I like to think of this topic using an automotive racing analogy: Fortune 500 companies are the formula 1 cars. They need a great big team to perform efficiently, and minor tweaks applied correctly can yield significant results. The MBAs are the specialists who work the electronics and the advanced controls for the race cars. A team working on a formula 1 car could find a way to increase down force by 5%, or they could install a GPS system to analyze turns and scrape 1/100s of seconds off of lap times, and that edge could help them win.
Startups are cars with a very different purpose. They are project cars, and they have 1 purpose: to go. Forget GPS systems and down force. These cars need tires and a working steering wheel. It would be a mistake to think about installing spoilers on a car that doesn't have all 4 tires, just as it would be a mistake to worry about ideal liquidity ratios in a startup. Entrepreneurs are the mechanics who decide to take on these 'project cars'. Eventually, as the car project develops and grows, specialists (MBAs) can be brought on to find the minor, yet precise changes that will improve the car's results.
I question to value of MBA even for large companies. I see value in structured, methodical, analytical thinking for many classes of business problems (not all, many crucial business decisions involve creative guesswork!), but an MBA is way overkill, and whatever it is supposed to teach can be learned on the job. If a person cannot learn that on those skills on the job, I seriously would question his/her ability to be an effective manager.
Here is my real world evidence: German and Japanese large companies are as good or as bad as American ones (depending on your point of view). The MBA is relatively rare in Germany and Japan. Japanese large companies, in particular, tend to recruit fresh undergrads without much attention paid to their major, train them internally, and promote from within. The fact that their companies hold their own in global competition, indicates that the MBA doesn't add any superior competitiveness to American companies. In fact, I would argue the MBA actually subtracts from American competitiveness, but that argument would be more subtle, and would require industry-by-industry analysis of competitiveness. I will note in passing that software and internet industry is probably where the MBA influence is the weakest in America (primarily because of the extraordinary rate of start-up creation), and that sector is the one where America is the most globally competitive.
Based on my own experience of MBAs I tend to agree with you. My company brought in a US name-brand management consulting firm to assist with a large M&A. One of the MBAs was assigned to help me write a transition plan for the integration of the IT systems my company would inherit. She correctly recognized that helping me was useless to her real purpose (inserting herself into my company at a high enough level that she could scout out new consulting opportunities) so she spent two months with us and delivered nothing. I wrote the transition plan on my own.
Isn't the fact she had an MBA incidental to her behaviour? Her job could have been filled by someone without an MBA who might have acted in exactly the same way. I've met many self-serving, selfishly ambitious people who don't have MBAs!
Exactly. A lot of people have taken to using 'MBA' as a heuristic for 'lazy self promoting asshole'. While I agree there is probably some overlap, it's extremely unfair to go around painting with this wide brush.
The fact that the consultant wsa trying to get more work out of the company had nothing to do with her qualifications.
Perhaps, but I did point out that I was talking about my direct experience. I must say that all of her colleagues I dealt with appeared to behave in exactly the same way.
I'm not an MBA and I'm prepared to believe in your assertion that MBA has not much value, but your arguments are not very relevant.
For starters, I don't know that American companies are as good as German and Japanese companies. US is measurably wealthier than both of these countries, at least in terms of GDP per capita. Maybe US large companies are more efficient.
But even if assume large companies in those countries are similarly efficient, there are way too many differences between US and Japan besides "MBA density". It could be the case that Japanese companies hold their own despite the lack of MBAs. In fact, I do believe they do well despite the custom of treating fresh undergrads as useless, insisting on an archaic seniority system, etc.
An MBA isn't just a study in one thing, it's a multi-disciplinary degree. You take classes in accounting, economics, entrepreneurship, finance, international business, operations management, organizational behavior, marketing, strategy, etc.
You can learn a lot on the job, but how many jobs let you do accounting and marketing? If you're working for a domestic company do you get any experience in international business? If you work in HR are you doing anything involving economics.
It's easy to say you can learn anything on the job, but that's hardly the case when your job has specific responsibilities. A student who truly STUDIES and EARNS their MBA has the ability to apply a broad set of knowledge to any job. What's the basis for questioning someone's ability as an effective manager because of their degree type? Not all MBAs are managers, that's something different entirely.
Then in your "real world evidence" you're questioning the efficacy of MBA graduates based on how foreign companies train from within? Huh?
By itself, any degree means nothing - it's up to the employee to apply the knowledge they gained while earning that degree to bring value to their company.
Questioning if there's value in an MBA in any company is questioning the value of knowledge. If there's no value in knowledge, then why bother having any sort of degree - just hire kids of a working age and teach them to put the widget together. They'll learn the rest on the job right? Hardly.
> If a person cannot learn that on those skills on the job, I seriously would question his/her ability to be an effective manager.
Well, since a lot of learning comes from failures, I think an MBA should teach you at least how to avoid common causes of failures. As a boss of mine used to say: "By practice alone, it will take you one hundred years." (meaning that a little theory goes a long way).
An MBA does not make you an effective manager anymore than knowing OOP and the syntax of a programming language makes and you an effective programmer.
Theory without any practice is entertainment. Practice without any theory is a bet.
A couple of interesting points you bring up, although probably not by intention:
A: An MBA is a credential, not necessarily a skill or set of skills. Earning an MBA is applying yourself to learn a set of skills, and then convincing the instructing organization you have learned the skills. Why get an MBA if you can circumvent it and just learn the skills? Why even bother with the superfluous skills and instead only learn the necessary skills on the job (and get paid for it)? With your MBA you can convince someone that you have some set of business skills, and that you are capable of applying yourself.
B: There is a different culture of employment relationships between America and say, Japan. In Japan, you are typically employed by the same company for life. Job hopping is rare, and there is a lot of loyalty in the employee-employer relationship. Why would you get an MBA in such a culture? You can surely learn the necessary skills on the job, and you most likely will not be leaving the company to find a better opportunity. Branching off from point A that an MBA is a credential, it follows that such a credential is not needed as much if you aren't planning on using it to unlock external opportunities. The flip side to this is that in America, an individual might find themselves working 2 or even 3 'careers' in their lifetime, and job hopping isn't considered disloyal, it's being aggressive. A credential is much more important to someone in this culture, as they will need it to convince new employers to hire them.
A counterpoint I want to bring up in support of an MBA is that an MBA readies you for the job you may have 5 years from now. You indicated that the necessary skills could be learned on the job. But training a new manager is expensive and risky. First, the manager must take the time to learn the tools, making him or her less effective. Second, there is the risk that this person is simply not management material, and that the investment will be wasted. Having an MBA shows (in theory) that the candidate is management material, and in fact has already learned many of the necessary skills. A company looking for a manager gets to know that this candidate is more likely to work out for them.
Finally, you said "If a person cannot learn that on those skills on the job, I seriously would question his/her ability to be an effective manager." The actual purpose of the MBA degree is to show that the candidate does have the capacity to be an effective manager. Again, it's a credential that is designed to remove the risk of a poor hiring decision.
This is one of the best descriptions I've heard about people who work at startups and MBA's who work inside large organizations. I don't understand why so many people in startups feel the need to rip on MBA's; its comparing apples to oranges.
>I don't understand why so many people in startups feel the need to rip on MBA's
It's because we've worked at startups where MBAs were brought in on the middle management layer and wasted our time polishing nuts and bolts in order to reduce drag when what we should have been doing was upgrading the suspension from a Watt's linkage to MacPherson struts.
It serves a useful purpose as a teaching tool for new initiates into the startup community. If they develop a phobia of MBAs, then they will know not to hire them into a brand new company without being very skeptical of that particular one's skills. If one checks out and is actually just a really good person for the job, sure, but on average, the stereotype is there for a reason.
I'd agree with that - I've met some pretty decent people with MBAs but I've probably met more absolute scoundrels with MBAs than any other qualification (even more than law degrees).
This has nothing to do with the concept of the MBA or the courses, but more to do with the type of people who feel drawn to a short cut to senior management or influence over senior managers.
Most job applicants suck. That's true with techies, with salesmen, with everything I've ever hired for. I'll happily concede that small businesses often have trouble hiring outside their founders' core competencies just because it's hard for a CS geek to vet a CMO or VP of Sales unless they get some serious assistance with the candidate selection, but that really has nothing to do with MBAs being unusually bad.
"My god, he decided to supplement his education by learning the basics of accounting, finance, marketing, and a bunch of electives! Fear him!"
I downvoted you because I believe your F1 analogy is off. F1 cars are highly optimized to do one thing: go around the given circuits in the calendar that year as fast as possible, within the rules. For a specific GP weekend, they are further optimized to go around that circuit, even if it means doing weird things to the car's balance.
What are Fortune 500 companies optimized for? Certainly not for making money, they're wasting money left and right --- for example, on legions of MBAs.
I can't be sure if you are being sarcastic or not, so my apologies if I missed it. To say that large corporations aren't optimized for making money seems foolish. Of course the goal of a corporation is to increase shareholders wealth, and by extention earn a profit. The goal is the same for a small company or even a startup. There will be instances where a fortune 500 fails this goal, but that doesn't mean the analogy is off. There are some Formula 1 cars that break down or crash. The logic in your argument escapes me.
Your analogy works. Most hackers certainly don't belong in business school...but many hackers could benefit from an MBA's experience/education once their product has traction, users, whatever. An MBA as the first hire probably doesn't make sense. But an MBA to optimize sales/marketing/support might make a lot of sense...
People tend to forget that top tier MBA grads are (usually) incredibly bright and productive professionals.
> Most hackers certainly don't belong in business school...but many hackers could benefit from an MBA's experience/education once their product has traction, users, whatever.
I'm not convinced of this. Apart from the fact that your two sentences contradict each other, I don't believe this optimizes for the right variables. If you're a hacker, and you want to do a startup, you should be learning related skills - and the best way to do that isn't to attend an MBA course, it's to do a startup yourself.
And, besides, if you ever find yourself wanting of MBA skills in the future (which implies that your startup has some degree of success) you can always go out and hire one.
From "The End of Business Schools?: Less Success Than Meets the Eye" by Jeffrey Pfeffer (Stanford University) and Christina T. Fong (University of Washington):
"Although business school enrollments have soared and business education has become big business, surprisingly little evaluation of the impact of business schools on either their graduates or the profession of management exists. What data there are suggest that business schools are not very effective: Neither possessing an MBA degree nor grades earned in courses correlate with career success, results that question the effectiveness of schools in preparing their students. And, there is little evidence that business school research is influential on management practice, calling into question the professional relevance of management scholarship."
Far better to skip the MBA and teach yourself. Better results, and far less debt.
I wonder how the biz started by Stanford Engr students compare with those started by Stanford Biz students? (Yes, Stanford's CS department is part of its Engineering school.)
Someone needs to zoom out on this type of study and look into whether degrees at any school, not business alone, contribute to corporate or even career success.
The degree doesn't possess its own inate potential for success. The student has the potential to contribute - either they do or they don't. The school is teaching competency in specific topics and skills. It's up to the student to apply those skills and contribute to their company's success.
I think the point missed in here is that if you go into your MBA with a consulting, banking, etc direction, then you'll get all the lessons that go with that.
If you did an MBA with the express purpose of concentrating on making startups work, you'd concentrate on taking away the parts of that education that focus on entrepreneurship.
It's fashionable to diss the MBA but they contain a non-trivial amount of learning about finance, capital markets, legal and other aspects of business that would take a long time to pick up just by going through a startup.
Agreed. An MBA is a strange animal. Two people coming out of the same school can have vastly different career goals, and have taken much different coursework. While the core courses may be the same, the real meat is often in the elective courses that allow you to focus on a specific area of business. A brand management person is going to exit business school with a much different skill-set than somebody who wants to do investment banking. The same goes for entrepreneurship.
Its not enough to point to an MBA and make generalizations about how it prepares you for X or Y. The devil is in the coursework, the professors, and most importantly, the student.
I would just add to that - most MBA courses (well, mine, anyway, a sample size of 1) involve a lot of case studies. In many cases, you can choose the topic of the case study, just be getting approval from the assessor for suitability. Thus, you can decide to study GE, Digg or Microsoft, whether it's for marketing, industrial relations or strategy.
When I went through I had a fellow student who was preparing to take over the family cleaning business with several hundred staff. A friend was a career airline pilot getting ready to step out of the cockpit and into administration. I also had career public servants learning on the public dime to get to the next pay grade. There was also aimless students who weren't ready to leave university because they had no direction in life. The things that these different groups studied vary a lot.
The one thing that did come through, unfortunately, was a heavy reliance on Powerpoint.
At some point, and it is happening already to a small degree, this problem will no longer exist. Top universities are catching onto the success of YC and will begin to offer programs of lesser magnitude, but similar intent. Once one of the big schools (Harvard, Stanford, etc) will declare victory then the rest of them will begin copying the model as well. I think places like the Stanford d school have some overtures in this direction, but they are not the final word. The bottom line is, the whole intention of an MBA is to credentialize businesspeople the way other professional degrees do (J.D.) etc. The conflict here is that startups are about near the exact opposite. Entrepreneurship is a recursive credential. You can only earn the title by doing the act itself, not some abstraction.
I notice the author mentioned "leave-behind Powerpoint decks." I had a short stint in consulting after getting my MBA, working with enterprise software clients. Within that job I've never once seen a Powerpoint deck that was useful after the fact unless you were in the room when the talk was given.
All it took for me to forget nearly everything I learned in business school communication classes was a seminar led by Edward Tufte, where it dawned on me that Powerpoint is no substitute for an appropriate executive summary of your content that can be passed around and referred to long after your talk is over.
Leave-behind decks are used in enterprise sales to allow your internal champion to present to their colleagues and superiors to go through whatever process is necessary to move the sales cycle forward. If you can give them the deck using their own corporate template you save them some time and they are more willing to advocate for you when you aren't onsite or in the meeting.
Leave-behind decks are for when the deliverable is the deck. It can be a useful tool for the company because the content is conveying information that they need for whatever project their working on. While working for a consulting firm, I did a marketing analysis for a grocery chain--it was a 150 slide deck packed with data about each of their geographies. It's something they'll refer to hundreds of times in the future.
As entrepreneurs, we're rarely delivering data in this way. it's usually our job to distill all the potential data points down to the 1 or 2 most important.
It comes down to whether you're persuading or informing. For persuasion, Tufte>MBA every time.
"I presume you get an MBA to give you a better understanding about business. And startups are in essence businesses. Then how come having a better understanding not impact your startup?"
pg replied,
"The cause of the apparent paradox is that "business" spans a huge range. MBAs train you to be junior officers in the armies of managerial capitalism. But there is almost zero overlap between that sort of work and what startups do."
and later
"Actually I would say it's a slight net minus to have an MBA when doing a startup. You learn nothing of use to you, but investors discriminate against you slightly.
Almost all investors are looking for founders who match past stars. So what they're looking for at this point is hackers.
I have to say I agree with them. I can't imagine Bill Gates or Larry & Sergey enduring B School."
So there are intelligent people with differing viewpoints on whether "An MBA is an education in business." is a valid premise.
I have upvoted you for a very insightful and resourcful reply. The term "business" is big, kind of like the term "engineering" is big. Would you also say that studying engineering is harmful to a startup?
It is one thing to say that an MBA won't help you much with your start-up, but it is another to say it is detrimental. Other than the prejudice of investors, I just don't understand why education of any kind is harmful as long as it isn't filling your head with lies.
So suffice it to say that I disagree with my hero, pg, about the value of an MBA. I can tell you that I personally have gained greatly from the experience, and that I'm better at all facets of business (even startups) because of it.
I'm so sick of these Ivy League MBA's lumping all MBA programs together in their inability to teach entrepreneurship. At Babson we were learning about the Timmon's model and how to be 'lean' on day one. Long before anyone had heard the name Eric Reis. And in case you're unaware, Babson has been ranked the number 1 business school for Entrepreneurship by US News for the last 17 years, when they started ranking.
It's about selling a vision, not presenting analysis.
From my experience that's a sure way to receive a polite "no thank you" from VC's or angels. Good venture capitalists demand meaningful analysis in your pitch. Every single pitch I've been a part of has inevitably zeroed in on market, financial, and performance analysis within 5 minutes of starting. Those slides about vision and big ideas just don't play well in those rooms (again, from my experience).
More than anything, money-folks seem to want entrepreneurs who have an eagle eye on the performance metrics of their business.
I am surprized. Where did the author get that MBA's are good at teaching entrepreneurship? Where does that expectation come from? I am have an MBA too and I was never told that MBAs are good at teaching entrepreneurship. Pick any blog and articles from real entrepreneurs and they'll confirm that you become one on the field, not in the books. I also disagree that MBAs make people suck up at startups. You may be talking about your personal experience, but it does not fit with mine. I am very happy to know what would have taken me 20 years to learn by myself. You don't need an MBA to become an entrepreneur, but it definitely helps...
This is only true if you go to a shitty school or don't apply yourself. There are some really good schools out there with exceptional programs in entrepreneurship.
I really enjoyed reading this. I've considered an MBA on and off for the past few years and I'm still leaning away from it. An MBA seems to serve a very specific function and I'm not sure if I want to be that person.
I wonder how this is at more entrepreneurial programs like Sloan.
At most schools, the majority of your class will be pushing in one direction, and that's generally towards consulting, banking, bigCo rotation programs, etc. It's what they're explicitly selling--preparation and access to these types of positions. If you don't want that, you should think very carefully about spending that much time and money. If you want to be an entrepreneur, do everything you can to get into YC or any of the other incubators. As many have noted, it's a far better startup prep course.
I don't regret my MBA for a second. The best two years of my life. I intend on using my skills from my MBA throughout my life. Someday I want to run a large non-profit and the tools I developed at Tuck will be invaluable. The painful lesson of the last few years was that all of that education is near-worthless as a startup founder.
Typically at a top-20 MBA school roughly 5-10% of graduates start businesses.
LBS run an entrepreneurship summer school which concentrates on the entrepreneurship parts of their MBA program. Over the last 9 years they've had 350 graduates, and produced 90 businesses. Of those 90, 80 are still operational.
I guess a similar situation happens to programmers who learn a new design pattern or programming paradigm and apply it to every situation, including when it's overkill.
Startups are cars with a very different purpose. They are project cars, and they have 1 purpose: to go. Forget GPS systems and down force. These cars need tires and a working steering wheel. It would be a mistake to think about installing spoilers on a car that doesn't have all 4 tires, just as it would be a mistake to worry about ideal liquidity ratios in a startup. Entrepreneurs are the mechanics who decide to take on these 'project cars'. Eventually, as the car project develops and grows, specialists (MBAs) can be brought on to find the minor, yet precise changes that will improve the car's results.