Bible and notepad at his side, Derek T. Ferguson (HBS MBA '90) could be mistaken for a minister by fellow commuters on the train from Connecticut to Manhattan. Yet his calling is not to the pulpit, but to the midtown headquarters of Bad Boy Worldwide Entertainment Group, a privately held enterprise with 2002 revenues of $300 million.
As Bad Boy's CFO, Ferguson oversees a multifaceted hip-hop empire founded in 1993 by Chairman and CEO Sean "P. Diddy" Combs, a Grammy Award-winning producer and recording artist in his own right. Sometimes criticized for its associations with misogyny and violence (P. Diddy has seen the inside of the courtroom more than once), hip-hop is as much a lifestyle as a musical genre. Yet the company's spare, functional Times Square offices don't suggest any of these bad boy qualities—and neither does the genial, relaxed Ferguson, who is as passionate about the Bible study he leads at work as he is discussing new ways to "monetize" music in a notoriously difficult market.
A Bronx native, Ferguson recalls growing up in a close-knit community where his father owned a trucking company. Although neither of his parents finished college, both stressed the importance of education. "When I was three years old, I was envious of my brother and sister because they got to do homework," he says. "My brother liked to play schoolteacher with me, so when I went to kindergarten I knew how to read and do a little math." After skipping two grades and gaining admission to the academically rigorous Stuyvesant High School, Ferguson enrolled in Wharton's undergraduate business program at the age of sixteen.
Initially, Ferguson was against the idea of continuing on to get his MBA. "I thought I was going to be an entrepreneur and didn't want to spend all that money," he explains. Seeing the effect of HBS on a friend from Wharton ("He presented himself so well," he recalls) changed his mind. "I was wrong," he says simply. "Going to HBS clarified what I was capable of doing and what I wanted to do."
Moving into music
Ferguson, thirty-eight, came of age at the dawn of hip-hop. "Our house was the place where all the neighborhood kids congregated," he says, explaining how his brother bought turntables, a mixer, a microphone, and an extensive record collection with money earned working for their father. Ferguson moonlighted as a DJ in college on the weekends to earn extra money but never considered a career in the music business.
Instead, he worked as an auditor and M&A analyst at Coopers & Lybrand in New York after graduating from college. Then, in 1988, Ferguson and Keith Clinkscales (HBS MBA '90) founded Urban Profile, a lifestyle magazine for young African-American professionals. "We didn't consider printing costs or subscribers," Ferguson remarks. "It's probably just as well—had we thought it through, we probably never would have done it!" When the magazine was sold three years later (the pair oversaw its publication while attending HBS), the subscription base numbered 75,000 readers nationwide.
Ferguson then moved on to Bain & Company in New York, where one of his clients was Camelot Music, a retailer based in the Midwest. "Its biggest profit drivers were rap and hip-hop," he remarks. "I remember thinking that there was a real opportunity to cater more directly to that customer base." To learn more about the business, Ferguson left Bain to work at BMG Entertainment, the umbrella corporation for dozens of music labels. He served as vice president of finance and operations before Sean Combs came calling in 1998, alerted to Ferguson's expertise by Kimberley Hatchett-Maitland (HBS MBA '91), who was married to a friend-of-a-friend of the street-smart entrepreneur.
"I had followed his career and thought a lot of what he had accomplished," Ferguson says of Combs, who at that time was already sitting atop a phenomenally successful record label with platinum-selling artists such as the late Notorious B.I.G. and Faith Evans. "He said, 'Look, I've done a lot of this on my own, without a sophisticated businessperson at the helm. Just think of what we can do together.' He was a good salesman."
| A broad revenue base is a necessity in a business hammered by illegal Internet downloads. |
The businesses that make up Bad Boy consist of more than its popular music label, however, a fact due in no small part to Ferguson's oversight. "I put the business structure in place so these ventures can be financed," he explains. Sean John Clothing has quickly grown to sales of $200 million and one hundred employees since it was launched five years ago. "It's our most profitable area," says Ferguson, noting that revenues could easily reach $1 billion within the next seven years. He sees growth potential in international sales, a new line for women, and licensing categories such as fragrance and footwear. Other ventures that fall under his aegis include Justin's restaurants, with locations in New York and Atlanta; Blue Flame Marketing & Advertising (a firm that helps clients reach the $890 billion youth and hip-hop markets); Bad Boy Films; and Daddy's House Social Programs, which provides tutoring for more than five hundred students in New York and New Jersey. (P. Diddy's completion of the 2003 ING New York City marathon raised $2 million for Daddy's House and other charities devoted to children's education.)
A broad revenue base is a necessity in a business hammered by illegal Internet downloads. "It's had a tremendous impact," Ferguson says, describing the 20 to 30 percent drop in sales that occurs in the first week after a CD's release—about the length of time it takes for a perfect digital copy to make the rounds on the Internet. "It's changed the spending levels. It's changed the whole process of breaking in new acts."
"Music is so powerful that we're looking for other ways to monetize the medium," says Ferguson. Indeed, the surprise impact of hit songs like "Pass The Courvoisier" has not been lost on companies desperate to reach the lucrative youth and urban markets (sales of the cognac jumped after the song's release). "We are definitely leveraging the acts that sponsors are interested in," he continues, describing how Apple paid to have its iPod placed in a P. Diddy music video and displaying a CD that features Sprite's brand name in the liner notes. "Some extremists think that recorded music will be free in ten years," he comments. "Companies will make money by selling sponsorship around the content."
Keeping the faith
As focused as he may be on Bad Boy's bottom line, Ferguson is quick to discuss other aspects of his life, from fishing for porgy on Long Island Sound with his son and daughter to working on an economic justice ministry that brings jobs to the inner city through the New York Covenant Church. Ferguson admits that he's uncomfortable with some of rap's and hip-hop's less positive messages and describes how he and others at his church have been supporting a Christian hip-hop group called Corey Red & Precise.
"I don't think we're called to run away from controversial environments. We're called to run to them and try to create change," he says. Acting on that credo, Ferguson also leads a weekly Bible study for employees of Bad Boy. "I was never the type to wear my faith on my sleeve. It seemed inappropriate," he recalls. "I had to overcome that barrier because I felt so called to take action."
Response to his e-mail inviting people to the study was so strong that Ferguson broke the group into a morning and evening session. "I had to take my work hat all the way off," he says. "The study involves taking a spiritual inventory—figuring out how different events in our lives connect and what they mean." Achieving balance is a goal of the self-examination process, Ferguson says. "It's difficult to avoid putting money at the forefront of your life. I want to provide for my family, but being a huge financial success doesn't always fulfill your sense of joy and peace."
Ferguson says that his journey is still evolving. Whatever the future brings, he wants to make a difference. For now, it's a matter of figuring out how to do that while serving as right-hand man to one of hip-hop's most prominent bad boys. "You can be in the corporate world and still incorporate goodness and righteousness in your work," he observes. "At the end of the day, what really matters is using your skills in a way that has a lasting benefit." 