King of Clash Flow Retires from Marshall
Professor James McNeil Stancill, Ph.D
By David Bloom
May 31, 2007
Jim Stancill was sick in bed, huddled against a nasty winter storm that had sent Philadelphia temperatures plunging to 3 degrees, when he got a call from a faraway and sunny land. Robert Dockson, dean of the business school at the University of Southern California, was offering the young doctoral graduate of Penn’s Wharton School of Business a job as a professor.
"I asked my friends whether I should go and they didn’t seem too sure, but it sounded pretty good to me just then, so off I went," Stancill remembers.
That was 1964, 43 years ago. In the decades since at USC’s Marshall School of Business, Stancill built a reputation for figuring out a crucial issue for the entrepreneurial economy of Southern California and increasingly, for all the world’s high-growth economies. The key point: for startup businesses without a deep-pocketed corporate parent, cash is king.
"Cash is more important than your mother," Stancill declares in one of his signature truisms. "When you’re running a middle-market firm, cash flow is everything. What’s the time shape of cash flow? When is it going to go out and when is it going to come back?"
As so often happens in academia, Stancill stumbled across his life’s work more or less by accident. When Stancill arrived at USC, Kenneth L. Trefftzs was chairman of the finance department, and already taught Stancill’s specialty, securities analysis. So Stancill started teaching corporate finance instead. On the side, he began consulting with nearby small and mid-sized companies.
"I saw that the stuff I was teaching in corporate finance just didn’t apply to these companies, so I started to adjust," Stancill says. Over time, he came to understand the importance of cash flow to these smaller companies, though it initially left him a lonely voice on the far west edge of the continent.
"I was John the Baptist preaching in the desert," Stancill says. That’s not the case anymore. "I’m proud to say when I go out of here that at least I made a little bit of a dent in corporate finance for these middle-market firms."
Southern California alone has an estimated 400,000 firms with annual revenues between $2 million and $200 million, thriving in and largely shaping the region’s dominant entrepreneurial culture. And such smaller businesses are now major drivers of economic growth worldwide. Stancill’s work is now a crucial part of mainstream financial analysis and management, say investors and business leaders who once studied under Stancill.
When Robert Rodriguez, now CEO and principal of First Pacific Advisors LLC, an investment advisory firm with $11 billion in assets under management, was taking Stancill classes in the early 1970s, he says, "Little did I know that cash flow and the importance of cash flow would become the guiding mantra of Wall Street today."
But it is. In crucial financial sectors such as mergers & acquisitions, private equity and the leveraged buyouts of the 1980s, investors determine company valuations based on the cash-flow analyses that Stancill has long championed, says Rodriguez.
And Stancill brought more than just bright ideas to entrepreneurial finance, as his specialty has come to be known.
"He brought a sense of enthusiasm and excitement to an area that could be incredibly boring," says Rodriguez, who with his wife, Sue, last year endowed a chair in business administration in Stancill’s name at Marshall.
Stancill taught more than 9,000 Marshall students, including a third of all the MBA students. Like Rodriguez, many kept their Stancill class notes close at hand as they started their own businesses, says Brian Sullivan, managing director of Santa Monica-based Forwardline.com, which specializes in direct lending to retailers.
And many of them have remained close to Stancill and USC Marshall, often through the annual Student-Executive Dinner of USC’s American Finance Association chapter that the professor has organized since the beginning.
"Every time I sit next to another CEO or CFO (at the AFA dinners), we laugh about how we still refer to his notes," says Sullivan. "His was definitely my favorite and most useful class. It affected my cash planning and doing back-of-the-envelope valuations."
With retirement from teaching ahead, Stancill plans to work on fundraising for Marshall. He’s off to a good start, without even really trying. At this year’s AFA dinner in late April, attendees launched a fund for an endowed scholarship in Stancill”s name. That fund already has gathered about $150,000.
And like any good teacher of entrepreneurial finance, Stancill has a startup of his own, importing and distributing brushes from China, where he has been regularly visiting for more than a quarter of a century. He’ll have plenty to keep him busy.
"It’s been a wonderful place to work," Stancill says of his time with USC Marshall. "Boy, have I seen changes. It’s gone from a caterpillar to a blooming butterfly. But I don’t feel like I’m leaving anything. As (Marshall Vice Dean of Faculty) Kevin Murphy says, I’m just changing positions."
Professor James McN. Stancill has taught entrepreneurial finance and other subjects for more than four decades at USC Marshall. In that time, he’s become known for his pungent aphorisms on how small and mid-sized businesses survive financially.
Among the best:
On figuring out the startup cash your company needs: "If you want to fly to paradise, you better have enough gas to make the trip, because there’s no gas station along the way."
On the importance of having relationships with potential investors before you look for funding for your startup: "A shopped deal is no deal. You need to know someone."
And more on finding startup money: "If you don’t know where your money is going to come from, you’re not likely to get it."
And finally, most memorably, even around Mother’s Day: "Cash flow is more important than your mother."
About the USC Marshall School of Business
Consistently ranked among the nation’s premier schools, USC Marshall is internationally recognized for its emphasis on entrepreneurship and innovation, social responsibility and path-breaking research. Located in the heart of Los Angeles, one of the world’s leading business centers and the U.S. gateway to the Pacific Rim, Marshall offers its 5,500-plus undergraduate and graduate students a unique world view and impressive global experiential opportunities. With an alumni community spanning 90 countries, USC Marshall students join a worldwide community of thought leaders who are redefining the way business works.