By Rick Gould, CPA, JD
The article by Carl Schramm in the July/August Harvard Business Review supports a concept I promoted ten years ago, but just appears to be catching on.
In 2002 I created and taught a graduate course at the Parsons School of Design in New York City. The course was called “Entrepreneuring- The Business of Creative Businesses.” It was geared toward very smart, creative graduate design students that dreamed about someday starting their own design firm.
As was almost universal in academia offering a course on “Entrepreneurship” was non-existent. Thousands of MBA’s were turned out every year but few universities and colleges offered a practical, no-nonsense course on starting a business, running a “profitable” business and “selling” that same business. Yes, “selling” the business not yet started. I have often said that if you run your business as if it will be sold in the immediate future it will automatically become more profitable. You will learn how the business is valued and the models a buyer may use in an acquisition. You will become a sharper business person and street smart.
In my 15 week graduate course that I taught for three and half years. I started with the formation of the business- the legal and accounting requirements. I then went through the various operating issues. Billing and collections, cash flow projections, key benchmarks of a service business i.e. total labor cost should not exceed 50% of net revenues, operating expenses should be no more than 25%.
We went through how to calculate billing rates, what percent of each level of staff’s time should be billable (productivity benchmarks) and other very key operational concepts of running a successful business and building value to that business. We researched several case studies using real firms with actual situations.
The article in HBR by Mr. Schramm questions the way we teach our students the business of Entrepreneuring. He challenges “a system that leaves the education of entrepreneurs to school teachers (whose choice of profession displays little appetite for economic risk taking and thus may be ill-equipped to convey what entrepreneurs actually do). He asks if they have what it takes to get a business up and running, none the less making it profitable.
He mentions two programs Startup Weekend and Launch Pad (U of Miami, founded 4 years ago). The instructors are successful business entrepreneurs.
I agree with Mr. Schramm that we need to change the University Model in teaching entrepreneuring to rely less on textbook theory and more on the proven business models and benchmarks, taught by those that have been successful in attaining these objectives.