101 Things I Learned in Business School Read online

  Copyright

  Copyright © 2010 by Matthew Frederick

  All rights reserved. Except as permitted under the U.S. Copyright Act of 1976, no part of this publication may be reproduced, distributed, or transmitted in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

  Matthew Frederick is the series creator, editor, and illustrator.

  This publication is designed to provide competent and reliable information regarding the subject matter covered. However, it is sold with the understanding that the author and publisher are not engaged in rendering legal, financial, or other professional advice. Laws and practices often vary from state to state and if legal or other expert assistance is required, the services of a professional should be sought. The author and publisher specifically disclaim any liability that is incurred from the use or application of the contents of this book.

  Grand Central Publishing

  Hachette Book Group

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  New York, NY 10017

  Visit our website at www.HachetteBookGroup.com

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  First eBook Edition: May 2010

  Grand Central Publishing is a division of Hachette Book Group, Inc. The Grand Central Publishing name and logo is a trademark of Hachette Book Group, Inc.

  ISBN: 978-0-446-56956-9

  Contents

  Copyright

  Author’s Note

  Acknowledgments

  Chapter 1: Business is the exchange of entities to which values have been assigned.

  Chapter 2: Business is not a single field of endeavor.

  Chapter 3: Philosophy of business or business philosophy?

  Chapter 4: Capital is assets in the form of money or “near-money.”

  Chapter 5: Not all capital is economic.

  Chapter 6: Functional silos can be dysfunctional.

  Chapter 7: Business ownership

  Chapter 8: A stock indicates ownership; a bond is an I.O.U.

  Chapter 9: The board of directors

  Chapter 10: How to run a meeting

  Chapter 11: There are three ways to grow a business.

  Chapter 12: Don’t just compete in existing markets; anticipate new ones.

  Chapter 13

  Chapter 14: Six degrees of Lois Weisberg

  Chapter 15: A mission or vision statement that is impossible to disagree with might not be saying much of significance.

  Chapter 16: Learn an organization’s culture before working with or for it.

  Chapter 17: The most difficult and time-consuming problems in business are not business problems.

  Chapter 18

  Chapter 19: Most employees want to do good work.

  Chapter 20: Top-down and bottom-up

  Chapter 21: Command, consensus, or consultation?

  Chapter 22: A manager usually should have no more than six to eight workers reporting to him or her.

  Chapter 23: The party that cares less about the outcome of a negotiation is in the stronger negotiating position.

  Chapter 24: There’s a trolley every 15 minutes.

  Chapter 25

  Chapter 26: Do your marketing while you’re busy.

  Chapter 27: Cannibalize your own sales.

  Chapter 28: Substitutes are competitors.

  Chapter 29: Targeting the safe middle market is not necessarily a safe marketing strategy.

  Chapter 30: Free can be part of a successful business model.

  Chapter 31: Double-entry bookkeeping

  Chapter 32: Cash versus accrual accounting

  Chapter 33: Standard accounting reports

  Chapter 34: Depreciation makes accounting more complex, but more accurate.

  Chapter 35: In the short term, some costs are fixed and some are variable. In the long run, all costs are variable.

  Chapter 36: Financial ratios

  Chapter 37: Use several accounting reports to gauge performance.

  Chapter 38: Profitable, fast growing companies can be chronically short of cash.

  Chapter 39: Bankruptcy doesn’t necessarily mean a business ceases to exist.

  Chapter 40: The price of a stock is an emotional as well as economic projection.

  Chapter 41: Deflation can be bad for business.

  Chapter 42: The U.S. government has two primary tools for influencing the level of business activity.

  Chapter 43: One ad, one message.

  Chapter 44: Repetition doesn’t make a statement true, but it can make it believable.

  Chapter 45: Positive and negative feedback loops

  Chapter 46: The Law of Supply and Demand doesn’t always apply.

  Chapter 47: There never has been a true barter economy.

  Chapter 48: Those who say theory “isn’t the real world” don’t understand what theory is.

  Chapter 49

  Chapter 50: Interest rates have three components.

  Chapter 51: The Rule of 72

  Chapter 52: A business buys a copy machine because it needs copies, not because it wants a copy machine.

  Chapter 53: Customers do not buy a product or service the same way or for the same reason.

  Chapter 54: A feature is a fact. A benefit is how it helps the customer.

  Chapter 55: Complaints can be good things.

  Chapter 56

  Chapter 57: Branding

  Chapter 58: Intellectual property protection

  Chapter 59: Business development can save municipalities money.

  Chapter 60: Materials are “free”; it’s everything else that costs money.

  Chapter 61: Are retailers and wholesalers necessary?

  Chapter 62: Push and pull

  Chapter 63: The Internet encourages a long tail business model.

  Chapter 64: Going green can make more “green.”

  Chapter 65: An expert isn’t always the person who knows the most.

  Chapter 66: True experts know more than they know they know.

  Chapter 67: Promoting the best performer to manager is often a mistake.

  Chapter 68: Why buy debt?

  Chapter 69: The higher one rises in an organization, the longer it takes to implement a decision.

  Chapter 70: The higher one rises in an organization, the more one must be a generalist.

  Chapter 71

  Chapter 72: Good, fast, or cheap: pick two.

  Chapter 73: If all courses of action appear equal, get more objective information.

  Chapter 74: The decision tree

  Chapter 75: A good manager makes imperfect decisions.

  Chapter 76

  Chapter 77: Sacrifice the trivial few for the vital many.

  Chapter 78: Two views on good management

  Chapter 79: Tell others the result you need, not how to get it.

  Chapter 80: When overwhelmed, try doing fewer things, but doing them better.

  Chapter 81: Obsolete does not always mean useless.

  Chapter 82: Form, storm, norm, perform.

  Chapter 83: Risk homeostasis

  Chapter 84: A statistical correlation does not necessarily mean a cause-effect relationship.

  Chapter 85: Moral hazard

  Chapter 86

  Chapter 87: Don’t leave the design of your website to the IT department.

  Chapter 88: Microenterprise

  Chapter 89

  Chapter 90: In retail, know if your business is a host or a parasite.

  Chapter 91: Good merchandising is theater.

  Chapter 92: Set prices according to what the customer will pay, not necessarily according to costs.

  Chapter
93: An effective speaker knows his or her subject, but first seeks to know the audience.

  Chapter 94: The real purpose of a visual presentation is to get people to listen, not look.

  Chapter 95: Write it once.

  Chapter 96: Say it twice.

  Chapter 97: Running a restaurant well is about more than being a good chef.

  Chapter 98: Even a one-person business has departments.

  Chapter 99: Hire your boss.

  Chapter 100: Some stress is good. A lot of stress is bad.

  Chapter 101

  From Michael

  To my mother, Elinor B. Preis, for always believing in me

  Author’s Note

  An MBA is one of the most sought after postgraduate degrees, viewed by many as a reliable avenue to a good job and lucrative career. However, while an MBA can help jump-start one’s career and may speed professional advancement, it isn’t the most essential factor in a successful career.

  As often happens, when the majority of people figure out the rules of the game, the game changes. The paradigm of spending an entire career with a single employer or within a single industry is far less common than it once was. Those starting their careers now are likely to work for multiple employers and even in multiple industries over the course of their working lives. Thus, being able to learn quickly, adapt to change, and employ ethical behavior, passion, and savvy thinking in the face of new challenges is crucial.

  While business schools provide specific information, skills, and tools for tomorrow’s business people, they more importantly should instill a desire and proficiency for learning beyond the classroom. Furthermore, there is no single discipline called business; it is, rather, a broad field of endeavor encompassing such diverse disciplines as accounting, communications, economics, finance, leadership, management, marketing, operations, psychology, sociology, and strategy. Those most likely to be successful in business in the long run have the broadest and most open understanding of it.

  This book seeks to present lessons in the areas of business that are most likely to be useful to you, whether you are a student in the field, a longstanding businessperson, or someone with an interest in the field. It may be many years before you have the opportunity to apply some of the lessons, but it is my hope, nonetheless, that they will increase your understanding and help you navigate the interesting and challenging avenues of the business world.

  Michael W. Preis

  Acknowledgments

  From Michael

  Thanks to Sal Divita, Geoff Love, Kevin Waspi, Kevin Jackson, Joe Mahoney, Greg Kellar, Abbie Griffin, Bill Brooks.

  From Matt

  Thanks to Karen Andrews, Alissa Barron, David Blaisdell, Dick Canada, Paul Caulfield, Sorche Fairbank, Joel Garreau, Mary Helen Gillespie, Tracy Martin, Bill McKibben, Jim Monagle, Roni Noland, Camille O’Garro, Janet Reid, Kallie Shimek, Flag Tonuzi, Tom Whatley, Rick Wolff, and Luke Wroblewski.

  1

  Business is the exchange of entities to which values have been assigned.

  In business transactions, the values assigned to goods, services, or money may be economic, emotional, or both. A business transaction works because each party assigns a higher value to what it receives than what it provides. A customer who buys a sweater for $50 values the sweater more than the $50; likewise, the seller values the $50 more than the sweater.

  Value may be assigned on the basis of anticipated future value instead of current value. For example, one might “overpay” for an ice cream machine because of an expectation that it will generate future income. In this sense, business is sometimes defined as the exchange of current value for future value.

  2

  Business is not a single field of endeavor.

  Accounting: the language of business, which organizes and conveys information about transactions in monetary terms

  Finance: the management of money and monetary assets

  Marketing: the effort to promote a company’s products and brands to the intended markets, and to ensure that the right products are for sale at the right prices in the right places

  Production and Operations: the coordination and overseeing of activities such as manufacturing and provision of services

  Organizational Behavior: the study of how people act and interact in work settings; may include motivational strategies, corporate organization and culture, leadership models, group psychology, and conflict resolution

  Economics: a social science pertaining to business and financial activity

  3

  Philosophy of business or business philosophy?

  Business philosophy is a term used within the field of business to refer to the values or approach of a particular company (e.g., “ABC Widget’s business philosophy is to put the customer first”) or the dynamics of a market segment (“the widget industry demands a permanently flexible business philosophy”).

  The philosophy of business is concerned with broader meanings of business as a human endeavor, including whether business is fundamentally an economic or social phenomenon, the moral obligations of business to society, the degree to which government should regulate businesses, and the differences between business operations and meanings in capitalist and socialist societies.

  4

  Capital is assets in the form of money or “near-money.”

  Equity capital is obtained by selling a portion of the ownership of a business to investors. It is considered permanent capital because the property or funding provided by the investors never has to be paid back. However, the investors—called equity owners or equity partners—may sell their ownership to other parties. Stocks are a form of equity ownership.

  Debt capital is obtained by borrowing money. It is temporary in nature because the money must be repaid to the lenders. Bonds and bank loans are two sources of debt capital.

  5

  Not all capital is economic.

  Intellectual capital is proprietary information and in-house knowledge of technologies, materials, processes, and markets useful to an organization.

  Human capital consists of talents, skills, and knowledge residing among employees.

  Social capital refers to established human relationships, both within and external to a company, that create and maintain value.

  Brand equity is the additional value that a brand name adds to an otherwise equivalent good or service, allowing the company to charge a higher price.

  6

  Functional silos can be dysfunctional.

  Many business activities have to be performed across functional silos.

  The many disciplines in business are often organized and studied independently. But while their separation can provide clarity and allow expertise to shine, “functional silos” are not inherently distinct. The actions of departments and their employees invariably affect other departments and the entire organization.

  7

  Business ownership

  Sole proprietorship: The owner and the business are legally the same entity, although a separate business name may be used. It is the simplest form of ownership, and the owner is personally liable for all acts and debts of the company.

  Partnership: The same as a sole proprietorship but with multiple owners. Partners’ ownership interests need not be equal, but any partner may be liable for acts of the others. Liability is not proportional to ownership interest.

  Corporation: An entity deemed legally distinct from its owners, who cannot be held personally liable for acts or debts of the corporation. The owners are stockholders, and the stock may be privately held (e.g., a family business) or publicly traded on a stock exchange. C corporations pay taxes based on net profit, while S corporations pass some income and losses to the owners for inclusion on their personal taxes.

  Limited Liability Company: An unincorporated business that combines some of the simplicities and tax flexibility of sole proprietorships and partnerships with some of the liability advantages of a corporation.

  8

&nbs
p; A stock indicates ownership; a bond is an I.O.U.

  Stocks are increments of ownership of a corporation. Bonds do not represent ownership, but are used by corporations and governments to borrow money.

  Common stockholders elect a board of directors to oversee the company’s management, and are usually paid a dividend if the company is profitable.

  Preferred stockholders typically do not have voting rights but are given preference over common stockholders in the payment of dividends and liquidation. Some preferred stocks carry with them the right to be converted into common stock.

  With secured bonds, the issuer pledges specific assets as collateral in exchange for cash. A mortgage bond is an example. In the event of bankruptcy, a court appointed trustee sells the assets and uses the proceeds to repay the bond holders.

  Unsecured bonds, or debentures, are not backed by collateral. In the event of bankruptcy, bondholders compete with other creditors for repayment.

  9

  The board of directors

  A corporation is required by law to have a board of directors, elected by and having a fiduciary responsibility to the owners (stockholders). A board should consist of experts in the industry and represent the long-term interests of the owners and other stakeholders.

  A board governs at a strategic rather than day-to-day level. It establishes policy, sets direction, hires and supervises top management, is responsible for compliance with laws and regulations, and assures adequate resources for operations.