I have taught classes and met with students at business schools around the world. I have worked with thousands of business school graduates, mentoring both startup founders and leaders of large corporations. Again and again, I see gaps in their business education.
Too rarely do I find young business graduates who have really grasped the incredible power of business to do good in the world. The best way to understand the why of business—how it really works—is to study the lives of great leaders and the histories of companies, both successful and not. Business students have seldom been taught to study these biographies and histories, to think about them, and to aspire to such heights. Instead, they often spend their time learning how to pitch investors and how to build companies with a quick exit in mind (“built to flip”). They learn how to use the tools of business without knowing why we create businesses in the first place.
The Missing Piece in Business Education
Let me start with some context, four very short stories:
- By his 20s, John Mackey had concluded that much of the food we eat was not good for us. Poor nutrition and diet led to shorter, less healthy, less happy lives. In 1978, the 25-year-old and a friend convinced investors and lenders to put up $45,000 to open a small natural foods store in Austin, Texas. Two years later, they joined with two others to open the first Whole Foods Market. Many experts believed this was at best a tiny market, at worst a passing fad. Forty years later,, Mackey and his friends’ never-ending obsession with providing healthy, natural foods has led to the Whole Foods Market of today has led to the Whole Foods Market of today, a national organization with many devoted shoppers and $15 billion in annual revenue. Perhaps more importantly, the rise of Whole Foods has driven competitors such asKroger and Walmart to add more natural and organic foods, reaching millions more people.
- In the same era, the somewhat eccentric computer buff Steve Jobs saw opportunity where industry leaders saw no future in the personal computer. To play with kit computers was certainly not a path to wealth. Despite being fired from his own company, Jobs returned to lead Apple to unprecedented heights, focusing on ease-of-use and great design. Billions of people’s lives around the world have been enhanced by the company’s innovations.
- In 1924, a 16-year-old girl experimented with facial cream formulas in the family kitchen. Estee Lauder then went on a lifelong crusade to improve people’s skin care. When her company grew, she looked into acquiring older cosmetics companies. The male leaders of the American cosmetics industry just laughed at “the little girl.” Ultimately, Estee’s company surpassed her competitors. Her grandchildren are all billionaires from the rise of the Estee Lauder Companies, which today employs 48,000 people. Global customers love the company’s products to the tune of over $14 billion a year (company revenues; actual retail sales are much higher).
- In 1907, 19-year-old Jim Casey and a friend borrowed $100 to start a messenger service in Seattle. He soon realized that local retailers were wasting money by each having their own fleets of delivery carriages and trucks. Casey could lower the cost of delivery by offering a consolidated service for all the retailers. Over time his company expanded to other states, but he often found existing trucking companies had enough political clout to ban his operation. State-by-state, country-by-country, Jim Casey and his successors proved their value, and United Parcel Service became global. Today, UPS is the largest (in revenue) and most valuable transportation company on earth. It is also one of the most important companies headed by a woman. Over 500,000 employees deliver 25 million packages each day in 220 countries. Our entire eCommerce economy depends on UPS and their competitors.
In each case, these individuals devoted their working lives to their ventures. Staying true to their vision, they experimented, often failing. They were persistent in the face of obstacles. They and others like them built great enterprises, creating jobs across America and giving rise to higher standards of living for millions of families. Today, Whole Foods Market spans across America while Apple, Estee Lauder, and UPS extend such benefits to people around the world.
These people are heroes: through their blood, sweat, and tears, they left the world a better place than they found it. These founders set the tone for their enterprises. They left “organizational DNA” which remains today. Apple, Estee Lauder, Whole Foods, and UPS continue to grow and to create satisfying, well-compensated jobs. They serve customers, employees, suppliers, stockholders, and the communities in which they operate. Their visions continue to inspire people inside and outside their companies to improve the world.
If we see Jobs and Casey as heroic, we can also see Apple and UPS under today’s leaders as perpetuating a heroic effort. The ability of a business—whether the diner on the corner or Costco or John Deere—to improve the lives of millions of people is remarkable. But it takes idealistic, strong-willed, creative people to make these innovations happen and to keep them going for decades.
Yet no company can force someone to work for it, sell to it, or buy from it. If any business fails to offer good products at great value, if it fails to make someone’s life better, the business will be no more. One need look no further than Sears, Roebuck and Kmart to see the results of mismanagement or failure to meet the needs of customers.
Too few students graduate from business courses with a full understanding of business, how it works, how actual leaders and their strategies have succeeded, and how they have failed. This common failure is not just unfortunate, it costs our society dearly. Some of these business graduates will ultimately run large companies and start new ones. In the future, they will play a critical role in business purposes, policies, and ethics. Already, thousands of businesses are managed by people who have come through the business education system, sometimes with poor results.
A few examples are extreme. Take Houston’s Enron Corporation, which in 2001 descended from being called “the most innovative company in America” to bankruptcy and being reviled. Company CEO Jeffrey Skilling was in the top 5% of his class at Harvard Business School but ended up spending 12 years in federal prison. The company’s chairman of the board Kenneth Lay, holding a PhD, died of a heart attack while awaiting sentencing for his crimes. Despite their prestigious degrees, these men did not have a clue about how to build a lasting organization. They never understood what matters in business.
I believe the failures of business education can be summarized by what students too often take away (or don’t take away) from their business courses:
- They think business is primarily about money.
- They learn the “how” of business but not the “why.”
- They do not study the great innovators, leaders, and companies; even failures.
- They do not understand the most important principles of business.
- They hear too much theory in the mix.
- They are exposed to too few successful entrepreneurs and business leaders.
They think business is primarily about money.
The idea that the only reason to go into business is to “get rich” is one of the most destructive notions of our age. This idea starts young people on the wrong track and leads to the creation of ventures with flawed goals and inadequate passion. It leads to failed enterprises like Enron, Theranos, and FTX.
Many college and high school students seem to think their career choice is twofold: either to (1) do good by going into public service (government) or non-profit work; or (2) make money by going into business. This mistaken worldview assumes that money is the main reason people start and build businesses. It implies that businesses do not perform a “public service.” Students often believe that government and charity work are somehow much more important than creating jobs and supplying the needs and wants of society. (Businesses also contribute much more in taxes than non-profit organizations.)
This mindset is often reinforced in two ways. First, students who are primarily motivated by money tend to study business; and second, business teachers often support the idea that business is primarily about money. There is little place for the passion and sense of purpose that are the realities of creating and building businesses, as demonstrated by the best entrepreneurs and businesspeople of the past and present.
Those who do not understand business and entrepreneurship, who have never created a business, risked their own money, or created jobs, often share this warped view of business.
College professors live in a relatively low-risk world, seeking guaranteed lifetime employment (tenure) as a key priority. Research and publishing scholarly articles takes precedence. Taking action, taking risks, and putting together large teams of people are rarely rewarded by the academy. If the work of a scholar proves wrong, they are embarrassed. If an entrepreneur’s work proves wrong, they are broke and out of a job, along with everyone else they convinced to join their effort.
(Note that business classes are increasingly taught by “adjunct” or “clinical” teachers who are not on the tenure track. These teachers often have real business experience and are excellent teachers. However, these instructors seldom have much authority over the curricula and overall structure of business school programs.)
I know from experience that we have many great business professors. At the same time, too many have little or no business experience. Even business professors are sometimes antagonistic to and suspicious of business.
Money is the bloodstream of business, not the purpose. The purpose of a business is to provide goods and services to its customers. The great management thinker (and professor) Peter Drucker once pointed out that a finance person can rarely be a good chief executive, because they think “it is about the money.” When in fact “it is about shoes” (or natural foods or computers or cosmetics or package delivery).
Closely related is the widespread misunderstanding of profit and the critical role it plays in the future of society. See my analysis of profit, its purpose, and the purpose of business here.
They learn the “how” of business but not the “why.”
Within this context, business schools focus on the “how” of business and less on the “why.” Graduates are trained to be the plumbers and carpenters of business, excelling at technical and tactical skills. Too seldom are they prepared to be architects and designers, trained to think through the big picture and understand where they and their enterprise fit into society. Rarely are they prepared to be dreamers.
Educators might reply that the “hard skills” (e.g., spreadsheets and finance) are easier to teach than the “soft skills” (such as human relationships or emotional intelligence), which are not as neatly understood. Yet,business leadership is primarily about selecting, motivating, coaching, and organizing people. Verbal and written communication skills are at the heart of leadership. In my experience, the hard skills are really the easiest; the soft skills are often the hardest to learn and perfect. Such skills need more emphasis, even if they are hard to teach. As Warren Buffett’s partner Charlie Munger often points out, among the most important things to know in business are psychology and sociology.
The best way to understand the why of business, how it really works, is to study the lives of great entrepreneurs and leaders and the histories of companies, both successful and not. Only by learning how the greats thought, how they dealt with obstacles, and how they came up with new ideas and methods, can we be inspired to “do it right” ourselves. Much can also be learned from active, present-day leaders, but studying the successes and failures of the past has the advantage of hindsight and seeing the long-term lifecycle of enterprises from birth to either death or durability.
They do not study the great innovators, leaders, and companies; even failures.
A century ago, business historians and professors often wrote books telling the history of a company or the biography of its founder or leader. Those volumes were usually unfailingly positive, praising the achievements of “great men.” Today, a more balanced view, warts and all, is required.
Yet over the last 50 years, such books, whether all positive or balanced, have become rare. The world of academia has largely abandoned (or become hostile to) the “great man” idea and with it, the concept of great companies.
In the 1920s, Henry Ford was seen as a hero. Henry wanted more cars and less profit per car, but his investors disagreed. They thought cars were a rich man’s toy, whereas Ford had a vision of making automobiles affordable for everyone. He had to buy out his partners at great expense to be free to lower the prices of the Model T. That innovation freed more American women from the limitations of home and housework than any other single factor in history. People could more readily cross the country for college or a job. Ford also shortened worker hours, raised their pay, and hired minorities and ex-prisoners who couldn’t get jobs elseelse. Henry Ford was, in his time, a “great man.”
Over time, business history took a more “external forces” approach. The automobile was invented because the required technologies and tools had come into existence. The internal combustion engine became practical and available. The thinking goes that, if Henry Ford had not pioneered the inexpensive car, someone else would have done it. It was “in the cards,” a natural event. Who did it and how they did it became much less important.
I agree that there is much to be gained by studying the underlying changes in technology and society that led to the mass-produced automobile. But such shifts in our lives also require real individuals taking real actions. The stage may have been set, but the play does not start until the actors appear. Knowing that some great idea will happen whether you do it or not does not achieve anything. Somebody must actually decide to do it and take the required steps. The real world needs Henry Fords and Elon Musks. Each of us, and each business graduate, must operate in the real world, must make choices, and must take actions.
I advocate a clear, balanced, fact-based study of great men and women. We need to understand Henry Ford, including how he thought and what motivated him. We need to grasp that he was human, with plentiful flaws and mistakes, from his anti-Semitism to his failure to keep the company up-to-date and competitive as he aged. We cannot completely understand an Elon Musk without studying a Henry Ford, comparing and contrasting the mindsets and behaviors of these innovators.
It follows from these points that students also do not study (and thus understand) business evolution, the stories of enterprise success and failure. Every present and future business leader would learn a great deal from Alfred Sloan, the man who built General Motors and was perhaps the greatest corporate leader in history. Yet few business school classes ever mention his name.
Every technology, industry, and company follows an arc during its lifespan. Early rapid growth is followed by maturity, often including a shakeout in which many companies fall by the wayside. Then follows the extended battle for survival, with some companies such as Sears, Roebuck, and Westinghouse Electric disappearing, while others prove more durable. John Deere and Procter & Gamble are celebrating their 185th anniversaries in 2022 Colgate-Palmolive is celebrating its 216th.
Likewise, every technology, industry, and company has its Achilles’ heel. Every great thing has its dark side, its weaknesses. Someone once said, “Every great idea contains the seed of its own destruction.” Holistically understanding how businesses work is critical for leaders: knowing how companies unfold over time and what causes them to succeed generation after generation or to fall into ignominy.
All this is skipped in most business education programs. The two schools I am most familiar with, the Booth School of Business at the University of Chicago and the McCombs School of Business at the University of Texas-Austin, do not even offer a course in business history. But students cannot know where we are going if they do not know where we are coming from.
Our failure to study and learn from the past results in mismanaged companies, poor leadership, and missed innovations that cost our society immensely, both financially and in the quality of our lives.
“You can’t connect the dots looking forward; you can only connect them looking backwards” – Steve Jobs
They do not understand the most important principles of business.
With such great emphasis on technical and tactical training, too little time is spent on an overarching understanding of business and why it exists. The “big ideas” of “big thinkers,” which should be central to business education, often do not receive the attention they deserve. Too often I meet business graduates who have had little or no exposure to Peter Drucker, arguably the greatest business thinker of them all. They rarely study the ideas of such iconoclastic and original scholars as Edward de Bono, Charles Handy, Hermann Simon, and Alfred Chandler. Or the ideas and ideals of “big thinking” business leaders like Alfred P. Sloan and Robert Wood (one of the two men who made Sears the greatest retailer on earth before its long decline).
It is hard for me to imagine someone deeply understanding business without having absorbed the main ideas in Peter Drucker’s book Management: Tasks, Responsibilities, Practices and Chandler’s great history of American industry, The Visible Hand.
They hear too much theory in the mix.
By their nature, academics must come up with theories and test them. To rise to the top of their profession, professors “publish or perish.” They argue endlessly over theories, sometimes strong ones, often weak ones. Too rarely do they interview actual managers to see if they think the theories make sense.
While such theorizing plays an important role in learning and teaching, there needs to be more balance between theory and “reality.”Some theories take on heightened importance, believed and restated in most every business school in the country. Fashions and fads are as common in academia as they are in every other aspect of society.
An example: In my many guest lectures to business classes, it is not uncommon for the teachers to follow my talk by saying, “Gary’s comments match up with Michael Porter’s five-force theory of competition.” Porter’s theories may have validity in some industries or situations. But my own experience as a retail strategist leads me to believe that Porter’s theory is unsatisfying, un comprehensive and unbalanced. Things he places in minor roles are of critical importance in actual competition. Porter is a smart man, worthy of study, but do the students learn any other theories of competition? Do they hear enough from people who are actually competing in the world today?
Hand in hand with this emphasis on academic theories goes the intense statistical and mathematical approach taken in modern finance and economics. I studied under four future Nobel Prize winners in economics. Although we used plenty of math in class, the main things we learned were the key underlying principles of economics—the “economic way of thinking”—one of the most powerful tools available to mankind. It was clear to us that we had to completely understand these ideas before getting into the math. Any deep understanding of economics starts with words, not numbers. Today it seems that many faculty and students proceed to elaborate statistical analyses and modeling without this firm foundation of understanding.
In this approach, companies become faceless, soulless entities only understood through numbers with dollar signs in front of them. The human element in business takes a back seat. But every business decision and strategy is created by people.
A few years ago, the highly successful then-CEO of PepsiCo, Indra Nooyi, spoke to students at the McCombs School at the University of Texas. This was an excellent learning experience for all involved. In her comments, Nooyi stated that she believed her company “has a soul.” Too few business teachers grasp that idea in its full depth. Students are thus unlikely to get the idea.
Like people, no company is perfect. All business failure is human failure, all business success is human success. When someone says, “this company is evil or did wrong,” they should instead say, “the people of this company behaved in an evil way or did wrong.” And the same thing when companies do things right.
Balance sheets and profit and loss statements are the scoreboards of business. Money and profit are the mechanics of business. All are important to understand, but they cannot be fully understood without the context of human action, human responsibility, and society at large.I do not want to do away with theory, I only seek a better balance.
They are exposed to too few successful entrepreneurs and business leaders.
I have seen entrepreneurship training programs in which few entrepreneurs give talks, and even fewer greats of the past are studied. A city like Austin has thousands of entrepreneurs, from the earliest startup to towering successes like Elon Musk. Yet too rarely are they invited to the classroom.
Ideally, educators would spend the time and effort required to find those executives and entrepreneurs who can articulate their stories and engage students. The best can explain how their efforts made the world better and demonstrate their passion for their work. And some can bring a multitude of experiences to the classroom, not just the story of one company or one industry.
Ideas to Improve Business Education
I urge business educators to follow the steps naturally flowing from the preceding list.
For example, a great business education might spend 10-20 percent of course time studying cases and examples from the past, learning from Steve Jobs and Jim Casey, along with many others. Alfred Chandler’s work should be one of the first things any student of business studies.Drucker and other holistic thinkers who combine interdisciplinary wisdom from many fields should also take a more central and earlier role in business education.And every class should invite current entrepreneurs and executives to engage with students. Theory should work alongside real stories of businesses past and present.
Above all else, tomorrow’s business leaders should be encouraged to develop big ideas, to dream. To build companies that last, not ones that can be sold in a few years. To build enterprises that make an important difference in people’s lives, not just a better whiskey or shirts that do not need to be tucked in. Nothing achieves this better than studying the lives and companies of the greats.
My preceding comments regard the structure of business education as we know it today. If I were to go deeper into our educational system, I would recommend consideration of these ideas:
- Take entrepreneurship and entrepreneurial thinking courses out of business schools. Do not limit such courses to those thinking about starting new for-profit ventures. Entrepreneurial thinking (see my essay here) is needed in all organizations, of every size and shape. While startups and small and medium sized businesses play key roles in our economy, large corporations also play a critical role. They are a driving force in our daily economic lives. Large firms can assemble the people, capital, and other resources required to develop national and global systems of production and distribution. Economies of scale lower those production and distribution costs, making every customer richer, while also creating millions of jobs. Big companies develop the brands we use every day, pioneer new ideas and innovations, and are often the most important customers of smaller enterprises. These giant organizations require commitment, innovation, skills, and energy at every level from top to bottom. The best, like John Deere and Colgate-Palmolive, have made significant contributions to modern life. Having great leadership and entrepreneurial thinking in large companies is vital to the success and progress of our world, as important as entrepreneurs and their startups.
Entrepreneurial skills and mindsets are desperately needed in government, in the non-profit world, and in hospitals, museums, libraries, and universities. By mixing artists, musicians, academics, future doctors, future lawyers, and all the other students in with business students, a great deal can be accomplished. A great example of this is McPherson College in Kansas, whose website states:
McPherson College believes the classic concept of liberal arts is intimately tied to the modern idea of entrepreneurship and strives to weave the concepts of entrepreneurship across the curriculum and student life, regardless of a student’s chosen major. This idea transcends any one department, giving students the room to experiment and explore – while still landing on their feet. McPherson College students discover that the only failure is the failure to learn. Entrepreneurship is the creative process of developing sustainable, innovative ventures that solve problems and meet the needs of the greater community. Balancing opportunity and risk, the entrepreneur manages resources and constructs solutions that benefit both self and society.
- Expand “business classes” beyond business students. Rename them “management” and open them to everyone. Courses in management would take a broader view of how enterprises can be structured, financed, and governed. When embarking on their missions, entrepreneurs have organizational choices, including a for-profit corporation, a 501(c)3 non-profit, a co-operative like Best Western or credit unions, a mutual company like State Farm, and others. Such options are never addressed in “business” courses which assume the for-profit corporation is the only choice.
- Add for everyone a course in what some call “progress studies.” Far too many students understand the world only through the latest tweets and Facebook posts. Too often, they are not looking at the underlying data. Such a course would emphasize the big picture, the long-term analysis of such global factors as health, longevity, demography, energy, urbanization, the environment, and the world political order. Studying the work of Hans Rosling, Matt Ridley, Steven Pinker, and others who agree or disagree with them, would give students a far broader and clearer view of the world than they usually get today. Such a course would include an analysis of the greatest challenges facing mankind, and perhaps some answers to those challenges.
In the preceding three courses of study, the interaction between students who selected business as a major and those from other fields would have positive results for both groups. Ideas from multiple disciplines would be shared. The world would be a better, more integrated place.
- Start earlier. Possibly teach some subjects as early as 7th or 8th grade, but certainly by the 10th or 11th grade. In addition to the ideas listed above, I would put two topics at the top of my list for high school students. One is personal finance, understanding debt and equity and how to make your own personal balance sheet and income statements. This education helps students deal with credit cards and car loans but also underlies the understanding of stocks, bonds, and corporate financial statements which can come later. The second course that high schoolers should master is some form of microeconomics. Not deep in the weeds, but every person should intimately understand supply and demand. Early on, everyone needs to understand that prices are one of the most powerful tools society has. These are not just business subjects; they are important for every informed citizen.
Above all else, I hope this note provokes further conversations among those shaping the business leaders of tomorrow, as well as our leaders in government, education, healthcare, and every other field.