What You Learn in Business School vs. What You Should Learn in Business School
The standard MBA curriculum at most business schools is broken down along siloed subjects such as accounting, finance, management, operations, and marketing and attempts to teach students how to be a mid-level manager at a large corporation for the rest of their lives. Unfortunately, these jobs are mostly gone, having been shipped overseas or automated. This MBA curriculum is thus outdated and not appropriate for the 21st century when most individuals will have multiple jobs and roles throughout their careers and lives.
The more appropriate field of study which has yet to make it to business schools is known as Perpetuity Science. Perpetuity Science is the body of knowledge, methodologies, and optimization models related to the building, selling, and buying of perpetuities. It explains how perpetuities can be built, managed and exited from to create wealth. Perpetuity science is a paradigm shift in business and finance education in that it replaces the siloed subjects traditionally taught in undergraduate and graduate business schools with a holistic methodology that integrates industry and the capital markets into one framework.
Instead of a disparate business taxonomy along the lines of economics, finance, accounting, marketing, etc., we have an initial taxonomy broken down in relation to the perpetuity, namely:
Build-side – the building of perpetuities (entrepreneurs, corporations)
Sell-side – the selling of perpetuities (investment bankers, wall street)
Buy-side – the buying of perpetuities (private equity, corporate M&A)
Within each of the three, we have various methodologies and optimization models that may touch on various subjects such as accounting, finance, economics. By starting with perpetuity science however, the student can better synthesize the various moving parts of industry and the capital markets.
When first learning about industry and the capital markets, one should first understand the nature of the perpetuity, which is the basis for industry & the capital markets. The perpetuity can be modeled with the following formula:
Perpetuity value = CF / r
Where CF represents the benefit stream associated with the perpetuity and r represents the discount rate associated with the perpetuity’s risk of receiving the benefit stream.
After understanding the nature of the perpetuity in general, we can then analyze the nature of the perpetuity within each industry. The nature of the CF, r, value chain, and value being offered will be different. We investigate each industry according to these variables by building an index for each industry and then sub-sector within the industry.
After building the index and sub-sector indices we can then begin analyzing the value chain and leaders in each part of the value chain. We then build financial statement models for the leaders in each section of the value chain and understand the drivers of performance.
We analyze each leader or target in relation to the phases of perpetuity in terms of where they are now and the next steps that they can take to move to the next phase. In doing so, one begins to think in terms of being a CEO. The CEO’s role is to bring the company/opportunity through the stages of the perpetuity by building recurring benefit streams (i.e. cash flows) and at the same time de-risking those benefit streams. In doing so, the valuation of the perpetuity moves from backward looking towards forward looking and the valuation is thus maximized (based upon a multiple of future earnings).
The CEO should thus be familiar with Perpetuity Science and the phases of the perpetuity.
As the perpetuity changes, the formula for valuing the perpetuity changes as well. There are five phases of perpetuity building. As we move through the phases, the role of the owner of the perpetuity becomes more passive and the valuation becomes larger due to size of EBITDA increasing, EBITDA multiple increasing, and the discount rate decreasing. The perpetuity becomes less dependent on the owner to exist and run as an organizational structure is formed coinciding with the division of labor, processes are automated, and revenue becomes recurring.
Phases of the Perpetuity:
- Syndication (Getting to PMT)
- Job Shop (From PMT1 to PMT2, PMT3, etc)
III. Perpetuity (From PMTi to CF/r)
- Growing Perpetuity (From CF/r to CF/r– g)
- Diversified (Perpetuity 1 + Perpetuity 2)
The goal of Perpetuity Science is the building, growing, management, exit and buying of perpetuities, so ultimately, while learning about Perpetuity Science itself, we are also actively looking for:
- Perpetuities to create
- How to advance a perpetuity to the next phase
- Perpetuities that should be exited from
- Perpetuities that should be purchased
Ultimately, Perpetuity Science transforms the individual from a one-dimensional functional worker into a multi-dimensional value-creator able to execute on either of the three sides of the perpetuity; build side, sell side, or buy side.
The Perpetuity Scientist vs. The Functional Specialist
The Perpetuity Scientist builds assets that generate passive benefits whereas the functional specialist uses labor to generate active benefits. The quality of life of the perpetuity scientist is thus higher than the functional specialist. It is the perpetuity scientist that drives the primary value with functional specialists simply serving a role in the process of building or operating a perpetuity.
The Perpetuity Scientist has the three capabilities associated with the key question of each side of the perpetuity:
Key Question: How to Build a Perpetuity?
Capability: The capability to build a perpetuity
Key Question: How to Sell a Perpetuity?
Capability: The capability to sell a perpetuity
Key Question: How to Buy a Perpetuity?
Capability: The capability to buy a perpetuity
Capabilities that each business student should have are associated with the 3 key questions of Perpetuity Science:
- Build side: How to build a perpetuity?
- Sell side: How to sell a perpetuity?
- Buy side: How to buy a perpetuity?
The key questions are associated with capabilities to be built learning perpetuity science.
From this methodology, Investment Banking University has built a body of knowledge which turned into the course, How to Become an Investment Banker. The book, Investment Banking, is meant to accompany the course which can be taken online, in the weekend workshop, or in the month-long training.
When asking the key question, “How to Become an Investment Banker?”, we are really asking four questions simultaneously:
- How to use finance to model the concept in a perpetuity format?
- How to physically build the perpetuity?
- How to sell/exit the perpetuity?
- How to buy a perpetuity?
For each question, Investment Banking University has developed proprietary methodologies which are the basis for building a capability which is the ultimate answer to the question.
When the individual implements these models and builds the capabilities in finance, the build side, the sell side and the buy side, one may claim to have become an investment banker.
Currently, in business school you learn in a siloed manner about the various support functions in business, namely; accounting, finance, management, marketing etc. without an integrated framework for industry and the capital markets. The idea being that you would become a functional specialist within an existing perpetuity and fulfill your role. Contrary to this, we believe that an integrated understanding is important and that understanding the perpetuity itself is important allowing the individual to play different roles according to the opportunities available.
This integrated understanding is what we are calling Perpetuity Science.
- Nature of the Perpetuity
- Sides of the Perpetuity
- Phases of the Perpetuity
- Perpetuity Analysis
- The Market for Perpetuities
- Perpetuity Modeling & Valuation
- The Perpetuity Game