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> I watched them do shit like destroy products that big customers had money in hand ready to pay for when they were inches away from release.

I'm watching friends in two different, reasonably large consulting companies (~700-1000 employees) suffer as their respective companies go through the consulting version of this kind of MBA suicide. In one case the company even decided to change their name and go through a rebranding. Some examples of the idiocy at work

- The rebranded company's schtick is to hire staff with advanced degrees (PhD preferred and multiple Masters) and at least 10 years of industry experience and charge bongo bucks for renting them out to do high-end but not necessarily mind-blowing work. Something like 80% of their contract staff has a PhD. Due to economic reasons they lost a couple medium-sized contracts. Their response was to lay off half of the PhD employees in the company because they were too expensive to keep around while they looked for new work. even ones who were already working on a contract and making money for the company.

This meant that they also had to cancel at least 3 more medium-sized contracts and a handful of smaller ones because they eliminated the staff who were working on them

At one point they also had two CTOs (because if one is good, two look even better) until they came to their senses and laid one of them off.

- At the other consulting firm, a similar pattern, tightening customer budgets meant that they decided to replace staff already on contract with cheaper, less experience, all new staff to pump up the profitability score on the spreadsheet. (they'd already laid off all of the idle staff not on contract, so without winning new business, some MBA thought that this was the best way to increase the numbers and get another bonus)

But now they've let go all of the people in the firm who had experience doing the work, sometimes decades of experience. And now there are no mentors, no experienced hands, nobody. The quality of the consulting work rapidly went down resulting in the loss of 2 contracts and senior positions that they'd normally fill from within required them to go outside of the firm for.

Both of these firms are in death spirals and all of the people that could help them pull out of it were fired.

At one company I used to work for, I also saw my leadership completely lose their minds and fire off all of the development staff, thinking we could coast with a new sales team and the product we had and pull ourselves into profitability. They also turned down trying to fill out profitable professional services contracts we had with staff because the margins were lower than selling new licenses. I also brought them significant new work in a different line of business where it was decided to turn it down because we didn't want to have to deal with low paid temp staff because "temp workers get paid more than their worth to their temp agencies".

"At one company I used to work for, I also saw my leadership completely lose their minds and fire off all of the development staff, thinking we could coast with a new sales team and the product we had and pull ourselves into profitability."


I watched this particular face-plant occur once as well. When they actually got customers the results were hilarious. Hilarious because I was not a direct employee, mind you.

It was like having a high-end trendy restaurant with excellent branding, great decor, a great location, and no food. So they run across the street to McDonalds and order fifty Big Macs, run back over, dress them up on plates (who will notice), and...

Running out of money sucks, but this maneuver was destined to fail from the get-go. Anyone who knows anything about tech could have told them that. One smarter alternative would have been to lean the development staff -- they had to -- and hire a small number of salespeople on contract (not full time) and offer them disproportionate bonuses to bring in sales.

What they actually did was fire anyone who knew how to make anything -- and in a way that burned bridges! -- and hire a bunch of sales guys full time and at full salary. Hilarity ensued.

Did the guys at the top ever lose any money?

What usually happens is that they've locked in some preferential options or stock grants + bonuses etc.

If the company hits it big despite them, the stock is awesome.

If the company does poorly they might miss a bonus but they'll still get their inflated salary.

If the company ends up on the rocks, they'll get their salary cut "till company performance improves" as their pay is usually tied to the performance of the company as an incentive.

But what invariably happens is that, even with their pay tied to company performance, the moment it gets cut, they high tail it out of there and land a new job with their top-10 MBA and another couple years of job experience...saying "I'm looking for growth opportunities" over and over again in their interviews.

I don't know if it's still true, but Facebook used to filter out these types by making them do a version of an engineering interview. Except instead of regurgitating algorithms you learned in college, MBAs had to regurgitate stuff from MBA school. Like derive the time-value of money, or discuss the TPM or whatever. The ones who coasted through MBA school got filtered out really quickly and the ones who took the subject seriously might pass the gauntlet.

But what about the people investing in these companies? Money don't grow on trees and you can't make money without products to sell.

Investors bank on most of their investments not succeeding, and the few that do making up for the rest.

The truth is, nobody knows how to bottle "success" and reproduce it -- but in a sense that's what management school is trying to do. With just the right management approach, applied in just the right ways, you can get Instagram instead of Color, or Google instead of Cuil.

The problem is that it's very easy to look at the failures and pick apart the problems. But it's very hard to look at the 1% that succeeds and figure out why -- and when it's attempted it usually overlooks the cases where the company succeeded despite having many of the problems the failed companies had.

Most companies succeed because of 90% dumb luck and 10% business strategy.

(hell, business is so screwed up people still don't understand how to define success. You see it here all the time that a "successful" startup is one that raises a huge round, not one that's profitable and growing...even BusinessWeek does this)

Early stage startup investors expect most investments to fail. Those investing in mature companies expect their investments to do well over many years. I'm sure MBAs have plenty of stories of incredibly inefficient companies that have squandered opportunities. MBAs aren't about growing startups, they're about taking the now $1bn Instagram and doing more with it.

I'd also ask them if they know when to use and when not to use these concepts.

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