
At Harvard, Wharton, Columbia, MBA startup fever takes hold - AndrewKemendo
http://fortune.com/2015/01/03/business-school-startups-entrepreneurs/
======
rgbrgb
This is a historically bad signal for market health but it's not all bad for
hackers. More piranhas to watch out for but also more bizdev hustlers willing
to help sell and/or raise money.

Edit: I've personally been taken advantage of by an Ivy B-schooler so the
piranha thing is real. It was the typical thing you hear where I, an
undergrad, had written a bunch of code with a verbal contract from the MBA
student that I'd own 10-20% of the business. After a few weeks, when paperwork
was being filed, I was informed that I'd get more like 1% to be the first
engineer and finish building the MVP. It's not that MBAs are bad but a lot of
the ones I've known have been indoctrinated into this way of thinking of
creative people as resources to be harvested. It's not evil, it's approaching
business like a game, knowing all the rules, and playing to win. It does look
and feel evil when the rules are used against you before you know you're
playing.

~~~
gaius
Being an early employee is an _incredibly_ bad deal. The first dozen people
really should be equal partners, in writing.

~~~
thirsteh
To my understanding, being an early employee is the _best_ deal because they
still get substantial equity, but don't face nearly the same level of risk as
the founders.

Somebody did the numbers on HN a while back and showed that you have a higher
probability of making it rich by being an early employee than by founding your
own startup. I'm afraid I have no idea how to find that thread, though.

~~~
WalterSear
FWIW, the salary charts on angel list show the average startup equity offers
there going for a bit more than a point.

If your hypothetical startup sold for $100 million dollars, after dilution and
taxes, you could expect maybe $500k. In other words, ~$125k extra for each
year of a 4 year vesting period.

That's nice, but it's certainly not substantial - it's about equal to the
salary you'ld expect at the same jobs. And, we are talking about a hundred
million dollar, moonshot exit - in other words, vastly, vastly more than most
startups can expect to make. Most early employees make a modest, very decent,
pittance.

------
1971genocide
The amount of money and media attention around "startup" is eventually going
to lead it to its downfall. There is no quick "make money fast" schemes in
life. The reputation that the tech sector has created after the dot-com era
was created purely on sweat and hardwork ( not mine but the veteran engineers
in SV whose shoulders I am standing on). Now the vultures seems to back and
many tech products on the markets seems to have a over-inflated valuation
because of this dumb hype.

I am keeping my options open since I know this is going to lead to a crash in
the next few year.

~~~
gjmulhol
So how does this market crash? This is something I have struggled with for
some time. Markets have typically crashed because public investors buy at very
high prices and then the market loses faith that the future cash flows of the
business will pan out. But IPOs aren't happening like they were. Facebook
buying Instagram for $! billion is crazy, but Facebook continues to grow and
generate revenue (because of or in spite of Instagram) to exceed investor
expectations. If these acquiring companies continue to grow and succeed, then
how does the bubble collapse? We have no idea whether Nest can justify the
$3.2 billion Google paid for it, we just know that Google continues to beat
estimates and the Nest guys continue to afford nice cars.

I also do take exception to the fact that MBAs are all vultures. I am trained
as a computer Engineer, practiced as a materials scientist, and got an MBA.
Now I am one of those exact vultures you speak of with a startup of my own
that I, by the way, believe is going to contribute meaningfully to society.

~~~
chrdlu
Evan Spiegel's view of everything got leaked with the Sony Hack. Take it for
what its worth:

Fed has created abnormal market conditions by printing money and keeping
interest rates low. Investors are looking for growth anywhere they can find it
and tech companies are good targets - at these values, however, all tech
stocks are expensive - even looking at 5+ years of revenue growth down the
road. This means that most value-driven investors have left the market and the
remaining 5-10%+ increase in market value will be driven by momentum
investors. At some point there won't be any momentum investors left buying at
higher prices, and the market begins to tumble. May be 10-20% correction or
something more significant, especially in tech stocks. Facebook has continued
to perform in the market despite declining user engagement and pullback of
brand advertising dollars -- largely due to mobile advertising performance -
especially App Install advertisements. This is a huge red flag because it
indicates that sustainable brand dollars have not yet moved to Facebook mobile
platform and mobile revenue growth has been driven by technology companies
(many of which are VC funded). VC dollars are being spent on user acquisition
despite unknown LTV of users - a recipe for disaster. This props up Facebook
share price and continues to justify VC investment in technology products
based on abnormally large mkt cap companies (i.e. "If this company attracts
just 5% of users that FB has, it will be HUGE" \- fuels spend on user
acquisition as user growth is tied to values). When the market for tech stocks
cools, Facebook market cap will plummet, access to capital for unproven
businesses will become inaccessible, and ad spend on user acquisition will
rapidly decrease - compounding problems for Facebook and driving stock even
lower. Instagram may be only saving grace if they are able to ramp advertising
product fast enough. Total internet advertising spend cannot justify outsized
valuations of social media products that derive revenue from advertising.
Feed-based advertising units will plummet in value (in the case of Twitter,
advertising spend may not move beyond experimental dollars) similar to earlier
devaluing of Internet display advertising.

~~~
danieltillett
Do you have a link to this?

~~~
S4M
[http://www.businessinsider.com/snapchat-ceo-evan-spiegels-
em...](http://www.businessinsider.com/snapchat-ceo-evan-spiegels-email-
memo-2014-12)

It was submitted on HN couple of weeks ago, here is the discussion:
[https://news.ycombinator.com/item?id=8764135](https://news.ycombinator.com/item?id=8764135)

~~~
danieltillett
Thanks for this. I am not sure I am quite so gushing, but the analysis seems
reasonable. Time to go and short Twitter :)

------
ChuckMcM
Ok, I am about ready to call it a 'bubble' :-) One of the things which became
apparent about 1998 was that people who were interested in the "business" of
technology were arriving in numbers to make all the right motions, say the
right words, and get money to rain from the skies. Not that they had a product
or solved a problem, but the incantation was good. I am always perplexed by
people whose target is essentially simply a score.

~~~
analog31
I suspect that a bubble is preferably defined by investor behavior, not worker
behavior, even if the workers call themselves "founders" or "entrepreneurs."

~~~
ChuckMcM
That is true, and it needs wide participation, but my observation from the
last time was that "business people" who need an audience for their
incantations solicit the necessary investors.

I am entirely unclear if the last bubble was caused by retail investors
unilaterally deciding to "invest in tech" because they thought they would get
rich, or caused by persuasive people asking folks who didn't know any better
to invest in them with the _promise_ of riches.

But I have observed (at least one time, and past performance is no predictor
Etc.) that when folks in business school, or fresh out of there, say they are
going to do "startups" and they describe them not by their risk, their
approach, or problems uniquely suited to them, rather they use a bunch of meta
terms like "agile" and "MVP" and "social" and "sharing economy", they have
lost sight of the notion of creating value, and shifted into the mode of
"executing a process that seems to return more money than you put into it."

------
lmg643
This sounds pretty healthy. I can't imagine anything we'd really prefer to see
MBAs do, after all. Go be investment analysts or work at a hedge fund? Doesn't
do much for the world. Go be a highly paid grunt in the finance arm of a
corporation? Write business analyses? uh...

Go take a risk on introducing a new product into the world? Check. Sounds like
"business" to me. This is a great trend, hope it continues!

Challenges to this change sticking long term - starting a boot company puts
you on even footing with any other person who wants to do the same. The reason
we decry "MBA" is the reason people earn them in the first place - they
function like a $120k entry fee into a protected job class - like being an
analyst as mentioned above. Using the degree to enter a business without
protections is risky.

That said - to the extent that the university morphs into an incubator to make
sure their students are successful - this will give their students an
advantage. The MBA would then be weighed against dozens of other incubator
type opportunities, or just going and doing it alone.

------
gedrap
Welcome to selection bias.

A lot of startups completely fail but that's not interesting, "<a startup you
never heard of> has failed" won't get many clicks on TechCrunch.

People share stories about how they 'failed' (got great job offer afterwards,
etc) and managed to come out with plenty of cash. But there are a lot of
people who get burned. They simply don't make headlines, no one is interested
in those stories except from small circles such as HN.

Startup is not a quick, and fail-proof way to get rich as mass media portrays
it to the public.

Some people will end up seriously disappointed but real businesses will
continue moving forward.

------
Dwolb
I realize MBAs have a bad rap (disclaimer, I'm getting my MBA), but I think
they can bring a lot of variety to the start-up scene. The MBA class is chock
full of students from almost every industry who know very well the problems
these respective industries face. Furthermore MBAs approach problems through
different lenses that may be more sensitive to firm strategy, finance,
operations, accounting, etc. These approaches may uncover new insights into
the business or market.

~~~
dougbright
It's also worth keeping in mind that a good chunk of MBAs come from
engineering and other technical backgrounds. In fact, they comprise a full 40%
of the latest HBS class (according to [http://www.hbs.edu/about/facts-and-
figures/Pages/mba-statist...](http://www.hbs.edu/about/facts-and-
figures/Pages/mba-statistics.aspx)).

------
AndrewKemendo
A lot of people here seem to think this is the "end of start-ups" or that this
is a leading indicator for a bubble burst.

I fail to see how that would be the case as there is no reason that a specific
group of market entrants would crash a _business model_. I think if anything,
it will be a wake-up call to people who think that "start-ups" are a get rich
quick scheme.

The only way for this to turn out badly is if somehow this group sucks all of
the angel/vc money out of the "start-up" ecosystem and into their own pockets.

------
brianbreslin
As someone currently getting their MBA (and coming from a tech background,
been coding since I was 14), I feel that this is a good sign. I would much
rather see MBAs try to create new value rather than get sucked back into the
vicious cycle of investment banking or management consulting. Startups can
offer people of all types the chance to have impact in a positive way. I see
lots of startups fail because the founders don't understand basic business
concepts and practices, so if some business savvy is injected into this
market, great.

------
alexweberk
I wonder how they're going to repay their MBA tuition. Typically a tenure in
consulting or high finance would pay for this. Perhaps some don't have this
burden, but for many I assume tuition is paid in large part via student debt.

Are they planning to pay themselves large salaries from the get-go? Quite a
culture to start a business on...

~~~
codeonfire
Unlike engineering degrees that no wealthy person would suffer through, MBA's
are sometimes obtained by people from wealthy families or who are wealthy
themselves. Not everyone starting a business is starting from zero either.
Think Winklevoss twins who both did MBA's and are doing startups.

~~~
npkarnik
There are more wealthy people suffering through engineering degrees than you'd
think.

~~~
codeonfire
Wealthy as in never have to work again wealthy, i.e. greater than $10 million
personal net worth? If so I'd like to meet some of those people. The thing
about research oriented degrees is that for the last few centuries wealthy
people studied those things for status reasons. They were part of royal
societies and the more time spent making esoteric discoveries, the more they
displayed wealth and leisure. Engineering, though, is usually about applying
things that are already known. So if there is someone who is set for life that
has gone through an engineering program then they are not doing it for wealth,
sustenance, or status. They must really like engineering.

------
kylec
I remember Paul Graham once saying that 9 out of 10 startups fail, but it
seems that nowadays outright failure is less and less common. Sure, only a
fraction of startups get really big, but it seems like acquihires are becoming
the default failure mode. With the upside of striking it rich and the downside
of employment at another company with a generous signing bonus, it's no wonder
lots of people want to hop on board the gravy train.

~~~
nkangoh
Do you really think that acquihires are becoming the default failure mode?
What about all of the startups that fail silently? I'm seeing some selection
bias here.

~~~
kylec
I don't know, but what actually happens is immaterial. All that matters is
perception, and my perception (selection bias and all) is that starting or
being involved in a startup seems much less risky than it did 5 or 10 years
ago. I'm sure that there are lots of people at Harvard, Wharton, and Columbia
that share this perception, leading to an increase in demand for programs
about startups.

~~~
gedrap
We should aim to keep the mass media out of our perception, because all it
cares about is generating clicks :)

They don't care about plain simple failures, but they are large part of
startup life.

One day they will move on from startups to some other hot thing, just like
they did with Bitcoin, Ebola, etc.

Don't believe the hype!

------
raincom
Even in 2005, Chicago Booth GSB used to show their startup labs to prospective
students.

------
grandalf
I wonder if this will impact the mantra "don't hire MBAs"...

------
arfliw
If you want to found a startup, I can think of a lot better ways to spend 2
years and $100k than getting an MBA.

~~~
raincom
1\. Most people don't go to HSW (Harvard, Stanford, and Wharton) to start
startups. Well, for some edge cases, it is a way to get admitted. Many of the
grads here love to get hired by PEs like KKR and Blackstone.

2\. Business schools are good at marketing themselves: they try to set up labs
for new trends, fads, etc.

~~~
foobarqux
Are you coming from tech going into finance?

~~~
raincom
Nope, and am in IT. I had buddies who wanted to move from tech to IB,
Consulting, etc.

------
tuke
A little late to the show.

------
curiously
This reminds me of the speech Peter Thiel gave about how MBA flocking to a
sector is a good early bubble indicator. The reason is that MBA don't give a
crap about an industry until it is at peak. Then shortly the bubble almost
certainly bursts . Examples he mentioned, junk bonds, dot com, subprime and
now startups...

