Ahead of the Curve Read online

  My assessment indicated that I tended to be “agreeable, trusting, generous, sincere, open to other people and sympathetic,” and hence I should avoid work environments that called for “less sympathy and more toughness, shrewdness and assertiveness.” I should “steer clear of organizations in which a high level of toughness and political savvy are essential for success.” And in interviews, I should beware of my “modesty and genuineness” getting in the way of my selling myself. “To get comfortable with being a little bit immodest, go over your key ‘selling points’ before every interview.”

  My initial reaction to these tests was suspicion. I felt that their animating spirit was conformist. Unless there were some broad standard for selling yourself in interviews, why should I worry about being too modest? I could not help wondering what failure of imagination and human understanding must have occurred for these tests even to exist. What insecurity and mistrust lurked at the heart of the companies that implemented them? Of course, I didn’t have responsibility for making sure billions of credit card transactions were properly executed or toilet paper rolled off the production line. I was not in a position where I had to persuade feuding employees to work together or prevent a star manager from jumping ship. I thought that these tests took the rich tapestry of human character and reduced it to a sterile batch of letters. More fundamentally, I did not trust what I thought was an attempt to quantify the unquantifiable. But given what I was about to go through, I should have given the tests more credit. They were closer to the mark than my ego was allowing me to believe.

  A few weeks into the semester, this process of self-examination continued with a personal development exercise called “My Reflected Best-Self.” The instructions read,

  The Reflected Best-Self Feedback Exercise differs from other performance feedback mechanisms in its explicit focus on understanding how key constituents experience individuals when they leverage their strengths constructively . . . [It] encourages people to create a developmental agenda for leveraging their reflected best-self and expanding their capacity to add value in work organizations. This exercise also enables people to reflect on how leaders might create an environment where others can engage their best-self and work maximally from positions of strength.

  Aside from being written in the densest management-speak, the exercise required us to contact ten to twenty friends and former colleagues and ask them to share moments when we were our best selves. The grumbling within the section was immediate and intense. “There’s no way I’m sending this to my old friends at work,” said Graham, a phlegmatic Minnesotan. “They already think Harvard MBAs are arrogant without being asked to tell me how great I am.”

  The exercise also demanded we paint our own best-self portrait, offering the following example:

  When I am at my best, I tend to be creative. I am enthusiastic about ideas and I craft bold visions. I am an innovative builder who perseveres in the pursuit of the new. I do not waste energy thinking about missed opportunities or past failures, nor do I take on the negative energy of the insecure or worry about critics. I stay centered and focus on what is possible and important. I use frameworks to help me make sense of complex issues. I can see disparate ideas and integrate them through “yes and” thinking. So I make points others do not readily see. In doing so, I frame experiences in compelling and engaging ways. I paint visions and provide new ways for people to see. I use metaphors and stories to do this. I find the stories in everyday experiences, and people find it easy to understand them. The new images that follow help people to take action. . . . I help people and groups surface the darkest realities and the most painful conflicts . . . I liberate people from their fears and help them embrace new paths. In all of this I try to model the message of integrity, growth and transformation.

  Reading this, I badly wanted to know what this person had read growing up. And at what point did he decide to abandon the limpid expressions of childhood for this strange new tongue? When did the phrase “model the message of integrity” first make sense to him?

  We were expected to craft our own best-self portraits by answering the following questions: How does your best-self profile correspond with the sorts of things you spend the bulk of your time doing? What situations or contexts encourage your best-self to emerge? What keeps you from operating at your best more of the time? How can you prioritize your life so that you maximize the potential for your best-self every day? What can you do differently? What might you consider not doing anymore? Are there certain contexts you can put yourself in to maximize your potential?

  I could see the point of all this. It was not enough for me to think about what I was best at or in what situations I thought I thrived. It was also useful to know what others thought were my strengths. So late one evening after a drink or two, I sat down with a pencil and joined battle:

  My best self emerges in new and challenging environments where I can satisfy my curiosity about people, cultures, and situations. I enjoy making the best of difficult situations. I like opportunities to be creative and to make connections with people on a human level. I dislike excessively professional or rule-driven environments. I do not like authoritarian business structures. I dislike situations where I am obliged to conform to too strict a standard. I am not very good at following orders. [I am actually not too bad at following orders, but this ordeal was bringing out the anarchist in me.]

  I try to prioritize my life so that I do not find myself trapped in the tentacles of an organization. I am disinterested in large-scale management challenges and more interested in working in a small, upbeat environment where both I and the people around me can pursue their own interests. My potential will likely be maximized in contexts where I can express myself. I have little interest in developing myself as an authority figure. I’m best when I have plenty of sleep. Any job that requires me to work flat out, through nights, is not for me. I need time to spend with my family and pursuing whatever interests me. I will be dissatisfied with any career which denies me this.

  I should consider spending less time imagining myself as a business person and more figuring out how to make a living by other means. [Not a good sign less than a quarter of my way through business school.] I should care more for my fellow man. I need to defer less to others when big decisions need to be made. I need to develop my decision-making abilities. I will do best if I can help create a good working environment for others.

  Nine out of the ten people I asked for feedback replied, “This is ridiculous. Is it essential to your course?” I told them not to waste their time with it. But one friend just could not resist.

  “Have had a wonderfully windy email inviting me to assist with a field exercise on behalf of you,” wrote Quentin, a British journalist, my first boss on Fleet Street and an aficionado of the absurd. “Is this genuine, or the creation of Monty Python?” Genuine, I replied. A few minutes later he zinged back: “Have just sent the following. Thought I’d give it a spot of top spin, just to brighten their day!

  From: Quentin Letts

  Re: Philip Delves Broughton

  Dear Professor,

  Thank you for your email. You ask me to help my former colleague Philip Delves Broughton with his exercise for your course. I am naturally happy to do so, even though we emotionally restrained Englishmen are generally hopeless at self-examination—or, for that matter, dwelling on the nitty-gritty character strengths of our confreres.

  I am not sure I can run to three examples of his best self but here are two:

  When Philip worked for me at the Daily Telegraph, a million-circulation British broadsheet newspaper, I was one day unable to attend the morning news conferences of senior executives. This was the meeting where the day’s news list would be prepared and where the paper’s coverage was planned. To the untutored youngster it was a daunting event to attend, requiring, as it did, a high level of bluff and confected confidence in front of the editor in chief (a tall man with a military manner and a formidably short attention sp
an). I asked my deputy to attend the conference in my place. He was having some sort of nervous breakdown and fled to the lavatory, there to drain a small flask of some alcoholic spirit. I invited another staff member to represent our column at the meeting. She whitened, clutched her throat and decided she, too, was unwell. With mounting dismay I turned to Philip. “Phil? Fancy going to conference for us?”

  He replied at once: “Sure, why not?” And with that he straightened his tie, brushed the lint from his jacket, and strode off to do battle with the top brass—and, in the process, conquer any fears lurking in his breast. It was brave. It was immediate. It got me out of a jam. It was classic Philip, seizing the moment and an opportunity.

  The second example concerned a time when Quentin had brought his family, including two young children, to Paris and I had put them up at the Telegraph apartment. I had no idea if any of this would ever help me leverage my reflected best self or work maximally from a position of strength. But it was good to wallow in the flattery for a moment after the insecurities of those first few weeks at HBS, to be reminded of one’s qualities rather than one’s inadequacies. And that, I believe, was the point.

  Chapter Six

  FORMIN’, STORMIN’, NORMIN’, PERFORMIN’

  The fifth and final course of the first semester was finance, which did not start until the fourth week. Despite my dunking in the subject during Analytics, I was still feeling woefully unprepared. I had gone over the cases from Analytics several times, drafting and redrafting summaries, but it had become apparent during Accounting and TOM how facile many in the class were with numbers, and of course Excel, and how far behind I was. I had overheard students sharing jokes about Excel shortcuts and “macros,” a way of programming certain buttons on your computer to perform calculations that come up again and again. I was a million miles from macros, a Luddite still, with a stubby pencil and calluses forming on my index finger from pounding away at my calculator.

  I was further unnerved by the fact that I had only the vaguest of ideas what exactly finance was. I knew it was about buying and selling and numbers, and that lots of people I knew claimed to be “in finance.” I knew that there were financial services companies who gouged me every time I used an ATM, and financiers who wore well-cut suits and frameless spectacles and sat in places like the City of London and Geneva packaging debt and floating stock and taking a cut of everything they touched. These people were higher in the pecking order than accountants; there or thereabouts with corporate lawyers; as powerful, on occasion, as politicians; and regarded with suspicion, bordering on contempt, by the owners of businesses. It turned out that finance is really about one thing: valuation. How do you put a price on an asset? From that basic question flows everything else. How much should I pay for it? What will the owner accept? How should I pay for it? Cash or credit? How can I increase the value of an asset I already own? Would now be a good time to sell? What risks may jeopardize the value of my asset? What can I do to mitigate them? Only once you have a clear sense of something’s value can you move on to everything else.

  Teaching us finance, or FIN 1, was none other than Rick Ruback, the wisecracking head of the RC program. Our first case dealt with the Butler Lumber Company. The case was just three pages long, with two exhibits: a balance sheet and an income statement. Butler Lumber was a small business in the Pacific Northwest that sold lumber products. It was growing and making good profits but kept experiencing cash shortages. The first question Ruback asked was “do you like this business?” The cold call went to Shelly, a woman in her mid-twenties who had worked at Home Depot. She had been staring down into her notes, clearly hoping that she would not be dragged into this. But of course she was. Professors would scour the class cards to find a fitting student to cold-call for each case. If the case was about lumber, it was the Home Depot employee. If the case protagonist had graduated from Brown, the Brown alumnus would be called. If the case dealt with a newspaper company, I knew I would be picked on.

  “Yes,” Shelly said, gathering herself. “It seems like a good business. The bank says the owner has good judgment, and it seems the business is growing.”

  “So if you were its bank, would you let it borrow more money?”

  “Ummmm, yes, I think so.”

  “Why?”

  Shelly winced and rested her arms on her desk. “Looking at the income statement, its profits are growing. Its operating expenses seem to be under control. There seems to be a stable set of customers.” She paused, and Ruback began asking for numbers and ratios. Shelly held her own for nearly ten minutes, and when she ran dry, Ruback called on others in the room. It turned out that Butler Lumber was making a mistake common to small businesses as they grow. It was mismanaging its cash. In order to grow, it was buying more and more wood from its suppliers. It would then store the wood in its warehouses until a customer bought it, giving its customers thirty days to pay their bills. In the meantime, of course, it had to pay its suppliers either in cash or on credit regardless of whether the wood was sold or the customer paid on time. In order to cover the time between buying the wood and selling it, it was borrowing from the bank and from its suppliers. And as the company grew, so did its dependence on credit. It was also losing out on discounts offered by suppliers for prompt cash payment.

  It turned out that Butler Lumber was not such a good business after all. Its cash conversion cycle—the period between when it paid for goods and when it was paid for them—was a disgrace, which only grew as the company grew. It had, we learned, a “funding gap.” Instead of borrowing yet more from the bank, it needed to stop being so generous to its customers and pay its suppliers in cash earlier.

  I learned my own lesson about cash as an undergraduate, when I was perennially short of funds. In order to buy food once my bank account had run dry, I would cash checks at a local pub, which would charge me one pound for every check I cashed. Not only was I being charged a usurious fee, but I always ended up writing a check for more than I actually needed and then spent it. Eventually, the bank would call me in, and I would have to plead for a further line of credit. And so it went. The worst thing was that no matter how I tried to right the situation, it deteriorated. Each semester, the portion of my allowance that went toward paying off the previous semester’s debt increased, until by my final year, my first act was to sign over my entire allowance to the bank and begin the year with absolutely no money. It required sackcloth, ashes, and prolonged groveling to Mr. Lester of the Midland Bank to salvage my university career. I had let my cash conversion cycle get away from me.

  One company that had mastered the cash conversion cycle was Dell. In fact, in the period we studied, 1996, it had managed to turn its mastery of cash management into an advantage over its competitors. Whereas other computer makers built computers, warehoused them, and sent them into stores where customers might or might not buy them, Dell waited until it had an order and payment in hand before making a computer. While its rivals risked making computers that might be obsolete by the time they reached stores, Dell never made a computer no one had expressly ordered. To do this, it needed a far slicker production system than its competitors, which it built. It needed to have the parts and capacity at hand when the orders came through, which it did. It needed to have accurate forecasts of customer demands, which it obtained through its sales force. As Michael Dell himself explained, “what we’re all about is shrinking the time and the resources it takes to meet customers’ needs.”

  Inventory, as we would learn again and again, is a dirty word in business, and the less you have of it, the better. For a company that made computers, complicated-seeming products, and promised to deliver them within a day or two of receiving an order, Dell, staggeringly, had almost no inventory. If only Butler Lumber had been so lucky. The cash effect of this was that while Dell’s competitors sank money into product they weren’t sure people wanted, Dell earned interest on the money it was not spending on inventory. This added millions of dollars to its bottom lin
e, increasing its value.

  If finance, then, is really only about valuation, the only serious means to establishing an asset’s value is understanding how much cash it generates. People will occasionally try to obscure the issue with all kinds of curious terms like intangible value and synergy value, but really all that matters is cash. Because without cash, you could find yourself like Butler Lumber, thinking you are growing but becoming a credit junkie for lack of short-term cash. With cash, you could become Dell, leapfrogging your opposition on a trampoline of greenbacks.

  But just knowing how much cash your asset produced now was not enough. You wanted to know how much it would produce in the years to come. If I put in a hundred dollars today, how much cash would be returned to me in the next ten years? Would I be better off investing in something else? The rest of the semester’s finance course would be devoted to this one task: forecasting cash flows. It was the root of valuation, and though it sounded simple enough, it turned out to be a beast.