What Entrepreneurs Can't Learn at Business School
Since the concept of Honest Tea arose out of a case study and my co-founder, Barry Nalebuff, was my professor from the Yale School of Management, I would be the last person to say that entrepreneurs can't benefit from getting an MBA education. But there is much about the world of entrepreneurship that they don't teach at business school. And I can confirm that the lessons I learned the hard way were certainly more expensive than the $60,000 tuition of the average business school.
For all that I didn't learn at business school, I did gain enough knowledge of accounting and finance to run the enterprise and be credible with banks and investors. Equally important, the credential and network of alumni I developed at Yale played a role in connecting me with our first customer, Whole Foods.But there were at least 10 important lessons they didn't teach me in business school:
1. Sales and relationships are (almost) all that count
There are plenty of marketing courses at business school, but the task of selling is often discounted as "dirty" work, unfit for the finely-educated M.B.A. mind. M.B.A.'s may be tempted to spend hours, even days, contemplating their positioning charts and their mission statements, but without sales, nothing else is possible. Even for a company like ours, which emphasizes our social and environmental missions of making organic and Fair Trade tea, our impact is marginal if we aren't selling truckloads of tea.
Business schools don't place enough emphasis on the importance of developing personal, trusting relationships. Many of our top salespeople never graduated from college, but they know how to communicate and gain respect from key decision makers, many of whom also didn't graduate from college. War stories about old beverage brands, shared experiences of the challenges of raising children, insights on Penn State's front line -- all help develop personal relationships that lead to sales success. In fact, the first salesperson I fired was a sophisticated M.B.A. technocrat who put together an impressive sales spreadsheet full of tabs that displayed where all of our sales were going to come from. The problem was that this "salesperson" spent too much time behind a computer and not enough on the street.
Which leads to an important second lesson...
2. Distribution is almost everything else
If you have a great product, someone may beat a path to your doorstep -- but if you're selling something that's heavy and made of glass, they may not be able to take it home. When we launched Honest Tea, we had spent a lot of time getting the 4 P's of pricing, promotion, placement, and positioning all set. Over time, we realized we also needed a real distribution strategy -- not just the van and me and a few interns. Seven years later, we're now working with some of the largest soda and beer distributors in the country.
3. Spreadsheets aren't reality
Those sales and profitability projections grow so nicely in Excel spreadsheets, but they don't take into account all of the unquantifiable challenges that arise every day -- the ineffective salesperson, the mislabeled product, the shipment of bad tea or broken bottles, colder weather... and even the non-paying customer, which leads to lesson number four...
4. Customers don't always pay
I was amazed the first time we encountered a customer who didn't pay for something he bought. Where was that in our accounting class? OK, I know now that it's called "bad debt" but that first incident was a bit of a shock for a naïve b-school grad where we weren't taught that people don't always play nice. As Honest Tea has grown, we've been able to graduate up the distributor food chain -- so non-payment is less of a problem these days, but in the beginning it was a real challenge.
5. Equity structure is best kept simple
Having a game theorist for a co-founder has helped us develop unconventional approaches to the way we develop products and market out brand. But it's not good to create a complicated equity structure. Ours had lots of warrants that were confusing to potential angel investors, particularly when we first started raising money in 1999, in the midst of the dot-com boom. Even though we were selling a simple product, I had hundreds of conversations with investors, most of who opted to invest in technologies they couldn't understand but equity structures they could.
6. Get used to firing people
I'm proud that I've gotten better at firing people -- because being clear and decisive is a better strategy for you and the employee than trying to ease someone out slowly and painfully. I remember thinking as an M.B.A. student that a good manager doesn't have to fire people, but any fast-growing organization is bound to experience situations where good people don't fit, or even more painful, good people aren't able to grow as the enterprise does. In b-school, we did some simulated firings, but ... the best preparation is probably breaking up with boyfriends or girlfriends -- something I was also not good at, but let's not go there...
7. Cash is king
I'm still not comfortable with the notion that we can be a fast-growing profitable business and still have so little cash in the bank. But at least now I know that many companies still operate successfully this way, so we are always trying to find ways to stretch our cash. An extra few days on terms with suppliers can be key, and having a bank around the corner, as opposed to an overnight delivery away means more money is available more quickly.
8. Don't lose control
Running out of cash often means scrambling to stay afloat and it is often what leads entrepreneurs to sign away control of their enterprises. We don't all need to go to law school, but we can all benefit from a good lawyer.
9. Balance your work and your life
The competitive climate of a business school environment can tend to promote all-nighters and long hours, but if business schools really want to help entrepreneurs succeed, they should enforce time limits and balance. We need to be able to commit to our enterprises for the long-haul, so we need to develop the endurance that comes from refueling, whether it's with family, exercise, music, or primal screaming.
10. Follow your passions
At the end of the day, no business school can teach you what's in your heart. The truly successful entrepreneurs are fired up because they're doing something they're passionate about. For me, Honest Tea is more than a great business opportunity and a way to quench my thirst -- it's a way to 1) improve the American diet by offering healthier drinks, 2) help the ecosystem by reducing the amount of chemicals that go into it, and 3) support communities in need of economic opportunity. Those broader missions often inspire me more than numbers growing on a spreadsheet. I'll always put my money on a less formally-educated entrepreneur who won't take no for an answer and isn't afraid to ask questions than someone with a great business education who doesn't have fire in his belly. Even a top-ten school can't teach a person how to care about what you do.
SETH GOLDMAN | Columnist | Co-founder of Honest Tea
Seth Goldman is the President and TeaEO of Honest Tea, the company he co-founded in 1998 with Professor Barry Nalebuff of the Yale School of Management. He's preparing the September release of a graphic novel titled Mission in a Bottle.