07/15/14

Roadside MBA—Business Fuel Podcast #83

Listen to our interview with economic professor Scott Schaefer

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Economist Scott Schaefer shares what he and his colleagues learned doing the research for the book Roadside MBA. There’s a lot of things we can learn from what makes small firms successful. In fact, Schaefer suggests, “Wall Street isn’t the only place you’ll find really smart business people.”

Check out today’s podcast and learn about some of what Schaefer and company learned exploring small businesses around the country.

Readable Transcript

Information you need, the podcasts you trust, this is the PatrickWiscombe.com podcast network.  Bringing you interviews with top business professionals and business financing tips to fuel your American dream.  This is The Business Fuel Podcast heard exclusively on Lendio.com.  And now, here are your hosts, Ty Kiisel and Patrick Wiscombe.

Sponsorship:  This podcast is sponsored by Lendio.com.  The online source you need to find the right business financing to grow your company.  Check them out for free at Lendio.com to get your business growing right now.

Patrick Wiscombe:  Serving over 375,000 listeners every month on Lendio.com/blog, this is The Business Fuel Podcast.  Good morning, I’m Patrick Wiscombe.  Thank you for tuning us in and taking us along wherever and however you’re accessing the podcast.  You can find us at Lendio.com/blog or on iTunes – just search on Lendio.  Coming up today, we’re going to be speaking with author Scott Schaefer.  The title of his book is, Roadside MBA.  But first let’s say hello to Ty Kiisel.  What is your Forbes article about this week?

Ty Kiisel:  Basically I’m talking about private equity financing.  I recently met a company in Canada that’s not interested in tech or start ups.  They are looking for Warren Buffet type companies.  They’re looking for strong management teams who are not interested in selling but they need capital.  So I’m talking about that as a counterpoint as to what’s traditionally talked about in the press.  I thought it was interesting and if you look at the article, I think you’ll find it interesting as well.  It’s a different paradigm.   It’s a slow and steady wins the race type of strategy.

Patrick Wiscombe:  So they’re not looking for an exit strategy?

Ty Kiisel:  No.  They don’t want an exit.  They’re looking for long term relationships with a company.  I think we’re too much in the mindset of starting a business then in 4 or 5 years, get rid of it.  So that’s what we’re talking about in Forbes.

Patrick:  You can see everything Ty writes in two places.  First of all, let’s plug Lendio.com/blog.  You can also go to Forbes.com.  Just do a search on Ty Kiisel.  Ok, let’s get to the main event.  We’ve got Scott Schaefer.  He holds the Kendall D. Garff chair in Business Administration, and is a professor of Business Finance at the University of Utah David Eccles School of Business.  He has a PhD in Business Economics from Stanford University.  It’s great to have you on the podcast.

Scott Schaefer:  It’s great to be here. Thanks for having me.

Patrick:  The title of your book is, Roadside MBA.  I guess the first question is, why did you go through the craziness of trying to write this book?

Scott Schaefer:  The book is written by myself and two other business professors.  We spent  a good part of the last 4 years getting out and talking to owners of small and medium sized businesses.  We’ve written about what we learned and how you can apply the lessons that are taught in MBA programs to small business situations.

Ty Kiisel:  This is not something three academics would typically do.

Scott:  Probably not.  My co authors, Mike Nanzio at Northwestern and Paul Voyer at Stanford, and I met at Northwestern in the mid-90’s. We went our separate ways but we would see each other at economic conferences.  Have you guys been to an economic conference?

Patrick:  No, but I can’t imagine actually wanting to go to one.  It’s not something everybody is probably into.

Scott:  The three of us are economists, but we can only take so much.  So we got in the habit of renting a car and just getting out of the conference city, even if it was just for dinner.  That gave the three of us an opportunity to catch up and we just liked being out on the road seeing places.  One of those conferences we were in Boston so we drove up to Maine.  We wandered into a shoe store with 4 or 5 employees.  We got into a real interesting conversation with those employees.  One of the guys asked me if I wanted to try on some shoes.  I told him, “No.”  He came back 3 more times and I finally asked him, “What part of no don’t you understand?”  He then started to explain about the store’s secret shopper program.  The owner of the store would hire someone to go in and pretend to be shopping for shoes just to report back to the employees.  So now it’s a management conversation.  We three business professors learned so much in that conversation that we decided we needed to find more ways to do that.

Ty:  What surprised you?  What were some of the lessons that blew your mind?

Scott:  There were several things we learned about small business people.  To be successful, you’ve got to be sharp.  The people we met were extremely thoughtful and solving some really hard management problems.  It’s not just on Wall Street that you find good business brains.   Another thing was how small firms compete effectively with the big guys. The way they did it was by identifying what the big firms weren’t good at.  One great story is from Pueblo, Colorado and a company called GPS Source.  They’re a defense contractor and they make GPS gadgets that help the military keep track of where stuff is.  They do a good job of listening to the customer and then actually designing things the customer is looking for.  We asked the President why the bigger firms couldn’t do this.  He said that the big companies have a sales department and an engineering department and those guys hardly ever talk to each other.  And worse than that, they have completely different goals.  At GPS Source, they only have one water cooler.  Their best ideas come from chance encounters between a salesperson and an engineer.

Patrick:  There’s a lot of truth to that.  It’s been my experience that software engineers and salespeople don’t always communicate well.  You have to talk in “nerd” a little bit.  That seemed to resolve a lot of headaches that I had personally.  So I totally agree with what you’re saying.

Scott:  And think about the cost associated with doing that.  If you’re going to learn to talk “nerd” that’s time taken away from the customers.  Big companies have a real struggle with that sort of thing.  So GPS Source figured out how to do it better than the big guys do.

Ty:  One of the businesses you profiled was Hoosier Sports.  I liked that story.  Will you share that with everybody?

Scott:  That’s a great one.  Hoosier Sporting Goods is in Columbus, Indiana.  They are competing against all the big, national sporting chains.  So they compete by listening to the customer better.  In Columbus, the pee wee football league starts around the second week of August.  Mike, the owner, makes sure he has all his football gear in stock a couple of weeks in advance.  He told us that without fail, every year a couple of weeks after the football season starts, the big chains will start running their ads for football gear.   By then, all the kids already have their gear because the season has already started.  This is a case where the big companies miss out because of their scale economy approach to football gear.  They miss the market in Columbus.

Ty:  The way he got into the business is a fun story.  Will you share that?

Scott:  This was a strange one.  Mike told us that ever since he was 13, he knew he wanted to run Hoosier Sporting Goods.  This was the store he went to growing up as a kid in Columbus.  His father came home one day and told him a friend just bought Hoosier Sporting Goods.  Mike told his dad to let the man know that in 13 years, he would buy the store from him.  He missed it by 2 years because it was actually 15 years later.  But this was his whole goal growing up.  He took business classes and prepared and saved so he could buy the business.

Ty:  Is this a common scenario?  Is it typical?

Scott:  The 13 year old wanting to buy a business was not typical.  But we did talk to a bunch of family businesses.  People who grew up in the business knowing they wanted to be part of it.  Many of the entrepreneurs we talked to identified this desire later in life.

Ty:  In the first chapter, you talk about scaling a business.  You shared a story about a business that makes parts for old Ford Pintos.  How do you do that?

Scott:  One of the crucial things about scale is you’ve got to think about how your costs are going to change as you try to grow.  One of the ways you can think about profitability is the average price you sell for, minus your average cost of serving a customer, then multiply that by the number of customers you have.  One thing you have to be wary of is as you increase the number of customers, your average costs may rise.  That’s really going to squeeze your margins.  A steel rubber company in Hickory, North Carolina is a great example of scale economy.  This company makes parts that go in classic automobiles.  All the costs in this business are upfront.  They’re putting a huge amount of time, money, and resources to develop that capability.  Once they get an order, it’s just a matter of pulling the mold off the shelf.  This is a case of the more customers they get, their cost actually falls.

Ty:  When you went out and visited with these small businesses across the country, did you recognize differences in the way the guys on main street finance their businesses and the way the big guys do?

Scott:  We didn’t talk to any public companies.  We talked to a couple of companies that had angel help.  But one of the really important things for small business is their relationship with a banker.  Many of them said they had a really, really good relationship with their banker.  That was a nice lesson for us.  The small banks out there are performing a really important service with small business.  But we also heard a lot of complaints about bankers.  Financing is never easy, it’s always a really hard part of the business.

Ty:  Has this experience changed what you do in the classroom?  Has it impacted how and what you teach.

Scott:  Yes, for sure.  One thing it has done is to provide lots of great examples.  If I’m teaching a class about hiring, I’m able to pull in lots of great examples and stories.  I spent a few years as the Associate Dean of the School of Business at the University of Utah.  So instead of being just a professor, I was actually trying to manage the place.  Boy did I learn a lot doing that.  I know a lot more about the limitations of economics in part because I actually had to manage people.

Ty:  I think this gives you lots of context which would make you a very interesting professor.  So if you’re interested in business school, go to Professor Schaefer’s class.  If someone wants to read the book, how do they find it?

Scott:  We are at Roadside-MBA.com on the web.  And we’re on Twitter at Roadside MBA.  I think the book is available wherever books are sold.

Ty:  It’s a great “how to” from a real in the trenches perspective.  You hear the stories of other mainstreet businesses, just like the audience we talk to.  I can’t recommend it enough, I think it’s a great book.

Patrick:  The full name of the book is, Roadside MBA Backroad Lessons for Entrepreneurs, Executives, and Small Business Owners.  Scott thank you so much for coming on.

Scott:  Thank you so much.

 

Patrick:  Let me remind our listeners that you can pick up the podcast every Tuesday morning on Lendio.com/blog.  You can also pick us up on iTunes.  There is also a transcription you can read.  So whether you want to read it, listen to it, or subscribe to the podcast, head over to Lendio.com/blog.  So for Scott Schaefer, Ty Kiisel, I’m Patrick Wiscombe. Thank you for listening.  We’ll talk to you next Tuesday.

 

Bringing you interviews with top business professionals and business financing tips to help fuel your American dream.  This has been the Business Fuel podcast, with your hosts, Ty Kiisel and Patrick Wiscombe, heard exclusively on Lendio.com

 

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About the author

Ty Kiisel
Small business evangelist and veteran of over 30 years in the trenches of Main Street business, Ty makes small business financing and trends accessible in common sense language devoid of the jargon.

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