Preface

To this day, one of the sights that is most pleasing to me is a room full of people who are earnestly learning entrepreneurial finance. For 23 years, it has been my great pleasure to educate and inspire more than 10,000 people of all types and in a variety of settings. In addition to the thousands of degree-seeking MBA students in Executive MBA and full- and part-time programs at Harvard Business School and Kellogg School of Management at Northwestern University, I have taught thousands of students in the National Minority Business Supplier Program, United States Military Academy West Point, Inner City Capital Connections, the National Football League, the National Basketball League, the Urban League of Chicago, and the Network for Teaching Entrepreneurship. Recently I taught a session on entrepreneurship at the United Nations (UN), and I have also taught in Australia, Canada, China, Germany, Ghana, Hong Kong, India, Mexico, and the Philippines. I hope to teach entrepreneurial finance to students and business owners on every continent in the world.

I love the case study method of teaching entrepreneurial finance. I learned it as a student at the Harvard Business School and practiced it as a case study writer for a year after graduating. Professor Bill Sahlman, my professor, who created the entrepreneurial finance course more than 30 years ago, was the best at using the case study method. When I put together my course on entrepreneurial finance, each of the 10 weeks involves a case study discussion. The situation-based learning that occurs in case study discussions provides a close approximation to the decision making that takes place in entrepreneurial settings.

Students read the case in advance, prepare their analysis, and come to class ready for the discussion. I keep a list of all the students, noting which of them I have yet to cold-call and which of them I have already cold-called. So, during each of the class sessions, whether it is week 1, week 8, or the last class, I know whom I have yet to cold-call. And my students like this method. I’ve never had a teacher evaluation that stated, “I wish Rogers did not cold-call us in class.” During the discussion, without fail, especially in the first week or two of the course, I will ask a student, “What’s your answer, Miss MBA?” In reply, she will exclaim confidently, with her analysis, “It depends,” and will start giving her explanation of the merits of deciding either way. Before her next breath, I stop her with a statement filled with levity: “Depends is a brand of diaper; it is not an answer to an important decision in entrepreneurial finance.” You can feel the hearts of all the students sink as their dependable explanation is removed from their arsenal. Well, this makes sense, right? How many employees want to hear their leader say, “It depends”? My entrepreneurial finance students must have the financial acumen and internal fortitude to make a decision, even though they do not have all the information. You must learn how to act in the face of uncertainty, and my students get that experience.

If there is one trait that I have always enjoyed seeing in my students, it is their ability to respond to the exhortation that I always give them: “To be a successful entrepreneur, you must know finance, and every one of you is capable of learning finance. It is my job to teach it to you!” After the course is over, countless students e-mail me to say how much the course made a difference in their life choices, such as to pursue acquiring a company, taking a job with an entrepreneurial firm, starting a new venture with a family member, or starting a tech venture. Every one of these e-mails is a treasure to me; it makes all the preparation worth it. Each e-mail is unique and wonderful to read; keep them coming!

Now let me also mention that I get to have another role, in addition to being a professor of entrepreneurial finance, and that is the position of academic director of the Initiative for a Competitive Inner City (ICIC) program. ICIC is a nonprofit organization that focuses on helping businesses located in the urban areas of America grow and prosper. In these programs, I bring in professors of other entrepreneurship subjects such as salesmanship, new venture planning, bank lending, venture capital, franchising, and the like. When I create a course for one of my favorite organizations, like the Young Presidents’ Organization (YPO), the National Minority Supplier Development Council, the NFL, or any other group, I have the privilege of bringing in outstanding experts in these fields of finance and entrepreneurship. I have formed many friendships by working together for this cause: Derrick Collins, Greg White, Cheryl Mayberry-McKissack, Venita Fields, Al Sharp, Dean Donald P. Jacobs, and many others. Teaching alongside outstanding professionals is a great honor, privilege, and joy.

A few years into my teaching career, Bill Perez, at that time the CEO of S. C. Johnson Wax and Company, invited me to join the company’s board of directors, which I have retired from in October after 21 years of service. Since then, I have had the privilege of serving on the boards of several large publicly traded and private corporations, as well as those of private equity funds, venture capital funds, and financial company investment committees. Sometimes people ask me why a professor of entrepreneurial finance sits on the boards of large companies. There are several reasons, but my favorite one is that I am given the opportunity to represent my students.

One story really brings this to life. At one meeting of the board of directors of a publicly traded company, all the board members were present to make several decisions about the acquisition of another company. The investment banking firm, to which we were paying an extraordinary amount of money, brought in several of its people to present their recommendation on the valuation of the target company. The managing director put up a polished slide presentation and spreadsheet analysis as he smoothly walked us through the discussion. At one point, it appeared to me that he was telling us what was on the slide, but he had not done the analysis himself. I could not take such an approach lightly, and I finally exclaimed, “Hey, isn’t there someone on your team in the back of the room who was a student of mine? Get him up here. I want to hear his recommendation.”

Sure enough, the vice president of the investment banking firm had been a former student of mine, and I put him in a seat at the table to walk us all through his recommendation, which we accepted. I could trust my former student’s willingness to give an answer despite not knowing what the outcome would be. I was a proud professor that day.

I write this book, this story of opportunities, because I have been blessed with so many of my own. It’s said that a good entrepreneur always sees sun in the clouds and a glass half full. My beautiful daughters, Akilah and Ariel, laugh at me when I tell them that I have gone through life always believing that when I walk through a door, the light will shine on me, no matter who else is in the room. Like every good entrepreneur, I believe in myself, but I also have enough humility to know that one does not go from the welfare rolls on Chicago’s South Side to owning three successful companies, sitting on the boards of several Fortune 500 companies (S. C. Johnson, SuperValu, AMCORE Financial, and Harris Associates, a $90 billion mutual fund), and teaching at the finest business schools in America without a healthy supply of luck—and an abundance of caring people.

The first entrepreneur I ever met was a woman named Ollie Mae Rogers—the oldest daughter in a family of 10 kids, and the only one of them who never graduated from high school, let alone college. Fiercely independent, she left home at the age of 17 and got married. The marriage, I believe, was simply an excuse to leave home. Leaving home meant that she got her independence, and if she was nothing else, Ollie Mae, my mother, was a fireball of independence. When my older brother, my two sisters, and I buried her a few years ago, the eulogy fell to me. I described my mother as a Renaissance woman filled with paradoxes. She was a tough and gutsy woman whose extensive vocabulary flowed eloquently although she had barely finished the tenth grade.

I like to think of my mother as an eccentric “mom-and-pop” entrepreneur. Growing up, we were like the old Sanford and Son television series—selling used furniture at the weekend flea markets on Maxwell Street on Chicago’s South Side. Nearly every Saturday and Sunday morning, my older brother, John (my personal hero), and I were up at 4 a.m. loading my mother’s beat-up jalopy of a station wagon until we could fit no more “merchandise” on the seats, in the trunk, and on the roof. When I talk to prospective entrepreneurs, I tell them to go sell something at a flea market. You need to really live, breathe, and feel the rejection of hustling for “sells.”

When I think back on it now, I realize that my mother just loved the art of the deal, and this, among other things, became part of my being. It was common for my mother to leave our space at the market and go shopping, leaving the operations to my brother and me—the savvy and sophisticated five-year-old business maverick. That is how I learned to sell, negotiate, and schmooze a customer. I started my first little business venture in that very same market: a shoeshine stand. People would stroll by, and I’d lure them in with the oh-so-memorable pitch line: “Shine your shoes, comb your hair, and make you feel like a millionaire.”

As far back as I can remember, I always held a job. When we weren’t working the flea markets, my brother and I found other jobs; from helping the local milkman make his deliveries to working as a stock boy at the neighborhood grocery store, we did what we needed to do. By the time I reached high school, I was plucked out of the Chicago public schools by a nonprofit organization called A Better Chance, a private national program that identifies academically gifted minority kids from low-income communities and sends them to schools where their potential can be realized. (I recently served on the organization’s board of directors.) I was sent to Radnor High School in Wayne, Pennsylvania. I played on the football team, and when the season was over, I worked as a janitor’s assistant to send some money home to my mother.

My mother started running a small used-furniture storefront, and when I came home for the summer breaks, she would stop working and turn the operation over to me. So, by the age of 15, I had to manage a few employees, open and close the business, negotiate with our customers, and run the daily operations. My mother, unbeknownst to her, was nurturing a budding entrepreneur.

I went on to attend Williams College (I am a former trustee), where, for the first time, the money I made was all mine. I must have had every job on the darn campus at some point. Williams is a liberal arts school, and at that time there were no finance courses or any other business classes to be found there. I majored in history. During my senior year at Williams, I took an accounting class at nearby North Adams State College. After graduating from Williams, I worked for Cummins Engine Company. At Cummins, I worked as a purchasing agent for a start-up venture in Rocky Mount, North Carolina, called Consolidated Diesel Company (CDC). At CDC, I was responsible for developing a new supplier organization, and it was there that I got my first taste of finance. It was a position that put me smack-dab in the middle of the expense line item “cost of goods sold” because I was ultimately responsible for buying several engine components. The greatest benefit of this experience was the negotiating skills that I continued to develop.

After four years, I left and was accepted at Harvard Business School (I am a former member of the HBS Visiting Committee), where I received my first formal education in finance. That was the main reason that I attended business school: I knew that I wanted to be an entrepreneur, and I also knew that if I was going to be successful, I needed to understand finance. My introductory finance class was taught by Professor Bill Sahlman. When I told him about my meager background in the subject, he told me to relax, that any novice can understand the subject with a little common sense. Though he never told me this, I quickly realized that the subject was made easier by having an outstanding professor like Sahlman, who could teach a user-friendly finance course that combined academic theory and real practices into a powerful lesson.

While I was at Harvard, I recognized what many entrepreneurs find out the hard way: being a successful entrepreneur is not easy. I knew about the failure rate, and I was never really interested in starting a company from scratch. I wanted to buy an existing business. It’s funny when I think back on all the jobs that I had as a kid. My older brother had always had the same job first, so even back then, I was taking over an existing enterprise. I decided that going the franchise route was the smartest thing for me to do, and I applied for the franchisee program at McDonald’s. My plan was to eventually buy a large number of the stores and become a fast-food mogul. Out of 30,000 applicants for the franchisee program that year, McDonald’s accepted 50, and I was one of them.

The program required future franchisees to work 15 to 20 hours a week (for free, of course) over a two-year period. I actually did my fast-food tour of duty with the McDonald’s right around the corner from Harvard. So, during my second year at Harvard Business School, my classmates would come in and see this second-year MBA student, decked out in the official McDonald’s pants and shirt, dropping their fries into the grease and cleaning the stalls of the bathroom. Of course, they were thinking, “What the hell are you doing?” But I learned a valuable lesson over the years: you’re making an investment in yourself, and why should you care what someone else thinks? I believe this is an important lesson for everyone. There’s a certain level of humility that all entrepreneurs must have. You want to talk about risks? Taking risks is not just about taking risks with your money; it is about risking your reputation by being willing to be the janitor, which, once you get over being full of yourself, is not a risk at all, but instead is an honorable, dignified occupation. If you don’t have that mindset and you can’t handle that, then entrepreneurship is not for you. After graduating from HBS, I still had a year to go with the McDonald’s ownership program. In order to earn money, I accepted a consulting job with Bain & Company. During the week, I would fly all over the United States on my consulting assignments, and on the weekends, I would return to the Soldiers Field Avenue McDonald’s in Boston and put in the hours required.

Once I had completed the program and it was time for me to buy my own McDonald’s, I could not come to an agreement with the corporation on a price for the store that it wanted to sell. We went around and around, and finally I decided that maybe franchising was not for me after all. Like my mother, I am not very good at taking orders, living my life in a template designed by someone else, and doing what someone else believes I should do. My experience with McDonald’s was phenomenal, and I have nothing but respect for the company, but it was time for me to purchase my own business.

Eventually, after working with a business broker, I settled on purchasing a manufacturing business. Before I sold the company and left for my dream career of teaching, I had purchased an additional manufacturing firm and a retail business. Being your own boss and running your own business is both an exhilarating and a frightening prospect for most people. This is a club for hard workers. If you want an 8-to-5 job, do not join. This is a club whose members flourish on chaos, uncertainty, and ambiguity. These are people who thrive on solving problems.

It is my pleasure to provide this fourth edition of Entrepreneurial Finance, which has been updated and revised. I have received feedback from many students and fellow professors on the practical explanation of finance in this book, which has been retained. A new chapter on the answers to questions commonly asked on popular television shows has been added, Chapter 14, “FAQs on Entrepreneurship Television Shows—with Answers.”

Another change is that I wrote the first two editions as a professor at Kellogg, where I taught for 17 years. I am writing this new edition as a faculty member at my beloved alma mater, Harvard Business School (HBS), where I have been a professor for seven years. It is an absolute joy to be back home!

One of the amazing things about returning to HBS is that it is where I met the new love of my life, Dawn. Like me, she is from Chicago! And as equally important, from the South Side! Finally, like me, she believes in the power and importance of entrepreneurs.

I remain a strong believer in the idea that starting or acquiring a business during challenging economic times makes just as much or more sense than doing so during boom times. There are several examples of success stories like FedEx and Microsoft, which were started during recessions. Today and the near future still have their challenges, but the well-equipped student can navigate these challenges and succeed.

A year after purchasing my first business, I vividly remember returning from an early appointment and driving beside Lake Michigan on Lake Shore Drive. It was a gorgeous warm and sunny day, and I pulled off the road and got out of my car. There was no boss I had to call and no need to conjure up a reason for not returning to work. There was no manager to ask for an extended lunch break. I removed my socks and shoes, put my toes in the sand, and stayed there at the beach for the rest of the afternoon. Being an entrepreneur never felt so good.

Entrepreneurship is about getting your hands dirty and putting your toes in the sand. This book aims to help you get there as Dr. Martin Luther King Jr. did when he encouraged Georgia Gilmore to become an entrepreneur. In 1956, Georgia worked for the National Lunch Company as a cook. She was fired for testifying in support of Dr. King to a grand jury in Alabama. Once he discovered what happened to Georgia, he implored to her to open her own catering business. He told her, “All these years you’ve cooked for somebody else. Now, it is time you worked for yourself.” Dr. King put his money behind those supportive words by being an angel investor and providing her with money to equip her kitchen.¹ Even more emphatic than Dr. King was Irving Berlin, who once advised a young songwriter by the name of George Gershwin, “Why the hell do you want to work for somebody else? Work for yourself!”

—Steven S. Rogers, 2019