The Golden Passport

by Duff McDonald

  (Dewey’s mouth had clearly been cleaned out with soap since the last time he’d ventured an opinion on the matter. In 1986’s The Big Time, he was more pointed. “How can you put a price tag,” he said, “on all the companies that never got launched because some MBA decided, ‘Ah, fuck it, who needs the aggravation? I’ll go work for DuPont instead’? How can you estimate the jobs that didn’t get created, the patents that didn’t get followed up on. How can you even imagine where we might be today if fewer guys had taken the path of least resistance?”11)

  In any event, Mace, a member of the class of 1938 who had just returned from service in the Pacific, managed to sell David on a vision of a flood of returning GIs interested—yet unprepared—to venture out on their own. That soaring enrollments suggested HBS would need forty-two second-year electives in the fall of 1947—up from just thirty in 1946—didn’t hurt either.12 When offered for the first time that year, Mace’s course attracted 188 students.

  Mace’s outreach to the small business community for case research led him to accept board seats at a number of small companies, prompting his colleague Melvin Copeland to remark, “Nobody around here that I know of has ever sat on the board of directors of a small corporation.”13 The next year, Mace published The Board of Directors of Small Corporations. And then he lost interest in small businesses. He can be forgiven for doing so, as that was the 1950s, when it really did seem that the future belonged to big business. In any event, the course languished.

  As is often the case when HBS evaluates its own history, it couldn’t resist bending definitions and stretching notions when it came to delineating its historical entrepreneurial bona fides. Georges Doriot’s course, Manufacturing? The one about “the operating problems of the manufacturing company as viewed from the position of the operating executive”? That was really about entrepreneurialism.14 When one former student told Cruikshank that “the viewpoint [in that course] was always that of the individual,”15 Cruikshank saw it as evidence that the class encouraged “the entrepreneurial instinct,” rather than what it was: the outcome of a pedagogical approach that encourages the narcissistic tendency to see the CEO as the personification of a company itself.

  Professor Howard Stevenson (’65, DBA ’69) later took an even bigger leap into conceptual revisionism by trying to redefine entrepreneurialism as a managerial style—“the pursuit of opportunity without regard to resources currently controlled”—rather than the act of starting a new business or an innate character trait. Like a well-oiled political machine, the faculty of HBS repeated that definition, almost verbatim, for several years whenever it was asked how the intellectual center of big business could make claims to entrepreneurial expertise.

  Using Stevenson’s definition, HBS claimed to have been teaching entrepreneurialism all along, even before it was explicitly doing so. That one can be “entrepreneurial” within the context of a large company is now an accepted notion—some call these people “intrapreneurs”—but the fact of the matter is this: The suggestion that every HBS class is really about entrepreneurial behavior is no more than a trope. While it’s hardly offensive to say so, it’s also false.

  When it comes to the teaching of what most people know as entrepreneurialism, what HBS can rightly claim is that it barely remained committed to the subject in the 1950s and 1960s. There were a couple of books—Management Succession in Small and Growing Enterprises (C. Roland Christensen, 1953), Management of New Enterprises (Lynn Bollinger and John Day, 1954), and New Enterprises and Small Business Management (John Day and Paul Donham, 1958)—as well as a handful of new course additions, including Windsor Hosmer’s spring 1959 course, Small Manufacturing Enterprises. 16 Hosmer’s 1966 book, Small Business Management, was adopted in dozens of other colleges. But for the most part at HBS, it was slim pickings.

  If there is a moment when something resembling a sustained and focused commitment to researching and teaching about small company issues came into being, it came in 1972, when the School introduced the Smaller Company Management Program (SCMP) into its executive education offerings. Between 1974 and 1975, Cruikshank writes, faculty members wrote fifty new cases for SCMP, focusing on things like special tax issues for small companies, family involvement, and team versus one-person management.17

  But even that commitment eventually succumbed to the pull of money and influence that runs through everything at HBS: By the mid-1980s, enrollment in the course had been restricted to CEOs with ten or more years of experience, and who owned all or most of the equity in their company, which had to have a minimum of $3 million in sales. When it was renamed the Owner/President Management Program (OPM) in 1985, the course’s new focus made clear HBS’s point of view that although we might all be entrepreneurs, we’re not all the right entrepreneurs.

  As far as MBAs were concerned, though, the course offerings were few and far between. It wasn’t for lack of student interest—in 1958, 25 percent of the second-year class ponied up fifteen dollars apiece to start the Student Small Business Placement Program (SSBPP), a student-run effort to boost their visibility in the small business community, and vice versa. In 1966, the SSBPP ran a $5,000 ad in the Wall Street Journal promoting the MBAs’ desire for “eventual control and ownership of small to medium sized enterprises.”18

  Although the desire to eventually obtain control and ownership of an enterprise without having to endure the pain of founding one isn’t a generally accepted definition of entrepreneurialism, either, at least they were headed in the right direction. Some 270 companies responded to the plea. Many years later, in 2013, a couple of venture capitalists decided to see just how many “unicorns”—companies worth more than $1 billion—had MBA involvement. Thirteen of the 39 companies had founding members who were MBAs (4 of whom were from HBS) and 32 of 39 had at least one executive (17 of whom were from HBS) with an MBA.19 In other words, if they didn’t found the company, they will be there soon.

  The main problem with the teaching of entrepreneurialism at HBS in the late 1970s was a lack of interest on the part of the faculty. Professor Howard Stevenson, whose other interest, real estate, also suffered from a lack of respect enjoyed by the likes of finance and marketing, was dismayed enough by the lack of support from his colleagues that he did something very few HBS professors have ever done: He gave up a tenured position at the Harvard Business School, leaving in 1978 for a full-time commitment on the board of a nearby paper company. From 1979 to 1983, only two courses about entrepreneurship were offered at the School.20

  Stevenson wasn’t gone for long. When John McArthur succeeded Laurence Fouraker in 1980, he arrived with a respect for entrepreneurialism unprecedented among deans at HBS. When he found no volunteers on the faculty to help him develop new courses in the field, he decided to lure Stevenson back. To do so, McArthur first convinced two of the School’s most successful graduates, Arthur Rock and Fayez Sarofim, to endow a new professorship explicitly focused on entrepreneurship. Then he dangled the chair in front of Stevenson, who accepted.

  Stevenson rolled out his new and expanded definition of entrepreneurialism in the fall of 1983, with the second-year elective, Entrepreneurial Management. Two wildly successful HBS entrepreneurs—Irving Grousbeck (’60), the cofounder of Continental Cablevision, and John Van Slyke (’70), founder of the American Management Company—agreed to help teach the course, and in its first year, more than five hundred students elected to take it.21

  The timing was fortuitous. With the conglomerate era having reached its end, big companies were losing their monopoly on the nation’s capital, and, at the same time, Silicon Valley was showing that capital that a well-placed bet on an entrepreneur could produce highly attractive returns. Culturally, the country was also ready for a change from the corporatism of the postwar era. The passionate, high-energy, tirelessly networking, entrepreneurial visionary was the new hero of the business world. Its personification: Steve Jobs.

  At that point, a few more of the faculty finally began to come around. Aft
er ignoring the counsel of senior finance professors that doing so would be “truly life-threatening, or at least career-threatening,”22 Professor William Sahlman threw his hat in with Stevenson, launching another elective, Entrepreneurial Finance, in 1985. By 1990, enrollment in all related elective courses approached 1,500 students. Five years later, the School held its first annual HBS Business Plan contest for students, and a year after that, Stevenson and his colleagues finally got their due: Entrepreneurial Management was officially added as a faculty unit.

  In 1997, the School belatedly opened an outpost in Silicon Valley—the “California Research Center” on Menlo Park’s Sand Hill Road. In 2000, a new course, The Entrepreneurial Manager, was added to the required first-year curriculum in place of a curricular mainstay, General Management. Ten years before, the class had included cases on Bank One, General Electric, and Nokia. In 2000? Charles Schwab, Intuit, and Chemdex.com. By then, the entrepreneurship department offered a total of eighteen courses. And in 2003, a $25 million gift from Arthur Rock funded the creation of the Rock Center for Entrepreneurship. In mid-2015, the Center announced its latest roster of 16 entrepreneurs-in-residence, 14 of whom were HBS grads, and all of whom had agreed to be available to entrepreneurially-minded MBAs. That was followed by the Innovation Lab, or i-lab, which opened in 2011.

  As with the School’s embrace of “leadership,” when it comes to entrepreneurship, some accuse HBS (and all other business schools) of claiming to teach that which cannot be taught. The criticisms get even more pointed when the two are conjoined in the form of “entrepreneurial leadership.” Professors who haven’t actually been entrepreneurs themselves also come in for criticism. One HBS student described the experience of The Entrepreneurial Manager as “like hearing virgins talk about sex.”23

  Successful technology entrepreneurs and venture capitalists, in particular, have made a sport of ridiculing the entrepreneurial aspirations of both business schools and MBAs alike. In his 1984 book, The Spirit of Enterprise, George Gilder took aim directly at HBS: “Business schools . . . tend to turn out cynical manipulators of existing values rather than entrepreneurial creators of value,” he wrote. “Leading professors at Harvard Business School, preoccupied by the calculable maximization of self-interest, show a pathetic incapacity to comprehend the essence of entrepreneurship.”24 To wit: A 1984 study revealed that nearly half of HBS alums considered themselves entrepreneurs . . . but that less than half of those “entrepreneurs” were self-employed. Of those who were self-employed, too, there’s a good bet that many were one-man consulting shops. “The one area where they excel at starting their own firms is in the field of management consultancy,” say the authors of Gravy Training: Inside the Business of Business Schools, “and the value such firms add to the economy is debatable.”25

  Thirty years later, Sam Altman, the president of Y Combinator, told the School’s 2014 Cyberposium that MBAs mistake starting a company for the next resume item and that their education trained them for running a business, not for starting one.26 That same year, at a conference organized by HBS’s venture capital and private equity club, startup investor Chamath Palihapitiya made the absurd claim that “I would bet a large amount of money that the overwhelming majority of [venture capitalists] would not look favorably on a company started by one of you.”27

  Palihapitiya would lose that bet. At this point, the evidence that HBS is indeed a remarkable hotbed of entrepreneurial activity is impossible to deny. Indeed, in a column responding to Palihapitiya’s remarks, journalist John Byrne pointed out that HBS grads had founded 34 of the top 100 startups founded by MBAs over the previous five years, receiving a total of $575.8 million in funding.28 Another tally of venture capital raised by graduating class year concluded that the classes of 2008 through 2013 had raised a total of $1.8 billion in venture capital. “Truth is, many of the Harvard Business School alumni chapters throughout the world have now organized angel investors to pour money into startups founded by current students and HBS alumni,” wrote Byrne. “It may well be the biggest and most organized campaign by any university alumni network ever to back innovative ideas and concepts. Who needs Palihapitiya’s money?”

  There is an argument to be made that the entrepreneur with an idea and a mission has no time for business school. But that doesn’t mean that no business school graduates have time for entrepreneurial careers. The majority of MBAs are highly driven people in search of a passion. Once they find one, the combination of their energy and the network provided by a place like HBS can be a fearsome sight.

  A complete list of the successful companies founded by HBS grads would be a long one. At the same time, a list of the unsuccessful ones would probably be as long or longer. That’s the thing about HBS—tens of thousands of people have graduated from the School over the years, and while they naturally choose to emphasize the success stories while downplaying the less than successful ones, the image of the School as a preeminent training ground for the supersuccessful is unquestionably the result of a kind of survivorship bias. If your company—or your career—has stalled out, they simply stop talking about it.

  Consider the winner of the Student Business portion of the School’s 2014 New Venture Competition. The victor, an online butler called Alfred, could serve as a Saturday Night Live parody of a startup. Unlike the engineering-driven ideas you’re likely to see coming out of the likes of Stanford or MIT, Alfred is simply high-concept marketing, a virtual butler for people too busy to make their own bed.

  For $128 a month, Alfred’s butlers will tidy your apartment weekly, deliver your groceries, and pick up your dry cleaning. It’s a dumb idea, evidenced by the fact that by the time they’ve reached number four in a list of its benefits, they’re reduced to claiming that the service delivers “peace of mind.” One can only hope the investors who had funded the company to the tune of $12.5 million by mid-2015 have other winners in their portfolios.

  Indeed, an attendee at the event could have been forgiven for concluding that entrepreneurial fever had gotten out of hand at Soldiers Field. Meredith McPherson, then head of the Rock Center, came onstage dancing to Kanye West. Professor William Sahlman was introduced as the “Rock Star of the Rock Center.” As for Dean Nitin Nohria? He’s the School’s “Chief Innovator.” Of the many accusations that have been lobbed at HBS over the years, no one has ever accused them of being cool.

  When the event’s organizers gushed over the revolutionary idea of another student company, Booya Fitness, a “premium video fitness platform” that offers fitness classes over the Internet, one could only wonder if they’d ever heard of Suzanne Somers or Jane Fonda. SplitNGo, a company focused exclusively on the pressing problem of making it easier to split restaurant checks, won the audience award.

  That such consumer-focused ideas found more traction from a completely full Burden Auditorium than other, less sexy ideas, is understandable. The well-heeled crowd could easier see the “value” in Alfred than in Saathi, which hopes to provide the 200 million women living in rural India with access to cheap sanitary pads made from the fiber of banana trees. The best Saathi could manage was to win the “social enterprise” award.

  Only time will tell whether Alfred lives a long and healthy life, but there are dozens of companies founded by HBS grads that have gone on to live such lives. And more often than not, that success has been catalyzed by HBS in more ways than the classroom experience. One of them—the almost incalculable reach, wealth, and influence of the vaunted HBS network—shows up in a remarkable number of success stories. There are many myths about HBS, but this is not one of them: The network has no equal. A single example, that of office supply chain Staples, provides an excellent window into how that network comes into play. Founder Thomas Stemberg (’73) might have done what he had done if he hadn’t attended HBS, but that seems quite unlikely indeed.

  Who helped along the way while Stemberg built a company that eventually employed nearly 100,000 employees?

  Donald Perkins (’
51) gave Stemberg his first job, at Star Markets, a subsidiary of Perkins’s Jewel Companies.

  Once Stemberg had the idea in his head for Staples, HBS professors Warren McFarlan, William Sahlman, Walt Salmon, and Ben Shapiro were generous with advice, as were deans John McArthur and Kim Clark.

  Rowland Moriarty, an associate professor of marketing, was a founding board member. Meg Whitman (’79) joined the board later on.

  Mitt Romney (’75) of Bain Capital provided early funding. The two became close friends, and Romney credits Stemberg with persuading him to create an affordable health insurance program when he was governor of Massachusetts.

  Romney also provided testimony in 1991 regarding Stemberg’s 1988 divorce. At the time of the divorce, Stemberg’s ex-wife, Maureen Sullivan Stemberg, sold more than half of her shares back to the still-private company at company-specified values that ranged between $2.25 and $2.50 a share. The very next year, however, Staples went public at $19 a share, earning Stemberg and Bain Capital a fortune. When Sullivan Stemberg sued to amend the couple’s financial agreement on the basis that she had been deceived about the shares’ true value, Romney testified, “In my opinion, that’s a good price to sell the securities at.”29

  Linda Linsalata (’82), a venture capitalist, also provided early investment, while Bob Higgins (’70) of Charles River Partners helped in other ways. (He later invested in Staples.com.)

  Michael Cronin (’77), Fred Lane (’73), and Scott Meadow (’80) invested their own money.

  Myra Hart (’81), Todd Krasnow (’83), and Ron Sargent (’79) were early members of the company’s management team, and Sargent eventually became chairman and CEO. Jeanne Lewis (’92) was the first head of Staples.com.

  Hart, who later joined the HBS faculty, cowrote a 2012 case study about Krasnow,30 who served as an entrepreneur-in-residence at HBS in 2006/7. HBS professors have written more than a dozen cases about Staples over the years.