Executives-In-Residence: Filling A Business School Education Gap

Babson College's Olin Hall - Ethan Baron photo

Babson College’s Olin Hall – Ethan Baron photo

Often, her MBA and undergraduate students want her judgment on an innovation idea. “They want to know if I think their idea is a good idea,” Henriques says. “The thing you have to be careful of when you’re an exec-in-residence is to say, ‘That’s not a good idea.’” Students are mostly considering products and services for a market fitting their own demographic, and while years of executive experience are a benefit for many areas of coaching, the older executive-in-residence may not be very familiar with the students’ target markets, and should let the entrepreneurial process progress, under guidance, so students can figure out whether their product idea is anything anyone would buy, Henriques says.

So her question to potential entrepreneurs is practical: How are you going to make money? “It’s very hard to balance between shooting them down because they haven’t figured out how to make money, and showing enthusiasm,” Henriques admits.

The perils of the entrepreneurial life are well catalogued – broken marriages, empty social lives, alcoholism, drug addiction – and an exec-in-residence who has been in the lifestyle can provide valuable insight into its challenges and stresses – information that professors may lack, Henriques says. “It’s very hard to teach someone how to make payroll and what all the emotional issues are around doing that, and how hard it is when you’re first starting out, and how hard it is when you start to grow,” Henriques says. “You can’t actually teach that. You must have someone come in and make it real.

“The hardest thing is to get them to understand how resilient they’re going to have to be if they take this path, that it’s not going to be easy, and it takes courage. There’s a perception that everybody has a Mark Zuckerberg idea. That’s just not reality. There’s only a few of those in the world and there are millions and millions of businesses. It’s hard to get them to really let go of a bad idea for a better idea, and sometimes the market’s going to slap you right in the face and say, ‘That’s not a good idea.’”

MILLIONS OF DOLLARS AT STAKE IN STUDENTS’ DECISIONS

Roadblocks and even failures provide important lessons for entrepreneurial students. For the Babson MBAs and undergrads studying in the Cutler Center for Investments and Finance, trouble and failures are learning experiences – but potentially costly. Students in the school’s Babson College Fund program manage about $2 million of Babson’s endowment fund, so their “buy, hold, or sell” decisions have real-world effects. Still, they have to learn they can achieve success in spite of making a wrong decision – as long as they make enough right ones. “A good analyst is probably wrong at least 40%, maybe 45% of the time,” says Mike Dunn, a Babson exec-in-residence at the Cutler Center. “But you can have a very successful portfolio when you’re only right 55% of the time. To a student, two million dollars is serious business. Some of them may have some worry. The students are often initially reluctant to take a strong position.”

Using quantitative analysis and additional financial modeling, students must present their results to a group that includes professional analysts. “They have to get up in front of the group and say what they learned and make a recommendation,” Dunn says. “That’s very much the way it would work in a fundamental investment management firm.”

Early in each semester, students are recommending a lot of “holds,” Dunn says. “They’re often a little bit reluctant to get out there and call something a ‘buy.’ They don’t want to get out there on a limb and risk a loss. In the real world . . . everything can’t be a hold. You have to place your bets. It takes a little nudge sometimes to get them to do that.”

The student-managed share of the fund beat the S&P 500 over 10 years to April 24 of this year, and the students performed better than some professional managers hired to manage the equity portion of the endowment, according to the school. Babson’s execs-in-residence also coach in the school’s Butler Venture Accelerator, last year advising more than 400 businesses owned by students and alumni.

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