Ahead of the Curve

by Philip Delves Broughton

  “Entrepreneurship was a life-changing experience for me. It eased a lot of fears I had about entrepreneurship and taught me that it’s not about taking risk but about managing risk. The course triggered the observation that everything is possible. I learned about the power of leverage, how to raise money and structure your financing deal. It gave me the window on unlimited possibility.” The way the professional world was set up these days, he said, “switching gears has become such a costly process.” HBS was an efficient way of “retooling” and changing careers.

  He had found the school more parochial in its view than it had promised. “HBS is an East Coast, conservative institution. It’s not really an international school. For example, you had to seek out the international courses in the EC, and once you got there, you realized that all the other students were international! Internationalism was a fad. If Goldman Sachs or other big American companies weren’t going big into China, the school wouldn’t have been as interested in it.” He found the school’s approach to ethics “fundamentally puritanical. It put an American spin on every case. If you tried to apply the frameworks we learned and tried to succeed in Dubai or Nigeria, you would never succeed, I tell you.” Hasan admired the American way of doing business for its obvious success, but he resisted the sense that it should be applied to every culture and country.

  He had finally chosen the Middle East over California, where he had worked before graduate school, to be closer to his family and because the Harvard MBA meant more there. American companies had come to view the MBA as a filter, a requirement for senior management. The degree had become a commodity. Internationally, a Harvard MBA was much rarer. The networks of international alumni tended to be smaller and stronger, especially in Latin America, Africa, the Middle East, and Asia. There were entire industries in these regions, Saudi oil, for example, that had yet to be taken over by the MBA class. Men like Hasan were preparing to change that.

  The job statistics for our class showed that 42 percent went into financial services, ranging from investment banking to private equity, venture capital, and commercial banking. Twenty-one percent went into consulting. There was then a steep drop to technology and telecommunications, with 6 percent. Pharmaceuticals, consumer products, retail, and other manufacturing each drew less than 5 percent. Nonprofit and government accounted for less than 3 percent, half of whom were part of an HBS program that placed students in nonprofit and government jobs and subsidized their salaries to bring them in range of the for-profit sector. Eighty percent of the class took jobs in the United States. The median total compensation for my class in its first year out was $138,125. Ray Soifer, a graduate of the class of 1965 and a banking analyst, had been keeping track of the relationship between the condition of the American equity market and the percentage of Harvard MBA graduates choosing careers in financial services. Ten percent or less was a long-term buy signal. Thirty percent or more was a long-term sell. The choices of the class of 2006 told you the markets were soon to crash.

  My first few months out of HBS were difficult. We returned to New York to be near friends and family and to find work. An old friend of Margret’s told me that while I was still waiting to become a titan of business, I may as well do something I knew I enjoyed. So each day, I took the subway up to the library at Columbia University and wrote fiction and articles for newspapers. I then decided to flesh out a business plan I had started while at HBS. It was Margret’s idea, for a very high end laundry firm. She had needled me for months to look into it. Now I had the time. I identified the customer pain and established the probable market size. I scoped out competitors and contacted laundry firms, asking to visit their plants. I flew to Kansas City and stayed with Bo while visiting the country’s leading high-end laundry. I took detailed notes on the company’s operations, the route laundry took through the plant, the use of employees, the way specialist tasks such as repair or stain removal were incorporated into the work flow. It was all good TOM stuff. The owner of a commercial laundry in California showed me his meticulously kept books, and I pored over them, scribbling down numbers I could use later to do some ratios. The owner explained how he kept his prices and margins above those of his rivals, how everything his firm did—from the trucks he used, to his policy of giving employees stock, to the long-term relationships he had with his customers—helped drive open that wedge between cost and willingness to pay. It wasn’t one thing, as we had learned in strategy, but how everything worked together that gave you a competitive advantage. The research took me back to my journalism days, but now the questions I was asking, the range of subjects I was interested in, were so much broader. I found the minutiae of these businesses fascinating, and it was wonderful to speak to business owners and see them light up as they described their operations, the joy they felt at creating jobs, the satisfaction at installing a piece of equipment that speeded up their operations. I could ask a question about through-put rate, and they would be thrilled that someone was interested in the details of what they did.

  After looking closely at the business, Margret and I decided that it could work. But it required one of us to commit ourselves to it full-time. And there would be no guaranteed income for at least several months. One thing I had learned from studying so many entrepreneurs was that if you were going to start up a business, you had better be ready for a lot of thankless hard work while you got it off the ground. I also knew that whatever happened with the business, I would want to have enough cash set aside to pay our bills for a year. We did not have those kinds of means, so we decided to wait at least until our younger son was into nursery school. But the exercise of researching the opportunity and putting together a plan had reminded me of how much I enjoyed thinking about business challenges.

  I had been warned that as a recent HBS graduate on the loose, I would get all kinds of strange requests. And sure enough, I did: Friends of friends wanting help with business plans. Small firms wanting strategic advice. It was those three letters, MBA. I spent three months advising a British media firm trying to launch a service in the United States. They had a decent product, but the company was divided between those who wanted to build it fast and sell and the founder, who wanted to go slower and enjoy the status the company gave him. The different ambitions were always flaring to the surface, forcing me back to think of LEAD and the importance of aligning interests and visions early in any undertaking. I used Excel every day to organize data that had been sitting in unsorted piles in the company’s databases. I dug out my Entrepreneurial Marketing notes to think about how the company could “cross the chasm,” trying to identify the influential visionaries who might goad the wildebeest herd to stampede in our direction.

  When this project wound up, I received a call from a film production company I had written a paper for during Lassiter’s class in my second year. My paper was about film distribution and the impact of new technology. The company wanted me to raise corporate sponsorship for one documentary and to distribute another. I would have to figure out everything from DVD manufacturing to marketing and sales. When I told my grandfather in Washington, D.C., he burst out laughing. “You are in the film business like Daw Ma Ma,” he said, referring to my Burmese great-grandmother, the one who had brought American movies to Rangoon. I had picked up the single entrepreneurial thread in our family, the one story that had been told time and again—how Daw Ma Ma had been widowed at thirty-five with nine children and started a film distribution company to keep a roof over their heads. Here I was, more than forty years after my mother had watched Ben-Hur from the family box at the Palladium Cinema in Rangoon, Daw Ma Ma’s great-grandson, in my grandfather’s eyes at least, following a family tradition.

  Looking back on HBS, I was happy I went. Business was no longer a closed world to me. I had the brand on my résumé and access to the network of alumni. I had learned the language of business, the modes of thinking. I knew about risk management and strategic planning, hedging and diversification, returns on assets, sales and in
vestment. I knew about BATNA and ZOPA and the importance of aligning incentives. If a banker started talking about “bips above the curve,” I knew he was comparing borrowing rates to the Treasury bill yield curve. I had learned about the importance of process in every aspect of a business, of not just getting the right outcome but doing it the right way so that you could achieve the right outcome again and again. Businesses needed to develop good processes in the ways baseball pitchers or golfers needed to develop muscle memory so they could perform the same physical action repeatedly. For the first time in my life, I understood how capital was allocated, whether it was a company building a new factory or venture capitalists backing the next big thing. This was empowering, because it taught me about the availability of money for good ideas and how and where you went to find it.

  I had also been convinced of multiple-option decision making. Every single case we had studied had required us to come up with different alternatives and a decision. But Jan Rivkin’s class had added depth and color to this method. You trusted your gut and then you developed options, digging in as deeply as you could, asking what would need to happen, what proof you needed in order to do x or y, and only then picking a course of action. I was surprised by some of the cases that stuck with me. In RC marketing, we had looked at an English shower maker called Aqualisa Quartz, which was trying to decide on the best channel for marketing a new line of showers. It had never occurred to me that if you were in the shower-selling business, the people you really needed to persuade were not the end consumers but the plumbers. The case taught me that the best sales channels were not always the most obvious ones. I had gained a respect for management as a science and the challenges of directing an organization. Porter’s class had shown me how broadly the techniques of a business analysis could be applied. And then, of course, there was the confidence. Every HBS graduate mentions this. You emerged from the school unintimidated by business and its practitioners.

  But HBS had also challenged me in ways I never imagined it would. I never thought I would be pushed so aggressively against the window of my soul. Until I was there, I had underestimated capitalism’s power to sow such insecurity, even among people with the skills to do anything they liked with their lives. Why were my classmates straining so hard to secure jobs they knew would make them miserable? It was more than just the money. They believed that there were well-trodden routes to worldly success and if they absorbed the pain for long enough, such success might make them happy. Satisfaction delayed was better than none at all. I was shocked at how easily I was drawn into this mind-set. My emotional experience of going through HBS was like swimming across a broad river. I had started out from one bank, confident in my own strength and with a clear view of my destination, only to be swept up in unseen currents. It was a fight to get to the other side. When I did, I was humbled, gasping and spitting up water. Only when I had caught my breath and looked back did I realize what I had done. The words master’s in business administration captured so little of what I had learned.

  If I were dean for a day, however, there are changes that I would make to Harvard Business School. The first would be to bar professors without business experience from teaching entrepreneurship. Critics have accused the MBA of teaching academic rather than practical business skills. Or, as one of my classmates put it, we were being taught to be expert diners rather than chefs, always ready with criticism, useless with a chopping knife. But in my experience, the case method, the frequent visits from businesspeople, and the opportunities in the second year to write papers on businesses and industries provided a good balance between the academic and practical. If I had had to endure any more Crimson Greetings games, I might not have lasted at the school. It was fine to be taught finance, strategy, accounting, and process by academics. I could not imagine a better guide to supply chain management, for example, than Zeynep Ton, and she had risen straight through academia. On balance, though, I preferred the professors with experience beyond academia—Oberholzer-Gee, Riedl, Porter, Lassiter—and entrepreneurship was the one subject that could not survive being taught by a walking textbook. It required professors with credibility to describe the visceral aspects of business survival.

  My second change would be an overhaul of the way finance is taught at the school. The bankers and hedge fund managers who came through Harvard complained that the problem they had in hiring HBS MBAs was that they thought they were smarter than they were. Wharton and Tuck graduates had them licked on the technical stuff. For those who wanted it, I would introduce more purely technical courses and let the rocket scientists wallow in them, while giving novices like me a more classical training.

  Next, I would get rid of grades altogether. The school seemed to view grades as a means of keeping students focused on their work. If they selected the right students, who were serious about learning what HBS had to teach rather than about just networking and getting the Harvard name on their résumé, there would be no need for grades. It would make for a much healthier environment and would relieve some of the pressure to conform.

  Fourth, I would commission cases and courses on the proper scope of business practice. I would begin with Jack Welch’s claim that business was more important than government and would require professors and students to argue this out. The HBS mission, to educate leaders who make a difference in the world, supposes that business leadership is the kind the world needs. And after two years there, I was not convinced. Democratic societies tend to allocate resources to business and government based on which they believe will do a better job. At its simplest, business is considered more efficient, government, fairer. Voters and consumers are constantly adjusting the dial, one day preferring efficiency, the next, fairness. But at HBS there was a belief that if only everything was run by business and businesspeople, the world would be a better place. It was the duty of businesspeople not only to manage businesses but also to take over nonprofits and cultural institutions, to bring their leadership to bear on every area of society. Michael Bloomberg was often cited as an HBS alumnus who had successfully transferred his leadership talents from business to New York’s City Hall. President George W. Bush, however, was rarely mentioned. Though I often asked professors and my fellow students why this was so, I never received a satisfactory answer. Some said it was purely political. Harvard was historically Democratic. Others said, look at his record. Was it anything for HBS to brag about? Still, I thought, he is the president in a time of war, and he had written favorably of the school in his autobiography, saying the MBA had been a “vocational training exercise in capitalism.” At an institution that said its goal is to “educate leaders who make a difference in the world,” should Bush not have been invoked more frequently? I began to think that the school’s unease with Bush had nothing to do with his politics or his record. It was that here was the first HBS alumnus to enter the White House, and he had never been much of a businessman. Through family connections, he had been able to make a small fortune as a part-owner of the Texas Rangers baseball team. But it was as a politician, albeit starting with those same family connections, that he had achieved the most powerful job in the world. I believe HBS would have much preferred it if its first president had been a Bloomberg or a Mitt Romney, someone who could point to their business record, their swollen personal accounts, and walk into the Oval Office and say “I’m going to run this country like a business.” That would be the apotheosis of the HBS way, the triumph of business leadership. Instead Bush’s success seemed to have come in spite of the school. He appealed to a constituency the school did not much care for. He disdained the Northeast and the quantitative method. However, certain HBS traits had never left him. He saw his main role as making decisions. He was “the decider.” And as the general manager, he focused on strategy, the big goals of his presidency, leaving the tactical minutiae to others. But he was not of the business class. He was not of HBS.

  I often thought back to Warren Buffett’s visit, when student after student rose to ask him
how he would resolve the situation in Iraq or global warming. We all knew there were bigger issues in the world than the current stock price of Berkshire Hathaway, and we yearned for Buffett to apply his mind to them. The idea of Bill Gates, mandated by his wealth, diverting his personal billions to healthcare issues was more exciting to us than the prospect of using what we had learned at HBS to improve the process of delivering AIDS vaccines. This was evident during the final semester, when I attended the school’s Social Enterprise conference. There were ecoconscious coffee growers and World Health Organization physicians, the CEO of Timberland shoes and drug company executives—just not many of my classmates. The large audience came instead from the rest of the university, from the law school, the Kennedy School, the undergraduate college, and from the broader Cambridge community. At the end of the day, I bumped into Justin.

  “You’d think after all the talk in class, there would have been more of us here,” I said.

  “If you want to change the world, get on a plane to fucking Darfur,” he said tersely. “HBS is about making money. There are going to be a small handful of terrific people in our class who actually do this good stuff, but most of us are like everyone else in business. We talk about it because it makes us feel better. How many people in our class wrote in their applications that they wanted an MBA so they could do micro-finance in Uganda and are now going into investment banking?”

  Which brings me to the fifth, and perhaps most important change I would make during my day as dean of HBS. I would change the mission statement. HBS does not need to promise to “educate leaders who make a difference in the world.” It suggests that business, with its priorities and decision-making approach, has a right to impose its will on the world. But business needs to relearn its limits, and if the Harvard Business School let some air out of its own balloon, business would listen. HBS need only promise to educate students in the processes and management of business. It would be a noble and accommodating goal and would dilute the perception of the school and its graduates as a megalomaniacal, self-sustaining elite. For the school’s graduates, past and future, the effect would be refreshing. We could end the charade that each of us is a representative of a hallowed brand. HBS can stop saying it “transforms” its students, as if it then had a lifelong claim on them.