The Start-a-New-Business MBA

Jeff Sandefer (JS) is a founder of the Acton School of Business, an innovative MBA program in Austin, Texas focusing on entrepreneurship. Sandefer received his MBA degree from Harvard University before launching five successful companies in several industries, most notably in energy. He translated that business experience into becoming an award-winning professor at the University of Texas, where he was named by BusinessWeek as one of the top entrepreneurship professors in the United States. The following is a transcript of an interview conducted by Savvy Street’s Stephen Hicks (SH).
 

SH: The Acton MBA program is a distinctive integration of methods—experiential learning, Socratic dialogue, case studies, teacher-student contracts, teaching technology, and only hiring successful entrepreneurs as professors. What are your benchmarks for what counts as a successful entrepreneur?

JS: We want our graduates to start, buy, or work their way to the top of a successful business. That’s what Acton is all about—learning to run a successful business. But it’s even more important that our graduates learn to lead meaningful lives too.

Our entrepreneur-teachers all serve as CEOs of successful businesses, but more importantly, they try to lead meaningful lives, with healthy families too. They’re really servant-leaders and humble. I’m thinking of Ed Perry, one of our teachers. When I met Ed, he told me he’d always struggled as a leader. Then I found out he had started five or more successful businesses and had a handful of black belts in different martial arts.

That’s what we look for in a teacher. Someone who has been successful and still wants to learn. Someone more interested in asking questions than giving answers.

SH: You’ve mentioned the case study method. Why is that foundational and not other methods?

JS: We’re training students at Acton to run real businesses—to stand between Sales and Operations and make the tough decisions. The Sales VP always wants to sell; he will price low and promise to customize the product for each and every customer. The Operations VP wants to make one product, paint it black, and price it as high as possible. As the owner of a business, you have to stand between Sales and Operations, decide what to make and how much to charge, and try to keep both Sales and Operations happy.

SH: A typical case study, then, is you try to put yourself in real time with the information available to the entrepreneur at that time?

JS: Yes. Sometimes it’s too much information. Sometimes it’s not enough information. Sometimes the data you have is conflicting. The student says, “Well that’s not fair. It says this on one exhibit and on the next page another.” We say: “Welcome to the real world. You don’t get pure data. You get messy data.”

SH: Also, you focus on successful cases as well as failures?

JS: Yes. Absolutely. Failure cases are harder to find because people don’t like to tell the stories as much.

But in general, you don’t know what happens next and students are forbidden from looking it up. So you really have to stay in the moment because often what happens next is someone else is retelling the story in hindsight. Or it was luck. And you can make the wrong decision—and often the right or wrong decisions are 51/49—I mean they’re nuanced. So we don’t encourage or even allow hindsight.

SH: “Experiential learning.” What does that mean at Acton?

JS: Selling door-to-door. In the early spring students are given a set of children’s books and a geographic sales territory. Then they have to sell door-to-door. If they don’t make quota, they don’t come back.

The real goal there is not to teach them sales skills—I should say we don’t teach them anything; they learn a lot of stuff—but it’s not to even teach them sales skills. It’s to have them learn to be told “No” 99 times and to knock again. They just have to stay out there. And over time they actually learn a lot of sales skills and techniques and things because they have to to survive.

Other examples of experiential learning include: the students putting together or building assembly lines and running a real service-delivery business. And factory tours. Students do a lot of behavioral economics. And they have a problem they’ll have to rapid prototype a product for.

As much as we love and revere the case method, we’re moving toward more experiential.

SH: Your courses fall into three categories courses—Integrative courses, Tools courses, and Life of Meaning courses. What’s the purpose of the courses in each category?

JS: Integrative courses are the most complex. You have to stand between Sales and Operations and make very complex decisions as you move through opportunity analysis, launch, growth, harvest. You move through the Entrepreneurial Journey course just like an entrepreneur moves through the life cycle of a business. Just like a beginning entrepreneur, you’re thrown in the deep end with no help. And this starts immediately, the first day of class.

The Tools courses focus on one function like Sales, Operations, or Finance. We teach you not only the tools, but how to use them to make decisions about messy problems. And we teach tools in the same way entrepreneurs learn them, which is very different than the way courses are taught in most business schools. For example, we combine accounting and finance into a course called Cash and Valuation. It moves from the simplest of problems, like selling one glass of lemonade at a time, all the way to dealing with multi-stage leveraged buyouts.

The third type of course is called Life of Meaning. It’s about finding your “calling” in life.

In the first semester, you take the Entrepreneurial Journey course, Customers (sales), Operations, Cash and Valuation, and Life of Meaning.

The second semester, you have four Integrative courses. You go deep into each of the four stages of a business: opportunity analysis, launch, growth, and harvest. Then there are two additional  tools courses—People and Raising Money. We don’t teach you how to raise money until the end because we think first you need to know how to build a profitable business.

SH: Other MBA programs may have courses in business ethics, business history, business writing, political economy, and so on. You don’t include them or they get folded in?

JS: We don’t have a business ethics class and this is one I feel pretty strongly about. Business Ethics, even at HBS was taught as “Thou shalt do this because corporations should do this.” It was not human, personal morality and choices. It was ethics from afar. I found that to be ineffective. It just didn’t get to the heart and soul of me making hard decisions. So Life of Meaning is all about us putting students in really difficult life situations and arming them with the tools to make the right choices to lead a productive and meaningful life.

SH: It sounds as if you are doing business ethics, but it is reconceptualized.

JS: Yeah. In Life of Meaning we put the students in these incredible dilemmas and the students say “But there is no right answer.” And we say, “That’s what a dilemma is.” The phone rings, you promised your daughter you would go to the dance recital and you’ve been promising for weeks—but that’s your biggest customer on the phone. And then whatever decision they make, it escalates. “Well, I have to go to the dance recital.” Oh, did we mention that it’s your only customer and 130 people are going to lose their jobs? Did we mention that you’re in Appalachia, so there are no other jobs? So there’s no “Well, I’ll go to the other factory.” Oh, did we mention that this is the third dance recital that you missed? That you are a widower? Did we say dance recital? We meant wedding. And so all of these dilemmas, whatever you choose, they ratchet up.

And then the students, in this part of the course, they have to pick and declare a moral framework—are they utilitarian? Do they use justice, fairness, or virtue as a guide? We ask the students to declare which one they are going to be consistent with in this part of the course. And then we ratchet up the intensity of the dilemma until students abandon their chosen framework. Then we ask, “Why? Why were you forced to abandon your utilitarian approach?” And that’s how they learn.

SH: That’s a much healthier approach to business ethics.

JS: It’s more personal. It’s about your life.

SH: Turning to technology, you mentioned that all of the classes are videoed. Is that for quality control purposes?

JS: We video classes so students can see themselves in action. You can critique your performance or ask someone for help. It is really like grading football plays on film or watching your golf swing. By seeing yourself on tape and making adjustments, you can improve much more quickly.

SH: I saw the classroom. It’s impressive—the layout, all of the white boards and projectors available. And students also use clickers?

JS: Students can vote in two ways. Students have the right to mark comments with the clickers. They can also vote on how good comments are.

We also use them when we are teaching Behavioral Economics—we do some Friday Behavioral Economics—and they may vote on a Behavioral Economics question or something and it will immediately display up there. Our whole goal there is to start a fight between this side and this side or you and you. Often the votes will help us to pick a fight because you have to make a stand and defend it.

SH: The typical MBA is two years. Yours is a compressed, one-year program.

JS: Acton was one of the first schools in the country to offer a one-year MBA. But now, because of the success of our My Entrepreneurial Journey in delivering real world challenges to students all over the world, we’re about to make another leap.

We’re going to compress the program to make it even more intense, but you’ll be able to do the first half of Acton from anywhere in the world, while you work. Then you’ll come to Austin for a grueling five months in the classroom. And the first half isn’t like an online program where you sit in front of a computer screen—it’s like being an apprentice, being sent on a quest with real problems to solve, to earn the right to come to Austin. And all along the way, you’ll have a successful entrepreneur as a guide, to inspire you and hold you accountable.

I’m guiding 13 people all over the world now. We are getting 90 percent completion rates on six-month courses. Students are coming out of the MyEj program with a rich portfolio of experiences that allow them to prove to others what they can do.

SH: That’s impressive. To ask a philosophical question—can any student do your program and succeed? Can you make entrepreneurs? Or is there a preset character trait or personality?

JS: I don’t know is the answer. I know less about that than I did when I started this. I will say from Life of Meaning work, we seem to find that once students are here and in their 20s or 30s or 40s, they fall into one of three buckets. There’s one group: they’re angry at a parent for some reason. Usually if it is a male, it’s their father. There’s just some father-son deal going on or mother-daughter thing. And, by God, they are going to prove something. That group—they’ve got issues to work out, but they are proving them going forward in the world. It’s a driving mechanism. So we can help that group. We can help them make better decisions and trial and error. They’ve got this “push forward.”

The second group shows up, slightly smaller, but we attract a lot of them. These are people who have had life changing, threatening things. Loss of a parent at an early age, car wreck, lost a sibling, dire poverty—I mean they have gone through something that you and I would think is horrific. They actually are the easiest because they will go try lots of things, “Because what could it hurt? I’ve already been through the crucible. You’re not going to shake me up.” We get Navy Seals and fighter pilots and other people who tend to fall into that category. They’re just, “I’ll go try it. I don’t have any ego at stake.”

SH: You have been critical of the current higher education system. What are your major criticisms there? Is it a cost issue? Do you think undergraduate education—easily $100,000—is not worth the cost?

JS: You know, I’ve evolved on that in the last couple of years after thinking about it a lot. My root objection is that most universities—particularly research universities—are not being honest with their customers. I see their customers as being students and taxpayers, that’s who’s paying the bill—and funders, if you want to throw funders in. It is not negative what the school’s mission is. But when you study the school’s mission, it is really a factory to create more scholars. And when you look at the way they are set up—they will take a lot of undergrads in and flunk a lot of them early so they don’t have to spend much time teaching until they get to upper division undergraduate courses. They will pick the most intellectual graduate students and recruit them for graduate school and encourage them to become academic scholars.

The problem is that we now have an oversupply of scholars, with six new PhD’s for every new chaired professorship.

I’m a big fan of productive research. After all, I’m an engineer. But far too few of these PhD’s turn out to do any research that advances science or creates new technologies.

I think it’s wrong for university administrators and tenured professors to mislead students, parents, and taxpayers by telling them that they care about undergraduate teaching when much of the effort is being poured into creating PhD’s that can’t get a job when they graduate. It’s dishonest and it has to stop.

Today, far too many undergraduates are being taught by low-paid adjuncts who aren’t trained very well at teaching. So the quality of teaching isn’t very high in most universities. And many tenured faculty at research universities are teaching so few students that college is getting increasingly expensive and it’s reached a breaking point where many families just can’t afford it anymore.

SH: Private liberal arts colleges try to solve exactly those problems. So, your target is research institutions with large student-teacher ratios?

JS: Right.

SH: Are the large universities starting to rethink themselves? I mean state governments are cutting back; people are aware of the technological revolutions, online universities, and so on. Do you think they’ll reform themselves?

JS: That’s a great question. I’m actually encouraged. I think the ones that are being threatened with extinction will. I don’t know if they can or not because I think there is a serious governance-financial issue. But they certainly are thinking about it and I’ve been really encouraged. Once you get beyond all of the political rhetoric in the press, it’s amazing how many department heads have emailed me.

I spoke to all of the chief academic officers, or provosts, of Texas state universities. I gave a really tough speech that basically said, “You’re all doomed. I mean the economics are, you’re doomed. It won’t work.” Two guys in the room got mad and screamed at me during the questions—“Your data is not true. You’re a liar.” Really … but I kept saying, “Well, which cite’s not right? Let’s go through … .” “All of them,” they said. “Well, can you pick the one that is the most wrong?”

Later people came up to me and said it was clear those guys were just mad. The rest of them kept saying, “We agree. What do we do? I mean, we’re trying to teach online … what do we do?” I think their governance problem is … if 51 percent voted, a tenured faculty governs, and there is a tendency to kick the can down the road. You know, as long as I’m in the top 51 percent, well, “We’re going to keep this going.” So how you would create a sense of crisis enough to really change the structure? I don’t know if they are going to be able to do anything to prevent it or not.

Stanford—the things I see Stanford doing—I think they will be the Google of universities.

A very close friend of mine (who I think is the wisest guy I know in higher education) is the president of a large university, and is a very thoughtful and very quiet guy. I said to him, “What do you think happens in 10 years?” And he said, “I think Harvard makes it and I think some of the better, specialized, small liberal arts schools make it.” And I said, “Oh, you mean they don’t have to change.” And he said, “No, no, no. I mean they exist.” And I said, “Now come on. Michigan, USC, A&M … I mean, really?” And he said, “They are locked into a cost structure escalation they can do nothing about. They’ve reached their breaking point. They’re not offering a very high quality product.” And he said, “They can’t be disrupted by a lot of the other things going on.” And he said, “Unless there are continued, massive federal subsidies, I think you will see thousands of—not Chapter 11 bankruptcies—but Chapter 7 bankruptcies.” Now, I think that is too extreme. But the fact that this guy I know said that makes me go, “Wow, that’s interesting.”

SH: There is a large set of skills entrepreneurs have to either have or acquire: the willingness to take risks, perseverance, being able to fall on your face and get up again, and so on. Is there anything that strikes you as the most important trait that entrepreneurs have to have?

JS: Well, I think persistence is number one.

I think the rarest one they have to have—and this comes from my friend Amar Bhidé. It’s his idea, though I’ve written about it, of a tolerance for ambiguity. What Amar says is that entrepreneurs can look at a hill and say, “That’s the hill. That’s where we’re going. Let’s take off.” And so you can rally people to that hill, you know, all of the vectors line up in that direction. But a real entrepreneur, the first step they take, will say to themselves: “You know what? That’s probably not the right hill.” Now, they’re not lying. Because at this moment the data suggests that’s the hill and they’re saying that out loud. And they know they can’t say aloud, “No, that’s probably not the hill,” because people won’t follow them. But they also know their information is imperfect and their judgment is imperfect and they just want to move further ahead to get a better view. And for most people, he said, that feels like a lie; they can’t keep both those concepts in their head. But entrepreneurs can. So, most people would do one or two things. They would either charge out in that direction and would never change and go off a cliff. Or they would just mill around—never being able to pick a place because they couldn’t set a vision. But entrepreneurs will both charge ahead and be immediately skeptical, looking for data suggesting you need to change.

SH: The two traits you’ve identified—persistence and toleration for ambiguity—how do young people cultivate those in themselves?

JS: I don’t know. The biggest mystery to me right now is if incarceration and diplomas aren’t going to be our primary form of motivation for education in the future, then what is? There has to be something better.

I mean, I don’t think that’s working very well. And this idea of “If we just get a college degree, everything will be okay.” I mean, that’s kind of what the model promises, and “We’ll incarcerate you if you get one.” If that’s not going to work, what motivates people to develop this sense of persistence, the deep difficulty to really learn something? You know the game-based adaptive stuff can do it for skills because it’s kind of fun and you can build up. But this is where I think the “guide” relationships, as we use that word, and the running partner relationships of face-to-face people within relationships are important. If we can figure out how to do that, I think you’d build a Wikipedia of people who are helping—almost like the Boy Scouts. You could build a whole new way to think about education that’s much more distributed. And it’s those relationships—either wanting to be like that person or wanting to have what they have. We go back to the master-apprentice system that worked so well in the US in the 19^th century. And I think we have the technology now to do that, if we can convince people that they need to do it and make it easy for them, make it really easy to be a guide or a master, not hard.

This is an excerpt of an interview that first appeared on the Kaizen Newsletter of the Center for Ethics and Entrepreneurship at Rockford University in Illinois.

About the Author: Stephen Hicks

Stephen Hicks is Professor of Philosophy at Rockford University, Illinois, USA, where he also directs the Center for Ethics and Entrepreneurship. He is the author of two books in intellectual history: Explaining Postmodernism: Skepticism and Socialism from Rousseau to Foucault and Nietzsche and the Nazis. His other publications include essays and reviews on education, entrepreneurship, and ethics in publications such as Review of Metaphysics, Business Ethics Quarterly, and The Wall Street Journal. He blogs at StephenHicks.org.