Beware of MBAs! The business school curriculum teaches how to suck at startups

I have an MBA from Dartmouth's Tuck School of Business.  It was some of the best experiences of my life.  I met fabulous friends, learned from incredible professors, and developed in many important my ways.  My entrepreneurship professor, Gregg Fairbrothers, is one of my all-time favorite teachers and he taught me a lot about doing start-ups right.  The professors and administrators at Tuck never claimed they were teaching me how to run a startup.  In fact, they were explicitly teaching general management curriculum to be applied towards larger businesses.

 

The problem that I see a lot now that I've been in startup land for 4 years is that too many MBAs think that their education in business can be applied directly to startups.  They forget that startups are not a smaller version of a larger company.  Applying a set of frameworks designed for success with larger companies is a good way to guarantee failure when dealing with start-ups.  Professors like Gregg Fairbrothers preach this all the time.  Yet, I still get calls regularly from MBA friends ready to do their first start-up, believing that their MBA education will give them the right tools.

 

The reality is, we MBAs come with a lot of baggage.  A good way to understand why MBAs are damaged goods for startups is to understand the actual curriculum.  


 Here are standard core courses at any business school: 


Strategy: 

 This is the most dangerous of all MBA courses.  In this course, you learn high level analysis, using the 3 C's, the 4 P's, and, of course, Porter's Five Forces.  So, on a typical day, you read a 15-page case on a company's mistakes and then apply one of these frameworks to think through how you would have done it differently.  Doesn't sound so bad right??  Wrong!  This is all high-level business strategy for larger companies.  For a start-up, no one ever knows what will work and what won't.  That's why there's such a focus on iteration in the lean startup methodology.  Great startups figure out what to do by building really fast, listening to customers, and iterating.  More like guess and check.  An MBA, fresh out of a Strategy course, will try to figure out everything on a white board, naively believing that they can think their way out of mistakes.

 

Accounting: 

In accounting class, you study the annual reports of big companies and learn about gross margin, cash flow statements, balance sheets.  You learn that assets=liabilities + equity and how to convert LIFO to FIFO.  This is all really, really useful if you have warehouse full of stuff and customers that pay on credit.  Pre-revenue start-ups usually have no Cost of Goods Sold, no revenue, none of that.  The only accounting you need is to know how many users are out there, how much it costs to acquire a user, and how much money you'll have from that user.  That and a shoebox to store your receipts until you're ready to pay someone to type them in and do your taxes for you.  An MBA will way-over complicate things with talk of deferred taxes, accrual basis, yada yada--and they forget that their gorgeous, complex set of spreadsheets fails the most basic axiom of all analysis: garbage in, garbage out.

 

Organizational Behavior:

OB was one of my favorite classes.  I would love to have a company big enough someday to implement some of the stuff on building great structure.  For startups with less than 10 people, all that stuff is irrelevant.  No one in OB tells you to let your top hacker work whenever or wherever he wants or that status meetings are best done standing up or that people are motivated more by technical challenge then by compensation.  To be fair, when you're startup gets big enough (over ~20 people), it rocks to have an MBA come in and start to implement structure just as it's really needed.  Too much structure before that gets in the way of the magic.

 

Corporate Finance, Financial Markets, Statistics:

Not really sure how these apply to the startup world.  Once I exit for millions of dollars and need to figure out where to put my big pile of cash, they may become more useful.  Our 8 person company doesn't worry about the optimal debt to equity level or whether we should be doing any currency hedges.  Corporate finance for the start-up is best served by reading Signals vs Noise to understand the dangers of raising money and following Venture Hacks to learn the tricks of working with Venture Capitalists.  MBAs will generally know how to read WalMart's annual report but will be lost in the complexities of a cap table.

 

Management Communication:

This is the most painful to include.  Management Communication teaches how to develop awesome powerpoint presentations.  It's actually a very useful skill and, if you're a consultant for a top tier firm, learning how to put together a perfect leave-behind-deck is invaluable.  For a start-up, you want your presenter to internalize Guy Kawasaki's 10-20-30 rule.  You want your decks feeling like a Steve Jobs presentation.  It's about selling a vision, not presenting analysis.  MBA start-up decks always have way too much text, boxes, and arrows.

 

 

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Perhaps the most difficult part lies in the underlying motivation of why people get MBAs.  Any MBA will tell you that it wasn't the academics that drove them to their master's degree.  Unlike almost every other master's field, in which mastering the content is of primary concern, MBAs usually blow off classes after the first semester (especially at the top schools).  Most people get an MBA because of the network.  They have learned that having a group of successful friends will open doors for you.  Pedigree from a top school=better opportunities for success.

 

For start-ups, only one thing matters.  Can you build something that people want.  Your pedigree is exactly worthless compared to this simple ability to execute.  And for an MBA that just spent 3 years (remember, the application process takes a year!) and over $120,000 building a network, it's really difficult to hear that the network and the education are no longer as big of an asset as you had hoped.

 

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I'm Jason Freedman.  I co-founded FlightCaster.  
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