Royce Yudkoff
speaker
143 appearances
1 recordings
1 series
first heard May 2025
last heard May 2025
Royce Yudkoff’s voice in public audio — every appearance, attributed to the second.
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Appearances
And we asked students, what is the implication of cutting price 10% to profitability? What is remarkable is after a year and a few months of business school, our students are mesmerized by this question. It never occurs to them that, well, let me see if my cost of goods sold is unchanged and my SG&A is unchanged, but I cut price 10%. wow, all that money is just coming out of profits.
And my profit margin was whatever it is. And so, boy, I've just taken out my entire profit margin. And then Royce will go on and say, and if you're 70% debt, what does that do to the equity holders? And they say, wow, I've just destroyed all the equity value with this one decision. Now, there's a lot of theory in that discussion, but it's an interesting example.
So some other things that I think have really been helpful. First, Royce and I have a fabulous partnership. We really enjoy working together. Interestingly, our students think Think about us as perfect substitutes for each other, where I'm the pointy-headed academic who got his PhD at 25 and hasn't really left academia, and Royce is the super successful consultant and private equity founder.
And so we have very different backgrounds. We have a lot of mutual respect. And I think when our teaching works really well, We are bringing the best of both of our backgrounds to it. So that's really important. The other thing that's really important, I don't know how this will sound. I truly believe it. We really like our students. We have fabulous students. They're accomplished. They're clever.
They're thoughtful. They're hardworking. They're serious. They're great. We can go years before we cold call a student and find them unprepared. It just doesn't happen. So we really respect and like our students. That is really helpful. We also think, at least I'm pretty sure I speak for Royce in this, We're really diehard capitalists.
We really do believe that if you go out and you run a small business better, you're making the world a better place. We really believe that. And for us, we feel like it's not evangelism by any means, but we feel we're really helping the world and we're really helping our students. We're showing them a new career path and they're going on and doing wonderful things for their workers and communities.
And it's super fulfilling for us. I've been at Harvard Business School for a long time, nearly 38 years now. Before I did this course, I taught everything in corporate finance, and I could go decades without somebody saying, you really changed my life. Thank you so much. You know, just teaching this kind of cash flow just doesn't evoke that kind of emotion in people. I don't know why. Doesn't me.
But I don't know that we hear that every day, but we hear it quite often. And we see it in our students. And we see students coming back over and over again saying, your class was pivotal in my life. And we hear it in our podcast.
I mean, the nature of small business is that they're generally undercapitalized and have to ration capital. And by the time they go to make capital investments, usually those decisions are pretty apparent. I have demand for another technician. That technician needs a new van. I'm going to buy a new van. There's a lot of that. One of the things we do talk a lot about, Royce, is IT investment.
And we're generally negative on it.
We generally say our students are of a generation that they can't get home without checking their phone about how to drive there. It hadn't occurred to them that they could just go the same way they went yesterday. They can't just go to a restaurant. They need to do whatever they do on their phone before they go. Anyway, it's a generational thing.
But what we think is that many of our students want to go in a business, particularly if it's being sold by somebody who's in their 60s or 70s. It's probably technologically light. And our students always have this great desire to spend a couple hundred thousand dollars on a CRM. And we have two answers to that. One is a couple hundred thousand dollars is a lot of your free cash flow.
You got to be thoughtful about that. Certainly your early years, if you're SBA, you don't have debt covenants, but a lot of them are conventionally financed and they do have covenants and they need to be mindful of those. So one is it's pretty expensive. And two, you don't really know what the business should be like in your first year. You got to really wait.
And so if the old owner managed it by sticky notes, buy some sticky notes, go to Staples. They're not very expensive. You could buy a lot of sticky notes for a new Salesforce application. Yeah. Try that for a year and see what you really need. Because you'll be a better manager at the end of year one and you'll know exactly what you need then. That's a part of this.
That is one form of capital investment. By the way, our students routinely ignore our advice on this, but we feel good giving it.
It's not pole vaulting. I always wonder how people actually do the first pole vaulting. How do they do that? Or a ski jump. Put somebody on this thing that's tall, the Empire State Building. Just don't turn. Go straight.
It'll be okay. I don't know how that actually works. Here's a stick. Stick it in the ground when you get close.
When you land, it'll be fine. I don't know how that happens. This is a mystery to me. But searching is not. You just commit to it. There's this thing, Google, you can find brokers, you talk to brokers, get on their lists, you do some search, you look at some databases, you try to find what companies are out there. It's like so many things in life. Just do it.
Just decide you're going to do it and then just... do it. Royce and I describe it step by step in our book. I think those steps can still be followed. But it is the case that most people discover that it's a highly personal activity, that they're going to do a geographic search that's a small geography.
They're going to go move to that geography and they're going to go to every chamber of commerce event they can find. They're never going to have breakfast or lunch by themselves. They're going to meet people, meet people, meet people and find the business. They're going to go door to door if they need to, but they're going to meet every business owner in the locale.
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