Written by Brett Nelson
Listen up, budding Masters Of The Universe, and all those who dream of walking their path to wealth, power and spacious summer homes.
At many business schools, boot-camp week–where the unwashed get a taste of debits, credits and such–starts in less than a month. After that, and just beneath the throb of your hangover (a B-school accessory), you will detect another inexorable rhythm–a faint ticking to be precise. This is the tell-tale heart to your two-year, $100,000 investment. The relentless reminder that you better get to learnin’ (or at least networking), lest you end up working for, and maybe getting laid off by, one of your classmates one day.
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Now for the good–or totally vexing–news, depending how you take it: After all the spreadsheets and cost-of-capital calculations, after all the case studies and Power Point presentations, after all the tuition money is gone and it’s just you and your pedigree, contacts and gumption, guess what?
You get to start over again–in the real world.
As anyone who employs people and writes checks will confirm, turning $1 into a $1.10 is a real bitch. Turning that $1.10 into $1.25, even tougher. I had to laugh the other day when a former colleague, now a partner at a boutique digital-marketing firm, sent me the following text out of the blue: “Generating positive cash flow is one of the hardest f—ing things in the world.” And then some, Matt.
For all the wonderful instruction at places like Harvard, Wharton and my alma mater, the Stern School of Business at NYU, b-schoolers should remember that making money involves so much more than columns in a spreadsheet and the ever-shifting assumptions behind them.
With that in mind, here’s a supplemental, 10-step curriculum:
1. If It Ain’t Broke, Still Fix It
One of the hardest decisions business owners have to make is turning their backs on cash when it’s flowing. But that’s exactly what you must have the courage to do sometimes to protect your franchise. Think about all those aggressive mortgage underwriters who scooped up fees by the shovelful during the housing bubble, when they should have been tightening their lending criteria. Or USA Inc., which ran deficits for years–because, well, our creditors didn’t seem to mind–and now faces a staggering $60 trillion fiscal hole (including the present value of all future obligations to its entitlement programs).
2. If You Don’t End Up Working At Goldman Sachs, Forget What You Learned About Finance
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This one comes courtesy of one of my classmates, now finance chief for the unit of a large manufacturing firm, who would rather remain anonymous:
“In a 12-year finance career with large respected companies (General Electric, Honeywell, BASF), I can count on two hands the number of IRR (internal rate of return), DCF (discounted cash flow) and NPV (net present value) analyses I have completed, and I am pretty sure that I analyzed exponentially more balance sheets in a classroom than I ever have in a boardroom. It is obviously important to be fluent in the language of finance, but as for the finance majors I hire (graduate and undergrad alike), I spend the first year or two retraining them.
“A career in corporate finance is nothing like what is taught in school,” he adds. “The job is largely to be the conscience of the business–expecting and demanding explanation for decisions and acting as an internal chief operating officer well versed in most topics (products, customers, manufacturing process, supply chain, etc). I am sure a career at Goldman or a hedge fund is different, but my guess is that life at most large companies lines up pretty close to my experience.”
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3. Take Your Financial Models With An Indiana-Jones-Sized Boulder Of Salt
Another biz-school mate, now a health care consultant, chimed in with this stern admonition:
“Too often people in business rely upon a model demonstrating projections out 15 – 30 years.” I was astounded: Fifteen to thirty, I confirmed? In school we worked in more modest 3-to-5-year increments, with an understanding that anything beyond that was magical thinking. “Believe it or not,” he went on, “I have seen some done out that far for deals [acquisitions] and often for public-private partnerships.”
Find me an industry (save for perhaps utilities) where the assumptions you make today apply for three years, let alone 30. No, really, find me one.
4. Overpromise And Try To Deliver
Under-promising and over-delivering may work on conference calls with Wall Street analysts who need earnings projections for their valuation models. (GE made an art out of that game for years under Jack Welch.) But that strategy won’t always cut it when chasing new business to meet growth targets (or just payroll). Sometimes you will have to bite off more than your models–and your gut–say you can chew just to win the business. It’s an uncomfortable sensation at best, and a reputation-damaging maneuver at worst if you don’t come through. Get ready–and no tears.
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5. If You Don’t Know Who The Sucker Is, It’s You
Yet another B-school colleague of mine, who probably plays too much poker, recalled this adage, a favorite around the halls of Forbes . “People are happy to take your money by pulling you off your home court,” he says. “Don’t let them. Deploy capital in ways that you understand not only intellectually, but also viscerally. Stick to home games–that’s where your instincts will flourish.”
6. If No One “Owns” A Project, It Won’t Get Done
Most people don’t put in long hours for their health, or to make shareholders wealthy, or because their families drive them nuts and they’d rather grind it out in the office. (Okay, sometimes that last part is true.) They do it because their job demands it, and with any luck they take a lot of pride in doing it well.
Which is why all projects need champions. Not the kind who beats his chest and spews happy mission statements. The kind who’s backside is on the line if things don’t pan out. More importantly, the kind who has the authority and resources to make decisions that other people have to follow, else their backsides are on the line.
It’s not that people are lazy or incompetent (they may well be, but that’s a hiring issue). It’s that, over time, you get what you incentivize–or don’t.
7. Be Clear
They actually do tell you this one in b-school, but not in so many words and not vehemently enough. The clearer you are, the more thoroughly you probably understand what you’re talking about, and the more capable and trustworthy you will seem to customers, colleagues and employees.
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Being clear has immense ramifications–on productivity, customer satisfaction and employee morale. If your Power Point deck contains the word “ideate,” cut, and do not paste. In fact, eliminate all jargon from everything you do. (If you think the word “utilize” is a smarter version of “use,” please, please read The Most Annoying Business Jargon.) This applies to electronic exchanges as well. The simplest, most straight forward emails can, and will, get twisted beyond meaningful comprehension. If the message is mission-critical, communicate face-to-face, or by phone, as best you can.
8. Business Involves People
People are a pain. They whine, mess up and have all sorts of problems. That’s why every now and again you should ask how they’re doing–and actually listen to the answer. It doesn’t cost a cent and helps lift spirits and build trust. (For more on bucking up the troops, check out 10 Ways To Boost Morale On A Budget.)
9. Read Forbes
Consider the source, but here are just two justifications for following this advice: Amid Turbulence, The Flight Plan That Sets Forbes Apart and What Makes A Good Business Story?
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10. Entrepreneurship Better Be A Labor Of Love (At Least At First)
Some final words of warning–and encouragement–from a fourth classmate, who runs his own small clothing company: “Unless you have a partner, family member or some other person who has to give you capital, your [entrepreneurial] experience may amount to a salmon swimming upstream in a 2-inch deep river.” Inviting.
That said, he adds: “Three years after graduation, I have to say my life is beautifully enhanced by my MBA. Kind of like when you need it, ideas descend in a timely, light and resonant fashion to help me cut to the chase.”
I’ll second that.
Have any valuable insights on business school, or on what it takes to turn a profit in the real world? Jot a comment on this post.
And if you run a small business with real growth potential, or if you know someone who does, please nominate a contender for Forbes’ List Of Most Promising Private Companies.
For now, class dismissed.
Bonus: Am I doing this right?