Innovators, Imitators and Idiots

Hi. I'm Stu Wall, the CEO of Signpost.

April 1, 2010 at 5:24pm
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Why MBAs Fail at Entrepreneurship

5 pitfalls for recent grads starting a company 

I began working on Postabon, a bootstrapped start-up, after I graduated from Harvard Business School last June. My co-founders and I slept on lots of couches, worked from coffee shops, and invested in a minimum viable product. We recently closed a Series A round with Spark Capital.

It’s been an awesome experience. The past eight months changed my view of entrepreneurship, the value of a degree, and a few mistakes that recent grads (myself included) seem make. Here are a few observations from the left-most section of the start-up learning curve. 

Execution - VCs don’t give a shit about your PowerPoint deck 

MBAs tend to prioritize funding over execution. In May of 2009 Postabon was a 30 page presentation full of research and ThinkCell graphics on why local would be the next big thing. No one bought it.

It’s not 2002. Tech trends like cloud computing, coding frameworks and better browsers means most consumer facing start-ups (without inventory) are really cheap to start. With three months and ~$10K, we created a bare-minimum website and iPhone app that allowed us to iterate daily based on consumer feedback. No amount of time in Baker Library would have substituted.

Building a product will allow you to identify a viable strategy, iterate, and prove your team can win. Research, formatting and nicely worded emails are a prerequisite but by no means a differentiator.

Group Think – Figure out what’s popular, then do the opposite

MBAs idealize jobs and ideas that used to offer outstanding returns. Private Equity and Hedge Funds offered outstanding salaries to HBS students from 06-08 and thus attracted “top” HBS students. As more talented students pursued these options it became conventional wisdom that everyone should be doing the same.

It turns out we’re good at picking sectors to avoid. The Harvard MBA Index has rightly predicted shorting the stock market when over 30% of HBS students go into finance. In 2008 the index hit an all-time high of 41%. Students aren’t the only ones showing up late to parties - in June of 2000 HBS initiated an ill-fated Silicon Valley Campus.

Howard Aiken has a great quote: “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.” Have the courage to take a path that may not be obvious to your peers.

Team – The person sitting next to you is a bad partner

MBAs are told we’re diverse. We have a great mix of students from lots of countries and previous careers. We tend to discount unrepresented functions like tech and marketing.

A turning point for Postabon was finding engineers who could execute against business objectives. Without them we wouldn’t have a product. They wake up at 2AM when the site goes down, think of things like database replication and recommend books I hadn’t heard of like Getting Real and The Mythical Man Month.

Your best partner is the antithesis of you. As Donald Rumsfeld might say, this person will help you identify your unknown unknowns.

Entitlement – Your $100K diploma won’t make cold calls

Getting an MBA is expensive. We spent months studying for the GMAT, writing essays and preparing for interviews so we could quit well paying jobs and incur $80K in debt. Most MBAs justify the expense with the expectation that it will vault them to a kick-ass well paying career. By the time we begin thinking about the next step, many have a “what will you do for me” attitude.

Compare this with (one of many) factories for your soon-to-be competitors: seed incubators. Incubators generally foster humility [e.g. lots of rice and beans] and a singular focus on execution. Graduating teams often have a prototype, customers and – most importantly – passion for their idea.

Entrepreneurship is the truest form of meritocracy where “credentialing” counts for nothing. Be humble and cognizant of your weaknesses, and put your passion for idea show (as opposed to your $$ aspirations).

Risk Aversion – IBanking won’t pave the way to (tech) entrepreneurship

Assuming a 5 year payback, you’ll need to make $35K a year pre-tax to break even on your student debt. Seed stage start-ups will add to the pain as you inject personal and family money into your business. If you do close on institutional capital, you’ll take a below-market salary that, when added to your debt, will mean a poorer lifestyle than the interns you just hired.

You soon start to think about joining an investment bank for the next 2-3 years so you can continue to learn and save up before you make the leap of faith. There are two problems with this theory: 1) most investment bankers hate their jobs 2) the corporate life is another bubble with similar pitfalls to MBA programs.

The seed experience had frequent “character building” periods that I suspect are more difficult on the tail end of a high paying post-MBA job. More importantly - from my brief experience – no lifestyle improvement would compensate for working on something you’re not passionate about.

The content here obviously isn’t new. Here are few of my favorite blogs that are good sources of inspiration.

Steve Blank

Darmesh Shah

Paul Graham

Notes

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