Ahead of the Curve

by Philip Delves Broughton

  Plenty of businesses started and stopped at HBS. There was no shame in that. I was dreading telling Rodger that we were terminating our efforts, but he said, “No problem. Keep me posted on what you do next.” He was an instinctive believer in creative destruction, the constant churn of ideas, some of which worked, others which didn’t. The most important thing for him was not sitting on the sidelines.

  Approaching the summer without a job was daunting. On the one hand, I knew that the companies that came for hell week did not come to HBS looking for people like me. In their eyes I was an oddity. But it was still depressing to be made to feel like that. One job I interviewed for and thought I had a chance of getting was with The Washington Post. But my interviewer, a woman, barely let me say a word as she rattled off the history of the newspaper and descriptions of the kinds of people who succeeded there. When I was not offered a second interview, an alumnus at the company told me that ex-journalists were not thought to make effective executives. The divide between the journalism and business operations was too wide to jump. Now if I had been a banker before HBS . . . This was maddening. But I was not alone in struggling to change my career. Luis, the Franco-Argentine, complained to me that many people felt HBS failed in its promise to give people a new start.

  “They say this is your chance to change industry, but very few are succeeding. You see, the problem is that the path of least resistance is to do banking or consulting. Now, if you wanted to do either of those, you probably could. But if you wanted to get out of them, you really have to fight,” he said, driving a fist into his palm. “If you don’t have experience in an industry, they don’t want you, so you end up going back to the industries you do have experience in.”

  My own solution to the problem was to do something I had been trying to do for years. I retrieved a boxful of notes and books that I had kept in France and set to work on a novel. Each day I would go to the Boston Public Library and work, and as Margret moved into the final months of her pregnancy, I was around to amuse Augie. By the end of the summer, I had completed a first draft of the book. It was entrepreneurship, of sorts. After spending so much of the past year struggling with the work and feeling incompetent, it felt wonderful to be doing something on my own terms again and reconnecting with life before business school.

  As I reflected on that first year, I came across a description of the HBS learning model written in 1954 by Malcolm McNair, a former professor at the school. It was in an essay called “Tough-Mindedness and the Case Method”:

  William James, a great teacher of psychology and philosophy at Harvard during the early years of this century, made the useful distinction between people who are tough-minded and people who are tender-minded. These terms have nothing to do with levels of ethical conduct; the toughness referred to is toughness of the intellectual apparatus, toughness of the spirit, not toughness of the heart. Essentially, it is the attitude and the qualities and the training that enable one to seize on facts and make these facts a basis for intelligent, courageous action. The tough-minded have a zest for tackling hard problems. They dare to grapple with the unfamiliar and wrest useful truth from stubborn new facts. They are not dismayed by change for they know that change at an accelerated tempo is the pattern of living, the only pattern on which successful action can be based. Above all, the tough-minded do not wall themselves in with comfortable illusions. They do not rely on the easy precepts of tradition or on mere conformity to regulations. They know that the answers are not in the book.

  This captured much of what I had learned. Despite my frustration at being so far behind my classmates technically and in my basic knowledge of business functions, I knew that my intellectual apparatus had toughened. I saw things in the world that I had not seen before. I looked at facts and numbers in a different way. I recalled Dave Hawkins, my first accounting professor, reading out a piece from the front page of The Wall Street Journal and thinking to myself, if I can find that as interesting as he seems to, then I will have learned something. Now, for the first time in my life, I turned eagerly to the financial pages of the newspaper. Business was no longer a parade of dry facts and personalities, but a soap opera. The podcasting adventure, despite its failure, had proved to me how much I had learned. I got a geeky thrill from sitting with venture capitalists and hearing them talk about IRRs and thinking to myself, well, sure, but are you more interested in the internal rate of return or the ROE, the return on equity?

  The routine of the section had eventually palled. After so many classes, everyone had his role. We knew who would say what when, who would make the controversial remark, who would have the numbers, who would crack the joke. It had gone from comfortable to dull, and I was looking forward to interacting with different students in every class during the second year. As the winter gave way to spring, we resented the windowless room and the routine of cases and cold calls. We had even given up on the classroom games. The best of it, though, was the easy familiarity with ninety new people from so many backgrounds and walks of life. It was great in the context of a life to have this opportunity to expand one’s social circle so dramatically at a moment when most of my friends were feeling their circles contract.

  My summer job search had been a shambles. I knew I had not given it my all, and I was angry with myself for that. But I was also aware that my indifference to the work most of my peers would be doing told me something. I knew I would have hated “the stool.” My pride could not have taken it. And I knew I did not want to spend the summer away from Margret and Augie, even though many of my married classmates would be separated from their families for ten weeks. Still, standing on the bank of the HBS river as the rest of my class sailed off was uncomfortable. The questions spun in my mind. If I was not going to follow the HBS formula, why was I here? What right did I have to dismiss the stool, or the ten-week placement in corporate marketing? What would be the consequences? Clearly one did not come to HBS just for the education. But was I a fool to think I could take the education and pursue a business career on my own terms, not as yet another corporate MBA?

  The final section event of the year was the auction. Each section organized its own auction to raise money for charities of their choosing. Students and professors donated items, and we all dressed up and went to a venue in Boston. We had booked a room above the Cheers bar on Boston Common. Marnie, whom I had sat next to during the second semester, organized the event and had asked me to be the auctioneer. Her irrefutable argument was that “all the auctioneers you see on television are English.” The items for sale ranged from dinner cooked by our professors to an all-expenses-paid trip to the annual Berkshire Hathaway shareholder conference in Omaha, Nebraska. After nearly two hours of banging away with my gavel, we had raised over $50,000. Then a voice from the back shouted, “I’ll pay twenty dollars for Philip to take off his shirt.” Several voices joined in until we had a five-hundred-dollar bid. I removed my jacket, tie, and shirt. Then another voice shouted: “I’ll give two hundred dollars if Stuart takes off his shirt and is handcuffed to Philip for the rest of the bidding.” Stuart was the Wall Street trader known in the section for his mathematical genius and massive physique. He spent every lunchtime pumping weights in the gym. So the idea of me, pale and English, chained to this bronzed Nevadan Adonis quickly sent the bidding up to $2,000. Which was how my first year at the Harvard Business School ended. Bare-chested and handcuffed to a muscular bond trader, surrounded by my braying peers.

  Chapter Twelve

  CHASING THE CURVE

  If I offered you twenty thousand pounds for every dot that stopped, would you really, old man, tell me to keep my money or would you calculate how many dots you could afford to spare—free of income tax, free of income tax?

  —HARRY LIME, IN THE THIRD MAN

  After the strictures of the first year, the second year, the elective curriculum, was all about choice. You could take more courses or pursue independent studies supervised by a professor. During the final weeks of the previous se
mester, we had received a thick booklet describing the second-year courses. We were also given access to surveys of the various courses completed by previous classes of MBA students. This was like a restaurant guide, with formal descriptions of the courses supported by customer reviews. These ranged from superlative, “greatest course at HBS, hands-down,” to coruscating, “horrible professor, lame cases, total waste of time.” We could see which classes were oversubscribed, which were on the verge of being struck from the catalog. The most popular second-year courses were Advanced Competitive Strategy, Building and Sustaining a Successful Enterprise, and Entrepreneurial Finance. The courses were assigned using a computer algorithm. You ranked your choices in order of preference, one to thirty. The computer then ran through everyone’s choices, allotting you as many of your highest-ranked picks as possible. If you chose Advanced Competitive Strategy, it was unlikely you would also get Entrepreneurial Finance. But if you didn’t put one of these three as your number-one choice, you would be unlikely to get any of them at all. The challenge of picking the right courses in the right order was time-consuming and became a subject of intense discussion and rumor. Students followed one of three strategies for choosing their courses. The first was to deepen their knowledge in one specific area. If you knew you were going into private equity, you could take extra finance, tax, and corporate restructuring. Bo took a slew of courses in venture capital and health care. The second strategy was to work on your weaknesses. I had so many, it was hard to know where to begin. But I decided to load up on finance and strategy. The final path was to take the easiest courses you could on a schedule you liked. This was chosen by people returning to their old jobs or family firms. One man in our section picked courses that would allow him to commute back and forth to Los Angeles, where his wife lived, and spend just Monday, Tuesday, and Wednesday mornings in Boston.

  The algorithm served me well. For the first semester of the second year, I was assigned Entrepreneurial Marketing, International Financial Management, Strategy and Technology, Coordinating and Managing Supply Chains, and Dynamic Markets. Entrepreneurial Marketing and Strategy and Technology were exactly the kind of courses I had come to HBS to study. I chose International Financial Management in order to consolidate my first-year finance and because of the professor, Mihir Desai, who had made such a positive impression all those months ago during Analytics. Coordinating and Managing Supply Chains would be taught by Zeynep, and again, I liked the dirt-under-the-fingernails quality of the subject. It felt far less antiseptic, less virtual, than many of the other aspects of business we studied. Dynamic Markets was a curious choice. It was a course for anyone thinking of joining a hedge fund after HBS. I decided to take it partly because I thought that if ever there was a time for me to learn about hedge funds, this was it, and partly because I realized I enjoyed learning the grammar of finance. A lot of it passed me by, but whatever I did grasp gave me more pleasure than the lessons, say, of marketing. As with Supply Chains, when I studied finance, I felt I was learning something concrete rather than faddish. Not that I wanted to push this too far. There was a student in old Section A, a dashing but arrogant Indian Rhodes Scholar, who liked to say that the only second-year courses worth taking were finance courses. Everything else was a waste of time. I could not agree, but I could see where he was coming from. When he graduated he took a vast salary at a glamorous new hedge fund.

  Our second son was born on September 6, the day before the elective curriculum year began. We were summoned to the Brigham and Women’s Hospital in Boston at 7:00 A.M. on the due date and spent the day waiting in the maternity ward. Late in the afternoon I wandered down to the cafeteria, and when I returned to our room the midwife, who was wearing a Boston Red Sox shower cap, barked, “Put those down and come over here.” I set my coffee and sticky bun down on a counter and grabbed one of Margret’s legs. The delivery went quickly, and we named the boy Hugo.

  The next morning at eight thirty I was back in class for Entrepreneurial Marketing, with Joe Lassiter. I had read the case several days earlier, but when I came to look at it again—the highlighted passages, marginalia—I could not recognize a thing. The class was packed, and Lassiter came at us like a jet of cold water, rinsing off the last of the summer and bringing us smartly back to our HBS mind-set.

  “So how big should this business try to be?” he said, calling on a Vietnamese student in the back row. “Five million dollars in revenue a year, ten million a year, a hundred million a year?”

  “I think they should go for five million,” said the student. He then described the product, a kind of printer that built 3-D models for engineers and designers. “I think the market is small right now, and the company does not have the resources to go beyond that.”

  “Come on,” Lassiter said. “Look how cool this thing is.” He showed us a clip of the machine in action. You fed in an image and within a few minutes it spat out a three-dimensional model made of gray plastic. “Who thinks we can get to a hundred million? And how do we get there?” Several hands went up. “That’s more like it,” Lassiter said.

  He pressed the more gung-ho students to describe the perfect customer for this new product, the one who would persuade all the others they had to have it. And he asked us all to write an elevator pitch, the pithy summary that could win over an investor or customer in the space of an elevator ride. The pitch had to answer these questions: What problem will this product solve? And why should I buy it from you?

  Lassiter was an intriguing man. He had been an academic early in his career, then transferred to business for twenty years before coming to teach at HBS in his fifties. He had a natural enthusiasm and sympathy for the challenge of running a business, and this made his course one of the more popular on campus. It sought the answer to a distinct problem. When big organizations decide whether to launch a new product or service, they use the tools of marketing to test and refine their idea before going to market. For an entrepreneur, such tools are far too expensive and time-consuming. So how do you know an idea is a good one, and sell it to others, with limited resources? Later, the course evolved into something even more intriguing, a discussion of what it means to be an entrepreneur. What was it like to pursue an opportunity with only the very scarcest means? What did it take? We heard so often of those at the extremes, the entrepreneurs who had made it big and those who had failed dismally. But what of those who had made a life of pursuing their own ideas, winning their own customers, building their own fortunes beyond the comfortable fortresses of corporate life? It was what I had missed in Gompers’s class.

  In the first year, we had defined entrepreneurship as “the relentless pursuitof opportunity beyond the constraints of the resources currently controlled.” We had also been told time and again that entrepreneurship was not about taking risk but about managing it. It was about spotting an opportunity, seizing it, and reaping the rewards. It was a way of managing not only a business but one’s own life. Lassiter retooled the HBS definition of entrepreneurship to suit his course. Entrepreneurial marketing, he said, was about the “relentless pursuit of the customers and partners necessary for the people leading the firm to select their business opportunities, to sell their products and services, and to obtain the future resources they desire.” It was also about how to gather the information required to make decisions and persuade others to commit to your idea before knowing it would work.

  In case after case, we studied small- to medium-size companies struggling to launch a new concept or deciding which new opportunities to pursue. Our key texts were Geoffrey Moore’s books Crossing the Chasm and Inside the Tornado. The challenge Moore addresses is that many new products struggle to move from small markets of enthusiasts over into the mass market. He calls the enthusiasts “visionaries,” people who buy on promise, the first in line for the newest gizmos. The mass market comprises the “pragmatists,” those who just want the damned thing to work. Among the solutions Moore proposes is identifying those people who affect buying decisio
ns in the mass market. If you are making fancy handbags, the way to go from selling a few to selling millions might be to persuade a Hollywood movie star to carry one. Another way would be to convince the relevant channel of your worth. If Wal-Mart decided to sell your product, you would be almost guaranteed to sell a lot of it, regardless of whether the end consumer had ever heard of you before.

  But before getting into the movie star’s hand or into Wal-Mart, you need to make sure you have a product the star might want or that piques the Wal-Mart buyer’s interest. To do this you need to understand consumers, through interviews, research, even psychological testing. Then you need to develop a product that you hope will meet their demands. This might involve challenging the egos of your gifted scientific team, who left their highly regarded research posts to develop a world-changing dermatological treatment only to find that their paychecks now depended on fine-tuning a diaper rash cream, because that is what is going to sell. Also, you need to have enough cash to keep the business afloat while awaiting your first sales. Which brings us back to the key commandment of entrepreneurial finance: don’t ever run out of cash.

  We studied the case of Idea Village, a company that sold products through television infomercials. Eventually they realized that to sell even more product, they needed to get onto mass market retail shelves. Their breakthrough product was an electric razor for women’s facial hair, which sold well enough on television to be picked up by Wal-Mart. Its success had allowed Idea Village to move from selling to niche audiences on late-night television to building a permanent presence in Wal-Mart.

  Lassiter emphasized the importance of people and connections. It was important to hire not just a great salesman but also one with relationships with the people you want to sell to—either the visionaries who will take up your new product or the influencers who will stir the pragmatists to adopt it en masse. He displayed a picture of a herd of wildebeests. Pragmatists, he told us, find safety in numbers. They watch for what they fear. And when panicked, they stampede. The trick is to identify the pain and rouse the fears that cause the herd to stampede straight into your arms.