Have Money, Will Buy Bitcoins! (Updated Again!)

My frustrating journey to buy bitcoins online! 

OK so by now you’ve probably heard of Bitcoins, the great electronic virtual currency (actually, it’s what’s referred to as a crypto-currency) that has promise to become the "future of money".  The entire banking system is afraid of bitcoin because it has the possibility to replace government issued currency; Law enforcement is afraid of bitcoin because it lets people conduct anonymous transactions thus raising the spectre of money laundering; paypal and credit card companies are afraid of it because it allows you to transfer value without paying any commission, and on and on.

I won’t get too much into what bitcoin is (you can go to bitcoin.org or just search for bitcoin and you’ll find tons and tons of sites online explaining what it is), but let’s just say I’ve been intrigued by virtual currencies since 2007, when Linden Dollars (as part of Second Life) and QQ (from tencent) were the “next big thing”.

After hearing about bitcoin for months and months, and hearing that many Silicon VC’s are starting to fund  bitcoin related companies (not to mention that the Winkelvi, of Facebook fame, were big owners of a large amount of the available bitcoins), I finally decided it was time to get me some.

This was almost 10 days ago.   I decided I would buy some bitcoins online – after all this is an electronic currency, i'm a computer kind of guy, so why should I have to use snail mail or sneakernet to conduct an electronic transaction?  That would make no sense to me whatsoever.

Well, let me just say that in the last ten days, i have gotten lots of bitcoin wallets, but haven't been able to buy a single bitcoin online yet.  Yes, that’s right, I have zero bitcoins.  

And not for lack of trying and not for lack of purchasing power – I am ready to spend money to buy bitcoins.  My only criteria are:

-I won’t wire money to a foreign offshore bank account or anyplace that either looks shady

-I want to do the entire transaction online, so i'm not going to go to a bank to do a physical wire (and in fact, many banks now let you initiate wire transfers online, at least domestically)

-I don’t want to be identified up the wazoo – I’d like a semi-anonymous transaction - i'll give you my email but i'm not going to send you photos of my drivers license, etc.

Seems simple?  It wasn’t.  After scouring the internet for articles on how to buy bitcoins, I started on an my own bitcoin odyssey – wandering in the ocean of bitcoin paraphanalia and coming up mostly empty.

One of the oldest and most popular bitcoin exchanges is Mt. Gox.  And right on the home page it says I can “buy bitcoins”.  Great – that’s exactly what I’m looking for!

I was able to open an account with my email address but then I had to “verify” my account. To do this they wanted me to photocopy my drivers license for proof of residency and it felt like I was applying for a mortgage!   WTF?  This is supposed to be anonymous currency.  Then, they wanted me to wire money to some international bank account before they could fully “verify” me.

OK so I'm not going to start wiring money to some international desitination.   So, I decided to go to another popular bitcoin site.  Instantbits.  It was down.  Rumor has it that the US government has been regulating bitcoin exchanges and shutting them down.  Geez.

What about paypal? I did some research and found that paypal will shut you down if you buy or sell bitcoins. I’d rather not have my paypal account shut down, so that’s out.

So I looked around, and stumbled onto Blockchain, which promised that I could buy and sell bitoincs easily.  Once again, I was able to get an account and another bitcoin wallet ( a place to store bitcoins). The problem is, my wallet(s) are all still empty. How do I get any bitcoins into them?   Well it turns out according to blockchain the only way to get money into my wallet on their site was to go to another bitcoin site – BitStamp and deposit money there.

So I sign up for yet another account on yet another bitcoin site (BitStamp, and yes now I have another empty bitcoin wallet) and they tell me that I not only have to transfer money to the UK but I have to send it to a Slovenian bank!  WTF!  I live in the United States, the biggest economy in the world, and probably where most of the bitcions reside, and I’m not going to start transferring money to a random Slovenian bank! (Nothing against Slovenia, by the way, I actually am an investor in a company that has an office in Slovenia and the employees there are great!).

So finally, I stumble onto Coinbase.  Coinbase is one of the more “respectable” bitcoin sites and was actually funded by Union Square Ventures, a very well known VC firm recently. I had actually vaguely heard of them - they were located in New York City (I assume this means that Elliot Spritzer or Rudy Guilani or "whoever the latest opportunist lawyer/politician looking to make a name for himself in the New York Attorney’s general’s office is" will keep an eye on them).  Since they are backed by “reputable” people, I decide to sign up for YABA (“yet another bitcoin account”). 

Hell, I think, maybe they’ll even let me buy bitcoin with a credit card.  No such luck - that would be too easy!   The site tells me that I can’t buy bitcoin with a credit card, only by “verifying” my bank account.

Here we go again. But this time, it tells me that I can verify my account by them sending small amounts of money into my bank account!  OK this is starting to sound a little bit like the famous Nigerian oil money scam (we’ll transfer money to you – just give us your bank account information and social security number!).  Again, largely comforted by the knowledge that Coinbase is VC-backed, I decide to go ahead and enter my US bank information, thinking that they can “instantly verify my account” and get me buying bitcoins.

Now I’m told that it will take 3 business days to verify my information!  WTF!  So I’m still without any bitcoin and headed into the labor day weekend and i'm going on vacation for a few days.

I keep searching.  Maybe I could buy bitcoin with in-app transactions through google or apple?  I know they take a 30% commission, but the transactions are completely electronic and I think, OK someone must have done this. At this point, I don’t even mind paying the 30% commission to google or apple - i just want to get my hands on at least one bitcoin!

Nope.  Couldn’t find it.  In fact, there’s pretty reliable information out there that Apple will reject any apps that let you buy or sell bitcoins via in-app purchases (not a surprise, having been in the Apple ecosystem since 2009, the one thing I know is that Apple will reject anything at any time because they “feel like it”, but that’s another story altogether).  Google tends to be a little more lax – so it may be possible, but I couldn’t find an app that does it and in fact there's speculation that Google won't allow it either!

As I'm surfing the ocean of outdated bitcoin-related sites with outdated information, I see a random entry on some website that you can exchange linden dollars for bitcoin.  I used to have a second life account and some linden dollars left over (plus, as I recall, you can purchase those with credit cards) but when I follow the links they are no longer available.  Hmmm.

So after the Labor Day weekend, I get back and continue the hunt.  First I look at my bank account to to see if Coinbase has sent me any money to “verify” my bank account.  Nope.  Nothing yet.

I then stumble onto “localbitcoins”.  This sounds promising.  There is a list of people who are willing to sell me bitcions.  There are even some people locally, but still clinging to my fantasy that bitcoin is an electronic currency and that I should be able to buy some somewhere, online, I skip those for now.

Some of the sellers around the country use paypal but most of them use payment methods i've never heard of, for example, something called “Moneygram”.  I sign for YABA, and since I don’t want to get my paypal account banned, I try to buy bitcoin from a seller in Texas who says that I can send him a “moneygram”.

But then he tells me that he needs me to take a “picture” of my credit card so that he can verify it’s really me. Huh? Take a picture of my credit card and send it to some guy on the internet? You’ve got to be joking! This is getting ridiculous.

Still, I press on doggedly, and actually try to send the guy money through Moneygram.  Turns out they can’t find him either, and the only way he can get the money from Moneygram is to go to a physical shop and pick up the money.  Kind of like Western Union. The only problem is when I try to send to him, Moneygram rejects my transaction.  Not once but twice!

I look at other buyers on localbitcoins and there are some that want me to send Cash in the Mail.  Yes, Cash in the Mail. As in the Post Office. WTF is this, 1891 instead of 2-013?? It’s like I’m ordering bitcoins from the Sears Roebuck Catalog … 

At this point I’m starting to lose hope. I don’t think I’ll ever get any bitcoins online. 

Then, the next day, I see two very small deposits of a few cents in my bank account. Coinbase! Yes, the VC-backed company comes through!  I suppose with the millions they’ve raised ($5 million to be exact), they can afford to send out a few cents to everyone who gives them their bank account information.

Yay!  Although I did have to share my bank account info (which I don’t like to do), at least I didn’t have to photocopy my drivers license (or my credit cards) and send them to some guy called “bitcoindude” located in rural Texas.

So I go back to coinbase and “verify” my account.  Hurrah! I’m finally (about a week into it) approved to buy bitcoin!  The rest should be a snap, right?

After all, they, like every other bitcoin site out there, have a big visible button on their homepage  to “Buy” bitcoins.  So I click on it. The price is like $125 per bitcoin.  Damn that’s expensive, but OK, I tell them I want to buy several bitcoins.  Actually, I don’t even care what the price is at this point - i'm so excited that i'll finally be able to buy this mythical bitcoin thingy.

And then…. Nothing.  My order is listed as “pending” and it says it may take up to 5 days to get my few bitcoin.

Five Days??  WTF??

I thought this was the easiest currency in the world to transfer from one person to another.  I thought this was an electronic/digital currency that was going to set the world on fire.  That all you needed was a hard drive and some money to get and trade bitcoins.   I thought this was the future of money?

Well, it’s now been almost 10 days since I started trying to buy bitcoins and I have many bitcoin wallets, just no bitcoins!  I mean Zero. Zilch. Nada.

Hell, I could order a book from amazon and get it delivered to my house, faster than I’ve been able to get bitcoins.  And I’m not talking about an ebook – I mean a physical book.  Actually, Amazon’s createspace print on demand platform could print a new physical copy of a book and ship it to me in the time it’s taken me to get bitcoins.

Now, I’m sure one of these days, coinbase will say that my transaction is processed and finally someone will take my money and promise to “deliver me bitcoins in a few business days”.  But I’m not holding my breath!  Until then, i'm stuck floating in this ocean of bitcoin hype.

If they don’t arrive in a few days, I guess I’ll have to start wandering the seedy streets of San Francisco, holding up a sign “want bitcoin, will pay!” or stop random passers by wearing trenchcoats and say “pssst buddy! You got any bitcoin?”

UPDATE: After waiting patiently for 5 more days for coinbase to send me my bitcoins (after I had already given them my bank account information), today (September 10, 2013), the same day that TechCrunch had a panel on how promising bitcoin is, I got this email from coinbase.

From: Coinbase 

Hi  xxxxxx@gmail.com,

On Sep 4, 2013 you purchased 5.00 BTC via bank transfer for $631.40.

Unfortunately, we have decided to cancel this order because it appears to be high risk. We do not send out any bitcoins on high risk transactions, and your bank account will not be charged.

Please understand that we do this to keep the community safe and avoid fraudulent transactions. Apologies if you are one of the good users who gets caught up in this preventitive measure - we don't get it right 100% of the time, but we need to be cautious when it comes to preventing fraud.

You may have more luck trying again in a few weeks. Best of luck and thank you for trying Coinbase.

Kind regards,
The Coinbase Team

Huh? No explanation of why my account is high risk! Just "try again in a few weeks"!  Maybe coinbase doesn't have any bitcoins either ... and bitcoins *really* don't exist on the internet - it's like an insider joke to see how much publicity they can get for a currency that doesn't really exist.

I gotta tell you - I have never had so much trouble trying to give people money in my life!!
It is now 15 days since I first tried to buy bitcoins; still no luck - all of my many wallets still have zero balance.

I am going to change tactics and try to buy bitcoins from local sellers in person.  This kinda defeats the purpose of an electronic currency in my opinion.   I tried contacting a few sellers on localbitcoins.com, but no luck so far.


UPDATE 2:  After getting frustrated trying to buy bitcoins, I read these article by Robert McMillan at Wired about buying bitcoins:

• "The only way to buy bitcoins is on the street"  - http://www.wired.com/wiredenterprise/?p=47251
• "How ebay could rescue Bitcoin from the feds" - http://www.wired.com/wiredenterprise/2013/09/ebay_bitcoins/

I thought ebay might be cracking down on Bitcoin, like they did with other virtual currency/goods for MMORPG's a few years ago, but maybe not.  So I went on ebay, and sure enough there are quite a few people selling fractional bitcoin (.05, .1, .25, and 1 bitcoin denominations).  The catch? The sellers are trying to get the price bid up as much as possible so that you have to pay more than Bitcoin is trading for on the exchange.  I looked for "buy it now", and bought .05 bitcoin for like $15, but this translates into a price of like $300 per bitcoin! Way more than the market of $120-$130 that the exchanges were quoting.  Still, I was able to pay using an online payment vendor (most sellers won't take paypal!). My next purchase was .10 bitcoin for $16, a price of $160 per bitcoin and this was one of the few sellers who was willing to take paypal.

So, you can buy bitcoin on ebay, but few of the sellers are willing to take paypal, and you'll have to pay *alot* more thanon the exchanges.

UPDATE 3: Finally, i gave in and tried to find someone to  to agree with Robert's article that the only way to buy bitcoins is on the street. I advertised on localbitcoins lookinng to "buy" bitcions, and one of htem found me.  We met at a cafe, and I handed him the cash and he sold me 5 bitcions.  The catch? Well, this is a  pretty slow process and he was only willing to sell a few bitcoin.  And for some reason, localbitcions, which advertises a commission of only .0003 bitcoins, ended up taking .05 so I only got 4.95 bitcoin!

I asked the seller how he was able to acquire bitcoin in the first place.  He told me he was from Europe and so was able to transfer money to a polish bank account and get into mt. gox (one of the oldest bitcoin exchanges which has been having problems lately).  He seemed to share my assessment that it's very difficult to buy bitcion in the US online.

CONCLUSIONS:

I was finally able to buy bitcion, but the process was painful and tedious.  It took almost two weeks from the time I started until I got some.   Buying locally seems to be the best way, but finding people locally who are willing to sell may not be practical for everyone (because I live in Silicon Valley, I was able to find at least one seller).  The exchanges are already over-regulated and so concerned with fraud that they are blocking legitimate transactions.

Once you have bitcoin, it is almost instantaneously transferred between wallets. Since I ended up with like 6 empty wallets and only one with money in it, I tried transferring bitcoin around and it is as easy as promised.  I gotta say i've become a bigger fan of bitcoin after seeing how easy this process is.

Since bitcoin is a peer to peer electronic virtual crypto-currency, my big question is: why do we need excahnges at all? If all bitcoin clients can read the blockchain and find all transactions, then why can't bitcoin clients use a peer to peer system to make requests to buy or sell?  Well, i'll write more about that now that I have some bitcoin and need to figure out what I can actually do with it!

Stanford Sloan at GSB: Entry 13: More Exams, Leaders vs. Managers, Intel, and MBA Clubs

Sloans starting to come out of our shell?

After midterms ended, I thought we’d have a little bit of a break from studying and exams. We might even have a chance to come out of our “shell” at the GSB – the "shell" being our rather large classroom on the fourth floor where the Sloans have classes every single day, with the same 57 people , sitting in the same seats (did I say everyday? I meant everyday except Wednesday).

The MBA’s also had midterms the same week we did. For MBA1’s (first year MBA’s), it marked the end of their EAP (Exclusive Academic Period, during which time they were supposed to focus only on academics). As far as I can tell the only two things that changed after the EAP were that the GSB clubs formally started recruiting new members, and a bunch of the MBA1’s (70 or so I think) took a mass trip to Las Vegas for the weekend.

As for our class, the Sloan program calendar has been so jam-packed with classes, seminars, talks, BBL’s (brown bag lunches) and Sloan social events, that we haven’t really had a lot of time to spend with the MBA’s or PhD students that we coinhabit the school with, nor have we had the time to attend many of the very large volume of events at the GSB.

During mid-term week (on Wednesday, just before our finance exam) the GSB had its “club” day, where all of the student-run clubs had tables. There were a ton of them – everything from the epicurean club (yes, this club is all about food), the wine tasting club, the entrepreneur club, the VC club, the private equity club, the real estate club, the family business club, the china club, the greater china business club, even the "you-name it" club (!). These clubs sponsor events, so many in fact, that there’s no way to go to all the ones you’re interested in. I think I signed up for about 10 clubs, of which I’ve only gotten around to attending events and paying dues for 5 of them thus far. Which brings me to an inevitable fact about business school (at least at Stanford): Overload. Not necessarily classes, but "other events'.

A few weeks ago, I mentioned that Steve Ballmer visited and spoke during lunch hour. Over the last few weeks, we had similar talks from Paul Otellini (the CEO of intel, more on this when I talk about our second strategy class in this blog), and the head of Saudi Aramco, which is the largest oil producing company in the world ("Political rhetoric is a short term game; the oil business is a long term game"). We also had (to mention only a few from the last 7-10 days) a trip to a VC firm, a talk by the head of a middle-eastern private equity fund, various company recruiting events, a visit by the head of some big bank from Latin America, a Women in Management alumni lunch, An Evening with Pixar shorts (an event I really wanted to attend but couldn’t because of our strategy study group project), a Latin Club Fiesta, and many, many, many more events.

In the Sloan program during this same time, we had a former CIA case agent turned Stanford professor speak to us last week about the CIA, and a woman who is in charge of helping non-profits and other organizations raise capital for their funds (I had to miss this too because of our Strategy project) give us a talk about leadership.

And all of that was just what was being offered at the GSB. There are a ton of other interesting events being held on the Stanford campus. On Friday, after taking our final exam for modeling (more on this later) I learned that there was a talk being given by Mohammad Younus, the Nobel Peace Prize winner who started the micro-finance craze. I wanted to go, even tried to get in, but the auditorium was full and we couldn’t get in. As I walked away from the auditorium disappointed, I learned there was an open-source conference going on the same day. But that would mean missing the finance review session and study group meeting that afternoon… choices, choices.

Now I’m beginning to wonder if a year at Stanford’s Business School is really enough to take advantage of all that’s offered here? By the time we get our bearings straight (which might be sometime in the winter quarter), it’ll be time to start thinking about what we’re going to do after the program since it ends in July.

More Exams and Grades.

We got our results from our finance and economics midterms, two exams that I and many of my fellow classmates were pretty worried about. Turns out I did pretty well on both so my worry might have been misplaced.

In both cases, we were given our graded exams back along with the numerical results. This seemed like a reasonable approach - we could see what we did right, what questions we got wrong, and where we might have some complaints about how the grading was done.

The third exam we took was our Organizational Behavior exam. Honestly I wasn’t really worried about this exam, because this seemed like a pretty easy exam (it was a take-home), it involved doing a lot of reading and writing (both of which I enjoy and tend to do OK with), it was a relatively subjective content ( a lot of the class, including the class assigned reading, was about how to influence people), and it involved a class that I had enjoyed and participated in quite a bit (50% of our grade was based on class participation and 50% was based on the final exam). Well it turns out that my score on this exam ended up being very poor: well below average!

But what was really strange about this wasn't just the grade, it was that we didn't get back the actual graded exams! So unlike finance or economics (where we could see exactly which questions we got right vs. wrong), I really have no idea if this was a fair score or not on the exam, given my answers. To get a copy of our exam back, we have to jump through a few hoops -including emailing the professor and meeting with him.

This strikes me as an extremely odd tactic (though perhaps effective in its own way). It reminds me of companies that offer rebates on their products. Of course, they know that a very large percentage of people who buy the product will never actually take the time to fill out and send the rebates back in, so it ends up being a mmick that works.

Was not returning our exams also just a time-saving gimmick by the professor? How many students would actually go ahead and email the professor asking for their exams back? Perhaps about as many as send in rebates?

Our OB class itself (which was a half-semester class) included lots of techniques for influencing people. I'm starting to wonder if these techniques, some of which are effective the very first time they’re used, are effective more than once?

For example, one technique we learned about was to individuate people when you’re asking them to action.

A perfect example of this technique was demonstrated to us by the professor when we had a survey to fill out for the class. Many of us hadn’t filled out the survey online, so the professor sent us individual emails the night before class; the emails implied (though didn’t explicitly say) that we were the only one who hadn’t filled out the survey and that it was due by “class-time”.

You can imagine that if you get an email from your professor implying that you’re the only one who hasn’t filled out a survey, that needs to be filled out by “class time” the next day, then you’re going to fill it out immediately. I promptly did this, thinking it was due in the morning, even staying up late and pushing aside a few other things to make sure it got done.

Well it turns out that I wasn’t the only one who got the “personalized email”, and moreover, the survey wasn’t needed in class the next day (turns out it was due by “class” the following week!).

Which brings us back to the question of whether this kind of technique leads to a temporary effectiveness followed by a "never cry wolf"-like situation in the future? If I got another seemingly personalized email from the same professor about getting something done by a certain time, would I start to wonder whether 1) the email was really just a mass email meant to look like a personalized email, and 2) whether I really needed to get it done by the time indicated, 3) what other influence or manipulation techniques the professor was trying to use on me? At the very least, i'm asking to see a copy of my exam!

Speaking of exams, we also had our first two-part final exam last week, for our spreadsheet modeling and statistics class. This is a pretty core class at the GSB. The first part was a take-home exam that involved creating financial models in Excel. The second portion was a 3 hour in class exam. This was our first three-hour exam, and it was grueling in its own right. Almost no-one finished early; and most were still working on it when the three hour mark came around, so I think we can all agree that it was a pretty difficult exam, given the time constraints. Standard deviations, regressions, random sampling, the central limit theorem, auto-correlation, linear programming and linear optimization, along with various statistical techniques were all tested on this exam. How did I do? I couldn’t tell you – I’ll have to wait to see when (or if!) we get our graded exams back.

Strategy Redux and Leadership vs. Management.

After midterms, we started another strategy class which lasts only for the second half of the semester. This class is at 8 am on Tuesday’s and Thursdays. Those of you reading this blog will know that I’m not much of a morning person. Despite my general start-up rule of never attending meetings that start before 10 am, I actually find this class to be pretty interesting and worth getting up for (Not to mention that some of my classmates have decided to take it upon themselves to be self-appointed policemen/women to monitor the tardiness/skipping tendencies of errant class members like me; LOL yes I haven't heard the term "tardy" since elementary school either... but I digress...back to Strategy...)

As for Strategy, the professor, Professor B. did a long term study on Intel and wrote a book about the decisions that Intel had to make along the way. There’s a famous story/quote about Andy Grove (who was the second CEO of Intel after Gordon Moore, a Silicon Valley legend) cited by our professor and by Paul Otellini (the current CEO of Intel) when he did his talk here at the GSB recently.

Intel had started out in the memory business (DRAM) and was pretty successful at it in the beginning; along the way they stumbled into inventing the microprocessor which was a smaller niche business opportunity at first, but was growing rapidly. By the early to mid 1980’s Intel’s market share in DRAM had fallen to 3% of the market, while Intel was quickly becoming the micro-processor company (with sales of the IBM PC soaring).

Some on the team didn’t want to abandon the products on which the company had started and become successful (DRAM). Others clearly thought they should focus the company on microprocessors.

Andy Grove asked a now famous question to Gordon Moore and to other team members: If a new management team came in, and took a fresh look at this business, what would they do? Inevitably the answer was that the new management team would drop the old business (DRAM) and focus on the new fast-growing business (microprocessors).

Grove then suggested that instead of bringing in a new team, the existing team go out the revolving door and come back in and make that decision, which they eventually did, and the rest, as they say, is history.

Being a technology guy, I find case studies like Intel (the largest and most successful microprocessor company) and Electronic Arts (one of the largest video game companies in the world) to be terribly interesting. But for some of my colleagues, who have no interest in high tech, this class doesn’t seem to hold the same appeal.

We also had several sessions over the last two weeks with Stanford GSB’s Dean, Bob Joss, who is retiring next year, about leadership. He spoke a lot about the differences between leadership vs. management. It’s getting late now and I won’t have time to go into everything he talked about, but one thing he said that I liked and I think might even summarize a lot of what we discussed regarding managers vs. leaders:

“Managers are assigned subordinates. Leaders start with no followers; they have to recruit them.”

Stanford Business, Entry 12: Midterms, Negotiations, and Sarah Palin

I’ve missed a week (or maybe two) in the blog because of two crazy busy weeks, which concluded this last weekend with our midterm exams and Halloween parties both on and off campus. Here are my top observations about the last two weeks:

Taking tests was both easier and harder than I thought it would be.

Our midterms were our first real academic challenge since we arrived at the Stanford Graduate School of Business program two months ago. This is no small point, given that many of us in the Sloan program have been out of school for more than 10 years (!).

I think it’s safe to say that many in our class were stressed out about the Finance exam. and preparing feverishly over the past week (when we had time to study, which was cut dramatically short by our Negotiations class – see point below).

While a few of our classmates worked in finance before (so the class is pretty easy for them), for many of us, the concepts are completely new. Some of us didn’t even know what selling stock short was a few short weeks ago. I can confess that I didn’t really grasp the differences between NPV, IRR, despite being exposed to both concepts in my career. And I have to confess that I knew very little about the CAPM (Capital Asset Pricing Model) or market-efficient portfolios when I arrived on campus just a few weeks ago. Come to think of it, I’m not quite sure that I buy into the CAPM or market efficient portfolios even now, but I hope like hell I got the questions right on the exam!

Conversely, many of our classmates did not seem so stressed out over our Economics exam. This was a surprise to me, since I find Econ to be a little bit subjective and was probably more stressed out over it than I was about finance.

Not surprisingly, no one seemed to be stressed out over our OB exam, which was either a 3-hour take-home exam or a final paper.

So, what’s it like to take an exam at Stanford GSB?

Since Stanford is one of the few Universities with a formal honor code, teachers don’t proctor exams in the classroom. No TA’s either. Just us chickens, er I mean students.
Our teacher, Professor F., after handing out the exam, wrote his office phone number on the board, told us to call him if we had any questions, and left for the day.

Really. There was no one monitoring the exam, and we are expected to keep our own time, not do anything that’s not allowed, and hand in the exam in to the appropriate location before the deadline has passed.

This means that there isn’t that much difference between an in-class exam and a take-home exam, especially since they’re both completely open book and open notes. The in-class exams had time limits of 1.5 hours, and the take home exam (which we had a whole week to complete) had an honor-code-bound time limit of 3 hours.

Oddly enough, this honor code thing probably made us more conscious about making sure we didn’t do anything wrong than a more traditional exam type of environment.

So how did I do? I don’t know – we haven’t gotten the results yet… so I’m rushing to get this blog entry up before we get the results.

Cramming in an extra class is both a good and a bad idea.

The one thing that complicated our exam schedule (OK it wasn’t the only thing, but the biggest thing) was that during the week before our midterms, we had an extra class. Not just an extra hour or two, but 15 hours of a normal ten session elective class, Negotiations, every night from 5 to 8 pm.

What was it like? We would show up to class and immediately get instructions on the negotiation exercise for the day. Before the lecture, We’d usually go out and conduct a fictional negotiation.
We’d work hard to try to get the best deal in the negotiations that we could (sometimes not reaching any agreement whatsoever), and then head back to the classroom where the teacher put up our scores in front of the whole group, so we could make fun of those of us who didn’t do so well. Haha, no just kidding about that last part. Actually the negotiations where one party didn’t do well were the ones where we learned the most.

In one week we did: a two-party negotiation where one person was trying to buy a plant from the other party and had to agree on a price; a three party-negotiation where each of us represented a company and we needed to figure out which two of the three were going to work together, or if all three were going to work together (this one was a bit of a mindbender, if you do the math, it naturally leads to all kinds of Machiavellian behavior); a multi-division group negotiation (where each of us was on a three-person team that had to negotiate with another three-person team – this one proved to be the most difficult believe it or not); and finally a six-party negotiation with representatives from six different organizations (this one kind of reminded me of the six-party talks between the US and North Korea, with everyone trying to get their little piece of the pie – it was about as successful too).

As I said in my last entry about OB, for some of my engineering friends, it might seem that we’re just playing parlor games . And OK, I have to admit, these exercises are a bit contrived, but the experience of going through them is, in my opinion, probably going to stay with us longer than the derivation of the CAPM from our class.

All Hallow’s Eve

It was Friday, and Exam week had come to an end. The students were dressing up as ghosts and ghouls and vampires. This is Halloween. This is Halloween. Halloween, Halloween! (honor code note, src: Tim Burton’s the Night Before Christmas).

Actually I was so tired of both negotiations and exams that I went to three Halloween parties this weekend – a Graduate Student Halloween Party on Friday (which was in Rains, a Stanford Graduate Dorm), a Sloan Fellow’s party on Saturday (which was for our class and partners, held at one of our colleague’s house in Palo Alto), and the MBA Halloween party (which was at a local nightclub in Palo Alto). This is the benefit of being on campus – honestly I don’t think I’ve even been to three Halloween parties over the past three years, let alone in one weekend.

For many of our international friends, this whole Halloween thing was a bit of a spectacle. Why were we dressing up in funny costumes? Why were we putting in so much effort to dress up in funny costumes? Did they have to wear costumes to come to a Halloween Party or could they go in normal clothes? If Halloween is supposed to be scary, why were there people walking around dressed as politicians?

Of the three parties that I went to, the Sloan Halloween party was by far the most fun. Which is funny because we definitely had the highest average age of the three parties. We had classmates dressed as everything from Arab Oil Sheiks to the Grim Reaper and the Incredible Hulk (actually we had two Hulks at our Sloan party alone, growling at each other every chance they got).

But what was the most popular costume on campus this Halloween? Without a doubt, it was Republican Vice Presidential Nominee Sarah Palin.

While I did see one Hillary, one Bill Clinton, one Barack Obama, and one John McCain. I counted at least 10 Sarah Palin’s. Most of them were dressed up in suits, with hair adorned like the veep candidate and matching glasses to boot. If that wasn’t enough, one of them was dressed in a bikini swimsuit with a beauty-contestant sash. And once I ran into two Sarah Palin’s travelling together who looked slightly different –one was Sarah when she was Mayor of Wasilla, Alaska, and the other was after her national makeover. Now that was scary.

Return to Normalcy

Even scarier? On Sunday night, I found myself suddenly without anything to do. No more exams. My take-home paper was done. My take-home exam was done. There were no more Halloween parties. No GSB events or Sloan activities to attend. No required Leadership workshops, prep sessions, or Seminars to dress up for. No last minute study group meetings for assignments due on Monday morning.

Wow. After two months of non-stop activity, I suddenly found myself not knowing what to do with myself. I tried hard to remember what it was like to be a normal person again.

Then I recalled that we had lots of reading to do for this upcoming week, and I breathed a sigh of relief. Since the OB class was over, we also had a new Strategy class that started at 8 am and there was no way I was going to make that unless I got some sleep this week. Somehow the large amount of reading (which I hadn’t done yet) and upcoming assignments (which I hadn’t started yet) hanging over my head had become comforting.

I found that a little bit disturbing. Instead of doing any reading that night, I rented a science fiction movie and watched it guilt-free.

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB and definately not by any of my fellow Fellows

Stanford Business, Entry 7: New Study Groups, Philosophy, Desert Survial and Jack Welch

So, last week we officially ended our pre-term. This was an important milestone for us, as many of us in the Sloan program hadn't been to school for many years. Despite the fact that it wasn't officially graded, we learned a lot about how to work in Study Groups, about business school generally, and about Micro(MicroEcon, not MicroSoft, though the CEO of Microsoft did visit this week - will post more about that in my next post), Strategy, and Managerial Accounting specifically (see previous posts for specifics of what we learned in these classes).

I was personally excited about the end of the pre-term because it meant that we would shift to a more normal schedule: instead of starting class in the morning each day, some days would be off (well at least Wednesday would be our day off), and on most days class wouldn't start until 10 am! Yahooooo! (Wasn't that what customers of Wamu said in their commercials? Turns out Wamu went bankrupt this week - more on the financial crises and what our professors have to say about it later).
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Those of you following this blog will know that i like to follow "engineer's hours", which don't seem to work so well at a business school full of the best-and-brightest-early-risers. By "bright-and-early-risers" I mean those who don't follow engineer's hours - for me, I'm usually asleep at 8 am; Given that I probably didn't get to sleep until 2 am, that would mean i'm just finishing my sixth hour of sleep. For some business school students, 8am seems to be "mid-day", meaning they have been up for at least 3 hours.

Last Wednesday, on the last day of the pre-enrollment bootcamp, we had farewells from all of our three professors (actually one of them, our economics professor, is going to continue in the fall term - but as for the other two, that was it).



Someone in the class had the idea that we should give the profs a little gift as a token of our appreciation. This was a brilliant example of an idea starting at the grass roots level reaching fulfillment at a blistering pace. From an email that was sent out on Tuesday, by Wednesday someone in the class had bought three bottles of wine as appreciation for each of our professors: A Chilean wine, a French wine, and an Argentinian wine. Then we had our Chilean fellow, our French fellow, and our Argentinian fellow present the wines to each of the professors.

So what else has happened happened last week? Here are some highlights:

New Study Groups



As I mentioned before, our Study Group was just starting to hum by the third week of pre-enrollment. But then, suddenly, and without warning, just as classes ended on Wednesday, new Study Group assignments were sprung upon us!

At least that's how it felt - in actuality, we knew that this was coming. Despite our occasional hiccups, I realized that I was going to miss my initial study group. We'd gotten to know each other well. We had even become forgiving of each other's idiosyncrasies and learned (for the most part) how to channel these unique qualities into getting the best result for the group. (Err, except when we had to survive in the desert, which didn't go so well - see section on Half Moon Bay retreat below).

I figured that the new group might also be willing to work out some compromise so that we weren't meeting at the crack of dawn every single day. Anyways since we had a few days before class began (thursday was our retreat; friday was a free day, the weekend was free, and classes didn't start until monday). Well the weekend wasn't really free since as usual in Business School, we had both readings and problem sets for the first day of class.

As soon as the study group assignments were handed out, most of the students left to enjoy some sun and relaxation after what seemed like a very long pre-term. Just as I grabbed my bag to leave the room, I was informed that our study group was going to meet there and then!
Well, I figured, Business School is about efficiency, after all, so I put aside my toughts of r&r and went to the Study Group meeting, figuring that at least this meant we wouldn't have to meet on Monday. And at least one other member of my group, a Marine biologist with multiple degrees from Stanford already, had told me that she also was a night person, so the two of us might have some sway with the rest of the group members.

The group met for a while, but we accomplished only one cooncrete thing: Our first "official meeting" was going to be at 8:30 am on Monday morning before our first class. And we were all expected to have done our reading and homework before the meeting.

Sigh. My endless quest for a laid back study group goes on.

The old doubts started to creep back in; I looked out the little tiny window in our study group room, literally and metaphorically gazing "across the street", wondering if there wasn't a spot in an engineering class which began at 3 pm meeting only once a week with my name on it... Actually I had already decided to audit a computer science class (it would be a shame to spend this whole year and Stanford and not take advantage of the incredible engineering and comp sci departments). And it was scheduled to start at 4:15 pm on Tuesday ; not that I'm counting, but that would be more than seven hours later than our study group meetings. Ahh! Engineers hours.



Poets, Quants, and a Philosopher


In biz school (at least at Stanford), students are often grouped into poets (those with liberal arts education), and the quants (those with more financial, numerical, or engineering background). I should fit nicely into that second category, the quants, given my degree in computer science from MIT, but somehow I don't.

Poets had trouble with quantitative subjects and wanted to spend time talking about issues. That sort of fit me, as I definitely enjoyed the class discussions more than the actual material that was being covered . But I didn't have problem with quantitative subjects, other than being motivated to sit in class for hours on end. Quants could solve quantitative problems easily, but had problems with soft mushy wordy subjects. That kinda fit me too - except that I kind of enjoy soft, mushy, wordy subjects.

In fact, I don't have a problem with either kind of subject; I just have trouble getting motivated to get to class on time, day after day. I remember in elementary school one of the determinants of our grade was "attendance" - those who attended class automatically got a better grade than those who didn't. I didn't always find this fair, if we ended up learning the same things, but as an elementary student you're taught to respect the adults point of view. When I got to MIT, it was like having a straitjacket removed. I could go to class when I wanted; skip it when I wanted; as long as I passed the exams, I could pursue my extra-curricular activities with vim and vigor.

Believe it or not, Business School is a little bit like elementary school in this regard. In almost all of our classes, attendance is graded. If you don't attend, you're not participating - and you can lose up to 20% of your final grade on this.

Despite the lack of structure during my undergraduate days, when I'd first graduated with a bachelors, I had been a very motivated young man. I remember showing up for work at my very first startup, a company called DiVA (spun out of the MIT Media Lab), at 8:30 am wearing a suit hoping to make a good impression. No one was there. I couldn't even get into the office so I sat down outside the front door. In fact, around 10 am, people started to wander in, and were wondering why I was wearing a suit (was I a customer? was I interviewing for a job?).

In Business School, the exact opposite was happening. I would show up at 10 am, a few minutes late for class, wearing jeans and whatever shirt I could find as I scrambled from my dorm (which several of my b-school colleagues have pointed out is usually the same two shirts, again and again). In this case, everyone else had already been jogging, had discussed the homework, kissed their wives (or husbands) goodbye, dropped off the kids at school, eaten breakfast, and reviewed today's case study, all before I had even gotten out of bed!

Even harder (and more disturbing) than attending classes, I can't seem to stop my mind wandering to the philosophical underpinnings of what the heck we're really trying to accomplish in business school. Rather than try to figure out the marginal cost curve which yields maximum output for a given set of resources (a company, or even a country), I found myself questioning the assumption (made on the very first day of econ class) that a country is best off when they have made maximum utilization of their resources from an economic point of view. I have met many friends from other countries (who were not in business school) and it wasn't always clear to me that we were much better off. I remember talking to a woman from Cape Verde a few years ago, and she went on and on about how much happier people in her country were than we are here in the US. This is despite the fact that we have such a significantly higher "standard of living" than say Cape Verde.

In strategy class, rather than simply analyzing what made a company successful, I found myself wondering whether strategy can really be taught simply by talking about successful companies in the past (the case method, which was first pioneered by Harvard Business School and is now used pretty heavily by Stanford, though we also use textbooks heavily in our other classes). When we studied WIP (work in progress inventory accounts) in accounting, I couldn't help but start thinking about how the accounting system seems to have been built entirely for manufacturing firms, and how services firms, software firms, and Internet firms aren't really well represented by the current accounting system - shouldn't somebody be redesigning the system to reflect the new reality?


Another example: George Parker, a former Dean of the Sloan program at Stanford, and a well known finance dude, laid out for us the fundamental structure of the financial services sector, partly in response to the current financial crisis. As a result of his talk, it would be natural to start thinking about the mechanics of the interest rate, how banks and investment bank works and what interest rates should be charged. He divided the world into 1) people who save money (you, me, our friendly neighborhood corporations, and governments) and 2) people who need money (you, me, our friendly neighborhood corporations), and how this created the need for banks in the first place.

He pointed out that the average 3% margin of banks between what they paid for capital (what they pay us for depositing savings) and the inherent mismatch of needs between the providers of capital (we want to be able to pull out our money short term, with no risk) and the recipients of capital (who want to borrow money for as long as 30 years, and have inherent risk in the projects they invest in), he told us that some shakiness was inevitable.

Rather than thinking about the equity/debt ratios and what interest rates were sustainable to maximize profits, I found myself wondering about the stability of the whole financial services sector altogether, in the very long term. Was it really sustainable to have two parties with such different interests mediated by a bank who owes us our money back every time we ask for it, but never actually has all that money available? Was the financial system, based the idea of cost of capital (represented as i or r in our finance equations) really sustainable, in the long run, or were "runs on the bank" unavoidable, even inevitable? WaMu's recent crash (the biggest bank failure in history) underscores this.

There are other financial systems that don't rely on interest as the key motivator (the Islamic financial system, for example, does not allow charge for money). Is it possible to have an economic or financial system where interest (the cost of capital) is not the sole, end all, be all. But it's not clear to me that the Islamics system is inherently any more stable either - since they just change the word profit for "interest" and charge about the same as the "prevailing current interest" rate, just calling it something else.

But business school students aren't supposed to be philosophers! We're supposed to be here to get skills and perspective that helps us to get ahead in our careers, and make more money, not question the fundamental nature of the subjects we're studying. So on to career advancement and skills training!


Incompetent Jerks and Lovable Fools in the Desert


On Thursday we had a field trip to Half Moon Bay for a "team-building" retreat. The bus was going to leave from Littlefield arch at 8:30 am. Sharp. By the time I got there, I learned that some of my classmates (who'd gotten to know me well) were already taking bets to see how late I'd be and if I'd miss the bus and have to drive to Half Moon Bay on my own. Oops! Sorry to disappoint, guys, but on that day, I made it on time (there were even a few students who showed up after me).

So what does one do on a "team-building" retreat from arguably the top business school in the country?

The presenter started out by talking about interpersonal skills and how important they were. She brought up the classic consultant (and MBA) tool, the two by two matrix - divided into quadrants. Along the horizontal axis was "interpersonal skills" and along the vertical axis was interpersonal skills. The people in the top right quadrant (Lovable, Competent Heros, or some moniker like that) were people everyone wanted to work with. The bottom left quadrant (Incompetent Jerks), were people that no one wanted to work with because they didn't know what they were doing and they were hard to work with.

The two tricky quadrants were the upper left - "Competent Jerk" is someone who is very good at what they do, but has bad interpersonal skills, and "Lovable Fools", those people who have good interpersonal skills and get along with everyone, but aren't very good at what they do. She asked us how many of us would like to work for one or the other. Quite a few raised their hands under working for "Competent Jerks", with some people giving an explanation that at least that way they'd learn something, even if thier boss was a jerk. In fact, she continued, when people are asked this question in a survey, a large percentage answer "Competent Jerks". But when people are observed actually choosing people to work for, they almost always favor working for "Lovable Fools" rather than "Competent Jerks". This was interesting.

We spent the morning talking about interpersonal skills and qualities that different people in the class had. This consisted of an exercise where we each had a number of cards - each colored differently and each with a "personal quality" on them - for example "does well under pressure", "is a diligent worker", "speaks his mind", "gets things done methodically", "is a visionary", etc., and we had to hand out the cards to people in our class if we thought the card didn't describe us, but described someone else. I won't get into specifics but I think we were all surprised how well (or not so well) our classmates knew us.

Half-moon bay is a nice little beach on the other side of the hills that define the western edge of Silicon Valley. During lunch a few of us went on a walk along the beach while our Marine biologist gave us a tour of the little aquatic life that lives near the seashore. "I may not know much about balance sheets," she quipped after pointing out the different kinds of snails and barnacles that lived there, "but I do know alot about fish!". Somehow I don't think that's going to help her through businesss school, but it sure was a lot of fun! (except for the time when I tired to touch a sea enenemy, something I didn't even know existed 24 hours earlier, and it squirted me; hopefully it was just water it sprayed on me!).

In the afternoon, we divided into our old study groups and had to face the highlight of our trip to Half Moon Bay, a group test: The Desert Survival scenario. We were all on a plane (let's suppose). Let's also suppose that we crash-landed int he Sonoran desert (that's south of Arizona near the Mexico border). Let's further suppose that the pilot and copilot were killed in the crash, but miraculously, we are all OK. Let's one-more-time suppose that we have a series of items - including a parachute, a swiss knife, a topcoast, a mirror, a quart of water each, salt tablets, and on and on - and it is the goal of the group to come up with rankings of items by importance. I found myself thinking that this scenario was written well before the iphone was out; I would just do a GPS lookup of where we were and call someone to pick us up.

iPhone-less, the sole determinant of our survival would be our rankings of the importance of each item. We were revealed at the end to the the rankings of a "survival expert", our team would either survive or die in the desert, depending on how close our rankings were to his rankings.

Needless to say, most teams died on the desert! Ours was particularly bad, and my own score was more than particularly bad (though there might have been one person in our whole class who scored worse than I did!).

The trick happened to be the two most important items - I somehow ended up ranking them both last. Our group mostly agreed on our rankings, though we had a few disagreemetns. One member of our group insisted that the most important item (i won't tell you which one it is, since you might want to go thru this exercise yourself) was among the most important, we (myself included) didn't listen to him! Oops!

This situation, one person who is in a minority, disagreeing passionately with the group, who is too far gone to listen, seems to come up again and again.


I thought we'd learned our lesson about this. But this week, in our first OB (organizational behavior) class, it happened again, in our new Study Groups. All the members of my study group agreed on one position, except one of us - in this case it was me -- passionately disagreed with the group.

In both situations, the desert scenario (where I was with the group) and the OB scenario (I'll describe the actual scenario in my next blog entry), where I was the dissenter, it turned out that the dissenter ended up being the person who was "most right" and the group ended up being "most wrong". This was an interesting result- in both cases, neither of us had the data or votes to back it up, we were operating on what is one of my favorite topics, intuition.

One of our team members, John, said that in his real life job (in the construction industry), when one of his team members disagrees very passionately about something, he usually takes the time to really hear that person out and understand why they feel so strongly. But neither he nor I nor the rest of our group did that in the desert scenario, beacuse we thought we were pressed for time and had agreement from the other group members. Maybe the wisdom of crowds isn't as great as it's cracked up to be!



Jack

In the movie industry, whenever someone says "Jack" in a knowing way, they all know who's being talked about: Jack Nicholson, the famouse movie star who has won multiple best actor Oscars, and who has a personality that is recognizable wherever he goes.

In businesss school, when someone says "Jack" in a knowing way, they are also talking about an easily recognizable celebrity - in this case, Jack Welch, who was CEO of General Electric for many years, and considered by some to be among the greatest of American CEO's. Though John Q. Citizen might not recognize Welch, John Q. BusinessSchoolStudent certinaly does. Even though Welch retired a few years ago from the CEO slot at GE, he is a recognizable figure in the business section of the bookstore and on financial news programs on TV.

We studied a case in Strategy class on General Electric, and reviewd what happend during multiple CEO's ending up on Jack Welch, who many consider one of the most visionary CEO's of his time. One of the elements of his vision for GE was that they be #1 or #2 in every industry they were in - and that sometimes meant selling businesses which were profitable but couldn't get there, or buying into other businesses which were already there. This vision also originally led to a process of "de-staffing" early on during GE's days.

The class seemed very energized by this discussion about GE and about Welch in particular. After the discussion, the professor showed us a clip of Jack speaking at some conference. The professor said it was the most "geniuine" clip he'd seen, even though it's fairly old. Jack talked very passionately about how many people in corporations have trouble coming to grips with a six letter word: Reality. He spoke exuberantly about how corporate staffs (in big companies) don't make anything, don't sell anything,a nd they should be there primarily to support the field and how often they don't, and how companies need to be restructured for that.

Like the rest of the class, I found this talk inspiring, up to a point. Then later, as I was wandering around campus, the philosopher in me came out,and I began to wonder what I really thought about Jack Welch, his philosophy, and the culture of adoration that's gone up around him. Something was nagging at me and I couldn't quite articulate it until later.

Note: if you read on, you might be exposed to heretical views on being acorporate CEO and might, like I am in danger of, be excommunicated from the religion of American Business School Students.

So let me start by saying that I agree that Welch was a wildly successful CEO who brought in profits. And even an effective leader. But I guess i get a little unsettled when they talk about Welch being a visionary for American business.

It strikes me that "Being #1 or #2 in every industry you're in" isn't much of a vision. It's more of a performance measure. It's kind of like going to college and saying my vision of college is to get an A or B in every class I take. And if I can't get an A or B, then I'm going to drop the class. And I'm only going to take classes where I can get an A or a B. Sorry guys, but that's not a vision - that's a grade point average.

It also struck me that Jack was a great operator but not much of a visionary about the business units themselves, which seemd to have no rhyme or reason why they were part of GE except Welch's three circles (which didn't strike me as showing any kind of real understanding of the new or old technology or markets that GE was in), just how each was performing.

OK, granted I'm operating on limited information, of course. And no doubt, Jack is a "great" guy who knows how to squeeze every penny of performance out of the people that work for him; I just disagree that he's much of a visionary [of course when the Business Inquisition gets to me, I may change my mind on all these philosophical topics, and get back to making profits, yeah!].

Speaking of a vision of a grade point average, I have a vision too: that i'm not going to get A's or B's in my classes unless I stop spending all my time writing and get back to studying!

Stay tuned for more on the first week of the official term, the arrival of the MBA's and the undergrads onto the Stanford campus, and the house that Software Built. Coming Soon to a blog near you!

SPECIAL DISCLAIMER: the opinions and experiences recounted in these blog entries about my year at Stanford Business School for the Sloan Program are my own personal observations and ranting. This blog is not endorsed by either the Stanford GSB or by any of my fellow Fellows.