You get to start over again–in the real world.
As anyone who employs people and writes checks will confirm, turning $1 into a $1.10 is a real bitch. Turning that $1.10 into $1.25, even tougher. I had to laugh the other day when I saw on Google+: “Generating positive cash flow is one of the hardest f—ing things in the world.”
For all the wonderful instruction at places like Harvard, Wharton and my alma mater, DePaul University, b-schoolers should remember that making money involves so much more than columns in a spreadsheet and the ever-shifting assumptions behind them.
With that in mind, here’s a supplemental, 8-step curriculum:
- If It Ain’t Broke, Still Fix It: One of the hardest decisions business owners have to make is turning their backs on cash when it is flowing. But that is exactly what you must have the courage to do sometimes to protect your franchise. Think about all those aggressive mortgage underwriters who scooped up fees by the shovelful during the housing bubble, when they should have been tightening their lending criteria. Or USA Inc., which ran deficits for years–because, well, our creditors did not seem to mind–and now faces a staggering $60 trillion fiscal hole (including the present value of all future obligations to its entitlement programs).
- If You Don’t End Up Working At Goldman Sachs, Forget What You Learned About Finance: In my entire finance career with large respected companies, I can count on two hands the number of IRR (internal rate of return), DCF (discounted cash flow) and NPV (net present value) analyses I have completed, and I am pretty sure that I analyzed exponentially more balance sheets in a classroom than I ever have in a boardroom.
- Take Your Financial Models With An Indiana-Jones-Sized Boulder Of Salt: Another biz-school mate, now a health care consultant, chimed in with this stern admonition: “Too often people in business rely upon a model demonstrating projections out 15 – 30 years.” I was astounded: Fifteen to thirty, I confirmed? In school we worked in more modest 3-to-5-year increments, with an understanding that anything beyond that was magical thinking. “Believe it or not,” he went on, “I have seen some done out that far for deals [acquisitions] and often for public-private partnerships.” Find me an industry (save for perhaps utilities) where the assumptions you make today apply for three years, let alone 30. No, really, find me one.
- Overpromise And Try To Deliver: Under-promising and over-delivering may work on conference calls with Wall Street analysts who need earnings projections for their valuation models. (GE made an art out of that game for years under Jack Welch.) But that strategy will not always cut it when chasing new business to meet growth targets (or just payroll). Sometimes you will have to bite off more than your models–and your gut–say you can chew just to win the business. It’s an uncomfortable sensation at best, and a reputation-damaging maneuver at worst if you don’t come through. Get ready–and no tears.
- If You Do Not Know Who The Sucker Is, It Is You: Yet another B-school colleague of mine, who probably plays too much poker, recalled this adage, a favorite of mine: “People are happy to take your money by pulling you off your home court,” he says. “Don’t let them. Deploy capital in ways that you understand not only intellectually, but also viscerally. Stick to home games–that’s where your instincts will flourish.”
- If No One “Owns” A Project, It Will Not Get Done: Most people do not put in long hours for their health, or to make shareholders wealthy, or because their families drive them nuts and they would rather grind it out in the office. (Okay, sometimes that last part is true.) They do it because their job demands it, and with any luck they take a lot of pride in doing it well. Which is why all projects need champions. Not the kind who beats his chest and spews happy mission statements. The kind whose backside is on the line if things do not pan out. More importantly, the kind who has the authority and resources to make decisions that other people have to follow, else their backsides are on the line. It is not that people are lazy or incompetent (they may well be, but that’s a hiring issue). It is that, over time, you get what you incentivize–or do not.
- Be Clear: They actually do tell you this one in b-school, but not in so many words and not vehemently enough. The clearer you are, the more thoroughly you probably understand what you are talking about, and the more capable and trustworthy you will seem to customers, colleagues and employees. Being clear has immense ramifications–on productivity, customer satisfaction and employee morale. If your Power Point deck contains the word “ideate,” cut, and do not paste. In fact, eliminate all jargon from everything you do. (If you think the word “utilize” is a smarter version of “use,” please, please read The Most Annoying Business Jargon.) This applies to electronic exchanges as well. The simplest, most straight forward emails can, and will, get twisted beyond meaningful comprehension. If the message is mission-critical, communicate face-to-face, or by phone, as best you can.
- Business Involves People: People are a pain. They whine, mess up and have all sorts of problems. That is why every now and again you should ask how they are doing–and actually listen to the answer. It does not cost a cent and helps lift spirits and build trust.
