At Harvard, Wharton, Columbia, MBA startup fever takes hold
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Edit: I've personally been taken advantage of by an Ivy B-schooler so the piranha thing is real. It was the typical thing you hear where I, an undergrad, had written a bunch of code with a verbal contract from the MBA student that I'd own 10-20% of the business. After a few weeks, when paperwork was being filed, I was informed that I'd get more like 1% to be the first engineer and finish building the MVP. It's not that MBAs are bad but a lot of the ones I've known have been indoctrinated into this way of thinking of creative people as resources to be harvested. It's not evil, it's approaching business like a game, knowing all the rules, and playing to win. It does look and feel evil when the rules are used against you before you know you're playing.
Of course, the absolute value of a big win, should a win come along, is higher for the founder than for the early employee. But the early employee has more flexibility, and probably takes more swings at bat over the course of a given time period. He won't hit a homerun, but he may hit a series of doubles. The founder might hit a home run, or he might strike out.
And on an unrelated note, the expected value of a stable job at a place like Google or Facebook is probably a lot higher than the expected value for either a startup founder or startup employee. This doesn't mean everyone should go BigCo and not mess around with startups. It just means people should figure out their personal risk-tolerance levels and ambitions, and act accordingly.
Somebody did the numbers on HN a while back and showed that you have a higher probability of making it rich by being an early employee than by founding your own startup. I'm afraid I have no idea how to find that thread, though.
There are an order of magnitude more early employees than there are founders, so it makes sense...for every founder made rich, there are 10x as many early employees made rich.
If your hypothetical startup sold for $100 million dollars, after dilution and taxes, you could expect maybe $500k. In other words, ~$125k extra for each year of a 4 year vesting period.
That's nice, but it's certainly not substantial - it's about equal to the salary you'ld expect at the same jobs. And, we are talking about a hundred million dollar, moonshot exit - in other words, vastly, vastly more than most startups can expect to make. Most early employees make a modest, very decent, pittance.
As for your comment about "rules are used against you before you know you're playing": regardless of role (technical, non-technical, etc.), everyone in this industry should educate himself or herself on the basics of IP and contract law, as well as the relevant areas of finance and tax. There are a ton of free high-quality resources online, so there's really no excuse not to get up to speed.
The really good news is that in most cases, the shysters you're likely to encounter are not much more knowledgeable than the people they prey on, so a little bit of knowledge can offer a lot of protection.
I am keeping my options open since I know this is going to lead to a crash in the next few year.
Perhaps it isn't so helpful to generalize here but,
a) New businesses that are built for non-digital processes and workflows are very inefficient. Not every new small business is going to gain a decisive strategic advantage in their market. Almost none will. That doesn't mean we shouldn't be teaching students business (value of the MBA another conversation.)
b) I'm not a VC but the returns for startups is something along the lines of lose 100% of the money, may be return the investor's capital, or post a great return. All the mechanics underlying what it takes to make it to 'great return' by itself limit the number of big winners. This isn't investing in apartment buildings, creating a new food franchise, or arbitraging bonds. Most likely the "me too" trend riders will end up in the lose 100% of the money box. That is unless we get leveraged start up investing. Then it could get quite interesting.
I like Nassim Taleb's extremistan analogy for this conversation.
I also do take exception to the fact that MBAs are all vultures. I am trained as a computer Engineer, practiced as a materials scientist, and got an MBA. Now I am one of those exact vultures you speak of with a startup of my own that I, by the way, believe is going to contribute meaningfully to society.
Simple: the bubble collapses when the acquiring companies no longer grow and succeed.
Facebook et al are doing well, but also have sky-high valuations. Current investors aren't satisfied with current income, they expect massive growth going forward.
I guess while I agree there is a bubble in startup valuations, I do not think Google, FB, and friends are at huge risk of going bankrupt or losing a substantial portion of their enterprise values.
The market is not about current, but about the future. Stockholders are banking on FB figuring out how to monetize all the users.
I do agree with you that companies today are mostly all making money which is very different from the 90s. Whether companies like FB can maintain growth to sustain their valuations is something that remains to be seen.
Fed has created abnormal market conditions by printing money and keeping interest rates low. Investors are looking for growth anywhere they can find it and tech companies are good targets - at these values, however, all tech stocks are expensive - even looking at 5+ years of revenue growth down the road. This means that most value-driven investors have left the market and the remaining 5-10%+ increase in market value will be driven by momentum investors. At some point there won't be any momentum investors left buying at higher prices, and the market begins to tumble. May be 10-20% correction or something more significant, especially in tech stocks. Facebook has continued to perform in the market despite declining user engagement and pullback of brand advertising dollars -- largely due to mobile advertising performance - especially App Install advertisements. This is a huge red flag because it indicates that sustainable brand dollars have not yet moved to Facebook mobile platform and mobile revenue growth has been driven by technology companies (many of which are VC funded). VC dollars are being spent on user acquisition despite unknown LTV of users - a recipe for disaster. This props up Facebook share price and continues to justify VC investment in technology products based on abnormally large mkt cap companies (i.e. "If this company attracts just 5% of users that FB has, it will be HUGE" - fuels spend on user acquisition as user growth is tied to values). When the market for tech stocks cools, Facebook market cap will plummet, access to capital for unproven businesses will become inaccessible, and ad spend on user acquisition will rapidly decrease - compounding problems for Facebook and driving stock even lower. Instagram may be only saving grace if they are able to ramp advertising product fast enough. Total internet advertising spend cannot justify outsized valuations of social media products that derive revenue from advertising. Feed-based advertising units will plummet in value (in the case of Twitter, advertising spend may not move beyond experimental dollars) similar to earlier devaluing of Internet display advertising.
It was submitted on HN couple of weeks ago, here is the discussion: https://news.ycombinator.com/item?id=8764135
I am entirely unclear if the last bubble was caused by retail investors unilaterally deciding to "invest in tech" because they thought they would get rich, or caused by persuasive people asking folks who didn't know any better to invest in them with the promise of riches.
But I have observed (at least one time, and past performance is no predictor Etc.) that when folks in business school, or fresh out of there, say they are going to do "startups" and they describe them not by their risk, their approach, or problems uniquely suited to them, rather they use a bunch of meta terms like "agile" and "MVP" and "social" and "sharing economy", they have lost sight of the notion of creating value, and shifted into the mode of "executing a process that seems to return more money than you put into it."
Go take a risk on introducing a new product into the world? Check. Sounds like "business" to me. This is a great trend, hope it continues!
Challenges to this change sticking long term - starting a boot company puts you on even footing with any other person who wants to do the same. The reason we decry "MBA" is the reason people earn them in the first place - they function like a $120k entry fee into a protected job class - like being an analyst as mentioned above. Using the degree to enter a business without protections is risky.
That said - to the extent that the university morphs into an incubator to make sure their students are successful - this will give their students an advantage. The MBA would then be weighed against dozens of other incubator type opportunities, or just going and doing it alone.
A lot of startups completely fail but that's not interesting, "<a startup you never heard of> has failed" won't get many clicks on TechCrunch.
People share stories about how they 'failed' (got great job offer afterwards, etc) and managed to come out with plenty of cash. But there are a lot of people who get burned. They simply don't make headlines, no one is interested in those stories except from small circles such as HN.
Startup is not a quick, and fail-proof way to get rich as mass media portrays it to the public.
Some people will end up seriously disappointed but real businesses will continue moving forward.
I fail to see how that would be the case as there is no reason that a specific group of market entrants would crash a business model. I think if anything, it will be a wake-up call to people who think that "start-ups" are a get rich quick scheme.
The only way for this to turn out badly is if somehow this group sucks all of the angel/vc money out of the "start-up" ecosystem and into their own pockets.
Are they planning to pay themselves large salaries from the get-go? Quite a culture to start a business on...
They don't care about plain simple failures, but they are large part of startup life.
One day they will move on from startups to some other hot thing, just like they did with Bitcoin, Ebola, etc.
Don't believe the hype!
http://image.slidesharecdn.com/02paulmartinobullpen-final-14...
That's all a quick google image search could find: I've seen the 2014 data, it's more of the same - the deals remains flatlined while the number of ventures starts to go parabolic.
I highly doubt that most ventures that can't make Series A are going have that many opportunities for acquihire.
2. Business schools are good at marketing themselves: they try to set up labs for new trends, fads, etc.