Category: SMG Hot Topics
PayPal cofounder shares entrepreneurial wisdom
Peter Thiel, cofounder of PayPal and first outside investor in Facebook, spoke on Tuesday at Boston University School of Management as part of his Zero to One book tour. BUzz Lab, the University’s new center for entrepreneurship operated by the School, hosted the sold-out event, during which the legendary Silicon Valley entrepreneur and investor served up plenty of his characteristically contrarian ideas on competition, progress, and technology.
From BU Today:
A word of advice for hopeful entrepreneurs: don’t pitch Peter Thiel on a restaurant. He’s not a big fan. In fact, the PayPal cofounder and billionaire investor thinks restaurant business plans are among the least sustainable, because eateries too often succumb to competition.
The restaurant taboo was one of the many rapid-fire nuggets of wisdom that Thiel shared with a packed audience on Tuesday at the School of Management auditorium. Thiel was there to discuss his book, Zero to One: Notes on Startups, or How to Build the Future, and to answer questions through moderator and Boston Globe innovation columnist Scott Kirsner (COM’93). BUzz Lab, the University’s new center for entrepreneurship, invited Thiel to campus to wrap up its inaugural semester with a bang. Within 72 hours of announcing the event, all 400 seats were spoken for, according to Ian Mashiter, an SMG lecturer and BUzz Lab director. The event was also broadcast on Livestream.
Thiel said the idea for his book evolved from a class on entrepreneurship that he taught at Stanford in 2012. He ran into a challenge early on when he realized that entrepreneurship greatly relies on serendipity. “Every moment in the history of business happens only once,” he said, adding that the next Bill Gates won’t build an operating system and the next Larry Page or Sergey Brin won’t make a search engine.
Thiel challenged the audience to consider the question: “What great company is nobody starting?” And he asked them, much as he does job prospects, to “tell me something that’s true that very few people agree with you on.” Neither promises an easy answer, but that’s the point. “We live in a world where courage is in much shorter supply than genius.”
Thiel offered his own truth when he challenged people to think of competition as the antonym of capitalism. “What you always want to be aiming for as an entrepreneur is a monopoly,” he said. Google has dominated the search engine market since 2002, he said, although their business moves try to hide that fact. They waltz out new technologies, like smartphones and self-driving cars, under the Google banner so they can say, “‘No, we’re not the monopoly the government is looking for.’”
Successful entrepreneurs find niche markets. “All happy companies are different, because they found something unique to do,” Thiel said. Those that follow trends are bound to fail. “When you hear ‘cloud computing’ or ‘big data,’ you should run away as fast as possible.”
Read the full story here.
Photo by Tom Vellner (COM’13)
LinkedIn profiles informed school rankings
Boston University is considered one of the top start-up schools in the U.S., according to Forbes. The business magazine ranked BU 28th on its 2014 most entrepreneurial universities list.
Forbes based its ranking of the nation’s most entrepreneurial research universities on an “entrepreneurial ratio,” pitting the number of alumni and students who have identified themselves as founders and business owners on LinkedIn against the school’s total student body (undergraduate and graduate combined).
Boston University School of Management is leading the charge at the University for more innovative academics, offering a newly enhanced curriculum that fosters and cultivates entrepreneurship. The School’s Entrepreneurship Programs Office also hosts various entrepreneurial events, including new venture case competitions, business start-up boot camps, and a Pitch & Pizza competition, during which participants have 60 seconds to pitch a business idea to a panel of experts.
See the full Forbes list here.
A recent post on the Academy of Management Review’s (AMR) Ethicist Blog explores new questions gaining traction in management education: Are today’s students “ethically broken” when they enter business schools? And, “through the use of ‘normal’ business school language, modeling, and metrics,” in the classroom, does management faculty “perpetuate ‘broken’ student perspectives and behaviors”?
AMR turned to Boston University School of Management Assistant Professor Kabrina Kebrel Chang to answer these questions, writing, “Chang and her holistic re-framing of how Boston University School of Management is approaching business ethics were featured in a recent Wall Street Journal article. She is a lawyer who teaches business law and ethics at BU, and her research includes how social media is fundamentally influencing employment decisions.”
Asked about how she approaches ethics, particularly in the undergraduate classroom, Chang explains,
I am at a b-school in the Northeast and students are uber-motivated. Being in a business school, sadly I take it as a given that we will need to break many of the money=happiness equation. Breaking the equation has to happen in more than one class, and they have to see real examples.…My focus is on the critical thinking skills—getting [students] to broaden their horizons when it comes to decision-making will have a real impact on their ability to make decisions that will take into account the betterment of people and not just the betterment of their business….My take on ethics and the take I employ now…is not to teach [students] right and wrong but to teach them that there’s more to think about with a decision.
CEO magazine says yes, SMG’s Vinit Nijhawan says no
Excerpts from BU Today:
A generation after Massachusetts was dubbed “Taxachusetts” for its putative hostility to business, the charge has been resurrected in the magazine via its latest state rankings, determined by a survey responded to by 736 CEOs. The commonwealth was rated 47th among states for the warmth of its business climate, slightly better than New York, Illinois, and dead-last California. Texas won the best-of designation.
“If I were designing Hell for a company, I couldn’t do as good a job as Massachusetts has,” one anonymous CEO told the magazine. Another groused that the company was moving operations out of Massachusetts and three other states and firing employees there, as “the regulatory and tax environment has become untenable.” The magazine itself slammed Governor Deval Patrick’s plans to raise income taxes and eliminate corporate deductions (coupled with a cut in the sales tax), proposals that legislators may scale back.
We ran the matter by Vinit Nijhawan, managing director of BU’s Office of Technology Development and a School of Management lecturer. He has started or served on the boards of about a dozen technology companies since coming to Massachusetts from Canada a quarter century ago. “The biggest one grew to 400 people worldwide,” he says, “and it had about $60 million in sales.”
BU Today: California and Massachusetts are hubs for technology companies. If they‘re so awful for business, why would CEOs cluster in those states?
Nijhawan: It’s really clear why: because a lot more emphasis is placed in those states on human capital and lifestyle. If you’re starting a technology company, you have enormous access to technology and people in those places, more than anywhere else. That suggests that the CEOs they interviewed were from bigger companies, especially companies in low-margin commodity markets, like retail. There, the difference between having a 6 percent state sales tax versus a 3 percent tax probably makes a difference to your bottom line, because your margins are thin.
But retail’s very complex, because your outlets could be all over the country. Your income gets taxed differently if you’re here, so who gets affected? Basically, in-state shareholders and management. In the past 30 years, CEO salaries have increased dramatically. So I could see CEOs getting a big personal hit if they were here, versus, say, New Hampshire, which has no sales or income tax. But people aren’t going to move out of Massachusetts to Texas because of sales or income tax.
Read the full article on BU Today.
Guide to 322 Green Colleges praises sustainability office, student organizations, and sustainability-related courses
Excerpts from Bostonia:
Boston University is one of the most environmentally responsible colleges in the United States and Canada, according to the new edition of The Princeton Review‘s Guide to 322 Green Colleges.
“In a few short years Boston University has made significant strides toward a sustainable future,” the authors write in the guide. “With its sustainability committee, four working groups, sustainability office, a one million dollar revolving fund, departments, student organizations, and nearly 400 courses related to sustainability, the university has developed an impressive sustainability program by any measure.”
The Princeton Review took note of BU’s green buildings and transportation and also drew attention to its retrofitting of existing buildings for energy efficiency through equipment, lighting and energy management systems, and window replacement projects.
In its section on Boston University, The Princeton Review wrote, “In 2011, BU became a member of the Founding Circle of the ‘Billion Dollar Green Challenge.’ Buildings currently under construction will seek LEED certification or better, and there are already two LEED-certified buildings on campus. BU has increased its waste-diversion rate from four percent to 31 percent. Ninety-two percent of students arrive to campus by alternative means. The main campus is organized along one of Boston’s main thoroughfares, with nine subway stops, thirteen intercity bus lines, the BU Bus, and three other shuttle services serving the campuses. BU has an active ride share program and boasts the first bike lanes in Boston’s growing network, which now incorporates more than 100 miles of city streets and parks.
“Other highlights include an award-winning website to engage the university community with a monthly sustainability challenge. To keep up the green pace, there are seventeen sustainable student organizations on campus, from BU Bikes to USGBC Students. BU’s green initiatives even extend to the university’s myriad dining halls. Efforts include 91 percent of the facilities running pre-consumer composting programs, sourcing cage-free eggs, and donating leftover baked goods to local meal programs, food pantries, and shelters.”
“Colleges train the next generation of leaders who will ultimately be responsible for putting green ideas into practice,” the authors note. “By infusing sustainability principles into every aspect of higher education, there is a new priority for a whole generation of leaders, educated and trained, to make a greener world now.”
Photo via BU Today
Bodie, PBS notes, is “perhaps country’s foremost expert on pension finance”
The NewsHour blog “The Rundown” features insight on little-known safer investing strategies by the School of Management’s Zvi Bodie, “perhaps the country’s foremost expert on pension finance.” Bodie is Boston University’s Norman and Adele Barron Professor of Management in finance and author, most recently, of the books Risk Less and Prosper and Essentials of Investing, 9th Edition.
In his latest NewsHour post, titled “The One Safe Investment and Why You Never Hear About It,” Bodie writes,
…I recommend that for people concerned about preserving the purchasing power of their savings, an investment program should start with the purchase of US Treasury Series I Savings Bonds, of which you can purchase up to $10,000 per year per person….I Bonds provide the ultimate in long-run liquid financial security to residents of the U.S. An investor in these bonds cannot lose any money or any purchasing power for up to 30 years, despite either inflation or deflation. They provide a return at least equal to the rate of inflation and, often, have paid a “premium” of interest above and beyond inflation.
At the moment, because of historically low interest rates, that premium is zero, but it is reset every six months. If, in September (or the following March or a year from September, etc.), new I Bonds do offer a premium, you can sell the current ones and use the money to buy the new ones.
Read the full post, see all the comments it has inspired, and watch a related video on “The Rundown” blog.
Team Wins First Prize in Energy Efficiency Category
By Mark Dwortzan via BU College of Engineering
A College of Engineering and School of Management team took first prize in the energy efficiency category of the annual MIT Clean Energy Prize on May 6, one of six premiere regional clean energy student business plan competitions in the U.S.
A collaboration between students and faculty from ENG and SMG, the team, Aeolus Building Efficiency, won $20,000 for its business plan and presentation for a full-service company that utilizes software to optimize airflow and reduce energy consumption in large office heating, ventilation, and cooling (HVAC) systems. The technology could be a game-changer for today’s commercial buildings, which account for 18 percent of annual greenhouse gas emissions and 36 percent of national electric utility demand.
Consisting of ENG’s senior Ryan Cruz, Associate Professor Michael Gevelber, and former Professor Donald Wroblewski from the Mechanical Engineering Department, and MBA candidates David Cushman, Jonathan Ellermann, and Benjamin Smith from SMG, Aeolus outperformed 15 other teams from nine states, including three semifinalists representing Harvard University, MIT, and the University of Chicago.
Aeolus drew on ENG members’ expertise in building energy efficiency and HVAC systems optimization, and SMG members’ business development, operations, project management and sustainability experience. The team’s presentation impressed a panel of six judges from academia, government and industry who based their assessments on environmental benefit, creativity, execution and financial strategy, market and customer knowledge, and team strength.
Benjamin Smith (MBA’13) relished the opportunity to compete against outstanding teams and technologies from some of the nation’s top academic institutions. “Not only were we able to develop a comprehensive and compelling business plan, but the competition gave us an opportunity to substantiate that plan with cleantech industry leaders,” he observed. “It was an amazing experience.”
Taking part in the competition reinforced Ryan Cruz’s (ME’13) aspiration to pursue a career in the energy efficiency field. “I was able to learn more about the business side of engineering and aspects of building energy efficiency that I would not have normally been exposed to in the classroom,” he said.
“It was a great learning experience for all the team members, and we’re proud to get BU’s name recognized at such a highly competitive event,” said Gevelber (ME, MSE, SE). “We also had great mentoring from other BU faculty in both schools, and received support from BU’s Office of Technology Development, Institute for Technology, Entrepreneurship and Commercialization (ITEC) and Sustainable Neighborhood Lab.”
HVAC systems account for a large portion of energy use in mid- to large-sized buildings, and energy use and cost scales strongly with airflow. This is particularly true in older buildings designed when energy was much cheaper and HVAC systems were designed with high air flow rates. Based on concepts developed by Paul Gallagher (ME, MS’13) in his master’s thesis, Aeolus aims to commercialize its software-based service that enables room-by-room measurement and optimization of airflow rates, thereby reducing energy consumption while maintaining thermal comfort and meeting ventilation requirements.
Invented by Gevelber, Wroblewski, and Gallagher and now being patented by BU, the breakthrough technology uses existing, computer-based building automation systems to reduce large building HVAC energy consumption by up to 20 percent without equipment installation, intensive manual labor or long payback periods.
“What’s amazing about our approach is that the system would take the same time to work on a building the size of Sargent College as it would for the Prudential Center,” Gevelber explained.
Formed in 2007 to help develop a new generation of energy entrepreneurs and companies and sponsored by NSTAR and the U.S. Department of Energy, the MIT Clean Energy Prize offers awards in three categories—renewable energy, infrastructure and resources, and energy efficiency. The competition’s $20,000 Energy Efficiency Track Prize is sponsored by the Massachusetts Clean Energy Center, which seeks to accelerate the success of clean energy technologies, companies and projects in the Commonwealth while creating high-quality jobs and long-term economic growth for the people of Massachusetts.
Pictured above is Team Aeolus Building Efficiency: Professor Michael Gevelber (ME, MSE, SE), David Cushman (MBA’14), Jonathan Ellermann (MBA’13), Ryan Cruz (ME’13), and Benjamin Smith (MBA’13) with $20,000 Energy Efficiency Track Prize. (A sixth Aeolus team member, former Professor Donald Wroblewski (ME) was unavailable for the photo.)
The annual magazine Research at Boston University has profiled the pioneering work and social impact of the School of Management’s Nalin Kulatilaka. In their feature “Considering Community,” they write,
Perhaps it is no wonder that an electrical engineer who became a professor of finance would take an interest in how green buildings can provide monetary benefits for the people who have the resources to fund renewable energy projects….
That’s part of the story of Nalin Kulatilaka, who teaches in the School of Management and is a codirector of the Clean Energy & Environmental Sustainability Initiative.
“My research is on sustainable energy investments,” Kulatilaka says. “From renewable energy sources like solar and wind to energy conservation and energy efficiency investments like building retrofits.”
The thrust of his work is to incentivize the up-front funding for green energy buildings from banks and other sources by writing a new kind of contract for the loans that fuel such changes. The contracts are intended to monetize the savings that green energy can achieve, so that the investors who put up the capital can capture some of the money saved as revenue from the project.
“We are now designing contracts where the building owner and tenant could share the savings.”
Recently, Kulatilaka has worked on buildings owned by the Cambridge Housing Authority in Central Square. Some were heated entirely by electricity, some were particularly leaky, and all lacked the investment capital needed for retrofits.
“My contribution there, with Professor of Earth & Environment Robert Kaufmann and a team of students, was to first assess the opportunity; to try to quantify what the savings would be by using various statistical techniques that analyze the demand patterns of the building,” he says.
“We are now designing contracts where the building owner and the tenant could share the savings. These would occur in such a way that funding could be attracted from conventional—or at least semi-conventional—sources like large banks.”
Palazzo, B. (2012). Cash holdings, risk, and expected returns. Journal of Financial Economics, 104(1), 162–185.
A recent paper by Boston University School of Management’s Berardino Palazzo, an assistant professor of finance, approaches the relationship between an organization’s savings and its vulnerability from a unique angle. His article, “Cash Holdings, Risk, and Expected Returns,” explores the link between a firm’s cash holdings and the broader, systematic risks it faces, rather than focusing narrowly on the relationship between cash holdings and the firm’s specific cash flow volatility, as previous finance studies have done. This study was recently published in the Journal of Financial Economics.
Palazzo follows a recent strand of financial accounting literature to derive a proxy for a firm’s exposure to systematic risk. His findings illustrate how such systematic risk affects firms’ optimal cash holding policies.
The Riskier the Firm, The Higher Its Savings
Palazzo points out that previous studies ignore the overwhelming likelihood that investors are risk-averse. Instead, his paper rests on the assumption that investors are not risk-neutral. “[R]iskier firms,” he writes, “have the highest hedging needs because they are more likely to experience a cash flow shortfall in those states in which they need external financing the most.” Thus, the riskier the firm, the higher its optimal savings are.
Using a data-set of US public companies, Palazzo finds:
- Changes in cash holdings from one period to the next are positively related to beginning–of–period expected equity returns; firms with a higher expected equity return will experience a larger increase in their cash balance.
- Using market size and current profitability as measures, or proxies, firms with higher expected profitability have a larger sensitivity of cash holdings to expected equity returns.
- When using a book-to-market ratio, this correlation is weaker—not a surprise, Palazzo notes, given that the book-to-market ratio is a catch-all proxy for many variables besides future profitability.
- The higher the correlation between cash flows and an aggregate shock—in other words, the riskier the firm—the more the firm hoards cash as a hedge against the risk of a future cash flow shortfall, meaning the higher the savings.
- High cash firms have more growth opportunities but lower current profitability and, as a consequence, they are less exposed to a variety of risks. However, such firms earn a larger and significant risk–adjusted return compared to firms with a low cash–to–asset ratio.
In the February edition of American Banker magazine, Boston University’s Mark Williams authored the commentary piece “Reduce Taxpayer Risk: Roll Back FDIC Limits.” Williams is an executive-in-residence and master lecturer at the School of Management, an expert on risk management, former Federal Reserve examiner, and author of the book Uncontrolled Risk: The Lessons of Lehman Brothers.
Reduce Taxpayer Risk: Roll Back FDIC Limits
FDIC insurance is more than just a sticker affixed to a bank door, it is a gold-plated guarantee that the government will step in and make depositors whole. Bank customers accept that they will earn a quarter of a percent or less on their deposits because they understand that their money is protected. And banks large and small benefit from this access to a cheap and dependable source of funding.
When it began, FDIC insurance provided depositors with only modest protection. The initial coverage limit in 1934 was $2,500, or less than $45,000 in today’s dollars. Six months later, the limit was raised to $5,000 (still less than $86,000 adjusted for inflation) and the risk-sharing arrangement between banks, depositors and the government was forever changed. As long as depositors stayed within set limits, they assumed zero risk. But if the dollar size of bank failures exceeded the fees collected from the banks, then the government, and taxpayers, would become the ultimate financial backstop.
In recent years, FDIC insurance has experienced mission creep. Having grown at over twice the rate of inflation, it now provides more than modest protection.
Few Americans have the means to keep deposits of $250,000 and benefit from this protection. Instead, the larger limits have tilted the risk-sharing in favor of wealthier depositors and banks themselves.
Read Williams’ full piece on American Banker.