The Wall Street Journal in January 2000 reports that the prestigious Wharton Business School is losing folks between the first and second year of their MBA program because students are opting out of the MBA to work at Dot-Com Startups. The dropout rate is about 400% higher than it used to be.
These folks are moving to the Dot-Coms for the prospect of great riches. What Samuel Johnson would call, "riches beyond the dreams of avarice.%
What they see is an Initial Public Offering (IPO) down the road that will let them grab the great big gold ring. For that, they're willing to pass up the $80,000 median-starting salary for Wharton School graduates.
WALLY's COMMENT . . .Back at the turn of the nineties, there was a magazine cover that featured a cartoon of a young man slamming the heel of his hand into his head with great force while the balloon over his head said, "Oh my God! The eighties are over and I forgot to get rich!ä
A similar kind of anxiety seems to be taking hold today. Recently, the New York Times ran an article about young Generation Xers who are feeling that they just might be failures because they haven't made as much money as Jerry Yang, one of the founders of Yahoo.
Ease up, folks. Yes, it's true, that times of great change like now offer the opportunities for great riches. But it's also true that great riches go to a limited few.
What's most bothersome to me right now is the way this appears to be happening. It used to be that you started up a business that would deliver high value to people; and by virtue of doing that and doing so efficiently, would reap great profits. You built your business for the long term.
What mattered were your perceived value in the target market, your strong culture to continue delivering that, and the profits you generated so that you could continue. Most founders who put businesses together did so with the idea that they would be involved with them for most of the rest of their lives. There were exceptions, of course, who specialized in startups, but they were exceptions.
Today what I'm seeing is a very different kind of mentality altogether. It shows up in two forms.
First, there's what I call the "Inc. magazine entrepreneurial plan.% The idea here is that you get an MBA, get hold of a power suit, find some venture capital, and build a business that goes public. In the process you reap great financial rewards, plus the glory of being at the top of your particular tree.
This particular scheme has been around for quite a while. What I don't like about is that it sees the initial public offering as the main way that people get rich, and doesn't include the idea that the founder will hang around very long. In other words, it says that more people are likely to be the revolutionary startup folks who will go from startup to startup. Maybe we should call this the "Jim Clark Syndrome.%
A new and, I think, virulent version of this is what I call the "Potemkin Village IPO.%
It takes its name from Grigory Potemkin. Potemkin was a soldier, and he achieved immense power in the Russia of the late 18th Century first by becoming the lover of the Empress Catherine, and then by just by being very good at power games.
Potemkin accomplished quite a bit. His problem was that no matter how much he achieved, he always over-described it, over-estimated what he could accomplish, and over-reported what had actually happened.
Catherine appointed Potemkin Governor of the Southern Ukraine. Potemkin had reported grandly on what he had accomplished, often reporting as accomplishments things which he was only intending to do. All went well until Catherine decided it was time to tour the territory.
Grigory set off on a massive campaign to make things look really, really good. The story is told that he actually went so far as to erect facades of prosperous-looking villages that the Empress would pass through on her way through the territory. She would look about and see the prosperity, and think that all was well. It actually worked.
It's from this that we derive the term Potemkin Village. The Encyclopedia Britannica says that a Potemkin Village is "a pretentious facade designed to cover up a shabby or undesirable condition."
In the Potemkin Village IPO, the idea is that you hold the image together just long enough to get to the initial public offering. This is what gets us ridiculous meetings like one of my clients had with investment bankers some months back. "Here are my cash flow projections," he said. "We don't care about those", they said.
Don't care about those? This is a business. Cash flow is important. That is, it's important if you're interested in the long term for the business.
Well, it's not important to the investment banker crowd. That's because they get their money at the IPO point. What they're concerned about is getting you there. After that, their game is over. If the business goes in the toilet two weeks later, well that's too bad.
Here's what I think is wrong with all of this.
The honest premise for building a business is to create more value. That's value for your customers, value for your people, and value for your shareholders. Anything else is dishonest.
Solid business is based on profitability, culture, and delivery of value. It's profitability that provides the oxygen that the business needs to breathe to keep delivering value. It's culture that helps maintain the idea of what value is and how it is to be delivered -- the doctrine of the business.
Date Published: 15 January 2000
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