, and are very good listeners. Australian businesses can therefore become a valued partner from the start of new Chinese clients’ journey outward. This should be considered in their initial approaches – invite Chinese clients to seminars in their field, present research pieces, foster introductions to industry heavyweights. All these things will prove that companies have something greater to sell.

2. Manage The Pipeline

Decision making processes at Chinese companies are usually consensus driven. A chain of stakeholders within many horizontal divisions of a company must be engaged before a decision is reached.

Chinese companies investing in Australia have even more stakeholders to satisfy – the divisional teams in China headquarters and their local subsidiaries in Australia.

My first step when engaging Chinese companies is to understand concisely what the process is at a target company. This has varied from firm to firm, depending on whether the company is private, public or state-owned. To achieve this I have relied upon active representation in China, who have not only has informed me of the company’s decision making process, but also reported on changes regularly within the company.

At a recent Q&A Session of the Australia China Business Council, Chinese business experts from agencies Fluid, Protocol and The China Way stressed that the Chinese market changes drastically every six months. They prescribe that current representation in China is critical to conduct business with Chinese companies.

Australian businesses must build an infrastructure to accommodate this. Having touch points and regular communications between the deal source in China and the target country representatives will minimise lost opportunities.

3. See A Bigger Picture

This all may seem a tall order for an Australian companies. All of this requires a lot of work, co-ordination and unique new skills to effectively engage this segment. It may be easier to stick to current expertise with existing clients, where results are more predictable.
But would they be turning back on a single investment opportunity or something much bigger?  My Chinese clients have huge projects they are planning, and incredible ambitions in Australia. They are at their infancy in their foray into foreign markets, and this is the start of a long term series of investments. For me, this is too big an opportunity to miss.
Australian businesses should map out precisely what the target company’s ambitions are. This is often not self-evident – it will come only once trust is built with the client. More often than not, the ambitions will be very impressive and lead to greater opportunities. Being at the start of the journey with Chinese companies and providing value beyond products and services will be remembered.
By using simple virtues of patience and understanding, Australian businesses can not only capitalise but rise to a greater purpose in the world. Australia is one of the top destinations of Chinese outbound investment. Let’s not waste the opportunity.
Charlie McDonald is a Business Development Manager, focusing on outbound Chinese companies and investors. He can be reached at