Is Business School Right for You? 02-03

Is Business School Right for You?

Over the holiday, I had the chance to talk with several prospective students interested in applying to Johnson. They came from a variety of backgrounds and, like most prospective students; all were curious how the first Johnson Cornell Tech MBA class was shaping up. After several phone calls, a few themes emerged as I noticed that many people were potentially applying for business school for what I think is the wrong reason. I’d like to explore a few of the more common reasons and talk about why I think they are troubling.

Reason 1: “I don’t like my current job therefore I’m hoping business school will help me get a better job.”

This is probably the number one reason I hear from people interested in applying to business school. It’s entirely possible that after Cornell, you’ll be able to get a job at a more “prestigious” company, but that doesn’t necessarily mean you’ll like the job more. The trouble is that most people don’t know what type of job/role/activity they would really like to do for eight hours a day. 

They know what they don’t like (e.g., certain aspects of their current job) and they have some inclination of what they might like (e.g., typically industry/sectors that are hot), but they’re not really sure. When I push applicants on what they want to do after graduation, most provided high-level answers such as, “I want to work in XYZ industry or in ABC function.” Why? Most of the answers were vague, at best.

It’s okay not to know why business school interests you. The concern I have is, are you taking steps before applying to business school to learn what you want to do and what you’re good at? You can definitely find time in business school to explore specific industries, but I recommend exploring coffee chats and researching industries and functions before applying to business school. 

Especially if this is the primary reason you want to go back to school. Not only will you get more bang for your buck prepping yourself beforehand, you’ll also have a leg-up when recruiting begins. Avoid being scattered, applying for every “hot company” under the sun. Remember, when conducting a career search; don’t just think about what you want to do, also consider what you are actually good at.

Reason 2: “I am dissatisfied with my career growth and think business school can help me grow my career faster.”

This is an issue frequently expressed by younger applicants, but also by others. There are different ways to express this concern including, “I’ll be able to get a faster promotion with a MBA degree” or “I might not be promoted in the future if I don’t have a degree.” Another variation is, “My current career growth isn’t as fast as I’d like and I believe an MBA degree will help.”

 Again, nothing wrong with this line of thinking, but the more important question is if this line of thinking is actually reasonable in your situation. For some industries, it’s almost becoming a pre-requisite to possess an MBA, but that’s not true for all. For those who haven’t figured out what they really want to do (see first point above), this thought process becomes even more dangerous.

In our society, a society that values progression, promotion, and progress, we often feel that we must constantly be in an upward progression. Recognize that what made you successful in your current role doesn’t necessarily mean you’ll be successful in your next endeavor. Furthermore, what you enjoy doing now doesn’t mean you’ll have to chance to do those things when you are promoted. Seeking growth for growth sake can be deadly for a company, just as it can be deadly for your career.

Reason 3: “I don’t have time to do my startup, work-on my passion, or do what I really love because of my current employment. Business school is a breeze so I’ll have time to do while enrolled.”

Business school isn’t medical school so yes; it is “easier.” However, you can’t sleep through classes. Even if you don’t care about academics, being in an environment where incredibly intelligent people are doing thousands of wonderful, innovative activities, you’ll quickly start running out of time just having fun. If you feel that business school is going to give you free time, I’d like to correct that misperception. 

Instead, view business school as providing options and it’s your quest to effectively manage that time, no different than your current situation today. I recommend for people feeling burned out at work and seeking to attend business school as an escape, ask your employer about taking a leave of absence. Take some time off, even without pay. 

If you’re a great employee, most employers would be more than willing to consider the request. While experiencing a hiatus, use that time as a sabbatical. Two months later, you’ll know if it really was a poorly suited job or just the excuse you’re giving yourself for not pursuing your passion.

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Business School, Disrupted 06-01

If any institution is equipped to handle questions of strategy, it is Harvard Business School, whose professors have coined so much of the strategic lexicon used in classrooms and boardrooms that it’s hard to discuss the topic without recourse to their concepts: Competitive advantage. Disruptive innovation. The value chain.

But when its dean, Nitin Nohria, faced the school’s biggest strategic decision since 1924 — the year it planned its campus and adopted the case-study method as its pedagogical cornerstone — he ran into an issue. Those professors, and those concepts, disagreed.

The question: Should Harvard Business School enter the business of online education, and, if so, how?

Universities across the country are wrestling with the same question — call it the educator’s quandary — of whether to plunge into the rapidly growing realm of online teaching, at the risk of devaluing the on-campus education for which students pay tens of thousands of dollars, or to stand pat at the risk of being left behind.

Harvard Business School faced a choice between different models of online instruction. Prof. Michael Porter favored the development of online courses that would reflect the school’s existing strategy. Credit

David De la Paz/European Press Photo Agency

At Harvard Business School, the pros and cons of the argument were personified by two of its most famous faculty members. For Michael Porter, widely considered the father of modern business strategy, the answer is yes — create online courses, but not in a way that undermines the school’s existing strategy. “A company must stay the course,” Professor Porter has written, “even in times of upheaval, while constantly improving and extending its distinctive positioning.”

For Clayton Christensen, whose 1997 book, “The Innovator’s Dilemma,” propelled him to academic stardom, the only way that market leaders like Harvard Business School survive “disruptive innovation” is by disrupting their existing businesses themselves. This is arguably what rival business schools like Stanford and the Wharton School have been doing by having professors stand in front of cameras and teach MOOCs, or massive open online courses, free of charge to anyone, anywhere in the world. For a modest investment by the school — about $20,000 to $30,000 a course — a professor can reach a million students, says Karl Ulrich, vice dean for innovation at Wharton, part of the University of Pennsylvania.

“Do it cheap and simple,” Professor Christensen says. “Get it out there.”

But Harvard Business School’s online education program is not cheap, simple, or open. It could be said that the school opted for the Porter theory. Called HBX, the program will make its debut on June 11 and has its own admissions office. Instead of attacking the school’s traditional M.B.A. and executive education programs — which produced revenue of $108 million and $146 million in 2013 — it aims to create an entirely new segment of business education: the pre-M.B.A. “Instead of having two big product lines, we may be on the verge of inventing a third,” said Prof. Jay W. Lorsch, who has taught at Harvard Business School since 1964.

Credit

Starting last month, HBX has been quietly admitting several hundred students, mostly undergraduate sophomores, juniors and seniors, into a program called Credential of Readiness, or CORe. The program includes three online courses — accounting, analytics and economics for managers — that are intended to give liberal arts students fluency in what it calls “the language of business.” Students have nine weeks to complete all three courses, and tuition is $1,500. Only those with a high level of class participation will be invited to take a three-hour final exam at a testing center.

“We don’t want tourists,” said Jana Kierstead, executive director of HBX, alluding to the high dropout rates among MOOCs. “Our goal is to be very credible to employers.” To that end, graduates will receive a paper credential with a grade: high honors, honors, pass.

“Harvard is going to make a lot of money,” Mr. Ulrich predicted. “They will sell a lot of seats at those courses. But those seats are very carefully designed to be off to the side. It’s designed to be not at all threatening to what they’re doing at the core of the business school.”

Exactly, warned Professor Christensen, who said he was not consulted about the project. “What they’re doing is, in my language, a sustaining innovation,” akin to Kodak introducing better film, circa 2005. “It’s not truly disruptive.”

‘Very Different Places’

Professor Christensen did something “truly disruptive” in 2011, when he found himself in a room with a panoramic view of Boston Harbor. About to begin his lecture, he noticed something about the students before him. They were beautiful, he later recalled. Really beautiful.

“Oh, we’re not students,” one of them explained. “We’re models.”

They were there to look as if they were learning: to appear slightly puzzled when Professor Christensen introduced a complex concept, to nod when he clarified it, or to look fascinated if he grew a tad boring. The cameras in the classroom — actually, a rented space downtown — would capture it all for the real audience: roughly 130,000 business students at the University of Phoenix, which hired Professor Christensen to deliver lectures online.

Why had his boss, Mr. Nohria, given him permission to moonlight? “Because we didn’t have an alternative of our own” online, Mr. Nohria explained.

The dean had taken a wait-and-see approach — until 18 months ago, when his own university announced the formation of edX, an open-courseware platform that would hitch the overall university firmly to the MOOC bandwagon.

He said he remembered listening to an edX presentation at an all-university meeting. “I must confess I was unsure what we’d be really hoping to gain from it,” he said. “My own early imagination was: ‘This is for people who do lectures. We don’t do lectures, so this is not for us.’ ” In the case method, concepts aren’t taught directly, but induced through student discussion of real-world business problems that professors guide with carefully chosen questions.

“Nitin and I are close friends, and we’ve talked about this repeatedly,” Professor Porter said. “I think the big risk in any new technology is to believe the technology is the strategy. Just because 200,000 people sign up doesn’t mean it’s a good idea.” Though Professor Porter published “Strategy and the Internet” in the Harvard Business Review in 2001, before the advent of MOOCs, the article makes his sternest warning about the perils of online recklessness: “A destructive, zero-sum form of competition has been set in motion that confuses the acquisition of customers with the building of profitability.”

Mr. Nohria ultimately chose for the business school to opt out of edX. But this decision forced a question: What should the school do instead? “People came out in very different places,” Mr. Nohria said. “Very different places.”

One morning, he sat down for one of his regular breakfasts with students. “Three of them had just been in Clay’s course,” which had included a case study on the future of Harvard Business School, Mr. Nohria said. “So I asked them, ‘What was the debate like, and how would you think about this?’ They, too, split very deeply.”

Some took Professor Christensen’s view that the school was a potential Blockbuster Video: a high-cost incumbent — students put the total cost of the two-year M.B.A. at around $100,0000 — that would be upended by cheaper technology if it didn’t act quickly to make its own model obsolete. At least one suggested putting the entire first-year curriculum online.

On the topic of online instruction, Prof. Clayton Christensen said: ‘Do it cheap and simple. Get it out there.”CreditRick Friedman for The New York Times

On the topic of online instruction, Prof. Clayton Christensen said: ‘Do it cheap and simple. Get it out there.” Credit Rick Friedman for The New York Times
Others weren’t so sure. “ ‘This disruption is going to happen,’ ” is how Mr. Nohria described their thinking, “ ‘but it’s going to happen to a very different segment of business education, not to us.’ ” The power of Harvard’s brand, networking opportunities and classroom experience would protect it from the fate of second- and third-tier schools, a view that even Professor Christensen endorses — up to a point.

“We’re at the very high end of the market, and disruption always hits the high end last,” said Professor Christensen, who recently predicted that half of the United States’ universities could face bankruptcy within 15 years.

Mr. Nohria states flatly, “I do not believe our M.B.A. program is at risk.” He concluded that disruption is not always “all or nothing,” and cited the businesses of music and retailing as examples. “In the music business, all record stores are gone,” he said, while in retailing, “it’s not like Amazon has eliminated everything; after those debates, my feeling was that we’re going to be more in that category.”

Still, Mr. Nohria said, he wanted some insurance. “Our beliefs can always turn out to be wrong,” he said. Harvard Business School could not afford to stand on the sidelines. So last summer, he said, he asked the business school’s administrative director, “What would you say if we started a little skunk works around this technology?”

‘Hollywood’ at Harvard

That skunk works, in a low-slung building 300 yards from campus, is not little. It buzzes with 35 full-time staff members — Wharton’s online efforts, by comparison, employ one-half of one staffer, Mr. Ulrich said — who are scrambling to complete a proprietary platform that, after this summer’s limited go-round, could support much larger enrollments.

“Here’s Hollywood,” Ms. Kierstead said on a recent tour, passing an array of video equipment that’s hauled around to film business case-study protagonists on location. Nearby, two digital animators worked on graphics for Professor Christensen’s forthcoming course. Another staff member handled financial aid.

To run HBX with Ms. Kierstead, Mr. Nohria tapped Bharat Anand, 48, a strategy professor who had been researching how traditional media companies have coped, or haven’t, with digital disruption. “I think about those cases a lot,” said Professor Anand, who is also Mr. Nohria’s brother-in-law.

The dean handed him a sheet of six guiding principles, including these: HBX should be economically self-sustaining. It should not substitute for the M.B.A. program. It should seek to replicate the Harvard Business School discussion-based style of learning. This was no easy assignment, Professor Anand conceded.

“What is competitive advantage?” he asked, invoking Professor Porter’s signature theory. “It comes from being fundamentally different. We teach this all the time. But saying it is one thing. Putting it into practice is hard. When everyone is going free, everyone is going with a similar type of platform, it takes courage to do your own thing.”

On campus, Harvard business students face one another in five horseshoe-shaped tiers with oversized name cards. They fight for “airtime” while the professor orchestrates discussion from a central “pit.”

“We don’t do lectures,” Mr. Nohria said. “Part of what had already convinced me that MOOCs are not for us is that for a hundred years our education has been social.”

The challenge was to invent a digital architecture that simulated the Harvard Business School classroom dynamic without looking like a classroom. In a demonstration of a course called economics for managers, the first thing the student sees is the name, background and location — represented by glowing dots on a map — of other students in the course.

A video clip begins. It’s Jim Holzman, chief executive of the ticket reseller Ace Ticket, estimating the supply of tickets for a New England Patriots playoff game: “Where I have a really hard time is trying to figure out what the demand is. We just don’t know how many people are on the sidelines saying, ‘Hey, I’m thinking about going.’ ”

It’s a complex situation meant to get students thinking about a key concept — “the distinction between willingness to pay and price,” Professor Anand said. “Just because something costs zero doesn’t mean people aren’t willing to pay something.” A second case study, on the pay model of The New York Times, drives the point home.

Then a box pops up on the screen with the words “Cold Call.” The student has 30 seconds to a few minutes to type a response to a question and is then prodded to assess comments made by other students. Eventually there is a multiple-choice quiz to gauge mastery of the concept. (This was surprisingly time-consuming to develop, Professor Anand said, because the business school does not give multiple-choice tests.)

At a faculty meeting in April, Professor Anand demonstrated the other two elements of HBX: continuing education for executives and a live forum. He unveiled the existence of a studio, built in collaboration with Boston’s public television station, that allows a professor to stand in a pit before a horseshoe of 60 digital “tiles,” or high-definition screens with the live images and voices of geographically dispersed participants. “I’m proud of our team, and how carefully they’ve thought about it even before they’ve done it,” Professor Porter said.

The Clashing Models

Not everyone was so impressed. Professor Christensen, for one, worried that Harvard was falling into the very trap he had laid out in “The Innovator’s Dilemma.” “I think that we’ve way overshot the needs of customers,” he said. “I worry that we’re a little too technologically ambitious.”

The dean, Nitin Nohria, found that students were also divided on the issue of online instruction.CreditRick Friedman for The New York Times

The dean, Nitin Nohria, found that students were also divided on the issue of online instruction. Credit Rick Friedman for The New York Times

He also feared that HBX was tied too closely to the business school.

“There have been a few companies that have survived disruption, but in every case they set up an independent business unit that let people learn how to play ball in the new game,” he said. IBM survived the transition from mainframe computers to minicomputers, and then from minicomputers to personal computers, by setting up autonomous teams in Minnesota and then in Florida. “We haven’t got the separation required.”

Professor Porter has expressed the opposite view. Companies that set up stand-alone Internet units, he wrote in 2001, “fail to integrate the Internet into their proven strategies and thus never harness their most important advantages.” Barnes & Noble’s decision to set up a separate online unit is one of his cautionary tales. “It deterred the online store from capitalizing on the many advantages provided by the network of physical stores,” he said, “thus playing into the hands of Amazon.”

Here is where the two professors’ differences come to a head. In the Porter model, all of a company’s activities should be mutually reinforcing. By integrating everything into one, cohesive fortification, “any competitor wishing to imitate a strategy must replicate a whole system,” Professor Porter wrote.

In the Christensen model, these very fortifications become a liability. In the steel industry, which was blindsided by new technology in smaller and cheaper minimills, heavily integrated companies couldn’t move quickly and ended up entombed inside their elaborately constructed defenses.

“If Clay and I differ, it’s that Clay sees disruption everywhere, in every business, whereas I see it as something that happens every once in a while,” Professor Porter said. “And what looks like disruption is in fact an incumbent firm not embracing innovation” at all.

In other words, it’s not that U.S. Steel was destined to be undone by minimills. It’s that its managers let it happen.

“The disrupter doesn’t always win,” argued Professor Porter, who nonetheless called Professor Christensen “phenomenal” and “one of the great management thinkers.”

Who will win the coming business school shakeout? Professor Porter acknowledged that it’s a multidimensional question.

Most schools offering MOOCs do so through outside distribution channels like Coursera, a for-profit company that has Duke, Wharton, Yale, the University of Michigan and several dozen other schools in its stable. EdX, of which Harvard was a co-founder with the Massachusetts Institute of Technology, counts Dartmouth and Georgetown among its charter members.

“These will come to have considerable power,” predicted Jeffrey Pfeffer, a professor of organizational behavior at the Stanford Graduate School of Business. He pointed to the aircraft industry: “In order to get into China, Boeing transferred its technology to parts manufacturers there. Pretty soon there’s going to be Chinese firms building airplanes. Boeing created their own competition.” Business schools, he said, “are doing it again; we are creating our own demise.”

Professors as Online Stars

The worry is all the more acute at midtier schools, which fear that elite business schools will move to gobble up a larger share of a shrinking pie.

“Would you rather watch Kenneth Branagh do ‘Henry V,’ or see it at a community theater?” asked Mr. Ulrich at Wharton. “There are going to be some instructors who become more valuable in this new world because they master the new medium. We’d rather be those guys than the people left behind.”

This raises a still more radical case, in which the winners are not any institution, new or old, but a handful of star professors. One of Professor Porter’s generic observations — that the Internet increases the “bargaining power of suppliers” — suggests just that. “It’s potentially very divisive in a way,” he acknowledged. “We’re all partners; we all get paid roughly the same. Anything that starts to fracture the enterprise is a sobering prospect.”

François Ortalo-Magné, dean of the University of Wisconsin’s business school, says fissures have already appeared. Recently, a rival school offered one of his faculty members not just a job, but also shares in an online learning start-up created especially for him. “We’re talking about millions of dollars,” Mr. Ortalo-Magné said. “My best teachers are going to find platforms so they can teach to the world for free. The market is finding a way to unbundle us. My job is to hold this platform together.”

To that end, he has changed his school’s incentive structure, which, as in most of academia, was based primarily on the number of research articles published in elite journals. Now professors who can’t crack those journals but “have a gift for inspiring learning,” he said, in person or online, are being paid as top performers, too. “We are now rewarding people who have tenure to give up on research,” Mr. Ortalo-Magné said.

Mr. Ortalo-Magné spins out the possibilities of disruption even further. “How many calculus professors do we need in the world?” he asked. “Maybe it’s nine. My colleague says it’s four. One to teach in English, one in French, one in Chinese, and one in the farm system in case one dies.”

What is to stop a Coursera from poaching Harvard Business School faculty members directly? “Nothing,” Mr. Nohria said. “The decision people will have to make is whether being on the platform of Harvard Business School, or any great university, is more important than the opportunity to build a brand elsewhere.

“Does Clay Christensen become Clay Christensen just by himself? Or does Clay Christensen become Clay Christensen because he was at Harvard Business School? He’ll have to make that determination.”

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Harnessing Data for Growth 05-28

Harnessing Data for Growth

The Western world may have a wealth of economic data, but many emerging nations can’t get enough. A new Centre for Economic Growth (CEG) in the Middle East will provide original research to address the region’s massive unemployment problems and serve as a model for developing economies around the world.

When Iyad Malas, CEO of the leading Dubai-based retail and leisure company, Majid Al Futtaim Group, visited the construction site of a massive new shopping centre in Egypt he found the biggest problem its contractors had was finding labour; a surprising revelation given the bloody protests of the Arab Spring, which were sparked, in part, by extreme and rising unemployment.

“I was shocked,” Malas admitted during a panel discussion to mark the launch of the Middle East and North Africa (MENA) Centre for Economic Growth. “You would have thought in a country like Egypt, labour would be the easiest thing to get.”

Majid Al Futtaim (which employs 10,000 people across Egypt alone) experienced similar difficulties staffing its retail and leisure establishments. “What we’re finding is a gap in terms of skills set,” says Malas. “These are not necessarily advanced skills, it’s basic service-orientated type approaches.

”This skills mismatch is a recurring problem across sectors and countries in the region. A recent World Bank International Finance Corporation (IFC) survey found a very clear and common theme ‘I have jobs but I can’t find the skills that I need’.

“Often job seekers don’t have soft skills, they don’t have language skills and sometimes they don’t have technical skills,” said IFC’s Middle East head, Luke Haggarty noting one government university in Egypt was sending out IT graduates proficient in Fulcrum, a computer language that hasn’t been used by business for more than 20 years.

Bridging the skills gap

Governments’ ability to create policies and business opportunities to address the longstanding but increasingly urgent challenges of unemployment and economic growth has been frustrated by a lack of - or inability to access - timely, reliable, country-specific statistics.

“Basic issues around job markets and skills mismatch are not well-known or well-studied beyond the macro level… we need much more detail such as infrastructure gap analysis, looking at country-by-country and sector-by-sector information,” says Majid Jafar, CEO of Crescent Petroleum and founding Chair of the CEG Business Council.

The Abu Dhabi-based CEG is a unique collaboration between the region’s private sector and INSEAD. Launched in March 2014, it aims to collate and analyse data from across the region, provide original research on key economic issues and act as a platform where government policy makers, business and academics can share information. Top of its agenda is economic growth and job creation.

Key to good policy is timely data

Whether it’s policies to bridge the skills gap (which has left millions of tertiary-educated young Arabs out of work), foster the vital SME market, or address problems of large public services and high reservations wages, timely and accurate data is essential. Providing an avenue to this data and a platform to disseminate the findings will help researchers move faster and have a bigger impact, in terms of thought leadership, INSEAD Deputy Dean Peter Zemsky notes.

“Centres like the CEG are critical in terms of two things: reaching out to business communities and government policy makers to feed in to the real challenges, and accessing an avenue of up-to-date information.

“It’s really important for academics to ask the right questions that respond to the needs of policy makers and business. We need to get consensus (from business) on what is needed and then get that knowledge to the top policy makers.”

Business: The only long-term source of economic growth

“INSEAD’s knowledge and expertise will give better insight to policy makers on how to generate faster growth,” notes INSEAD Dean Ilian Mihov. “But I think our role goes beyond that. We have to ask ourselves what is really driving growth, why are rich countries richer, how can you become a rich country?  For that, you need business. Business creation is the only long-term source of economic growth.”

New research, Mihov says, will help generate policies and models addressing productivity at the firm level and the infrastructure gap - challenges which transcend the Middle East – with relevance for researchers across the globe.

From Tunisia to Jordan

Faced with the world’s highest youth unemployment levels at over 28 percent and the need to create 100 million jobs by the end of the decade, MENA economies must grow at least seven percent a year, according to IMF predictions. Considering the recent social and political unrest and the slow growth rate (around three percent, and in some countries as low as one or two percent) the challenge is colossal.

The centre’s scope is large from Tunisia in northwest Africa across Libya and Egypt to Jordan in the Levant; economies facing very diverse economic and social challenges.

“The types of investment which are going to enhance growth and job creation are very different as you go across the region,” Jafar says, noting the CEG’s initial task was to “delve down” beyond headline figures to conduct an infrastructure gap analysis, partnering with both local and global corporations and entities.

“We want to break through silos and get more concrete facts and figures to study, to help make recommendations for policy makers and companies’ across the region.

“Clearly having investment to drive economic growth from the top down is important but it’s also important to address some of the micro aspects in terms of firm productivity, education and the skills gap, so the bottom up approach is also important.”

An international advisory council of economists, academics and former policy-makers from around the globe will compare new research with models from developing economies in regions such as Latin America and the Far East.

“Academic input is crucial if timely solutions are to be found. The type of economic problems that we deal with today, around the world and in the region, are complex, large and fast-moving. You need a multi-stakeholder approach. Government alone can’t solve them; private sector alone can’t solve them; stronger links with the academic world and original research are definitely needed.”

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With an MBA, Students Build Search Funds to be Entrepreneurs 05-28

With an MBA, Students Build Search Funds to be Entrepreneurs

A business school degree can help newly minted MBAs find investors to buy a company.

Business school teaches students who want to run a search fund and acquire a business how to be good managers, experts say.

When Matt Littell was nearing the end of business school, he could have done what many MBAs do: look for work at an established marketing or finance company, or start his own business.

He instead chose a unusual path for entrepreneurship.​ Littell convinced other people to give him money while he searched for a business to take over, also known as building a search fund.

He started the search fund process during the second year of his MBA program at the Kellogg School of Management at Northwestern University. Before business school, his view of entrepreneurship was more narrow.

"I knew that I wanted to buy and fix small businesses," says Littell. "I didn't know that search funds were an option."

Through his MBA program, he learned of other people who used search funds to find employment and the basics of how the search fund process works. Students typically look for small- to medium-sized businesses. Experts suggest they choose a company in an area of business that they are familiar with. 

​Littell's search fund allowed him to buy Progressive Bronze, which makes and restores hardware used in the Catholic church, such as crosses and candlesticks​. Littell, who also has a master's in engineering, instantly became president and CEO – the kinds of roles MBAs usually go into once their search fund process is complete.

"It’s a terrific way to jump-start​ their career and get into a leadership position much much faster," says William Sutter Jr.​, a senior lecturer in finance at Kellogg.

[Ask these five questions when choosing an entrepreneurship program.]

While anyone can use a search fund to become an entrepreneur, business school experts say getting an MBA can make pursuing this career track easier. Business school teaches students how to be managers and move into the C-suite, which is usually the goal for people who do search funds.

"Business school teaches you the things you need to know to run a company," says Steve Kaplan, a professor of entrepreneurship at the Booth School of Business at University of Chicago. It also provides a network, he says. This network can help students find investors or mentors to help them build a search fund. This school year, Booth launched Booth Search to help graduating students find investors, mentors and other resources for a search fund.

Like Littell, most MBAs start the search fund process while in business school. They look ​for investors to give them enough money that will last them up to two years while they search for a business to acquire.

MBAs that find a company​ return to their investors and ask if they'll agree to buy the business. Some say yes, while others may say no. If some decline, MBAs go on another search to find more investors who will say yes.

Once the investors are ready to go, the student and investors buy the business. The investors own stake in the company and sometimes join the board of directors. The student usually becomes the CEO and runs the company.

It's the elements of running a business that can make a business school background most critical for those interested in search funds. While in school, there are a number of classes students can take to prepare them to be managers​.

Courses that cover negotiations, acquisitions, marketing and private equity are especially helpful, experts say. Some business schools offer classes that specifically discuss search funds.

[Find out how b-schools ranked for entrepreneurship .]

At Kellogg, Sutter​ teaches a course called "Private Equity: The Human Element"​ where students learn about the interpersonal skills needed to be successful at private equity, among other topics. He also has students, such as Littell, who have successfully carried out a search fund come in to share their experience.

Sutter believes strong interpersonal skills are important in this line of work.

"They have to convince a seller that they’re a credible buyer," he says. This can be especially hard to do if you're a student. "You’re a little short of experience to be running an organization," he says.

Students can also take courses that give them a clear idea of the ​day-to-day challenges that managers experience at work, says H. Irving Grousbeck, a consulting professor of management at the Stanford University Graduate School of Business.

"I think it’s also useful to take some hands-on courses that might give you some role playing exercises," he says. In his class "Managing Growing Enterprises" students figure out how to handle difficult issues that a manager might encounter, such as reprimanding an employee who dresses inappropriately or who lacks tact, through role-playing​ exercises.

[​Participate in an business school incubator to become an entrepreneur.] 

No matter how many classes students take​ though, none may fully prepare them for the hardships that come with creating a search fund.

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How Do You Scale Excellence? 05-07

 How Do You Scale Excellence?

Two Stanford professors discuss their new book, Scaling Up Excellence, which reveals how the best leaders and teams develop, spread, and instill the right growth mindset in their organization.

Eight years ago, over dinner and a bottle of wine,Hayagreeva (Huggy) Rao and Robert Sutton realized they needed better answers for the students of a Stanford management education program, Customer-Focused Innovation, they were running. The business executives appreciated what the pair had to say about reducing bureaucracy in an organization and enabling creativity, but invariably asked, “How do we scale this?”

So, the longtime collaborators set out to find the answer. For more than seven years, they interviewed business leaders, reviewed research, and studied and conducted case studies about the mindset and strategies companies can use to spread excellence within an organization. The result is their book, Scaling Up Excellence: Getting to More Without Settling for Less, which will be published in February.

We recently sat down with the pair to discuss key ideas from the book. Excerpts:

You begin your book by saying that companies that want to spread excellence have the “problem of more.” What exactly do you mean by that?

Rao: To put it simply, the problem of “more” is that organizations have pockets of goodness, and what you want is more of the goodness. At the same time that you’re adding good — by adding pockets or expanding them — you want to make sure you get rid of the bad. So, the problem of “more” is the problem — the challenge — of proliferating goodness.

Sutton: And the word “problem” is important because when things get bigger or you spread them farther, not everything that happens is good. There's this notion of growth and progress in America, that everything gets better as it gets bigger. But it’s a messy process. There will be things that annoy you. And the more you want to scale, probably, the more you have to suffer personally, which is not something I think leaders want to hear.

So how do leaders actually get through that?

Rao: You can have the illusion of drawing up nice little organizational charts and figuring out what growth looks like, but they’re all things on paper. In reality you need both story and structure. What I mean by story is lofty, inspirational messaging about excellence. But you also need the structure — the plumbing, if you will — the unglamorous parts of scaling. If you don’t have both of those, you’re never going to get anywhere.

Sutton: There’s always this challenge, as you get bigger, about structure. If people are telling the same story, you can have less bureaucracy, less micromanagement. But you do need some authority. And people like Twitter’s Chris Fry and Steve Greene, who grew Salesforce from 40 to 600 people, and venture capitalist Ben Horowitz — all of them make this argument that you should have a little less structure than you think you need.

 Then, wait for things to break a little bit as a sign that you should add just a little bit more. Greene called this light structure “running a little bit hot.” If you’re a little bit too heavy, it feels like you’re walking in muck. And, if you’re way too light, things fall apart. So, the ideal condition for scaling is that little things should be breaking all the time, but not the big things.

You make the point that if you’re adding new processes or people, naturally you will need to find ways to subtract — or stop doing — other things. How do you do that?

Rao: That’s what we refer to as “cognitive load.” If the load is too great, there’s a coordination circus. If I’ve got to run an idea by a bunch of people in order to do some single thing, I’m going to give up because it’s too much effort. When Bob and I teach executives, sometimes we say, “Hey, how about having a rule that says ‘If you want to have a meeting, kill an existing meeting.’” Now, that sounds quite obvious, but they say, “Really?” They haven’t even questioned the idea that meetings are to be added, that calendars are to be monopolized. It’s no wonder in a large company you feel like a victim.

Sutton: Now, that’s not true of all companies. Take Apple and Wal-Mart — those are two companies where they have a culture of small teams, so they have fewer meetings and people actually are doing the work most of the time. A lot of this depends on leadership and focus. The question is: “Where is your focus?”

Is there any common thread among organizations that are successful at spreading excellence?

Rao: They tend to “connect and cascade,” as we call it. You connect people so that you cascade the right behaviors throughout the organization. The real problem of scaling excellence is ignorance. What is an excellent organization? One that doesn't repeat the same mistakes. And when do you repeat mistakes? When the connections inside organizations are weak or atrophied. If people aren't connecting, your ignorance multiplies.

Sutton: And I think the important part for senior leaders is to find a way that people can share information in reasonably efficient ways. We talk about many ways in the book, but I really like the example of Salesforce under Steve Greene and Chris Fry — they had a policy where engineers were free to change jobs within the company. So, every four months they’d have an internal job fair, like a bazaar with booths, where people would walk around and learn about what other teams were working on. The policy had many advantages, but one was a higher collective understanding of how the piece of code they’re working on fit into the overall whole.

What’s are the implications of the size of your organization on a scaling effort — going from, say, two to 20 people versus 2,000 to 10,000?

Rao: Going from two to 20, you're probably all still sitting in the same room. It’s just a bigger room.

Sutton: Then there’s a next level, 150 to 200, where you can no longer recognize all the names and faces, and up from there. The thing that companies that were successful at scaling all have in common — regardless of size — is that they were thinking of scaling as spreading a mindset, not a footprint. One person who demonstrates this well is John Lilly, the former CEO of Mozilla, who grew the company from 12 to about 500 people. 

John told us, “When we were 40 or 50 people, I was always changing my mind, but as the company got bigger I had to stifle myself.” He had to be sure he said the same thing over and over so that people wouldn’t get conflicting messages. This is true all the way up to truly huge companies. As Huggy says, if you've all got the same poetry in your head — these mantras like “The Customer is Boss” — they actually drive a bunch of decisions. It lets everybody be on the same page and know where they’re heading.

Rao: The other thing I want to add is when you become larger, what’s unsaid also increases in an organization. The phrase we like to use is: “Smart people inside large organizations become dumb.” They become mute. And so the real problem for a large company is to figure out what’s not being said. Because if you only make decisions on the basis of what's being said, you can go off track pretty quickly.

So how do you build the right mix of people for positive growth?

Rao: This is a big, big thing. Scaling doesn’t just require stars. It requires Sherpas as well — the people who get you to the summit each day. Now, in order to make sure that the Sherpas are taken care of, you should hire managers who are prone to feeling guilty. This idea is based on actual research done by a PhD student and Frank Flynn, a colleague here at Stanford.

I think about the U.S. army general in the Korean War that we talk about in the book, Matthew Ridgway. He says, “The hard decisions are not the ones you make in the heat of battle.” A lot of people can do that. 

The hard part is actually sitting in a meeting and speaking your mind about a bad idea that’s going to put thousands of lives in jeopardy — and convincing the decision makers that it’s a stupid idea. The kinds of people who are going to do that are people who put the interests of others above their own.

Sutton: It’s interesting, the people who are really good at getting things done, they’re not just optimists. In fact, research shows they have high positive and high negative affect, which means they’re really optimistic and confident things will turn out in the end, but they’re really, really worried about every little detail and how it’s going to screw things up.

The two things I would add are that you should make sure to have as many women as possible, because the more men you have in a group, the dumber it gets, controlling for their IQ. There’s actually very good evidence of that. And, that you want people with a sense of accountability, who feel like “I own the place, and the place owns me.” They will push themselves and each other, feel obligated to teach and to learn.

You mention that some mistakes are part of any scaling effort. But what are the kinds of mistakes that can cause failure?

Sutton: When we looked at cases where scaling failed, they seemed to have the trifecta of illusion, incompetence, and impatience; this idea of “We’re going to do it all at once, we don’t have time to slow down and do it right. But we’re so great, we can do it.” 

You can see it, for example, in what the Obama administration did with their healthcare rollout. Apparently, the guy in charge was some career bureaucrat who didn’t really understand how to do it but was a good politician, so he was competent at the wrong thing. But that creates a scenario where you’re turning other people incompetent.

So, how do you start a successful scaling effort?

Rao: One thing to keep in mind is that scaling doesn't mean “Waiting for Godot” — you know, wait for the new boss, wait for a new opportunity, wait for new technology. In reality, you better do something. One good way to develop a plan is to do a pre-mortem: Take a team of people, and get half of them to imagine the plan has been put in motion and failed terribly. 

Then write a story of why that happened. And get the other half to imagine that it succeeded, and write a story of how that happened. The advantage of this is you get more of the unsaid said. You can actually make sure those small details that bite you don’t get in the way. Often, scaling doesn't work because the mistakes you make early on aren’t caught until it's too late.

Sutton: We talked to a top executive who turned around the largest company in Australia, who had the top 100 or so folks write him a 2-page memo about what they should do to turn around the organization. And he said, “I just talked to each person for an hour, and took the best ideas.” 

That said, we also found a single person who wanted to spread an idea, and so began by redecorating her cubicle and starting small, informal training sessions for colleagues. The bottom line is: In every case of successful scaling, you start where you are with what you have.

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