People often ask me if I have an MBA. “No,” I reply, “but I did go to business school.”
I was fortunate enough to participate in the Carl H. Linder Honors-PLUS program at the University of Cincinnati, which is essentially an MBA at the undergraduate level. As a result, I’ve had the opportunity to experience what business schools teach without the enormous price tag. Here are the four most important things I learned in business school:
1. Always Consider Opportunity Costs
Here’s what I learned in finance class: whenever you choose to invest your time or money, you’re simultaneously choosing not to do everything else you could potentially do with that investment. The principle of opportunity cost applies to everything: every choice has hidden costs, whether you’re buying groceries, quitting your day job, or taking on a new project.
Financial concepts like the “”http://en.wikipedia.org/wiki/Time_value_of_money">Time Value of Money" and “”http://en.wikipedia.org/wiki/Net_present_value">Net Present Value" are essentially methods of quantifying opportunity costs – given a particular timeframe and what you know about your next-best potential return, you can figure out whether or not a particular investment is worth the asking price.
The more you can uncover the implicit costs behind the decisions you intend to make before you move forward, the better your decisions will be.
2. All Prices are Arbitrary, but Must Be Supported
Here’s what I learned in real estate: every price is ultimately arbitrary – the seller decides what it will be, then adjusts it until someone buys. I call this the “Pricing Uncertainty Principle” – you can set any price at any level, for any reason. Of course, that doesn’t mean someone will actually pay it – you must support the prices you set.
There are a few basic ways to estimate what someone else will pay: estimating replacement cost, looking what other people in the market are paying, calculating the value of a series of payments, or figuring out how much subjective value the offer has to the other party.
Think of selling a house – how much should you ask for it? You could (1) figure out how much it’d cost to re-purchase the land and re-build the same house now, (2) see what similar houses in the area have recently sold for, (3) estimate how much you could rent the house for, then discount that series of cashflows to the present, or (4) sell against a particularly appealing characteristic of the house that makes it even more valuable to particular buyers. (Example: a market-priced $200,000 house can easily sell for $2 million or more if it was previously owned by Elvis Presley.)
No matter what strategy is used, however, it’s ultimately the seller’s responsibility to assign a price and convince the purchaser that it’s worth even more. If you want to put a $5 million price tag on something, go right ahead. Selling is mostly a psychological process of convincing yourself it’s worth that much so you can then convince prospective buyers. In that way, every price is fundamentally arbitrary.
3. Never Forget the Expectation Effect
Here’s what I learned in operations management: every human interaction is influenced by the expectations each party has going in. If the experience is better than the expectations, the interaction is judged to be pleasant, good, or high-quality. If the experience is worse than the expectations, the interaction is judged to be disappointing, bad, or poor-quality, even if it’s demonstrably better than other available options. This relationship applies to dealing with everyone: your customers, your boss, or your significant other.
The Expectation Effect explains why people can be dissapointed after having dinner at the most expensive luxury restaurant in the world, why a particular company’s stock tanks 20% after earnings are $0.01 less than anticipated, and why most people think the first Matrix movie is better than parts two and three.
The venerable business adage “under-promise and over-deliver” is a direct statement of how to apply the Expectation Effect – ensure that people are excited enough to move forward but don’t have inflated expectations going in, then do everything you can to amaze them. It’s a difficult balancing act, but it always works.
4. Actual Experience Beats Any Credential
Here’s what I learned about getting a job: real experience trumps credentials every time. One of the best features of the Honors-PLUS program was mandatory co-op: the program lasted 5 years, but 1.5 years was invested in doing actual work for an actual company, getting actual experience. The university has recruiting relationships with hundreds of regional employers, which made it possible to get interviews with major companies in the area.
Co-op is the only reason I was able to work as an Assistant Brand Manager at P&G (a position that typically requires an Ivy League MBA) straight out of undergrad – I’d been working for the company for a year and a half, and the managers knew the quality of the work I did. I knew the company, I knew the people, and I had real skills that were valuable and needed. The piece of paper I received after graduation was an afterthought.
If you’re currently pursuing (or preparing to enroll in) an undergraduate college education, co-op or internship experience is critically important. If your intent is to land a high-paying job after graduation and you’re not graduating with at least a year of real-world experience under your belt, you’re probably wasting your time and money. Real experience is what employers and customers value.
Did you go to college? What were the most important things you learned?