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No Mercy / No Malice: Cash & Denting the Universe

5 May 2017

by

No Mercy No Malice

Cash & Denting the Universe

Apple has pulled off the near-impossible in the world of business. Their genius alchemy of design, brand, and vertical integration (stores) has brought together flavors never seen in the same dish — a premium-priced product and a low-cost producer.

This is similar to an auto company having the margins of Ferrari with the production volumes of Toyota. In the US, we have opted to give lottery winners a chaser, and double or triple their windfall. We let firms (Apple) license their IP to Irish subsidiaries and then charge a licensing fee to other operating units to suppress profits in one domain, and inflate in another, resulting in lower taxes for the most profitable firm in the world.

Among the electorate and elected officials, we have a gross idolatry of innovators. Amazon paid no sales tax until recently. We hope that big firms will reinvest their cash hoards and drive the economy. Many new-economy firms (Amazon) do this, but most instead have registered record levels of profits and cash while the country and students rack up record debt. Apple has cash in excess of the GDP of Denmark, the Russian stock market, and the market cap of Boeing, Airbus, and Nike combined. At some point, does Apple have an obligation to spend its cash? If yes, then how?

My suggestion: Apple should launch the world’s largest tuition-free university.

The education market is ripe, and I mean falling-off-the-tree ripe, to be disrupted. A sector’s vulnerability is a function of price increases relative to inflation and the underlying increases in productivity and innovation. The reason tech continues to eat more of the world’s GDP is a gestalt that says we need to make a much better product, and lower price. Education, on the other hand, has largely remained the same for 50 years and has increased prices faster than cable, and even healthcare.

I teach 120 kids on Tuesday nights in my Brand Strategy course. That’s $720K, or $60K per class, in tuition payments, a lot of it financed with debt. I’m good at what I do, but walking in each night I remind myself we (NYU) are charging kids $500/minute for me and a projector. This. Is. Fucking. Ridiculous.

A degree from a good school is the ticket to a better life, and this ticket is given almost exclusively to exceptional kids from low- and middle-income US households, and all kids from wealthy US and foreign households. Eighty-eight percent of kids from US households in the top-income quintile will attend college, and only eight percent from the lowest. We are leaving the unremarkable, and unwealthy — most people — behind in a civilization that is now more Hunger Games than civil.

Apple could change this. With a brand rooted in education, and a cash hoard to purchase Khan Academy’s and physical campuses (the future of education will be a mix of off- and on-line), Apple could break the cartel that masquerades as a social good but is really a caste system.

The focus should be creativity — design, humanities, art, journalism, etc. As the world rushes to STEM, the future belongs to the creative class, who can envision form, function, and people as something more — beautiful and inspiring. I believe the correlation between a nation’s focus on STEM and growth is tenuous at best. We in the US lament our lack of focus on the sciences. On the contrary, I believe it’s one of the reasons we have performed better than any major economy, other than China, over the last 30 years.

creativity
noun

  1. The use of the imagination or original ideas.

science
noun

  1. A systematically organized body of knowledge on a particular subject.

Do the most successful firms in the world (Amazon, Apple, Facebook, and Google) owe their success to imagination and original ideas, or to an organized body of knowledge? The founders are more creative than scientific, methinks.

A key component would be flipping the business model in education, eliminating tuition, and charging recruiters, as students are broke and the firms recruiting them are flush. A viable alternative to the caste system (US universities) would deflate the culprit of massive debt on young people: tenure. We have a second year at business school so we can charge kids $120K, vs. $60K, to subsidize social welfare for the overeducated (tenure). I believe my colleagues at NYU Stern are, on balance, one of the premier faculties in the world. However, a lot of our teaching is mediocre, and the majority of research irrelevant. But with tenure, there’s nothing we can do but raise tuition.

Harvard could foster the same disruption by taking their $37B endowment, cancelling tuition, and quintupling the size of their class — they can afford to do this. However, they suffer from the same sickness all of us academics are infected with: the pursuit of prestige over social good. We brag how it’s become near impossible to gain admission to our school. This, in my view, is like a homeless shelter taking pride in how many people it turns away.

Apple has a chance to really dent the universe. They have the cash, the brand, the skills, and a market begging for them. Or … they could just make a better phone.

The Secret of my Success: Rejection

In high school I ran for sophomore, junior, and senior class president. I lost all three times. Based on this track record, it was obvious I should run for student body president. I did, and I (wait for it) lost. I was also cut from the baseball and basketball teams. I was rejected by UCLA and, believing I wasn’t going to college, began an apprenticeship learning how to install shelving. I could make $15, maybe $18/hour, which felt like a damn good living. I decided to write another letter to UCLA admissions and told them the truth: I am a native son of California, raised by a single immigrant mother who is a secretary, and if you don’t let me in I am going to be installing shelving the rest of my life. They admitted me nine days before classes started. I remember my mom and I going to Junior’s Deli on Sepulveda to celebrate. She told me that, as the first person to attend college on either side of the family, I could now “do anything.”

Arriving on campus I rushed five different fraternities and got admitted to one, as they were looking to fill a room in the house with someone who would pay the board / dues. When I graduated, I interviewed at 22 firms and got one offer, from Morgan Stanley.

I applied to several MBA programs and was rejected by Stanford, Indiana, Wharton, Duke, UT Austin, and Kellogg. I was admitted by UCLA and Berkeley Haas with the same narrative I pitched to UCLA the first time: “I’m an unremarkable kid, but I’m your (California’s) unremarkable kid.”

In business school I ran for class president, and lost. Since graduating from business school, I have started 9 businesses. Most have failed.

The Most Important Decision

The most important decision you’ll make is who you have kids with. Who you marry is meaningful, who you have kids with is profound. Raising kids with someone who is kind, competent, and you enjoy being with is a series of joyous moments smothered in comfort and reward. Raising kids with someone you don’t like, or isn’t competent, is moments of joy smothered in anxiety and disappointment. Everyone who knows us would agree my boys’ mother is, on most dimensions, more impressive than me. This has been the case with most / all women I’ve had relationships with. The ability to punch above your weight class in the ring of mating is your willingness to endure rejection.

Raleigh

I enjoy alcohol, but it’s also served a useful evolutionary purpose, as it’s dramatically increased my potential pool of mates. In social situations, “alcamahol” has been kevlar against rejection. I’m a better version of myself after a couple drinks: funnier, more affectionate, confident, engaged, nicer… better. (Can’t wait for the judge-mail on this one.) I remember being at the pool at the Raleigh Hotel in South Beach and seeing a woman I was incredibly drawn to. I committed myself to speaking to her before I left, and immediately (not proud of this) ordered a drink. Asking a VC for money is nothing compared to approaching a woman midday in a beach chair, sitting with another woman and a guy, and opening. I tell my students nothing wonderful, I’m talking really fantastic, will happen without taking a risk and subjecting yourself to rejection. Serendipity is a function of courage.

My willingness to endure rejection from universities, peers, investors, and women has been hugely rewarding.

My oldest son’s middle name is Raleigh.

Life is so rich,
Scott

  • Franco

    OMG !! This is worth repeating: “……..We brag how it’s become near impossible to gain admission to our school. This, in my view, is like a homeless shelter taking pride in how many people it turns away.”

  • Marco Ventura

    Brilliant. Apple could indeed make a profound dent in the universe that would impact future generations. The current ‘caste’ system/model is broken and unsustainable.

  • Vykintas Glodenis

    I ABSOLUTELY LOVED THIS. Thank you. Scott!

    Keep up doing the great job.

  • Triveni Rajagopal

    You hit the sweet spot every week, with this perfect balance of stories that appeal to the mind and to the heart. Thanks for doing this. You should consider sending these out on a Monday – they could work for us, like bulletproof coffee for the week.

  • Antoine Bourgeois

    So why do you still teach at NYU charging these outrageous fees?

    Why don’t you propose your classes exclusively on-line at a reasonable fee?

    If all good teachers did that, the universities would have to adapt, but by all wanting to make as much money as possible from teaching, you are just strengthening the mafia…

  • Antoine Bourgeois

    Not sure you understand the level of creativity involved in science… And there are other definitions of Science than the bland one you purposefully chose for your demonstration 🙂
    “Science is a systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the universe.” (Wikipedia)

  • djstorz

    I am really enjoying these pieces from Scott who, at the risk of eroding his reputation as a sort of “arrogant a**hole” (NOT MY words WORDS, but rather the words of two students I know who took his class at NYU a while back), is opening himself up to self-reflection, amplifying his brilliance IMHO. The pieces seem like they could be strung together as an interesting “coming of age” novel.

  • Sean Darragh

    Norn Irish grad immigrant with immense design skills who invested in AAPL in the late ’90’s whilst working for evil NY media conglomerate with a 2 letter abbreviation. In the summers we drive past the “Olivet University” problem at Wingdale, on the 22 heading back to nice but evil Westchester.

    “Jaysus christ – less than a bill.. could sort this out, a Euro still high tech uni with socialist principles (like the british give us in Norn Iron) – connected to NYC on the metro north – what do you think evil Kerry Killarney wife”. She ignored me as she has no soul, but honestly agree with the sentiment – works on so many levels, much like a wedding cake.

  • Scott Galloway

    Thanks for the comment. Yes, the sciences are (undeniably) key. I worry that we don’t place enough importance on fostering creativity. But, again, point taken.

  • Scott Galloway

    Fair question. I am contemplating teaching at FIT, a public school, as I have (per your point) become part of the problem (vs. solution). Thanks for your comment. Scott

  • Cliff Harris

    Although its very true that creativity is important, especially for setting direction for new products and product design, a lot of people are implementers, not CEOs. For every zuckerburg, there are hundreds of coders, tech support people, data analysts etc. Even with really smart AI I suspect people with truly creative jobs will be outweighed by science/tech geeks for a good few decades.
    Agreed spot-on about apple though. A company so woefully out of ideas its effectively become a savings plan that makes the odd mediocre phone 😀

  • alex

    Thanks for your posts and videos. Before we start disrupting higher education shouldn’t we ask if college is even worth it? Does the education actually transform people? Or is it more a screening device; a demonstration of IQ, ability to complete tasks on schedule etc that employers look for, and one’s GPA and degree- from -prestigious- school symbolizes employability? I’ve got a graduate degree from good schools, but I think I learn a lot more outside of class. (Obviously trade school is different…)

  • Scott Galloway

    An interesting point Alex. Agree that much of the value of great universities is they serve a huge HR/screening function for business. I do, however, believe that the best schools manicure/enhance the raw material (skills, contacts, maturation, etc.) Thx for comment.

  • Scott Galloway

    You’re right Cliff. If I wrote the post again, I’d day STEM gets all the attention, not that its over-rated. S

  • AMY MADONIA

    Great article, understanding of social issues, business environment, and the balls to say it all. Kudos, much respect.

  • Numby

    This article is incoherent. The later half of this article you talk about your personal life although it ties in no way to your idea about Apple disrupting education. Also, this:
    “Do the most successful firms in the world (Amazon, Apple, Facebook, and Google) owe their success to imagination and original ideas, or to an organized body of knowledge? The founders are more creative than scientific, methinks.”
    implying STEM education does not develop creativity, whereas design, humanities, art, journalism do. Also, implying that STEM education is about consuming “an organized body of knowledge” as opposed to creatively applying scientific concept and principles in problem solving (as in every college/university science course has a lab component). Also, being completely off-base mentioning these tech companies since their founders, whose creative ideas they flourished upon, were mostly Computer Science/Engineering majors.

  • mariapetrova

    Hey 😉 It’s not an article. They’re musings, personal thoughts. All the rest of the site is super uptight research — this is having a drink with Galloway. I enjoy it.