BMOC, Chapters 5 and 6

A few days late (I usually publish on Thursday night) here are chapters 5 and 6 of my book BMOC, available on Amazon.com and as a low-cost pdfChapters 1 and 2 are hereChapters 3 and 4 are hereAll chapters are indexed here.

chapter five

"Tell me, Mr.
Marsh, what does BMOC do?"

Susan Hunter and
Preston Marsh sat in a small room loosely modeled in both size and adornment on
a public bathroom stall at an moderately-nice restaurant. The room barely had space for just one small
round table surrounded by four chairs. Susan and Preston Marsh had already completed the obligatory yet awkward
dance around the chairs, each trying to decide whether the etiquette of
attractive-young-female-being-interviewed-by-older-man demanded that they sit
in the chairs across from each other or next to each other.  That dilemma having been solved in favor of
the more modest separated-by-the-table solution, Susan could proceed to
figuring out just why the hell she was here.

Susan had no
intention of interviewing any more this spring. She had interviewed weeks ago with several consulting firms, had several
job offers, and was close to choosing a company for her summer work that not
only paid well, but had a reputation for giving out permanent job offers at the
end of the summer. By accepting the
right offer, she might well avoid this whole interview hassle next year, and
she had absolutely no need or any real desire or energy to look for anything
different.

But everything
about her sitting here was odd. Oddest
of all was the way she was invited to interview in the first place. Usually, students obtained interviews by
demonstrating interest in a particular company and signing up for an
interview. In some cases, like say for
the job of asbestos plant manager in Toledo, just asking was enough to score an
interview, since the schedule didn't really fill up. For other more popular jobs, say marketing
manager at Victoria's Secret, one had to get invited to interview based on a
submitted resume.

For today's
interview, though, Susan had never signed up to talk to BMOC, had never
submitted a resume, in fact had never even heard of BMOC or Mr. Preston
Marsh. Out of the blue, she had received
an engraved invitation to this interview along with a beautiful box of
chocolates from the finest shop in New York. Intrigued by the mystery, and frankly feeling some guilt about not
accepting, given that she had already inhaled the chocolate, she showed up.

Preston Marsh was
an interesting-looking guy "“ and not quite what she expected. He was tall, at least 6-foot-3, and appeared
reasonably fit. Susan generally expected
executives to be in their fifties or sixties, but Marsh looked younger, perhaps
no more than forty-five. His hair was
starting to turn gray, but she only noticed it because the rest of his hair was
jet black. He wore dark slacks and a
black turtleneck, an outfit that had become almost a uniform for the
entrepreneurial class.

In moments of
paranoia, she had feared, due to the nature of her invitation, that this might
be some kind of bizarre stalking. To
some extent, her fear was alleviated when she checked on Preston Marsh at the
Harvard career office, and found that though he had not previously recruited on
campus for BMOC (whatever that was) he was a long time, very legitimate
employer of Harvard MBA's in a variety of his enterprises. Nevertheless, she still chose to put the
table between them when she sat down.

The career office
kept files on most of the major recruiters, with articles clipped from business
magazines like Fortune and Forbes profiling the companies.  There was no file for BMOC, but the counselor
on duty was able to point Susan to a profile on Preston Marsh in an issue of Business
Week
from a couple of years ago, which could be found in the stacks of
Baker Library. This presented a small
problem, as Susan had never once set foot in the campus library, and didn't
know how to go about finding a magazine article there. However, after some wandering about, she
managed to get the back issue of Business Week without too much
humiliation.

The article on Preston
Marsh was near the end of the magazine, and was titled "Dancing to his Own
Tune." It apparently was written before
Marsh started BMOC, because it was not mentioned. The tone of the article was more of a human
interest story than a business analysis, finding humor rather than general
lessons to be learned in what the article called "Preston Marsh's quirky
career."

The first
surprising tidbit was that Marsh graduated from the University of Colorado as a
music major. Whatever his dreams of
music writing might have been, they were not enough to pay the bills. So, while he wrote his symphonies at night,
during the day he sought out a way to make his talents pay. In doing so, he came up with the first of his
many offbeat but lucrative ideas.

The story began
when he was riding in an elevator up to his dentist's office. Already stressed over the prospect of being
chided for an hour or so about not flossing enough, he from some whim pushed
all the floor buttons, slowing his ascent to the dreaded appointment. And, as the elevator stopped at each floor,
he found the various tones made by the elevator extremely grating. To his musician's trained ear, the tones were
off key, and, what's more, were often minor chords when majors would be so much
more pleasing. Or maybe, he thought, one
might have major chords for up and minors for down.

Preston Marsh
endured the dentist, but his notion of "fixing" elevator tones just wouldn't go
away. About two weeks later, he showed
up at the door of Veradyne Engineering, one of the largest conglomerates in the
world, and maker, as explained by the nameplate in the elevator car, of the
particular lift Preston Marsh had ridden to his dentist. Marsh approached Veradyne's engineering department
about designing better tones for their elevators. Well, apparently it took a while to get the
engineers to stop laughing, but after a lot of persistence, Preston Marsh
finally managed to get them to take him on a no-risk basis "“ he would draw no salary,
but they would pay for performance based on a standard musicians contract.

Preston Marsh's
timing was perfect. Just weeks after he started work, AT&T actually branded
and trademarked a tone (you must have heard it, those first few notes played
behind the woman who says "AT&T" whenever you first connect to an
operator). The business press was soon
full of discussion about branding of musical tones being the "Next Big
Thing." And for Preston Marsh, it was. He was quickly Shanghaied from the Veradyne
elevator division to their communications division, matching AT&T with
Veradyne's own branded tone. Eventually,
he got back to doing the elevators, and for good measure, created short musical
tones for trains, airports, and computer software. Within two years, Preston Marsh's tones were
playing somewhere in the world hundreds of times every second of the day.

Through all of
this time, the people who had first signed Preston Marsh's contract apparently
had lost track of what Marsh was doing, and those who knew what Marsh was
working on assumed he was paid just like everyone else. This all changed one day when Marsh brought
his contract and a bill for $1.58 million to his vice-president. The look of astonishment on that man's face
was very similar to the one he got when he first suggested re-writing their
elevator tones, so he was used to it, and explained patiently: Veradyne had signed a standard song-writers
contract with him, paying him royalties of a tenth of a cent every time his
musical creations were played in public. This bill was his estimate for the past year. Of course, future years were likely to
increase since Veradyne continued to churn out products with his music in them.

The article didn't
go into much detail, but apparently the answer from Veradyne to his royalty
bill was not just no but hell no, and
Preston Marsh soon found himself thrown out of the vice-president's office, and
then in short order, out of the building and out of the company. Not ready to give up, Marsh did what every
red-blooded American boy does when he gets hosed by the establishment: He got himself a lawyer (apparently some
famous guy named Michael Fang but Susan had never heard of him).

Fang's victory in
court led to an eventual buyout of Preston Marsh's contracts, details
undisclosed but estimated to be in the $10 million range. The fame and fortune from this decision
launched Marsh on his business career, and, coincidently, launched Michael
Fang, heretofore struggling lawyer, into a lucrative career in litigation.

But in all her
reading, she had found no hint of BMOC. So it was with some interest that she listed to Preston Marsh begin the
interview by discussing why she was there. Marsh explained that he had several friends who were professors at
Harvard, and they usually helped him to identify one or two top students that
he invites to interview, and this year, she was the one.

Oh jeez she
thought, and, with nothing to lose, actually asked out loud, "Not like in "˜The
Firm'? I'm not going to end up hiding
out in the witness protection program am I?"

Preston Marsh
laughed. "No. As far as I know, I don't work for the Mafia,
and I haven't knocked off any of my employees, though I have been tempted a few
times. The bad news is you also don't
get a new BMW as a signing bonus. The
good news is that I can nearly guarantee that you won't get shot at by the
Mafia," which elicited a small chuckle from Susan.

So that is when
Susan, more relaxed, asked what the hell BMOC did.

"Let me answer a
question with a question," Marsh began his explanation. "When TV and radio and magazines sell to
teenagers, what are they selling?"

Oh Christ, thought
Susan, tricked again. One of the
pretensions of many interviewers at HBS was that they liked to formulate a
short verbal business case for you to solve. This always struck her as bizarre "“ if there was anything an HBS grad had been taught to do, it was to analyze and
talk about a case. Thinking of Julian,
Susan decided that if she were going to interview HBS students, she would
instead focus on the question of whether the student had any friggin'
real-world common sense. She had taken
this interview in large part because it promised to be different than all the
rest, and here Marsh went with the case BS.

"Well, they sell a
lot of cosmetics, and clothes, and CD's," Susan answered.

"OK, that's right,
but I didn't ask my question well. Put
yourself in the teenager's shoes. The
ads they see "¦ what are they really
selling. For example, when a teenage
girl buys a hot new outfit, what is she really buying?"

"Hmmm. Positive comments from her friends; an aura
of being cool; popularity, I suppose."

"EXACTLY! When the media advertises to teens it is
selling popularity! Taken that way, the
teenage popularity business is enormous, literally hundreds of billions of
dollars a year. One day, I asked myself:
Why so indirect? They are selling
popularity, but they are doing it via a lipstick sale. That seemed terribly inefficient to me. If teenagers want to buy popularity, why not
let them do it directly?"

"Excuse me? You can't sell popularity off a rack."

"Ahh, but you
can. The name "˜BMOC' stands for "˜Big Man
On Campus.' That name, by the way, is
one of the reasons you are here "“ more on that later. For a fee, we guarantee to make teenagers
popular."

Susan thought
about this for a minute. Was this a
trick? Was this some elaborate case
where the key is not to get suckered into accepting such a bizarre business
model? She temporized with a
question. "What does BMOC actually do to
make kids popular? Is it something like
wardrobe consulting, helping the dorky kids to dress cooler and maybe take a
bath once in a while, that sort of thing?"

"Well, that's part
of it, but probably not the most important part. The keys to our business model's success are
our Local School Operatives, or LSO's as we call them. We go into area high schools and seek out and
recruit the coolest, most popular people. We keep them on retainer, paying them a bonus when we have a client at
their school that they can help to become popular. In many cases it's surprisingly easy "“ invite
the client to sit with them at lunch, to join them on dates, that sort of
thing. We can guarantee popularity,
because we literally have the local teenage opinion makers on our payroll."

Susan smiled. OK, this had to be fake. This is all a hypothetical case. The game was to find the fatal flaw. And she was pretty sure she knew what it was.

"I don't think the
P&L works. Keeping all of these kids
on retainer, plus the bonuses you pay them. I just can't see how the company makes a profit, unless your fees are
very, very high or you don't pay your student representatives very much."

"Ahh, a good
point, and you've hit on our other innovation. First, you are correct, we charge high fees now, though as we grow with
economies of scale, we expect to be able to charge much less. The real innovation, though is"¦ do you know
what a product placement is?"

"Sure. It's when a company pays to get their product
into a TV show or movie "“ like when Reese's pieces were used in the movie ET or
I guess if you showed Seabiscuit eating Purina Horse Chow."

"Exactly! And product placements are particularly
effective. They act like an ad but they
can't be ignored like an ad. Anyway, we
have taken product placements one step further: We get paid by major manufacturers to place their products not in movies
but in the hands of the most popular kids in high school, the ones who really
lead opinion as to what's cool and not cool who we"¦"

"Who you happen to
have on retainer anyway."

"Exactly. But be careful how you think about "˜on
retainer.' The natural reaction is to
assume this means money, but in our case it's not. We keep the most popular people on retainer
merely by "¦"

"Giving them free
products," Susan interrupted again, with growing excitement, "that
manufacturers are already paying you to put in their hands." Marsh nodded, with a big smug smile on his
face. Shit, this wasn't a joke, Susan
thought to herself. It might in fact be
brilliant. It served advertisers better
by putting their product in the hands of those that really drive teenage
opinion. And it served teens better, by
giving them a clearer, more direct path to their goal of popularity. And both paid money to BMOC for the
privilege. This really could work. She saw the implications of this approach
immediately.

"Trying to make
lots of friends over at the big media companies, huh? You're taking on the heart of their business
model, stealing both advertisers and buyers from the traditional media."

"Funny you should
mention that, but we can get into that later. What do you think of our business model?"

"Well, I think it
might work," she said, continuing to mentally pursue the idea in twenty
directions. She remembered something
that Marsh had said earlier. "You said
there was something about the name BMOC that caused me to be here today. What was that?"

"Oh, yes. When we started the company, I guess I had in
mind the geeky guys from "˜Revenge of the Nerds' "“ the pocket protector
boys. You notice we named the company
Big MAN on Campus. As it turns out, which we probably should
have known if we had done even a tiny bit of research, 85% of our customers are
teenage girls. Ever study observer bias? I guess I applied my own biases here. As a result, we're playing catch-up, trying
to re-target our advertising, our product tie-ins, everything, to teenage
girls. Take one example: One of our initial tie-ins was with Microsoft
Xbox. We were hired to try to help the
folks in Redmond overcome the enormous lead PlayStation has with teenage
boys. Well, it turns out that teenage
girls couldn't give a rip about video games, so we are just now trying to sign
up new partners."

"What I am looking
for," he continued, "is someone to head up all our marketing efforts, with a
particular emphasis on teenage girls. We
need market research, new approaches to attracting LSO's, and perhaps most
importantly, some blockbuster partnership deals with consumer products
companies. The job reports directly to
me, and starts at $5000 a month. The job
is yours if you want it."

Huh? Susan thought, doing a mental
double-take. A job offer already? It was getting weird again. "I'm sorry, Mr. Marsh, but I have to
ask. We've been sitting here for, what?
Like 10 minutes? You've asked me maybe
three questions. How can you possibly
offer me a job?"

Preston Marsh
smiled. "Well, for three reasons"¦ You
know, I had consultants come into the company once. I don't think I learned a thing from them,
except whenever they wrote a presentation, everything was in threes. There were never two reasons, or four, always
three. Something that seems to appeal to
Western minds, I'm told. Anyway, back to
three reasons: First, I've asked around
a lot about you, and you have done beautiful work in your first year. What's the value of ten minutes of interview
questions against a record of sustained performance at one of the toughest
schools in the country?"

"I have a second,
better reason, though. Do you know that
over the last two years, I have explained the BMOC business model to about 500
people, including some of the supposedly smartest people in the country. Many of these people I managed to convince of
our value after months of
discussions. Only two people have
"gotten it" in the first 10 minutes. One, unfortunately, runs a major media company and now views me as a
tremendous threat. The other is
you. Many, many people call me crazy,
and there are times they very nearly have me convinced. But if I'm crazy, you're crazy in the same
way."

"And third," he
said, pausing to stare at her for a few seconds, "I know your secret."

 

chapter six

Of course, now
that Gladstone had finally arranged a more secure, outdoor meeting location,
the weather sucked. It was steadily
raining, but it was one of those days where the rain did nothing to cool the
temperatures down from the high 80's. As
a result, steam rose from the ground, and the air seemed to be a physical
presence that had to be parted as he walked.

He approached the
Central Park Zoo from midtown, choosing to walk through the park rather than up
Fifth Avenue. He had hoped to get there
early, because every spy novel he had ever read emphasized how important it was
to get to a public meeting place early, to check things out and watch for the
arrival of your party. Unfortunately he
was running late, but since he had no idea what to look for anyway had he
staked the place out, it was probably just as well.

Near the lion cage
he saw a short, dark man in a gray suit, and, God forbid, white shoes. Everything about him, from his white shoes to
his posture as he waited, leaning against a wall, said "Mafia" better than a
name tag. Gladstone walked up to him and
said "Mr. Benedetto."

"Ah, Mr.
Gladstone, I thought I recognized you from our previous meeting. Mr. Primera could not make it himself. Shall we take a walk?"

They strolled back
through the park and down a sparsely populated path. Gladstone was not the least surprised that
Primera was not there in person. From
Ted's clumsy first approach, Primera had to suspect that Gladstone was looking
for some help on the wrong side of legal. Which is not to say that Primera had any problem with the wrong side of
legal; he just did not want his name
associated with it, particularly in front of a grand jury.

After a few
minutes of silence, Benedetto began, "Mr. Primera was"¦surprised at Mr.
Whitney's lack of, uh, discretion in their conversation last week." Not as surprised as he might be, thought
Gladstone, had he known he was being taped. Gladstone was sure that Primera did not know, through the simple logic
that right at this moment Ted was in his office and not imitating a lawn
sculpture at the bottom of the East River.

"I can't believe
he was surprised," said Gladstone, "since he has had dealings with Mr. Whitney
in the past. Ted is a complete idiot and
an asshole to boot. I am sure that Mr.
Primera is smart enough to have recognized that long ago."

Benedetto looked
sideways at Gladstone. "It is not good
that you should talk of your boss with such lack of respect," said Benedetto.

"Ted is not my
boss," said Gladstone. Seeing
Benedetto's reaction, he felt the need to explain further. "Mr. Primera
protects himself by working through smart men like you, but to all the world he
is still the boss. In my organization,
we do things a bit differently. I
protect myself by hiding the fact that I am the boss, and working through
idiots like Ted."

Benedetto stared
at him for a few seconds. Gladstone knew
that Benedetto had served as a corporal in Korea, and given this military
training would never quite understand anything but a very straight-forward
chain of command. Soon, though, he
shrugged in a very Italian way, and got to business.

"Mr. Whitney seems
to think we can help each other."

Gladstone had
planned for this conversation for quite a while. The last thing he needed was an open-ended
obligation to Carlo Primera, an obligation he would most certainly incur if he
asked for a favor without any quid pro quo. So, he began by observing, "Your organization has an associate on trial
next month here in New York."

Gladstone wasn't
sure from Benedetto's poker face if this opening was what he expected or
not. After a moment's thought, Benedetto
replied "You mean Theo Mancuso? So
unfair. I can't understand how the DA
could send that nice boy to trial for murder."

Hmm, Gladstone
thought to himself, I don't suppose it would have anything to do with the fact
that something like 16 people, including two off-duty police officers,
witnessed Mancuso walk into a small restaurant in the Bronx and put three slugs
right into the face of a local Columbian businessman. But he wisely kept this observation to
himself, and what Gladstone actually said was, "Yes, it's terrible. You know, it's really not going to help come
jury selection seeing articles like that one in the Post the other day "“ what
did it say? "˜MAFIA HITMAN FACES JUST REWARD.'"

"Damn those guys
at the Post," Benedetto said with his first display of emotion, "they seem to
always have it out for Italian Americans. I'm tempted to take it up again with the Anti-Defamation League, but
it's probably a waste of time."

"I too am appalled
to see such irresponsibility in the media," Gladstone said with as much
sincerity as he could muster. "We in the
M Group have labored for years to uphold quality journalistic standards. There are always those who want to play in
the sewer, though."

"Maybe there's
some way you could bring a little balance to the coverage," observed Benedetto
slyly. He had quickly guessed
Gladstone's intentions. "Mr. Primera has
always had a special fondness for Theo, and would greatly appreciate any help
you could give him."

"Absolutely. Consider it done. I think we can arrange for more, ah,
sympathetic coverage, particularly right around jury selection time." Gladstone didn't think there was a hope in
hell of Theo getting off, even if he was given the Nobel Peace Prize two days
before the trial started. However,
Gladstone suspected that Primera & Co. were planning to "persuade" a few
jury members over to Theo's side. In this
case, television and newspaper stories sympathetic to Theo would give those
jurors some cover when the highly unpopular hung jury was announced.

Gladstone took a
breath, and then proceeded. "However,
Theo's troubles do leave Ted and I in a bit of a bind. I hate to trouble you,"¦"

"Please. What can I do for you?"

"We've got a
little business problem out in California we need a special consultant to help
us take care of. Last time we needed
similar help, we used Theo. But of
course, Theo is kind of busy right now with this court case. We were hoping you might know someone else
with, uh, similar skills who could help us."

Three years ago,
one of M Group's California music divisions came under investigation from the
state attorney general and the SEC. The
SEC suspected that the company was using phony transfer pricing to a series of
shadowy overseas affiliates for the sole purpose of hiding operating
losses. Which, Gladstone remembered with
a smile, we certainly were. Gladstone
had followed with interest the sad parade of Enron managers going to jail for
doing something similar. Pussies. We
figured out how to shift money and assets between multiple joint ventures when
those guys were still falling asleep in the back of their business school
classes.

Once he'd been
tipped to the investigation, Gladstone soon learned that the government's key
witness was the wife of some dumbshit assistant treasurer. To understand why this twit had gotten his
wife involved, you had to understand a little about how one can make magic with
joint ventures. The accounting method
for joint ventures is primarily determined by the percentage ownership one has
in the venture. If a company controls
51% or more of a joint venture, the law requires that the joint venture's books
be consolidated with the owning company's "“ in short, all the venture's assets
(and debts) and profits (or losses) would be included in the parent company's
statements. The magic happened when the
corporation's ownership dropped below 50%. Then, the venture is treated like an entirely unrelated company. All the assets, liabilities, and even
sometimes the profits and losses of the JV disappear off the books of the
parent.

The trick then was
twofold: 1) set up a joint venture with
the company owning 49% and 2) find someone related to the company, a stooge
that the company trusted, to own the other 51%. Then, the company can retain control, through the stooge, but the
venture can become a dumping ground for all the crap the company doesn't want
its shareholders to see. Got a
money-losing division that is pulling down earnings? Voila! Dump it into a minority JV, and earnings are up. And if you are really good, sell it to the JV
at a profit, so the company not only gets rid of the losses but realizes a big
one-time capital gain on the sale "“ and all the while, the company still gets
to control the venture and operate it as normal.

Over time, the
deals became increasingly more complicated. Often Gladstone was structuring multi-party deals to manage reported
income as well as to provide tax shelter benefits. As the complexity increased, many traditional
investment bankers began to shy away from the deals, fearful of incurring the
regulators' wrath. This in fact was how
Gladstone first met and became involved with Carlo Primera: As transactions became more complicated,
Primera was a critical resource in making them work, and, more importantly,
keeping the details private.

Of course, there
is one small stumbling block "“ how do you find someone to take 51% control of
the joint venture that can be trusted to do the company's bidding? Years ago, various corporate managers would
act as the JV partners, but over time the courts have struck these ownership
structures down as shams. Today, one of
the best approaches is to use corporate wives.

In this particular
case, M Group's pencil dick assistant treasurer did what was entirely normal
practice: He put several of their key
earnings-management JV's in his wife's name as majority owner and general
partner. So far, so good, but it was
here that the idiot made his critical mistake: Instead of the tried and true practice of sliding papers in front of his
wife when she was already rushed and saying "here, sign these", he actually was
stupid enough to explain to his wife what was going on.

Gladstone thought
about that a bit. He had been married
for over twenty years, but he understood divorce statistics. He may have promised to love, honor, and
cherish when he slipped the diamond ring on her finger, but while diamonds may
be forever, marriages most certainly were not. And, nothing was going to get him to tell his wife anything that might
be interesting to a grand jury. Divorces
were expensive enough.

Well, the asshole
treasurer did not have such foresight, and after a series of arguments with his
wife over the allocation of household chores, he soon had his wife whispering
in the DA's ear. And the IRS's ear. And the SEC's. And her divorce lawyer's.

So along came
Theo, whose uncle Carlo not only owed Gladstone a favor at the time, but also
had some financial interests in several of the JV's nominally controlled by
Mrs. Pencil Dick. After a brief visit to
LA by Theo, she soon saw the light and was so crushed with shame she committed
suicide by hanging herself in her closet with a beautiful dragon-patterned
Hermes scarf.

Incredibly, Pencil
Dick himself does not realize just how lucky he was, considering that he was
still breathing, shed of a messy divorce, and had escaped of a lot of legal
troubles. The bozo actually threatened
to raise a little hell by calling for a more careful investigation of his
wife's suicide! What an idiot.

It was a sticky situation, since a second
death would be tremendously suspicious. Theo solved the problem brilliantly. He arranged for a series of out of work actresses to earn a little extra
money by, to put it bluntly, banging our accountant senseless. Soon even this micro-weight was able to put
two and two together and determine that maybe he was better off with his wife
dead. As a sidebar, the dumbshit still
can't figure out why he doesn't seem to get laid like he did for that one six
week period.

"Well, Theo is
uniquely good at what he does, but I am sure we have someone in our
organization who can help," Benedetto said. "I seem to remember two men in our Bayonne office who have made some
sort of reputation for themselves. Real
up and comers. Let me check, and I will
have them get in touch with you."

"If they're the
right guys, have them meet me here, same time, two days from now."

And with that,
Benedetto nodded, and walked away.

   

BMOC is available on Amazon.com and as a low-cost pdfChapters 1 and 2 are hereChapters 3 and 4 are here.