Junior Executives

Business students found their own companies, get funding, sell products, and pay back their loans, all within the confines of a one-semester class.
Junior Executives

If experience is the best teacher, undergraduates at the University of Oklahoma’s Price School of Business have a terrific instructor. Since 1995, the school has offered juniors a chance to enroll in the Integrated Business Core, a multicourse one-semester program in which students not only learn key business concepts, but start and run their own businesses. To date, these student companies have earned nearly $1 million in revenue, a little more than half of that in profit.

The major advantage of the IBC program is that it gives students a chance to actually run a small business, with all the demands and difficulties that implies. According to program director Larry K. Michaelsen, David Ross Boyd Professor of Management at the school in Norman, Oklahoma, “They have to write a business plan, get the bankers to look at it, determine what product they’re going to sell, and decide how they’re going to market it. If their idea works, great. If it doesn’t, they have to say, ‘Where is our thinking wrong, and how can we fix it?’ That’s where the learning comes in.”

Students also participate in a community service project by donating both their time and the proceeds of their businesses. Through these projects, they learn not only applied business theory but the importance of developing interpersonal and group-interaction skills.

Business Basics

Oklahoma’s IBC was based partially on a program at Bucknell University in Lewisburg, Pennsylvania. Michaelsen joined with two other faculty members to create OU’s integrated curriculum, which consists of the three core courses of management, marketing, and legal studies. It also requires a practicum course that counts as an upperdivision business elective. The professors work together to sequence the topics in their own classes to correlate to the information students need to learn at specific times to set up their businesses. Nonetheless, the courses remain segregated, and each teacher continues to grade independently.

Every semester, the IBC format accommodates 140 students, who attend joint three-hour lectures and then split into four groups to form their companies. Each company is aided by a student advisor who is a former IBC student. Because students only have a semester to learn business basics, devise a start-up company, get it running, and make a profit, the class moves along at a pretty good clip. By the third week, each individual team must come up with a potential business for its company to consider. Each team does a SWOT analysis on its proposed business, analyzing “strengths, weaknesses, opportunities, and threats.”

“One week they read about SWOT analysis, and the next week they have to do one,” says Michaelsen. “They get the conceptual material, apply the conceptual material, and then use what they’ve learned to make decisions about their companies.”

By mid-semester, each company has narrowed its choices down to one, and the students have devised a solid business plan to support the venture. The next step is to pitch their ideas to local bankers and ask for a loan of up to $5,000. Says Michaelsen, “To make a case to the bankers that they have put together a viable business opportunity, the students have had to locate suppliers, do pricing, develop a marketing plan, and analyze the break-even point.”

Not all the student companies receive a loan on the first try. “Historically speaking, about 40 percent get what they ask for,” says Michaelson. The rest must scale back their requests or do some remedial work on their projects before the bankers will approve the loan.

“The program has been a tremendous source of publicity for the banks that have funded it from the beginning,” says Michaelsen. Because every student company has earned enough money to pay back its loan, the banks have not lost a dime. “In terms of small business loans, this is the best they can hope for. There is almost zero risk.”

Below left: Students in the company called OU Traditions took 1,600 photos and arranged them into a mosaic image that was both patriotic and dedicated to the Sooners. A $5,000 loan helped them produce the poster, which made a net profit of more than $53,000. Below right: An OU student sells Boomer Stix before an Oklahoma football game.

Down to Business

By the time funding is secured, only six or seven weeks are left in the semester—and during that time, students have to produce and sell their products. “They have to react very quickly to changes in the market, and often those changes are really significant,” says Michaelsen. “But of course, that’s the kind of world we live in.”

Because of the tight time frame, many student companies choose to sell items that have an inherent appeal to their most likely demographic—students. Many have marketed inexpensive items that feature the University of Oklahoma logo, including beach towels, posters, calendars, and articles of clothing. Sales are often made at football games and well-traveled areas of campus. Other entrepreneurs have developed less OU-centric products, such as discount cards that can be used at local retailers, which are sold to community residents as well as students.

Since the program started in 1995, no student company has failed to make a profit of at least $800. One of the most successful companies achieved a net profit of $53,000 through sales of a mosaic poster of hundreds of snapshots arranged into an image of an American flag behind an OU football helmet. More commonly, student companies have a net profit of $10,000 to $20,000.

Not surprisingly, the course of a startup business is often far from smooth. For instance, setting up a table to sell goods in a high-traffic location doesn’t always guarantee swift sales. One company found the greater masses of people were not interested in the running shorts it had for sale. “People walked by their table by the thousands,” says Michaelsen.

The students rethought their market and decided that they might do more business with fewer customers if they set up shop at the university’s recreation center. “Their sales tripled with 10 percent of the traffic,” says Michaelsen. “They learned you have to think carefully about who wants to buy your product. Is it the students? Well, maybe not every student. So you go to the subset of students who are really interested in your product.”

Market downturns are also caused by outside factors, as student entrepreneurs have discovered. For instance, when companies sell OU posters and other products at football games, sales tend to drop off dramatically if the team loses. Students have scrambled to make up for lost sales by slashing prices or repackaging items as Christmas gifts.

Other students have had to compensate for missed delivery dates by suppliers, unexpected licensing snafus, merchandise that wasn’t up to specifications, the arrival of new competitors, and flirtations with bankruptcy.

The Service Component

Running a startup business is only part of the challenge of the IBC. To fulfill the community service requirement, students donate both their time and the profit from their businesses to a local nonprofit organization that they choose. They may also choose to donate profits to one organization and time to another.

While the dollar amount raised is impressive—Michaelsen estimates it at $212,000 in 2001, or roughly 12.5 percent of what the Norman community raised for its United Way campaign in the same time period—money isn’t all that makes the service projects worthwhile. The ventures give the students another chance to organize themselves as a group to complete an enterprise. Even more important, they strengthen relationships within the student companies.

“Working on Habitat for Humanity accomplishes many of the same things as sending a group off to Outward Bound, and yet the Outward Bound experience doesn’t produce anything for anyone. If you go down to work on a Habitat for Humanity home with a group of people from work, you build interpersonal relationships and contribute to the community at the same time,” Michaelson says. “At times, the service project is the glue that holds some companies together during business-related problems.”

He illustrates the point with the tale of students who elected to sell beach towels that featured the Oklahoma logo and a reference to OU’s recent national sports title. Although they tried to work within university licensing rules, the students were told that the towels violated certain licensing requirements. They were given a choice of selling their inventory to a company the licensing office had located, or selling the towels in nonpublic places. The students opted for the “black market” approach, but by this time they’d missed their prime chance to sell towels to Sooners heading off to spring break. “Their business was sputtering,” Michaelsen says.

While they were still figuring out what to do, the students took part in their service project, which involved local high school students, OU athletes, and Special Olympics children playing in a softball game. The game took place near fields where the OU men’s baseball team and women’s softball team also were playing. Crowds were good, and several news organizations covered the event.

“Even though these students had been so angry with each other, they had such a good experience doing this service project that they rebuilt the community spirit within the team,” says Michaelsen. “They were able to face up to the problems on the business, and they ended up doing pretty well.”

They sold out of their nonlicensed towels, reordered more legitimate ones, and opened a snow cone division of their company. Ultimately, both divisions were quite profitable. “That company would not have been nearly so successful if those students hadn’t done that service project together,” Michaelsen says.

Proven Success

Like any passionate program director, Michaelsen is convinced the IBC has a remarkable impact on student lives—but unlike most, he has hard data to back him up. In 2000 he conducted a survey of graduating seniors to evaluate core undergraduate programs. Eighteen to 24 months after participating in the IBC, more than half of the respondents identified it as the single most positive aspect of their undergraduate business education. Of the seniors who did not participate in IBC, less than one percent mentioned anything relating to their junior-level courses when asked about their best undergraduate experiences.

Asked what made IBC valuable to them, respondents identified three main benefits. First, it improved their learning and helped them apply concepts to later classes. Second, it improved their ability to develop people skills. Third, it created a profound sense of community among the IBC participants, which remained strong through the remainder of their time at OU.

“When asked about how things are going in their courses, IBC students invariably speak in terms of ‘we’—they and one or more IBC peers with whom they have voluntarily chosen to work and study,” Michaelsen says in a report about the survey. “In fact, many instructors in higher-level courses are finding that they cannot allow self-formed project groups because other students are simply unable to compete with groups composed of former IBC students.”

The IBC has been so successful at OU that Michaelsen happily shares its stories with other school administrators who want to set up similar programs. He knows of at least one school—Brigham Young University-Idaho in Rexburg—that has copied some aspects of Oklahoma’s IBC program.

“It’s a private school on a smaller campus in a very small community, so it’s a very different situation,” he notes. The faculty had decided to try the program for a semester and see how it went. Before the semester was over, they were committed to the program for good. By the second semester, one of BYU’s student companies had earned a $10,000 profit—a level it took the OU students two years to achieve.

If other schools are interested in setting up their own integrated curricula, Michaelsen advises them to include the business community from the very beginning—particularly the bankers who might be interested in approving the loans. He also recommends that schools start with 70 students in two companies and increase class sizes over time. Schools also should have seed money to cover the loans to the student companies.

Then, they’re ready to launch—and students will have the learning experience of a lifetime. No lecture or textbook can quite prepare students for the decisions they’ll have to make if inventory is ruined in a rainstorm, for instance, or a supplier turns out to be a competitor. IBC students who overcome such problems are likely to be better prepared to take on the larger obstacles that will threaten their companies when they’re facing higher stakes in the corporate world.