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Thursday, February 17, 2005

Tuck Student-Owned Firm - WSJ Article

If Tuck news interests you, this may be a fun article for you to read.

From Dow Jones Newswires

What started out as a box of leftover T-shirts became a spinner of cash for some M.B.A. students at the Tuck School of Business at Dartmouth.

In 1984, some enterprising Tuck students led by Linda Bornhuetter Gridley were selling T-shirts stamped with a picture of a truck and the words, "Amos Truck School -- Learn To Drive The Big Rig," a play on the century-old graduate school's name. The students were stuck with extra shirts at graduation in 1985, so they sold them to students from the class behind them.

Thus was born TuckStuff, a thriving student-run retailer that for years changed ownership with each graduating class. The students managing the business this year say it's on track to surpass $150,000 in revenue -- a long way from the roughly $3,000 in revenue for the 1985-86 school year, according to Leo Hopf, who purchased the business from Ms. Gridley in 1986. The product line has burgeoned as well, from cheap T-shirts to goods such as gold cufflinks, yoga pants and captain's chairs, all emblazoned with variations of Tuck's green logo.

"It has lasted a surprisingly long time," says Mr. Hopf, now a management consultant in Burlingame, Calif. "I'm surprised there wasn't one year it went out of business, either because of no interest or because it wasn't run well."

As TuckStuff evolved, however, its success created something of a sore spot at the Hanover, N.H., school. Administrators became increasingly concerned, as the business was auctioned off each year to the highest bidder, that the soaring price was shutting out students who wanted but couldn't afford to participate. Indeed, the seven student owners in the class of 2003 sold the business for nearly $40,000 -- compared with a price of less than $500 for Mr. Hopf when he sold the business in 1986.

"Over time, we realized that the transfer price created a burden," says Steven Lubrano, assistant dean and director of Tuck's M.B.A. program, and a Tuck grad himself. "Some students who were talented and capable of running the business just couldn't come up with the money."

There were also complaints that the profits were going to a small group of students who had a near-monopoly on Tuck-branded gear. Mr. Hopf, for his part, estimates that he netted some $1,800 on revenue of about $3,000 in his year as part-owner. In the early years, only two or three students owned the business at a time. But in later years, the number of owners roughly tripled, driven partly by necessity as the auction price kept rising. Sales and profits were growing as well. Of the seven owners in the class of 2003, two estimate that there were sales of more than $100,000 that year. And one says their profit margin was about 20% to 30%, which works out to somewhere between $2,800 and $4,300 per owner. One said the group didn't sell the business at a big profit that year. Owners in previous years either couldn't recall how much their profit was in the auction sale, or they declined to discuss it.

To be sure, nobody was getting rich. Still, persistent perceptions of inequity and privileged status for TuckStuff's owners led the school last year to take action: Tuck administrators purchased TuckStuff from the graduating owners for an undisclosed price.

The business is now accountable to Mr. Lubrano and other administrators, though students still run it and keep most of the profits. While the first 10% of profit will now go to the school, two-thirds of what remains will go to the seven student operators, and one-third will go to Tuck's student board, which will dispense the proceeds among student clubs.

By buying the business, Tuck has made it easier for the student managers in some ways. The school provides TuckStuff with capital and a permanent store on campus, which was set to open last week. Mr. Lubrano estimates that having a storefront will boost TuckStuff sales 20% to 30%.

Under the new arrangement, the administrators have also tried to reassert the primacy of education in the process. Each year's crop of student managers will be chosen through that staple of M.B.A. programs: a business-plan competition. The judges will be made up of current student managers and Tuck administrators. The managers are expected to share what they've learned about running the business with the rest of the M.B.A. students, and to invite retail industry executives to speak at Tuck.

But not everyone is happy with the changes at TuckStuff. While Mr. Lubrano says the school will stay out of day-to-day operations -- previously its involvement was limited to accepting royalties for the use of its logo -- he says he consulted with some Tuck graduates who felt TuckStuff should remain independent to preserve its entrepreneurial spirit.

"It does take out a piece of that entrepreneurial feeling," says Maggie Hunt, who was a part owner of TuckStuff before getting her M.B.A. in 2002. When she was involved, she says, "it didn't feel like a student club at all. It really felt like our own thing. I don't know if I'd be as excited about it if it were just another student club."

Ms. Hunt, now a strategy consultant in Boston, does see benefits to the new structure, however, especially the elimination of the upfront capital requirement. Also, she thinks TuckStuff could probably get better access to alumni, a big customer segment, now that it's more closely aligned with the school.

This year's managers say they like the new setup. Second-year student Christian Oberle says the team can be bolder in introducing new products because they have the backing of the school to make big purchase orders. For instance, TuckStuff recently ordered about $12,000 of neckties from Vineyard Vines, of Greenwich, Conn., using an account held by Dartmouth.

"With the way the stuff has been moving, we'll have no problem whatsoever" selling out the tie inventory, Mr. Oberle says. "A team running the business by themselves wouldn't be willing to put up the capital outlay for the order," he adds.

Fellow student manager Jane Blair also is pleased with the arrangement. Students can take a longer-term view of the business, she says, and don't have to worry about "blowing out" excess inventory as graduation approaches, or about maximizing returns on any investments.

Ms. Blair says her group's winning plan for TuckStuff included introducing Tuck-branded clothing for women. They also added marketing activities such as book-signing events for visiting lecturers.

Mr. Oberle says he doesn't lament the school's increased involvement in TuckStuff. He likens it to a start-up getting financing from a venture-capital firm.

"That's something which is tough, answering for our actions day in, day out," the student manager adds.


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