I went to two very different business schools. How did I manage to do that, you may ask? Well, it happened this way. My father owned a grocery store that had previously been owned by his father, and his father before him. Over the course of his career, my dad also involved himself in various restaurants, a few chains of convenience stores, and some other retail operations. He was also partners in several commercial real estate projects, especially apartment complexes. As soon as I was old enough to carry out empty boxes, I went to work, joining my two older brothers. Don’t get me wrong, my dad wasn’t some kind of child labor freak. He allowed us time for regular kid stuff. But he also knew exactly how to fill any holes in our schedules. In addition to working at the grocery store, I was trained to answer the phone when potential renters called-in about the new apartments. My experiences working with the public served as my first business degree, and I learned a great deal about proper customer service.
My second business school was what everyone would easily recognize as a business school: the MBA program at Ohio State University, at the time one of the top ranked programs in the country. I wouldn’t say that I was any kind of outstanding, genius-level geek, but I did well enough. I learned all of the min-max solutions, decision trees, statistical analysis, NPV Analysis, IRRs, in short, all of the ways that modern business decisions are made. At the end of the program, we were also given a course in Business Ethics. Lots of my fellow MBA students snickered at the idea of business ethics, and no one took it very seriously. After all, it’s a dog-eat-dog world out there.
After graduation, I still worked for the family business for a while. Then I ventured into the local real estate market as a commercial real estate agent. I had a small problem doing that job when it came to clients who wanted to rent space for their start-up businesses. I usually tried to talk them out of it. Many people say that business school tends to make one risk adverse. That’s probably why college dropouts like Bill Gates and Steve Jobs were so successful.
I remember one young family in particular. A husband and wife came into the office, with their baby in its car seat/carrier. He wanted to open a donut shop in a new strip center we were leasing. I knew that the space he wanted was wrong for that enterprise since there was no way to put in a drive-up window, a necessity for that type of business. Another problem was that three of the county’s major donut shops had locations that virtually surrounded the one that he wanted. Oh, and the donut business was declining at the time. I expressed my reservations, including the prospect of not making any money right away. He told me he could take at least six months of losses. Three years wouldn’t have been enough. I talked him out of it.
Needless to say I wasn’t all that good of a salesman, at least in terms of my own financial gain. When the opportunity came along to take a job doing real estate appraisal and analysis, I jumped. I was a keen observer, good with analytical ability, and could convey my results in a readable report. The only problems came when real estate developers wanted to get loans. The values that you predicted were never high enough to suit them. Developers always like to make some money up front, even if their project isn’t an initial success and the only way to do that is to borrow more than you need. Initially, it didn’t bother the bankers that we developed conservative, but realistic values. They were a conservative bunch by nature, and didn’t want to risk their depositors’ money. But that changed, too.
Bankers and other lenders became much more focused on making deals. They no longer worried about the future health of a commercial real estate venture because the loans were securitized. That is, they were bundled together and sold-off in secondary markets. In short, they became someone else’s problem. The bankers only made money by putting the deals together. Pressure was applied to the appraisers to make the deals work. The same thing was happening with the residential market, and we have witnessed the result. Complete financial meltdown. What they asked us to do was to lie by boosting values to unrealistic levels. It bothered me. I began eating antacids like candy. Eventually, I allowed my once promising career to self-destruct. Despite huge financial setbacks and the destruction of my marriage, my stomach settled down when I abandoned the profession.
I reluctantly returned to retailing, working for an independent grocery store. It was like going home again. At first I was amazed at the smooth running operation. But the competition was fierce. The owner wanted to run the kind of store he was used to running, but the market continued to evolve and he didn’t alter his business model until it was too late. The only changes that he could control were to cut payroll and inventory levels, resulting in less personalized service and declining selection. He might have made it if he had made the right changes, but that didn’t happen. By the time he saw the light, there was no money to make the changes. Unfortunately, for these and a variety of other reasons, the business failed.
I’ve recently had a glimpse into the workings of a modern, national chain store, run by corporate MBAs. I had high hopes for this company. They offered a rigorous computer-based training program, modern sales-based self-ordering inventory system and much opportunity for advancement. I’ll tell you right now, I’m highly disillusioned. The training must be done while working on serving customers and stocking shelves. Payroll has already been trimmed to the point that merchandise piles up in the backroom, because no one has any time to restock the shelves. If a customer asks for an item, no one has time to check the back room for it. The sale is lost and the customer is dissatisfied.
One of my grandfather’s favorite business lessons was “you can’t sell it from the back room.” Grandpa retired at the age of fifty with a home up north and a winter place down south. He had money in the bank, investments, and two cars, one a Cadillac (and Grandma didn’t drive). I tend to believe he knew what he was talking about. Grandpa didn’t have a college degree, yet alone an MBA. Right now, I have more faith in his business model than the modern, business-school-formula run companies.
American business is in peril. If you think that cutting taxes for wealthy people will create more jobs, you really haven’t been paying attention to historical fact. Taxes have steadily decreased over the past several decades, and the financial system that has resulted is a mess. Big government is not likely to solve the problem either.
I have always had faith in numbers. But those homespun old sayings keep coming to mind. There are lies, damn lies, and then there are statistics. Figures lie and liars figure. The business models that have evolved in the modern era are not working, but since a few people are extremely well off, we ignore the facts, because we’re sure that America is only moments away from providing us with the same bounty. After all, we’re number one, aren’t we? Guess what, someone is number one, but it isn’t you, and I’m certain that it isn’t me.
“Thinking outside the box” is one of those terribly trite, overused business school buzzwords that tend to make me nauseous. Maybe it’s time to return to the box, at least for a minute or two. Trade the focus on your quarterly bottom line for what is going to have the biggest impact on the quality of life for your customers. Go “old school” for a minute and consider the impact that rising incomes for a large segment of the population would have for your company’s bottom line. Henry Ford believed in paying his workers well so that they could afford his company’s products. He firmly believed that such a business model would lead to world peace. He may have had some extremist views in other areas, but I think he was spot on concerning this issue. Our middle class is disappearing, and our economy falters on the brink of an abyss. Most of us are content to keep our heads down, mind our own business and do our own thing. That is a recipe for disaster. We need to wake up and get involved.
This is the way the world ends
This is the way the world ends
This is the way the world ends
Not with a bang but a whimper.
-T.S. Eliot (from “The Hollow Men”)
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