01 Mar 2004
Bad Boys Good ManRe: Kim Hatchett-Maitland (MBA 1991)by Julia HannaTopics:
Derek T. Ferguson (MBA 90) could be mistaken for a minister by fellow commuters on the train from Connecticut to Manhattan. Yet his calling is not to the pulpit, but to the midtown headquarters of Bad Boy Worldwide Entertainment Group, a privately held enterprise with 2002 revenues of $300 million. As Bad Boys CFO, Ferguson oversees a multifaceted hip-hop empire founded in 1993 by chairman and CEO Sean P. Diddy Combs, a Grammy Awardwinning producer and recording artist in his own right. Sometimes criticized for its associations with misogyny and violence (P. Diddy, for one, has seen the inside of the courtroom more than once), hip-hop is as much a lifestyle as a musical genre. Yet the companys spare, functional Times Square offices dont suggest any of these bad boy qualities and neither does the genial, relaxed Ferguson.
A Bronx native, Ferguson recalls growing up in a close-knit community where his father owned a trucking company. Although neither of his parents finished college, both stressed the importance of education. After skipping two grades and gaining admission to the academically rigorous Stuyvesant High School, Ferguson enrolled in Whartons undergraduate business program at the age of 16.
Initially, Ferguson was against the idea of continuing on to get his MBA. I thought I was going to be an entrepreneur and didnt want to spend all that money, he explains. Seeing the effect of HBS on a friend (He presented himself so well, he recalls) changed his mind. I was wrong, he says. HBS clarified what I was capable of doing and what I wanted to do.
Moving into Music
Ferguson, 38, came of age at the dawn of hip-hop. Our house was the place where all the neighborhood kids congregated, he says, explaining how his brother bought turntables, a mixer, a microphone, and an extensive record collection with money earned working for their father. Ferguson moonlighted as a DJ in college on the weekends to earn extra money but never considered a career in the music business.
Instead, he worked as an auditor and M&A analyst at Coopers & Lybrand in New York after graduating from college. Then, in 1988, Ferguson and Keith Clinkscales (MBA 90) founded Urban Profile, a lifestyle magazine for young African-American professionals. We didnt consider printing costs or subscribers, Ferguson remarks. Its probably just as well had we thought it through, we probably never would have done it! When the magazine was sold three years later (the pair oversaw its publication while attending HBS), the subscription base numbered some 75,000 readers nationwide.
Ferguson then moved on to Bain & Company in New York, where one of his clients was Camelot Music, a retailer based in the Midwest. Its biggest profit drivers were rap and hip-hop, he remarks. I remember thinking that there was a real opportunity to cater more directly to that customer base. To learn more about the business, Ferguson left Bain to work at BMG Entertainment, the umbrella corporation for dozens of music labels, where he served as vice president of finance and operations. Then Sean P. Diddy Combs came calling in 1998, alerted to Fergusons expertise by Kimberley Hatchett-Maitland (MBA 91), who was married to a friend-of-a-friend of the street-smart entrepreneur.
I had followed his career and thought a lot of what he had accomplished, Ferguson says of Combs, who at that time was already sitting atop a phenomenally successful record label with platinum-selling artists such as the late Notorious B.I.G. and Faith Evans. He said, Look, Ive done a lot of this on my own, without a sophisticated businessperson at the helm. Just think of what we can do together. He was a good salesman.
The businesses that today make up Bad Boy consist of more than its popular music label, however, a fact due in no small part to Fergusons oversight. I put the business structure in place so these ventures can be financed, he explains. Sean John Clothing has quickly grown to sales of $200 million and one hundred employees since it was launched five years ago. Its our most profitable area, says Ferguson, noting that annual revenues could easily reach $1 billion within the next seven years. He sees growth potential in international sales, a new line for women, and licensing categories such as fragrance and footwear. Other ventures that fall under his purview include Justins restaurants, with locations in New York and Atlanta; Blue Flame Marketing & Advertising (a firm that helps clients reach the $890 billion youth and hip-hop markets); Bad Boy Films; and Daddys House Social Programs, which provides tutoring for more than five hundred students in New York and New Jersey. (P. Diddys completion of the 2003 ING New York City marathon raised $2 million for Daddys House and other charities devoted to childrens education.)
A broad revenue base is a necessity in a business hammered by illegal Internet downloads. Its had a tremendous impact, Ferguson says, describing the 20 to 30 percent drop in sales that occurs in the first week after a CDs release about the length of time it takes for a perfect digital copy to make the rounds on the Internet. Its changed the spending levels. Its changed the whole process of breaking in new acts.
Music is so powerful that were looking for other ways to monetize the medium, says Ferguson. Indeed, the surprise impact of hit songs like Pass The Courvoisier has not been lost on companies desperate to reach the lucrative youth and urban markets (sales of the cognac jumped after the songs release). We are definitely leveraging the acts that sponsors are interested in, he continues, describing how Apple paid to have its iPod placed in a P. Diddy music video. Some extremists think that recorded music will be free in ten years, Ferguson comments. Companies will make money by selling sponsorship around the content.
Keeping the Faith
As focused as he may be on Bad Boys bottom line, Ferguson is quick to discuss other aspects of his life, from fishing for porgy on Long Island Sound with his son and daughter to working on an economic justice ministry that brings jobs to the inner city through the New York Covenant Church. Ferguson admits that hes uncomfortable with some of the less positive messages of rap and hip-hop. He describes how he and others at his church have been supporting a Christian hip-hop group called Corey Red & Precise.
I dont think were called to run away from controversial environments. Were called to run to them and try to create change, he says. Acting on that credo, Ferguson also leads a weekly Bible study for employees of Bad Boy. I was never the type to wear my faith on my sleeve. It seemed inappropriate, he recalls. I had to overcome that barrier because I felt so called to take action.
Response to his e-mail inviting people to the study was so strong that Ferguson broke the group into a morning and an evening session. I had to take my work hat all the way off, he says. The study involves taking a spiritual inventory figuring out how different events in our lives connect and what they mean. Achieving balance is a goal of the self-examination process, Ferguson says. Its difficult to avoid putting money at the forefront of your life. I want to provide for my family, but being a huge financial success doesnt always fulfill your sense of joy and peace.
Ferguson says that his journey is still evolving. Whatever the future brings, he wants to make a difference. For now, its a matter of figuring out how to do that while serving as right-hand man to one of hip-hops most prominent bad boys. You can be in the corporate world and still incorporate goodness and righteousness in your work, he observes. At the end of the day, what really matters is using your skills in a way that has a lasting benefit.
Class of MBA 1990, Section D