The Business Education of Rick Wagoner

I haven’t decided if it is political pandering or authentic toughness, but either way I’m pretty happy about the ouster of the CEO at GM (Rick Wagoner). I don’t have anything against the guy personally, but when you are the one at the helm of a company when it goes belly up, you should be fired. That's what a business education is for...

CEOs get paid to lead a company through financial storms like the one we are in. They are paid to make sure there are reserves, diversification, and multiple back up plans. So when a giant like GM is hemorrhaging so much money that they have to borrow by the billions from the American taxpayer – you have failed. It’s a tough job, the pay is good, but the stakes are high.

Thanks for playing.

I guess the part that I am so happy about here is that finally someone who should be accountable is experiencing some consequences. It’s a bit ironic to me that when companies struggle, sometimes the people in charge are the only ones who have any sort of job security. This one is a point for the good guys.

Anyway, it will be interesting to see who is next, or if anyone will be next. Maybe this was just Obama’s way of “killing a hostage”. Maybe the other CEOs will begin to take their jobs more seriously. Maybe the union will realize that they are pricing themselves out of a market. Maybe we’ll all just grow up a little bit and realize this fake world that the baby boomers have built is coming crashing down around us and that Americans need to actually get back to a strong work ethic and a focus on real innovation if we want to retain our place in the world. I hope so… but for now, I am happy to see one guy get his business education the hard way.

Round 3: Returning to Business School

I woke up this morning and took a walk around the neighborhood I grew up in. As I was walking, I ran into a man down the street I used to do odd jobs for when I was a teenager. We talked briefly and then I made my way back up to my parent’s house and got my bags together. Off to the airport…

Now, I’m sitting on a plane somewhere over California and I just finished reading the first chapter for my upcoming marketing class. The vacation is over and its time to get back to work, to school, and to the gym. Vacations are never long enough – this one was 9 days.

In round three of business school I will be taking Managerial Accounting and Marketing Management. The Managerial Accounting course is being taught by a new professor who recently completed a PHd program at HBS (Harvard Business School). After last quarter’s stats class, my expectations aren’t too high, but I figure a guy from HBS has got to be good.

Our assignments due the first day of class are fairly light. There’s just a little bit of reading/skimming and a small assignment on profit margins. No big thing, but I know 1 week from now everything is going to be nuts again – hopefully not as nuts as last quarter though.

…my plane is making a short stop and then I will be on a direct flight to my final destination. I’m hoping to get a bit more reading done and then hit the gym and finish my opening assignment when I get home.

So, here we go again. Back to Business School.

No Sign of a Recession in Anaheim

I have been on vacation in for the last 7 days and have taken full advantage of the time away from work and school. Yesterday was one of my favorite days because I went to Disneyland.
If you have been to Disneyland, you know that it is quite an escape from real life. We are talking about a place where all the plants are perfectly trimmed, the staff is always smiling, and music is always playing without a single speaker in sight.

Well, I couldn’t help but do a little math while I was there. With the average price of a ticket at about $70.00 plus three meals at approximately $15 each, Disneyland is about $200-$250 per couple. This doesn’t include snacks, souvenirs or kids. This would lead me to believe that the place should have been empty, right? Definitely not the case... From the huge line of cars waiting to park at $12.00 a head, to the 25 minute wait to buy tickets, to the 1 hour wait for Space Mountain, to the herd of people trying to buy over-priced cheeseburgers, the place showed every sign of being packed and not a single sign of an economic downturn.

What’s the explanation for this? I know it was just one day and that it may have been a fluke, but I don’t think it was. Let’s assume the attendance yesterday was within the normal range. Why are people still spending money at this alarming rate? Well, I can’t speak for them, but I did it to escape reality for a day and to have some fun with my family. Since I haven’t personally been affected by the recession I went ahead and went for it. I guess I’m doing my part to stimulate the economy. There are a lot of people employed at Disneyland. So, there it is… maybe a lot of this recession is hype, maybe not. Either way, Anaheim sure can’t tell.

The Competition Evolves: The Best Part of Getting an MBA Degree

There was a book recently published by a student who attended HBS (Harvard Business School). In it, the author discussed what it was like as a student at HBS and what he thought the benefit was from going there and getting an MBA degree in general. One of the major advantages that he highlighted was a change in attitude of the students as they completed the program.
I’ve also noticed this change in myself and in others who are in my program. Here it is… you go from saying “they should do that” to “I should do that”. I would say that this what getting an MBA is all about. You gain the tools necessary (i.e. understanding of corporate finance, economics, marketing, accounting, statistics, etc.) to run a business and make intelligent business decisions. You gain experience leading people and being accountable for accurate data and quality work. You learn how massively important developing a professional network is. All of this adds up to an individual feeling confident enough to say, “Hey, I see an opportunity and I think I know some people who I can team up with to exploit it. Let’s do it.”

So where am I in terms of reaching this point in my B-School career? Well, based on a decision my competition team made… I’m there. Let me explain.

If you have been following my entries, you know that I have been preparing for a business plan competition based on a tidal energy solution that was cooked up by an engineering student at my school. Well, this last week, the team decided to scrap the competition and go through with the product in real life. Yes! A start up!

We have a bit of research and networking to do, but in about 3 months we will decide on a structure and look for funding. Lucky for us our product is clean tech, so there is actually money out there for it.

This experience is shaping up to be the best part of B School. There is no other place I can think of where I could find two engineers, an oceanographer, and an environmental science person who want to start a company with me. And the MBA degree has already changed me into the person that says, “Let’s do it.”

Business School is on Hold: Vacation at Last

A voice just came over the loud speaker of the plane saying, “A second round of drink service will be starting shortly”. Those are the words I have been waiting an entire quarter of school to hear. Well, not really, but it means that I am finally on vacation!
This last quarter was a major time of growth for me. I decided to stop whining about my job, I tested the limits of my energy, and I successfully completed my first Business School Finance class. Let me explain.

Several months ago I began having a very hard time at work. Instead of pushing through this slump with a positive attitude and a general gratitude for employment during a very difficult economy, I sulked and became poisonous to my colleagues. It was common for me to rant and rave about how stupid my company was and how dumb our jobs were on a daily basis. One day in January while I was sitting in class it occurred to me. I thought, “If I am going to be a leader in Business I have to be able to make an impact at work under any circumstances. If I want to command a large salary when I leave, I need to gain valuable experience now and show some maturity”.

So I did. I began taking an interest in work again and even got to participate in a six-sigma evaluation of one of our departments. I have now set myself up for a possible promotion in the coming year if I survive the layoffs. I have also caught the attention of my colleagues and manager with the change in my attitude. I feel so much better…

While I was going through this change at work, I put in some extra hours. At the same time I was busy putting in multiple hour study sessions in Finance and gearing up for a business plan competition. The demands on my time and my brain taxed me to the core. The Finance class forced me to think harder than I probably ever have before. I felt like I was drowning in correlation, present value, and risk formulas. I was only getting about 5 hours a sleep a night from Tuesday to Friday each week and I was booked from 6AM to 11PM almost every day. If it weren’t for this vacation in the future, I think my wife may have left me.

But its over… and I emerged wiser and very tired. My plane lands in 54 minutes. When I walk off, I will have ten days where my biggest concern will be which restaurant to go out to for dinner. This is a well earned and much needed break. I think I might even read something… for fun.

A Real Life Business Education: Flexible Labor Markets

Since I started B-School last year I have had a chance to step out of my career and even my company and industry to see economies and governments from the “3000’ view”. When you are looking at things from such a high altitude, you throw around macro-economic terms without thinking too much about what they mean at a, say, 6-foot level. This creates a strange dynamic between your work life, where you operate at street level, and your school life, which is mainly conducted from the inside of a space station. The irony of this dichotomy recently hit me when I was reading an article in the Economist called, “ the jobs crisis”.

The article was mainly about how different economies in the world were reacting to the global recession. It highlighted the fact that the United States has the highest unemployment rate of all the industrialized countries because of its “flexible labor markets”.

So what does that term really mean? Well, it means that it is easier for a company to fire (and I suppose one day hire) in the United States when compared to other developed nations. More plainly, the cost of lay-offs to the employer is lower in the US. From an employer’s perspective this is good. When the demand for their products or services goes through the floor, they can shed the cost of superfluous employees quickly.

Ironically, my employer has recently been taking advantage of their “flexible labor”. On Friday we learned that 30 of our colleagues at facilities on the East Coast were laid off. All of them are white-collar workers. It seems likely that I may be among the next group to prove the flexible nature of my company’s staff. I don’t recall signing up for this real-life business education.
It could be worse though. At least I have school and access to lots of Government loans. Who knows, maybe I’ll survive the “adjustment”. And, if I don’t, I will be glad for the flexibility of this country’s labor markets when I find the next gig.

Business School Didn't Turn My Ears Red

It's all over... no more assignments, no more presentations, no more group meetings, no more exams, no more evaluations, no more school... for 14 whole days.

Yes, the second quarter is over and I have two full weeks to recover. On Saturday my wife and I are headed out for a much deserved vacation and some quality time - something we haven't had in months!

But let me tell you about the last hurdle in this leg of the journey... the Finance final exam.

If you have been reading this blog, you know that most of my exams leave me with red ears and a headache. This has especially been the case in Finance and Economics. This time was different. I spent 4 hours studying practice exams two nights ago and went into this exam very well prepared.

The exam was proctored by the professors assistant because he was doing a program for a television station. The room was in our Executive center, so I got to take the test while sitting in a leather chair surrounded by mahogany tables. Definitely a highlight of business school so far...

I began the exam by spending 10 minutes on part A of the first question (there were 7 questions). However, at the end of the day I finished the exam with thirty minutes to spare and my ears were not red. I walked out of the exam room and headed straight to an MBA happy hour.

I stayed under my 2 drink maximum, but still had a fantastic time. We must have had about 50 students there drinking green beer and celebrating the end of a very rough quarter. We hung out for about two hours and then all began to go our separate ways.

Well, on with my well deserved vacation from business school. And I didn't even have to start it with red ears.

It's Go Time

In the past 2 weeks I have taken a Stats Final, completed multiple assignments for all of my classes, written a 7 page term paper for Open Innovation, and completed a 6 page Executive Summary for the Environmental competition that I am in...

In 48 hours I will bring the 2nd quarter of Business school to a close with a final exam in Finance 502. I began the grueling march towards Tuesday yesterday with a 3 hour study session dedicated to past exams. Again, today I went to school for a 2 hour review session (it's Sunday). I will hit the books one last time tomorrow night with some study partners for a final round, and then its go time.

As I wrote before, I have really pushed my limits this quarter with the addition of a third class. That addition brought my credit total to 11, which is just shy of full time. All this while working extra hours. It is safe to say that I found my limits and left them in the dust... just ask my wife.

I cannot wait until the end of this week and for Spring Break to start. I have decided to take the week off of work as well to take in the full benefit of the time. My wife and I are headed to Santa Barbara for a few days for vacation and then on to visit some family in Ventura County, CA.



...but back to the work at hand. I will write again after the exam (and the happy hour).

The Second Mentor Session

I recently wrote about a mentor session that I participated in. The mentor was a gentlemen who had experience in several start-ups. Most of that experience was successful. He has essentially "made it" at this point and is giving advice to a few lonely MBA candidates. His advice to me was to change my resume and to build my brand. By this he meant to brand myself as an employee and market my best qualities.

Overall, this session was depressing. I found out that I don't communicate well through my resume and that I need some serious help nailing down exactly what it is I want to do.

Enter Mentor number two.

The second mentor was a senior level individual at a well know tech firm. (I am looking to transfer into the tech industry after/during school). While she did not specifically review our resumes (their were ten of us in the mentee group), she did talk a lot about what a person should do who wants to enter the tech sector. Her two main recommendations were to "get to know the space" and "to take hard quantitative classes".

She explained that the last thing a group at a tech company wants to do is to bring you up to speed on everything going on. She said that if you could get to know their environment (i.e. technological advances, customers, competitors, market share, etc.) you will have a much better chance at landing the job.

She further explained that taking the heavily quantitative classes and highlighting them will be to your advantage. The problem a lot of MBAs have is that they can't understand the technical people. And I'm talking about guys like programmers, developers, statisticians, etc. The more quant, the better the level of understanding... and in some ways the better the problem solving skills.

It was so refreshing to hear some practical straightforward advice. Everyone else just says "network". while networking is important, it is good to know I can do some more tangible things now.

Overall, I was very happy with the second mentor session. I think both of them gave me some good advice, but the second motivated me to get going on some simple first steps.

MBA Degree Woes: Stats on My Own

Tuesday was my last Stats class for the quarter. This was a very exciting day... however, this was also the day that my take home stats final began.

Now, if you have read my previous entries, you know that I hate the idea of a take home final. I can't recall a time outside of business school where someone said to me, "Oh you're not sure? Why don't you write down the question and look into it for the next 48 hours.". In addition, I think it makes the curve extremely steep. This is mainly because the types of students you see in MBA programs are over achievers who will spend 10 hours on a take home test. Consequently, I had to devote several hours to the exam as well.

However, in this case I actually appreciated the take home exam. You see, I have been teaching myself stats since the midterm. And lets just say that I am no business school prof. So, why am I teaching myself? The basic answer is that I was unable to follow the professor. I am not sure if it was me or him, but I would sit through an hour of class and feel like I had learned nothing. So, I made the decision to study on my own.

Here's the rub though... I was two weeks behind. So as I am taking the exam I am teaching myself multiple regressions, time series, and Chi squared. Let me tell you... this is not a good strategy. Needless to say, the exam took over five hours. It was supposed to take 2.

The good news is that it is over and now I know regression, chi squared, time-series, and more...
The bad news is that I'm not sure how well I learned it. I may be writing to you about my second go at stats soon.

Business School: The Competition Continues

A few entries ago I mentioned that I decided to compete in a business plan competition this quarter...

This competition is a bit unique in that it is joint collaboration of the Business School and the School of Engineering. The main idea of the contest is, "Great idea meets market opportunity". Well, the training today talked a lot about the market opportunity.

I guess there are a lot of engineering students that tinker around in there garages, basements, or lairs with some pretty cool stuff. The problem is that most of their inventions never see the light of day because they don't have enough business savvy. Enter Business School student... Our job is to take our business savvy (or develop it very quickly) and bridge the gap between the dusty basement and the market.

Here is the rub though. I've never done this before. Yes, I have taken a lot of courses on various aspects of business, but very few on start-ups or market research. So, I'm in a little over my head. What is my plan?

Well, first I brought in another MBA student who has some expertise in the product area as well to help share the burden. Second, I am banking on the fact that this is a primarily product driven competition. I will do some research, but there is no way I have enough time or the network to fully develop the business side of this product. By the way, the product is a scalable tidal generation system. I work in Operations Management, remeber...

I'll let you know how the competition goes and I may even get some photos of the prototype up on the blog.

Limits

There is something special about those of us who decide to go back to school to pursue a graduate degree. There is something especially special when we have spouses, children, and work when we decide to do it. What is it that's so special?

We think that we are superhuman. We think that we can do anything in any finite amount of time. The truth is that sooner or later we are all destined to find our limits. This past week I found mine...

This quarter I am taking three classes (Statistics, Finance, and Open Innovation). As if the extra class weren't enough, I tacked the responsibility of leading a team in a competition onto my responsibility clipboard. The days I have class begin at 6:00AM when I wake up for work and end at 11:30PM when I get home from school. The days I don't have class are full from beginning to end with e-mails, team meetings, and homework. I've even found time to work out 4-6 days a week, lose 12 pounds, and start a low carb diet. I almost got away with it too.

One week ago my wife was skiing in Canada and she crashed pretty hard. The X-rays revealed a fracture and a surprise behind the fracture... a cyst. Since last Monday we have been to three different doctor's offices four times and my wife can barely move her arm. Luckily, my Mother-in-Law has been here to help out, but she leaves tomorrow. So here I am, not a moment to spare, and now I am also in charge of the house. But wait, there's more. I got a call today from my boss asking me to work an extra day next week for some sort of process excellence thing we are going through at work. So now I have one less day on my weekend right before my first final, a milestone in the competition, and two major assignments are due in the other classes. This is my limit.

What I should really be saying is, "that was my limit". The problem with thinking you can do it all is that inevitably... you can't. This lifestyle doesn't leave an inch for any surprises and you can always count on something happening during any 12 week period.

So, here I go... survival mode switched on. Bracing for impact!

A Real Business Education: The Mentor Session

During my orientation for the MBA program, our Dean mentioned that some of the most important things we will do during the program are outside of the classroom. He was referring to things like clubs, unofficial happy hours with other students, competitions, and organized extra curricular activities like the mentor program.

Being in the Evening MBA program while working during the day has proven to be a real obstacle in attending any outside activities. However, I was able to participate in the mentor program. For first year students, the program consists of a reception with all of the mentors, a bidding process, and one 2 hour meeting with a few other students. My bids resulted in me getting two mentors. I met with the first one this past week.

We had all sent our resumes and a brief synopsis of our near term plans via e-mail prior to the meeting. I wasn't really sure what to expect...

Our mentor was in his mid forties, but had better experience than most business people that had worked twice as long. He received his MBA from Cornell back in the 80s and moved out west. He immediately went to work for a start up and then followed that with several turnarounds of local tech and biotech companies. He's now semi-retired.

He said that he landed his first job by making a pitch to the owner on the acquisition of venture capital money. He explained to the owner that he had been going about it the wrong way and that he could help. He got the owner to agree to give him a cut and a paid salary if he could land some VC money. He got it done and reaped the rewards.

Hearing this story was a real business education. The major theme of what he talked about throughout the meeting tied into this experience. Work outside the system, take risks, offer employers a deal they can't refuse tied to an upside that you can't refuse. He said he once offered to pay an owner for the opportunity to work for him. This was turned down, but he got the job.

He also took some time to go over all of our different resumes. When he got to me he first said, "your not looking for a job, right?". This wasn't a good reaction. He followed that up by telling me that my job title and descriptions made me sound like some old guy with a furrowed unibrow. This sounds a bit harsh, but it was my second piece of business education for the night.

He gave me an honest reaction to a resume that was full of eperience in an industry that most people know nothing about. After insulting me, he gave me a few pointers including the idea to pitch an internship with my current employer. He said that if I could communicate that I was able to affect change and lead in my current rigid environment, that I could boast the ability to do it anywhere.

I left the meeting a bit depressed, but I went straight home and made over my resume. I later sent him a thank you note. He replied and said that I could contact him any time to bounce ideas off of him. It was a positive interaction.

So for me, the mentor program has been a huge success. I have my next meeting with a software company VP this week. I will let you know how it goes :)

Real Life: Limiting Executive Pay

Since entering Business school I have begun to learn that people who don't understand business often make crazy suggestions when it comes to government's interaction with it.

The paragon of this observation is in the deafening cry to limit Executive pay. Now, don't get me wrong. I have absolutely no sympathy for any executives who have recently been at the helm while their companies are going under. In fact, if a company has to take any sort of bailout, I think that the existing executives should be tarred, feathered, demoted to the mailroom, and later handed a pink slip with no severance.

However, I think that telling a company that is taking bailout money that they have to limit executive compensation until they pay those funds back is ludicrous. This will simply limit the quality of C level execs that these companies can attract.

Let's say that you are on the board of directors for GM, and you fire a few of your C level execs because, well, they have driven your business into the ground. Now, you find yourself looking to recruit some massively talented people, because it is going to take a lot of talent to dig GM out. You go out to a potential pool of candidates and offer $500,000.00 year. Right, wrong, or indifferent, you will find it extremely difficult to attract anyone. Why would a talented exec go work for a company in such despair for a tenth of the money they could get doing it somewhere else.

Sure, there may be a few guys/gals that just want a challenge, but for the most part you would be laughed at. It is a simple question of supply and demand. Not a lot of supply at that price level.

So how will companies deal with this? My guess is massive bonuses and stock options. If C level execs can't get the bucks in there salary, they will go after some serious upside in the event that they can turn around a company. My fear is that the government will go after limiting this as well.

The problem is that we have a ton of people who are out of work, taking pay cuts, and generally unhappy with the disparity in salary between themselves and these "elites". I am one of these people. So what do we do? We get pissed and catch the attention of the law makers. But limiting the incentives that struggling companies can offer is a very dangerous thing. We shouldn't begrudge a CEO his large salary if he earns it, and we should absolutely insist in a change of power in any company requesting "bailout" funds, but we can't control companies.

Private enterprise has failed us, but that's no reason to make it worse.

Business School Rewind: The Finance Midterm

I just realized that I never made an entry about the midterm I took in Finance last week...

So how did it go? Well, let's just say it ended with me exiting the room with red ears, a bad case of calculator finger, and 4 minutes to spare. It was awful, probably the worst exam I have had throughout all of business school. Let me start from the beginning...

In the week preceding the test we had a case study due that took up several hours of the group's time. As a result, we all went to the Sunday review session for the exam without much preparation. We weren't the only ones, and our Professor picked up on it. He wasn't too happy. On Monday I spent some time going through one of the practice exams. The professor passes out previous year's exams for us to gauge our preparation. I think I did the 2006 test. Anyway, I felt pretty good about the test and figured I would put a little more time in on Wednesday night (the midterm was on Thursday).

We all went to class on Tuesday and the Prof mentioned that he thought we were all unprepared for the review session that he had conducted that weekend. He asked why, and of course we all mentioned the case we had done as a reason why. He didn't have a huge amount of sympathy for us, but he had enough to schedule office hours for the following day (5-6pm). Even though I couldn't make the office hours, I wasn't to worried.

Wednesday rolls around and I attended my Open Innovation class. Afterward, I hit the gym and then went with another one of my group members to the Business School lounge to study. By the time we got started it was about 11pm. We went through another practice exam and wrapped things up at about 1:30AM. I felt pretty good about this one too. I went home, slept, and woke up at 5:45 the next morning to start the day.

After a long day at work, I made the 1 hour commute to school and sat through an incredibly boring stats class. The Prof picked this of all days to show us the proof for the regression formulas. The entire class was zoning during the lecture... blank faces filled the room. Stats finally ended and we all began the long walk up to the fourth floor for the Finance midterm.

The test was handed out and the Prof put a clock up on the wall (this particular classroom has no clock). I looked at the first question and a little bit of panic began to set in. The question was on stock valuation. Not only had we spent very little time covering stock valuation, but the practice exams had almost no questions pertaining to it. No matter, I pushed forward with my graphing calculator in one hand a pencil in the other. I got through question one with only a slight hesitancy in the beginning.

When I turned to question two I knew I was in trouble. Not only was this one also on stock valuation, it asked to compare and contrast three different companies and to establish stock values through a 10 year period. Intertwined in the whole thing was a series of non-linear dividend payments. I panicked briefly and then began calculating the discounts for all the periods. Next, I added them up to determine the present value of the stocks. After this I began to compare them to answer the different parts of the question. After all was said and done, I spent forty minutes and half a page answering this question. The calculator was dizzy...

Going into the final questions I was pressed for time, but I managed to pull it out with four minutes to spare. I grabbed my exam pack and took it to the front of the room, packed up my bag, and left. I walked outside with red ears and a brain that felt like soup!

It was awful! It was one of those feelings where you are thinking to yourself, "Did I even use the right method on that?". I did a lot of computation, and a lot of work in general, but I may have been completely off the right track. Fortunately, at the happy hour afterward, I talked to several other students who had the same feeling about the exam. Since it is graded on a curve I should be OK.

I will get the exam back next week. If the grade is good I am just going to throw it away. There is no need to relive that experience in any way.

An MBA Degree must have: The First Competition

A huge part of getting an MBA degree is the opportunity to participate in various competitions. The traditional competition for a business school student is the business plan competition. I have a few class mates that have competed in these, but haven't had an opportunity to do so myself. 

Typically the contest involves writing a business plan and pitching it to some venture capitalists. The plan includes a description of your business idea, the market opportunity, and a justification of the investment. The last part requires some sort of proof of financial viability including cash flows, business model, etc. The winner of the competition, and usually a few runner ups, receive a cash prize and some recognition. I believe the cash prize is supposed to be seed money to get the business that you pitched started.

I decided to join a team in a different kind of competition, it's actually the first time my school has done it. It is called the environmental innovation challenge. The point of the contest is to marry up MBA Degree seekers with graduate level engineering students to bring their inventions to light and match it with an opportunity in the market place.

I had my first meeting with my team this last week. The engineer in our group has come up with a low cost tidal power generation system. The design is still being worked out, but it seems to be a niche that has not pursued with any kind of fervor. Maybe we will be the first.

In any case, I am looking forward to the process because it is really a unique experience to work with a team like this and be the only business minded person. The other team mates are really looking to me to write the business plan and come up with the presentation. I didn't tell them that this is my first competition - we'll see if they notice.

Anyway, the competition is on April 1st with a few other milestones (application deadline, full executive summary, condensed executive summary and slide deck, and the pitch). It shoule be fun, and who knows, maybe this invention will soon be supplying power to a grid near you. 

Business School: The O.M. Scott and Sons Case

Since I started Business School I have discovered the MBA Professors best friend... the case study.

Cases are short synopsis of business situations that have accompanying attachments like financial statements or sales records. In accounting, my group completed several cases to help teach us how to unwind accounting voodoo that companies would use.

When studying a case, the most learning occurs when the answers are discussed amongst group members with differing opinions. This is exactly what happened yesterday when my group was completing the HBS O.M. Scott and Sons case.

The basic premise of the case is that the Scott company (lawn care seed and accessories) has introduces a new method of sales to their dealers. The major change is that instead of collecting all of the money for product at the end of a season, they collect it as a dealer sells the product. This means some of the products will be paid for earlier as they sell, but if there is product left over at the end of the season it will not have to be paid for until it actually sells. This would be mid-season or the next season. 

In addition to the sales change, the case covers topics like debt covenants that tie up working capital, earnings versus free cash flow, and overall wealth. This case is a very cumulative application of everything that we have covered so far in Finance.

My group began work on this case at 9:30 in the morning and didn't finish until 3:00PM. Our main hang up was that we hadn't all looked at the case very thoroughly before getting together. As a result, we argued the points out until they made sense to each one of us. This is a huge time suck, but it also contributed to all of our learning, and I think this is the point.

If a person was seriously considering Business School, this case is a good insight into the level of work that is done there.

I guess the bad part is when we "Finished" we really weren't done, so now we will be working independently until our next meeting where we will summarize the recommendation. Our final recommendation needs to be 2 pages with about 2 pages of graphs. We also have a midterm on Thursday.

Yes, it does seem a bit cruel and unusual.

Well, back to the books for me!

Lessons from Business School: Present Value

I mentioned in a previous post that one of the three classes I am taking this quarter is Corporate Finance. This has been a class that has demystified a lot of terminology. We have learned about things like Annuities, bonds, and perpituities. We have also discussed stock valuation, like what a stock is really worth, what people mean when they say "yield", and most importantly present value.

The Professor teaching the course, who I also had for Microeconomics, said that if he had his own business school he would make present value the central theme of the entire program. On a more recent occasion, he also said that the business school graduates he has seen making the big money are the ones that really understand present value.

So what is it? Well, it is the present value of all future cash flows in today's dollars. The discount factor used in present value isn't inflation though, as one might think. The future dollars are discounted using the opportunity cost of capital. Here is an example. Let's say you have $100 and someone offers you $110 next year for your $100 today. It is helpful to know what that is worth today. Let's assume you have a savings account that pays 10% interest (fat chance, but let's go with it for the example). If you put the money in the bank it would pay you $10.00 interest. Therefore, $110 next year is worth $100 this year to you. This may be different than an inflation rate of 2-%-3% or a deflationary rate which we are likely to see in the next year.

Anyway... I know... major boring stuff, but the concept is looking at what future opportunities are worth today. This is hugely applicable when it comes to spending a company's or your own money on something that will pay you back in a certain way. Do I invest in this business, or just throw my money in the S&P 500, which "always" yields about 7%? Should my company start making a new product that takes about a year to cycle back a 5% return or do we have other opportunities that will do better for us.

Sounds simple, right? All you do is look at the future cash-flows and discount them back. Anybody with a calculator or MS Excel could do that. True, but this is where it gets tough. Projecting cash flows isn't easy. Imagine you wantto buy a vending machine route. The seller tells you that they net $5000/month. You determine the purchase price based on the $5000, but what happens if one of the machines busts, or the factory where it sits decides they don't want it there any more. These are tough things to predict and can only be factored in using a risk adjusted discount rate. Here the whole thing gets even goofier. I'll spare you the rest.

So is PV important? Should I be trying to calculate the PV of business school in terms of the future increase in salary and fulfillment I will receive? Maybe, but not yet. I still have 6 weeks left in the class :)

Glad I'm Getting My MBA Degree: Bloody Monday

I was reading an article on CNN earlier today about the latest round of US job cuts. The article details all of the jobs that were lost yesterday. The grand total is 71,400. What an astounding number! This got me thinking... these are real people losing there jobs. Most of these people are supporting families or spouses and they won't all find jobs immediately, or any time soon. And 71000, that is the size of the city I grew up in - and this is just one day we're talking about here.

With the economic climate the way it is, anyone could be next... I could be next. So what would I do if I lost my job? Well, I would pray for a severance and start looking. I have a little bit of savings, so I would be OK for a few months, but after that it would be all about deciding which order to throw the bills in the recycling bin. I just don't know how we would survive on one income (my wife's). Unfortunately, I think my situation may be better than most. At least we have two incomes and some savings.

I guess the silver lining in this stormy time is that I am in school. I know that my fist inclination after losing a job would be to improve my marketability as a candidate. Since I am in school now, I am already doing that as I work. If I am laid off, well, at least I got a small head start.

Besides, it is a fantastic time to be pursuing an MBA degree. As I was studying financial accounting, I got to see the bottom fall out of the market along with all the real life business cases that resulted. In economics we discussed supply and demand as the demand for just about everything began to shift inward at record pace. In statistics we have been looking at standard deviations while the market is living in an area that was 5-6 standard deviations from the mean. The applications are countless and it is really contributing to the learning.

Not to be a profiteer of pain and suffering, but I am getting an opportunity to live through things most students getting their MBA degree only read about in a text book.

Back to the economy... yes, the outlook is bleak, but if you read the article, a little hope is offered.

An economist is quoted at the end as saying,

These recessions are like geometry... ...it looks like we'll have a V-shaped cycle, in that we're going into this with very sharp losses. This intense-phase recession will probably recover fairly quickly, with the job market coming out it at the same angle it came in."

There you have it... out the same way it came in.


Happiness is a state of mind :)

Business School Continues: Midterms on the Horizon

I am coming into the 4th week of my second quarter in Business School which means that midterms are just around the corner. I actually have a stats midterm on Tuesday, but my Finance midterm is still about ten days away.

I am still getting used to the speed of the quarter system. When I did my undergraduate degree I was on a semester system. Midterms were almost two months after the term started. It seemed like you had ages to prepare and the information had become second nature to you by then. With quarters you are still learning how to spell the professors name when midterms begin. I joked with a couple of the guys in my group about how the midterm in stats was  five weeks away. This was a conversation we had the day before the quarter began!

So here I am two days away from the stats midterm and I haven't began studying. I have to do a complete review of everything we have covered. This includes the basics of probability and information summaries such as mean, median, and mode. But, it also includes standard deviation of populations and samples, standard error, Z-scores, T-scores, independent variables, dependent variables, mutual excluvisity, probability trees, binomial shortcuts, etc.

Am I ready? Absolutely not. But, I have the day off tomorrow and the exam is open note, open book, and we can even use Excel. This seems kind of silly since excel has formulas that can solve any stats problem we get, but I guess we will be able to use Excel in the real world too.

After the Stats exam, I will switch almost immediately to Finance. There I will focus on Fisher Diagrams, Present Value, Annuities, Bonds, Stock Valuation, and other exciting Business School topics. But I can't start looking at that stuff until this weekend. I wouldn't want to get ahead too much.

For either exam I will have a crib sheet at a minimum so hopefully they won't be as stressful as last quarter's. Here I go... deep breath has been taken. I'll see you on the flip side.