101 Things I Learned in Business School

101 Things I Learned in Business School

by Michael W. Preis and Matthew Frederick

The study of business spans “such diverse disciplines as accounting, communications, economics, finance, leadership, management, marketing, operations… and strategy.” This book provides a thumbnail overview of variety of such topics. Here’s a sample of ten items covered in the book.

Micromanagement. “Telling others exactly how to do their work takes away their initiative, but giving them freedom to shape their own work allows them to become creative and to grow personally invested in the endeavor.” Managers should define the needed result on two levels: the general values (e.g. “make sure the product is fun to use”) and the specific requirements (e.g. “the product must weigh less than 13 ounces, it can’t be orange, the power switch has to be on the right, and all design work must be completed within exactly three months.”).

One Ad, One Message. “Conveying too much information in one advertisement, no matter how accurate or positive, can confuse the audience and weaken the message. It’s better to tell customers one thing likely to be important to them rather than everything that may be important about the product. Too, an ad campaign that features different information in different ads may reach more customers, as those who overlook one ad might respond positively to a different ad for the same product.”

Cash Flow vs. Profit. “Profitable, fast growing companies can be chronically short of cash. A business typically makes a sale before payment is received from the buyer, while the costs related to that sale, such as materials, labor, commissions, and overhead are borne up front. Consequently, a business that is profitable may be short of cash until payment is received. An especially fast growing company with rapidly increasing sales might be chronically short of cash. Procuring and maintaining adequate capital is crucial for businesses… Undercapitalization is among the most common causes of business failure. It can bring down an otherwise healthy organization.”

Depreciation. “Depreciation makes accounting more complex, but more accurate. Depreciation is an accounting artifice that spreads the cost of long-term assets, such as buildings, vehicles, and equipment, over their useful lives. Without depreciation, an organization’s financial picture can be distorted. The entire cost of a piece of equipment with a life expectancy of 25 years would be expensed in the year it was purchased, which could make the company appear highly unprofitable that year and inordinately profitable in subsequent years.”

Deflation. “Deflation may seem a positive occurrence because it increases the value of money. However, it can be dangerous for business when it occurs widely. In a deflationary environment, businesses and business customers may delay making ordinary investments and purchases in anticipation of better prices tomorrow and the next day. This can contribute to an economic slowdown, further depressing prices and stifling business activity. Additionally, falling prices usually mean falling profits, making it more difficult for business to meet existing debt obligations. When deflation occurs within a given industry or market segment due to a productivity increase, it is usually not problematic as profits are not adversely affected.”

Rule of 72. “The Rule of 72 estimates the number of years needed to double an investment when the interest rate is known. Simply divide 72 by the interest rate. An investment returning 9% interest per year will double in approximately eight (72/9) years… The formula can be reversed to calculate an interest rate when the time of return is known, or to calculate the halving of monetary value due to inflation. For example, at 4% annual inflation, one dollar will have half the buying power in 18 years (72/4).”

Risk Homeostasis. “Risk homeostasis theory says that people have an innate sense of the level of risk they consider acceptable; when a given system is made safer, they behave more recklessly and at least partially nullify the safety gains. A study at the University of Bath found that… taxicab drivers in Munich driving vehicles with anti-lock brakes took corners faster and left shorter reaction zones than drivers of cabs with conventional brakes; the two groups ultimately had the same crash rate.”

Moral Hazard. “When organizations and individuals are not required to bear the negative consequences of their failures, a moral hazard exists. A lender insured by the government against loan default, for example, may make very risky, high interest loans to uncreditworthy customers because the lender will do no worse than break even, and at best will realize a very high rate of return.”

Due Diligence. “A ‘successful’ entry into a bad business venture may be far worse than missing out entirely on a good business venture… The opportunity in front of you may seem once-in-a-lifetime, but business opportunities are numerous. It is usually better to wait for or seek another opportunity than to rush into the present opportunity without performing due diligence.”

Redundancy in Contracts. “A well-written contract defines or explains each term or condition only once… Repeating contract language in an effort to impart greater emphasis is dangerous, as differences in context can lead to confusion in meaning and an unfavorable interpretation in a court of law. Further, because negotiations invariably require editing of contract language, a redundantly drafted contract will require changes in multiple locations—leading to the possibility that one location will be missed and an inconsistent document will result.”

The book provides a good selection of concepts for prospective business students and others seeking a cursory survey of business topics.  The title not only refers to the number of items presented, but is also a word play (intentional or not) on the introductory course number Business 101.

Preis, Michael W., and Matthew Frederick. 101 Things I Learned in Business School. New York: Grand Central Publishing, 2010. Buy from Amazon.com

 

 

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