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Does Harvard equate to success? These examples of business debacles, fraud, and white-collar crime by ex-Harvard entrepreneurs may prove that college isn’t everything.
When thinking about Ivy League schools in the U.S., Harvard University almost instantaneously pops into one’s mind. This is because the university, with nearly 400 years of history, has a long list of successful graduates.
Harvard is the alma mater of some of the most famous people in history, including Henry Kissinger, Barack Obama, and George W. Washington. Besides, the university boasts of having given the world a long list of Nobel Laureates.
However, the list of Harvard dropouts who turned out to be ultra successful is equally interesting. Among others, these include Bill Gates, the Founder of Microsoft and the world’s second richest person, and Facebook Founder Mark Zuckerberg, the seventh richest person in the world as of 2020.
These dropouts raise the question of whether a degree from Harvard is really necessary to become a successful entrepreneur. Furthermore, the question becomes more pronounced when you consider the notable example of Jack Ma. He was rejected by Harvard 10 times and went on to establish Alibaba Group, one of the world’s largest ecommerce businesses, and is now the second wealthiest person in China.
Moreover, let’s not forget that a handful of Harvard graduates have also gone on to become criminals, the most notable being the terrorist and anarchist Ted Kaczynski, who most people know as the Unabomber.
Apart from the entrepreneurs in our list, other white-collar criminals coming out of Harvard include former Goldman Sachs employee Eugene Plotkin, who was sentenced to four years for insider trading, and Richard Whitney, the once President of the New York Stock Exchange who was later convicted for embezzlement.
Let’s evaluate the most remarkable business failures of all times by entrepreneurs who graduated out of Harvard.
Jeffery Skilling and the Enron Scandal
Skilling tops the list of Harvard graduates who failed dramatically and left the world reeling in the aftermath. The story of Enron is that of a meteoric rise and a precipitous fall that resulted in the largest corporate bankruptcy in U.S. history at the time.
Texas-based Enron Corporation was formed in 1985 after the merger of two regional energy companies, and initially operated as a energy trader and supplier. Before long, the company embarked on a rapid expansion journey, and began dealing in commodities and services, including natural gas, electricity, paper, freight, communications technology and others.
In 1990, Enron’s Chairman and CEO Kenneth Lay formed the Enron Finance Corporation and appointed Skilling as the Head. Before Enron, Skilling had managed to become the youngest partner at McKinsey & Co. Enron was hailed as ‘America’s Most Innovative Company’ by Fortune Magazine for six consecutive years 1996 onward.
Skilling migrated Enron’s then cost accounting method to the mark-to-market (MTM) method. Using the MTM accounting method, companies can value their assets based on the current “fair value,” which is susceptible to market changes. Although MTM is a legitimate accounting method used by several companies, since the valuation is based on subjective fair value instead of cost, it is easier to manipulate.
It was the migration to MTM accounting that rang the death knell of Enron. Using this method, Skilling hid the losses of the entire corporation, and inflated the company’s estimated profits.
For instance, when the company built any asset, Skilling immediately claimed the projected profits in the books, before the asset even generated any revenue. If the asset’s revenue did not meet the projections, Skilling transferred the losses to special purpose vehicles (SPVs) or shell companies instead of accepting them in the books.
In essence, these shell companies allowed Enron to appear far more profitable than it really was. Moreover, these shell companies, although not illegal, were used to borrow money on behalf of Enron, so that the company’s debts could be kept hidden.
The problem was, the SPVs were 100% capitalized with Enron stock, limiting their ability to hedge in case Enron stocks depreciated, and Enron failed to disclose how closely it operated with the SPVs.
In 2001, Skilling took over as CEO of Enron only to resign in August. As the company continued to report massive losses, its stock prices, which had reached a peak of $90.56 in 2000 amidst the full-fledged dot com bubble, continued to decline.
In October 2001, the Securities and Exchange Commission (SEC) launched a probe into the company, and the following month Enron admitted to inflating its income by $586 million since 1997. The company was ultimately filed for bankruptcy in December 2001.
While the criminal investigation into the company’s fraud led to the conviction of several employees, Skilling received the harshest sentence of 17 years and 6 months. However, as part of a new deal, Skilling was required to pay $42 million to the victims of Enron’s fraud and his sentence was reduced to 14 years, leading to his release in February 2019.
Warwick Fairfax: The Harvard MBA holder who lost his family’s 150-year-old media empire
While Fairfax was finishing his MBA from Harvard Business School, armed with fresh enthusiasm and youthful naivety, Fairfax hatched an ambitious plan to takeover John Fairfax Limited after his father’s sudden demise. At the time, the family held a 50% stake in the company, which was established by Fairfax’s great great grandfather, while the rest was publicly held.
Fairfax believed that the company was being mismanaged, and fearing a hostile takeover, proceeded to raise $1.5 billion to take control of his family’s media empire. It was one of the largest takeovers in Australian history.
Although Fairfax managed to increase operating profits by almost 80% by appointing a new CEO, the company’s unmanageably large debt ate into all the profits. Moreover, as Australia battled a recession in 1990, newspaper revenues – which accounted for a major chunk of revenue – declined, leaving the company with no margin.
Ultimately, the company was declared bankrupt in late 1990, spelling the end for a 150-year-old media giant. While his initial hypothesis that the company was not being run optimally was proved correct, since he did manage to increase the profits after the takeover, his naiveté and lack of vision and business acumen led to the loss of his family’s prized history.
Alex Nelson and Christina Wallace: From media spotlight to closed shop in 10 months
Harvard classmates Nelson and Wallace founded ecommerce startup Quincy Apparel in 2012. The company aimed to provide affordable clothing for young women that fit as perfectly in the chest area as high-end custom clothing.
The startup had raised seed funding and launched a spring and fall collection, but was already suffering from a cash crunch by late 2012. While the startup had garnered widespread media attention and had strong sales, its sizing scheme, which involved more measurement dimensions than normal women’s clothing, led to high inventory and complex operations.
According to a report by Business Insider, owing to the operational complexity the startup also had a high rate of returns, as it failed to deliver on its promise of better-fitting clothes.
The co-founders had tried to raise a bridge funding round to save the company but failed. The former classmates had a falling out and Wallace was fired by the company’s board in December.
A few weeks later, the company put up all its remaining merchandise for sale at a discount of 80% and closed up shop on January 30, 2013.
Kristen Fang: The Harvard grad who created an innovative product that was not viable
In 2019, Harvard alumni Fang co-founded StrattyX, an innovative no-code tool that allowed both professional and amateur traders to automate trading strategies for the cryptocurrency and stock markets. Fang’s vision was to make StrattyX a go-to source for market sentiment data required to make successful trades.
At the peak of the startup’s popularity, StrattyX reached the TechCrunch Disrupt platform, and the co-founders attended the Grace Hopper Conference.
According to Fang’s blog recounting her lessons from the failure, there were multiple reasons that led to the startup’s demise. Firstly, the Y Combinator-backed startup’s founding team embodied diversity, and Fang was driven by her desire to democratize the investment playing field instead of concentrating on customer pain points—a fact that significantly contributed to the startup’s failure.
Secondly, since the market is flushed with apps and web-based trading platforms, the startup’s product was not considered a necessity. Moreover, Fang realized only too late that it was only the startup’s concept that had garnered a huge fan following – the actual product was unsuccessful because people were unwilling to pay for it.
After only a short run, the startup was dissolved and the company returned the remaining capital to its investors.
While these stories are not by far the only examples of spectacular business failures by Harvard graduates, they show that a degree from Harvard does not make you immune to failure. Besides, rejection and failure are part of an entrepreneur’s journey that can ultimately impart invaluable lessons that leads to future success.
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