Filming, Blogging, Novel-ing, and Ranjan has Died

Many of you have written me about not keeping my blog up to date since graduation from Stanford Business School back in June.

Thanks for your gentle nudges – I’m taking your advice and resuming my blog postings, starting with a very long one about what I’ve been up to since business school, and some very sad news I received today about an old friend and one of the biggest movers and shakers in the Indian software industry, Ranjan Das.

But first, what have I been up to?Read More Here...

Turquoise Makes the Wall Street Journal

As many of you know, I have a pretty strong interest in films and film-making (the two don’t always go together).

A few years ago I was an investor and Executive Producer of my first feature film, called Turquoise Rose, shot on the Navajo reservation in Arizona. For me, as usual, I stumbled into this role by helping an aspiring young, determined and talented film-maker, Travis Hamilton, create his first feature film.

Turquoise, shot on an ultra low budget (even by startup or indie movie standards) never made it onto the national circuit, so you probably didn’t see it. But, through the determination of the film-makers it was shown in limited theatrical release across the southwest.

It was a resounding success with its intended audience, Native Americans. It may have been the first feature film whose world premiere was on the Navajo reservation. Sometimes whole families would go to see it, multiple times. Of course, Hollywood rarely sees the merits of a little film like this, so we had to distribute it ourselves.

I also inadvertently found myself as one of very few investors in independent film who made a profit on my very first film investment. I know, Films are Risky Shmisky. So are startups.

So I’m now a member of a group of angel investors, called Film Angels, which invests in independent feature films and is located in the Bay Area. The idea is to use a Silicon Valley style of investing and bootstrapping to put out quality films at low budgets.

The Wall Street Journal wrote about Film Angels recently, and it turns out that Turquoise and my own investments were mentioned very prominently. Here’s a link:
http://blogs.wsj.com/venturecapital/2009/10/12/angel-group-likes-lights-camera-and-action-of-indie-films/

The full version of the article (on WSJ.com) which has to be accessed through Google News also mentions two upcoming films I’m involved with: Raspberry Magic, a small low-budget film about an Indian-American family (www.raspberrymagic.com) [look for it in 2010] and a big budget film series based on the Gap Series, a best-selling science fiction series from author Stephen Donaldson [look for it – well, I’m not really sure when yet].

Sid Searches for Enlightenment

One reason I haven’t blogged much this summer is that most of my writing energy has been directed to finishing a novel I’ve been working on - tentatively titled: “The Enlightenment of Sid: A Modern Quest For the Cure to Sickness, Old Age, and Death”.

It’s nominally about Spiritual Seeking, Buddhism, and Sufism, the mystical branch of Islam.

It follows the adventures of the main character, whose full name is Mohammad Siddhartha O’Leary (and who likes to be called, in fact insists on being called, simply Sid), whose parents were Pakistani and Irish, and who met at a Buddhist meditation seminar. Sid is going through a bit of a mid-life crisis, and finds himself compelled to go on a Quest.

The novel is inspired a bit by the famous novel Siddhartha, by Herman Hesse, about spiritual seeking, and a bit by the novel “The Lost Horizon” by James Hilton, which is about finding a Shangri La and was inspired by the Hunza region of Kashmir in Pakistan.

Sid takes place in the modern world and asks the question, is there really a literal answer to the questions that Buddha went to seek – i.e. is there a literal answer to the problems of Sickness, Old Age, and Death? If so, how would we find it today?

It also poses an important question: Do we need to turn to teachers to find our spiritual path – or is it something we can find on our own?

In the novel, Sid, while learning about the life of the Buddha and the Prophet Mohammad during his own search for enlightenment ends up in the mountains of Kashmir with a surprising dilemma.

There aren’t many books that are about both Buddhism and Islam – for good reason: at a simple glance the religions seem very far apart. But if you look closer, particularly in Pakistan, where tombs of Sufi saints are commonplace, you start to see similarities in mystical/experiential traditions.

Sufism, though not an organized sect of Islam, refers to many sects of Islamists which emphasize personal experience over simple ritual. Sufi sects were led by iconoclasts like Jalaladin Rumi (who is well known in the west for his poetry), Ibn El Arabi (who is not so well known in the west), and Lal Shabhaz Qalander (who is virtually unknown outside of Pakistan), among others.

Anyways, that’s what the novel is about. I felt compelled to start writing it last year when I took a walking tour in Ireland (what a beautiful country) and when I visited Pakistan during December of last year, the novel took an important turn. [Yes, both countries play a big role in the novel].

Now that it’s “done”, when should you expect to be able to read it?

Well, if there’s one industry that recognizes small, quality projects even less than the traditional film industry, and is even slower, it would be the traditional publishing industry...so keep your fingers crossed - i'm sure it'll happen within this lifetime.

Ranjan Is Dead … Long Live Ranjan!

Speaking of religion and Death, I received some news that struck me very hard today. I guess Facebook is good for something other than making money for app developers, since several of my old college friends sent me messages on Facebook.

One of my closest friends from my years at MIT, Ranjan Das, passed away suddenly today in Mumbai, India. I won’t say much about his career in my blog, though he had a very successful one, as outline by this article: http://business.rediff.com/report/2009/oct/22/tech-sap-india-president-das-passes-away.htm

I don’t know the exact situation, other than it had to do with a heart attack. In fact, I haven’t seen Ranjan in quite a few years, and didn't even know that he'd moved back to India.

Nevertheless, I still found the news devastating.

Why?

Not only because Ranjan was such a talented, smart, witty guy ( think about this: in 1992, only two students from the entire country of India, which had a population of some 800 million at the time, were admitted to MIT, and Ranjan was one of them).

Not only because he was a great friend during my college years. During those years, Ranjan was the informal anchor for a rag-tag social group of misfits that included, at different times during our four years at MIT, a Sri Lankan, a White Guy from Jersey, One or more Bangladeshis, Indians, Pakistanis, a Nigerian, a German, a Nepali, and even one ABCD (that would be me as the resident American Born Confused Desi of the group, even though technically I wasn’t born in America and never considered myself confused!).

And it hit me hard not only because I felt guilty that I hadn’t seen my old friend in years. When I moved to the Bay Are a few years ago, I had always planned to get in touch with Ranjan and spend some social time together – rather than only talking about work and software and startups. There were still so many things to discuss and laugh about.

How many other close friends from those years haven’t I seen in ages? How easy it is as we get caught up in our own lives, our careers, that we don’t make time for those who have added something to our lives.

Not only because he was in the same age and to use a cliché (something Ranjan, a creative writer in those days, would never want me to do), it makes us face our own mortality. All of us, my old classmates and I, are approaching that mid-life age of forty. Hearing about Ranjan has really made me pause and think about things.

If death can strike like a lightening bolt so quickly, so unexpectedly, then shouldn’t we make sure we’re spending our lives doing the things we really enjoy, the things we would regret doing if it were to happen to us?

Mainly, though, I was devastated because, though I hadn’t seen him in years, I can still see him so clearly in my mind’s eye that it doesn't seem real. Even though he was nearly forty when he died, I can still still see him so clearly as he was 20 years ago, when we were twenty.

Whether we were having late night conversations about Xeno’s paradox (umm, it’s a physics thing), working on problem sets late at night for differential equations (Ranjan made up his nickname for me when he discovered that while I was pretty good at taking tests, I was never very good at completing problem sets on time. “Hey scholar!” he called me for the rest of our years at MIT, “you can copy my answers for the problem set,” while we called 783-BIRD or Domino’s to order late night food), or taking the bus to Wellesley to try to meet some girls (umm, don’t think we ever really did meet many girls from Wellesley though) or when we were carrying our little brown suitcases filled with home-made computers for our Computer Engineering Class at MIT (6.004) to computer lab in the middle of a snow-filled night in Boston.

The suitcases housed makeshift computers that we built up during the semester – they were called “Maybe” machines. To this day, I can still hear Ranjan singing his rendition of some old song, as we trudged through the snow, hoping our “Maybe” computers would work when we got the lab, “Come on Baby…. Don’t say Maybe…”

At that time, I didn’t realize that Ranjan was a trailblazer who was inspiring me in way inspiring me in many ways.

Amidst a sea of engineers, he was the rare creative, wrote short stories in both his native tongue and in English. When I visited him in the Bay Area a few years after college, he told me about a writing group he was in. A few years later, when I was writing more seriously, Ranjan inspired me to start my own writing group.

Among a wave of scientists who didn’t believe much in religion, he investigated them using logic and clarity of mind, and even got me interested in Buddhism well before I did any exploration of it on my own and (even though he wasn’t a Buddhist).

In a time when I was appreciating only Hollywood blockbusters, Ranjan taught me to appreciate off-beat indie films and quality filmmakers (Barton Fink and Fellini, anyone?).

Of course most of these memories are from long ago and they go on and on. This makes me realize the biggest shame of all, is that though I knew Ranjan quite well as a young man, I didn’t know him in his thirties, a successful business executive.

Even so, I can see him more clearly than ever, in whatever dimension of reality he’s moved on to, amused that all of his old friends have suddenly come out of the woodwork to appreciate him on the news of his death. He would be standing there, making up nicknames for all of us and for all of his recent colleagues, as he sings some rendition of some old song, changing he words to amuse himself, and to comfort his wife and family to not be sad, that he’s OK…he’s just moved on to the next thing…

Ranjan has died, but Ranjan lives on!

Stanford Sloan, Entry 22: The Last Entry: Final Finals, Ethics in B-School, the World According to Pixar

Tis the eve of our final final (approximately 11pm when I stared writing this), and throughout the b-school campus, not a mouse is stirring. Well, that’s not entirely true – many MBA’s are out at the final FOAM of the season held at some club in Palo Alto.

As for Sloans, we have our final final exam tomorrow morning, our very last bit of academic nonsense (er, rather, I mean our last serious academic endeavor) during our Sloan year: the HR final exam. The HR class (as per my past post) is one of two Sloan required classes in our final quarter.

Today was officially our last day of class at the GSB, but like many Sloans, I didn’t have any classes today. While many of us were busy studying for our final tomorrow, I took a trip up to San Francisco to wander around a little bit.

Read More ...

Our other Sloan required class, Non Market Strategy, had a professor who decided to give us our final exam last Thursday. In hindsight this seemed like a brilliant move, because it allowed us to enjoy the beautiful late May/early June weather without stressing about academics last weekend.

This also meant that two of my courses were officially finished last Thursday (the required class, Non Market Strategy, and my elective class, The Business World: Moral and Spiritual Inquiry through literature).

Yesterday (Monday, June 1st) I had my last session of the Leadership Entertainment Industry class (more on this, including our visit to Pixar and the visit of David E. Kelly later). Which means three out of four classes are done, and in less than 12 hours, my academic experience at the Stanford Sloan program will be complete!

As I sit here, I should be cramming for this final exam in HR, I can’t help but reflect what an odd class ithe HR class been. In this class, doing data regression about HR was often emphasized more than actual HR strategy, and cases that we wrote about our co-workers companies seemed much more interesting than the “official cases” from Harvard and Stanford Business School that we were supposed to be learning from. Oh well, learning from our peers has been one of the keys to making business school worthwhile, so I guess this shouldn’t’ surprise me!

Ethics and Morality in Business?

One component of the our Non-Market Strategy class that came up over the past few weeks was the “ethics” component. Despite being a little philosophically abstract (Kantian vs. Utilitarian, anyone? I think I’d rather debate Tastes Great vs. Less Filling!), there was some valuable self-reflection this class forced us to do, at least for a few minutes.

In the wide world, MBA’s aren’t generally perceived to have any ethics, really. Just a constant stream of number-crunchers coming out of business schools who calculate the path to maximum profits with the least weighted average cost of capital, and always recommend the path of most borrowing at the least interest rate, regardless of the long term consequences.

Case in point: our recent financial crisis.

Well, I can’t really argue that this isn’t what business school teaches us. It actually is, for the most part, what we learn in our finance classes. But, there are bright spots of moral reflection in our other classes too, which shouldn’t be overlooked.

In our Non-market class, we were presented with some ethical dilemmas and asked our opinion.

Our professor called it Trolley-ology. A trolley is coming down the track and it is very likely to kill 5 people who are on the track. You have the option to change the track the trolley is on, to another track where only one person will get killed.

What do you do?

OK next step. Forget about the second track. Suppose you are on a bridge overlooking the trolley that is rolling towards killing 5 people. There is one person on the bridge with you. You could push that person off the bridge, which would kill them, but would stop the trolley, and with certainty save the lives of the 5 people down the road.

What would you do now?

Hmmm. If you’re like me, I don’t know that these hypothetical ethical dilemmas about Trolleys really impact our day to day decision in the business world, however much they do help illuminate how we think about ethical issues.

I’m sure that most MBA’s who were involved with institutions that spear-headed the financial crisis (as well as earlier excesses like Enron and Worldcom) probably had ethics classes like this one, but it’s not clear that they did any good.

More interesting and impactful on my long term view though, was my Moral and Spiritual Inquiry Through Literature class. This class, which was taught in seminar format, put a much more textured and personalized spin on these kinds of moral dilemmas.

By reading a fictional story (a novel a week, mind you) of a character who, for example, is staunchly anti-corruption at the beginning of the novel, but succumbs to taking a bribe by the end of the novel, we move beyond platitudes and abstract philosophy and hopefully gain some insight into human nature.

When Ivan Ilyich, described as a career corporate ladder climber in mercilessly accurate prose by Tolstoy, is about to die prematurely and reflects on what was missing from his materially oriented life, it’s not much of a stretch to see the comparison between this late 19th century Ruppy (Russian upwardly mobile professional) and the corporate climbing business school student of the twenty first century!

By being forced to discuss the nature of ethics and the role of religion and spirituality in our lives (and our work), we get, I think, to a much more personalized view of how we as human beings with vying impulses including greed and self-sufficiency might act in a materially obsessed world.

Moreover, by writing a 4000 word essay on how these books had an impact on my own views on morality and spirituality in the business world, I was forced to think through these issues at a deeper level than even trolleys would allow.

For those of my readers who wonder why I’m taking a class on Literature in Business School, I can only say that I wish everyone who had gotten an MBA over the past 10-20 years had to take this class (Moral and Spiritual Inquiry Through Literature), since it’s taught me more about reflecting on what’s important in life and business than all of my other classes combined.

The Law Acccording to Pixar

As always, I like to write about my Entertainment Industry class. Why? Not only because it’s a fun class, but because everyone likes the movies.

Last week, we went on a class visit to Pixar, which is, as we’ve learned the only major studio which has not had a box office failure. The visit was very eye-opening, not just because there statues of one-eyed monsters in the lobby (from Monsters, Inc), but because it made me (and the rest of the class) think about creativity, business, and the importance of modifying stories (whether in business or entertainment) until we get them right.

Pixar is a very creativity driven place. This comes across from the conversations we had with the CFO of Pixar, and from Andrew Stanton, who was the writer on the Toy Story movies, and the writer/director of Finding Nemo and Wall-e.

The first thing that strikes you when you walk into Pixar these days is that it’s all about one film: Up, the new movie that was just released this last weekend. I loved this movie, and it looks like it’s going to be a commercial success, despite analysts ravings that a movie about “a grumpy old man and a fat kid” has limited market appeal and no toy merchandising possibilities.

The thing about this focus is that for much of its history (going back to Toy Story) the folks at Pixar focused almost exclusively on one film. This is contrary to what we learn at business school and contrary to what almost every major studio in Hollywood says – that you need a diversified portfolio of films every year because you never know which of them are going to be successful.

But, as Andrew described to us their process – it can take 4-5 years to produce a Pixar film, one of their reasons for this success became apparent. Pixar is a mixture of Hollywood and Silicon Valley (Steve Jobs was the CEO and investor for many years, and Pixar grew out of Lucasfilm, and was a technology company for most of it’s life). They focus incessantly on the story for the first 2.5 years of this time – recording the whole film using hand drawn sketches and only when/if they get the story right, do they invest in the very costly 3d animation for which they are known.

They also allow for a certain amount of honest creative tension. While the director has the final say, the Pixar brain trust watches early screenings (of hand-drawn sketches with employee-recorded voices) and they “duke it out” with each other for ideas on how to make the story better. According to Stanton, after some painful disputes, they almost always emerged with a better story, which really has been the key to Pixar’s success I think. I could continue writing about Pixar forever, since it's such an interesting company, but will have to leave it at that!

We also had David E. Kelley visit our Entertainment Industry class. He was the creator of such hit television legal dramas as The Practice, Ally McBeal, and the more recent Boston Legal.

I won’t say much about his visit, except that it was also very insightful about the creative process in general and how television works in particular. Two things he said that surprised me?
1) that James Spader didn’t want to work with William Shatner at the beginning of Boston legal (though this changed quickly when they started working together), and
2) the head of the TV network programming (I think it was ABC) thought that the show ‘Lost’ was the “biggest piece of shit” he’d ever seen and he only let it go on the air because he had to contractually (the same executive later happily took credit for what became one of the biggest successes in the networks history).

Sign Off: The Last Entry

This is probably my last entry of the Sloan academic year in this blog. It’s been great fun writing this blog, even when it’s done in the middle of the night before an important exam.

I’d like to remind everyone for posterity that these have been my own personal impressions and rants of a thirty-something software entrepreneur who decided to go back to school and relive his high-school dream of attending Stanford University.

Several of next year’s Sloan’s have told me that they heard about the program or decided to join the Sloan program at Stanford because of my blog (or maybe it was despite my blog?? – just kidding!). For those of you who’ve been reading it regulary, I thank you and feel free to drop me a note any time.

From now on, I’ll be heading back to the world of work, dipping my toe in Venture Capital, and continuing to work on my organization, BayView Labs.

As for the blog, I’m going to go back to writing about entrepreneurship, zen, personal growth, and of course, the movies!

So what did I learn about succeeding in the business world in business school?

Well, speaking of the movies, perhaps the best way to sum up what I learned in business school is also in fact the best way to sum up my class about the Entertainment Industry.

This line, which was quoted to us by both David E. Kelley and our professor (Oscar winning documentary filmmaker Bill Guttentag), was from the book “Adventures in the Screen Trade”, by William Goldman.

Goldman summed up his own experiences in Hollywood with the very simple line: “Nobody knows anything!”

Stanford GSB, Entry 19: Rainy, Foamy, Fuzzy, and Right-Wingy: Profs, Secretaries, Do-gooders, and criminals

Wow it’s been a while since I’ve written. I guess I got so caught up in winter quarter stuff that I haven’t really been keeping the blog up to date – so there’s a lot to write about.

So what’s been going on? Well for one thing, we are almost completely finished with the winter term – only one week of classes is left!

It seems like it was just yesterday that I was taking my accounting and my finance midterms. How did I do? Well, the engineering background continues to pay off; since they were both based on solid concepts which can be taught (and learned), I did pretty well.

So what does the end of the winter quarter mean at the GSB?

For one thing, rain. So much for the illusion that attending Stanford means going to school in “Sunny California”! It’s been raining almost non-stop for the past month (or so it seems). Today the sun came out for a few minutes, which was nice.

Yes I know, California is suffering from a drought, California needs rain, so I shouldn’t be complaining, but couldn’t it rain, like every other day, instead of every single day?

It’s enough to make my thoughts turn to Southern California. Or maybe Arizona. Or maybe even Las Vegas. Ahh, to feel the sun shining on my face again…

Which reminds me - Vegas FOAM is next week. FOAM, for those of you following the blog will know is the Tuesday night partying done by the MBA’s (joined by an occasional Sloan or two), since we don’t “officially” have classes on Wednesdays at the GSB. It stands for Friends Of Arjay Miller (Arjay Miller Scholars are the ones who get good grades).

Usually, Tuesday night FOAMs are held at a local establishment, but next week everyone (well not everyone, but many) will be flying to Vegas after classes on Tuesday, spend the night partying there, and flying back on in time for the non-existent Wednesday classes, or at the very latest, in time for Thursday classes.
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Fuzzy Logic

The other two things that end of the term means are “Final Exams” and “Final Projects”.

The thing about group projects in Business School that I find odd (and perhaps a little bit scary), is that in our fuzzy classes, a very large percentage of our grade (in some cases up to 50%) is based on the final project.

This week, I had thee final project due for my entrepreneurship and VC class, taught by Professor G., a 30-plus veteran of the Venture Capital industry. In that class, we had to write a 20-page business plan); I think we wrote a pretty good one about using iPhones for building communities based on popular TV shows.

How do I know that it was good? I’ve written a plan or two before and it seemd OK.

On the other hand, we also had both a final project and a final exam for our Marketing class.

I can say that I honestly have no fracking idea what the professor was looking for in our final paper, and even worse, many classmates feel like the final exam is going to be a complete mystery. (Any science fiction-oriented readers will will recognize the Battlestar Galactica reference there – for the rest of you, never mind!).

Which brings me to the subject of fuzzy grading. Fuzzy can be a good thing, as in “warm and fuzzy”. More often than not, at least where the GSB is concerned, a fuzzy class is one where the grading is “arbitrary, capricious, and highly subjective”.

There’s a joke around the student body that in many GSB classes (at least the fuzzy ones), your grade is guaranteed to be accurate within 2 letter grades of what you actually get – up or down! (do the math – it basically means that grades in fuzzy classes are pretty meaningless). I have one classmate who got an H, the highest grade possible, for participation in a class where he felt he didn’t participate that much at all – go figure! Good thing Stanford has a policy of not disclosing grades for MBA’s!

Doing Good

Speaking of classes, especially here at Stanford, grades certainly aren’t everything. In fact, there are quite a few things set up to help local charities. A few weeks ago, we had the White Party, which held an auction for everything from Dinners with famous VC's to yaching with groups of MBA1 girls, with all the proceeds going to charities.

Several of my classmates set up a website for their Social Technology class, which aims to use the web as a vehicle for helping out needy causes.

The site, Education Dream Lab, will help educational projects raise money online using the power of Web 2.0 social networking technologies. (See http://educationdreamlab.org/blog/). For their first project, they are helping students at the Phoenix academy in East Palo Alto (which is generally thought of as being more economically needy area than Palo Alto) with a scholarship fund.

Way to go guys!

Right-Wingy

In the past few weeks, we’ve had a number of illustrious visitors and it’s always fun to give the outside world a glimpse of who we get to see.

This Monday, Colin Powell gave a talk on campus. It was a big event – tickets were sold out I think. (Due the rain, though, not everyone came; the seats weren't quite as full as you might expect for such a famous guy).

In person, Mr. Powell was pretty engaging and articulate, and even came across, dare I say, passionate. Which is pretty different from his TV persona.

He told quite a few funny stories. For example, he told us one about when he was National Security Advisor and took his then 21-year old son to buy his first car. As a negotiating tactic, he picked up his brick satellite phone (remember those?) and said things like “Yes, Mr. President, I’ll be right there, Mr. President”, even when the President wasn’t on the phone. Why? To show the car dealer he was ready to walk away and they’d better settle on a deal very fast!

Unfortunately, Powell, who came across very as very likable during this talk, avoided the tough questions – no students were allowed to ask questions. California in general and Stanford in particular is a pretty liberal place, and I couldn’t wait for someone to ask him about his “performance” at the UN convincing the nation to go into the military adventure in Iraq.

Speaking of Iraq, guess who also arrived on campus this week? In fact, her first day was the same day that Colin Powell gave his speech.

Who else but his successor as Secretary of State, Condoleeza Rice. She got her PhD here at Stanford, was a professor and a provost here (I have no idea what a provost is, so don’t ask), before she was recruited by one called “W.” to make the trek up to Washington.

Thus far, no speeches on campus from Condi (though she did give an interview to the Stanford Daily). Now that she's back on campus, I’d be happy to interview her for this blog! I’ll keep you posted.

Speaking of former Secretaries of State, we (the Sloan class) had a private audience with George Schultz, who was Reagan’s Secretary of State in the Eighties a few weeks ago. Speaking of eighties, Schultz is in his late 80’s (89 if I’m not mistaken), but was in very good form for our event.

He sat on a very old-fashioned chair in front of our class, spoke a little bit about wanting to rid the world of Nuclear Weapons, and then proceeded to answer every one of our questions. Come on Colin and Condi, if an 89 year old guy can take questions from students, so can you!

Schultz told us some stories of his days with Reagan, and meeting the leaders of foreign countries. One of the most memorable was about Deng Xiopeng of China.

“People in that part of the world, “ said Mr. Schultz, when asked his impressions of Deng, “sometimes get a reputation of beating around the bush and not being direct. Well let me tell you, Deng did NOT have that problem. He was probably the most blunt person I’ve ever met - He told you exactly what he was thinking without wasting any time.”

In other words, he wasn't Fuzzy at all!

Crazy Eddie

One of our more entertaining speakers thus far came to our accounting class. Yes, you heard that right, I said accounting.

We had Sam Antar, the former CFO of Crazy Eddie’s, which was a well-known electronics retailer in the New York / New Jersey area which went public in the 1980’s. I had never heard of Crazy Eddie’s, but it turns out it was one of the hottest stocks when it IPO’ed, well before the dot com boom, climbing from 8 to 80 very quickly based on it rapid earngins growth.

The only problem was that it turned out to be one of the biggest securities frauds to hit Wall Street up to that time. Sam and his cousin Eddie, the company's founder, had been skimming money off the top, falsely reporting inflated earnings, laundering money, and doing all kinds of unsavory things to defraud investors and keep their stock climbing.

Sam is a convicted felon, and he explained some of the schemes they used in duping the IRS, his auditors (KPMG), and the public. He also explained how white collar crime was usually about making people comfortable so they overlooked the details - it was more about distraction than obstruction, he said.

With the recent Madoff scandal on everyone’s mind, this made for a very colorful presentation.

But do you know what the real crazy thing is? While Eddie went to prison and the Antar family had to pay like $90 million back to investors and to the government, Sam got off scott free – no civil or criminal penalties against the millions he’d made as the deceptive CFO of the now defunct electronics retailer.

Not just that, but he got to keep the $20 million or so he’d made from stock during that period, and now he’s giving talks at Stanford Business School!

Wow. Now that’s pretty crazy...

Stanford Business, Entry 15: The Last Class, Finals, and Clint Eastwood

We finished classes on Thursday of last week, and this week is Finals Week. It’s hard to believe that a third of the school year is already over, and very soon after we start back up in January, the program will be half over. I guess that’s both part of the upside and the downside of being in a one-year program: it goes very quickly.

The Last Day Of Class.
On the last day of class, we had Strategy (which was as short half-term class, which I enjoyed, unlike many of my classmates judging from their comments), Finance (which was perhaps too long of a class), and Economics.
I have to admit that I was sad to end our Economics class. We’ve had this class since the pre-term, and I think I’ve only missed it only once (when, for some odd reason, we had it at 8:30 am, rather than it’s usual 1:15 pm time slot). OK OK, if you read this blog, you’ll notice that at the beginning of the term, I wasn’t so hot on this class.

But it has grown on me, especially since we started discussing Macroeconomics. Given the events going on in the US and World economies, this class may have become (in my opinion) our most interesting class, and professor Flanagan seems adept at teaching us how to think about obscure concepts like the marginal product of labor, potential GDP, and the reserve requirements of the Fed, very clear. So much so that I think I’ll actually miss not having econ moving forward! Who would’ve thunk it?

Clint Eastwood rides onto campus.
On the evening after the last day of classes, many of the Sloans went to a local hockey game (the team was the San Jose sharks), organized by one of our classmates who’s a hockey aficionado. For many of our international students, this was their first time ever seeing hockey. I ended up not going because there was another event on campus that I found interesting: A showing Clint Eastwood’s film, Letters from Iwo Jima, followed by a discussion with Mr. Eastwood himself. I guess he doesn’t live that far away (Carmel) so it’s not too long of a trip, but this seemed like a pretty unique opportunity, not to be missed.

The movie itself was pretty dramatic– it was about the “defense” of Iwo Jima from the American invaders (and was a counterpart to Eastwood’s earlier movie, Flags of our Fathers). The movie was almost entirely in Japanese with English subtitles. Even though I speak some Japanese, I couldn’t understand a word and had to read the English.

Clint (may I call him Clint??) was introduced by a professor at Stanford who had written a book or two about history and the movies. This seemed like a good idea, but ended up being painful because the guy went on with a very lengthy introduction of Eastwood, while Clint sat there on stage, patiently waiting for his chance to well, say something.

This guy quoted lines from his Dirty Harry movies, and otherwise demonstrated his excellent knowledge of Clint Eastwood’s career. More than a few of us in the audience were thinking: “OK dude, so you’re a smart professor. Now shut it and let Clint Eastwood talk, which is why we came here tonight”.

In some ways, this event was a great example of what’s good and bad about academia. On the one hand, we had an Oscar winning director come to show his movie and discuss it with us. That doesn’t happen every day in the real world. On the other hand, we had a know-it-all professor who was trying to show how he “knew it all” and wanted to demonstrate his knowledge about the subject, when we, the audience, were primarily interested in the subject itself and not the professor’s take on it!
In his defense, the professor (I forget his name) did ask some good questions and eventually let Clint answer them, which was interesting. At the end of the discussion, the professor started to close down the event with: “Well, thank you Clint Eastwood for coming here to Stanford tonight.”

Clint smiled his one sided smile and asked, very calmly, in that soft but authoritative voice cut him off: “Well, don’t they have any questions?”and gestured at us, the audience. It was probably the defining moment of the night, and left the professor a little flummoxed. The good news is that we the people got to ask Clint questions; I asked him about the budget on Iwo Jima ($13 million) and how he funded it (He made a call to Warner’s and got his Japanese distributor to put up some money; the movie has brought in ) and advice of funding indie movies (find someone with money and pitch it to them; this last part wasn’t that helpful but technically accurate). It was definitely the highlight of last week for me.

Final Projects and Exams.
Early this week, we had two final projects due, and two final exams.
For our modeling class (another class that I’ll miss, particularly Professor Moore’s very vivid lectures), we had a final regression analysis project. My team’s project was an analysis of the variation of Linden Dollars (The virtual currency used in the online virtual world, Second Life) vs. US Dollar exchange rate, to see if it could be explained by a variety of other factors.

For our strategy class, each group had to do a “strategy audit” of a real company. The companies ranged from online travel to sports aircraft companies, and this was our first experience in reaching out to companies outside the b-school for a b-school project. Our team did a project on TCHO, a hip new chocolate company located in San Francisco (Yes, we did get free chocolate each time we visited them).

We had our first of two final exams on Monday: Economics. Even though I think I’ve gotten good at econ, this was a much tougher exam than I’d anticipated. The fact that it was Open Book didn’t help much; we’d spent much of macro talking about employment, inflation, and GDP, and almost no time talking about deflation, which ended up being a big part of the exam. Even some of my classmates who were econ majors in undergrad weren’t totally sure about their answers. Oops. Did I say I’d miss econ and I was sad that it was over? Let me reconsider that…

We now have only one more exam before the end of the term – Finance. This class has been a tough one for many of my classmates, particularly those who have never been exposed to financial or investing topics before. It must’ve also been a tough one to teach, because we have a variety of people ranging from finance experts (people who have traded options and worked for investment banks) to finance novices (who had no idea what a call or a put were before this class).

For me, I’m somewhere in the middle – I traded options for fun many years ago so know what they are (and might I add am pretty good at losing money trading options which is why I don’t do it anymore). But I’ve had very little exposure to the theory behind them. And I definately don’t buy the finance class’s conclusion that taking on debt can be a good thing for the company. Isn’t that what got GM and other automakers in trouble in the first place? Toyota (to the chagrin of many Japanese bankers, and I would add to many b-school finance professors) has zero debt, and no one is talking about them going out of business!

Speaking of finance, the test is coming up in less than 48 hours. I really should have been studying rather than watching the Humphrey Bogart double-feature at the Stanford Theater in Palo Alto this evening. Oops. Too late to study now, will have to cram tomorrow for the test on Thursday.

Stanford Business, Entry 14: Nike, PACCAR, Boeing, Amazon and Costco: Our Northwest Study Trip

Keeping up with our breakneck pace, we had our first out-of-town study trip last week, followed by the Stanford Thanksgiving break. I think I like the Stanford thanksgiving break a lot better than I liked the MIT break during my undergrad days; at Stanford, we got the whole week off.

This was (no doubt) so that we could catch up on the work for our final projects, since there's only one week of class left in the Quarter before... (drumroll)... Final Exams.

Of course we all studied very hard during this break (Well, honestly, most people started their vacation last weekend and took the whole week off; now we're struggling to get caught up on everything by Monday morning).

In the case of the Sloans, we left for Portland the week before Thanksgiving (for our international readers, Thanksgiving is a very big holiday in the US, and occurs on the last Thursday of November). On Wednesday morning, we got up very early (pre-dawn), flew up to Portland, Oregon, where we visited the headquarters of Nike.

On Thursday, we rode in a bus from Portland to Seattle and visited PACCAR (originally stood for the Pacific Car and Foundry Company), and then on Friday we visited three companies in the Seattle area: Boeing, Amazon.com, and finally Costco. Many of us spent the weekend in Seattle, our first real break since the term started.

Study trips like this are, in my opinion, one of the more fun aspects of business school. OK well maybe it's not exactly fun to get up before dawn, get dressed up in business suits, and spend the whole day listening to corporate executives talk about how great their businesses are.

But relatively speaking, it's much more fun than being in a classroom talking about these same things. On the positive side, we (usually) get to meet with high level executives of (usually) well-known companies, they give us a schpeal about Leadership, with copious amounts of company history thrown in for color, and we (usually) ask them lots of (usually) intelligent questions. And that beats studying about the derivation of the Black-Scholes option pricing formula any day!

So here’s my brain-dump from what I recall of our Northwest Study Trip:

The Cult-ure of Nike

We were welcomed to Nike headquarters near Portland by a number of executives, including the head of Nike HR, a woman in charge of retail aspects of Niketown, and a guy named Nelson, who was one of the first employees of Nike when it started back in the 70’s. His official title is now something like “Keeper of the Nike Culture”; kind of a cool title – what it seems to involve, as far as I can tell, is displaying knick-knacks that he has collected along the way, and telling stories about Nike’s history, which he did with great aplomb and fanfare.

Nelson shared with us that you could understand Nike by looking at the primary personalities around which the company was built - Phil Knight (who was CEO for a long time, not to mention a Stanford business school alum; also a multi-billioinare who donated enough money to Stanford that the new GSB campus will be called the Knight Management Center); a very famous mid-distance runner in the 1970’s named Steve PreFontaine (known to the initiated simply as Pre), and Bill Bowerman, who was a legendary track and field coach for both Knight and Pre at the University of Oregon.

Does this history matter? Well from what I could tell, these stories reflect the culture of Nike quite well to this day; and of the companies we visited, Nike had the most in your face culture: Everyone at Nike seemed to be 1) passionate about sports, and 2) passionate about the history and culture of Nike, and 3) very, very competitive, as if business was sport.

I love Nike’s products and they’ve certainly developed one of the top consumer brands of the last 30 years, but the visit was a bit strange for me. It kind of felt like I was going on a guided tour of a Scientology shrine. I felt, I don’t know how else to put it, like I was one of the un-initiated.

But it’s probably because 1) I’m not a sports fanatic, and 2) Before our visit, I had no idea who Pre was, 3) I didn’t know that Coach Bowerman was a legend in the running world, and 4) I knew that the new Stanford Business School campus was named Knight, who must've been a very rich guy for Stanford to name a campus after him, but that was about it.

We also had the former head of Nike Golf give us a presentation about leadership. Speaking of Golf, did I mention the meeting was in the Tiger Woods shrine, er, i mean, building? This building is basically a memorial to Tiger's career, including some of his trophies, memorabilia, and a timeline showing everything Tiger has done in his career. For golf fans, this building must be like dying and going to heaven.

Many of the Nike buildings are named after famous athletes. At the moment I can’t remember any of them, except for Tiger Woods and Michael Jordan (probably the last Nike product that I know by name was the Air Jordan when it was introduced in 1984, and I was on junior high school basketball team).

Nike even had an athletes walk of fame – kind of like the Hollywood Stars. I could hear my colleague’s sounds of recognition as they saw the name of their favorite 70’s or 80’s football or baseball or basketball player.

It felt like a trip into the “Cult of Nike”; I don’t mean that Nike is a cult in a bad sense; the most effective organizations with the most passionate members usually have this kind of quality to them.

Another thing I noticed about Nike culture: I found them to be brutally honest. Maybe too much so, which I kind of appreciated.

For example, why did they start the non-profit Nike foundation? Honstely, because they were getting a lot of heat over bad working conditions in their off-shore factories. Why did they want us to go the Nike store? To spend lots of money on their products so their profits will go up. Why were they being so nice to us? Because they hoped we might want to work for Nike someday. What is Nike's biggest weakness today as a company? That they're a bunch of old white guys with very little diversity. Actually it was kind of refereshing to get such direct answers.

Of course, being ignorant about sports didn’t stop me (or my classmates) from spending at the famed Nike Store. I usually buy a pair of sneakers once every five years; I bought two pairs that day!

PACCAR: The Lexus of Heavy Duty Trucks

On Thursday, we visited PACCAR outside of Seattle. According to Wikipedia, they are the third largest manufacturer of heavy-duty trucks in the world. I hadn’t heard of them before the Sloan program (one of our classmates is from PACCAR), though I had heard of their truck brands – Kenworth and Peterbilt in the US and DAF in Europe. There’s a famous gun-battle scene in the movie Heat, which was one of my favorite movies of the 90’s.

Although I grew up in Detroit, I'd never been to an automotive assembly line, so this was fun for me to see. In fact, between Nike, PACCAR, and Boeing, it was fun to see companies that made actual things.

This might seem like a trivial point, but I was discussing this with another software guy in our class, and he remarked that we weren’t used to building actual physical objects – our products are usually just bits and bytes on a computer.

At PACCAR, we had a former Sloan and (currently EVP of something), give us a talk about the company and its history. Inevitably, the question about why GM and the other US car companies were doing so poorly and why PACCAR wasn’t in danger came up. The answer was interesting – having to do with being hamstrung by unions, quality of products, and providing what customers wanted.

Of course, the world wide recession was affecting them too – demand for trucks was down considerably, their plant was running at less than maximum capacity.

The first thing that struck many of us about the assembly line was that it was spotless; as one of our colleagues from Japan told us, just like Japanese assembly lines, you could eat food off of the floor (No not literally!).

The second thing was how automated the whole process was – PACCAR was a poster-child for efficiency. Each piece of the assembly had it's own barcoding and in some cases RFID so they could track exactly where the parts or the assembled trucks were.

In fact, PACCAR is one of the few companies that Toyota allows to use one of its internal suppliers, notably the Lexus supplier for interiors, PACCAR trucks are known as the high end of trucks, often called the “Lexus of Trucks”.

When we sat inside the cab of one of their finished trucks, I could see why. As the owner of three Lexus vehicles (the only car I’d ever owned before buying a Honda hybrid a few years ago), I can confirm that the interior looked and felt kind of like I was sitting in a Lexus!

The Bigness of Boeing

On Friday we visited Boeing – this was fun. One of the EVP’s (also a Stanford Sloan alum) gave us a talk about Boeing’s line of aircraft, including the new model of the 747 (which is being used for freight primarily) and the new 787 dreamliner, of which lots of airlines have ordered, but which is behind schedule.

Of course the conversation naturally turned to Airbus and Boeing’s recent rivalry – the A380 (the very large plane that Airbus released recently) vs. the 787 dreamliner. Airbus’s plane is bigger. Does that matter? On any visit to Boeing, the conversation inevitably turns toward size.

We saw brand new 747’s being produced on the assembly line and all I can say is that they are BIG. We visited the BIGGEST building in the world. It’s so big that it has it's own fire-station, birds live in rafters, and Boeing employees hunt the birds now and then to clear them out. The building can house something like 70 football fields. The engines of the Boeing 767 are so big that it’s the same size as the fuselage (i.e. the body) of the 737 (which is the airplane that airlines like southwest use for point to point flights).

How does Boeing feel about Airbus plane being bigger than theirs? Boeing makes the point that they tried to go out to sell a larger plane, but came back with a different set of customer requirements - more fuel efficient planes. Boeing says that the two new planes are not really direct competitors – the A380 was meant for a hub and spoke model, where large numbers of passengers are going from hub to hub. The 787 dreamliner, a much more fuel efficient plane, is meant for point-to-point travel and so Boeing will sell alot more of them.

Like PACCAR, Boeing seems to be affected by the recession. Unlike PACCAR, they seem to have a very large union workforce. Unlike PACCAR, you can’t order a plane from Boeing before 2015, because all of the planes coming off the assembly line are already accounted for by “firm orders” from airlines around the world. Why would the recession affect them if planes are full until 2015? Don't know but they were certainly of the opinion that the recession would be bad for them.

We then drove by Boeing’s own little airport, which is just outside this building. When the planes are built, they are then flown off to the ordering airlines right from Boeing field. Oops...did I say "little" airport? I stand corrected. The Palo Alto airport is a little airport. Compared to this, the Boeing field is freaking huge.

Kindlin at Amazon

We then shuttled off to Amazon.com, to meet a GSB Alum who is in charge of corporate development. For me personally this was a fun visit, because of the internet angle (the lobby with articles from the nineties was like a trip down memory lane back to the dot com boom). It was also fun because as writer, I’m all into books. One of the things he spent a lot of time talking about was the Amazon kindle e-book reader.

The Kindle has been under development for a while – as it seems have many other non-successful ebook platforms. This one, though was endorsed by Oprah, who gave away kindles to all the members of her studio audience recently. And, just like that, Amazon sold out of all of it’s kindles.

With over 200,000 books available on it, this might be the ebook reader that actually works. What makes this one different? The Power of Oprah.

Costco-land

We ended our visit with a trip to Costco. The CFO it turns out is also a Stanford GSB Alum, and he came prepared with lots of slides about Costco’s past and future performance.

Speaking of cults, Costco is fascinating not because of the cult-like nature of employees, but because of the attitude of customers. It turns out I was the only US resident in the audience who’d never been inside a Costco. I remember last year, when I was part of a California company that was being acquired by EMC (which is a Massachusetts company). During the HR question and answer session (in California), the only question that the employees seemed to care about, really care about, even in this age of inflated health care prices, was whether the new company was still going to pay for employee’s Costco membership cards!

When I moved to California about a year ago, I happened to be going to a store which shared a parking lot with a Costco on the weekends. It was a madhouse… with kids and entire families jumping with excitement as if they were going to Disneyworld! There was an electricity there. Think of a 21st century version of the Brady Bunch dressing up in their sunday best to go to Sears.

We learned a lot about the history of Costco; about the founding of the company; they did close to $100 million in their very first year. They’re the third largest retailer in the industry (after Walmart and Target, I believe). The founders are still around, and the culture is very no-frills, keep costs low kind of culture.

The bottom line: Costco sells a lot of stuff at very low, wholesale prices. In fact, the CFO showed us all manner of pics and figures of the amount of various products they sell, ranging from hot dogs to diamond rings.

One dynamic that he mentioned was that Dads who spend time with their kids on weekends and aren’t sure what to do, take the kids to Costco. The kids pig out on the sugary sweets and greasy food (well he didn’t say that exactly but he did say that Costco wasn’t into healthy food) while the Dad shops, the perfect win-win situation.

Unlike PACCAR and Boeing, though, Costco doesn’t seem to be suffering from the downturn. Even more people are looking for ways to save money. In fact, he said that many "premium" brands who would not even talk to Costco in the past are now approaching Costco to get rid of excess inventory. Soon we may all be dancing in the Costco parking lots looking forward to seeing Mickey Mouse!

Stanford Business, Entry 12: Midterms, Negotiations, and Sarah Palin

I’ve missed a week (or maybe two) in the blog because of two crazy busy weeks, which concluded this last weekend with our midterm exams and Halloween parties both on and off campus. Here are my top observations about the last two weeks:

Taking tests was both easier and harder than I thought it would be.

Our midterms were our first real academic challenge since we arrived at the Stanford Graduate School of Business program two months ago. This is no small point, given that many of us in the Sloan program have been out of school for more than 10 years (!).

I think it’s safe to say that many in our class were stressed out about the Finance exam. and preparing feverishly over the past week (when we had time to study, which was cut dramatically short by our Negotiations class – see point below).

While a few of our classmates worked in finance before (so the class is pretty easy for them), for many of us, the concepts are completely new. Some of us didn’t even know what selling stock short was a few short weeks ago. I can confess that I didn’t really grasp the differences between NPV, IRR, despite being exposed to both concepts in my career. And I have to confess that I knew very little about the CAPM (Capital Asset Pricing Model) or market-efficient portfolios when I arrived on campus just a few weeks ago. Come to think of it, I’m not quite sure that I buy into the CAPM or market efficient portfolios even now, but I hope like hell I got the questions right on the exam!

Conversely, many of our classmates did not seem so stressed out over our Economics exam. This was a surprise to me, since I find Econ to be a little bit subjective and was probably more stressed out over it than I was about finance.

Not surprisingly, no one seemed to be stressed out over our OB exam, which was either a 3-hour take-home exam or a final paper.

So, what’s it like to take an exam at Stanford GSB?

Since Stanford is one of the few Universities with a formal honor code, teachers don’t proctor exams in the classroom. No TA’s either. Just us chickens, er I mean students.
Our teacher, Professor F., after handing out the exam, wrote his office phone number on the board, told us to call him if we had any questions, and left for the day.

Really. There was no one monitoring the exam, and we are expected to keep our own time, not do anything that’s not allowed, and hand in the exam in to the appropriate location before the deadline has passed.

This means that there isn’t that much difference between an in-class exam and a take-home exam, especially since they’re both completely open book and open notes. The in-class exams had time limits of 1.5 hours, and the take home exam (which we had a whole week to complete) had an honor-code-bound time limit of 3 hours.

Oddly enough, this honor code thing probably made us more conscious about making sure we didn’t do anything wrong than a more traditional exam type of environment.

So how did I do? I don’t know – we haven’t gotten the results yet… so I’m rushing to get this blog entry up before we get the results.

Cramming in an extra class is both a good and a bad idea.

The one thing that complicated our exam schedule (OK it wasn’t the only thing, but the biggest thing) was that during the week before our midterms, we had an extra class. Not just an extra hour or two, but 15 hours of a normal ten session elective class, Negotiations, every night from 5 to 8 pm.

What was it like? We would show up to class and immediately get instructions on the negotiation exercise for the day. Before the lecture, We’d usually go out and conduct a fictional negotiation.
We’d work hard to try to get the best deal in the negotiations that we could (sometimes not reaching any agreement whatsoever), and then head back to the classroom where the teacher put up our scores in front of the whole group, so we could make fun of those of us who didn’t do so well. Haha, no just kidding about that last part. Actually the negotiations where one party didn’t do well were the ones where we learned the most.

In one week we did: a two-party negotiation where one person was trying to buy a plant from the other party and had to agree on a price; a three party-negotiation where each of us represented a company and we needed to figure out which two of the three were going to work together, or if all three were going to work together (this one was a bit of a mindbender, if you do the math, it naturally leads to all kinds of Machiavellian behavior); a multi-division group negotiation (where each of us was on a three-person team that had to negotiate with another three-person team – this one proved to be the most difficult believe it or not); and finally a six-party negotiation with representatives from six different organizations (this one kind of reminded me of the six-party talks between the US and North Korea, with everyone trying to get their little piece of the pie – it was about as successful too).

As I said in my last entry about OB, for some of my engineering friends, it might seem that we’re just playing parlor games . And OK, I have to admit, these exercises are a bit contrived, but the experience of going through them is, in my opinion, probably going to stay with us longer than the derivation of the CAPM from our class.

All Hallow’s Eve

It was Friday, and Exam week had come to an end. The students were dressing up as ghosts and ghouls and vampires. This is Halloween. This is Halloween. Halloween, Halloween! (honor code note, src: Tim Burton’s the Night Before Christmas).

Actually I was so tired of both negotiations and exams that I went to three Halloween parties this weekend – a Graduate Student Halloween Party on Friday (which was in Rains, a Stanford Graduate Dorm), a Sloan Fellow’s party on Saturday (which was for our class and partners, held at one of our colleague’s house in Palo Alto), and the MBA Halloween party (which was at a local nightclub in Palo Alto). This is the benefit of being on campus – honestly I don’t think I’ve even been to three Halloween parties over the past three years, let alone in one weekend.

For many of our international friends, this whole Halloween thing was a bit of a spectacle. Why were we dressing up in funny costumes? Why were we putting in so much effort to dress up in funny costumes? Did they have to wear costumes to come to a Halloween Party or could they go in normal clothes? If Halloween is supposed to be scary, why were there people walking around dressed as politicians?

Of the three parties that I went to, the Sloan Halloween party was by far the most fun. Which is funny because we definitely had the highest average age of the three parties. We had classmates dressed as everything from Arab Oil Sheiks to the Grim Reaper and the Incredible Hulk (actually we had two Hulks at our Sloan party alone, growling at each other every chance they got).

But what was the most popular costume on campus this Halloween? Without a doubt, it was Republican Vice Presidential Nominee Sarah Palin.

While I did see one Hillary, one Bill Clinton, one Barack Obama, and one John McCain. I counted at least 10 Sarah Palin’s. Most of them were dressed up in suits, with hair adorned like the veep candidate and matching glasses to boot. If that wasn’t enough, one of them was dressed in a bikini swimsuit with a beauty-contestant sash. And once I ran into two Sarah Palin’s travelling together who looked slightly different –one was Sarah when she was Mayor of Wasilla, Alaska, and the other was after her national makeover. Now that was scary.

Return to Normalcy

Even scarier? On Sunday night, I found myself suddenly without anything to do. No more exams. My take-home paper was done. My take-home exam was done. There were no more Halloween parties. No GSB events or Sloan activities to attend. No required Leadership workshops, prep sessions, or Seminars to dress up for. No last minute study group meetings for assignments due on Monday morning.

Wow. After two months of non-stop activity, I suddenly found myself not knowing what to do with myself. I tried hard to remember what it was like to be a normal person again.

Then I recalled that we had lots of reading to do for this upcoming week, and I breathed a sigh of relief. Since the OB class was over, we also had a new Strategy class that started at 8 am and there was no way I was going to make that unless I got some sleep this week. Somehow the large amount of reading (which I hadn’t done yet) and upcoming assignments (which I hadn’t started yet) hanging over my head had become comforting.

I found that a little bit disturbing. Instead of doing any reading that night, I rented a science fiction movie and watched it guilt-free.

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB and definately not by any of my fellow Fellows

Stanford Business, #11, Glad To Be Here...

Last week marked the first full moon on campus since the term officially started. For the Sloans at the Stanford GSB, this means we’ll have been here two months next week. As usual, we had a jam-packed week.

Glad to be Negotiating?

A few weeks ago we saw videos of the Blue Angels starting (and ending) their briefing and de-briefing sessions with these words “Glad to Be here”. The members of the Sloan GSB class have taken them to heart, often starting meetings (or even emails) with: “Glad to be here”.

Ok maybe sometimes it’s said with a knowing smile and little bit of gritting of teeth, especially when we learn that we have even more reading to do for our classes, while we have midterms rapidly approaching.

We’re now entering our “busy” period: this week, every single evening after our normal classes finish, we have our 5-session intensive negotiations class from 5:15pm to 8:15pm. Which leaves us with plenty of time to study for our midterms, doesn’t it? Did someone mention something about a speed-reading course? That would be useful right about now…

For me, I’m just glad that it’s at 5 pm in the evening (which I can make) and not 5 in the morning (which I probably wouldn’t make it to).



Two Parties, Who Wins?
Even before our intense negotiations class started, we got a taste by doing a negotiation exercise last Friday in our OB (“Organizational Behavior”) class. This exercise was called a “two-party multi-issue negotiation”).

For each pair of students, one of us played the part of a proprietor of a family-owned Latin American food processing company; the other became a representative of a big international conglomerate that was going to acquire the company.

Points (“payouts”) were awarded to each side depending on how well they negotiated their position on each of the four issues we had to deal with: 1) amount of cash paid up front vs. paid later, 2) years of non-compete that the entrepreneur will have after the acquisition, 3) number of family members of the entrepreneur that would still be employed after the acquisition, and 4) which party would take on potential liability. Each issue had its own payoff structure, and we weren’t allowed to see the other party’s payoffs.

When I told an engineering friend of mine about our OB class recently and the exercises we do, she asked why we were just “playing games” every day in business school rather than studying!
I can assure all of my engineering friends that these games are actually serious academic exercises designed to teach us well-researched techniques. That they are also fun is beside the point!

The results ranged from shark-like (one party walked away with the store) to moderate (both sides ended up with about the same number of points). We quickly learned who the sharks and the pushovers were in the class (though that’s likely to change rapidly in the new negotiations class).

You might be thinking that this scenario is a little contrived. After all, in the real world, there aren’t any explicit points awarded for negotiating issues. But by being so explicit with the payoffs, it was possible for both parties to review each other’s payoff schedule after the exercise was done.

It was eye-opening. We realized (too late) that some issues were more important to the entrepreneur and not important at all to the conglomerate (Damn! You mean I could’ve negotiated more and the other side would have given in?). Some worked the other way around. And some were, rather counter-intuitively, such that both parties actually wanted the same outcome!

Turns out that by understanding the other side’s priorities, both parties could have gotten higher payoffs rather than negotiating each issue as if it was a zero-sum game.

How to do that? In a multi-issue negotiation, you can simply ask the other side to rank the issues by importance. You’d be surprised how many people are willing to answer that question since it’s innocuous enough.

To my chagrin, I didn’t ask this to my partner in the exercise, and he didn’t ask me, so we ended up with a run of the mill 50/50 compromise. Acceptable but as our modeling professor would say, sub-optimal.

Study Trip to the Valley

This week, we had our first Study Trip, to prominent Silicon Valley Companies. Study Trips are sort of like field trips in elementary school, except they’re for b- school students and we don’t get to go to any museums.

We visited three companies on our trip this week: LinkedIn, Google, and DCM. Our bus left at 8:30 am sharp (Yes, I made it on-time, believe it or not!) and drove all the way to Mountain View (where the first two companies are located) and then back to Palo Alto on Sand Hill Road where the third (a venture capital firm) is located. So what was it like?

LinkedIn. Our first meeting was with the CEO of LinkedIn, a well known business/resume/social networking company: Dan Nye. He told us a little bit about the history of the company. It was started by a number of founders, including one of the founders of PayPal (Reid). Dan was at an enterprise software company before taking over as CEO of LinkedIn, and he spoke about the differences in running a high-profile web 2.0 company vs. his previous jobs. Unlike some companies where the founders left when professional management, at LinkedIn the founders still work closely with the CEO, which has made it a great experience.

Dan wasn’t present at the founding of LinkedIn, but he did tell us one obligatory Silicon Valley “startup” story – on the first day he joined LinkedIn, they were still in an old office in Palo Alto with a leaky roof and there was no one to call for maintenance so they had buckets set up to catch the water. Needless to say, they don’t have that problem today – their offices are quite plusch in a class A building in Mountain View just down the road from Google..

As an interesting aside, he mentioned that his brother worked for Bain Capital in Boston – turns out I pitched my last company to his brother a few years ago with my last company. They didn’t fund us, but as I remember, they gave us some pretty good feedback and advice…small world.

Google. The second company we visited was Google. I would really like to tell you what we saw and heard at Google, but they made us sign an NDA so I can’t tell ya nothin.

HINT: Both of the speakers were women, and both were among the first 20 hires at Google (no we did not meet with Larry or Sergei, the founders). One of the speakers, who spoke about innovation in general and how they innovate at Google in particular, looked a lot like, and spoke like the woman in this video (though the woman we saw had the presence of an in-command corporate VP, rather than the uber-geek presence in this video):
http://www.youtube.com/watch?v=soYKFWqVVzg&feature=related.

Kidding aside, the talk about innovation was actually pretty inspirational, and the stories of how Google iterated from just search towards its final model of "search, see ads, click, and ka-ching!" was pretty interesting.

We also got to eat lunch at the much-vaunted Google café, and even saw Spaceship One, which one of the Google founders bought after it won the X-prize in 2004. Google also added its own version of this prize, which involves giving $30 million to anyone who can launch a satellite to the moon and send a signal back.


DCM. In some way, this was the most interesting of the three stops for me. We met with David Chao, Cofounder and General Partner of this well-known leading Venture Capital firm. He told us how he started to invest in China and Japan in the nineties when people thought he was crazy for doing that and not investing in dot coms. He told us his thoughts about leadership, which seemed to be the result of a lot of professional reflection and self-awareness (something I have to admit I don’t see a lot of with Venture Capitalists; Wonder why that is?).

He said that to be a leader (especially an innovative one), it means that at some point you are going to get lonely. There is always that point when you are out front, going to have to be out front at some point, by yourself, when people are not following you. Eventually (after one day, one month, a year, or 10 years) people will eventually catch on. It can be quite lonely during that time.

He also talked to us about how he used his intuition to help guide decisions. As an example, he mentioned how an entrepreneur once showed him a spreadsheet that listed all the factors they were looking for in a VC. He said that probably wasn’t the right way – you had to go with your gut feeling of who you’d work best with. He also talked about “signs” – little things in the environments that inspire you in some way to follow a course of action. It could be a song you overheard on the radio, or some conversation you overhear that speaks to you. I found this intriguing enough since I had never a VC talk in these terms before. I believe that intuition is the most overlooked factor in making professional decisions which define an innovator and have started writing a book on it. Stay tuned for that.

Full Moon Over Stanford
In my brief year here, I’ve vowed to try to keep up with some of the undergraduate traditions at Stanford. This can be difficult, since graduate students are explicitly not invited to said undergrad traditions. And Sloans are even older than your typical graduate student. A few weeks ago I witnessed the “Band Run” (see earlier post on that). One of my friends who attended Stanford Undergrad, thinks it’s hilarious that I’m trying to re-live her freshman year. For the record, I’m only observing the undergrad traditions, not trying to be a freshman again!

One of the more famous (infamous?) traditions is Full Moon On The Quad, referred to by the student body affectionately as “FMOTQ” (yes Stanford students like acronyms, as does the faculty).

This long enduring Stanford tradition, started probably a hundred years ago, was historically a way for Senior boys to welcome the Freshman girls by giving them a rose and getting back a kiss on the cheek. Since then it has evolved (devolved?), becoming a way for undergrads to cut loose and get over their inhibitions at midnight by making out with other students when they are relatively new to campus.

A few business school students sneaked into the Quad to see what was happening around 11:30 pm. There wasn’t much happening, though there was clearly some anticipation in the air. Bands were playing on a make-shift stage, with groups of students dancing a little and otherwise enjoying being with friends. But no kissing.

I asked some undergrad girls nearby about what was going on – both of them, one of them a senior, one a sophomore (both of whom looked like they might have been straight A students in high school) said that they’d attended FMOTQ each of the previous years but hadn’t kissed anyone. They looked a little nervous about the whole thing but seemed determined to get over their trepidation this year!

By midnight, there still wasn’t much happening. There was one dorky looking guy walking around with roses handing them out to undergrad girls, who smiled sweetly but as far as I could tell, he wasn’t getting anything in return; the girls would take the rose and wander closer to their girlfriends, who were typically dancing next to some of the frat boys, who were clearly not handing out roses but were obnoxiously bragging about how they were going to kiss more girls that night than they had the previous years.

After 12;30, things started to change, slowly. A small portion of the student body was mingling and bumping into each other in the middle of the well-decorated and grandiose Stanford Main Quad, eyeing each other to decide who would get a kiss and who wouldn’t.

By about 1am, things had changed radically. Let’s just say that there was an even smaller subset of students (mostly undergrads with a few shady grad students who sneaked in, I’m sure) out on the floor, doing some serious making out with their fellow students.

At some point, I don’t remember exactly when, the nudists arrived (yes, there’s a group of about 80 nudists at Stanford who I’m told run around campus naked on special occasions like this one). They didn’t actually look like they were naked, since they were covered with body paint that in the middle of the night looked like it could have been clothes. Plus it gets really cold in Palo Alto after midnight, so it would be really stupid to run around campus with no clothes on, or so I thought. When one bumped by me, I took a closer look. Yup, they were definitely naked…no doubt about it.

Now who would have thought Stanford students, among the most academically minded geeks in high school, would be out kissing random strangers on the Quad under the first full moon of the school year? Krutos.

We left shortly thereafter, but I’m sure that for the ambitiously minded, the party continued well into the night! No, I didn’t participate, but as I walked back with some of my classmates I was clearly thinking maybe, just maybe, it might have been more fun to be an undergrad at Stanford than at MIT!

What’s Your Type?
Speaking of a totally different type, on Friday, we had as part of our leadership series, the MBTI personality test and workshop, which stands for Myers Briggs Someting Something. It’s basically a personality test, where you answer questions (used to be on paper during the time of two people named Myers and Briggs; now they’re online) about your preferences in life.
Here are some examples (not real questions, just what I remember being on the test):
Do you like to have your schedule planned out to the minute or do you like to wing it?
Are you flexible with time or do you like to have everything planned out?
Do you get annoyed with people who are flexible with time or do are you like them?

The eventual goal of the test is to classify you into various quadrants of the MBTI graph (are you introverted or extroverted? Are you more likely to be thinking or feeling? Are you perceptive or intuitive?).

The workshop started at 8 am on Friday after a very busy week. Needless to say, since I thought it was an optional workshop, I missed it.

Honestly, I have never been a big fan of categorizing people into buckets, since in my humble opinion, each person has very unique characteristics and doesn’t always fit nicely into one bucket or another. Throughout high school and even college, there are some people who, believe it or not, would classify me as clearly introverted, while others would have clearly said I was extroverted. So, which am I? An E or an I? To quote our accounting professor, It Depends.

Categorizing reminds me a bot of Astrology (I’m a Sagittarius, what’s your sign?) or numerical types in the Enneagram (I’m a 3, what number are you?). Now there are certainly people who swear by these categories, and maybe they’re right. I just tend to have an initial skeptical reaction to them (though I’m willing to be convinced).

By about 10 am that Friday, I was facing the by-now familiar Engineer’s Dilemma – do I go to the workshop, having missed the first half, or do I just wait until it’s over? I decided to get some work done and show up to the next item in our jam-packed schedule – a brown-bag lunch during which some classmates were making presentations, followed by our OB class all afternoon.

Turns out that my MBTI type was “ENTP”, a fact which the teacher shared with the class. Apparently, people in this category, as far as I’m told, are very flexible with time and may even occasionally show up late to things.

The teacher was looking for an example of someone in this category and (as I’m told) called my name. I wasn’t there. A fluke?

Since I wasn’t there, she went to the next name of a classmate whose answers to the test also fit him into the ENTP category. Characteristically, it turns out he wasn’t there either! Only 50% of the four people in this category had bothered to show up for the workshop… which proved to be instructive in its own right.

Hmmm… that's a pretty big coincidence. Maybe there is something to this MBTI thing after all…


SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB and definately not by any of my fellow Fellows

Stanford Business, #9, I Have a Dream... of Approaching Midterms and Dysfunctional Study Groups

Time is flying fast, and we are almost to our midterms – only two weeks to go. This is no doubt raising some concerns and fears within the business school in general, and the Sloan program in particular (more on some of the rising tensions later).

So, what’s our week like?

Monday is our Excel day (we have two class-dose of financial modeling with Microsoft Excel). Tuesday is our “hard science day” – with Finance in the morning and Economics in the afternoon. I say hard science, but honestly I personally have some concerns about whether economics is such a hard science and not really a social science disguised as a hard science. Sometimes, when i'm not sure what direction the supply and demand curves should go, it kindof seems like a social science ("anthropology?") that's basically concerned with an imaginary tribe of people called “rational” people (rumored to exist?), an imaginary group of producers, called "profit-maximizing firms" (also rumored to exist) , and what these two groups might do in an imaginary place called "the free market".


On Wednesday we usually don’t have any official “classes”. You might think we have the “day off” – but not really. Usually there is a dizzying array of activities planned for us on Wednesdays – some of it by the Sloan GSB program itself, and some of it by our study groups (speaking of study groups, I think we are starting to see some real drama in the study group realm– see later in this post). Last Wednesday we had the lunch with the CEO of Skype. There is usually a Career Development Workshop on Wednesdays for self-funded Sloans, and those of us in study groups usually work on our finance assignments, which are due on Thursday. Next week we have our Silicon Valley Study trip on Wednesday.

On Thursday, it’s Finance and Economics again. And on Friday we have what I like to think of as our touchy feely day. On Friday, we have two doses of our OB class. I’m not even sure what the class is called in reality; we just refer to it as OB.

So, what is OB, really??

OB stands for Organizational Behavior. At Stanford, this seems to be the “discipline” (or rather, the umbrella) under which all so-called soft stuff – leadership, interpersonal dynamics, communication skills, teambuilding, HR – gets dumped. It's just OB.

I like to think of it as a way for academia to talk respectably about interpersonal dynamics and touchy-feely stuff without actually calling it that. By calling it “Organizational Behavior” instead, it lets Stanford GSB still maintain that everything is being researched rigorously and thoroughly as a “field of study” rather than a bunch of interesting ideas about how people behave in groups.

In some ways this has been the most “fun” class thus far. Last week, we watched video clips from the movie, 12 Angry Men (the old one, with Henry Fonda). We were discussing influence and how, in the movie, the jury starts out as 11-1 for a guilty verdict. He gets them, through many techniques, one by one to reconsider, and by the end it is 11-1 on his side for a non-guilty verdict. I won’t tell you what happens at the end (If you haven’t seen this movie, it’s a great one to watch). Basically the whole movie takes place in the jury deliberation room. Henry Fonda’s character is masterful in how he unfolds his doubts about the case to the rest of the group.

I Have a Dream … of an iMac?
This week our OB class sessions were about goal-setting and effective communication. On this second point, we watched the complete video of Martin Luther King’s “I have a dream” speech from 1963. It is interesting, says Professor F., who teaches the class, that many of us know the last few minutes of this speech, but few, if any of us, have watched the speech in its entirety. I don’t think there was anyone in the room who had read or seen the whole speech.

He gave us a transcript of the speech and we watched Martin Luther King deliver it. I don’t have to tell you that it was a masterful speech; but afterwards we analyzed it to see what techniques he used in his speech that made it very effective. Here’s some of what we found:

· Analogies. MLK used analogies and metaphors very effectively, talking about the manacles of segregation and the chains of discrimination. He also spoke extensively about the metaphor of a check being given to the African American community when the Emancipation proclamation was issues in 1860’s by Abraham Lincoln, and how that check was bouncing. There were many, many more.

· Integrating the Setting. The speech was given in front of the Lincoln Memorial in Washington DC at a very large rally. MLK did a very good job of integrating this setting, starting by talking about Lincoln, alluding to the famous Gettysburg Address, and mentioning the Emancipation Proclamation (for our international readers, this was the proclamation at the end of the US Civil War made by President Lincoln which freed the slaves in the south). He also brought in the US Declaration of Independence and Constitution indirectly, quoting “life, liberty, and the pursuit of happiness”, and “we hold these truths to be self-evident, that all men are created equal”, all the while with Washington DC as his backdrop.

· Identifying a Common Purpose. One of the things that MLK did in his speech was to talk about racism as not a problem just of the “south” (technically, southeast) but of all Americans. There were lots of references to the North and states which were not part of the south (California, Colorado, New Hampshire) in an effort to cast light on the speech as affecting an American issue and not just a regional issue.

· Repeating Key Concepts. MLK repeated certain phrases over and over again, which made them stick. In fact, Professor F. pointed out, that a few of his repeated lines basically captured the whole speech, including the progression of the speech: “100 years later”, “Now is the time”, “Never be satisfied until”, “I have a dream”, “Let Freedom Ring”.

· Building Momentum and Creating a Sense of Urgency. The speech started out very logically, and with MLK speaking softly and slowly. As the speech went on, as the metaphors became more colorful, we saw him speed up and start raising his voice.

After watching the MLK speech, we watched another example of effective communication, this time of Steve Jobs when he rejoined Apple computer. It was a precarious time for Apple, and as usual, Jobs did a masterful job of presenting the iMac as being better than most, if not all, computers out there.

He focused on the issue of speed. First he showed a chart comparing the speed of iMac vs. a Compaq PC. Then he presented a slide showing the speed of iMac in relation to other Pentium computers out there. Finally, to hammer the point home – he showed a demo of an animation running head to head on a Compaq PC and on an iMac. Let’s just say that the demonstration was pretty effective -- the Compaq computer was limping along with the animation barely moving, while on the iMac, the animation was blazing along.

Now as I said the demo was pretty effective communication, though perhaps a bit contrived. As a software guy, there could have been any number of reasons why a particular animation ran slowly on the PC rather than the Mac. If some of those conditions had been reversed, it could have been the Mac that was running painfully slow compared to the PC. That’s what marketing is all about, I guess.

Those of you NOT in business school will probably see right away the irony of showing and evaluating these two pieces of effective communication one after the other. One was about a social issue of staggering importance, while the other was pretty much only of staggering importance to the shareholders of a given corporation, albeit an iconic one. One was about social justice, while the other was about technological prowess.

Don’t worry, those of us in Business School see this irony too (at least I hope some of us do!) Or maybe we don’t. Maybe to b-school students, these are both, well, simply good examples of OB.

Midterms are Approaching

As the midterms are approaching very quickly, I can sense a general level of nervousness in the class rising, particularly as we struggle with finance, modeling, and even economics – have we learned enough to pass the midterms? Are our study groups being effective? What is a Net Present Value, anyways, and why do I care?

We’ve started having “Modeling for Poets” sessions (aka remedial modeling) and “Finance for Poets” (aka basic finance) sessions each week. The finance sessions are scheduled very conveniently at 8 am in the morning.

Inspired by our discussion of goal-setting in our OB class, I think I’ll set a goal related to these early morning sessions. I will set a goal to make it to at least one of these “Finance for Poets” sessions (yes, the 8 am ones) sometime this term.

Speaking of OB, my goal is what Professor F. would label as a SMART goal, a popular acronym for goals which are set in a “good” way. S is for Specific: one session of Finance for Poets is specific enough– nothing vague about it; M is for Measurable: Well, so far I’ve made it to zero sessions so this is easy to measure; A is for Achievable: Yes I have occasionally gotten out that early so it is possible; R is for Realistic: well, not sure about this one- we’ll see; T is for Timetable: I have a clear timetable in this goal, by the end of this term.

Study Group Drama

Yes, I think as mid-terms approach, tensions are definitely heating up, and not only in our study group, but others as well. Tensions between morning and evening, all of whom have to agree on a time to meet. Between married, married with kids, and single Sloans, all of whom have to pay the same class dues, and who often have radically different schedules trying to coordinate a time to meet. Between those who think finance (or economics, or modeling) is easy and those who think it (they) is black magic and extremely difficult. Even between those who think certain classes are not being well taught and those who don't.

I have also heard from several people that their study groups are not working well. I originally posted the specifics of an incident from my own study group.


-----Incident Transcript and Interpretation Deleted-------


I've taken it out because it proved too controversial since it involved my taking serious offense at comments directed to me personally from a member of my study group about why our study group wasn't functioning so well.

The reactions from my classmates to this blog entry were perhaps even more interesting than the incident itself - ranging from:


· encouragement ("a little dirty laundry can go a long way", "thanks for saying what some are thinking but not saying", RESPONSE: thanks)

· genuine concern about our relationship ("Hope you and this other guy are going to get along", RESPONSE: we're going to get along fine; we had a very heated discussion today that did a lot of good for us both and will hopefully lead to a productive relationship over the next eight months of the school year)

· logical admonishments ("you really should have discussed it with your classmate before putting it in your blog", RESPONSE: thanks, a very good point in general)

· offense ("I'm shocked. can't believe someone would say that to you!", RESPONSE: neither could I at the time)

· censorship ("Please don't put anything in your blog that might make the GSB look bad or hurt recruiting for the Sloan program or that those recruiting from the Sloan program might read online"), RESPONSE: Call me crazy, but I think Stanford GSB's reputation is strong enough to be able to handle it; if it can survive a book called "Snapshots from Hell", my little blog isn't certainly going to tip the scales...

· a serious case of cold-shouldering from some of my previously very friendly and warm GSB Sloan classmates ("If I don't look at Riz today and don't say hello to him, maybe he'll know that I don't approve of him putting stuff that happens between him and his classmates into the blog"). WARNING TO FUTURE BLOGGERS: yes, this is part of the joy of personal blogging, especially if, like me, you don't always follow the party-line that everything is always hunky dory... I read one blog that took place at a prominent business school (!) from a few years ago; the blogger quit in October, because "it was just too controversial" to continue. We'll see how long this one lasts - even this revised entry is likely to generate its share of controversy!

Interestingly, the most encouraging and helpful reaction was from our study group. The incident and our subsequent discussion led us to one of the more open and most productive study group sessions we've had in a while, with broad agreement about how to move forward.

So, ironically, our study group at least, is likely to be well prepared for the approaching mid-terms!

Stanford Business, Sloan #8: Top 9 Things I Learned in School Last Week

Yes the official term has started – not just for us, but for all Graduate Students and Undergraduate students on campus. We’re now officially two weeks into the Stanford “Fall Quarter”. Stanford uses a Quarter-based system – so there are three quarters in the “school year” – Fall, Winter, and Spring. The summer quarter is, well summer and not an official part of the school year – not sure if this system is used in other countries as well.

Here are some of the top things I’ve learned in the first two weeks:

1. Monty Hall is a Genius. On our first “official day of class”, we had a double-dose of our Modeling class (see previous post about the modeling workshop we took in pre-term). In our very first class, Professor M. played a version of Monty Hall’s game show. Not that many of us had actually seen the show, Let’s Make a Deal, which is an classic American TV show that involved contestants choosing a door from three potential doors. One of the doors had some cool prize behind it like a New Car! Others had nothing.

As many of you may know, this game comes down to probability – it’s pretty easy to figure out what the probability is of something being behind door #2 when you first start the game (1/3, assuming the other doors don’t have prizes between them ). After the contestant had chosen a door (say you had chosen door #2), Monty would usually (according to Professor M., since I don’t remember the show at all) reveal what’s behind one of the other doors (usually an empty one, say door #1) and then let you choose whether to switch from your selection (door #2) to the other, unopened door (in our example, door #3). Should you switch? This is an interesting question and it comes down to probabilities.

The probability isn’t what you would think it is. This is so commonly gotten wrong that academics have a name for it: The Monty Hall Paradox (do a search on Google, our professor told us and you’ll see almost a million hits). Now how many TV game show hosts have academics name a phenomenon after that? Not many, forcing me to conclude that Monty must have been a freaking genius.

2. Stanford really is the center of Silicon Valley. Many of my classmates will know that during the pre-term, I sort of became infamous for saying, “OK, but how does that apply to software or internet companies?” The pre-term content was very “big company” and “traditional industry” based, and I was beginning of to wonder if b-school wasn’t going to be all like that.
Luckily, now that the term has started, I see that’s not the case – in fact, there is probably so much software and entrepreneurship stuff going on at Stanford, that it’s difficult to keep track of it all. In the first two weeks, we had: 1) a co-founder of Siebel Systems (Pat House) come talk to us about the experience of starting Siebel and growing it into a billion dollar software company, 2) Steve Ballmer, who dropped out of Stanford Business School back in 1981 when he joined Bill Gates at Microsoft and is now CEO of Microsoft, and 3) The CEO of Skype (another Stanford GSB alum) talked to us about his experiences. Ballmer was in what they call the “View From the Top Series” which is open to the full business school. The other two came to our special Sloan TMS series, which makes the event much more intimate (there are only 57 of us, compared to over 600 b-school students total).

2a. Bill Gates was Paranoid and had a pretty Persuasive Dad. Steve Ballmer, the current CEO of Microsoft talked about a lot of things (how Microsoft’s strategy adapts, how he sometimes underestimates people that have different leadership styles than he or Bill Gates had, as a Detroiter how he looked down on Cleveland – something I could relate to since I grew up in Detroit,, etc.), I found the most interesting part of his visit was when he spoke about his decision to quite Stanford Business School and join Microsoft. He remarked that he was having a great time at Stanford ( “I learned a little here,” he quipped, “But man the Golf course is Great at Stanford!”).

Steve was doing pretty well at the GSB, and it came time for him to find a summer job. His old buddy from Harvard, Bill Gates, had started a small software company called Microsoft in Seattle, and Bill was trying to convince him to leave b-school and join the very young company. Steve made it sound like he had offers from top tier consulting companies (Booz-Allen maybe? I can’t remember the specific companies) and investment banking companies. He told all of them and his friends that he was considering an offer from a very small software company – this was back in the early eighties and everyone thought he was either crazy or just saying that to get leverage with the “real firms”. Even Steve’s father (who was dead-set on him going to Harvard and already thought he was crazy for going to Stanford b-school) thought he was nuts. Bill asked Steve to have dinner with BG’s father, which we were all surprised to hear seemed to be BG’s strategy when he wanted to convince people of something in those days.

When Steve arrived in Seattle, he stayed at Bill G’s place, because they didn’t have enough money for a hotel. One thing he remembered was that Bill had little scraps of paper littered all over his apartment. On them, he had a list of all the employees and their salaries. “Bill was paranoid that Microsoft would go Bankrupt, so he kept writing these pieces of paper to make sure there was enough money in the bank to make payroll.”.After a few weeks of this crazy life, Steve decided that maybe he should return to B-school rather than stay at this crazy little company. He had already told Bill that they needed to hire like 18 more people, but BG was so paranoid about the company going out of business that he wasn’t enthused about “spending all that money”.

When Steve told him he was ready to leave, Bill returned to his old tactic: He told Steve to have dinner with his (Bill’s) father before making a final decision. I guess it worked. Steve never returned to b-school (though they’re thrilled to have him back now), and the rest is history…

2b. The House that Siebel Built. Patricia House and Tom Siebel left Oracle to start a new software company dedicated to enterprise customer relationship management, Siebel Systems.. Pat spoke to us and told us this story. It was an interesting story in many ways, as was the Q&A afterwards. Siebel is a well known success story from the nineties, they defined one category of Enterprise Software, CRM (which is a term Pat told us they made up and convinced others to use). Siebel is also well known because near the end (after staggering growth in the nineties and going public) they sold the company to Oracle.

But there were a lot of things about the story I didn’t know. One thing I didn’t know was that they got an office in East Palo Alto (which was the murder capital of the world at the time, according to Pat) because they had no money. For 18 months, people flocked to work for them without pay because they already had a successful track record in the software industry in Palo Alto.

A company NOT built by engineers. For one, the founding team didn’t have any technical people. This means that what they were innovating was not really a new technology, but a business process. For that reason, the way they went about it was almost completely different from most tech startups I’ve seen. They built a 700 page product specification and roadmap after extensively interviewing customers about what their sales-related needs were. They recruited 4 customers to pay like $1 million each in order to be early adapters of their software. They didn’t take a dime of VC money in the beginning. They convinced George Shaheen, CEO of Andersen Consulting, to put his own money in and that tied them to a large implementation partner for their very large deals. They talked to CIO’s who had spent tens of millions of dollars on custom mainframe business systems built by firms like Andersen to spend a million dollars on their new CRM software. In many ways, their culture – a sales oriented culture, a very professional culture – dress up every day, was a key to their success (she used the word “insubordination” at one point in her speech talking about subordinates, which honestly I don’t think I’ve ever heard anyone outside the Military use). This was the culture of AC and many large companies to whom enterprise software was being sold. Although their product had many innovations, particularly using client/server technology where only standalone desktop or custom mainframe apps had been used in the past, it didn’t strike me as an innovation culture, but rather an “execution” culture.

While this contributed to their success, my thoughts are that it may also have been a part of Siebel’s downfall, since the general perception in Silicon Valley was that they had missed the big new wave of Software-As-A-Service over the web that started at the end of the nineties (led by one of their main competitors, SalesForce.com) which started to displace the need for costly enterprise systems like Siebel. By the time they sold, many people in the Valley thought that Siebel was on its way down.

It was almost like SalesForce was doing to Siebel (using web technology and a new model to displace costly client/server) what Siebel had done to the mainframe players (using client/server to displace costly mainframe systems). This last part was not something she talked about (in face she pooh-poohed Salesorce as a small niche player) – but the shift to the new model is pretty undeniable for the rest of us.

2c. One of the Best First Acts in Business History. Last week we had Josh Silverman, who is the CEO of Skype, which is completely owned by eBay. He made the statement that Skype had one of the best first acts in business history – no one can argue that – they’re up to 300 million users (yes that’s more than Facebook) and have built a great brand and a great technology. But it seems like they’re now treading into waters that involve the big telecom companies and that seems to be their new challenge. Josh was the founder of evite, another brand that most internet savvy people have heard of. He talked a lot about that experience, and how they probably sold too early. Of course evite was founded in the nineties when expectations were sky hi for companies like that – I remember those days well.

Josh spent a lot of time talking about leadership challenges since he joined eBay and how he handled them (he ran Shopping.com, another ebay acquisition, before taking over Skype). One of these included all of the direct reports of the new CEO resigning before he even took over as CEO. Ouch! Did business school help him?

He said that he got a lot out of his experiences at Stanford GSB, though what he used were mostly the touchy-feely aspects of leadership. If as CEO, he said, you’re using things like your accounting or finance class, then you’re probably micro-managing. Josh was an Arjay Miller scholar, which meant he got very good grades in b-school, which brings me to the FOAM.

3. Where’s the FOAM? Everyone else at the b-school who is not an AM scholar is referred to as FOAM – friends of Arjay Miller. FOAM is also the title of the Tuesday night social events that happen each week (there are no classes on Wednesday, though plenty of other stuff going on), which makes partying until the wee hours of the night more than acceptable for normally uptight b-school students. We had our first FOAM event last week, with what seemed like all 600 MBA’s attending, at the Blue Chalk in downtown Palo Alto. It was a typical college night out, and loads of fun. The MBA's know how to Party!

Honestly I felt a little old as a Sloan Fellow at this first FOAM event (the Sloans in general have more years work experience than the MBA's, which means that most of us are in our 30’s while most of the MBA's are in their 20's). Still, a small group of Sloans stuck it out until about closing time, so I guess we still know how to party, too! But, then again, the MBA events are fun precisely because there are so many younger people with a lot of energy (Not to mention the significiantly larger number of cute women in their twenties at these events!). On the other hand, the Sloan events are fun precisely because we have gotten to know each other so well through our smaller, more intimate program. Let’s see how these shake out as the school year progresses - stay tuned!

4. The Prisoners Dilemma. Our economics class began in the same way our modeling class did - all fun and games.

In particular, we started talking about "game theory" which is built on studying how people who are in collaborative or competitive situations behave in fictional "games". The most famous of these is the Prisoner's Dilemma: This is when two people who committed a robbery together are both arrested and then put in separate rooms. They are then told that the police have evidence against them and that if they squeal on the other person, then they can get a reduced (or no) sentence and go free. On the other hand, if they don't tell on the other person, and their partner squeals on them, then they,'ll go to jail for a long time while their partner goes free. Of course, if neither of them squeal, there is the possibility that they'll both go free.

What would you do in this situation? There is a cooperative solution (neither of them tell, which is best for both of them over-all), or two non-cooperative solutions (one of them tells on the other, or vice versa) and one not so great solution (both of them tell and both end up in jail). Turns out that these situations occur in business, though you can usually signal your intent based upon your public behavior, which is prohibited in a "True" Prisoner's Dilemma. The idea is that the one cooperative solution is best overall for both parties, but the competitive situation is best for one party and not the other, or in the worst case, it is a lose-lose for both parties. In fact, you can usually label each of the four quadrants as "win-win", "win-lose", "lose-win", "lose-lose". Of course, in the real world, a competitive situation can become worse if you can force yourself and the competitor into a lose-lose. The professor didn't think this approach was rational in the real world, so long as both firms were earning profits.

This led us to the idea of a Nash equilibrium. In game-theory speak, a Nash equilibrium is a point in the game where neither party can better their situation by acting unilaterally. I and others brought up that one party might do it anyway, going into a loss situation in order to drive the other competitor out. The professor again thought this was "irrational" behavior and wouldn't be adopted by profit-making firms.

Given that i'm a big fan of movies, I think a more intuitive description of a Nash equilibrium was given in the movie, A Beautiful Mind, about John Nash starring Russel Crowe (assuming we're talking about the same Nash, which I'm pretty sure is the case). In that scene, Nash and his grad school math-geek buddies are sitting at a bar when they see a group of young women, the most striking of whom is a beautiful blonde, while here less (but still) attractive friends are all brunettes. One of the engineers is going to ask the blonde out. Nash has a flash of insight - if none of them ask the blonde out, it's likely that they will all end up dancing with a girl - each one with one of the brunettes. If one of them asks the blonde out, he may be happier if she says yes, but if she says no, then he can't in good conscience go ask one of her friends to dance. And ditto for everyone else in the group. So the best point - the equilibrium is for none of his friends to ask the blonde out, and for all of them to ask one of the brunettes to dance.

Now OK this is a contrived scenario and it doesn't exactly strike me as a likely outcome in real life. But watch the movie and I think you'll understand what a Nash equilibrium is all about, and then ask yourself what you would do in such a dilemma?

5. The Engineer’s Dilemma and the Career Vision Workshop.
I confronted a whole different kind of dilemma this week. I call it the Engineer's Dilemma: I was up late (let's say 3 am) the night before our Career Visioning Workshop, which was to start on the dot at 8:30 am and went until noon. Needless to say I didn't make it to class at 8:30am. By the time I got up and got ready, it was almost 9:10. So I was confronted with my own dilemma: Do I go to class and get something out of it? Although I missed over half an hour, the class went on until noon so there was a lot to learn.

Or should I blow it off completely - which will save the embarrassment of going into the class late? After all, we found out (later that day) that the b-school professors are calling our Sloan class the "Tardy Sloan Class". (There's a word I haven't heard in a while - tardiness - another reason why b-school is kind of like elementary school, we get graded on attendance and tardiness!). Turns out I"ll be facing this dilemma alot more I think since our professors are not big fans of us walking in late to class...

So what to do? If you don't stay up late, or don't require much sleep, then you probably won't face this dilemma, but if you do, do you go to class or skip it?

I ended up going after all - partly because it sounded like an interesting workshop, and after all, we are paying Stanford quite a bit of money to be here and learn, not the other way around! In the real business world, paying clients can usually get away with showing up late, while those who get paid generally can't get away with this kind of thing! Call it the Golden Rule.

Turned out I wasn't the only one late - one of my Swiss colleagues showed up at the exact same time, and one of our other colleagues showed up half an hour later! Whew!

It turned out to be the right decision after all, and not because I wasn't the only one late. The workshop, taught by Andy, the director of the career office, was pretty interesting. It also revealed how Stanford, probably unlike alot of east coast schools, can be creative in "touchy-feely" ways. At one point in the workshop, we did a relaxation and visualization exercise where we imagined ourselves to be in an ideal career and personal situation some time in the future. I saw some very vivid imagery about where I might end up; in fact it reminded me of some Shamanic journeying that I have done in the past, where you journey into an "imaginary" future and bring back insights and energy to motivate yourself. The Journeys are based on techniques used by Shamans in indigenous cultures around the world. Of course at b-school, we simply call them "visualizations" and partner them with lots of "rational analysis" so that it doesn't come across as too sketch loosey-goosey!

6. Seeing the Trees from the Forest. One concept that we learned about which I think gets at the heart of business school thinking is the decision tree. When faced with multiple choices and unpredictable events, you draw a tree, starting at the present and branching out for each choice you have to make. For external events, you assign a probability to each branch as a potential outcome.

For example, in the Stanford Concessions case, you are a vendor who provides food at the Stanford football stadium and the biggest game of the year is coming up. In this case, it was when O.J. Simpson played for USC (yes, OJ was a football player before he becamse a celebrity on the run from the law), and USC was ranked number 1 (in the PAC-10, and perhaps in the coutnry). The only problem: it might rain that day, which would mean the crowd might be as small as 20,000. If it ended up being a bright sunny day, the crowd might be as high as 80,000. So, how much food to rder?

The key data was to use probabilities provided by historical data - the probability that it might rain might be 40%, meaning it was a 60% probability that it would be sunny, etc. (not the actual numbers). In the decision tree, you look at all the possible outcomes, and work backwards assigned each branch, all the way up to the initial choice, outcome values (usually $ amounts).

This is called the EMV (expected monetary value) and my initial impression is that it comes up again and again in our classes (we've already seen it in our economics, our organizational behavior, and perhaps even in our finance class).

My major problem with this approach is that it fosters a (false) sense of certainty. The probabilities are the key to the whole equation. If you assign the probabilites basedon historical data, you will get some results that tell you branch A or branch B is the rigth way to go. Definitively. Unfortunately, in the real world, it's highly unlikely in my opinion that the probabilities come up right - so simply caclulating what looks like the highest $ based on these is a way of thinking you have a "certain" answer in an uncertain situation. Let me give you an example of when this can go wrong.

7. To Race or Not To Race, that is the Question! In our Organization Bahavior class, out first task was to break into groups and take on the "Racing Case" as it's called. Each group had to decide whether to race or not to race in a formula one race on a given day. We were told we were having a great season, finishing in thetop 5 in over 50% of the races that we had run in. Unfortunately in 29% of the races we were in, the engine crashed. We stood to make *alot* of money if we finished in the top five in the day's race, including a million dollar sponsorship. If we didn't run in the race, then we were at a loss. Plus all of our engineers (except one) really wanted to go ahead with the race and it would be demotivating to everyone to not go ahead.

So, What to do?

Well, our first inclination was to use the data presented, including probabilities of finishing the race and our engine blowing up, to construct a Decision Tree and figure out the expected payoffs on each branch. The decision tree and EMV was very definitive in what we should do, but something didn't sit right with me. Everything in the decision tree was based on probabilities, and something in this situation reminded me of bad decisions made in the real world. In fact, the fact that the Decision tree was so definitive when in reality you just don't have that kind of certainty, made me suspicious.

I won't give away what we were supposed to do, but suffice it to say that decision trees are only as good as the percentages you plug in. In the real world, there is more uncertainty about probabilities and percetnages than there is on paper, so you have to do the best you can!

8. What is a Zero Coupon Bond anyways? No discussion of our first few weeks of class would be complete with discussing our finance class. Professor I., who was our finance teacher, wasn't much older than those of us in the class - in fact, probably younger than us, and this created an interesting dynamic. The material itself was cluttered with NPV (Net Present Value), IRR (Internal Rate of Return), PV, and covered interest parity.

I finally learned what a coupon and a zero-coupon bond were (a coupon isn't something that saves you money in finance, it is a periodic payment that a financial instrument makes; a zero copuon bond). My big impression of finance is that finance is the art of doing equations using r, the required rate of return. We learned how arbitrage can exist and how markets price thins based on the time value of money - there it is again, the interest rate. Well, rather it's the required rate of return that we plug into a given equation. Usually it's the yield-rate of zero coupon bonds plugged in. But this is why i find finance to be a bit of black magic. It isn't always clear what r will be over a period of time, nor what a required "rate of return" is. This differs by industry - in the tech industry, for example, we need 30% return on invested capital. Does this mean that a software investment that returns 30% is a good invesment?

No, not really, because software investments are so risky inherently that we need a 30% return over a portfolio. Since most software investments will fail completely (zero or negative return on investment), the ones that succeed need to return signficantly more than 30% return in order to get to the "required rate of return".

So, thus far, finance is all about the present value of a future stream of cash or payments and almost completely based on the prevailing interest rates, which might be different in different countires. Which brings me to the interesting question: If some students are required to pay the full Stanford tuition at the beginning of the year, while those with financial aid can pay only some of the money up front and some of it later, are some students paying more tuition than others, although we're both taking the same classes, given the time value of money, or r?

The answer, according to our finance equations is, Yes! How much more? Depends on the number you plug in for r.

9. Band on the Run. Every university has its traditions. Stanford has its, definately, though for the most part they seem to be undergrad traditions. One of the first ones a freshman sees when they get here is the "Band Run".

Now those of you who've heard of the Stanford band may know that they're a little "unusual" and in true Stanford style, don't "conform" to the normal ideas of a marching band. They don't wear uniforms, never march in a line, and generally do goofy things, like throwing up their instruments into the air. I was sitting next to a grad student who had just arrived from the University of Michigan at a grad student welcome picnic, when the Stanford "Band" appeared to play a few instruments (I would say a few "tunes" but that's really debatable). The grad student from Michigan, which has a very well-respected and well-uniformed and well-playing Marching Band, was horror struck. "What the hell are they doing?" she asked. "That's not a real marching band!".

I find the band pretty amusing. So back to the band run. On the first night of freshman orientation, the Stanford Band comes to a dormitory and starts "playing" their instruments from outside (quotes around the word playing for obvious reasons, for those of you who have heard the Stanford band play). The freshman rush out, along with the upperclassmen, and they form a gang that runs around campus to the next dormitory. There the band plays and hte rest of the undergrads yell and shout and generally make fools of themselves, dressed in funny clothes, until the next group of freshman come out of their dorms. This continues all over campus - and if you've ever been on a tour of Stanford's campus, you'll know it is the largest contiguous campus in the country with over 8000 acres, this can go on for quite a while. The large body of undergrads ends up at the Stanford Main Quad - a beautiful architectural area that usually has a peaceful, even serene feeling.

At this point (usually after midnight) the Band "plays" for another half an hour while the students generally party until about 1 am. As a grad student, I wasn't technically invited on the Band Run, but I tagged along anwyays jogging around campus with the mob (er, I mean, crowd) of undergrads. Unlike them, I ran out of steam well before 1 am, and hopped on one of the Golf Carts (who trail the crowd for those who need a little help) for the rest of the Band Run. Driving the Golf Cart was a member of the staff, who explained to me all about the Band Run and what it was about. Along the way, we picked up a few Dollies.

What are Dollies? No, they're not devices used for hauling furniture, but rather the proper term for Stanford's cheerleaders (Stanford, as I was reminded, doesn't have cheerleaders, just Dollies).

Does that Make sense? Not really? Oh well u must be getting old like me. Stay tuned for more interesting (or inane, depending on your point of view, Stanford traditions). I find them kinda fascinating since I wanted to come to Stanford for undergrad but ended up across the country in Boston instead, so I get to see a glimpse of what I missed out on!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.

Stanford Business, Entry 7: New Study Groups, Philosophy, Desert Survial and Jack Welch

So, last week we officially ended our pre-term. This was an important milestone for us, as many of us in the Sloan program hadn't been to school for many years. Despite the fact that it wasn't officially graded, we learned a lot about how to work in Study Groups, about business school generally, and about Micro(MicroEcon, not MicroSoft, though the CEO of Microsoft did visit this week - will post more about that in my next post), Strategy, and Managerial Accounting specifically (see previous posts for specifics of what we learned in these classes).

I was personally excited about the end of the pre-term because it meant that we would shift to a more normal schedule: instead of starting class in the morning each day, some days would be off (well at least Wednesday would be our day off), and on most days class wouldn't start until 10 am! Yahooooo! (Wasn't that what customers of Wamu said in their commercials? Turns out Wamu went bankrupt this week - more on the financial crises and what our professors have to say about it later).
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Those of you following this blog will know that i like to follow "engineer's hours", which don't seem to work so well at a business school full of the best-and-brightest-early-risers. By "bright-and-early-risers" I mean those who don't follow engineer's hours - for me, I'm usually asleep at 8 am; Given that I probably didn't get to sleep until 2 am, that would mean i'm just finishing my sixth hour of sleep. For some business school students, 8am seems to be "mid-day", meaning they have been up for at least 3 hours.

Last Wednesday, on the last day of the pre-enrollment bootcamp, we had farewells from all of our three professors (actually one of them, our economics professor, is going to continue in the fall term - but as for the other two, that was it).



Someone in the class had the idea that we should give the profs a little gift as a token of our appreciation. This was a brilliant example of an idea starting at the grass roots level reaching fulfillment at a blistering pace. From an email that was sent out on Tuesday, by Wednesday someone in the class had bought three bottles of wine as appreciation for each of our professors: A Chilean wine, a French wine, and an Argentinian wine. Then we had our Chilean fellow, our French fellow, and our Argentinian fellow present the wines to each of the professors.

So what else has happened happened last week? Here are some highlights:

New Study Groups



As I mentioned before, our Study Group was just starting to hum by the third week of pre-enrollment. But then, suddenly, and without warning, just as classes ended on Wednesday, new Study Group assignments were sprung upon us!

At least that's how it felt - in actuality, we knew that this was coming. Despite our occasional hiccups, I realized that I was going to miss my initial study group. We'd gotten to know each other well. We had even become forgiving of each other's idiosyncrasies and learned (for the most part) how to channel these unique qualities into getting the best result for the group. (Err, except when we had to survive in the desert, which didn't go so well - see section on Half Moon Bay retreat below).

I figured that the new group might also be willing to work out some compromise so that we weren't meeting at the crack of dawn every single day. Anyways since we had a few days before class began (thursday was our retreat; friday was a free day, the weekend was free, and classes didn't start until monday). Well the weekend wasn't really free since as usual in Business School, we had both readings and problem sets for the first day of class.

As soon as the study group assignments were handed out, most of the students left to enjoy some sun and relaxation after what seemed like a very long pre-term. Just as I grabbed my bag to leave the room, I was informed that our study group was going to meet there and then!
Well, I figured, Business School is about efficiency, after all, so I put aside my toughts of r&r and went to the Study Group meeting, figuring that at least this meant we wouldn't have to meet on Monday. And at least one other member of my group, a Marine biologist with multiple degrees from Stanford already, had told me that she also was a night person, so the two of us might have some sway with the rest of the group members.

The group met for a while, but we accomplished only one cooncrete thing: Our first "official meeting" was going to be at 8:30 am on Monday morning before our first class. And we were all expected to have done our reading and homework before the meeting.

Sigh. My endless quest for a laid back study group goes on.

The old doubts started to creep back in; I looked out the little tiny window in our study group room, literally and metaphorically gazing "across the street", wondering if there wasn't a spot in an engineering class which began at 3 pm meeting only once a week with my name on it... Actually I had already decided to audit a computer science class (it would be a shame to spend this whole year and Stanford and not take advantage of the incredible engineering and comp sci departments). And it was scheduled to start at 4:15 pm on Tuesday ; not that I'm counting, but that would be more than seven hours later than our study group meetings. Ahh! Engineers hours.



Poets, Quants, and a Philosopher


In biz school (at least at Stanford), students are often grouped into poets (those with liberal arts education), and the quants (those with more financial, numerical, or engineering background). I should fit nicely into that second category, the quants, given my degree in computer science from MIT, but somehow I don't.

Poets had trouble with quantitative subjects and wanted to spend time talking about issues. That sort of fit me, as I definitely enjoyed the class discussions more than the actual material that was being covered . But I didn't have problem with quantitative subjects, other than being motivated to sit in class for hours on end. Quants could solve quantitative problems easily, but had problems with soft mushy wordy subjects. That kinda fit me too - except that I kind of enjoy soft, mushy, wordy subjects.

In fact, I don't have a problem with either kind of subject; I just have trouble getting motivated to get to class on time, day after day. I remember in elementary school one of the determinants of our grade was "attendance" - those who attended class automatically got a better grade than those who didn't. I didn't always find this fair, if we ended up learning the same things, but as an elementary student you're taught to respect the adults point of view. When I got to MIT, it was like having a straitjacket removed. I could go to class when I wanted; skip it when I wanted; as long as I passed the exams, I could pursue my extra-curricular activities with vim and vigor.

Believe it or not, Business School is a little bit like elementary school in this regard. In almost all of our classes, attendance is graded. If you don't attend, you're not participating - and you can lose up to 20% of your final grade on this.

Despite the lack of structure during my undergraduate days, when I'd first graduated with a bachelors, I had been a very motivated young man. I remember showing up for work at my very first startup, a company called DiVA (spun out of the MIT Media Lab), at 8:30 am wearing a suit hoping to make a good impression. No one was there. I couldn't even get into the office so I sat down outside the front door. In fact, around 10 am, people started to wander in, and were wondering why I was wearing a suit (was I a customer? was I interviewing for a job?).

In Business School, the exact opposite was happening. I would show up at 10 am, a few minutes late for class, wearing jeans and whatever shirt I could find as I scrambled from my dorm (which several of my b-school colleagues have pointed out is usually the same two shirts, again and again). In this case, everyone else had already been jogging, had discussed the homework, kissed their wives (or husbands) goodbye, dropped off the kids at school, eaten breakfast, and reviewed today's case study, all before I had even gotten out of bed!

Even harder (and more disturbing) than attending classes, I can't seem to stop my mind wandering to the philosophical underpinnings of what the heck we're really trying to accomplish in business school. Rather than try to figure out the marginal cost curve which yields maximum output for a given set of resources (a company, or even a country), I found myself questioning the assumption (made on the very first day of econ class) that a country is best off when they have made maximum utilization of their resources from an economic point of view. I have met many friends from other countries (who were not in business school) and it wasn't always clear to me that we were much better off. I remember talking to a woman from Cape Verde a few years ago, and she went on and on about how much happier people in her country were than we are here in the US. This is despite the fact that we have such a significantly higher "standard of living" than say Cape Verde.

In strategy class, rather than simply analyzing what made a company successful, I found myself wondering whether strategy can really be taught simply by talking about successful companies in the past (the case method, which was first pioneered by Harvard Business School and is now used pretty heavily by Stanford, though we also use textbooks heavily in our other classes). When we studied WIP (work in progress inventory accounts) in accounting, I couldn't help but start thinking about how the accounting system seems to have been built entirely for manufacturing firms, and how services firms, software firms, and Internet firms aren't really well represented by the current accounting system - shouldn't somebody be redesigning the system to reflect the new reality?


Another example: George Parker, a former Dean of the Sloan program at Stanford, and a well known finance dude, laid out for us the fundamental structure of the financial services sector, partly in response to the current financial crisis. As a result of his talk, it would be natural to start thinking about the mechanics of the interest rate, how banks and investment bank works and what interest rates should be charged. He divided the world into 1) people who save money (you, me, our friendly neighborhood corporations, and governments) and 2) people who need money (you, me, our friendly neighborhood corporations), and how this created the need for banks in the first place.

He pointed out that the average 3% margin of banks between what they paid for capital (what they pay us for depositing savings) and the inherent mismatch of needs between the providers of capital (we want to be able to pull out our money short term, with no risk) and the recipients of capital (who want to borrow money for as long as 30 years, and have inherent risk in the projects they invest in), he told us that some shakiness was inevitable.

Rather than thinking about the equity/debt ratios and what interest rates were sustainable to maximize profits, I found myself wondering about the stability of the whole financial services sector altogether, in the very long term. Was it really sustainable to have two parties with such different interests mediated by a bank who owes us our money back every time we ask for it, but never actually has all that money available? Was the financial system, based the idea of cost of capital (represented as i or r in our finance equations) really sustainable, in the long run, or were "runs on the bank" unavoidable, even inevitable? WaMu's recent crash (the biggest bank failure in history) underscores this.

There are other financial systems that don't rely on interest as the key motivator (the Islamic financial system, for example, does not allow charge for money). Is it possible to have an economic or financial system where interest (the cost of capital) is not the sole, end all, be all. But it's not clear to me that the Islamics system is inherently any more stable either - since they just change the word profit for "interest" and charge about the same as the "prevailing current interest" rate, just calling it something else.

But business school students aren't supposed to be philosophers! We're supposed to be here to get skills and perspective that helps us to get ahead in our careers, and make more money, not question the fundamental nature of the subjects we're studying. So on to career advancement and skills training!


Incompetent Jerks and Lovable Fools in the Desert


On Thursday we had a field trip to Half Moon Bay for a "team-building" retreat. The bus was going to leave from Littlefield arch at 8:30 am. Sharp. By the time I got there, I learned that some of my classmates (who'd gotten to know me well) were already taking bets to see how late I'd be and if I'd miss the bus and have to drive to Half Moon Bay on my own. Oops! Sorry to disappoint, guys, but on that day, I made it on time (there were even a few students who showed up after me).

So what does one do on a "team-building" retreat from arguably the top business school in the country?

The presenter started out by talking about interpersonal skills and how important they were. She brought up the classic consultant (and MBA) tool, the two by two matrix - divided into quadrants. Along the horizontal axis was "interpersonal skills" and along the vertical axis was interpersonal skills. The people in the top right quadrant (Lovable, Competent Heros, or some moniker like that) were people everyone wanted to work with. The bottom left quadrant (Incompetent Jerks), were people that no one wanted to work with because they didn't know what they were doing and they were hard to work with.

The two tricky quadrants were the upper left - "Competent Jerk" is someone who is very good at what they do, but has bad interpersonal skills, and "Lovable Fools", those people who have good interpersonal skills and get along with everyone, but aren't very good at what they do. She asked us how many of us would like to work for one or the other. Quite a few raised their hands under working for "Competent Jerks", with some people giving an explanation that at least that way they'd learn something, even if thier boss was a jerk. In fact, she continued, when people are asked this question in a survey, a large percentage answer "Competent Jerks". But when people are observed actually choosing people to work for, they almost always favor working for "Lovable Fools" rather than "Competent Jerks". This was interesting.

We spent the morning talking about interpersonal skills and qualities that different people in the class had. This consisted of an exercise where we each had a number of cards - each colored differently and each with a "personal quality" on them - for example "does well under pressure", "is a diligent worker", "speaks his mind", "gets things done methodically", "is a visionary", etc., and we had to hand out the cards to people in our class if we thought the card didn't describe us, but described someone else. I won't get into specifics but I think we were all surprised how well (or not so well) our classmates knew us.

Half-moon bay is a nice little beach on the other side of the hills that define the western edge of Silicon Valley. During lunch a few of us went on a walk along the beach while our Marine biologist gave us a tour of the little aquatic life that lives near the seashore. "I may not know much about balance sheets," she quipped after pointing out the different kinds of snails and barnacles that lived there, "but I do know alot about fish!". Somehow I don't think that's going to help her through businesss school, but it sure was a lot of fun! (except for the time when I tired to touch a sea enenemy, something I didn't even know existed 24 hours earlier, and it squirted me; hopefully it was just water it sprayed on me!).

In the afternoon, we divided into our old study groups and had to face the highlight of our trip to Half Moon Bay, a group test: The Desert Survival scenario. We were all on a plane (let's suppose). Let's also suppose that we crash-landed int he Sonoran desert (that's south of Arizona near the Mexico border). Let's further suppose that the pilot and copilot were killed in the crash, but miraculously, we are all OK. Let's one-more-time suppose that we have a series of items - including a parachute, a swiss knife, a topcoast, a mirror, a quart of water each, salt tablets, and on and on - and it is the goal of the group to come up with rankings of items by importance. I found myself thinking that this scenario was written well before the iphone was out; I would just do a GPS lookup of where we were and call someone to pick us up.

iPhone-less, the sole determinant of our survival would be our rankings of the importance of each item. We were revealed at the end to the the rankings of a "survival expert", our team would either survive or die in the desert, depending on how close our rankings were to his rankings.

Needless to say, most teams died on the desert! Ours was particularly bad, and my own score was more than particularly bad (though there might have been one person in our whole class who scored worse than I did!).

The trick happened to be the two most important items - I somehow ended up ranking them both last. Our group mostly agreed on our rankings, though we had a few disagreemetns. One member of our group insisted that the most important item (i won't tell you which one it is, since you might want to go thru this exercise yourself) was among the most important, we (myself included) didn't listen to him! Oops!

This situation, one person who is in a minority, disagreeing passionately with the group, who is too far gone to listen, seems to come up again and again.


I thought we'd learned our lesson about this. But this week, in our first OB (organizational behavior) class, it happened again, in our new Study Groups. All the members of my study group agreed on one position, except one of us - in this case it was me -- passionately disagreed with the group.

In both situations, the desert scenario (where I was with the group) and the OB scenario (I'll describe the actual scenario in my next blog entry), where I was the dissenter, it turned out that the dissenter ended up being the person who was "most right" and the group ended up being "most wrong". This was an interesting result- in both cases, neither of us had the data or votes to back it up, we were operating on what is one of my favorite topics, intuition.

One of our team members, John, said that in his real life job (in the construction industry), when one of his team members disagrees very passionately about something, he usually takes the time to really hear that person out and understand why they feel so strongly. But neither he nor I nor the rest of our group did that in the desert scenario, beacuse we thought we were pressed for time and had agreement from the other group members. Maybe the wisdom of crowds isn't as great as it's cracked up to be!



Jack

In the movie industry, whenever someone says "Jack" in a knowing way, they all know who's being talked about: Jack Nicholson, the famouse movie star who has won multiple best actor Oscars, and who has a personality that is recognizable wherever he goes.

In businesss school, when someone says "Jack" in a knowing way, they are also talking about an easily recognizable celebrity - in this case, Jack Welch, who was CEO of General Electric for many years, and considered by some to be among the greatest of American CEO's. Though John Q. Citizen might not recognize Welch, John Q. BusinessSchoolStudent certinaly does. Even though Welch retired a few years ago from the CEO slot at GE, he is a recognizable figure in the business section of the bookstore and on financial news programs on TV.

We studied a case in Strategy class on General Electric, and reviewd what happend during multiple CEO's ending up on Jack Welch, who many consider one of the most visionary CEO's of his time. One of the elements of his vision for GE was that they be #1 or #2 in every industry they were in - and that sometimes meant selling businesses which were profitable but couldn't get there, or buying into other businesses which were already there. This vision also originally led to a process of "de-staffing" early on during GE's days.

The class seemed very energized by this discussion about GE and about Welch in particular. After the discussion, the professor showed us a clip of Jack speaking at some conference. The professor said it was the most "geniuine" clip he'd seen, even though it's fairly old. Jack talked very passionately about how many people in corporations have trouble coming to grips with a six letter word: Reality. He spoke exuberantly about how corporate staffs (in big companies) don't make anything, don't sell anything,a nd they should be there primarily to support the field and how often they don't, and how companies need to be restructured for that.

Like the rest of the class, I found this talk inspiring, up to a point. Then later, as I was wandering around campus, the philosopher in me came out,and I began to wonder what I really thought about Jack Welch, his philosophy, and the culture of adoration that's gone up around him. Something was nagging at me and I couldn't quite articulate it until later.

Note: if you read on, you might be exposed to heretical views on being acorporate CEO and might, like I am in danger of, be excommunicated from the religion of American Business School Students.

So let me start by saying that I agree that Welch was a wildly successful CEO who brought in profits. And even an effective leader. But I guess i get a little unsettled when they talk about Welch being a visionary for American business.

It strikes me that "Being #1 or #2 in every industry you're in" isn't much of a vision. It's more of a performance measure. It's kind of like going to college and saying my vision of college is to get an A or B in every class I take. And if I can't get an A or B, then I'm going to drop the class. And I'm only going to take classes where I can get an A or a B. Sorry guys, but that's not a vision - that's a grade point average.

It also struck me that Jack was a great operator but not much of a visionary about the business units themselves, which seemd to have no rhyme or reason why they were part of GE except Welch's three circles (which didn't strike me as showing any kind of real understanding of the new or old technology or markets that GE was in), just how each was performing.

OK, granted I'm operating on limited information, of course. And no doubt, Jack is a "great" guy who knows how to squeeze every penny of performance out of the people that work for him; I just disagree that he's much of a visionary [of course when the Business Inquisition gets to me, I may change my mind on all these philosophical topics, and get back to making profits, yeah!].

Speaking of a vision of a grade point average, I have a vision too: that i'm not going to get A's or B's in my classes unless I stop spending all my time writing and get back to studying!

Stay tuned for more on the first week of the official term, the arrival of the MBA's and the undergrads onto the Stanford campus, and the house that Software Built. Coming Soon to a blog near you!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.

Stanford GSB, Entry 6, Microeconomics: What we Learned in Pre-Term

In the Sloan program at Stanford, we don’t have to buy textbooks. Why not? They’re provided as part of the program – it’s one of the many perks of paying beaucoup bucks to Stanford.

As I left my dorm room on the first day of class, I was in a rush. I took a cursory glance at the various textbooks that we’d been given, and grabbed the only one I saw that had economics prominently written on it. I didn’t notice until I pulled it out during econ class that it was for the wrong class; the book was for Macroeconomics rather than the class we actually had that day, Microeconomics. (OK, perceptive ones will notice that this obviously means either I didn’t do the reading we were supposed to do before the first day of class, or I read the wrong book; I'm not saying which one is true).

Since I’ve already given you an overview of our Strategy class, let’s talk about Microeconomics. This brings us (not because it is a sequitor, but because this is where the class actually began) to two questions:

Question #1: What’s the difference between Micro and Macro?
Question #2: Why is it that Economists can never agree on anything?

Read More...

On the first day of class, Professor Flanagan was introduced as our Microeconomics teacher (incidentally he’s also going to be teaching us Macro in the real-term so we’re going to get to know him well). He was an older, skinny gentleman, with angular features and a commanding but friendly demeanor and a soft voice. He used no projection equipment, but wrote everything on the whiteboard.

On the second question, he told us about a large number of famous quips about economists and their inability to agree on, well, anything, really. At least that’s the public perception. As a member of the public, I am inclined to agree.

I remember Rudi Dornbusch, who was a famous economist that taught at the Sloan School (MIT, not Stanford), telling us about a president (may have been Truman too, can't remember) who complained that he never seemed to be able to find a “one-handed” economist.

This was a problem only because all the economists he did find would begin with “On the one hand, blah blah blah”, and then after some time, they would inevitably continue with: “But, on the other hand, blah blah.”

Professor Flanagan gave us what may be an actual Truman quote, who once complained that if you lined up all the economists in the world end-to-end, they would never reach a conclusion!

But them’s just jokes, right?

Economists aren’t really like that, are they? Actually, Professor Flanagan pointed out to us, that there was surprisingly little disagreement between economists about Microeconomics – the disagreements tended to be about Macro-economic issues, which affect the economy as a whole: unemployment, monetary policy, economic growth, etc.

Our class during the pre-term, Microeconomics, was concerned with markets at the level of a firm selling products or services (called the supply side) and an individual or household as a buyer of these products or services (the demand side).

In general, we are concerned with three questions in Micro: How much should a firm or industry produce? How should it be produced? And for whom to produce it?

Since economists generally agree on these, the class should have been fairly non-controversial, right? Not exactly. Professor Flanagan explained to us that politicians will make it look like there’s disagreement on issues where most economists tend to agree.

Economics and public policy is a broad subject, of course. But Flanagan told us that when studied with economics, the policies that governments follow to affect the market almost always end up creating unintended consequences. These consequences often reduce (or even remove) whatever benefits the policy was intended to produce. These examples, such as the “War On Drugs” (more on this example later in this post), provided much of the more colorful moments in this class.

The disagreements usually come up because of the difference between what economists call normative vs. positive economics.

On the one hand, Normative economics is about making judgmental statements and calls. You can identify a normative statement about economics when someone uses the word “should”. As in “We should raise the minimum wage”, or “We should cut taxes”.

On the other hand, Positive economics refers to evidentiary statements and deals strictly with the facts, or at least with standard, agreed upon economic theories. "At a higher price, consumers will buy less of X" would be a positive statement, at least as far as economists are concerned (if it is true and can be domenstrated). They don’t mean it as in positive in the sense, which is the opposite of negative.

Words and Words: If Shakespeare were an Economist
As you may have noticed, economists tend to have their own definitions for words that we think we already know the meaning of. We learned this very quickly.

For example here are just a few terms which mean one thing in everyday terms, and mean something else or very specific to economists. Here are just some examples:

Short term.

The short term has a specific meaning in economics: is when one element of supply (capacity) is usually fixed.

Elasticity.

Elasticity in econ specifically means the percentage change of one thing in response to a percentage change in another thing. More commonly, this commonly means elasticity of demand, which means the percentage at which quantity changes when there is an effective change in price.

Rent.

I still don’t know what the economic definition of this is, but trust me, it’s different from what you and I think of as rent.
Positive. This, as mentioned above, has nothing to do with positive vs. negative. It’s positive vs. normative. Confused? Reread above.

Perfect Competition.

Again, another term with a very specific meaning in econ. It means when a market has many competitors with no differentiated products, such that no one single player has the ability to set the price.

Profit.

We usually think of profit as sales minus expenses. In economics it means total sales minus total economic cost. What’s total economic cost? I’ll give you a hint: it includes more than just what we think of as cost. It includes the normal rate of return (and maybe even opportunity cost).

Normal Rate of Return.

We might “normally” think of this as the interest rate, which is the return you can get on your money by putting in the bank (theoretically). Not exactly in econ. In economics it means the normal rate of return for capital in a given industry. It’s another kind of abstract term among many abstract economic terms.

Opportunity Cost.

We usually think of this as something else we could be doing. Again, econ has a more specific definition: the cost of the next best alternative.

Marginal.

In everyday speak we might think of something as “marginal” if it is small and not enough to make a difference. Marginal in econ means “extra”. Marginal cost is the cost of adding one additional unit of production. Marginal revenue is the revenue that comes from selling an additional product.

Average Cost.

We usually think of average cost as: take the total costs of producing products and dividing by the number of units. That is actually “average total cost” in economics. There is average variable cost, average marginal cost, average marginal variable expialadocious costs. Actually, I made that last one up, but you get the idea.

Should I go on? The point is that I could go on, perhaps even ad infinitum. If it’s Saturday night and you have nothing better to do, you can start reading your econ book and find all kinds of different definitions for words we use in everyday language. It’s called economics.

Which bring us to perhaps the most important question related to Economics.

What do economists know, really?
Professor Flanagan insisted to us that there were only two things economists really know. I suspect he meant this in non-literal sense; if this was literally true, perhaps the class could have been a lot shorter. Nevertheless, he was quite adamant about this point. The two things are:

• That Supply and Demand are equal
  

• That Marginal Revenue equals Marginal Cost
  

We spent a lot of time talking about demand curves and supply curves. Where they meet, the so-called equilibrium is the point where supply equals demand. This is the price and quantity set by the market.

The arguments that they use for both points are variations of the original, well known “invisible hand” argument put forward by the Scotsman Adam Smith some 230 years ago.

Let’s suppose you start at a point where supply and demand aren’t equal. There will be either a shortfall or a surplus of supply, affecting the price of the product. If there is a shortfall, then the price will go up, increasing profit. More firms come in to the market, eventually pulling the price back to equilibrium.

Similarly if there is too much supply, the price will come down, increasing demand for the product, and the market reaches equilibrium again (eventually!).

This argument has been part of the public understanding of economics long enough that it's not too controversial. What about the second point, that marginal revenue equals marginal cost?

Well this point is a little more “subtle”. Flanagan says that “subtle” is what academics say when something is actually difficult.

I’m an engineer by training, (“A Quant”, as they call it in business school, vs. a “Poet”, someone whose undergrad degree was in liberal arts), and we usually say something is “non-trivial” when it’s difficult.

Why don’t we just say that it’s difficult? Beats me.

The Marginal Way
As for the second point, Marginal Revenue = Marginal Cost, we had a case study about Continental Airlines related to this point. The team presenting it did a good job with supply and demand and marginal cost and marginal revenue curves. The question was whether Continental airlines should continue certain routes if these routes were not profitable?

The trick is how you define the word “profitable”.

The Marginal Revenue (I’m sure you remember what this means from the definitions above) is the additional revenue from selling one more product. The marginal cost is the additional cost of adding/producing one more product (or providing one more unit of service, like a flight).

The Average Total Cost tells you if you have made a profit on all the units sold thus far.

The Average Variable Cost tells you if you are making a profit on the next unit (if it’s less than Marginal Revenue).

The Marginal Cost tells you the cost of the next incremental unit. Professor Flanagan explained that if Marginal Cost is less than Marginal Revenue, then adding another unit will add some contribution to your overall profit. If Marginal Cost is less than Marginal Revenue, then you will be adding a loss onto your overall profit by producing and selling the next unit.

The subtle point is that it’s possible that by selling another unit, you will still be unprofitable because the Average Total Cost may still be less than the average sales price. However, if MR > MC (Marginal Revenue is greater than Marginal Cost) then you are contributing to the total profitability, even if it means you are only helping the company reduce its loss.

Back to the Scotsman’s invisible hand: If MR <> MC, then you’ll want to keep producing units, because you will be contributing to your profit. How many more should you produce?

Up to the point just before MR < MC.

What point is that? You guessed it, the point where Marginal Revenue is equal to Marginal Cost, and that’s why the economists “know” that this is true.

Does that make sense? If not, pay a hundred grand to attend Stanford Business School, and Professor Flanagan will explain it quite well, I assure you.

Real Economists Draw Curves
The way we reached some of these conclusions is by drawing Supply and Demand curves. Economists love to draw Supply and Demand curves, and after many days of sitting still watching our professor draw them, I have to say, they are quite useful, though it’s still a bit of a mystery how such a simple drawing can convey so much information.

Economists draw a simple graph with a horizontal and a vertical axes. Then they draw one line which slopes downward, say the red line. And the draw one line which slopes upward, say the blue line. Where the red line and the blue line meet is called the equilibrium point.

If you look closely you’ll notice that the curves aren’t curved at all. They are just lines sloping upwards and downwards. This means that you could just draw a big X on the board and refer to its two lines as being the “supply" and "demand" curves, and you'd generally be correct.

What does a simple picture like this, which even a five year old could draw, reveal about the markets?

Plenty, if you’re an economist.

Take a graph with only a single line sloping downwards (the “red line” above). Economists might say that this to represents the demand curve of an individual. Why does it slope downwards? Because of the principle of diminishing marginal utility. When the professor asked us this, one of our classmates answered without hesitating: “You eat one In-and-Out Burger, it tastes really good. The next one doesn’t taste quite so good. By the sixth burger, you’re sick of them and don’t want any more.”

This is because quantity is on the horizontal axis and price is on the vertical axis. A downward sloping curve shows a lower price as the quantity increase. According to this principle, an individual is willing to pay less for each additional unit of something – whatever that something is. The proper economic term is “widgets and gidgets”.

Turns out this same principle applies not only for individual, but to aggregate market level supply and demand curves.

It also turns out that the same graph can be applied to the labor market if you change the vertical axis to be “wages” and the horizontal axis to be “employment”. I’m pretty sure as we get into macroeconomics the same X will represent something entirely different, but still prove equally useful.

Vouchers, Price Controls, and Heroin, Oh My!
Professor Flanagan, who won an award from the previous Sloan class for his teaching, has plenty of experience with public policy. His discussions of what an economist think of certain government or political policies provided part of the “fun” of this class. The other “fun” was usually provided by the study groups doing their cases.

It turns out that Professor Flanagan was on the President’s Council for Economic Advisors a long time ago. One of our classmates commented: “Wow, I didn’t realize this guy was so famous and well known. And here is teaching us basic freshman economics – I wonder how he puts up with that?” The answer is probably that he likes what he does, which is a good thing for us.

As for policy discussions, to illustrate the point of “unintended consequences” I mentioned earlier, he presented us the example of The War on Drugs:

In fighting this “War”, the US government is focused intensively on the supply side of the equation - in fact, our efforts are almost exclusively focused at getting the “bad guys” - drug dealers. We do very little, comparatively on the demand side of the equation – in reducing the demand for drugs.

If we follow this scenario out logically using supply and demand curves, as the government gets some heroin dealers, then supply goes down in the short term. Once supply is restricted, and if demand doesn’t change, this only led to an increase in the price of heroin. (Same number of people want it, less of it to go around). And since the number of people who are addicted to heroin hasn’t changed, how do they go about getting the extra money for it? Any ideas?

Increased crime, says Professor Flanagan, is one of many unintended consequences of the government’s policies in the War on Drugs. This was an eye-opener for me. Perhaps the politicians need to not just hire, but actually listen to economists like Bob Flanagan.

He had many more examples of government policies, including the gas tax or a vice tax, and the unintended consequences of these policies, from an economic point of view.

The rest of the color came from each of our study groups, who were required to present on one of the cases using the tools of microeconomics to understand what happens to supply and demand. The issues were (from what I can remember off-hand) things like Vouchers for Education, Price Controls, Food Shortages, Mergers, Monopolies, the Congestion Tax in London, and so on.

The case presentations started out as very simple PowerPoint slides, accompanied with drawings of Supply and Demand curves on the whiteboard. But each group learned from the last one, and presentation quality steadily increased throughout the pre-term. By the end, we had professional looking supply-and-demand curves in the PowerPoints, and some groups started to use skits to illustrate the ideas to make them more interactive. Pretty soon, YouTube videos started to be appear in the presentations to make them more fun and interesting (which they did).

For example, in the case about Mergers, the XM / Sirius satellite merger was discussed, and a YouTube clip was used to show the news reports of when the merger was finally approved. To top it off, we actually had someone in our class who was working for XM at that time.

On the case about monopolies, they actually showed the trailer from the Hollywood movie, “There will be Blood”, about a Texas oilman, to show how a malevolent monopolist acts. On the case involving the congestion tax in the city of London, actual video clips of news reports about the results of the tax were shown.

This is one of the things that’s pretty interesting about going to b-school today rather than 10 years ago. The availability of these video clips makes it much more fun to be in class. Especially since economics can be a little dry on its own, except of course when Professor Flanagan brings up what he now affectionately calls “Our Old Friend” (because it keeps coming up again and again, and again): the Elasticity of Demand.

Let’s play Monopoly
Many of the principles of Micro we learned seem to apply only to markets where there was perfect competition (again, see the definition above). A perfect market relies not only on competitors not being able to do anything to affect the price of their product; they aren’t even able to differentiate their products in any way. It also relies on perfect information in the market (an unlikely scenario in any market).

Commodities are as close to a perfect market as we get, but it’s not clear to me that’s even a perfect market. Does a perfect market really exit? Maybe not.

But towards the end of the pre-term, Professor Flanagan began to relax the restrictions on the markets we were learning about and moved to “imperfect competition". A market with imperfect competition market is one where products have differentiation, have some influence over how much they sell their products for, and can respond to the competition.

I could be wrong, but it seems to me there’s a simpler name for “imperfect competition”: it’s what we call the real world.

Surprisingly, when this restriction was reduced, the basic principles we’d learned - supply and demand, marginal this and average that - continued to apply reasonably well even in imperfect markets.

To illustrate this, we went to an extreme example: Monopolies. The monopolist also faces a demand curve - which means that fewer consumers will buy their product at higher prices, and more will buy at lower prices. Ignoring our old friend, the Elasticity of Demand for the moment, where will the monopolist set his price?

The morning of this lecture, I was very tired, having stayed up late the night before (must have been doing the readings for econ, though it’s more likely I was blogging or playing on Second Life). I was on the verge of dozing when Professor Flanagan began to talk about monopolies. Of the many reasons why monopolies arise, one is that governments mandate that only one firm is allowed to serve an area, as in utilities.

I don’t know how or why but in my half asleep state, I began to see images of nuclear power plants, and this brought me to images of the The Simpsons. Those of you who have watched the Simpsons at some point (which practically includes the entire population of the US, I think, since it’s one of the longest running prime-time TV shows), will know that Homer Simpson, the lovable clown, works at a nuclear power plant just outside Springfield, USA.

I don’t know why, but an image of Homer’s boss, the unscrupulous monopolist, Mr. Burns, flashed into my mind as Professor Flanagan talked on about monopolists. Mr. Burns is an older gentleman, very skinny with angular features. I opened my eyes and for an instant (only or an instant mind you), our professor (if he took off his glasses) was the spitting image of Mr. Burns! I jolted awake, half expecting our professor to tap his fingertips together and say in the very measured soft voice of Mr. Burns, “Now we have a monopoly. Excellent!”

Now, in reality Professor Flanagan’s personality (who is a nice, friendly guy quick to smile and laugh) is nothing like Mr. Burns (who is a ruthless monopolist trying to make money by squeezing the residents of Springfield). Maybe it was my half-dazed state, but the physical resemblance was uncanny, if only for that moment. If nothing else, it kept me awake during the rest of the discussion about Monopolies!

Which brings us back to the earlier question, where will the monopolist set his price and how much will he produce?

The answer, surprisingly to me (but not to economists) is the same as before: he will produce up to the profit-maximization point where Marginal Revenue equals Marginal Cost, and will stop there. Whatever quantity is equated with that price is the amount that the monopoly will produce.

What the bleep do we know, really?
This is all nice, in theory, but does this actually happen in the real world? Does Supply=Demand and does Marginal Revenue=Marginal Cost, or are these more concepts and principles which help to guide the market?

Do perfect markets exist? Perfect information, I’m pretty sure, doesn’t exist. Entry or Exiting a market requires a significant amount of resources and rarely happens easily, as we know from our Strategic Management class, because of barriers to entry. And is there really such a thing as a “normal rate of return” which is different in each industry?

These questions started nagging at me early on in our economics class, as I struggled to try to apply the material we were learning to business (at least apply it in my head). No doubt everything we learned will apply in a general sense about how consumers buy from producers. But would it apply specifically to a situation any of our companies are likely to come up with?

It seems to me that in the real world, companies are entering and exiting markets and adjusting supply and trying to figure out what the heck demand really is for a product. It seems to me that the only way to figure this out is through trial and error, since there is no way to know exactly how many people will buy car X at price Y. If General Motors could have figured out the demand for hybrid cars, perhaps they would have reduced the supply of SUV’s and increased the production timeframes of their hybrid cars years ago and not have lost more money than anyone else over the last year.

Similarly, if “Marginal Revenue = Marginal Cost” is the profit maximization point then firms should stop producing there. I don’t know of any public companies who choose to not to produce any more products. Which means that they must not be at this point yet, or if they’ve crossed it, then they’re reducing supply.

Maybe the two things that economists know should come with an asterisk and two additional comments:

1. Supply and Demand, while theoretically equal, are rarely actually equal. Rather, the market is in constant motion trying to get to that equilibrium point.
2. Marginal Revenue rarely equals Marginal Cost. But firms are in constant motion trying to get to (or get back to) this profit-maximizing point.

Those are my two cents worth of contribution to the field of Microeconomics. But then, what the hell do I know? I’ve only had 12 days of Microeconomics class, and it wasn’t even graded!

Excellent!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.

Stanford GSB, Entry 5: The Second Week: Study Groups, Blue Angels, and Russians

We are now two weeks into classes (Two weeks and One Day since I’m posting this on Monday Night) – that means our “pre-term” is almost over (it’s actually only two and half weeks long), and after some wrap-up activities this week, we’ll move into the real “term” next week, when we’ll have grades and everything.

So here are some notes and observations about the second week. I’ve already given an overview of what we’ve learned in Strategy in my posting over the weekend – click on the link to entry 4 to the right if you’re interested in learning more about that class. I’ve promised to do the same for Microeconomics and Managerial Accounting, but I seem to keep getting distracted with reading assignments and study group meetings and what Professor Flanagan, our Economics professor, calls “merriment and diversions” - so will get to it eventually.

Read more!

#1: Our Study Group(s) Finally Seem to be Humming Along.

Each of the study groups seem to have settled into a pattern in the second week (this is good news, since there are only three weeks in the whole pre-term). During the first week, I heard many complaints about Study groups (no, I’m not telling who complained about whom, that’s confidential); By the second week most of the groups had gotten beyond the initial shock of having to negotiate with each other and started plowing through the large amount of reading and started working on the two group assignments we each had to present.

For example, my study group, after some negotiation, agreed to have some evening sessions in addition to the morning sessions, in order to balance the burden between the “night people” and the “morning people” (Yes, this took a little negotiation, and it’s still on-going!). We even ordered pizza in the GSB building at our first evening session – Round Table Pizza (a California chain with California-type prices - it cost us like $60 for two large pizzas – outrageous. It took me like 10 minutes to explain to the guy on the phone that GSB wasn’t an apartment building).

To counteract all the reading, we are assigning individual chapters to group members, who are responsible for creating summaries so that not all of us have to read every single chapter before every single class. (Oh wait-a-minute, our professors might be reading this blog, so what I really meant to say was that each of us is doing all of the readings assigned by our professors before every single class!)

We’ve also gotten to know each others strengths and weaknesses pretty quickly. For example: B. is great at presenting and PowerPoint, but not so experienced at accounting, L. is great at accounting and Excel but doesn’t like presenting so much, V. is really good with IRR and NPV, but likes to “discuss” strategy A LOT and thinks that 1 hour in the morning is not enough to discuss a single strategy case, while P. likes to keep our strategy discussions short and takes great notes on the whiteboard, but doesn’t like to create notes about the econ and accounting reading, J. is a good all around mediating force in the group, and, along with H., is pretty good at economics, and I’m, well, you’ll have to ask them! Though I certainly win the award for showing up late at most early morning study groups. [NOTE: names have been abbreviated to protect the innocent].

We’ve also gotten to know about each other’s personal circumstances - a few of us are married and have kids, while another needed to go out and buy his Porsche the morning of our case presentations (turns out the seller flaked out on him that day so we he was part of the presentation after all - this Porsche, if he buys it, might appear in the blog again this year I'm sure). Two of us (including yours truly) are still entrepreneurs with international businesses while at school (mine is in Pakistan, while the other is in Russia), so we often have to keep u with late night calls to our companies.

Despite all these differences, or perhaps because of them, we’ve all been willing to listen to each other and support each other [for the most part, except for the occasional yelling match like the one which broke out at one of our 7:45 am meetings one day last week – I’m sorry I can’t tell you any much more about that since I was still in bed asleep dreaming about the reading I had done late the night before ].

So the good news is: The Study Groups are finally working!

Now, for the bad news: Now that we’ve all gotten to know each other and have good habits forming in our study group, guess what? The pre-term is about over and we’ll have to form entirely new study groups and will have to go through this entire process again with the new groups starting next week. Doh!

#2: The Pressure is Off, For the Moment.

Each Study Group had to make two presentations based on “cases” – one for Managerial Accounting and one for Microeconomics. These presentations created the only “real” pressure during this pre-term (though there is lots of imagined pressure given all the readings and problems that were assigned to us, believe you me).

My study group did both presentations on Thursday, and since these were the only formal assignments we had to “hand in” during this pre-term, we’re effectively done. If you saw us on campus last weekend, or see us this week, and if we’re looking kind of relaxed, it’s not just the California weather…it’s cause we’ve already handed in our assignments and oh yeah, the pre-term isn’t graded anyways!

In general, the Sloan Fellows are a co-operative group, rather than a competitive one, at least from what we’ve seen so far. The program is designed to encourage a feeling of “we’re all in this together” from study group level up to the level of the entire class of Fellows, including the families and partners. We’ve had (at least) two alumni of the program speak to us thus far – one was a Sloan ’87 graduate who will be teaching the entrepreneur workshop later in the fall, and the other was John Foley ’97 (see the section below titled “I want to Fly Jet’s, Sir!”). They both told us how the class banded together and helped each other out. In John’s case, the class decided as a group that they would have an explicitly defined mission of “leaving no one behind”.

This is probably true of the two-year MBA’s as well, since they also are taught collaboratively to work in study groups (though we'll find out about them soon enough; they're just starting to arrive on campus this week).

But it seems that not all grad schools are like that. I heard a story from a friend of mine about one of the nation's top law schools. He said that many law school students are very competitive, because of their student rankings, and he offered up the following story: A law student that he knew, in his third year, he was ill and missed class one day.

I found this story unbelievable. So I asked him again to make sure I’d heard him right and if it was true. He insisted it was. This seems to me (to put it politely) just plain silly. I don't know if it's true or not, but if it is, then: NOTE FROM A GRADUATE BUSINES STUDENT TO GRADUATE LAW STUDENTS: Live a little.

#3: The Mind Meld has Started.

Those of you who watch Star Trek will recognize the term “Mind Meld” – but no I don’t mean that we are putting our hands on pressure points on each others faces and establishing telepathic links (though maybe there’s a little bit of that going on, I couldn’t really say) – what I mean is that the classes are starting to meld together in interesting ways.

This is one of the neat things about business school that wasn’t always present in undergrad – since the classes are all about different aspects of the same thing (business), there is definite area of overlap on the edge of each class.

In the second week of business school, we’ve started to see this already – in the Managerial Accounting Case our study group presented, we had to deal with issues of elasticity of demand, a concept from our Microeconomics class. In Econ, we have already started to deal with fixed costs and variable costs, concepts which we are heavily exploring in our accounting class. In Strategy, we started to deal with issues of Total Average Cost and Marginal Cost, which we learned about in Econ.

This is actually kind of neat, though having the curriculum so inter-related means that we can’t really blow off any of the existing subjects. In fact, our same professor from Microeconomics is going to be teaching us Macroecnomics soon enough, so I guess we have to pay attention.

#4: “I Want to Fly Jets, Sir!!”

So on Friday, at the end of our second week of class, we had a motivational talk from John Foley, who was a Stanford Sloan Fellow in 1997.

John is also an ex-member of the Blue Angels – yes that’s the Navy fighter group that does acrobatic air-shows around the country and the world. They fly F-18’s in very close formation, sometimes upside down, creating a dazzling display of technical and human prowess in their air-shows. John was there, along with some of his class members from the class of ’97, to talk to us about maximizing our experience in our year at Stanford.

After doing a stint doing VC work in Silicon Valley (he did graduate form the program back in 1997, during the dot com boom, after all) he is now a motivational speaker who shows video clips of the Blue Angels and uses lessons about how they achieve such high performance as part of his talks.

In fact it turns out that the Blue Angels fly these umpteen-ton, umpteen-million dollar jets within 3 feet of each other– yes that's 36 inches (for our international friends, that’s about a meter) apart. A direct quote: “I don’t think what the Blue Angels do is dangerous, it’s just unforgiving”. I’d say it is extremely dangerous but no doubt a very good example of high performance. I happen to be a student pilot and I wouldn’t feel comfortable if there was another plane within 300 feet of me, let alone 3 feet!

John’s speech was a mixture of inspirational stories, videos of the blue angels flying, and applying some of the principles he learned there and in his year as a Sloan Fellow. The Blue Angels, he explained, were the top one-tenth of the top one-tenth of one percent when it came to jet pilots (I believe it given some of the things they have to do). He drew the analogy that we (the Sloans at Stanford GSB) were like them in a way, the top one-tenth of 1 percent (I don’t know about this; Once you get into the real world and away from structured hierarchies like med school, law school, and the military, I don’t think you can rank people so easily). Regardless of where we fall on the map, his point was that for people that are already top performers, whether fighter jet pilots, top athletes, or in the business world, a 1% improvement can make a world of difference. That was a very interesting point I had never really thought about before.

Sometimes, though, high performance can only come with the right amount of teamwork. We saw video clips not only of the Blue Angels flying, but of how they prepare for their flights. They do an extensive briefing which includes a visualization of every part of the flight; it was pretty interesting. Being a student pilot myself, this made sense to me. They make sure that each part of their flights are coordinated, with what they call a center-point for each maneuver, and verbal and visual marks that they can look at to see if they and there colleagues are off – because at the speeds they go – over 1000 miles an hour, and the distances between them, even a few inches can be a very costly mistake.

How did he deal with all of the reading that the GSB students have assgned? His answer was: "Yes, It's a lot of reading". Then after a pause, with a knowing smile: "If you bother to do it."I thought I detected a wink and a nod there about the necessity of doing all the reading that's assigned to us.

Another element of his personal story that I found interesting was that he wanted to fly F-18’s ever since he was very young, but at each stage of his career, he seemed to get de-toured. They didn’t let him into the Air Force because of some technicality. Then later, in college, he joined the Marines. At first they didn't take his wanting to fly jets seriously, but then they sent him to flight training. After his flight training, they wouldn’t let him fly F-18’s because he was too young. He ended up going on what were considered not very great assignments. But each detour led to its own set of interesting experiences. In fact, one of those diversions, he happened to be on the USS Enterprise (no, not Star Trek, in this case the aircraft carrier) in the Indian Ocean when the movie Top Gun was filmed. He said that he’s actually one of the fighter pilots shown on the aircraft carrier at the very beginning of the movie. I found this to be very interesting because I believe that sometimes we get to where we want to go not by following the normal path, but by following what seem like diversions but turn out to be integral parts of our individual paths to success.

OK, OK, so for the Trivia Pursuit purists, I quoted the wrong 1980’s military movie in the title of this section (“I Want to Fly Jets, Sir” was actually spoken by Richard Gere in “An Officer and Gentleman”, and not Tom Cruise in “Top Gun”).

One thing I noticed is that John probably wasn’t as used to making presentations in front of international groups – he sometimes came across as, well, an American military guy who’s gone into business trying to “pump up” the troops. While this works great in a sales convention in the good old U.S. of A., that aspect of it might not have worked so well in a group that is more than one third international (don't get me wrong, the talk was quite successful overall).

In Example: In one of the videos he showed from his visit to Russia, a Russian pilot was tapping him in the chest, a bit aggressively, saying “Me Pilot, You Pilot”. He took this to mean that the guy was challenging him and when he took the Russian pilot up in his F-18, he did some intense maneuvers, intending to impress on him that our pilots have the “Right Stuff” too. This he proceeded to do by going into a 6-G climb (maybe it was 4-G or 9-G, I can’t really remember), in which the Russian went unconscious for a moment. This struck me as a little over the top and completely unnecessary, but he proceeded to tell us that after the flight he and the Russian pilot, who was a "hero of the Soviet Union", proceeded to be great friends. John spent a lot of time with the guy’s family and they even went to the ballet together during his time in Moscow. The piont of his story was that a relationship could change quickly.

#5: A Russian Perspective

We happen to have more than one Russian in our class and it’s interesting to get their perspective on Americans. When I asked one of our resident Russians about the pilot episode, he said: “that Russian guy probably only knew one or two words in English, so he was probably just trying to be friendly, that’s all.” Oops.

In another example, this weekend, a few of us went out to see the new movie, Righteous Kill, with Al Pacino and Robert DeNiro, about NYC cops investigating a serial murderer. In the movie, there is a tough Russian who, despite having been shot nine times, is still alive, though hovering near death. One of the Americans is tyring to revive the Russian, and starts yelling a Russian word, Svoboda, over and over again, alternating it with what we think is the English translation, "Wake Up! Wake Up!".

Of course, we had one of our Russian classmates, Valeriy with us, who started laughing. The word they were repeating in the movie, Svoboda, had nothing to do with “Wake Up”. He told us it means “Freedom” in Russian. *Sigh*, Hollywood gets it wrong, again.

But then again the Sloan program is pretty unique that way. We can get an international perspective from any major country simply by turning around and talking to someone from that country, since so many companies are represented in our class.

This really started to become apparent in the second week. When we did the case on Wal-mart, we were able to turn to our Korean and Japanese and Chilean friends to find out why Wal-mart’s strategy didn’t work so well in those countries.

That is one of the things I really like about being at Stanford GSB in general, and the Sloan Fellows program in particular.

In fact, I think that is “Kruto”, which Valeriy tells me is the correct Russian translation for very “Cool”!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.

Stanford GSB, Sloan, Entry 4: So, What did We Learn?

So what exactly have we been doing the past two weeks? As I mentioned in my previous post, we had three classes during this pre-term period – Managerial Accounting (aka Basic Math), Microeconomics (aka Graphs), and Strategic Management (aka Lots of Talk).

For each class, let me attempt to give you an overview of:
1) What it’s like to attend this class
2) What we’ve learned over the past weeks (not in detail, of course, you’ll have to pay mucho bucks to attend Stanford for that).
3) What (if anything) makes this class interesting, and what (if anything) really bothers me about this class. On this last point, I don’t mean “bothers me” in an everyday sort of way, but rather something about the overall subject which seems to give me a “nagging feeling” that while we’re learning what they’re teaching us, there are some things that are unsaid that are actually pretty important.

I'll start with our Strategy class and see how far I can get in this post:
Read more!

Strategic Management Class

This is one of the more popular courses we've taken so far, because of the free-wheeling nature of the discussion.

Professor Leslie walked into the very first class looking generally pretty relaxed. His Australian accent added to the casual nature of the classroom. He proceeded to tell us a little bit about his plan for the class: while the textbook (by Saloner, Shepard, and Podolny) would give us general principles, frameworks, and tools, the real medium for understanding strategy would be the cases themselves, of which we would read one each day.

During each class, Professor Leslie asks questions related to the case, and we contribute answers, dissecting the company that was described in the case and distilling out the features that made that company successful.

In our very first class, we were to have read a case about Equity Bank, a micro-finance bank in Kenya. These days, social entrepreneurship and micro-finance are part of the rage in business school. Ever since Mohammad Younas won the Nobel Prize for his work with Grameen Bank, this area has really attracted a lot of people.

According to Professor Leslie, many of the MBA students want to go into social entrepreneurship nowadays. Their reasoning is: if “I can make a lot of money and do good at the same time, I'm there."

While I think that social entrepreneurship is a pretty promising area, I’m worried that it’s becoming kind of a fad – with people jumping into it because it’s the “hot thing to do” – not because they are really committed to social development in the long term. This reminds me of how graduates rushed to investment banking in the 80’s, management consulting in the early 1990’s (when I graduated from my undergrad in 1992, working for McKinsey or such spinoffs was the hot thing to do), rushed to dot coms in the late 1990’s, and then back to banking and consulting in the early 2000s. Today it’s private equity and social entrepreneurship. What will it be in a few years?

It almost feels like the class is teaching itself because he is able to elicit the key points of the case. But of course, it’s not that simple at all, since Professor Leslie has a definite direction in his questions and points about each case that he wants to make.

Adding to the informality of the class is his general disarming ability to use everyday language (i.e. he talks like a real person, albeit with an Australian twist). On that first day, he declared, much to our surprise that “…we don’t really give a shit about Equity Bank, even though we were going to talk about it all day.” It was the characteristics of their strategy and the principles for their success that we were really interested in.

This would be true of all of our cases. So I’m going to give a quick summary of the cases that we studied and why (at least as far as I can tell why we studied them). Since all the cases are about real companies, you can look them up and find out about the strategy yourself if you want to follow along.


Case #1: Equity Bank of Kenya.
Why we discussed it: To see an example of optimizing an organization for serving the needs of a target market through culture.
What about it is important: One of the key ingredients to their success in Kenya was that they understood their local culture, and they tailored the organizational structure, bank policies for lending and opening accounts, and culture to serving their target market: who were the unbanked. For example, you could open a bank account without any collateral, just an ID card which is one of the few ID”s that Kenyans had. They had very little deposit requirements, and were very flexible on collateral when it came to loans. All of this allowed them to get huge growth rates vis a vis competitors like Barclay’s for a while. But now other competiors were starting to focus on this previously unbanked target market.
Why I think we really discussed it: micro-finance is hot – it wouldn’t do to not have one case about it.

Case #2: Capital One.
Why we discussed it: To show another example of how culture influences a successful strategy.
What's important about it: Capital One used heavy-duty analysis of data to find features of credit cards that were attractive to end users. One thing they did that was innovative was to combine the marketing and the credit risk departments together to optimize offers made to individuals based upon their credit history and any other information they could gather. Before Capital One, most credit cards were at the same fixed rate, without any variations. The ability to analyze data and make decisions based on what a particular prospect or customers needed was innovative in the banking sector in general. When Capital One introduced its balance transfer and low introductory nterest rate, its sales went through the roof, making it a major player in the US consumer credit market virtually overnight.
Why I think we really discussed it: The CEO is a Stanford GSB Alum, and this is a good example of a company that uses very analytical decision making.

Professor Leslie told us in this class that Business Schools in general, and Stanford in particular, likes to think that success can be taught using analytical frameworks and that it relies not just on “gut feelings and “instincts”, which is one of the reasons they really like to use the Capital One example. I’ve touched on this topic on the blog before and will again as it is very near and dear to me. In fact, I think that gut feelings and instincts probably played a very significant role in both the Equity Bank and Capital One cases. In Capital One, the CEO was out trying to get many banks to sign onto his ideas while they all told him he was crazy (according to the case, one banker threatened to throw him out of the window). After he finally got Signet Bank to fund his enterprise, it took a lot of “churning” of ideas ideas and markets and analysis before they came up with the one that worked. In fact, they were very close to having the plug pulled on their group because it hadn’t shown any results for a few years when the killer tactic happened.

This is an underlying issue that’s been nagging at me as I’ve arrived at Stanford Business School – can success really be taught? Especially in the case of corporate strategic decisions? Most entrepreneurs operate almost entirely on intuition. Most MBA’s try to operate on analysis. Is there a middle road between these? We’ll talk about this more in the year to come, I’m sure.

The next two cases introduced us to the concept of explorers (“innovators”) and exploiters (who do something so well that they are more efficient at it than others).

Case #3: Wal-mart
Why we discussed it: Wal-mart is the biggest and most successful retailer in the US (and perhaps the World).
What's important about it: In this case, we were introduced to the idea of organizations that optimized operations as a competitive advantage, and to the idea of an evolving strategy. When Wal-mart first started, they targeted in towns where many of their competitors didn’t have stores. This idea of targeting an underserved market is one pattern that has come out in many of our cases. Then as they grew, they virtually created the concept of “economies of density” – by having stores close enough to each other they could supply them once and for all. Finally, as they grew and started to appear in areas with competition, they started to get buying power from their suppliers, and this added to them being able to negotiate the lowest prices, as did their heavy investment in technology. Their distribution centers, delivery trucks, and inventory were far more optimized than their competitors. One issue that came up was about internationalization – they weren’t very good abroad. Since we had students in our class from Japan, Russia, UK, Korea, India, South America, and other countries, we were able to get perspective on the Wal-mart strategy in these other areas and why it didn’t seem to work as well.
What we really got out of it: Wal-mart, while doing some innovative things, is primarily focused on operating better. Many of their ideas were just copied from somewhere else (Sam’s club, for example, was a copy of earlier large membership type clubs) or out of necessity more than foresight. Even their innovative distribution strategy came about because no one was willing to spend time supplying them. This is a good question to ask in any organization: are you an innovator or an execution oriented organization (explorer or exploiter?)

Case #4: 3M
Why we studied it: 3M is a great example of a company that encouraged innovation.
What's important about it: The culture of this company for innovation, at least from the case, was very interesting. They started back in the early 1900’s and have had a large number of products invented in their labs. They even tell stories of people (engineers) who were told by management to shut down a project because it didn’t show promise, but who continued to work on it anyways. Well before Google, they introduced the idea of bootleg time – spending 15% of your time on a project outside your immediate scope of responsibilities. They even had a requirement that 25% of their revenues come from new products (products which had been introduced in the last five years). If you think of the size of 3M ($14 Billion at the time of the case”), this requires, in the words of Professor Leslie, a “staggering amount of innovation”.

As we talked about culture, we were introduced to the ARC framework describe din the text – A=architecture, R=routines, and C=culture. This is a framework for talking about how an organization is structured formally vs. informally. Professsor Leslie spoke to us about how architecture of an organization can be changed very quickly – with an email you can change who reports to who. But cultures are much more difficult to change because they are much softer and often implicit. 3M in particular had a culture of innovation that rewarded those people (usually engineers) who came up with bright new ideas that led to products. Of course this culture of innovation sometimes led them astray to be doing too many things and not doing some things really well.

That concluded our looking at the internal context of individual firms. In the second week, we started looking at industries rather than just at individual firms. This led to doing industry analysis using Michael Porter’s now famous five forces – Buyers, Suppliers, Substitutes, Barriers to Entry, and Rivalry. There’s a lot about these in the internet.

Most of business schools and teachers consists of slightly nerdy people, said the Professor, but Michael Porter has become somewhat of a “rockstar” among those who follow business school type guys. In this week we studied:

Shimano. We studied Shimano and the industry for high end road bikes. Shimano provide some of the key components used by Lance Armstrong in his bikes when he won all of those Tour De France victories. Shimano is also a great example of how one firm (a supplier in this case) can capture much of the value of an industry’s value-chain (what does value-chain mean? I’m not entirely sure but it has something to do with suppliers and buyers). Shimano, like “Intel inside” in the PC industry has developed a brand for their integrated set of components that fit into a Bike, and Bike Manufacturers basically all use the Shimano components (with some slight competitors). I knew nothing about the bike industry so this was an eye opening experience that one firm had caputred so much of the value from the High End Biking industry.

Rockwell. This was by far the most boring case – and I think that is the only statement that none of my classmates will argue. It was about the market for water meters in the 70’s and 80’s. This company had an innovation that they used to their advantage for slightly better and more durable water meters which were sold to munipicalities throughout the US. Despite many of us starting to yawn, Professor Leslie called this an almost “perfect” industry to make money – low supplier power (raw materials were the inputs), high switching costs, and a very cozy relationship between buyers (municipalities, of which there are many tens of thousands) and vendors. There was pretty significant barriers to entry as well. Turns out this was a very profitable industry, just not a very exciting one.

One interesting thing we discovered during this case was professor Leslie’s ability to estimate, based on the economies of scale, the number of likely serious competitors in a market. If you took the total market size, divided it by the costs and units produced by a Bronze foundry (which was an important barrier to entry for new firms) you likely came up with an oligopolistic structure.

Dell. We had a case about Dell computer and the rest of the PC industry from the late 80’s to the late 90’s, and some of the challenges faced by Dell and others in this industry, including players like Compaq, IBM, HP, and Sony. During this time period, Dell had lower prices than most and was perceived as better quality than most as well. This brought up the idea that all the many millions spent on branding could be part of the barriers to entry for other firms to get into the marketplace. We also look at how to estimate the margins and costs for individual parts of the manufacturing process.

Airborne Express. This case looked at the third largest overnight shipping company in the US, behind Federal Express and UPS. Airborne became successful by keeping their costs lower than either of the other two, and focusing in on a market that they felt was underserved: businesses of a certain size. By ignoring the consumer market entirely, and developing long term relationships they were able to focus in and be successful in this market. Airborne was also an example of a company with lower fixed costs but higher variable costs than its competitors- meaning they used people to do a lot of the sorting that Fedex used computer software to do. This meant airborne didn’t have to invest, like Fedex did, hundreds of millions of dollars in software.

Finally, on the last day of our first two weeks, we talked about internet companies – eBay, Google, Yahoo/Overture (which is what the written case was about) and Facebook, The concept that was introduced was the idea of DSIR (demand side increasing returns), better known as the network effect being a barrier to entry to others. The perfect example of this was eBay. Once it had a critical mass of buyers, the sellers wanted to go there. Once there was a critical mass of sellers, the buyers wanted to go there. Once buyers and sellers both spent a lot of time on eBay and built up reputations in each area, neither wanted to move.

The network effect requires there being a coordinated effort of people to really move off of one company’s platform and onto another. The case for the day was actually about Overture, an precursor to Google’s AdWords, which sold advertising based on keywords on searches. It was very successful in the early days, because it partnered with Yahoo and others to get the traffic. According to Professor Leslie the company’s expertise quickly became “how to receive checks and deposit them in the bank” because the money was flowing in so quickly. Of course Google extended the idea and perfected it, leaving Overture (and Yahoo, which acquired it) in the dust.

And this took us on a discussion of Facebook and the changing landscape of Social Networking and whether it has effective DSIR or not. I’ll have a lot to say about this landscape since I have some experience in social networking companies, but this post has already become very long. I guess we’ll have to leave what we learned in other classes for another day!

So I’ve said a lot about what we’ve learned. I like this class a lot – particularly the case and free discussion format. I’ll even venture that this has been my favorite class, thus far at the Stanford Business School.

However, the thing that’s been nagging at me is that we (and Business Schools in general) seem to be brilliant at analyzing a firms strategy and figuring out what their competitive advantage is – in hindsight. The question is by ignoring intuition and gut feelings, and doing the MBA-type analysis, are they really blinding themselves from being able to effectively study how firms create competitive advantage and future using foresight?

It’s a loaded question so I’ll leave it out there for now.

And once again this post has gone long, so i'll have to talk about the other classes in other posts...

Stanford Business School, Sloan Program, Entry 3: The First Week of Class

We just ended our first week of classes at the Stanford Graduate School of Business (GSB) in the Sloan Master’s program. The Sloan program, as I mentioned in my first post about arriving here, is a one year, full-time Master’s program that is kind of an “accelerated” MBA for people who have significantly more experience in the real work world.

Although it’s only been a week since classes started, it feels much longer – that’s because during this “pre-term” we have the same three classes each day, every day, for three weeks before the fall quarter “officially begins” at the end of September.

The three classes during this pre-term aren't graded. Professor Flanagan, our econ prof, told us on the first day of class that there are three distinct languages he could teach the class in – words, graphs, or mathematics.
Read more!

I would actually say that’s a pretty good way to describe the three classes that we’re taking during this pre-term:

• Managerial Accounting – mostly math (budgets, income statements, balance sheets – the math itself isn’t that difficult but knowing which number to plug in where can be tricky)
  




• Microeconomics – mostly graphs (demand curves & supply curves – they look pretty simple – two lines on a graph, but reveal much more than meets the eye)
  




• Strategic Management – mostly words (in-class discussion about real-world company case studies on what made them successful).
  

I’ll say a lot more about each of these classes below, including what we’ve learned (which is quite a bit, especially for only one week!), what our professors are like, and what I think of the material. But first, some general observations about the first week of class:
What’s it like to take classes at Stanford Business School?

It’s actually very unlike any of my undergraduate classes. For one thing, the classrooms aren’t big lecture halls, nor are they little breakout rooms. They’re more like a mixture of a trader’s pit in a stock exchange, and a movie theater that has stadium seating.

There are rows of tables and chairs, each one slightly higher than the last one, with the professor standing in the middle of the room. It’s also a lot more high tech than I remember undergrad classrooms being - instead of blackboards, there are white-boards, and there is a built-in projector and screens for showing slides and videos from a laptop.

Moreover, we have very nice plush green chairs, and the tables on each row have slots in the very front for our name-tags (Nice, no worrying about my butt getting sore after sitting in those old wooden chairs we had in undergrad for an hour and a half).

Taking classes is a little bit like a cross between high school (“Suzy, you sit here, next to Johnnie, that’s your assigned seat”) and the United Nations Security Council, with our nametags very prominently displaying who we are and what delegation (er, I mean company) we are representing. In fact, this last bit about the UN is doubly true in the Sloan Fellows program since almost half of our classmates are international, so we can get a pretty good perspective on an issue from around the world.

What is a Case Study Anyways and Why Are They So Important?

In Business School, much of the curriculum centers around Case Studies. WhenI first heard this term, I thought it sounded a little mysterious, since during undergrad, we only had “problem sets”, “exams”, and “group projects”, but never "cases". There are, as far as I can tell from the first week, two kinds of “case studies” in business school:

· A problem set disguised as a “case”. In much of our classes, including accounting, microeconomics, and our modeling with excel class, what biz schoolers (er, I mean, GSB’ers) like to call a “case” is really just a problem scenario followed by a set of questions about it.

Think of those old wacky groups of SAT questions that start with some kind of introduction: “Suppose Tom is in Denver and Fred is in Houston. Suppose also that Tom starts jogging east at 20 miles per hour, and Fred starts jogging west at 20 km per hour.” After the introduction there is a group of questions associated with the scenario: “When, if ever, will Tom and Fred collide with each other?” and “If so, which city will it be in?”.

OK…OK, maybe SAT questions weren’t quite that outlandish, but you get the idea. Now think of pretty much the same thing but with a company as the subject of the scenario and not dorky guys named Tom or Fred. Simply making the case about a company makes it seem like we’re studying “real business” and handling “cases”, not just really learning arithmetic, graphs and spreadsheets. One Example is our Davis Kitchen Supply Case that we got this week in our managerial accounting class, which started with a company that makes ovens. In fact, it makes 6,000 of them per month (with the recent housing slump, not sure exactly how they stay in business, but that’s beside the point). The costs associated with making these ovens (actually, they weren’t ovens at all, they were stoves; oops!) range from $50 for variable labor, $60 for fixed overhead, to $95 in marketing costs, including variable and fixed costs. That’s the “setup”.

Once the scenario is set up, we are supposed to answer a group of questions about them. Suppose some slimy mafia guy came to Davis Kitchen Supply and said that he could “take over” making their stoves for them, at a cost of only $215 per stove. Should Davis Kitchen let this guy (ok it wasn’t really a slimy mafia guy in the case, I made that part up) take over manufacturing of those stoves?

I think you get the idea. Basically you have to add up all the variable costs, and fixed costs, and figure out at which price it makes sense to outsource stove-making vs. doing it yourself. The econ “cases” involve a little less math and a little more graphing of supply and demand curves– for example there was one this week about US farming associations telling their members to dump (or simply destroy their wheat or rice or corn or fruit crop) in order to get the price of that item to stay high. We had to figure out whether this was a good idea or not, and under what circumstances it would make sense to do these.

The only real complications in these cases is 1) figuring out the right answer, and 2) making a presentation to the class (using powerpoint or excel) as a group (“study group”) about the answer that you found. We’ve had some pretty creative ones already.

· A full case study of a real-world company. The second group of cases are more like the “case studies” that I had been told about by my buddies who had already gotten their MBAs. Before I got here, I thought it odd that you could learn much by sitting in a room where the students all opined with each other about what they think a company should or shouldn’t do. But this has actually become the dominant form of teaching in the best Business Schools today.

These case studies are usually put together by Harvard Business School, or by Stanford GSB, range from 10 to 15 pages, and include the fully history of a company and some of the challenges facing the CEO of the company. In the first week alone, in our strategy class, we did cases related to Wal-mart, Capital One and a few others. It turns out that talking about the strategy of real life companies is actually quite fun. In fact, it hardly feels like we’re in school at all … so Case Studies like this give us a level of engagement that other subjects don’t.

What is a Study Group and How Late Do You Study?

So I finally figured out what a study group is – a pre-assigned list of “friends” that you have to work with during each term that cuts across all classes in that term.

In fact, I’m beginning to think that working in study groups is not just about the classes themselves, but about learning how to work with diverse groups of people that we had no choice in being involved with. This must be a common case in the business world; but as an entrepreneur, I have almost no experience at working so closely with people that I have no control over, so this has been an interesting experience.

Part of the reason for a study group is so that you can all help each other get through the term – by preparing for class together, sharing notes, and doing group assignments. However, thus far I have to say that the study groups seem to be as much of a source of stress as the classes themselves – almost no one I’ve talked to is really happy with the way that their study group has decided to do everything, though everyone (including me) likes some aspect of what their study group is doing.

One fundamental question each study group had to answer was how often it’s going to meet and when. For our group, which was larger than other groups, this little question, which should be easy to answer, has been the hardest one to answer.

A few of us in the group, like me, are not morning people. As an engineer and a writer, I tend to go to sleep well after midnight every night, so I would prefer evening meetings. In one of my software companies, I even had an explicit rule: “no meetings before 10 am”.

But, many of the members of our study group are morning people, so they would prefer to meet before our first class in the morning, which is at 9:15 am. So something like 8:15am. Ouch!

We decided on what seemed like a good compromise, our first meeting would be in the afternoon, after the first day of class, which was the Tuesday after Labor Day. After all, the pre-term wasn’t being graded, so we could afford to take it easy in the mornings, right?

Wrong! Before I knew it, while I was wandering around the San Jose Art Festival on Labor Day (Yes, this would mean I was enjoying myself and relaxing before we started our high pressure classes with no grades), my iphone started buzzing with emails from study group members about how they’re worried about all the reading over the weekend, and want to meet at 8:30 am to discuss it (Yes, this would mean we were doing study group meetings before classes had even started; I guess we were really worried about not being prepared for our classes with no grades).

The next day, because the group didn’t have enough time to argue every point in the reading from every angle, the time was moved even earlier, to 8:15 am. The next day, we had suddenly somehow decided that we were going to meet even earlier, at 7:45 am every single day! Double-Ouch!

I came to business school with memories of my undergrad days - staying up late, ordering pizza, discussing problems and working collaboratively with my classmates, with more than an occasional philosophical discussion thrown in each night.

I had heard that the Bill Clinton White House was kind of like that – with all night policy study session and lots of creativity and free flow of ideas. When George W. Bush came into office, this changed, since Bush rarely stayed up past 10 pm.

I suddenly felt like I had shown up for work thinking I was going to work for Bill Clinton, but when I met my boss on the very first day, it turned out to be George W. Bush instead! Triple-Ouch!

Let's just say I missed more than my fair share of early morning study group meetings in the first week; in the real world I wouldn’t show up at 7:45 am even if I was being paid good bucks to do so – and in this case I’m paying Stanford, not the other way around.

Well not to belabor this point, but I get the sense that our class is really taking this pre-term a little too seriously. I was speaking with one of the Sloans from last year and he said that we’ll have plenty of pressure in the fall – we should be enjoying the pre-term, perhaps enjoying the world famous Stanford Golf Course.

Actually, that is exactly what a few of our classmates did on the Saturday after our first full week. See, at least some of our classmates in Business School know how to relax: Sleep in, play a few holes, enjoy the California sunshine. Right?

Wrong. it turns out that their tee time was set for 6:30 am on Saturday (Yes this means that they had to get up even earlier on the weekend than on the weekdays!).Quadruple-Ouch!

Anyways, after a little bit of early heart-burn our study group has now settled into a rhythm. Now that some of our meetings are in the morning and some of our meetings are in the evening, I’m relatively happy with our study group. We’re also finding ways to be more efficient in our overly high reading burden.

What Have You Read for me Lately?

For someone with an engineering background (we’re called “Quants” in B-school, as opposed to the “Poets”), Business School isn’t really that difficult, though it can be hard. I mean hard in the sense that adding up 10,000 numbers isn’t conceptually very difficult. It just takes a lot of tedious work no matter what path you take – whether you type in 10,000 numbers into a spreadsheet, into a calculator, or calculate them by hand.

In the same way, we are required to read several chapters of our textbooks, do some problems, read and review cases, and be prepared for the next class, every single day. In querying the Sloan administration, I was told that the program is designed so that it’s really not possible to read every single thing we are supposed to read by the time we need to read it, while still having a life.

So, the reading can be a great source of stress, if you let it be. But that’s what the study groups are for. In our group, one guy had gotten an MBA before and told us that it might be helpful if we break up the reading, assigning different chapters to different folks, who would prepare summaries for the rest of the team of their assigned chapters.

I think the reason they designed it this way was that they wanted us to find ways to juggle the reading by prioritizing what is essential to study, and what can just be read casually. I actually think that this one of the keys to business school success.

What we learned.

OK enough of my general observations. Let’s get to what we actually learned this week. Wow, this post has already gotten long – and I haven’t even started on my reading for this weekend. I’ll have to tell you what we learned in the next post...stay tuned.

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.

Sloan at Stanford, Entry 2: Models and Modeling

I’m going to have two types of blog entries during my year at Stanford’s GSB – the first type will tell you what it’s like to attend this top-ranked business school. Those posts will go over what happened during a given day, week, or month (like the first post). We’ve now had our first official day of classes – and I'll soon be writing that kind of post if you're curious to know what classes are like.

Other posts, like this one, are reflections on something that occurred during the program which gave me pause and made me think about larger issues relating to the business school, the business world, and life in general.

Two things happened during our first week here that took me down some unexpected philosophical train tracks: Interestingly, they both involved modeling, though of completely different sorts – one was about the limits of financial modeling, while the other was about modeling for photographs.

Food For Thought: Are we all Models?

During orientation, a photographer came in and took individual pictures of all the Sloan Fellows. Nothing special, just a routine thing, but it was funny in its own way. The cameraman positioned us just so, telling us to turn diagonally away from the camera, facing sort-of forward. “Now, Smile.” “Now turn to the left.” “Now give us a more natural smile.” “Now turn away from the camera.” For a (very) brief instant, before they said “next”, I felt kind of like a fashion model and expected him to say "work it!".

These pictures, referred to as “face photos”, will end up hanging on the wall near Sally Pierce’s office on the fourth floor of the Stanford GSB building, forever capturing the Class of 2009 as we were (are). If you look at the Sloan wall today, there are pictures from classes starting in 1958, coming up to the present day class of 2008 which just graduated (Yes, the Stanford Sloan program just celebrated it’s 50th year).

What jolted me a bit more than it should have, perhaps, was that the men in the class were required to wear a suit jacket and tie for these pictures. I guess I shouldn't have been surprised: After all, the previous students on the Sloan wall all seemed to be wearing a suite and tie. For another, I am attending business school, and that is the formal dress of business for men, so what’s the big deal?

For one thing, the last time I remember wearing a suit and tie was in 2005 at my brother’s wedding. For another thing, I almost didn't bring any suits or ties with me to school. As I left Boston, something told me to dig out an old suit (it still fit, thank god!), just in case. Now I’m glad I did.

One of my classmates found this surprising since I’m a high tech entrepreneur and have run several companies. “Haven’t you had to raise venture capital or other investment for your companies or visit clients? Don’t you have to wear suits when you do that?”

Yes, but the dress in Silicon Valley is pretty much sports-jacket, khakis, and dress shirt for men. If you’re a technical guy, you can even get away with wearing sneakers and jeans (Yes, believe it or not I wore black Nike sneakers to my most recent VC meetings). That’s it – no ties, no suits, no cufflinks, even the sportsjacket is optional on a hot day.

This got me wondering – have I really been in the “real” business world all these years? Or have I been isolated from the reality of business, hiding in a virtual bubble all these years? A bubble called Silicon Valley (in the broadest sense of this term since I haven’t physically been in California but rather in Boston for most of my career).

Maybe, but hasn’t the business world changed in a lot of ways where cosmetics aren’t as important today as they once were?

Recently, I spoke with a fellow entrepreneur from New York City who was raising money for his company, which makes software that will be sold to lawyers. He’s a former lawyer himself.

“Do they still wear suits in New York?” I asked, honestly surprised to see him in a suit.

“Oh yeah, all the time.” He answered, looking at me as if I was from another planet. Maybe I was – I had just flown out from California.

“Didn’t they stop doing that in, like, 1998?” I asked. “I remember reading that even conservative bankers like JP Morgan stopped wearing business suits and went to business casual dress.”

“Nope,” He continued, “After the dot com crash of 2000 and 2001, suits were back with a vengeance. They still are.”

This might sound like an obvious thing to some of my classmates and some readers of this blog, but I was genuinely shocked by his answer.

It’s kind of like when you’re in 70 or 80 degree weather on the west coast, and you go back to visit New York or Boston or Chicago in the winter to find the city in the middle of a snowstorm.

Sitting here in the blazing warm sunshine of Palo Alto, California, I honestly cannot remember what it felt like to be in a snowstorm. I remember it intellectually, I can look at pictures, but I just can’t seem to recall the exact feeling. Similarly, I honestly cannot remember what it was like when I had to wear a suit to work everyday – I know I did it, I can see pictures, but I had assumed we’d put that era of business behind us.

I began to wonder if some of my other assumptions about the business world were wrong too. Maybe I should’ve gone “Across the Street” (which is the Stanford GSB’s terminology for other parts of Stanford, such as the main campus, engineering school, med school, etc.), to be with my “own” kind – engineers and software guys?

But appearances can be deceiving. If you do wander by the Sloan wall in the GSB fourth floor, and see our pictures staring at you in some future year, what you will not know is that it was a very hot day, and most of us were wearing jeans, some of us shorts and some even wearing flip-flops on our feet. They are after all just head shots.

At least the men were. What about the female Sloan fellows?

There was no formal dress code specified for the women. I was surprised to hear this. When I asked Nikki, a classmate from Scotland, about this, she answered pithily, with a smile: “the only requirement is that we wear clothes”.

Is this simply a legacy that most Sloan fellows have been men until a few years ago? Could it be that today, when women are running for President and running large Fortune 500 companies that there are no formal guidelines for what is considered business-like for women?

By my count, there are only 11 women in our class of 57 future "business leaders". I guess that’s surprising too – I thought we’d left the era when there were only men in suits in the boardroom behind us as well. We had a higher percentage than this in engineering school. I wonder if the demographics in the two year MBA program are different?

But it’s not just a matter of gender – this whole suit thing got me thinking about “maintaining appearances in the business world” and what we do to "fit in"

One of my classmates told me that she naturally has a bubbly, enthusiastic personality. She was told by people in her company (a very large, well known corporation, I won’t say which one) that being this way wouldn’t help her move up into management. She should come across as a bit less bubbly a bit less enthusiastic, and much more serious, and this would help her case. In other words, don't be yourself. So, she played the part, suppressing some of her natural personality, in order to advance and was promoted in due time.

The bigger question is: How much of business in the “real world” is “putting on an appearance”?

In other words, how much of being in the business world is about acting like a fashion model that puts on the designer outfit, and struts her stuff on the catwalk, with just the right amount of swagger and hip movement. Why? Because she knows that’s what the audience wants to see. That's why we go to fashion shows. But is the business world one big fashion show?

I think we’re all guilty of this to some extent. Certainly I play up the “founder of an internet company” role when I go on the road, sometimes intentionally wearing sneakers and jeans to emphasize the role I’m playing.

The other day, I took a quick look at our class to see if I was the only one with a beard. At the time I counted only one other guy in our class with facial hair, Aaron, and it turns out he was a software guy, just like me (I’ve since counted at least one more, so we're up to three). I remember reading that Ross Perot at EDS would fire you back in the eighties if you had facial hair, or long hair for that matter... but that changed a long time ago, didn't it?

Another of my classmates who works at the financial industry showed me that she had a little tattoo on her wrist. It was a rather unobtrusive little tattoo. “Oh of course I cover it up with a watch when I’m at work,” she said. “Tattoos don’t work so well in the boardroom, you know.”

My question is, why don’t they? Is it OK to show our individuality in business school and then cover it back up when we get back into the business world? The bigger question is: Do we have to become someone else to be successful in corporate America, hiding our normal personality, creativity and individual need for self expression?

I guess a lot of my assumptions about how “business” has changed over the years may not be so true after all.

Food for Thought #2: What Can Modeling Really Do For You and Me

The other thing that really made an impression on me during the first week was a completely different kind of modeling, using Excel to model a business scenario. The model would then be used to come up with some quantitative predictions to help a business manager make decision, ranging from how many units to produce of a product, to how often to run recycling plants, to how many employees to hire or fire.

Professor Moore, who taught the class, explained during the Excel workshop (we’ll have a whole class dedicated to this in the fall term, so I’ll be writing a lot more about models I think) that models were only as good as the constraints we imposed on them.

In other words, if we ask a financial model to tell us, as one of our cases did (“Peninsula Recycling Services”) how many days we should run a set of recycling plants (one was located San Jose and one in Redwood City) to keep the costs at a minimum, what will it tell us?

The model, without being fully formed, will return an answer of zero days. In other words, to keep costs low, Peninsula Recycling Services should simply shut down all of its recycling plants. This obviously isn’t an acceptable solution to the case, since we were expected to produce a certain amount of recycling output. Without the proper constraints in place, our financial models aren’t very good models of reality. If the citizens of Redwood City suddenly find their recycling shut down, maybe you can blame it on a financial model!

But this raises an even larger question – since much of business world, and much of business school, rests on developing models and frameworks, how effective can these models really be in helping us to make decisions in the “real” world? There is, after all, no way to put all of the constraints of the real world into a financial model.

Even Professor Moore, who is a co-author of our textbook, “Decision Modeling with Microsoft Excel”, showed us a diagram where financial models are only part of the process – the other half consists of the manager using his/her intuition after seeing the results of the model to make a final decision.

But this raises the question, how much emphasis should managers put onto their own intuition (based on their experience) and how much should they put on their spreadsheet models? 30%? 50%? 75%? 25%?

One of our classmates in this workshop asked, during one of our cases, “So, what is the conclusion? What should this company do?"

Professor Moore, who has obviously dealt with this issue before, answered something to the effect of: “I don’t know what the company should do. I don’t even know what the right answer is for this particular business. I can only tell you what the financial model says. If the models always gave the right answer – then we could remove human decision-makers from the process. But you can’t. You, the manager, have to see if the answer makes common sense. You have to use your intuition – that’s why they pay you the big bucks, after all.”

Amen. I think too often companies rely too much on one side of this equation – either the analytical models (for larger organizations), or intuition (for smaller startups like the ones I’ve been a part of), and rarely are organizations able to include a “proper” mix of both. Nor is there even a definition of what is the “proper mix”.

So, if you’re thinking of shelling out the big bucks to go to business school, remember this. B-school is not going to give you some formula or algorithm for decision making that you can blindly follow in management scenarios to come up with the “right answer” – in fact there often is no single right answer.

I’ll be writing a lot more about modeling as we get into the school year. In the past, I’ve written a lot about intuition, but finding the balance between intuition and rational thinking is I think a much more philosophical question - one that 10 months in business school may not be able to answer. But I’ll let you know if I get any closer during the year!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.

Sloan Program: Entry 1: Arriving at Stanford for Orientation

This week I started as a Sloan fellow at the Stanford Business School – which isn’t called the Stanford Business School at all – it’s almost always called the GSB by people in the know (short for the Graduate School of Business) -- so if you run into a Stanford Business School alum, say "GSB" to them and they'll be impressed. So I’m going to augment my usual “entrepreneurship entries” in the Zen entrepreneur blog with updates on what it’s like to attend this program at Stanford, for those of you who might find this fun or interesting, or perhaps both.

For those who have never heard of the Sloan Program, it’s a program that exists in three business schools in the world – starting with my undergraduate alma matter, MIT (which has, confusingly, both the Sloan School of Management and the Sloan Fellows Program). Here’s what I know about the history of the program:

The program was started by the old grandfather of modern American business, Alfred P. Sloan, the first CEO of General Motors. He was also an honorary member of the Dead Entrepreneur’s Society (ask me about that one privately if you’re interested since it was a group that existed briefly at MIT back in the early 1990’s). Mr. Sloan believed that mid-career executives who had been identified as “future business leaders” in America needed a special program that was set away from the business world to study management. Thus they (we) could return to the world of business with a fresh perspective, as well as practical leadership and business training that would be very difficult to get "on the job". Later, Sloan decided (through some wrangling by the schools themselves since he supposedly rarely gave money to any institution other than MIT, or so I’ve heard) to give some money to Stanford and the London Business School for similar programs. Each of the three Sloan programs is different – for one thing, they all have different lengths. For another, they have different curriculum (curriculi?).

Of course in Sloan’s day, being a “future leader” meant being an executive at one of America's largest companies. In fact, in the beginning all Sloan Fellows (as we’re called – don’t ask me why we’re Fellows and not students – I haven’t the slightest idea but it sounds very cool), were sponsored by their corporations. Today, many of us are either entrepreneurs or in-between jobs, who either have enough money to burn (er, I mean to say invest) for the program ourselves, or are wiling to do the American thing and borrow money from the federal government or private banks to attend. We’re called “self-funded” fellows (as opposed to “company-sponsored” fellows).

The only differences between self-funded and company-sponsored Fellows, as far as I can tell thus far are: 1) company-sponsored fellows have to go back to the company that paid for their tuition (rumor is that some companies will make you pay back the tuition if you don’t return), and 2) company-sponsored fellows have to get special permission to attend workshops like “entrepreneurship”, nor are they allowed to to use the career services at Stanford to look for jobs (for obvious reasons!). Otherwise the classes and experience are pretty much the same.

I heard about this program, surprisingly, not at Stanford or MIT, but at the London Business School, at my younger sister’s graduation from her MBA class last year. I saw a bunch of guys at the graduation who were my age (late 30’s) rather than her age, and I started to wonder what these old guys called “Sloans” were doing at Business School.

I chose to apply to the Stanford program because 1) I’ve always wanted to go to Stanford, which has a great reputation, 2) It’s at the heart of Silicon Valley and I’m a software entrepreneur, which makes for a good fit, 3) It’s in sunny California and not cold Boston or foggy London, and last but not least, 4) it was the shortest of the three Sloan programs (10 months, starting in September and ending in July).

I figured it would be OK to take a break from my business for this many months if I kept my cell phone with me at all times, still participated in board meetings and late night calls from time to time. We’ll see how well that works.

So with that out of the way, this week the US Fellows arrived on campus (many of the international Fellows arrived early), and we finished our orientation for the Sloan program. Classes start formally next week after the Labor Day weekend. Here are some quick observations about the first week:

1) Our class is very international. Given the global nature of business today, that’s probably a good thing. I think we have 18 different passports represented in our class of 57 people – other Fellows have come all the way from India, Japan, Singapore, China, Korea, Argentina, Brazil, and Europe to attend this program. I for one am looking forward to seeing how business is done in these other parts of the world and seeing how the dynamics of the class evolve with so many cultures represented.

2) As part of the curriculum, we get to go on "field trips" to some interesting companies in the US. I guess it wouldn’t really do for Business School students to just study at a University without going to see some real life businesses. For those of you who’ve never been in business school, these kinds of trips are not labeled "fun" but are actually part of the academic curriculum. This year we get to visit Google (if you don’t know who they are you probably wouldn’t be reading this blog online), LinkedIn (one of the more successful social networking sites of the past decade), Boeing (yes, we get to see the biggest building in the world, which is the size of 74 football fields), Nike (way cool, but we were warned not to wear Reebok or other competitive sneakers when we visit them -that would be considered a sneaker faux pas), as well as some institutions in DC and New York in the spring. Last year, the DC trip included a meeting with Bernanke (the Fed Chairman who replaced Greenspan), but not sure if we’ll be able to get him this year.

3) We are going to South America for an international trip at the end of the year. It seems that most people I know in business school end up travelling to Asia for an international study trip– either China or India or both -- since that’s where the “action” is today. In fact, last year’s Sloan class at Stanford just went to Asia at the end of their program. So, I gotta say at first I was a bit puzzled by our decision to go to Latin/South America instead. But I am looking forward to the novelty of it - Brazil has a very interesting economy these days, I’ve never been anywhere in South America, and I hope to see both Machu Picchu and the Nazca lines after the end of the trip. I’ll get to go to Asia on my own anyways (after all, I do own part of an outsourcing business in Pakistan, and India and China are not too far from there, political considerations aside). However, at least one of our South American friends didn’t seem too excited by going back there for the international study trip – he’s planning a separate vacation after our trip, going to, you guessed it, Asia.

4) Bill Gates is your friend. We had a Microsoft Excel workshop that was meant to “refresh” our understanding of Excel, with Professor Moore, who did in fact write the book on modeling with Excel. I’ve never met anyone who seemed to be so taken with Microsoft Excel – despite the many bugs that he warned us about. I thought I knew Excel pretty well already – having put together budgets, income statements, proposals, and balance sheets for my many companies. Turns out I didn’t know much about Excel at all – never heard of Goal Seek or Data Table, not to mention add-ins like Solver, Crystal Ball and Extend. Wish I had known about these sooner – they might’ve come in useful! I guess i'm going to be spending alot of time with my new friend over the school year.

5) Study Groups are the Key to Our Salvation. We were assigned to our first Study Group during our Orientation and we had a meeting with our group where we were supposed to discuss our strategy for running the group and how best to make it effective. I guess this was in good corporate style since I really had no idea what a Study Group was, or what it was supposed to do, and I suddenly found myself in a meeting about how best to run one. During my undergraduate days all we had were informal study groups – nobody was assigned to them, we were just a few friends who studied together and might, on occassion, copy each other’s problem sets if we didn’t have time to get them done by the due date (actually did I just say copy? No, that was a JOKE – at MIT we would NEVER copy one another’s problem sets, it is after all against the rules you know). In some classes during my undergrad days, we had group projects where one grade was assigned to the whole group for the project - maybe that's what a Study Group is. In Business School, it seems like everything hinges on Study Groups. Once I figure out exactly what one is supposed to be, I’ll let you know how best to run one!

6) Sloan Fellows have it easy compared to regular MBA’s. Since we’re older, with more management experience than your typical MBA student, most of us haven’t been to school in a while (the average work experience in our class is 12 years). That means that we get a bit of “special treatment” – though it does mean we have to come to school early. We have what’s called a “pre-term” – we take 3 classes for 3 weeks (Strategy, Managerial Accounting, and Microeconomics) without grades – it’s to get us used to the idea of “sitting in a classroom”, “arguing our points”, doing “assignments”, and doing all the things that students do again. Since I graduated 16 years ago, I think this is a very good idea!

In fact, this sounded pretty easy to me – we had a similar thing at MIT during my undergraduate days: our whole freshman year was pass/fail which took away a lot of the stress of competing against so many smart kids when you first arrived on campus. Many of the Sloan Fellows are married with kids, and some are business owners like me, so we have a lot of other things to be stressed out about. Like I said, this pre-term seemed like it was going to be pretty easy; but it turns out we have to read our first case and several chapters of our textbooks over the labor day holiday before our first class on Tuesday. Oh well, I better stop writing and start reading. Half the weekend is over and all I’ve done so far this weekend is go to a barbecue with other Sloan Fellows, and visit the world-famous Sausalito Art Festival.

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.