OK, So Maybe Not ALL MBA Entrepreneurs Are Oxymorons

A version of this article previously appeared in Forbes.

“As much as possible, avoid hiring MBA’s. MBA programs don’t teach people how to create companies … our position is that we hire someone in spite of an MBA, not because of one.” – Elon Musk, Founder Tesla Motors and SpaceX

MBA’s are an easy target for entrepreneurs’ scorn. As Peter Thiel, Co-founder of PayPal and Palantir once put it, MBA’s are “high extrovert/low conviction people.” A nice way of saying they can be arrogant mercenaries.

I too have taken shots at MBA’s, describing why they are not typically well suited for startup life in Why Entrepreneurs Hate (Most) MBAs.

Ventures In Which An MBA Education Is A Plus

“When M.B.A.’s come to us, we have to fundamentally retrain them. Nothing they learned (at Business School) will help them succeed at innovation.” – Scott Cook, Founder, Intuit

Given the general consensus that Business School is essentially a farm system for investment banks and consulting firms, I was initially concerned when one of my star entrepreneurial students, Sieva Kozinsky, told me of his plans to attend my alma mater, Wharton.

However, as we talked, he opened my eyes to the fact that an impressive number of very successful startups were founded by graduates of top MBA programs.

My contrarian nature sparked, I began researching MBA led startups. I was surprised to learn that nearly one fourth (24%) of the 157 unicorns (private companies with a valuation > $1B) have at least one MBA founder.

Not only is Sieva attending Wharton this Fall, he and his partners, Hansae Catlett (Stanford), Hiro Tien (Stanford) and Josh Hoffman-Senn (Harvard), will launch The MBA Fund later this year. Their venture fund will focus on startups founded by Wharton, Stanford and Harvard students and alumni.

According to Sieva, “Over the past ten years, the top three business schools have averaged one home run startup annually (i.e., valuation greater than $500 million). As students in these schools, my partners and I will have a pole position to discover and nurture the next MBA monster hit.”

Sieva and his team will be well served to consider the following common characteristics of successful MBA led startups when vetting their deals:

Consumer FocusNextView Ventures has determined that 45% of the MBA unicorns focus on consumer Internet and ecommerce. One reason is because many MBA’s come from a non-technical background. Online commerce is something these founders have experienced and understand. In addition, successful consumer ventures serve extremely large and lucrative markets, making them attractive for MBA’s driven by out-sized outcomes.

Consumer-facing ventures also rely on complex logistics and hyper-efficient distribution channels. MBA’s are trained to design, organize and manage such large-scale, complicated operations.

The list of notable consumer-facing companies started by MBA’s is extensive, including: Blue Apron, Stitch Fix, Warby Parker, Diapers.com, Rent The Runway, Plenty, HomeLight and Door Dash.

Large Capital Requirements – MBA’s, especially those from top schools, have access to significant amounts of capital, primarily through their alumni and peer networks. Startups formed by Wharton, Harvard and Stanford MBA’s collectively raised $15.8 billion from 2010-2015.

The close allegiance between Wall Street and top business schools facilitates MBA entrepreneurs’ fundraising efforts, especially for consumer-oriented companies which can require outlandish amounts of capital to reach critical mass.

The MBA Fund’s data, gleaned from multiple publicly available sources, shows that MBA backed companies are 60% more likely to raise a $10M+ round in their lifetime, as compared with a control group of more than 1,300 Silicon Valley companies which raised venture funding. These highly-capitalized MBA startups are 24% more likely to reach a $100M+ valuation, compared to the Silicon Valley control group of non-MBA led companies.

Minimal Science / Technology – Other than the technology associated with ecommerce, most successful MBA startups do not rely on technological innovations or fundamental, scientific discoveries to achieve a competitive advantage.

That said, a few tech-heavy exceptions include Wildfire, acquired by Google and Behance, purchased by Adobe. In addition, Moderna Therapeutics, a mRNA biotech startup, has raised nearly $2 billion.

Foreign Versions Of US Companies – According to NextView, 24% of the MBA founded Unicorns are headquartered outside the US. The administrative and execution skills taught at Business Schools are valuable at such “me too” ventures, as the opportunities to differentiate based on technical breakthroughs are minimal. Notable examples include Grabtaxi and Jumei.

Note that the MBA Fund’s data considers a company as “MBA founded,” even if only one of its founders earned an MBA. Thus, caution should be taken when evaluating the above data, as it’s impossible to parse the influence non-MBA and MBA founders exert on their startups.

Situationally, MBA’s Can Be Effective Entrepreneurs

The MBA Fund’s data has caused my thinking to evolve. It’s not that MBAs categorically make poor entrepreneurs. Rather, they can be situationally successful in startups that align with the characteristics stated above. Despite their attitude and personality shortcomings, an MBA degree can provide certain types of startups with a distinct competitive advantage.

That said, the great majority of MBA graduates are best suited for a life on Wall Street or as a big company consultant. According to a recent Pitchbook Data study, the number of VC-backed entrepreneurs at the top three MBA programs from 2006 – 2018 were de minimis, as a percent of the total graduates: Stanford 8.1%, Harvard 2.9% and Wharton 2.7%

Despite the high-profile success of some recent MBA entrepreneurs, they remain very much the exception, not the rule.

You can follow John on Twitter: @johngreathouseImage credit: Pixabay.com

John Greathouse

John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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