Valuing an MBA in a startup

Over the last week there’s been alot of talk questioning the value of having an MBA in a startup – Giff Constable, Rob Chogo, Jon Steinberg, and Charlie O’Donnell (All stateside and non of whom I know). I’ve an MBA in entrepreneurship, 20 years tech business development experience and now a startup. In my experience an MBA does not teach anything you don’t  already know or can work out for yourself. However it does say something about you as a person. Unfortunately this counts for squat in a startup.   As in sales and in a startup you are only as good as your last months or quarters sales.

“Reach for the sky!”

Why do an MBA?

From my experience meeting other MBA’s Jon Steinberg summarizes  really well why people undertake the MBA:

  1. Value in building a network
  2. Credential – certain employers require an MBA for certain jobs
  3. Need a break from work
  4. Career change

For me it was about adversity, learning and change. Adversity has been shown to be the number one  driving force for successful entrepreneurs. I don’t have a first degree and dropped out of  college. I’d been stuck on an educational ledge ever since. Some of my close family and friends strongly advised me against doing the MBA, particularly in entrepreneurship. Yet it was one of the best years of my life. I loved every MBA minute!

Experience v’s an MBA

During my tech career I’ve built significant profitable customer bases three times from scratch. It ‘s been an amazing experience with great highs and the occasional low.  In my last employment I grew a remote managed services business unit  into a highly profitable multimillion dollar Global business winning customers like Richard Branson’s V2 Records. Building customer bases from nothing is not easy. I’ve found building a company even harder.

There is much an MBA does not teach you. It does not show you the many practical skills needed in business. In particular skills like sales, marketing a small business, attracting resources – the list goes on..  There are  so many skills needed  to run a startup.  Given the choice real small business experience wins hands down over an MBA in a startup. However sometimes we forget that an MBA is an academic qualification. I’ve found that my MBA  has brought value to our startup.

We like difficult challenging times

Some of us perversely put ourselves into difficult and challenging positions where the odds are not good. It’s often not a comfortable place to be. However we keep going back there! The MBA is deliberately tough. It was challenging for me not having the educational experience and understanding from a first degree. The first semester was the hardest. Its like a bootcamp. They give you too much work. It was an especially hard as my mother was diagnosed and died of cancer during the first semester – all part of life and doing an MBA!

Does an MBA bring value to a startup?

After so many years at the practical coal face of business development the MBA has definitely helped me see things differently. I now look at decisions more objectively. It has brought a greater understanding of internal business structures and holistic competitive markets. Was it worth the $10,000’s of dollars it cost? Plus all the living costs and lost savings –  probably not. Would I make that decision again to do it – defiantly!

An old serial entrepreneur friend of my said that ‘a startup is an MBA of life.’ And he is so right. Nothing can prepare you for a startup. It is unlike anything I have ever done. It messes with your mind and body. We all know you didn’t need an MBA to start as business. So why do it? For me is it’s about exciting new adventures where you push yourself to the limit and learn new tricks. This could be doing an MBA, starting a new challenging job or having a startup. Keep learning and pushing your own boundaries. Life is boring otherwise. And why have a boring life! You only have one of them 😉

Yeah I know I’ve got an MBA, so I’m bound to be a bit bias. However on balance I highly recommend an MBA for those that have something to prove and love challenges. If your heading to startup ville and not moving up the career ladder in the same company an MBA will probably set you back. It will cost you lots of money and if your doing it to change career will put you back years. But these are  good things. They keep you fresh and hungry. It’s the learning and personal growth that really matters.

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24 Responses to “Valuing an MBA in a startup”

  1. Giff Says:

    thanks for sharing your thoughts and it sounds like you had a cool experience. I do agree that MBAs learn how to make more objective business decisions — something that can make a passion-driven young entrepreneurs stumble before learning the lesson. Don’t think that’s enough of a reason to go if you want to be an entrepreneur, but it’s a good point. I’ve debated with folks whether MBA programs make people lose their taste for risk, but my conclusion for now is that it doesn’t really change people one way or another — you either have an aggressive capacity for risk and independence, or you don’t.

  2. Nick Barker Says:

    Hi Giff, And thanks for commenting. Great debate going on! I agree its probably not worth the investment for young entrepreneurs to become more objective on business decisions. I think the best lessons are nearly always the hard ones – lessons in failure. An MBA can sometimes delay these lessons. As I’m older the MBA really layered theory onto my work practice. If I was starting my career out again I’d probably do exactly the same thing I’d did in my 20’s – I’d get out of the classroom, roll-up my selves and get working!!

    Interesting point on risk – many try and de-risk ventures or startups with analysis (business school thinking) but in the end you have to follow your gut instinct. Interesting HBR post – MBAs vs. Entrepreneurs: Who Has the Right Stuff for Tough Times? The MBA does not de-risk opportunity and nor does excessive analysis. In our search for a startup idea we’ve found there is no such thing as a perfect opportunity. Its got to evolve, so get started!

  3. Chris Mahon Says:

    Excellent stuff Nick, and a worthy debate! Certainly, one would be hard pressed to make a case that an MBA qualification is a requirement for successful entrepreneurship, but evidence suggests that it is indeed an asset! There are in fact a number of interesting studies which show that more education, and not less, correlates positively with start-up sales and success. Scott Shane, in his enlightening book “The Illusions of Entrepreneurship: the Costly Myths that Entrepreneurs, Investors and Policy Makers Live By”, cites a wealth of research linking both undergraduate and masters level education with higher sales figures in the start-up environment when compared with start-ups founded by individuals without degrees. Better educated entrepreneurs have greater access to external capital, lower business failure rates, higher employment growth, and more profitable ventures. Research also shows than, on average, a start-up founded by an entrepreneur with an undergraduate degree generates sales 25% higher than one founded by a high school dropout, and a start-up founded by someone with a masters degree generates sales 40% higher than one founded by someone with an undergraduate degree. Yes, we all know someone who grew a successful business without the help of higher (or even secondary) education. But these individuals appear to be the exception, and not the norm.

    Research also suggests there is a further benefit to individuals graduating from entrepreneurship-specific MBA programmes (well done Nick!). When compared to General MBA grads, Entrepreneurship MBA grads were earning salaries 27% higher, owning 62% more assets, and earning £15,000 more per year in the corporate environment. Entrepreneurship MBA grads also reported greater job satisfaction, whether working on their own businesses, or someone else.

    What does all this mean? Quite simply that an MBA qualification is far from irrelevant, and in fact correlates quite favourably with personal and start-up success. There are no absolutes of course, but there is very little to suggest that an entrepreneur is better off without one.

  4. Nick Barker Says:

    Wow – looks like you’ve had this debate before Chris.. As per my post I consider my MBA experience an asset. However the MBA has not demonstrably helped with our startup sales success i.e. it does not close deals. I think success is as much about the individual’s tenacity as having a qualification. The MBA does not bring determination or tenacity.

    Unfortunately I’m not one of the individuals earning a 27% higher salary- not yet anyway 😉 It’s more like -270%! All for the love of startups 😉

    Thanks for the robust comment Chris!

  5. giffc Says:

    I think these studies look across a wide range of industries and types of businesses; I should have properly qualified my comment as targeting my own industry: technology. Separately, I think that “higher ed degrees” cannot all be lumped together. An MBA is not the same as a law degree or computer science PhD.

    However, my goal is not to beat up MBA programs. I’ve worked with many a great MBA grad. Whatever your education, if your goal is to be an entrepreneur, I say good on’ya, go get em!

  6. Nick Barker Says:

    Excellent advice Giff: “good on’ya, go get em!”

  7. chrismahonmba Says:

    Interestingly, the education benefit observed by the research I referred to does not extend beyond masters level. Start-ups founded by PhD’s perform less well on average. Go figure…

  8. Nick Barker Says:

    Now I find that particularly interesting because often the startup “dream team” has the tech guy (or girl) with a PhD, yet they perform less well..

  9. Chris Mahon Says:

    I’m telling you, the book is an eye opener. Want to borrow it?

  10. Nick Barker Says:

    Sounds good – I don’t think Giff is going to believe it though!!

  11. Sebastien Marion Says:

    Very interesting post Nick.

    I can very much relate to the “challenge” part of doing an MBA. I did a Ph.D in Computer Science myself, and while I genuinely believe most talented developers have the skills to do it, what is hard in Ph.D is the challenge.

    Much like in a startup, you go through ups and downs. There are period when you do not seem to be getting anywhere, and suddenly, miracle, you obtain some good results and here you go again. The challenge in a Ph.D is to keep going. Again, again and again. Most of my Ph.D friends (including myself) have thought about giving up at some point.

    “What is the point?”. “Why so much suffering?”. “Why am I putting myself through this?”. “I’m not even getting anywhere”. Most of us who did a Ph.D have had these thoughts.
    But then eventually you pull through, somehow. And then eventually you realise: “I did it. I finally did it.”.

    I suppose you could compare it to a Marathon. Anybody *could* do it if they train hard enough, but the journey is a long one.

    —————–
    OK, so now, back onto the startup topic.
    At Comufy, we are 4 PhDs in computer science.

    While you could acquire the same level of competency as a Ph.D by working in the industry, what a Ph.D helps you to do is think. Think out of the box. Step out of the circle.

    When doing a Ph.D, you struggle, and you need new ways to overcome that struggle. “My experiment is not working? Ok, let’s try something else.”.

    This, I believe is very important when doing a startup too. You need to work around the numerous obstacles that come your way.

    Why do startups with Ph.Ds do less well? Well, I’m not sure.
    Where do these numbers come from in the first place?
    I do know that Google was started by two Ph.D dropouts. I do know that Microsoft was started by Ph.D dropout.
    I don’t see why having a Ph.D would limit your success in any way. I feel that it actually helps you with writing skills, analysis skills, and out of the box thinking.

  12. Nick Barker Says:

    Great to have a PhD lead startup perspective! I have been told doing a PhD can drive you mad. They say it’s a lonely experience. Your comment has taken us back to lifes challenges and determination. It seems that a PhD takes more determination than an MBA because of the isolation and long duration. In the MBA I found I was swept alone by the brisk pace, teamwork and deadlines – this excludes the final project, which in my case was a solo effort.

    The MBA certainly brought me a more objective view and increased my ability to “step out of the circle”, like your PhD has given you. I can’t answer your questions on PhD startup success – I’ll leave that to Chris.

    Thanks for the comment and I’m sure further success will come your way but also accompanied by obstacles. It would be boring if it was easy 😉

  13. Tim McOwan Says:

    Nick, interesting post.

    I sit firmly in the “not an entrepreneur” camp but I’ve been working with a very driven entrepreneur now for a while and it has been an education unlike any I experienced in my MBA…

    I think first and foremost that being an MBA in an entrepreneurial environment (very different to being and MBA who is also an entrepreneur) makes one aware that decisions, for an MBA, have a basis in ROI, WACC etc etc whereas decisions for the entrepreneur come from the gut with little or no apparent cognitive effort. We often agree, but not always and we are both proven right/wrong in reasonably equal measure. The big difference is, it took me 2 years slogging my guts out to be right to about the same extent as someone who has the entrepreneurial spirit. Having said that, he’s been at it a few years now!

    I think an MBA equips you with the skills required to make a decision based on sound, clearly articulated logic rather than emotion. Being an entrepreneur means you don’t have to articulate it to anyone!

    Believe it or not, our MBA (Kingston) had a module about entrepreneurship. I didn’t take it but one thing I know now is that entrepreneurship is not something that can be learned!

    • Chris Mahon Says:

      Hi Tim,

      Some interesting stuff in your post. Nice to read the “not an entrepreneur’s” perspective on this!

      I couldn’t disagree more with your final statement though! Nick has made similar comments to me in the past, even though he has an MBA in Entrepreneurship. ;p

      Entrepreneurship can definitely be learned. Giff would say I’m justifying my own existence here, but aside from teaching and training entrepreneurs, I also practice what I preach, and am growing my third business. Believe me, I am learning entrepreneurship every day!

    • Nick Barker Says:

      Hi Tim,

      You bring a very interesting perspective with your MBA and working closely with a hard core entrepreneur.

      Gut instinct v’s detailed analysis – for me, as a MBA/startup founder, it’s a combination of the two. There are inherent risks of leaning too much on either instinct or analysis.

      Relying on purely emotion can lead irrational responses i.e. knee jerk reactions and weaken a strategic approach. I touched on this in my ‘Startup short-term & long-term mind splitting’ post. However excessive analysis can lead to “paralysis by analysis” as also commented by Giff. The entrepreneur has limited time and resources. A decision has to be made and often a decision is better than no decision at all. Just waiting and doing nothing is not a good idea when you have very limited time in a startup. It’s a matter of survival!

      I think logical analytical decision making is a skill which can be learned. I also believe that we all have the sprint of entrepreneurship in us. For me the essence of Entrepreneurship is about experimenting and learning as a discussed in my ‘The spirit of Entrepreneurship’ post. However we all have different thresholds to risk, sacrifice and blind hope. These thresholds are built-up over time and through life’s challenges.

      Regarding your point “Being an entrepreneur means you don’t have to articulate it to anyone!” The one person the entrepreneurs really have to articulate too is the customer. If the entrepreneur can’t demonstrate strong value and logical ROI to a prospective customer then all will be lost in time. They are the boss in a startup 😉

      Thanks for both the comments and joining the conversation!

      • Nick Barker Says:

        Thanks for bringing me back in the debate Chris! Another excellent point has been raised – “can entrepreneurship be learnt?”

        This question was at the heart of my MBA in Entrepreneurship four month dissertation. I’ve spent my whole career working for entrepreneurs and interviewed eight entrepreneurs as part of my MBA project. My conclusion was indeed entrepreneurship can learnt! However it takes an underlying passion and tenacity based upon a personal interest to drive learning. I got a great mark BTW 😉

        The question can an MBA (or academic education to that matter) teach you to be an entrepreneur is a different one. John Mullins (BA, MBA (Stanford) and PhD) The Associate Professor of Management Practice, Chair, Entrepreneurship at London Business School – in his 2006 paper ‘Can we teach Entrepreneurship’ said “probably not”. In reality it is a matter of learning on the job! Mullins also says through learning the entrepreneur can be “better equipped”.

        Indeed my MBA in Entrepreneurship has better equipped me for my startup, however something’s can only really be learned in practice.

  14. Margaret Burrell Says:

    Hi Nick,

    Interesting debate!

    Like you, I did my MBA quite late in my career – and to add the theory to the experience I had gained by ‘getting my hands dirty’. However, I am now running my own start-up (half way through the second year) and whilst I don’t think that my MBA will turn out to be critical to its success, I do think it has given me a degree of confidence which I wouldn’t otherwise have had – including that needed to tackle those aspects of running a business which would previously (in a large company) have been dealt with by others.

    I also think that your evaluation of those who do MBA’s is on the mark – you have to love a challenge. Clearly, entrepreneurs are risk takers, and love challenges, so there should be no surprise that there is a correlation between those who are entrepreneurs and those who take MBA’s.

    I would take my MBA again any time – in fact if it wasn’t for the cost and the fact that it would probably end in divorce, I would carry on with my studying. However, I’m personally glad that I did it a little later in life when I had a huge chunk of experience behind me – although I did it for the experience rather than in expectation of a huge salary at the end of it, and I realise that this makes a difference!

    • Nick Barker Says:

      Hi Margaret,

      Yes, I really have opened up a can of worms. I think people are very passionate about this subject because we spend so much time and effort in founding companies and/or in education.

      Thanks for sharing your story. You make an excellent point on confidence. People i.e. customers, employees, suppliers and investors are far more likely to believe you if you are confident. The MBA does help to bring a level of confidence through the ability to fall-back on knowledge on where/how to find the answers. It also brings the confidence of having a network of new contacts to rely on when needed.

      Thanks for the comment!

  15. Margaret Burrell Says:

    Tim

    Nottingham also has an entrepreneurship module on their MBA as well as on it’s undergrad course. I did the module and now act as one of the mentors on the undegrad course – and as yous say, whilst the theory can be taught, the sprit can’t.

    I also thought your take upon how an MBA measures success was interesting – and probably, on the whole, true. Clearly, entrepreneurs have to have a mind to such things, but is it what drives them – at least at the start? I doubt it.

    I recently attended an inspirational talk by John Peters – the ex-RAF fighter pilot – who asked us all ‘what does “success” mean to you? To me, in my business, it is about learning and growing as an individual. Sure, I want to earn money as well, but I could probably earn more by returning to my roots and going back to being a high street solicitor. That route would not give me the same challenge and personal satisfaction that I get now though – and these are things that an MBA does not (and cannot) teach you how to measure.

    I would not class myself as an entrepreneur, but I can see why to be one, you sometimes have to go with emotion rather than logic. That said, having the academic training would allow you to at least be able to quatify the risks involved in taking that leap of faith!

    Which brings us back to start-ups. Challenges, obstacles – didn’t someone once say that necessity was the mother of invention? Those of us who are more risk averse are probably more likely to wait for someone to give us a push before we make the move and start up on our own. For some it is redundancy, for me it was ill-health. True entrepreneurs don’t wait for that push – they just go for it.

  16. Tim McOwan Says:

    I want to clarify what I mean by “you can’t teach entrepreneurship”

    To me, entrepreneurship means the spirit, the drive and the determination that it takes to make an idea into a business by whatever means possible.

    MBAs have the ability to turn entrepreneurs into businessmen, not businessmen into entrepreneurs.

    MBAs learn a series of skills (as well as the personal developmental journey that an MBA travels to gain his/her qualification). Entrepreneurs are born entrepreneurs.

  17. Giff Says:

    I don’t believe the best tech entrepreneurs make decisions based on emotion rather than analysis. They *love* metrics. They just refuse to allow “analysis paralysis” to take place, and sometimes you have to make judgement calls based on incomplete information and your gut. Speed (fast iteration) is one of the advantages of a small company.

    I do like this quote from Tim: “MBAs have the ability to turn entrepreneurs into businessmen, not businessmen into entrepreneurs. “

  18. Chris Mahon Says:

    Hi again to all. I’ve missed a bunch of good stuff since I checked in last! Hello Margaret!

    I don’t think anyone would argue that we can teach someone to be or become an entrepreneur. That certainly is NOT the focus of the MBA Entrepreneurship programme I lead and that Nick was/is a part of. Rather, we try to help students understand and develop the skill sets we associate with successful entrepreneurs. True, we can’t teach passion, but we help students understand that passion alone is not enough. We can’t teach creativity, but we help students understand what creativity is, how it factors into effective decision making and problem solving, and how it works best when accompanied by a well worn set of tools for analysis and evaluation. We can’t teach risk-taking, but we help students contextualise risk-taking and prepare them for more calculated risk-taking. We can’t teach tenacity, but we help students understand the benefits of perseverance and the value of learning from one’s mistakes. We can also help students improve their skills around analysing business environments so that they can recognise opportunities more fluidly. And we can also teach the ability to differentiate good ideas / opportunities from those less likely to bear fruit. And we certainly can help students develop their understanding of the core set of management disciplines.

    Many entrepreneurs I know (including myself) appreciate that there is something quite tangible about being an entrepreneur. As Giff said, its about “rolling ones sleeves up” and trying to make a mark on the world. But being an entrepreneur also makes one part of a rather exclusive club, and entrepreneurs are not slow to defend this space from psychological, emotional and intellectual intrusion. I am neither surprised nor offended by the widespread rejection of the academic environment as a breeding ground for entrepreneurs. In many ways I get it. But I am highly confident that we are on the right track here, and that students leave us not necessarily as better entrepreneurs, but as better prepared entrepreneurs. For sure, students that come to my programme are entrepreneurs already. We simply provide a platform for the development of the social and human capital that will undoubtedly help down the road.

  19. Margaret Burrell Says:

    Well said Chris. It really all comes back to Tim’s point about being able to turn entrepreneurs into businessmen but not the other way around.

    In many ways, I think we are all saying the same thing here, just in different ways: An MBA helps people to challenge their passion, creativity, risk-taking etc, and to use it in a way that improves the probability of success. In other words, an MBA is a means of helping someone with entrepreneurial spirit become something more – a successful entrepreneur!

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