Posts from Master of Business Administration

The idea of peer producing a comprehensive web/mobile revenue model list was a success. The hackpad I created and linked to last week got a ton of contributions. I took the time this morning to clean it up a good deal. I will outline the high level changes I made in a bit. But since that hackpad is still wide open, I also made a final version and I have made it invitation only so I can control the edits this one gets. There may be a way in hackpad for the initial author to lock down a hackpad but I couldn't find it, so I did it this way.

So what edits did I make to the wide open hackpad? Well first, I tried to clean up the examples and make them as definitive as I could. The more well known a company/service is, the better example it is. I also took out many of the multiple examples. I think one is generally sufficient. I also took out the revenue models I thought were duplicative or slight variants of other revenue models. And there were a number of sections at the end that I would call "business models" as opposed to revenue models. So I took them out. Finally, there were a few entrepreneurs who were using this hackpad as a way to promote their companies. In effect, they were spamming the hackpad. I took out everything that felt like spam to me.

We are left with nine categories:

I think six of them are truly definitive revenue model categories (advertising, commerce, subscription, transactions, licensing, and data). The other three (peer to peer, mobile, and gaming) could be folded into the first six since they mostly map to existing models (mobile ads are ads). But these three categoris are unique in many ways and so I felt like leaving them in even though it's not as clean this way.

The "final" hackpad still needs work. There are some entries that are missing examples. I noted them with (??). There also may still be important or emerging business models we are missing. If you would like an invite to help fix the final version, please leave a comment to this post and I will invite you if I think your edit is useful.

My hope is by next week, we will have a truly definitive list of mobile and web revenue models and then I can use the list as a template for the MBA Mondays series on Revenue Models. Thanks for everyone's help on this.

We are kicking off our next series on MBA Mondays with an assignment. We are going to peer produce an exhaustive list of revenue models for web and mobile businesses. Then I will publish that list and use it as a template to do this series. I am not going to write a post on each revenue model but I am going to write posts on the top ones as well as discuss the pros and cons of each.

I've created a hackpad that we will use to do this assignment. I've filled in a few of the most obvious revenue models and have started grouping them into the big categories (advertising, commerce, subscriptions). There are certainly more revenue models and additional big categories that aren't on the list yet. So please go take a look and add anything that you think is missing.

I will publish the comprehensive list next monday and use that to kick off this series.

I'd like to tie together two posts and make a final point on Sustainability.

In my first post for the Sustainability class, I wrote:

Clay Christensen talks about this kind of thing all the time. Big company executives are asked to calculate an return on investment (ROI) on the investments they want to make. If the ROI isn't greater than some minimum hurdle, the company doesn't make the investment. And so along comes a smaller competitor who makes the investment and they eat the big company's lunch.

ROI is not the right framework for companies to evaluate investments. ROI is for the wall street folks. They will use it to decide if they want to invest in your company. But when you make investment decisions in your company, don't use the tools that wall street uses. Use the tools that animals use. Survival instincts. What will it take to ensure that your company is around in ten years, fifty years, 100 years? That's how to think if you want to stay in business.

And then the man himself, Clay Christensen, went and wrote a post for the NY Times yesterday which I highlighted in yesterday's What I Am Reading post. Clay wrote:

So we taught our students how to magnify every dollar put into a company, to get the most revenue and profit per dollar of capital deployed. To measure the efficiency of doing this, we redefined profit not as dollars, yen or renminbi, but as ratios like RONA (return on net assets), ROCE (return on capital employed) and I.R.R. (internal rate of return).

Since this is called MBA Mondays and we are supposedly teaching a MBA style curriculum, I want to emphasize this point. Do not use Wall Street tools to evaluate investment decisions in your companies. Use the tools that animals use. Survival instincts. What will it take to ensure that your company is around in ten years, fifty years, 100 years? That's how to think if you want to stay in business forever.

But Clay's post for the NY Times yesterday makes a broader point. If the folks who allocate capital in our society – venture capitalists, hedge fund managers, mutual fund managers, etc – are using IRR, ROCE, RONA, then they are going to allocate capital to companies that are making efficiency oriented investments, not empowering investments. And our society will continue to be awash in capital with no game changing  empowering investments that create new industries.

Clay suggests that we measure our returns in "dollars in dollars out" and forget about time, " profit as dollars, yen or renminbi". That's they way I was taught the venture capital business back in the 80s. Cash on cash, dollars in dollars out. That's what matters. If it takes a decade or more, who cares? The slow capital approach.

So if MBA Mondays is a school of business, then I hereby outlaw IRR, RONA, ROCE, from our lips. We aren't going to teach those tools and we aren't going to talk about them either. We are going to talk about making money the old fashioned way. In gobs and gobs, but slowly over time, with our survival instincts fully engaged. Let's hope others do the same.

We just wrapped up a series on The Board Of Directors which was preceded by a series on The Management Team. I have come to like the series format for MBA Mondays because it allows me to plan out a series of up to ten posts in a row and then work on them one at a time. It is a lot easier than coming up with a new topic every week.

I have done a total of 114 MBA Monday posts including a number of series; Accounting, Budgeting, Employee Equity, Mergers and Acquisitions, Financing Your Company, The Management Team, and The Board Of Directors. Looking back at all of those posts, we've covered a lot. It's been rambling at times and highly structured at times. There is a lot there.

But the question for me is "where do we go next?" What topics interest all of you? I'd like to keep going in the series format, so ideally these topics would be meaty enough to justify a series and not just a post.

Please leave your suggestions in the comments.

The first MBA Mondays Live class was last monday night.

I had an incredible time and I can't wait to do it again. There isn't much better in life than standing up in front a bunch of eager learners teaching something you know well.

The archive and photos from the event is permantly hosted on this link.

Here's the video of the entire class.

I'd like to get feedback on the class so I can improve it. So I've created a google form with a few questions on it. If you attended or watched the class and have five minutes to give me feedback please click here and fill out the form. I appreciate it.

I have watched the first fifteen minutes of the class and I've got some work to do on my delivery, speed (I was rushing), and crispness. And there are two math mistakes on the whiteboard. That really bugs me. The final dilution number for the founders in the dilution table should be 58.5% not 64.5%. And the number of shares to issue the CFO should be 75k shares not 46k shares. This first class feels a lot like the beta that it was.

My plan is to teach this same material live again, probably a couple more times. If I don't sell out, that will tell me that everyone who didn't get into the first class watched the livestream or the archive and that I should move on to a new topic. But I'm not sure that is the case so I will test that out. I don't plan to livestream this class again since we already have a video version it.

As I develop additional classes, I will livestream and archive the final class on the topic when I've got the material and pacing nailed down. That was a big takeaway from this experience.

All in all, this went extremely well. The basic setup of an in person class with a livestream and an archive is a format that works. I plan to use it to teach as much of the MBA Mondays material as I can in the coming years. That's exciting to me.

I'm going to do a series on Business Arcanery. I don't even know if arcanery is a word, but I like it so we are going to use it as a name for this series. It is about arcane words that are used in business but regular people have no idea what they mean. We are going to decode the code words business people use.

I have a few words/phrases lined up like:

warrant coverage

restructuring

a collar trade

cultural fit

Please add others that you would classify as business arcanery in the comments. This should be a fun series and I am going to need your help with ideas.

I went to business school in the mid 80s. Investment banking was hot. The leveraged buyout craze was on. Junk bonds were hot. Everyone wanted to work on wall street.

I was obsessed with venture capital and had worked in a small venture firm the previous summer and had gotten an offer to work full time in venture capital for $60k per year with no bonus and no incentive comp. I also had gotten a job offer from an investment bank at $125k per year with a bonus opportunity of $250k.

Those investment banking job offers were all over the business school and almost everyone I knew took them. They all went on amazing summer vacations and showed up on wall street in September 1987. In October 1987 the stock market crashed and by December many of my classmates were out of work.

I took the VC job, made basically enough to live and work in NYC for ten years (subsidized by The Gotham Gal's income), but I did set myself up for Flatiron and then USV.

I told this story in a comment to my MBA Tuesdays post and figured it was worth posting as a full blog post. Risk is not obvious. And reward is not obvious. Don't do the obvious thing. Because I can assure you it rarely works out as planned.