Len Schlesinger is President Emeritus at Babson College and the Baker Foundation Professor at Harvard Business School where he serves as Chair of the School’s Practice-based faculty and Coordinator of the Required Curriculum Section Chairs. He has served as a member of the HBS faculty from 1978 to 1985, 1988 to 1998 and 2013 to the present. During his career at the School, he has taught courses in Organizational Behavior, Organization Design, Human Resources Management, General Management, Neighborhood Business, Entrepreneurial Management, Global Immersion, Leadership and Service Management in MBA and Executive Education programs. He has also served as head of the Service Management Interest Group, Senior Associate Dean for External Relations, and Chair of the School’s (1993–94) MBA program review and redesign process.
In this interview with Carbon Radio, he talks about how entrepreneurs will win in this new era of uncertainty. He addresses how healthcare and higher education are changing, and how entrepreneurial thought and action will enable organizations to thrive in a post-Covid world.
What do you think about what’s going on right now and how can entrepreneurship can play a role in the recovery of the economy?
Satya Nadella, the CEO of Microsoft, has actually nailed the framing of the issue in a very compelling way, and it’s one that I have been using countless number of times with credit to him. He talks about the three phases of current reality, and the first one is obviously restore. There needs to be some mechanism by which we can restore businesses and organizations to some semblance of reality. The second is recover. What are all the things we need to do to get customers back, to get service providers back, to get the systems working? And the third, and obviously the most exciting and most compelling part of the equation, is reimagine. What we have is the opportunity, whether you’re a small business or a large business of any kind, to use the experience of the last several months to think about ways in which you can reinvent every aspect of your business model and every way in which you interact with customers or constituents, and there’s no question that that work has just begun. And much of what has been done to accommodate constituencies in the context of the pandemic will end up proving to be extraordinarily useful on an ongoing basis. The reality, as you suggest in one of your questions, is we’re still left with an enormous amount of uncertainty about what a current reality is and what reality is going to be 90 days from now, let alone a year from now. And those are the times where the winners are always the entrepreneurs. They are the ones who are able to not only cope with uncertainty, but flourish in uncertainty and figure out ways in which they can actually take some small steps to get a sense of what might or might not work in the new reality called Post Covid-19.
Until we have a well-established vaccine that has the whole world saying, “OK, we’ve got this one licked”, I can’t imagine anything that approaches a state of normalcy. And given the failures of most governments and healthcare systems and quite honestly, most citizen populations around this particular pandemic, there’s an opportunity to reinvent so many aspects of our lives as a community as an outgrowth of this. The question is, “will we have the patience and temperament to do that?” The call I had before you indicated really a deep fear that we’re already seeing that many American populations are just flat out bored with current reality and have just decided they’ve had enough, and so they’re going to misbehave in all sorts of ways. We’re beginning to see the potential for consequences as you see Covid-19 rates begin to spike. I just have a feeling the next few months are going to be pretty ugly.
How do you think healthcare entrepreneurs in particular will play a role in reimagining society moving forward?
There are three or four ways in which it has already become obvious. One is the spike in telehealth. So at the time of Covid-19, there were very few significant players in telehealth. Kaiser had managed to have more than half of their GP appointments done on telehealth, but other than that, it was an idiosyncrasy. And we got forced into telehealth, and it’s proving to be far more robust and far more powerful than anybody imagined. There’s absolutely no question, as part of the process of reinvention, we will begin to think about where and how you need to have a physical interaction with a doctor, because there’s very few industries that are less customer slash patient centric than healthcare. Particularly as you move into parts of the United States where geographic access to healthcare requires a two hour drive, the notion of being able to handle most basic activities over the phone or over the Internet will change all of that. At this point, the folks who will have a profound influence on whether that happens are the insurance companies. Right now, most insurance companies are paying the same rate for live and for telehealth. And if they immediately go back to depreciating the value of an electronic interaction versus a live interaction, I think you’ll see some slowdown, but there’s no question new mechanisms for interaction with doctors and healthcare providers will change in all sorts of ways.
The second piece of that is something I was reading about the other day about how all these people aren’t going to doctors, and there doesn’t appear to be any epidemic of any other kind of healthcare issues over the last several months. So this issue of the habits that we’ve established for visits to doctors and the activities that we go to doctors for, I think lots of people are going to start to challenge that and that has the opportunity to have a profound influence on healthcare costs and old habits that, by and large, are supported by empirical data.
The third piece is to understand how much the economy of the healthcare systems are critically dependent on elective procedures and, quite honestly, how unprepared most healthcare systems were to deal with the underlying structure of the pandemic. I’m reading in the paper today that major healthcare systems here in Boston still don’t have access to PPE. You know, you sit there and say, “oh, jeez.” And so what we have demonstrated is, because it’s not “medical”, but it is “critical” for healthcare, there was a systematic inattention to the global logistics system in healthcare. I don’t know who was responsible for it or how it was thought about, but there was this gravitational pull for everything to go to lowest cost providers and everything to get off shore. We had very few domestic providers. We had no emergency supplies. Our stockpile had run low. And I’ve got to believe that hopefully this ends up being a scary reminder of just how fragile our global logistics system is, not just in healthcare, but in all sorts of industries. This will raise serious questions. All three of those things — new access to physicians, new access to global supply chains, and rethinking the interaction between patients and doctors and when they need to go and when they don’t. All three of those are going to be stimulated and grown by entrepreneurs.
How do you think about small businesses and family businesses in this time and what can we learn or what are we learning about how they’re operating in this time of extreme uncertainty?
I will separate them. I think of family businesses different than I think of small businesses. So, let me start with family enterprise. The one thing everybody tends to kind of romance the notion of family enterprise and think that somehow they’re small businesses. We need to understand on a global scale there’s substantially more wealth in family enterprise than there is in the aggregated wealth of all of the public corporations that exist. Families have longer history. Families have longer aggregations of wealth and quite honestly, there are families that have demonstrated extraordinary resilience. You know, multiple generations of family being able to move through in ways in which our theories about organizations would indicate that private organizations, by and large, have not been able to do. So, I think the challenges that are facing family enterprise in the aggregate aren’t really profoundly different than those that are facing any other organization. There are some special issues associated with family dynamics, alongside organizational dynamics, but the nature of the challenges are roughly the same.
Small business is a whole different ballgame. The most important thing to understand about small business is it depends what country I’m talking to you from. In the United States, if I look at the Small Business Administration, they define a small business as any business with under five hundred employees. And the reality is, when they talk about the significance of small business, they’re really talking about the very small part of the population that has 350 to 500 employees. They ignore microenterprises. They ignore neighborhood businesses. Those are the ones that are just getting killed. Absolutely getting killed. A lot of them, obviously, in food service and in restaurants. The latest data indicates that probably at least 25 percent of them won’t survive. Literally won’t survive, largely because they don’t have stores of cash. Large organizations today are sitting on absolute hoards cash, trying to figure out what they’re going to do when this is all over, what regime they’re going to buy up and what industries they’re going to go into. The smaller microbusinesses, they need the cash flow to operate the business and deliver. That doesn’t exist. The PPP wasn’t necessarily framed correctly, and the most naive part of the PPP here in the United States, and it really was naïve, was operating off the assumption that you could use the banks as the source of application. That was predicated on the assumption that these smaller businesses have banking relationships. And usually they’re making relationships where they have access to capital. So, it ignores, particularly for minorities, the average net worth of a black adult citizen of Boston is eight and a half dollars. If you have eight and a half dollars, you’re not worried about a banking relationship and you’re not calling up your neighborhood banker to get access to it. So, it took a while to understand that. Again, the interim solution for that was the rise of fintech. So, the fintech organizations, most specifically organizations like QuickBooks, stepped in and got authority to actually file the applications, in addition to banks, and stepped in and provided an absolutely critical resource for small businesses that banks, by and large, for the really small ones, don’t play.
That being said, the rules change all the time. It was designed for eight weeks. Now it is designed for 24 weeks. If you do it correctly, by and large, it’s a grant. I understand that. But, it was a grant that was actually intended to keep people on your payroll, and when it was designed, nobody forecasted the length of the Covid situation. So, it didn’t hurt, but it really hasn’t helped.
How do you think entrepreneurs are uniquely capable of operating in what is seemingly the most uncertain time of most of our lives?
Well, I mean, the notion at this point is even in the midst of uncertainty, one can see the opportunity structure and the opportunity structure is entirely driven by uncertainty. So people have hobbies. People have expertise. People have interests. And there’s no better time to imagine new scenarios and experiment. I mean it’s really just that simple. The most powerful way to reduce uncertainty is to take a step and see what happened. As opposed to the traditional business planning process of people sitting around and dreaming of something, the need is now. The problems are now. The steps that one can take to address the problems are now. It takes an entrepreneur with a temperament and a mindset to actually take that step and see what happens to actually create the new solutions in the post-Covid environment.
Do you think people will look at risk differently now or through a similar analysis?
Well, it’s a more robust analysis. We just got hit by something that wasn’t in anybody’s risk analysis framework. And so now you have to add global pandemics to your list of things to worry about. There are only nine more plagues to work with. The reality is the risk management frameworks are not poorly defined and, by and large, are generally pretty well taken care of. Where we’re going to find people right now in risk is people stimulating, particularly in healthcare entrepreneurial activities, to get things to market faster than they should. We’ve seen this before. We saw it with the swine flu vaccine as well. I do believe that the political pressures to announce a vaccine, given the realities of bringing a vaccine to a market that does the job with minimal risk, those tensions are going to be very powerful at the high end, and there’ll be variations on that tension all the way down to the small neighborhood businesses.
You wrote a blog post a few years back titled “Don’t Forget the Mayors”, which focused on the work of Mayors across the country. How should local governments be thinking about investing in entrepreneurial ecosystems?
Thank God for the mayors today. If you’re looking at the folks who are closest to the action, who have the most capacity to be able to shape and influence citizenship behavior, it’s at the local level, and we see countless number of examples of both good and bad mayors across the United States. And quite honestly, the consequences of bad leadership at that level, which really does involve lives, you know, that’s where those lives are being decided on. The question for a government at the core, which is the question that ethicists and all sorts of other people have raised around Covid-19 is how do you balance the desire to get the economy going with the desire to ensure that lives are saved? And we’ve allowed for that debate to go on and be framed as a political debate.
As our administration has oftentimes framed it as we don’t want the cost of compliance and the cost of responding to the coronavirus to exceed the value. And we’re very much in the middle of that right now. Our systematic inability as a nation and as a set of communities to actually have that question addressed without contention is very much at the source of the problems that I expressed that I was concerned about relative for the next several months.
What do you think the future of higher education will look like with the pandemic going on and as technology improves?
Most of higher education got pushed, and I mean pushed, into online learning. And so lots of educational institutions are busily celebrating their ten-day transition to online learning. Most of it, I would guess, is not very good. Now, as we think about what we’re going to do in the Fall, the question then becomes one of, well, how good can we get between April and August? So we’ve got six months. How good can we get? How can we actually figure out how to use all of the tools that we have to dramatically increase the quality of the online experience?
There are three things we know. The online experience can be improved exponentially, and there are countless number of people who are already doing it. They actually tend to have large numbers of students already. What you don’t want to do is ignore the fact that the online leaders, the Arizona States, the Purdues, the Southern New Hampshire University, the Penn States, are already capturing a huge percentage of the capacity in that space. They do it quite well, by and large, and they do it with huge amounts of economic advantages. If I was to wake up this morning and say, “I’m going to go into the online business” and I went and talked to my friend. He’d say, “you’re an idiot.” Unless you have an idiosyncratic niche that hasn’t been covered in any way, shape or form by online learning, you’re just going to get crushed by people who have capacity. That’s number one.
Most of these schools that are making these deep commitments to online, they’re doing it in some respects as a hobby and something to pass the time until they can go face to face. They’re not looking at it as a permanent restructuring of their model. The reality is it has raised fundamental challenges to the higher education economic model that have been raised for the last decade. And just like we had a 10 day transition to online learning, we’ve now had a 10 day transition to a serious examination about “why am I paying 50, 60, 70 thousand dollars a year?” Particularly when institutions delivered online, and in addition to delivering online, refused to cut tuition.
Colleges can’t cut their tuition given their economic model, which is still dependent on labor, and students are beginning to raise questions that are quite legitimate. And so if this goes on for another Fall, the pressure will be even greater. The folks who were writing the book about the college stress test, Zemsky, about six months ago said there are 10 percent of colleges in the United States of about 2,200 colleges, about 10 percent of them that are on the near death list. I think today they would say 25 percent. So you will have death, you’ll have consolidation. The longer this goes on, the less able these schools are to defend what it’s all about.
Now, there are a whole bunch of other schools that have actually come to the conclusion, and I think it’s a gutsy and appropriate choice, that what they need to do is they need to do everything they need to do to deliver what they do, as much of it as is physically possible, live. And they are now all dealing with government, public health and science to try and figure out what they need to do to get as many people on campus in live situations to create the kind of value equation that they are all about. I applaud those schools for being pretty clear about what their strategy is all about and for not wanting to play the nonresidential game. But, in some respects the deal buster at this point are the folks who have been innovating now for a long time like Southern New Hampshire University. What they’ve done now is they have a residential campus, which was the core of that school before they went online, and they accept residential students. And now what they’ve said to the students they’ve accepted for this Fall’s class is, “You can all move on campus. We’re delighted to have you on campus if you want to be there on a campus. We’re not going to run the residential freshman year next year. So, we’re going to give you your first year of college absolutely free as an apology for disappointing you. And the commitment is while we’re delivering that for you, absolutely free, we’re going to be entrepreneurs, reinventing residentially-based education and coming back a year from now at ten thousand dollars a year.”
So, the online people should worry about the big folks, and the residential people should worry about what comes out of Southern New Hampshire University in just a year from now. This is not something that we’re forecasting 10 years from now. They’ve made an ironclad commitment to be ten thousand dollars a year twelve months from now.
How much of a university’s financial sustainability has to do with their endowment and their research funding?
First of all, most schools don’t have large endowments. What you’re dealing with there is the media always writes about the Ivy League and the big state schools that have large endowments, and they ignore two things. One is they have large endowments, but for many of them, it’s 80 to 85 percent restricted. It’s been designated by the donor, and the school has little or no flexibility to figure out what they might be able to do with it and how to use it. So you don’t want to overemphasize. People tend to think about Harvard having 38 billion or 40 billion, whatever the number is now. They should be able to give it all away. Well, they can’t and nor can any school in that space. The reality is the vast majority of schools don’t have large endowments and are critically dependent on tuition, and it’s the dependency on tuition in this incredibly complex environment that is their threat. It’s not the absence of endowment.
Is there precedence for the government getting involved to rescue universities? Would it be reasonable to think about it?
Do I think someone in Congress will come up with a bill? The answer is yes. Do I think it can pass? Not in this environment. I mean not a chance. The colleges and universities came up with a need this spring, I think, of something like 40 to 60 billion dollars. They got 16 billion, and with strings attached, because half of the 16 had to go directly to students. So, they asked for 60 for their needs and they got eight. And that was the first emergency go round. It’s not going to get better.
What do you think about remote work and how it’s impacting employees and how employers think about their office space?
I think this issue of remote work came out of nowhere, literally came out of nowhere, out of necessity to keep people in our homes, and we’re learning a lot. I mean the reality is we only have four or five months of data at this point. We already have some large companies making significant commitments as a result of it. I live out here in the boonies, and people always say, “Well, how is it where you live out there?” I say, “It’s a great place to live as long as you don’t want to go anywhere.” Because getting into the city for me was two and a half to two and three quarter hours a day, back and forth. I have now picked that up. That’s my time. It’s time for sleeping. It’s time for exercising. It’s time for conversation. It’s time for work. So there’s no question people are discovering all sorts of opportunities there. I think there will be a pattern. We’ll be coming back to work. There’s no question about it for most of us, but in environments that are much less densely populated, fewer people required to come in. And this fantasy of remote work will increasingly become the work du jour. There are plenty of occupations and plenty of professions that don’t require people to be at work all the time.
Now, start thinking about the second and third order consequences of that. One is, what does it mean for urban environments? And, what we see here in Boston is rents going down in Boston proper and the suburbs having these incredible spikes of interest as people are looking to move out here. You see that in virtually every major city. Rents down in New York, rents down in San Francisco dramatically, rents down in Boston. Whether that’s temporary or permanent, I tend to think it is a longer alive phenomena than people might think.
The second issue, which is the most profound issue, is what do we do with all these big office buildings if we can’t figure out how to get people in elevators? When people say, “What’s it going to take to get people to go downtown?” Well, if you can only get two people in an elevator and your office is on the 52nd floor, it’s going to take 12 hours to get people in and 12 hours to get people out for two minutes of work. We built an infrastructure that, by its very nature, is potentially ill-suited for the new reality unless someone convinces us that we can put pandemics to bed forever, which is going to be a hell of a task.
Obviously, public transport, the reality is it’s perceived as one of the greatest assets to get people to work and to not put cars on the road, and now there are plenty of people who don’t want to use public transport. If I’m the government in a city, I, too, am dealing with exactly the questions that I started this conversation with you. What does it take to restore some sense of normalcy? What does it take to recover from the greatest disruption to my economic base that I’ve ever experienced in modern history over the most sustained period of time? How am I going to reimagine this city?
If you’re looking for the opportunities for entrepreneurship, the opportunities for local governments to completely rethink what they do and the ability to create ecosystems of all of the players in that local community, to systematically reinvent the logic of that city on a scale never thought about before is completely real.
I was supposed to do some executive teaching in April of this past year right before coronavirus, and there was a case that we had written on a business in the UK that decided to go to remote work. My colleagues thought it was kind of a crazy case. I found some old dissertations that were written on it and some early stage stuff that was written on it, but it was kind of a fluke. Now, just three months later, they’re at the epicenter of a long-term solution.
What do you think about Andrew Yang’s universal basic income proposals both in terms of policy and in terms of political feasibility?
I don’t have deep conviction about the proposals. What we found essentially, in the context of the last four months, was right now the government gave one check, and I guess this morning they’re talking about another check. There’s no question it’s better than nothing, but only marginally better. The other extreme is the Biden proposals, along with the progressives of two thousand dollars a month per person until the Covid situation is over, and the reality there is that’s a big number. And if we’re already complaining about predisposition to not go into work with the 600 dollar supplement on unemployment insurance, that just exacerbates the problem in even greater detail.
So, the idea of a universal basic income is not a bad idea, but it can’t be an idea that is devoid of context in terms of all the other things that happen or don’t happen, all the other supports that exist or don’t exist to allow our citizenry to thrive and flourish. It’s a great slogan. Over the last few years, we’ve learned the slogan of “universal basic income”. We learned “no student debt”, “free college”. I mean I can go through that whole list. Every one of them in and of themselves has the capacity to break the bank, and the fact that they’re not embedded in a broader context of how we’re going to do work, and an economic model quite honestly that allows this to work, is the bigger problem.
What do you think about this field of futurism and the notion of forecasting, and does it have a role to play in these conversations at the Federal level about how we fund things in the long term?
Let’s get very clear about this. This is the joy of entrepreneurship. Entrepreneurship, by and large, is naturally suspicious of forecasts. If you looked at the first seventy-five days of the Coronavirus and you looked at television, it was a never ending stream of competitive forecasts all of which would reach different conclusions in terms of what was going on and what the most appropriate next step is. I’m not suggesting that we are not interested in data, and I’m not suggesting that we’re not interested in improving the quality of our data, but as any social scientist will say, more importantly any economic investor will say, don’t actually take economic steps based on a forecast, that in fact, the forecasts are as good as the algorithms that go in. The algorithms are created by human beings, and they contain all of the biases of the human condition.
Is the world going to come to an end in 2020 or 2030? I don’t know, but the reality is I don’t spend much time convinced that one forecast is going to be compelling over another, and in some respects, it’s why these dueling forecasts allow us to have political debates about everything. Is there incontrovertible evidence that we have deleterious impacts of climate change? Yes. Is the world going to end in 2030? I don’t know. Is the current reality of climate change an opportunity for a substantial number of entrepreneurs to think about activities they might engage in where you can actually make money and also make a better world? Yep. No question about it.
When we look at the organizations that have done well coming out of the pandemic, there is one thing I’m absolutely certain of without making a forecast. I just believe it in my bones. And that is the organizations that have taken care of their people are the ones that are going to win.
And our ability to avoid this ideological debate about our staff, it just drives me crazy. I gave a talk last month, and I was talking about the people who we’re calling our frontline workers, not healthcare workers, but frontline workers, they’re all being relabeled as heroes. And I just sit there and say, “You know what? Could we stop calling them heroes and could we pay them a decent wage?” It’s just that simple. I don’t want to give them a greeting card. I don’t want to applaud as they walk down the street.
I want to make sure that we are recognizing the risks that they are taking on our behalf, one, and two, that we are recognizing that for a variety of circumstances, they don’t have a lot of other options and that we want to make sure that the most profound way we can communicate appreciation of their work and their effort is to provide them with all of the support they need to minimize the risk of exposure and to pay them for the risk they’re taking. A few organizations did it for a few weeks, and now they got bored.