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Are MBAs good fits for startups?
There's an ongoing debate about whether MBAs are good fits for startups. Recently, Michael Seibel of Y Combinator tweeted this MBA-damning quote:
Reading YC applications and observing that business schools are doing a criminally poor job of prepping students to start tech companies
— Michael Seibel (@mwseibel) April 10, 2017
This led to an interview with Jeff Bussgang, Harvard Business School Professor and General Partner at Flybridge Capital Partners, about the impact of an MBA education on startup founders. Famed entrepreneur and VC Guy Kawasaki said that MBAs are worth about a negative $250,000 to the valuation of a startup. And Guy has an MBA! As a startup founder with an MBA, I have some opinions about this. But take this with a grain of salt, because I haven't done shit in the startup world (yet). :) With anything, there are pros and cons, and having an MBA in a startup is no different.
Pros of MBAs in Startups
Generalist Skill Set
I believe the skill set of an MBA fits well with what's needed at an early stage startup. Regardless of what specialization was chosen by the student, MBAs receive a degree in general management. Thus, they have knowledge about multiple aspects of business, including marketing, finance, accounting, strategy, and many other subjects. I believe this fits well with what a startup needs in its early stages - a generalist who can address many parts of the business. And if that MBA has deeper expertise in marketing and growth, the candidate is even a better fit. Yes, engineers are the most valuable members of an early-stage startup team, because they can actually build the product and get it to market. But having that marketer or business person to do everything that the engineers can't or don't want to do is very important as well. Additionally, many MBAs are numbers-oriented and fluent in analytics, which is necessary to validate assumptions, measure product usage, and assess other trends. MBAs can help the engineers concentrate on what they do best - developing the product - and add value in many other ways.
Ability to Learn
All MBAs from top-tier schools have at least a few years of work experience before heading back to get their advanced degree, so they have proven their ability to adapt to different industries and work environments. This ability to learn and adapt is critical to startups. Steve Blank and Eric Ries preach about customer development and the Lean Startup, both of which focus on continuous, iterative learning. MBAs have proven the ability to learn throughout their careers, whether it's on the job or in the classroom. So why would anyone doubt that they could do the same in a startup environment?
One of the most valuable benefits of going to B-school is the network that you gain access to. My alma mater, NYU Stern, has over 100,000 alumni in over 125 countries across the globe. MBAs can leverage these massive networks to raise money, find great partners, and potentially help get a startup acquired (if it makes it that far). Businesses are built on relationships, and business schools can help forge these very valuable relationships.
Cons of MBAs in Startups
MBAs Want More Money and Less Risk
Most MBA candidates went to business school to make more money. Post-MBA salaries are often in the six figures, and candidates can double or triple their pre-MBA income. And having an MBA decreases the level of risk for the future, since it's a very marketable degree to have if you're searching for a job. This does not jive in the startup world. Startups are fraught with risk. Depending on the stats that you believe, up to 90% of startups fail, many times because they run out of money. And because of this, early-stage startup salaries are very low and even sometimes $0. It's obvious that this doesn't align well with the typical MBA's mindset.
MBAs are good at analysis, which can be a strength and a weakness. The ability to process and analyze data is helpful for any type and stage of company. But over-analysis is a bad thing for startups. Speed is one of the few advantages startups have over their incumbent competition, and many times quick decisions need to be made with incomplete information. MBAs tend to want to collect more data, do more surveys, and just pore over the data until a solid conclusion can be obtained. Early-stage startups just don't work this way.
Managing vs. Making
MBAs typically have a few years of work experience under their belts, and many of them have moved up from some lower-level analyst position to a manager role. Once you become a manager, going back to actually doing the work can be extremely difficult. After years of hiring people to write blog posts, would you want to do it yourself? Do you even remember how to build that revenue model that your analysts have been creating for you when you were working at that investment bank? YC co-founder Paul Graham wrote the seminal article about the maker's vs. manager's schedule. Early-stage startups need makers, not managers. And unfortunately it's very difficult to revert back to being a do-er after managing people for a while.
Michael Siebel and Guy Kawasaki obviously have their negative opinions. But there is a good amount of evidence that MBAs are good startup founders. David Fairbank, formerly of NextView Ventures, wrote a great piece on how MBAs have been successful founders. Entrepreneur-turned-academic Vivek Wadhwa said that his MBA from NYU Stern (yes!) was the best investment he's ever made. And Poets and Quants has plenty of articles about the success of MBA startups, like this one. So what's the verdict? Is the MBA good for startups? Like many arguments, it depends. Personally, I think an MBA brings a lot of good things to the startup table, but the founder needs to be really open to learning, doing things differently, and sacrificing lots of money and stability. Is an MBA a pre-requisite to startup success? Definitely not. But are MBA founders doomed for failure? Definitely not, too. What are your thoughts about MBAs in startups? I'd love to hear from you.