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Ramesh Jude Thomas

The author is president and CKO, EQUiTOR Value Advisory

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BW Businessworld

GMAT 2.0: Guts, Madness And Tenacity?

Airbnb was last valued at $25.5 billion. Considered by many in the capital industry to be one of the most exciting startups in the world, the firm aggregates and rents out spare living space to travellers in a staggering 190 countries around the world.

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Airbnb was last valued at $25.5 billion. Considered by many in the capital industry to be one of the most exciting startups in the world, the firm aggregates and rents out spare living space to travellers in a staggering 190 countries around the world.

As recently as 2008, the three young men who started the firm struggled to keep it afloat. Which is when they approached Y Combinator (YC), a school for startups, for help with their fledgling firm. YC didn’t think much of the idea then, but liked their chutzpah, helped them to refine the idea and to meet up with investors.

Over the last decade YC has been admitting batches of founders to the school. This month they will celebrate their 1,000th admission. Nearly half of them have not made it but 50 per cent is an outstanding ratio in an environment where less than one in eight give any joy to the investors. YC is not giving out any graduation certificates. However, for its spring 2015 batch it received 6,700 applications and accepted less than 2 per cent. To put this number in perspective, Harvard, which experienced the most fiercely competitive admissions year in its long history, took in 5.3 per cent of its applicants. Too many people outside the startup ecosystem may not have heard of YC, but it must qualify for rockstar status in its category.

The YC Way
Why is a school like YC relevant to this issue or indeed to the future of business education?

In a world that is still driven by a command and scale logic for wealth creation, individuality and opportunity will always be stifled. It is still, perhaps increasingly so, an economy driven by the few, for the few and of the few. In such an environment, the two most powerful human traits of imagination and independence have little place to express themselves in economic terms.

The reason why the startup culture has redefined the way even old economy companies view themselves is that the challenge to these firms is no longer from large peer group rivals. Uber is a pain in the unmentionable to most large incumbents in the personal transportation industry anywhere. So much so that even governments would like to get rid of them. So it’s not startups competing with other startups like in the SME (small and medium enterprise) environments. They now pose a serious existential problem for the behemoths. Consider the fact that Airbnb’s most expensive employee (after their CEO) is their legal head. Rumour has it she spends most of her time dealing with cases filed by the structured hospitality business or the house owners and housing societies.

Clearly, the economic environment that the average business school will be catering to less than a decade from now will no longer be recognisable to its average professor. In which case you would agree that the current system and its curriculum are enshrined in an earlier century.

Honestly, is the existing B-school mechanism equipped to encourage independence and imagination? Every year I meet scores of young people from a variety of B-schools, all excited about measuring and managing value transformation. Sounds really cool to do. But are they remotely oriented to begin thinking transformation?
Daniel Kahnemann, the behavioural economist who won his Nobel for his work in human cognition, talks about System 1 vs System 2 thinking. System 1, according to him, is the transactional variety. Doesn’t question, is almost completely reactive and uses smart templates. System 2, on the other hand, is based on pure cognition. Its fundamental approach is to frame the questions well rather than rush for the answer.

Y Combinator doesn’t have a vault full of readymade answers that will guarantee you success in the market place. It makes the young entrepreneur ask himself the most difficult questions on market, opportunity, relevance, leadership and risk management. The entrepreneur knows fully well that templates, powerpoints and smart shortcuts will not give him the real answers for his fledgling business.

But if YC is the training ground for the new game, will this be model for the next wave in business education? I can’t see how else, but how long will it be before we introduce System 2 into the curriculum? Can we monetise imagination and independence without it?

A bright young person wants to drive his own destiny. This has a few implications. First, he knows that an idea or a product by itself is necessary but far from sufficient. He knows that a structured 20th century management education is not going to be of much help. Two, smart people with capital want to know that you can manage the risks in the idea, not just clarify the rewards.

Look at it from the student’s point of view. Whether he wants to drive his own idea or join a startup, it will soon become THE thing to do for a living. As the startups get more widely capitalised, they will offer the best of both worlds: adrenaline and safety. Why would anyone want to join a large, blundering behemoth anymore? Why get subsumed under badly thought up M&As and unnecessary career politics?

I know what you are thinking. That smart B-schools will start accelerator cells on campus. For sure. That’s a bit like IBM starting its strategic consulting unit named Monday and closing it on Tuesday, remember? Sorry, as unpalatable as it may sound, this change needs to be thought bottom up, zero base. Not as an annexe of an existing, even somewhat dated system.

The B-school of the future will be constructed around imagination and independence as their fundamental building blocks. As someone who has taught business part time for over two decades, I can imagine that the classroom will bear little or no resemblance to the ones I have taught in anywhere on earth. These will be packed with energy and ideas only. They will thrive on provocation, not pedagogy. They will have little respect for my teaching experience but they will want to be challenged every day.

But how do you make it into a school like this? They certainly will not test for IQ and mathematical ability. They will look for chutzpah. They will check for the guts to fail, not just for hunger to succeed. Does anyone know how as yet? It can’t hurt to check with Y Combinator.

(This story was published in BW | Businessworld Issue Dated 14-12-2015)