Tag Archives: MBA

Lessons from a Masters In Business Administration: Risk/Reward & Predicting Cash-Flow

Risk and Reward/Predicting Cash-Flow: Investors think as much about risk as they do reward. Most people tie their investments to resources, expecting them to grow, and with it, their own rewards. Where rewards are expressed in percentage growth, risks are harder to characterize. Guessing a company’s future cash-flow involves looking at past revenue, you then make reasonable assumptions based on how the new product will fair or how their rivals will be purchased. A dollar today is worth more than a dollar in a year’s time so if I buy a one-year bill that promises 5% interest, you will have $1.05 next year. Whereas a dollar next year is just a dollar. If I want a dollar next year, I could buy 95.2% worth and have the 4.8% to spend. This works with the federal government but a company or angel investor can expect to demand a higher return to compensate for the risk of their capital. The next step is to determine what the return on investment would be for these investors. Opportunity costs; it’s better to invest in an apartment than a stock. Apartments are illiquid, and it is much easier to trade in and out of other investments. Savings have low returns because they are highly liquid. If you tied up your money for a long period, it would bring about higher returns. Imagine a house party where you are going to meet the person of your life. If you didn’t go to that house party, then you would have missed out and the risk is enormous. Risk is actually not just the possibility of a bad thing happening, but of something good not happening.

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]

Lessons from a Masters In Business Administration: Beta Measures

Beta Measures: describes the risk of a stock. A beta of 1 implies that the stock, on average, tracks the market perfectly. If the market goes up 5% so does the stock. Beta 1.5 would mean the stock goes up 7.5% or if the market goes down, the stock goes down by -7.5%. Therefore, a low beta stock is less volatile than the market. So starting your own company is high-beta, and working in a consultancy is low-beta.

Note however that there are skeptics like Warren Buffett because a perfectly good company with strong revenues, low costs, and a sustainable competitive advantage might one day have the CEO kill herself. Suddenly it is a high beta stock. So beta is not a good way of measuring a business’ value. Alpha is a better measure. Warren Buffett is good at what he does, he found his alpha. It is basically the value add that one person gets over another person that does the exact same thing. Picking the right investments, and bundling them together is all about finding companies that have that alpha.

To gauge if a company is worth investing in, you should ask: do they work hard? Are they honest? Likable? Creative? Entrepreneurial? Do they spend more than they earn? Are they mortgaged to the hilt? What if they lost their job tomorrow? Would they find another one quickly? Look at how they prioritize their spending, and you will see how they prioritize their life.

How To Think In Consultancies: you need to reach big conclusions from a handful of numbers. You have tylenol sales from one store, and the number of people who use the store, then the number of (as a percentage) people who live in the area, then apply it nationally. And you gross the sales at that original store to get a national estimate of Tylenol sales. That’s how you have to think in a consultancy.

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]

Lessons from a Masters In Business Administration: Leadership and Corporate Accountability Class

Leadership and Corporate Accountability Class: Leadership & Corporate Accountability Classes teach MBAs to avoid chasing money down sewers. Ethical moments do not come with labels. M x F = D which means that a court decision (D) is the product of a legal model (M) and the facts (F). Is bluffing true ethics? Business seems to be about playing with a set of rules, and not seeking the higher ground. If you found out that hackers had broken into your credit card system you are obligated to tell your customer immediately. If you are bluffing your business with people’s lives in the balance, you are breaking an ethical code in many peoples opinion…think Jeff Skilling at ENRON. HBS shoulders a lot of blame over the years in business, so they have tried to quantify ethics, and leadership to counter-act this problem. People are taught accounting on the condition that they do not then manipulate their company’s earnings or minimize taxes to such an extent that it amounts to crime or ethical problems.

Lavish Executive Compensation: mediocre CEOs in the US and Europe are habitually paying themselves as if they are entrepreneurs or athletes. Is this wrong? Friedman hated the idea of companies donating to museums or sending employees to work in homeless shelters. That is robbing shareholders. Companies have a moral and economist purpose. The best employees want to work for good companies with good cultures, not just maximizing ones.

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]

Lessons from a Masters In Business Administration: What Is Strategy?

What Is Strategy? Michael Porter’s five forces have shaped business strategy since his theory was published in 1980. Five Aspects of Business Strategy: 1) barriers to entry, 2) supplier powers; 3) customer power; 4) substitutes, 5) rivalry. An example of the application of this model would be a London kebab shop: barriers are relatively low, does not require highly skilled labour, and anyone can buy a kebab shop with a bank loan. That is why so many immigrants run kebab shops in London UK, for example. If you speak bad English, have little money, and are prepared to work hard, kebab shops are a great first entrepreneurial endeavor. The suppliers to a kebab shop are those who make meat rotator machines and the variable costs like the Halal meat. There is plenty of both, so prices are lowered, and there are options to change suppliers at any time. The bad news is customers, as there are 100s of kebab shops in central London. If they don’t like your kebabs, they can go to another. Competition is fierce, and stoked by low barriers to entry, weak suppliers, powerful customers, and substitutes in the market where the business is located. In addition to the five forces is “6) complements”: Complement are for example, PCs you could get the software, and printers. The better software, and computers make the PC more desirable. Nurturing complementary businesses can have a positive effect on your business.

Competitive Advantage: either you have a cost advantage where you can make things cheaper and sell them cheaper OR you differentiated your product somehow either by making it better than your rivals or by designing it differently to appeal to a different group of people. There two forms of differentiation were known as vertical or horizontal. Vertical is meant to be better or worse; horizontal means different. Vertically differentiators would mean for example that you have two cars, one with better brakes, and steering. That car is better therefore they are vertically differentiated. If you have identical cars but one has been painted pink they are horizontally differentiated. One nightmare for a business is to have no advantage, to be neither the cheapest produce nor clearly differentiated. Bill Gates has a picture of Henry Ford in his office because it reminds him that success breads complacency. Ford was over taken by General Motors overtime. When the iPad came out, Amazon introduced the kindle fire…

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]

Lessons from a Masters In Business Administration: An MBA Is About Taking Control

MBA = Taking Control: Business school is about gaining control of your financial future. HBS believes that their experience training can also be applied to other spheres- politics, education, health care, the arts. Business culture is pervasive so learn it from within.

Case Studies Are A Learning Device: The entire HBS curriculum is built on the law school model of case studies. The question you will be asked each time is: What would you do? How do you think about solving a given problem? There is a difference between people who are tough-minded, and people who are tender-minded according to Malcolm McNair. Toughness refers to the intellectual apparatus, and toughness of spirit. It is the attitude and training that allow us to seize facts, and make courageous decisions. They know the answer is not in a book, but in real life cases. Grading will be for your benefit as a student, but will not be used by recruiters.

The Baron & The Two Peasants: learning accounting: Imagine a Baron in a small patch of present day Bavaria. The baron is responsible for the well-being of many peasants who occupy the lands around his stately castle. The baron has two peasants whom he asks to farm two different hectares of land. He supplies them equally with seed, fertilized, oxen, and allows them both to lease a plough. The two peasants Sam and Jesop return a year later with different amounts of wheat with the conditions of other resources having deteriorated over the year.

Q: Who was more successful?

This is an accounting case as you are now expected to determine which peasant was more successful. An MBA should be expected to generate an income statement and balance sheet for the two farmers. So, you might need to depreciate the oxen, and you might put the full value of Sam’s plow under ‘costs of goods sold.’ As you begin to play with the empirical figures, you’ll see that the answer of who was more successful shifts according to your metrics. There is no right answer. So the lesson in accounting is actually to use common sense rather than cling to rules.

[This is a synopsis of several books on the MBA experience including What They Teach You At Harvard Business School by P.D. Broughton]