This is part of my ongoing series called “Start-up Lessons.”
I was reading Chris Dixon’s blog tonight. He writes with a great perspective and is well worth reading. I came across this blog post about getting a computer science degree as the best degree for getting into venture capital or working at a VC-backed start up.
I had to laugh a bit reading it. I just completed an exercise where I went out to hire a new associate for my VC firm, GRP Partners. I listed on many databases – some MBA, some not. I told people privately my perfect spec: computer science undergrad from MIT (or any other great school), 2-years at McKinsey but no more than that (I love the analytical framework that the top strategy consulting firms provide. BCG, Bain, LEK – they’re all great), a few years at a start-up or a few years somewhere like Microsoft, Google, Amazon or Apple. MBA fine, but not required.
We had more than 700 resumes, short-listed 65, interviewed 16 in one-hour meetings had 6 full-day interviews including a presentation by the candidate on a selected market opportunity and we did 3 finalist dinners to test cultural fit. Almost all of the finalists were MBAs (Stanford x2, Wharton, Harvard x2, MIT, UCLA). But in the end we selected David Lin, a superstar who did 4 years at the technology investment banking firm Montgomery & Co and 4 years as Director of Strategy at the comparison shopping site PriceGrabber where he dealt with many operational issues. He’s a star who has a very intuitive feel for technology and … no MBA.
I’m not against MBA’s (I have one myself from University of Chicago and my lovely wife was graduated from Wharton – she loves to remind me that they usually score higher in the rankings than we do). Many of my best friends have MBAs. But as someone who is in charge of recruiting, I feel like it adds a ton to the expectations of compensation without adding any additional value to me as an employer. I say this as somebody who recruited several Harvard, Wharton and similar MBAs at my first company (the one where I acknowledge that I made every mistake in the book). I paid up for the diploma but can’t say that I saw better results.
Understanding the 5 C’s to decide whether to get an MBA – after the jump.
Like Chris Dixon I grew up programing. Not hard-core, just the stuff you’d do if you were in jr. high or high school with a PC in California in the early 80’s. My family had the very first edition of the IBM XT computer with a 10 MB hard drive. My friends were astonished that you didn’t have to swap disks all the time. I programed macros to help my mom with her Lotus 1-2-3 spreadsheets for work. I took an advanced computer course in high school where I learned to build databases in Ashton Tate’s dBase III+ and to compile my designs using a product called Clipper.
I then worked in a computer store called Software Centre in high school and college (UCSD). I helped program my college’s recruiting office’s software system. I took a job in corporate finance as an intern my junior year at First Interstate Bank and I did system design on the side, as my main job was corporate planning. I installed Windows 3.1 on all the computers and established a network using Novell. My first job after college was as a developer at Andersen Consulting.
It’s been many years since I’ve properly cut code and my former teammates love to tease me and talk about my mean days of COBOL, DB2 and CICS. But the truth is that I believe I have a very good intuitive feel for software that can’t be replicated by reading about it. And I feel that this skill is invaluable in both building a start-up company and in being a VC.
I tell people regularly that I only invest in companies where the DNA is software. I don’t believe you can hire great business people who outsource the development to a hot incubator who builds you code to match your ambitions. It’s either part of the DNA or it’s not. And if it’s not I’m generally not that interested in funding it.
Computer intuition is hard (not impossible) to acquire. Business experience, on the other hand, is better learned hands-on.
So back to MBAs. They’re great for some people and necessary for some jobs. But they’re not necessary for start-ups. If you want to go into investment banking above a certain level you’ll need one. The same is true for strategy consulting and often it is helpful for senior levels within large corporations. I also know many people who never studied business as an undergrad who appreciated the knowledge that they gained as an MBA. My close friend Brian Moran (co-founder of BuildOnline) was an architect and is now a real estate developer and adviser. He says the MBA transformed his thinking.
THE FIVE C’S
My advice to people thinking about getting an MBA is to think about the five C’s. Three are on one side of the equation and the other two are on the other.
What you gain:
1. Curriculum - For me this is the most overrated of the reasons to go. Okay, so maybe you never took statistics, microeconomics or macroeconomics. They are all great for general knowledge but not immediately applicable to your role in a start-up. What about strategy? Do you really think Porter’s Five Forces is going to help you figure out what feature set to launch or how to price your product?
Marketing? You’d get a lot more experience from reading about marketing online or in books and then testing out the concepts for yourself. Many MBAs took marketing courses but have never been on the front line of A/B testing, email campaigns or PR initiatives.
My wife just pointed out to me that learning about the time value of money or how to value a company is something that every non-business undergrad should learn how to do. I agree. I’m not saying that the curriculum isn’t useful or valuable – I believe it is hugely important. But I believe much of it can be learned from reading great books, reading online and testing out the principles yourself.
If you had a non-business undergrad and want to study for a master’s in business – go for it! I’m sure it will be fun and informative. I’m just saying that it’s not required.
2. Certificate - Let’s face it – many people get MBA’s because they think it’s expected. If you look at the website of any major VC you’ll see it plastered with MBAs from Stanford, Harvard or Wharton. So the message that is inferred is that you need a certificate from a top notch MBA program to get in. Well … you might be right on this one.
But there are plenty of partners and successful entrepreneurs who don’t have MBAs. To list a few: Bill Gates, Steve Jobs, Larry Ellison, Marc Benioff, Larry Page, Sergey Brin, Steve Ballmer. I know that many do have MBAs but my point is that it isn’t necessary.
3. Colleagues – For young people who ask me for advice on whether to get an MBA this is the ‘C’ that I emphasize the most. I tell people that if you’re going to go to a top school then the people that you’ll be friends with there will be lifetime friends. And if you go to a top school then no doubt your peer group will all end up 15 years later as senior “captains of industry.” So for me the most compelling reason to go is the network of friendships you’ll form and the importance of this as part of your future network.
I also tell people that if they do go to make sure that they don’t spend all of their free time trying to graduate top of their class. I tell them not to be so entrenched in working on their start-up ideas that they don’t build deep, meaningful relationships with their peer group. Don’t forget that long after you forget the CAPM pricing model, how to do regression analysis or how to calculate NPV without a spreadsheet – your network should endure.
What you lose:
4. Cost – The biggest reason to give serious consideration to whether an MBA is necessary is the cost. Not only will the best program set you back $100,000+++ (much more when you add in books, accommodation, travel, etc) but you also have to calculate in 2 years of lost wages.
The Economist magazine did a study in the late 90’s on the ROI of an MBA (maybe somebody can help me surface it?). From memory I believe that their study showed only 2 MBA programs had a positive ROI (Harvard and University of Chicago). They looked at total cost to the student and lost wages and then they plotted the incremental increases in salary that students who graduated got over the course of their careers. The carve-outs were people who got executive MBAs (e.g. no lost wages) or whose companies sponsored them.
Again, to be redundant – I’m not saying “don’t go.” I’m just saying be aware of the reasons you’re going (e.g. the first three C’s) be knowledgeable about the cost C and be sure in your mind it’s worth it to you for other tangible or intangible reasons.
5. Continuity – The other C factor to consider is continuity. If you want to work in start-ups or VC – what experience could you gain in those 2 MBA years if you had stayed at your start-up? What if you talked to your CEO and told him/her that you were considering an MBA but would prefer to work for the company. Ask if they’d be willing to let you rotate a bit around the company to gain new experiences? Ask if you could shadow different functions like marketing, finance or product management. Would you gain more from that than an MBA?
Before I get shot by every professor or MBA graduate let me set the record straight. I am a very big believer in education and especially higher education. I think that the knowledge gained on an MBA is useful. I do wish that more professors were forced to work in companies to gain real world experience that they could pass on to their students. I do find it strange that the most valuable skill for any employee in any company isn’t emphasized AT ALL in my experience: sales.
Sales is the lifeblood of every organization. It’s how we move products. It pays for all of our great engineers. It fuels our bonus payments, our quarterly earnings, our growth rate, our value at acquisition time. If I were 27 again and working at a start-up and was considering getting an MBA, I think I’d go to my boss and ask if I could spend a year in sales, 6 months in product management or marketing and 6 months in finance. I’d keep my personal balance sheet positive and my future options open. It’s hard to start companies and take risks when you’re $150,000 in debt.
Okay, now you can shoot me. Have at it in the comments section below. Let’s get the arguments from the other side of the table.