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Look Before You Leap Into That MBA

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  • My Wall Street Journal article about why I discourage students who want to become entrepreneurs from doing an MBA provoked a far stronger reaction than I expected. The vast majority of the emails and comments were in agreement — including from business-school professors. What shocked me were the angry online comments, Tweets, and emails from a few MBA students—because of their lack of professionalism. So it is clear that this issue is highly contentious and deserves further discussion.

    The fact is that most business schools are geared toward churning out corporate executives, investment bankers, and consultants — not entrepreneurs. There are some exceptions and some schools are evolving, but by and large, MBAs are not for startups. Just visit the recruiting booths on university campuses. All you see are big corporations; the finance and management consulting industry is overrepresented.

    Talk to MBA students, and you will learn their desperation to repay hefty student loans. The vast majority will tell you that they need to work for the highest-paying employer — even if it means mortgaging their souls for a few years. Jobs at Goldman Sachs, Morgan Stanley, and McKinsey are regarded as the most prestigious and are the most sought-after. Startups often can’t even offer minimum wage. So how are they going to compete — and how can MBA grads afford to work for them?

    In his rebuttal to my article, C-Change Media Chairman John Byrne wrote: “Most top business schools today boast strong centers for entrepreneurship and innovation”. Yes, many have centers for entrepreneurship. But the vast majority of these are neither strong nor about innovation. Most still teach dated concepts of how to build companies — with business plans and pitches to venture capitalists. They also still run business-plan contests. Silicon Valley laughs at old-fashioned business plans — which everyone knows are largely fiction and bear no resemblance to the companies that entrepreneurs end up building. The focus on venture capital is also misguided. VCs rarely fund early-stage startups—it is angel investors, friends, and family who provide the seed funding. So even when trying to teach entrepreneurship, most business schools get the basics wrong.

    I believe very much in the value and importance of education and consider the bachelors degree to be a basic requirement for success in business — whether you are working for someone else or starting your own. If you don’t have this, you are at a severe disadvantage because you have too many gaps in your knowledge and you have not had a chance to develop important social and learning skills.

    But if you want to be an entrepreneur, $100,000 — and two years of your life — is a very high price to pay for a degree in which most courses are focused on preparing people to work in large corporations. The truth is that a masters degree is not necessary for starting a company. You can learn more by doing and failing.

    What I advise entrepreneurs to do, instead, is to invest this money in their startup — knowing very well that they are likely to fail. To improve the odds of success, they should partner up with experienced marketing, sales, and finance executives; get advisors who have built companies before; take seminars and online management, marketing, law, and accounting courses. There are excellent, inexpensive, resources available through which to learn subjects such as these. Having a real company in which to practice these skills will accelerate the learning process better than textbooks and academic case studies in an MBA program can.

    For students who want or need a more-formal education, I usually recommend a one-year masters of engineering management program such as the one at Duke—where I joined as an executive in residence in 2005, after having founded two software companies.

    Entrepreneurship and education is a subject that I have been researching for several years. My team at Harvard and Duke looked into the backgrounds of tech entrepreneurs found that, on average, MBAs start their companies 13 years after graduating. Subsequent research revealed that what makes entrepreneurs successful is their experience — including previous successes and failures; management teams; and luck. Next on the list are professional networks and education. What entrepreneurs consider least important are university networks— only 19 percent told us that they believed that university or alumni networks were important. Of the Ivy-League university graduates, 29 percent ranked these networks as important.

    So there is no substitute for experience and competent management teams; and education has a role for entrepreneurs. Professional networks are far more important than those you build in Universities. The good news is that these networks can also be built on line, through social networks such as LinkedIn.

    To be clear, I am not disputing the importance of MBA degrees to corporations, I am arguing about entrepreneurship and startups. As I wrote in Wall Street Journal, I believe that my MBA from New York University’s Stern School of Business was one of the best investments I ever made. It helped me climb the corporate ladder and eventually become an entrepreneur. My education in management, marketing, law, and accounting allowed me to transition from being a programmer to a project leader and then a vice president. I found that I could communicate effectively with user departments and my bosses; I could deliver projects on time; I knew how to manage and motivate employees; and I had the confidence to present business proposals to managing directors and board members.

    But all of this was in a different era — 25 years ago — when the only path to entrepreneurship was through corporate management. In those days, big companies were the keys to the nation’s economic growth and competitiveness. Big research labs produced almost all of the cutting-edge innovation. Today, the cost of developing world-changing technologies has dropped exponentially. Startups can out-innovate the big players. They are the key to economic growth and innovation. That is why I encourage students to take a faster route to these. Yes, they will likely fail. But this experience is the best learning there is.

    After my Wall Street Journal article, students and professors from schools such as Brown, Insead, Babson, and my alma mater, New York University, wrote to tell me that they agreed with what I had said and that their schools were adapting to the times with new courses and methods of teaching entrepreneurship. Andrew Grochal wrote a very thoughtful e-mail and blog arguing that MBA experience that focuses on brainstorming, networking, testing ideas, and launching companies is not the MBA experience I’ve described and may be worth pursuing. This is all accurate. University programs are not all the same: some are more adaptive and flexible than others. Similarly, there is never one prescription for all students. Each has his or her own needs and circumstances.

    So the best advice I can give is to think carefully about where you want to be and to choose carefully. Don’t just leap into an expensive degree without being sure of the alternatives.

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