Why Entrepreneurs Hate (Most) MBAs

A version of this article previously appeared on Forbes.

Someone on Quora recently asked me to answer the following question: Why Do Digital Entrepreneurs Hate MBAs?

As I stated in my Quora answer, “hate” is the wrong word. Tech entrepreneurs’ consternation with MBAs does not rise to the level of loathing. Rather, entrepreneurs’ frustrations are often due to an incongruence between an MBA’s expectations versus the value they can deliver to a startup.

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Startups Need Execution, Not Administration

Despite the proliferation of entrepreneurial courses within Business Administration programs, business schools are essentially vocational training grounds for consultants and investment bankers.

Five reasons many MBAs struggle at startups are as follows:

1. Tool Users – Startups often have a long gestation period in which the team is in discovery mode, defining the company’s value proposition, target market, pricing, business model, etc. Thus, startups need people who can identify and prioritize problems, not just solve those that are already defined.

MBAs graduate with an analytical toolkit that can be readily applied to solve known problems in a deliberate manner, especially when reams of data are available. Thus, it is no surprise that Harvard recently reported that 25% of its 2012 graduates accepted jobs as consultants, while 52% opted for careers in financial services.

2. Limited Entrepreneurial Experience – The admission process of top business schools emphasizes undergraduate grades and standardized test scores. As noted in Startup Advice From College Dropouts, successful entrepreneurs are often poor students.

Additionally, just as MBA graduates gravitate to consulting and investment banking, the majority of business school enrollees are also drawn from these industries (along with public accounting). Thus, relatively few MBA candidates enter B-school with meaningful entrepreneurial experiences.

3. Golden Expectations – Top MBA programs are expensive and their graduates have astronomical salary expectations. Per the 2012 Global Management Education Graduate Survey, the median debt of 2012 MBA graduates was $45,000, while the debt from top schools averaged $90,000 (e.g., Wharton graduates averaged more than $114,000 of graduate school loans).

This same report notes that MBAs will be granted a median starting salary of $90,000, plus an average signing bonus of $15,000. Unfortunately, the 2012 QS TopMBA.com Applicant Survey notes that, on average, MBAs expect to earn $153,000 upon graduation.

When I graduated from Wharton in 1989, I was one of the few in my class who shunned the investment banking / consulting path for the life as an initially unpaid entrepreneur. I was able to follow the startup path because I had no school debt and my wife had a stable, well-paying job. Sadly, relatively few entrepreneurially minded MBA graduates can now afford to accept a below-market salary at a startup.

4. Action vs. Analysis – Although its use is in decline, many MBA classes are still taught via the Socratic case method. This approach is effective when reviewing historical scenarios in which abundant data is available and a menu of potential decisions are readily evident.

Outside of the classroom, startups seldom have enough time, information or money to view the world through the rearview mirror. As such, much of the benefit derived from the case study methodology is inappropriate in an entrepreneurial setting where greater value is placed on execution, rather than analysis.

I recall a lengthy Harvard case from my days at Wharton that explored a large company’s convoluted decision process to move from wood to fiberglass skis. At the time  we reviewed the case (the late 1980’s), the transition from wooden skis was nearly 20-years in the past.

Rather than create a task force to study this issue, an entrepreneur would decide to transition from wood to fiberglass after quickly reviewing the new material’s value proposition: cheaper, more durable, easier for beginners to master and improvement of experienced skier’s capabilities. Done.

5. Attitude – I have numerous friends who also happen to have earned an MBA. However, my friends notwithstanding, the reality is that many graduates from top Business Schools are tools. They are often more focused on building their careers, rather than building collegial teams. This proclivity for a cutthroat, rather than a collaborative culture, is detrimental to startups, which require everyone to row in the same direction with a low drama quotient, lest the startup boat will sink.

Look For MBA Outliers

Top business schools are effective at identifying intelligent, ambitious people. Entrepreneurs should leverage the screening performed by B-schools and not dismiss MBA applicants outright.

Thus, if you encounter an action-oriented MBA who has practical startup experience, is willing to accept equity in lieu of a market salary and exhibits a collaborative attitude, ignore their MBA handicap and hire them immediately.

Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about MBA hating or that killer burrito I just ate.

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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  • John, great post. Many of these ring true. I’d also add to that list: 1) Risk-Aversion 2) Enron 3) VCs being MBAs (no offense 🙂 I write more on that on my blog: http://www.nadimhossain.com/1/post/2013/02/why-startups-hate-mbas.html

  • Nadim – thanks for the shout-out on your site. I am not sure we can blame MBA’s for Enron, but I do appreciate your point. Thanks for adding to the discussion!

  • Blake Bunker

    John, your post resonated with me as a startup founder and MBA who left my comfortable job for something much riskier and more rewarding. I find myself being apologetic about my MBA in the startup world because of others who have acted without humility. Your post was very insightful. Many of the problems are systematic and found in the recruiting process, expectations set and corporate reliance at top tier MBA programs. The result is often a strong entitlement mentality that is misguided.

  • Very interesting piece – I enjoyed it. However, as one of those “case taught MBAs”, I would disagree with item 4. One of the benefits of the case method is to force students to make decisions with limited information – there is only so much info in a 12 page case. By repeating that process 600-700 times over two years, the hope is to create fast decision making based off of theory and analytical structures that become ingrained as instinct.

  • Thanks Spinny. I agree that the info in a case is ‘limited’, but it is often far more in-depth than what an entrepreneur faces in real life. In many instances, I made decisions at my startups in which the available info could be written on a Post-It note.

    Also, the fact that it case data is clearly and logically presented by the case study author is another artificial aspect of the process that is missing in the real world. Even when data does exists at a startup, it is often challenging to sort it into meaningful and actionable information.

    I didn’t mean to imply that cases are worthless, just that they are “worth less” than hands-on experiences in the trenches.

    Thanks for sharing your thoughts.

  • I’m a Wharton MBA ’04 with a major in entrepreneurial management. I’ve done startups since I can remember.

    While I agree that an MBA might not teach you entrepreneurship ‘per se’, it can teach you many things you need as a founder: competitive analysis, financial projections, operations management, etc. I’ve seen many entrepreneurs who cannot even analyze their own financial statements.

    But I agree, there is no substitute for real life startup experience, so if you are an MBA, try to get a summer internship at a startup and see if entrepreneurship is for you. You might be surprised.

    I am a big believer in people connections, so one of the biggest values of an MBA is the access to the alumni network. I found that to be invaluable in business.

  • Hey Dea – I am a “bit” older than you, but I also went to Wharton and earned my MBA in Entrepreneurial Mgmt. I was even Mac’s TA for 3-semesters, which was fun.

    Again, I agree that MBA programs provide great tools. The problem is when folks start to think the tools are the solution. Clearly, you have not made this mistake.

    As I have written about in the past, I did not leverage my network, which was no doubt a shortcoming on my part. Good for you for getting value from your classmates and fellow Alum.

  • There were a number of comments posted on LinkedIn related to this article. I have posted a few here, with the author’s permission, as I think they add to the overall value of this post.

    ********************
    Don Rottman Wrote:

    Though we always need to be hesitant to adopt generalizations, this article makes good points. I’d like to add another form of this disconnect between the MBA world and the entrepreneurial, especially the start up. Funding. Entrepreneurs are out to create the company and the money. MBAs are the ones making the decisions on who gets the money. The problem I found when raising capital was that the MBA mindset seems to work from a checklist, a formula. If entrepreneurs were programmed this way they would be replicators, not innovators. As a result, some of the best innovative companies with the most potential, never get funded because they fail to make all the checked boxes.

    There are enough companies applying to VC/PE firms that meet the checklist that they can easily dismiss those that don’t and haven’t had to expend much real thought or analysis….there is safety in the checklist. One partner I met with was kind enough to share their formula…..if they have a fund and say figure they can fund 15 companies…..5 will be total busts, 5 will break even, 5 will get a 10x return in 5 years, yielding a 30% annualized return. Success? They seem to think so….many would define it that way. My questions….what did they miss in the 10 failures? The checklist mentality is a betrayer of what could be “most success”. Covey said, “Good is the enemy of Best”.

    I’m curious, is “human capital management” on anyone’s checklist? I would contend it should be in the top 10 things evaluated and is likely the key difference maker in the other 10.

  • Nice link – thanks for sharing. I concur that MBAs have their place, once as a startup has achieved some scale and “management” is required.

    I Appreciate you adding to the discussion here. Cheers

  • bobmonsour

    Great post John. As a fellow ’89 MBA (UCLA), I would also suggest that one thing to consider when evaluating an MBA hire is the undergrad studies. A technical undergrad with an MBA can be a good thing.

    My undergrad was computer science and I went to b-school after 7 years of real world professional work (first Motorola, and then a startup; both as a software developer). I was in mid-startup, coding and running development projects, as I did my MBA part-time at night. It was a worthwhile experience as it broadened my way of thinking, having been a very narrowly focused tech guy prior to the MBA. I then went over the wall into the marketing and business side of things. Our startup later went public and then I was part of spin-off from the first one that also went public.

    My point is that a technical undergrad followed by an MBA can be a powerful combination, as long as the other key attributes are there: a bias for action, attitude, etc.

  • Bob – for sure. I wrote a post back in ’07 which touched upon this issue. I intend to update the post and re-publish it (at some point…). In that post I concede that an MBA can be an excellent compliment to a technical / life sciences degree.

    Unfortunately, MBA programs are filled with folks who earned undergraduate business degrees (I was in this unfortunate camp). An MBA, on top of an BS bus degree is a total waste of both time and money, IMHO.

    Thanks for chiming in.

  • Suba

    most of the people are now a day use to study EMBA.
    What is this course? advantage of EMBA and what is the major different between MBA and EMBA

  • In most cases, the course work is the same. The “E” generally stands for “Executive” and the courses are taught on the weekends, evenings or in short bursts, such as a couple weeks. This allows the executives (who work full time) to minimize their time away from work.

  • Konstantin

    Interesting article. You have a refreshing perspective on the issue. I have completed 1/3 of the MBA Curriculum at Baruch CUNY, and am in the process of deciding whether to go back after a break of about a year and a half. I must say your article is further swaying away from business school, but ultimately each of us has to weigh the risks, opportunities and opportunity costs and make our own decisions.

  • Konstantin – it sounds like you are sufficiently self aware and thus are in the minority of MBAs who realize the benefits and limitations of their b-school education. Not sure of the out of pocket or opportunity costs for you, but I would probably finish the program.

    Having an MBA doesn’t disqualify you from being an entrepreneur. My point is that too many MBAs think that their degree makes them perfectly suited for ANY and ALL business endeavors (including startups), which is obviously naive.

  • Dea Wilson

    Wharton wants to take more entrepreneurial initiatives in the Valley. We now have a Founder’s lunch where we meet and share stories, resources, ask for help and offer assistance to other Wharton entrepreneurs. Let me know if you’d like to join us as a guest speaker sometimes. 🙂

  • Brian

    Hi John,

    I am an entrepreneur, have been running my company for 7 years now and considering doing an EMBA to help firm up my core business skills. Would you recommend trying joining a highly ranked (expensive program) or a local mid-ranked program or none at all? Maybe just taking a few night courses? Thanks in advance for your opinion

    Brian

  • John Greathouse

    Hi Brian,

    I am hesitant give you specific advice from afar, as I really don’t have a lot of facts.

    My general advice is that you probably don’t ‘need’ an MBA degree. However, if there are specific areas in which you have previously felt frustrated or at a disadvantage when dealing with stakeholders (e.g., finance, marketing, accounting, etc.), then it would probably be worthwhile to focus on those areas. If you find it rewarding and worth your time, you can then elect to pursue a degree.

    Best of luck to you.

    John

  • John Greathouse

    Dea – my apologies. I am sorry that I never replied here. I am not in the Bay Area often. However, it might work out at some point. You can find my UCSB email address here: http://www.tmp.ucsb.edu/about_us/faculty_staff.html

  • Anytime 🙂 .. I see you have added a lot more comments and literature in the comments to catch up on. Thanks !

    Regards,
    Social Media Team
    http://www.B-School.com

  • Dr. Brendan Moloney

    Great forum: The key differences for me is that:

    1. Entrepreneurs actually create new products and services that are beneficial to the community, MBAs typically do not create anything of value;

    2. Entrepreneurs have the potential to create jobs and income for others to enjoy, MBAs typically do not consume and expect employment;

    3. Entrepreneurs are the driving force of the economy: lose MBAs and there might be a bit more ethics in business, lose entrepreneurs and the society is going down the drain

    4. Entrepreneurs thrive on risk and growth, MBAs on job security and arm-chair analysis.

    5. Entrepreneurs who have built successful companies often see business schools as a a bit of a joke; MBAs view business schools are ‘all important’ to successful business.

    Perspectives on business (and life) are, in other words, completely opposite.

  • Thanks Brendan. I helped create businesses, went to business school and I subscribe to your 5th point. Your academic pedigree is usually not relevant to your customers, employees, partners, etc., although it often does matter to misguided investors.

  • Aaron Knight

    When I was job hunting in the Bay Area, I learned to remove the M.B.A. degree from my resume if I wanted call-backs from tech companies.

  • I was not aware that you are a VC yourself. Mind sharing your email id? I’d like to explore funding for b-school.com 🙂

  • John Greathouse

    Nice, check’s in the mail…

  • Hi, I couldn’t find your email in my inbox or spam folders. Any alternate way to contact you 🙂

  • John Greathouse
  • Troy Hoidal

    🙂 Amazing how so many people confuse building businesses vs just collecting money.
    5. Attitude – I have numerous friends who also happen to have earned an MBA. However, my friends notwithstanding, the reality is that many graduates from top Business Schools are tools. They are often more focused on building their careers, rather than building collegial teams. This proclivity for a cutthroat, rather than a collaborative culture, is detrimental to startups, which require everyone to row in the same direction with a low drama quotient, lest the startup boat will sink.

  • EPOC

    Check out Babson College. It is an MBA without the “attitude” and focuses on entrepreneurial action

  • EPOC

    I can see how Wharton and Harvard and the like place the tools and process over the result and driving results. Babson has it right with Entrepreneurial Thought and Action training rather than this “quasi-academic education”

  • AugustineThomas

    You sound really small minded. It’s so interesting to hear bitter engineers talk like this and then look at how many MBAs run technology companies.

  • AugustineThomas

    It seems to me that a lot of these MBA hate articles come from business school graduates who failed to do anything exciting.
    It usually seems to be more about the graduate than the program they attended.

  • AugustineThomas

    Here’s some evidence for my above point. You seem to be bitter that you made what you perceive to be bad decisions.
    It’s absolutely ludicrous to suggest that one learns the same thing in an MBA as in an undergraduate business program.

  • MBAs graduate with a scientific toolbox that can be promptly connected to take care of known issues in an intentional way, particularly when reams of information are accessible…

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