Professor Yale tells her daughter about finance

  The “24 Fortune Class” is a dialogue between Chen Zhiwu, a tenured professor of finance at the Yale School of Management, and his daughter’s business model. This is a “economics in life”. It adopts a form of dialogue between father and daughter, which is easy to understand, professional and readable, and provides us with reference and enlightenment.

  Gates’ business model

  Not long ago, at 7:30 in the morning, like usual, I drove my 14-year-old daughter, Chen Di, to school. She asked: “Why is Gates so rich? How can he have nearly $60 billion in wealth?” This question began the conversation about business models in many of our days.
  I said: “Gates is a genius. When he was 21 years old in 1977, he founded Microsoft. In March 1986, Microsoft stock went public. When he was 30, he became a billionaire!”

  Chen Di: “But Why does he earn so much money alone?”

  ”In fact, Gates can have hundreds of millions of wealth, not that he has achieved so much profit, but after the listing of his company, the stock market for Microsoft’s future The income is very optimistic, willing to give Microsoft stocks a very high price. That is to say, Gates today’s wealth is more to reflect how much Microsoft can earn in the future, is the stock market to help Gates cash in the future income, his wealth today It’s not based on the accumulated income in the past, but the accumulation of future income.”

  Chen Di: “So, why is Microsoft so valuable? Is it different from other companies?”

  “There are of course many reasons. The first reason It may be a feature of the software business model, because once Microsoft spends the cost of developing a software, such as Windows that you like to use, then every time you sell a Windows system software, revenue $260, but its cost is close to zero, that is, the $260 is a net profit, net profit. Today there are more than 600 million computer users worldwide, even if only 100 million people buy in the middle, this is 26 billion US dollars in revenue! You said that such a large market, while the marginal cost of selling a piece of software is almost zero, how can this business model not make money!”

  Chen Di: “Dad, what do you mean by the marginal cost?”

  ”That means that once you have invested in development costs, advertising costs, in order to sell more products, how much do you have to pay. For example, I am driving Lexus cars, each selling for $40,000. You may think that Toyota will make a lot of money to make this kind of car. However, you have to know that the cost of manufacturing each car will be very high, and the cost per car is basically the same. That is, in order to produce a car, Toyota Engines, bodies, tires, steering wheels, etc. must be purchased. These parts are not too small, the total cost is not low, and they have to pay a lot of workers’ wages, pensions and other benefits. Therefore, the marginal cost of each Lexus is very high. Toyota Motor Corporation’s profit margins can never be compared with Microsoft. That’s why everyone likes Microsoft’s stocks and likes the company that Gates founded, and not too passionate about auto company stocks.”

  Chen Di: “So what about restaurants? I originally thought that opening a restaurant seems to be very profitable. According to you, restaurants don’t have to pay for food to buy meat, but also pay for it. Its marginal cost is not Is it high?”

  ”Yeah, this is why people have opened restaurants for thousands of years, no one has opened a billionaire. In fact, the profit margin of agriculture is even smaller. For example, in my hometown of Hunan, you If your grandmother’s hometown earns 10 yuan per mu, then it will be 100 mu of land in order to earn 1,000 yuan, because the resource input and labor input required per mu is the same, and the planting cost per mu is the same. The marginal cost of rice is constant and cannot produce scale effect. However, if a person only has 24 hours a day, who can plant 100 acres of land? In mathematical language, the output of agriculture is linear with the input, in order to increase Earning a few bucks will kill you, and Microsoft’s sales output has little to do with its investment.

  ”So, agriculture, don’t say that it is much worse than Microsoft’s business model, which is much worse than the car company. The reason is that through mechanized production, Toyota can use scale production to reduce the manufacturing cost per vehicle. Therefore, agriculture is far less than industry, and industry is not as good as industry like Microsoft. That’s why Western countries have led China in the past 250 years through the industrial revolution, and today the United States leads the rest of the world through industries like Microsoft, including the UK, the birthplace of the industrial revolution.

  Why Starbucks will succeed

  After school came home from school in the afternoon, Chen Di asked: “Dad, if the marginal cost of Microsoft products is almost zero, and the operating costs and material costs of restaurants, manufacturing companies, etc. are high, why do people still open restaurants and build manufacturing companies? These companies still exist, and some people continue to open new ones. Doesn’t this mean that they can make money?”

  I said: “It’s true, every industry can have opportunities to make money. The key is to see if there is any way to reduce it. Cost, or subtly innovate business models. For example, Howard Schultz, the founder of Starbucks Coffee Shop, became a billionaire by opening a cafe, or more specifically, his wealth was $1.3 billion! He was in 1985 The predecessor of Starbucks was established. Today, Starbucks has a market capitalization of $25.4 billion. It has been created in just over 20 years, and it was created in the old industry with more than 300 years. Isn’t it surprising? ”
  Chen Di:” I do not understand, I thought it must be like Microsoft, Google can create the high-tech industry as hundreds of millions of wealth, so that neither the new technology like Starbucks, It’s an old industry, how can there be opportunities?”

  “First of all, scale, Starbucks has almost 13,000 stores today, all over the world. This is a similar place for Starbucks and Microsoft and Google. There are no large consumer groups. Cafes make this scale, which is unprecedented!”

  Chen Di: “Why is Starbucks brand so good, people around the world are willing to go, and willing to pay such high prices for Starbucks coffee? Are they relying on flowers? A lot of money to advertise?”

  “This is very good. Indeed, almost all company brands spend a lot of money on advertising to build trust and image in the consumer community, like clothes and food brands. Starbucks I didn’t spend a penny to advertise, but its brand is the loudest in the global coffee industry. This is the biggest secret of Starbucks success.”

  Chen Di: “Why does Starbucks build a top brand without spending money on advertising?”

  “The most important factor is globalization and global population mobility, bringing unprecedented opportunities to branded chains like Starbucks. Like Dad often runs around the world, whether in London, Milan, Singapore, or Brazil, Beijing, I I don’t have time, maybe I’m not interested in getting to know the local cafes, and I can’t even ask which cafe’s coffee is better and more suitable for my taste. So if you see Starbucks there, it’s natural, I I will definitely go there because I am familiar with their coffee list, their coffee taste, and know what they want when they go in, just like Starbucks in New Haven. In other words, once New Haven’s Starbucks turns me into something Customers, I have become a Starbucks customer all over the world. Starbucks in London, Milan, Singapore, and Hong Kong don’t have to advertise to me. I am already their customer.

  But one key point is that people are everywhere, between countries. The flow must be large and frequent, that is, the transportation network such as air transportation and expressway must be developed, and cross-country travel is very convenient. Otherwise, this Cross-regional and cross-border brand synergies are very poor, which is why before globalization was relaunched in the 1980s, even if someone imagined Mr. Schultz to create a global chain of cafes, it would be difficult to succeed. The transnational population movement has created Starbucks, saving Starbucks a lot of advertising expenses, making it a low marginal cost per cup of coffee.

  Chen Di: “It turns out that it is no wonder that chain hotels like Hilton, Grand Hyatt and Sheraton are also They are all over the world. They also benefit from globalization. Their future income will rise further, because people who travel around are naturally more interested in hotels that are already familiar. ”

    Wal-Mart’s successful model

  Wal-Mart is another interesting story of wealth. In the past 20 years, Wal-Mart’s founder, the Samuel Walton family, has ranked first in wealth, far exceeding Gates and other families. For example, in the 2006 Forbes Fortune list, the Walton family had six, seven, eight, ten, and eleven individual members, each with more than $15 billion in wealth and five in total of $78.6 billion. The single-ranked Gates has $53 billion. This kind of story, such a big wealth figure, is not a myth and what?

  Just talking about these with Chen Di, her question came: “Why is the Walton family of Wal-Mart fortune to have so many open only cheap supermarket chain, in this traditional industry, how it may be more profitable than Microsoft??”

  I Said, “On the surface, Wal-Mart supermarkets seem to be no different from other chain stores. However, in the first few years after your birth, your mother often wants to buy diapers, toys, clothes, and other daily necessities for you and your sister. You may I don’t know where these are bought? Remember that after you were born in 1994, every year we went to China to bring a large box of diapers for you to use in China. Do you know where those are bought?”

  “At Wal-Mart ?”

  ”Yes, you were too young at the time, still don’t know. Our family is a frequent visitor to Wal-Mart. Now, you often go there with your mother. What do you say about Wal-Mart?”

  ”There are always many things, very cheap.” So everyone likes to go to Wal-Mart, especially to buy food and shelter.”

  ”Wal-Mart’s slogan is ‘everyday parity’, crowding out other stores with high quality and low price. If Wal-Mart’s price is lower than others, then Wal-Mart What do you rely on to make money? We have said before that the marginal cost of selling a piece of software for Microsoft is almost zero, but retailers are not so lucky, the cost of each item sold cannot be close to zero, for example, they must spend Money is purchased, employees are hired, the cost of shipping is paid, as well as the rent of the mall, etc. Therefore, the commercial nature of Wal-Mart cannot be the same as that of Microsoft, and the pattern of making money is naturally different. Therefore, in order to achieve ‘everyday parity’ At the same time, it can make a profit. Wal-Mart must work hard on the cost and try to maximize the cost so that consumers can benefit. However, the question is how to reduce it. ?

  ”Wal-Mart is the biggest characteristic of large bulk purchases of goods, but also purchase directly from the manufacturer, avoiding wholesalers. Due to the huge amount of purchases, it can minimize the manufacturer’s shipping price. Wal-Mart is the world’s largest company, the largest retailer, with more than 5,000 giant supermarkets around the world. More than 100 million customers visit its stores every week. In 2006, sales were US$338.8 billion, equivalent to the entire Chinese agriculture, forestry, animal husbandry and fishery. For one year’s income, Wal-Mart employs 1.5 million employees. The goods of these thousands of supermarkets are uniformly purchased by the head office, such as shoes and clothes. As long as Wal-Mart decides which shoe factory to purchase, it is the order of many hundred million pairs of shoes a year, and the shoe company does not have to find another. The customer, only for Wal-Mart production is enough for its growth. Because of this, Wal-Mart has sufficient bargaining power. Buying directly from the manufacturer at the cheapest price not only gives Wal-Mart a lot of profit, but also gives it the ability to compete with others at a low price. Therefore, direct purchases from manufacturers and avoiding wholesalers are the main strategies for Wal-Mart to reduce costs and increase profits. ”

  Chen Di, “However, if this is the case, can Wal-Mart’s competitors not be able to pass the price reduction? Can others not imitate it? I can do it when I grow up. In fact, not long ago, another chain company Kmart went bankrupt. Well, it also has a lot of branches, why is Kmart not letting it win?”

  ”This is a very interesting question, it is indeed incredible. But if we look at the background of Wal-Mart, it might be better understood. The founder of Wal-Mart. Mr. Walton was born in the countryside of Oklahoma in 1918. He raised cattle and raised horses, milked milk, raised rabbits, and raised pigeons. In middle school and college, he worked in restaurants and shops and earned money to go to school. After graduating from college, he worked in a chain store for two years, and served as a soldier from 1941 to 1945. From 1945 to 1962, in the rural area of ​​Arkansas, he opened many chain stores by joining the ‘Ben Franklin’ brand. At that time, there were two problems that made him extremely painful. First, he had to pay a high wholesale price to purchase. His scale was too small, and there was no way to endure the wholesale. , Not ex-factory price; the second is like this remote place in rural Arkansas, a small population, small market, no shipping wholesalers are willing to go there, Walton thought he must arrange shipping, so higher costs “Take Today’s rural China is an example. The rural population is sparse and the income is low. Not only are banks and insurance companies unwilling to go, but even the average cheap supermarkets feel that there is no oil and water and they are not willing to go. As a result, rural areas with low incomes do not get cheap goods. At that time, the same was true in rural America. It is generally believed that it would not be profitable to open a cheap shopping mall in a township with a population of less than 50,000. Therefore, the supermarket chains at that time were concentrated in the city, where they competed with each other to bargain and avoid the village. . It is precisely because of this that Mr. Walton thinks that the country has an opportunity, because there is less competition, as long as the price is low enough to win the market.

  ”In 1962, in a small town in Arkansas, Walton opened the first ‘Walmart Supermarket’, with “everyday parity” as the basic foothold. Immediately, it began to expand in other towns. He only chose those no one. Going to towns and villages with a population between 5,000 and 25,000. Those small places not only have no competition, but every time they open a ‘Walmart Supermarket’, the locals will soon become household names and do not need to spend money to advertise, they will come automatically. Of course, cost savings is another secret of Wal-Mart’s success. By 1969, Wal-Mart had opened 18 large-scale branches, all in towns with a population of less than 25,000. By the 1990s, Wal-Mart had one-third. The supermarkets are in this uncompetitive town, where it has a strong pricing power. With this advantage backed by, Wal-Mart is more competitive with its competitors.

  ”Since no wholesaler is willing to ship In the Arkansas countryside, Walton had to build its own logistics inventory center in 1964. Although this is forced, the unexpected result is that Wal-Mart can avoid the middle wholesalers and negotiate directly with the manufacturers. In other words, Wal-Mart purchases from the manufacturer to its own logistics center, and then to the branches. With the rise of Wal-Mart’s scale, its bargaining power has also risen, making Wal-Mart’s price level lower and lower, and its competitive advantage is getting stronger. ”

  Chen Di,” In these large-scale expansions, where does Wal-Mart’s money come from? If there is no money, how can it open a new store everywhere? ”

  This has to rely on the capital market to help.” In other words, seeing Wal-Mart’s growth prospects and competitive advantages, Wal-Mart’s shares naturally have many people wanting, and willing to pay a high price. In order to get more money to expand, Wal-Mart was listed on the New York Stock Exchange in 1972, issuing new shares to public investors. Since then, the stock market has become a source of funding for Wal-Mart’s growth. ”

  Chen Di,” you said, the Walton family became the richest in the United States because of the creation of Wal-Mart. Today there are $78.4 billion. Are they supposed to earn so much wealth? Is it too much? Where are their contributions to society? ”

  ”The benefits that Walton brings to the people are far-reaching and real, because he has helped hundreds of millions of families save money. For example, our family enjoys many benefits. When you and your sister are young, mothers like it. Going to Walton to buy diapers and daily necessities, because they are always the cheapest, help us save money. What is the meaning of saving money? The significance is great, on the one hand, you have more toys, you can buy more books. Look, you can also go to a better school, or go on a trip, or invest, or buy a bigger house. Since Walton has saved thousands of families so much money, they make some money why No, their wealth is the reward that society gives them.

  ”Speaking of this, it reminds me of some of the previous arguments in China, saying that Wal-Mart has opened nearly 70 stores in China, intending to use special low prices. China to sell goods, the aim is to Chinese retailers squeezed out, so that Chinese retailers can not go on, say it is a threat to the Chinese economy …… ”  after Chen Di,” Yes, the Chinese retail shops are squeezed China how to do in this industry? ”

  It depends on where you are standing. Are you standing at the retailer selling goods at a high price, or standing on the side of thousands of consumers who want to pay such high prices?” If ordinary people can buy high-quality things from Wal-Mart at a lower price, is it better for Chinese society and the Chinese economy? Why do you want to force the people to pay inefficient for Chinese retailers? China does not have too many Wal-Mart and Carrefour, but it is still too little. It needs more competition to push down the retail price and let the people get more benefits. After all, the market is not a charity, and should not be able to raise inefficient retailers. ”

  Chen Di,” But this competition is not put many retailers, especially the small-scale shop packed bankrupt parent wife do? What should I do if these people are unemployed? At school, our teacher said that Wal-Mart has squeezed many grocery stores over the past 30 years, and the prices of those grocery stores cannot be compared with Wal-Mart. Especially in the small towns of the South and Midwest, there were many couples grocery stores, and later they were squashed by Wal-Mart. Many people were either unemployed or went to work at Wal-Mart or pursue another career. ”

  ”So, Wal-Mart brings almost a retail revolution, which has great benefits for the masses of consumers, but it also forces many people to find another career and find other advantages and specialties in other industries. This is the Austrian economist Xiong Pete. Speaking of ‘creative destruction’. That is to say, Walton squeezed thousands of small-scale grocery stores, which is of course a kind of destruction, destroying the original high price and low efficiency. The order of the retail industry. According to the general understanding, ‘destruction’ is a derogatory term, but the destruction of Wal-Mart is a kind of ‘creative destruction’, which is derogatory because the replacement of thousands of grocery stores by Wal-Mart improves social efficiency. The cost of living for hundreds of millions of families has been reduced. This is not a creative contribution to society. What is it?”

  Chen Di was only half a year old when he first went to China in the summer of 1995. Since then, at least two months in China every year, she likes to go shopping, and therefore has a lot of impressions on Chinese retail stores. The discussion on September 15, 2006, let her see the business opportunities of China’s retail industry integration. According to her, “China has too many small shops, which can be the object of integration.” I started thinking about her entrepreneurial philosophy. I can guess what the next topic should be.


  The secret of Dell’s success

  After 1962, Wal-Mart fundamentally changed the American retail industry and changed the daily life of Americans. However, like all industries in the United States, there is constant innovation in competition. In 1984, another new business model emerged. This time the innovator was Michael Dell, who was only 19 years old. He was so successful. He ranked in the top ten in the Forbes Fortune list for many years, and the wealth of 2006. Ranked ninth with $15.5 billion.

  Chen Di: “At school, the teacher talked about Dell’s story. One thing I don’t understand. In 1985, when he was in his sophomore year, Dell didn’t go to school. It seems that Gates and his partner – Paul Ai Lun did not finish college, he dropped out of school, and Hong Kong’s richest man, Li Ka-shing, did not study for a few days. Mom did not say that reading is very important, otherwise there would be no interest? But why are they so successful, they are billionaires? ? ”

  ” on the surface, seems to be the case. However, for most people, not necessarily from an early age to know what is most interested in, they have to be determined what life do not necessarily know what they are most suitable for work. so Most people need to receive a series of standardized education in primary schools, middle schools, and universities. Through these educations, they learn to be human beings and know the past, present, and tomorrow of society. On the other hand, they also give everyone time and opportunity to understand themselves. What do you want to do, what you are interested in, and learn some skills to make a living, etc. Of course, not every college graduate is necessarily better than someone who has never been to college. Success, the same, not every man never went to college will not necessarily succeed. College, receive a good education, but increase the success of yourself, let yourself have a good chance of living, does not guarantee anything.

  ”Like Dell, Gates, Allen, they have been fascinated by computers since childhood. When they were in high school, they learned all aspects of computer technology. They went to the local university to listen to computer classes, go to the computer room for internships, and already put the university before entering the university. The relevant content is thoroughly learned. Self-study can sometimes achieve the effect of ‘a day to win a ten-year book.’ Therefore, the classroom is only a way of learning, self-study reading, or learning in other ways is also feasible. However, for the majority The organized system learning of the university may be the most effective way. Just like the manufacturing factory, the university can achieve scale effect, system output, and mass production.”

  For Chinese parents, we are used to thinking that “ Only reading is high, so for future generations, regardless of the three seven twenty-one, it is always necessary to take their degrees one by one, preferably to get a doctorate or higher. Why do you only care about pursuing a degree, not to care what your child likes to do and what to do?

  A possible explanation is the imperial examination system in Chinese history, “learning is better than the official”, only to read a good book can be an official. Up to now, it is also necessary to prove the ability of each person through the hard index of the degree. It is impossible to judge objectively when leaving the degree. Therefore, everyone has to blindly pursue a degree, regardless of whether these degrees are useful or not suitable for their own children – one-sided pursuit of a degree is of course too mechanical, but in the face of reality has to do it.

  However, in a society like the United States, companies and property are private. As long as you can start a business, run your own company, and create value, you don’t need to prove your ability to anyone through a degree certificate. You are your own. boss. Whether you have been to a regular university, it doesn’t matter, what matters is your true ability. Therefore, in the United States, there are personal stories such as Dell, Gates, and Allen who have not finished college but are extremely good. Parents do not have to force their children to pursue their degrees endlessly and waste a lot of youth.