What I Learned in Business School

If you’re looking for the Netflix case from Stanford’s GSB, here it is on Stanford’s own server in a folder called—gasp!—”restricted.”

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If anyone is looking for this article by Ronald Heifetz and Marty Linsky, it’s available here on the University of Illinois’s website.

MBA Case Studies HBR, Leadership

FedEx’s founding is well known in business school: Fred Smith wrote an undergraduate paper at Yale about the opportunity for a national overnight delivery service and received a C. He started the company, anyway, and it failed miserably before it became successful. In fact, even when it had its IPO, FedEx delivered a negative return to some of its earlier investors. What isn’t widely known is that the company was once in such trouble that its management team decided to take a trip to Vegas and bet its investors’ cash. Fortunately, for FedEx, they won. (A textbook used to contain this anecdote, which Fred Smith often told employees, but FedEx’s PR department seems to have erased it from the public record.) 

Part of the problem with many term sheets is that they encourage failing companies to undertake negative NPV projects with high variance, or the possibility but not the likelihood of large returns. This tendency results from the liquidation preference in most term sheets that require investors to be repaid their investments before management can realize any value from its share of the company. If the company’s value has fallen below the level of those investments, the management team really has nothing to lose (except its investors’ cash). I can’t think of a better example to illustrate this tendency than FedEx’s side business at the roulette table in Vegas.

MBA BS, Case Studies FedEx, Fred Smith, gambling

One of my friends asked me to recommend an external hard drive today, and it reminded me of a case I read about the hard drive manufacturer MiniScribe. It appears in Jim Collins’ book, Managing the Small to Mid-Sized Company, as case 17 about a company called R3. Collins changed the names of the company and the people involved, but his veil is thin.

MiniScribe was founded in the late 1980 and went public a few years later. It grew rapidly and then crashed before being rescued by the San Francisco investment bank Hambrecht & Quist, which installed Q.T. Wiles as the company’s CEO. The company recovered briefly, but Wiles continued setting ambitious goals for earnings growth, which the company met with the help of some accounting fraud. The most outlandish fraud involved hiring overnight workers to prepare packages filled with bricks, which conveniently weighted about the same as MiniScribe’s hard drives. The day workers would arrive and find the new shipments prepared to go out and book the orders. After booking the sales and shipping the orders, MiniScribe would later recall the “hard drives” with serial numbers matching the brick shipments. The practice came to be known as “shipping bricks.” See this Wall Street Journal article for further reading on the scam.

MBA BS, Case Studies, Uncategorized Accounting, Bricks, fraud, Hard Drives, Jim Collins, Shipping Bricks