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The Three-Minute MBR [Master of Business Reality] 

The Three-Minute MBR [Master of Business Reality]

posted on Nov 14 at 10:44 am | 5 comments 

The only degree that you will receive at the Nightschool for Entrepreneurs is a Master of Business Reality or “MBR”. Here is what this “business degree” is all about.

I list below the core business principles common to both the MBR and the “MBA” [Master of Business Administration] and, thereafter, some important differences. While my bias is evident and disclosed [ I never got an MBA], I leave it to you to decide which is more valuable.

I. Points in common in having an MBR and an MBA. Business is all about accumulating capital [read: things of value]. The notion of capital is generally divided for convenience into two categories, financial capital [being the score-keeping system for creating, storing, and exchanging, largely, tangible values] and everything else that is not financial capital but that also reflects value. For convenience, we call this second category of “everything else” of value [which is largely intangible], social capital*.

The MBA proclaims to the world that you know something about “financial capital” [i.e., how to make “a small pile of money into a bigger pile of money.”] The MBR teaches you that your knowledge about financial capital [which is just a given starting point in the life of business] must have a broader base in the non-financial world of reality [which is the business of life].

Note that both MBA’s and MBR’s focus upon matters of “value” – without value in business or life, what’s the point?

A. Financial Capital: Returns vs. Cost. If your Return on Capital does not consistently exceed your Cost of Capital, you “destroy capital.” Of course, at one level this is a mathematical truism, and in economic terms this is the essence of what you will learn (a) in painful detail over two years at B School [let’s hope that the “B” at your school stands for “Business” rather than “BS”] or (b) as the common sense, but equally painful, lesson in “how not to go broke” at the University of Hard Knocks.

B. Financial Capital: Velocity. When you’re actually running a business rather than just studying about it, you quickly realize that, in calculating Return on Capital, the Velocity of your Working Capital (being essentially your inventory, receivables, and other liquid assets) is more important than your Gross Margins (in essence the difference between your cost of goods sold and what you get for them). Don’t worry about the jargon [we will explore this stuff at our collective Nightschool for Entrepreneurs or you can spend two years at B School to learn the buzz words yourself to get an entry level job as a “suit”], just focus for now on the key point that the velocity or speed of the turnover of your liquid [immediately realizable] assets is what counts.

In absorbing the notion of “velocity of capital” think of the difference between (i) the typical seller sitting on a few precious pieces trying to make a large profit from an occasional random shopper [in the meantime your working capital requirements are likely to kill you] and (ii) the active trader who sells thousands of items at a small profit at the cross-roads of commerce**. Or, to bring it back to the music industry and the dilemma of the “middle-class” artist, it is the trade-off between trying to sell your music that remains largely undiscovered and underappreciated [though precious to you] and selling around the music in a hub of activity [sometimes even giving your music away to create the buzz]. In fact, there is no better price than “free” to increase the velocity of your “capital”. Of course, as an artist, your capital is your ability to create music and/or to perform it. To repeat: to generate return on your capital, velocity [buzz] is more critical than margin.

Moving beyond what you learn getting your MBA in the life of business, here is how you earn your MBR in the business of life.

II. Things you generally don’t learn about at B School. In “social capital”, the same immutable economic principles apply: that is, return on capital must exceed cost of capital – lest you just run around in circles or go broke. However, and the one blog take-away we wish to leave with you to earn your MBR(!) is: The net positive return of capital over cost of capital is easier to achieve in the context of “social capital” [as opposed to “financial capital”] and the accumulation of such intangible values can be monetized***.

The advent of a web-based environment of instant “communications for free” [some call this “digital capital” and at thecapitalclinic we call this “virtual capital”] has changed the cost vs. return calculus and the value pendulum is now swinging back from “financial capital” [which is increasingly becoming the domain of the privileged few] towards “social capital” to provide the best way to enhance values by and for the benefit of a broader base of participating nodes. We briefly discuss the premises of this conclusion below:

A. Social Capital: Return vs Cost. The cost of your “social capital” is a function of your labor [energy expended] rather than your property. Thus, establishing the cost basis of your capital is not dependent upon what you own, but rather the level of your commitment to communicate. Moreover, the return on your “social capital” is a function of the number of direct [one-to-one] connections that you establish, then its scalability [one-to-many] and thereafter and importantly, the indirect [many-to-many] connections that follow in an environment of “communications for free”. Think about it; you control your destiny by controlling the level of your energy [labor] and your communications rather than the quantum of your fixed assets.

How is this all relevant to artists and your music? The cost side of the value calculus for musicians is clear: it is your abiding commitment to your art, which is already in the very fiber of your being. That is, your costs are a base-line given – they are what they are. The problem for artists is that you are, for the most part, unable or unwilling to make a commitment to find the tipping point for increasing returns over your given costs, the returns that cascade only when the level of your communications moves up the value chain from (1) one-to-few [this is how you got started] to (2) one-to-many [this is the tough process of building up your fan base – gigs, emails, blogs, and data management – where you typically get stuck and fail.] to (3) many-to-many [most of you will not achieve this “self-emergent” phenomenon; the few that do achieve a self-sustaining critical mass and then viral take-off, understand how the power of networks and a technology platform enhance returns on your social capital.]. Don’t be bored by this topic. It is vital to your success as an artist.

B. Social Capital: Velocity. We mentioned earlier that, in earning your MBR at the University of Hard Knocks, the best way to optimize the return on capital was not to sit on your Ass[ets] waiting for good things to happen to you in episodic random lumps, but rather to place yourself in the center of a dynamic spigot where the sheer velocity of capital permits you to take a small slice of all the energy that is flowing around you. Artists, working in tandem with their “intermediaries”****, need to increase the velocity of their social capital by finding the spigots of music discovery.

The point of this blog is to Get Off Of Your Ass[ets] and make some Mixtapes! Be a risk-taker and place yourself in the center of the business of life; find your spigots to success; start earning your MBR. We will do our best to help you.

*The term, social capital, could in turn be sub-divided by descriptive genre into such compelling topics as “natural capital”, “cultural capital”, or even “education”. While conceptually it must be remembered that the term is a catch-all default metaphor [i.e., anything of value that is not “financial capital”], its importance lies in (i) the contradistinction between the value of property and the value of connectivity; and (ii) the premise that networks matter in enhancing returns on capital. The literature on this subject is extensive and growing, particularly with the rise of web-based social networks, such as Facebook and MySpace [and specialized music platforms/networks like Fuzz].

** I still marvel every time I go up to Victoria Peak in Hong Kong and look at the breath-taking panoramic of thousands of container ships, ferries, junks, water taxi’s of all sizes and shapes criss-crossing the harbor that is a narrow window into the vast hinterland of China. This is still the most dynamic intersection of commerce in the world and the velocity of capital that moves through this narrow spigot is so concentrated in its value-creating ferocity that it forgives all commercial miscalculations and rewards everyone who is willing to place one’s risk-taking spirit at its center.

*** In many ways, this raises the age-old debate of the virtues of “socialism” over “capitalism” which we have seen, of late, has resulted in the rise of the latter over the former because the method of valuation of social capital (how to create, store, and exchange non-financial values) is sloppy when compared to placing a value on “financial capital.”

****The new “intermediaries” with value-added insight to act on behalf of artists are those who “get it” and understand that, for now [but not much longer], the notion of “social capital” is largely a default metaphor rather than an measurable instrument of precision. The current condition of ambiguity in the context of an inevitable one-way transition to value is the Entrepreneur’s dream. [EVERYTHING IS AN ARBITRAGE, BUT TIME AND PROCESS ARE EVERYTHING]

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