Why MBAs fail at Entrepreneurship | Hacker News Reader

Why MBAs fail at Entrepreneurship

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92 pointssmanek36 comments

Are there a lot of people who think getting an expensive MBA degree is worth something in the startup world? I'd never heard anything but the opposite until reading this article and now I'm wondering if there's some segment of the population that I've just never heard from.

for laymen, startup is synonymous with business, and an MBA is a business degree.

Hi Sam,

I'm the technical co-founder of http://postabon.com (the crazy guy who wrote the entire thing in Lisp ;-)).

Based on my experience over the last 6 months, I think most MBAs start out thinking that they'll be fine at doing a startup with no domain expertise, and can just 'throw money' at that problem. This is true whether the domain is manufacturing, fashion, tech, etc. However, after they've been at it for N months and have nothing done, the smart ones realize the error of their ways ;-)

Business savvy (just like technical skill) is a necessary (but not sufficient) requirement for being a successful entrepreneur. Having co-founders with disparate skill sets helps you cover all your bases.

I think just as many engineers think they can build something cool (with no thought to marketing, capital, strategy, etc), and build a start-up.

If you go to any engineer-focus start-up discussion site (JOS, RiR, Erik Sink, HN, PG, bothsidesofthetable .. you name it) that's exactly what they don't hear.

If anything, engineers are under-confidant about business things. They seem to think that selling stuff takes at least a 3 year degree (or equivalent experience) just like writing a program.

In my experience, a high percentage of b-school students are aspiring entrepreneurs (although most don't pursue directly after graduation). Last year there were 100+ teams in the HBS business plan competition from a class on 900. Several grads have since closed on funding, including RentTheRunway who closed Series B last month http://su.pr/25JmSw.

Its hard to say - but spend some time running through enough VC's and C level execs resumes and Harvard/Stanford B School seems to turn up a lot. I don't know if its the actual degree that helps but it certainly doesn't hurt.

Man do I regret not funding these guys.

Are you saying you interviewed them and passed them over or are you saying this is the type of team that you like to fund?

The former. http://news.ycombinator.com/item?id=1191694

Ever considered setting aside say 5% of your funding allocation for wildcard acceptances? Every company that gets rejected from YC could go into a lottery and depending on the absolute size of that 5%, a number of companies could make it in solely because their names were drawn from a hat.

Because the odds are so low that a rejected contender will win a wildcard spot, it removes any unconscious scoring bias you might implement. In other words, I was thinking of the scenario in which you might only make some of the rejects eligible for a wildcard spot based on a scoresheet. You might unconsciously bias your scoring to make some rejects eligible and others not. The beauty of the wildcard is that it's totally random.

EDIT: Another thought. Wildcard entries would set a nice benchmark for merit-based entrants to YC to compete against. They would have more to prove because they've been written off. I'd be curious how this would affect the larger group dynamics of the programme.

What I would like to know is what kind of Analytics are YC and PG running to avoid making this same mistake again.

We don't do much formal analysis, but I do regularly look up the applications of people we rejected who later succeed in order to figure out how we missed them.

There are two phases of acceptance, the application and interviews. The first phase is where most mistakes occur, because written applications are so much lower bandwidth than face to face conversations. So if we were going to insert randomness, we should randomly invite people to interviews, not randomly fund them. But the trouble with that is that, unlike funding, interview slots are constrained. There is a physical limit to the number of interviews we can do. So to invite someone randomly we'd have to not invite someone who was (as far as we could tell) more deserving, and we are very reluctant to do that.

The first phase is where most mistakes occur

Even if this were true, which I wouldn't argue against, it doesn't mean that it's where the mistakes of the highest aggregate value occur.

For example, what percentage of first phase rejections try again, as compared with second phase rejections?

But the trouble with that is that, unlike funding, interview slots are constrained.

You could apply the usual interview scaling technique of adding another phase (e.g. shorter pre-screen with a single interviewer) or delegating. This has the obvious disadvantages, which is, arguably, one of the major reasons big company hiring processes are so unreliable.

"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."

From an article today (http://money.cnn.com/2010/04/01/markets/hedge_fund_manager_p...): "After plunging during the financial crisis, the income of top hedge fund managers surged in 2009 to a record high as financial markets recovered from historic lows, according to a new survey published Thursday.

Altogether, the 25 top-earning hedge fund managers made a record $25.3 billion last year, according to rankings in AR: Absolute Return+Alpha, a magazine dedicated to the hedge fund industry.

The highest paid manager on the list was David Tepper of Appaloosa Management, who made $4 billion last year on investments in the financial sector."

David Tepper isn't just an MBA, he has a business school named after him: http://web.tepper.cmu.edu/tepper/about.aspx

I think he'd get a good laugh out of this article.

precisely...there is so much money in finance, that the "1 million dollar exit" that a lot of entrepreneurs would salivate over is peanuts to them

Entrepreneurship is the truest form of meritocracy

Great point - I worked for a big company before I had a startup, where they claimed to have a culture of meritocracy. The trouble is that large organisations are too standardized to ever be truly meritocratic. People are generally banded based on perceived ability, but there must be such variation between those in each band, meaning you are rewarding people of varying abilities the same. This type of system is slow and fails to take in to account outliers.

So I'm curious about this scenario:

How do you feel about an engineer, maybe with good ideas, maybe not, who gets an MBA? Would they be useful in a startup or anywhere else for that matter?

Bingo, just what I was about to make a post on.

There's a fantastic difference between someone who goes straight from an undergraduate degree to an MBA vs. someone who gets some number of years of experience in the real word and then goes back for an MBA to learn how to do it better.

Sort of like how the very best lawyer I ever worked with had started as an embedded engineer (in some California nuclear power plant there's a Z-80 of his monitoring valve wear). While he could certainly do the work, he just didn't find it to his taste, so he became a patent lawyer (in the long term, he first also discovered that being an associate in a big law firm was seriously negative fun).

So e.g. when we had to weaken an external cryptosystem of ours to make the export guys happy, he knew exactly what I was doing when I explained the context and said "we zero these bits of the key"; together we wrote the application (which was accepted). And he taught me a lot about the law (this was the company that went kaboom in a cery bad and big way and we spent a lot of time in the local law library to get our back wages etc, etc, settled).

So I'd view the one with real world experience who then got an MBA or became a lawyer favorably (and probably tend to run away from the one without :-).

It totally depends on what industry/vertical you are trying to take on. For web apps, yes an MBA is not vital since you can bootstrap w/out funding (as the author alluded to). However, I'd argue that the connections you get with an MBA can be worth their weight in gold.

Case in point: Gilt. Don't tell me that these MBA's are failing (http://www.gilt.com/company#team). I'd happily trade shoes with them :-)

But those types of connections you can easily acquire somewhere else no?

Using the Gilt example I don't think I'd have the chops to do so. If someone was able to rally that kind of talent in NYC without an MBA, they'd have to be pretty amazing. Pedigree is still important, esp. with a Fashion startup.

You know Alexis and Alexandria (the two HBS MBAs who are ostensibly behind Gilt) had almost nothing to do with the company's conception - right?

The real founders are Kevin Ryan and Dwight Merriman (the founders of DoubleClick). They created and funded Alley Corp with their Google money, which runs a whole bunch of really great startups (like 10Gen, the company behind MongoDB). The story about Alexis and Alexandria dreaming up the idea in business school is just for PR purposes ...

I did not know that, but thanks for the heads-up. Sounds like there's an interesting story there...

Can you say more about this? I'm a big fan (and customer) of Gilt, and I'd love to know where I can read more about this. Thanks for the heads-up.

wow, that's definitely interesting... after reading the bios of both on Gilt, you can definitely notice the nuance of the language.

http://en.wikipedia.org/wiki/Kevin_P._Ryan

"Gilt Groupe is an online retailer based in the United States. Founded in 2007, Gilt Groupe stages online 'flash' sales, offering women's, men's and children's designer apparel and accessories, designer home goods and high-end travel destinations at discounted prices in a limited time sale format, typically 36 to 48 hours.

Kevin Ryan founded Gilt Groupe in 2007. Gilt first launched women's clothing and accessories in November 2007, men's in April 2008, Gilt Groupe Japan in February 2009, Gilt Fuse in August 2009 and a travel site named Jetsetter in September 2009. Gilt Groupe is based in New York, NY with warehouses in Brooklyn, NY and Andover, MA.

Gilt Groupe has raised a total of $48 million to date; its investors include Matrix Partners and General Atlantic Partners. [edit] " .. thx for the heads up.

But Kevin has an INSEAD MBA that's right up there.

Just a comment on the final point. Most investment bankers don't hate their jobs, most love their jobs. If you hate the job and are just in it for the money you'll burn out and drop out pretty quickly. Investment Banking is pretty much dominated by people who love doing what they do, probably more so than the vast majority of other industries.

I can only go on personal and anecdotal experience, but having known a lot of investment bankers, I cannot agree with this at all. After a few years, the folks who truly love it are a definite minority. But many get snared by money/lifestyle. I see the same in management consulting where I get told over and over "I'm just here until I figure out what I really want to do"

agreed, living in NYC, i know many ibankers and very few of them actually enjoy what they do. They're pretty much glorified excel junkies.

There is a big difference in ibanking between analysts, associates, and the guys who are at the higher levels.

The bottom pole hates their lives, because they tend to work a lot. And are the glorified excel junkies as you put it. On the upper level, you don't do the busy work, and you spend your time going around the world doing deals.

I was just investigating postabon, I zoomed out to the whole US and only found a few dozen postings. They really need to work on their network effects, probably by spending large amounts of $ on contests and marketing.

How is it that this link points to a "parked" domain site after just seven days?

Nice try mr MBA

How does/will postabon make money?

Getting in front of consumers looking for deals (i.e. ways to spend their money) must be a good thing -- consider it a "real world" slickdeals.

Just a few ideas: