Photo: David Lerman
I will probably say some things in this article that will make my alma mater cringe. I have been asked the age old question by aspiring entrepreneurs many times: Should I get an MBA before doing a startup?
After getting an MBA from Wharton and now in the middle of doing my second start-up, I can confidently say that an MBA is not the ideal path for entrepreneurs to follow. I’m not saying that getting an MBA is a complete waste of time. While an MBA is highly valuable for other professions, let’s go through the reasons why an MBA is not required for entrepreneurs.
The Cost: The cost of an MBA from a top 15 school is staggering. Tuition, books, housing, and other expenses easily add up to over $120,000 in two years. Not to mention being out of the work force for two years. In total, the average student incurs an opportunity cost (lost income + additional expenses of school) in excess of $300,000 for two years of schooling. That’s a high price to pay for a degree.
It’s unlikely that you’ll be able to afford launching a start-up right out of school given the debt incurred. Plus, the time spent away from the real world means that you will be behind the latest market trends in your industry.
However, this cost is worthwhile for many professions. If you’re a consultant, banker, Fortune 2000 executive, or a government / public policy professional, then I would recommend an MBA degree. For these professions, your classmates, education and alumni network become highly valuable both right out of school and many years down the road. Even if your goal is to start your own consulting company or advisory business, an MBA from a top school is a worthwhile since it gives you more credibility with clients and opens many doors via the alumni network.
The Education: All MBA programs were designed with one goal in mind. To educate students with business skills that would make them successful within professional organisations. All the marketing courses, finance courses, and strategy classes at an MBA school are made to help you get a job at a Fortune 500 company and rise through the ranks. An MBA is great for someone who wants to work at an investment bank since you’ll get a detailed education on finance. An MBA is also great for someone who wants to work at a Fortune 500 company and move up the ladder. The degree will give you the general management skilled needed to rise to the C level suite someday.
For an entrepreneur, most of the things taught in an MBA program are meaningless to your success. For example, some people say an MBA will teach them to read a balance sheet and understand a P&L. Let’s be honest, you can learn how to read a balance sheet on your own in one week by reading a finance book. Plus, if you’re an entrepreneur (and unless you’re doing some complex finance related startup), you’ll have a CPA who takes care of these things. You do not need to be an expert in finance.
The same holds true for marketing. At an MBA school, you learn how to market as if you were the marketing manager at Proctor and Gamble with a $20 million budget. Not as a starving entrepreneur who has no budget.
The same goes for legal matters and negotiating with investors for fund raising. You do not need an MBA to understand the legal aspects of entrepreneurship. A decent lawyer and a few books are more than enough.
In the end, the education you need for running a start-up only comes from running a start-up itself! Nothing can replace that learning.
The Time: An MBA from a top school takes two full years. In start-up land, that is an eternity. In today’s world, entire industries are created or destroyed in less time. If you want to do a start-up, then do a start-up. An MBA will not give you a great advantage. In fact, I say that spending two years going deep into the industry you plan to start your company in is more important than a general business degree.
Take Omar Hamoui for example. He was a first year MBA student at Wharton and dropped out to start AdMob when he saw what was happening in mobile advertising. He sold his AdMob to Google for $750 million last year. He built AdMob at the perfect time and knew that if he did not leave school at the time he did, he would have missed the market opportunity.
When I worked at Microsoft, I remember Bill Gates saying that he only spent about 10% of his time thinking about the business and 90% of the time on emerging technology. He even said “business is easy to understand, just make a profit!”
If there is anything you can learn from observing successful entrepreneurs, it is that they had a ton of experience and real world education in their core field before doing their startups. Bill Gates had been programming for years before starting Microsoft. Same tolds true for Mark Zuckerberg.
If you want to create the next great search engine, then spend all your time on the technology side with other great engineers. If you want to create the next big wave in fashion, and then make sure you know that industry better than anyone else.
Take Away: The only thing that makes an entrepreneur successful is building a great product. A great company follows a great product. In order to build a great product, you need to be really good at understanding what product to make, how to make it, and how to change the industry with that product.
With Google, Larry and Sergey spent years learning computer science before knowing how to build a revolutionary search engine. Michael Dell knew more about the operational and cost side of making a PC than executives at IBM. Why? Because he spent hundreds of hours perfecting it in his dorm room.
Now, I recently met some of the founder of companies like Rent the Runway, BirchBox, and Warby Parker. All of these start-ups were started in Business School (Harvard or Wharton) and they are doing exceptionally well. This might make the case that going to business school is worthwhile for entrepreneurs.
However, these are more the exception than the norm. The founders are all very talented, risk taking, and determined people who had a passion for the respective industry they went after. They all took incredible risks right out of school to get their company off the ground. They had the DNA to be an entrepreneur and succeed without business school. So, if you’re willing to take massive risks right out of school, get into a top school, spend all your time perfecting a business idea for two years, then maybe an MBA is worthwhile. But, you could get there faster without an MBA.
To help entrepreneurs get the education they need, I’m offering two free passes to Ignition West 2012 in San Francisco. The normal price is $399 for startups and $800 for everyone else. Just send an email to [email protected] with a description of your startup. The most interesting startup ideas will get a free pass.
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