Brian Kenny: Herbert Clark Hoover was an engineer and a businessman who had the dubious distinction of serving as president of the United States during the onset of the Great Depression in 1929. It was Hoover who popularized the term “rugged individualism”, the notion that Americans should be self-reliant and independent from outside assistance. He only used the term once in his acceptance speech at the Republican Convention in 1928, but it stuck and it came to epitomize the romanticized vision of bootstrapping Americans, doggedly pursuing their dreams despite the odds. That notion still appeals to people today. According to the US small business administration, small businesses account for 99.9% of all business in the US. That's 30.2 million enterprises that collectively employ more than half the workforce. Over 627,000 new businesses open their doors each year. The problem is, more than half of them will fail within five years. The truth is, no matter how rugged you are, it's hard to sustain a small business on your own. Today, we'll hear from Professor Len Schlesinger about his case entitled Goldman Sachs, The 10,000 Small Businesses Program. I'm your host, Brian Kenny, and you're listening to Cold Call, recorded live and Klarman Hall studio at Harvard business school. Len Schlesinger is an expert in strategy, service quality, customer satisfaction, entrepreneurship, and organizational change. He's a longstanding member of the Harvard Business School faculty who also served as president of Babson College in Massachusetts, which will come in handy in today's conversation. Len, thanks for joining me.
Len Schlesinger: A delight to be here, Brian.
Brian Kenny: This is your second spin on Cold Call, so we're happy to have you back.
Len Schlesinger: It’s super to be back.
Brian Kenny: Covering a very different topic today, but one that I think people will find really interesting and just the intro, the numbers that I sort of stumbled upon both in the case and then doing a little bit of side research. It's amazing how important small business is to the overall economy of the United States. So if people have any misconceptions about that, we can certainly clear them up. I'm going to ask you to start the way I always do. Can you just set the case up for us? How does that begin?
Len Schlesinger: Sure. The case starts in February 2018 with 2,000 graduates of the 10,000 Small Businesses program who paved their way to Washington, DC to represent an interest group of small business people interacting with Washington for the first time.
Brian Kenny: Was this connected with your time at Babson or what prompted you to write the case, I guess?
They all agree about this. We know that 68% of the American public actually dreams about owning a small business and we know that 93% of the American population thinks it's important to support small business, but they don't. And so the interesting question for us is given the failure rates of small business and the difficulty in getting small businesses to scale, the question is, whose responsibility is it to support that activity and where are there pockets of excitement going on? And Goldman as a corporate initiative probably represents the best performance of any of the constituencies trying to address that issue.
Brian Kenny: Yes. I was interested in reading the case. Goldman is a huge enterprise, but they started like a small business too. Can you describe their humble beginnings and what they're like today?
Len Schlesinger: Well, they started with Marcus Goldman and it was a small bank and then evolved to where it is today with multiples of billions of revenue and clearly one of the largest and most complex financial services institutions in the world.
Brian Kenny: And like many large organizations these days, they're looking at their philanthropic place in society and how they can have an impact beyond just their business. So what are the kinds of things that Goldman think about when they are thinking about their philanthropic endeavors?
Len Schlesinger: For their philanthropic initiatives, there's no interest in them, for example, throwing money at the arts or other things that are unrelated to what it is that the bank does. So the bank is linked to economics and the bank is linked to global commerce and so the kinds of initiatives they should have in fact have to be in that same space.
Brian Kenny: From your perspective, you certainly study business extensively, how important is it these days for an enterprise to have this kind of philanthropic bent?
Len Schlesinger: Well, there's no question that there's pressure on organizations to demonstrate a philanthropic bent. There's also no question and the vast majority of them aren't nearly half as careful as Goldman is in trying to A.) put it into initiatives where they're going to make a difference and B.) measure the heck out of it to ensure that their good money is being thrown after good.
Brian Kenny: I mean, some of this do you think related to kind of the current climate that we're in? We know that we're in an acrimonious political environment these days. We've also got a generation of people coming into the workforce, millennials who certainly seem to have placed a lot of importance on mission and purpose in addition to doing well, right?
Len Schlesinger: I'd be lying if I told you the first time I taught this to MBAs that they weren't naturally suspicious of why Goldman was in this business, but by the end of 80 minutes, I think they understood it and walked away pretty impressed.
Brian Kenny: So this wasn't Goldman's first swing at the plate, right? They've done this before.
Len Schlesinger: No. Their first swing in economics was they did a research study called “Women Economics” and began to understand the impact of promoting women's entrepreneurship in emerging economies around the world. And it's linked to actually quality of life and quality of outcomes and that led to a 100 million dollar initiative for the 10,000 Women initiative, which was largely focused on education around the world to promote women in the activities of startups and growth initiatives.
Brian Kenny: And were they able to have an impact with that?
Len Schlesinger: There's no question that they were happy with the outcomes, absolutely no question. And the rest of the world was excited about it. So no surprise after they went through their hundred million dollars, other people in the world were clamoring to get access to the technology and the support and ultimately the IFC and World Bank took over responsibility for this initiative on a go forward basis and raised several hundred millions dollars to actually move this thing forward.
Brian Kenny: So part of this is them and I guess being a catalyst or being a spark to get something started and then trying to build a broader ecosystem to address whatever the issue is.
Len Schlesinger: I think they happened into it. I don't think they were absolutely clear when they started, A.) that this would be so successful and, B.) they would early on be facing issues about how to scale and what role if any Goldman had to play in that going forward. That's front and center for the 10,000 small businesses case today.
Brian Kenny: Why don't you describe that for us?
Len Schlesinger: The case begins to highlight the outcomes of the 10,000 Small Businesses initiative, which are in terms of job creation and economic growth, at least 20 to 25 points better than any other initiative in the United States. And there are 10,000 small businesses to be highlighted. The case has them at about 7,300 and the questions are beginning to emerge around how do they grow this after the 500 million dollars and the 10,000 people actually graduate.
Brian Kenny: Was there something magical about 10,000? That number appears now in two different initiatives.
Len Schlesinger: It's beautifully alliterative.
Brian Kenny: So why did this make sense? I'm going back to something you said earlier about the way that they think about philanthropy. This one seems to make perfect sense for Goldman Sachs.
Len Schlesinger: Even more. I mean, the reality is the 10,000 Women was a global issue. This program started just as the U.S. economy began to melt down, and the notion of Goldman Sachs investing energy and money in American business struck them as being completely related to what it was they were trying to do.
Brian Kenny: So why don't we dive in a little bit to small business, I guess. What do we mean by small?
Len Schlesinger: So this is the problem. So you started with the small business administration data and the small business administration data is heavily skewed by the fact they define small businesses as anything fewer than 500 employees, which is how they end up consuming 99% of the economy. The vast majority of those small businesses have under 10 employees and that in fact, 85% of those businesses have no employees.
Brian Kenny: Interesting.
Len Schlesinger: So the largest population…
Brian Kenny: Go back to that for a second. How can you have no employees, so it’s just an independent…
Len Schlesinger: Sole proprietorship.
Brian Kenny: Okay, great.
Len Schlesinger: And so the reality is the vast majority of initiatives for small business essentially are regulatory relief and tax cuts for the larger organizations and many of those things are not directly relevant to the businesses that we're talking about here. Goldman set a very simple target. These businesses had to have at least $150,000 in revenue, they had to be at least two years old and they had to have at least four employees. And then most importantly, they were not supporting startups, they were supporting growth enterprises. So you had to have a proprietor who was vitally interested in growing their enterprise.
Brian Kenny: That's a really important distinction, I think. So just if you could define a little bit, what's the difference between a startup in this context and a small business, the way that Goldman Sachs is looking at it?
Len Schlesinger: The notion was that Goldman was going to invest in an economic multiplier. We were going to create jobs and we were going to fuel growth. And the way to do that is to invest in businesses where you really did believe about both of those things could be positive outcomes.
Brian Kenny: Is there a pivotal moment in the lifespan of a small business when that's like either succeed or fail kind of thing?
Len Schlesinger: You know the reality is over the first couple of years, that's every day. And so the interesting issue and they fall into a number of universes, but the interesting issue for some of these businesses, they get through that first couple of years and they can move into what I'll call phase two at this point. And that's when the opportunity comes to actually think about growing and that's when Goldman really plays a central role.
Brian Kenny: So what are some of the challenges that small businesses face as they get into that second phase?
Len Schlesinger: Well, the problems are in fact legendary and well-documented. One, there's just a general lack of access to capital. There's a general lack of access to high quality employees. There's explicit recognition that the vast majority of these people have to spend so much time in their business there's virtually no time to spend on their business thinking about the growth initiatives and everything that's possible. Technology is designed for much larger enterprises. And so despite all of the excitement about FinTech, there's very little energy going into customizing technology-based initiatives that are supportive for these enterprises. And then most fundamentally, there is significant evolution and competitive dynamics that really threaten these enterprises in ways they haven't before. So for example, the impact of Amazon on retail.
Brian Kenny: I would also imagine that a lot of these small business owners don't have any formal education in management. They're kind of learning as they go. For better or for worse. Right?
Len Schlesinger: The reality is Goldman did not rely on education as a barometer for choosing them. So you could actually find someone in the program who had a fifth grade education sitting next to someone who had a doctorate in a technical area. The notion was, did they have an interesting business were they committed to growing and in the selection process, was there a generalized assessment that these people had the desire and the wherewithal to make this happen?
Brian Kenny: What was the approach they took? I mean, how do they start to build a program around this?
Len Schlesinger: They had the benefit of 10,000 Women. And one of the things we learned from the 10,000 Women initiative was it relied largely on the academic institutions to design their own curriculum based on the way they thought about the problem in the world. And so every site in the world that had a 10,000 Women initiative had a different curriculum. The notion was when we came into 10,000 Small Businesses that we would get end up having one single curriculum across the entire United States and everybody was going to have the same experience. That required Goldman to relate to higher education institutions in a very new and different way and in some respects, that's how I entered the equation when I was the president of Babson. The entire curriculum of 10,000 Small Businesses is in fact owned by Goldman Sachs and it's done as work for hire.
Brian Kenny: Wow. So I found it really interesting that they also mobilized another member of the higher education community in a really interesting way. Community colleges. Can you talk about that?
Len Schlesinger: So Margaret Spellings who had been the secretary of education was an advisor to Dina Powell, who is a senior philanthropic advisor at the time that started and in trying to figure out how to move across the United States, she was the person who generates a lot of the credit for talking about the role of the community college in the urban ecosystem. And she really pushed on the notion that community colleges desperately needed a raison d'être and the notion of exposing them to high quality education, high quality materials, close supervision, and evaluation was only going to make the faculty better and was only going to make the community colleges better. Also, the assumption was that these community colleges knew a fair bit more about the characteristics of the local small business people than someone would know on Wall Street.
Brian Kenny: Yes, they're on the ground there. There's been a lot of discussion over the years. In fact, some of it even coming out of Harvard Business School around the U.S. Competitiveness initiative about mobilizing community colleges to play more of a role in bringing apprentices up into the system. There's an infrastructure there that seems to not be being well utilized.
Len Schlesinger: Yes. Both of them are not equipped to do it. And so the notion here was when Goldman puts 200 million dollars into the initiative, it was for Babson to design the curriculum and for Babson faculty to teach the community colleges and support the community colleges in delivering the program across the United States to build those capabilities at the local level.
Brian Kenny: So what does that look like in terms of numbers? You know, scaling this thing up, that sounds like a pretty big undertaking.
Len Schlesinger: So we're now at 7,300 in the case, the 7,300 people, and they were in 13 locations plus a national cohort at the time of the case. It's an extraordinarily large initiative. Very, very complex initiative. Because once you've established a community college in every one of these communities, you also have to build the local ecosystem. So you not only had to get the community college, but you had to get the mayor, you had to get all of the individuals who were significant players in the power structure in the city, all aligned around making this thing work. So if I give Goldman the credit, I mean, they deserve an awful lot of credit for this, but the primary credit was having the genius of understanding their role in developing the local ecosystem in making this thing work and walking away from cities where it didn't exist. There's a point in the case where they talk about going to the city of Chicago and when Mayor Daley was the mayor and explaining what they needed and Mayor Daley told them that the community colleges at the time were simply not good enough to be able to do it.
Brian Kenny: Wow. Wow. I suppose there's also the risk of having this become overly politicized because opportunistic politicians might see this as an opportunity to make it part of their platform.
Len Schlesinger: So the reality is they're not in Boston and I have regularly met with each of the last two mayors who wanted to understand why it's not in Boston and it has not succumbed to politics.
Brian Kenny: So let's go back to Goldman Sachs for a minute because you mentioned that they were genius in terms of understanding what their role was. If I work at Goldman Sachs, is there a way for me to kind of plug into this?
Len Schlesinger: So that's the really cool thing. So the notion of engaging the workforce in this philanthropic initiative gave legions of Goldman Sachs employees the opportunity to serve as project coordinators, coaches, and individual counselors. And so to the extent that any employee was interested, there were lots of roles for them to engage and there were hundreds of employees who play that role. So you have employees who actually see the work that's getting done, who engage in their expertise in a way that's particularly useful and satisfying, who are generating outcomes that are extraordinary compared to the rest of the country.
Brian Kenny: What are the main components of the curriculum? What are they teaching these business people?
Len Schlesinger: So there's a nine session curriculum, it's roughly about 100 hours of education. And the major theme is, as I said before, this is about growth. So the objective is, by the time you've gone through all nine of the sessions, you will emerge with a growth plan that you can be assessed against and you can manage. So inevitably, you have the obligatory you and your business to start with, then they immediately go into a module on growth and opportunities. They have to teach a module on money and metrics. Many of these people have not had to do any sophisticated financial analysis and given their own decision and own desirability about being bankable, they have to learn that. Then there's just the individual you as the leader in your business organization because again they would identify the human resource challenges as far and away the biggest challenges they face and then it moves from you as the leader to what are the people like and how do you manage other people, and then standard business school curriculum, marketing and selling, operations and processes and then taking action for growth with the growth plan that's actually developed and delivered.
Brian Kenny: So this is 100 hours. This is all in person. This is-
Len Schlesinger: It's 100 hours in person at the local community colleges in the market except for the national cohort, which is done twice a year at Babson.
Brian Kenny: Are there competitors in the room? If I've got my window cleaning company is there another window cleaning company sitting next to me?
Len Schlesinger: Probably in the room, but not sitting next to you. Now, the amazing thing about this business is one of the other outcomes which was unexpected is we talk about creating a community cohort. What we didn't talk about and we didn't contemplate was just how much the businesses would be interested in supporting each other. So by the end of the course, 87.6% of the businesses are doing business with each other.
Brian Kenny: Oh, that's very cool. That's a great unexpected outcome, right?
Len Schlesinger: Yes. A delight.
Brian Kenny: So what was the experience like for some of the business people? The case goes into a couple of examples, but I'd love to hear.
Len Schlesinger: Well, I mean routinely and regularly… we have the Harvard Business School talk about this being a transformational experience. This is a much more clearly defined transformational experience. It is easy to see where they were and where they are now because at the end of the day, they're talking about within six months the kind of growth they're experiencing and the number of new employees they're getting and the new problems that they're getting ready to deal with on a go forward basis. They also acknowledge that were it not for this program, they probably would've never carved out the time to do this work. And so one of the things that Goldman really focused on is making sure that people understood the nature of the time commitment to make this work.
Brian Kenny: So they've got some key metrics. You mentioned growth in particular, but are they're looking at sales or longevity?
Len Schlesinger: Only two metrics.
Brian Kenny: What are those?
Len Schlesinger: Growth in revenues, growth in jobs. That's it. And so you don't have this burden by a whole portfolio of metrics that by and large don't matter. Now, every single class is evaluated. Every single faculty member is evaluated. Everybody is evaluated all the time to ensure the quality of the program, the generalized excellence in ways that people had not probably experienced. But in terms of the outcomes, Goldman was absolutely clear about why this existed. Growth in revenues, growth in jobs.
Brian Kenny: What happens when they get to 10,000 or they just stop?
Len Schlesinger: Well, that's the point of the case. So I would say the ambiguity of the case at the end is the tension that ends up sparking the discussion. What ends up happening in a class is we want to understand exactly what the program is and why it works because the natural constituency that plays with the case discussion is suspicious about a corporate venture around this issue that appears to be doing better than anybody else. The second is, once you understand what it's all about, how can you scale and reproduce? And there are no easy answers. So I think after an 80 minute class, people walk away saying, this sure is good. It sure deserves to scale and I don't know how.
Brian Kenny: So it sounds like you've taught this in class and without giving away any deep secrets, are there any surprises or insights that you found?
Len Schlesinger: I think the biggest surprise is the students start with natural suspicion of a corporate effort like this and end up being incredibly impressed.
Brian Kenny: Len, it's a great case. Thanks so much for joining me today.
Len Schlesinger: Well, thanks so much for having me. This is great.
Brian Kenny: If you enjoy Cold Call, you might like the other great business podcasts on the HBR Presents network. They’re all free on Apple Podcasts. I’m your host Brian Kenny and you’ve been listening to Cold Call, an official podcast of Harvard Business School, brought to you by the HBR Presents network.