Entrepreneurship

Is an MBA useful for starting a business?

Ever since I received my MBA from Wharton, and especially after the sale of BizRate.com (my MBA class project) and Shopzilla, the MBA question is a common one that I get.  So I thought I could put down my thoughts in summary once here and then not have to keep repeating them over and over again…

Here are the things I think you need to start an internet business:
1) A great team

  • Domain specific knowledge (MBA could help here especially if you to raise money or speak the language of finance)
  • Complementary skills that cover all bases (strategy, product development, technology, operations, marketing, business dev / sales, finance)
2) A good idea

  • Large market
  • Needed / Necessary Product / Service
  • Viral Marketing
  • Increasing returns to scale (defensible position)
  • First-mover (nice to have)
  • Intellectual Property (nice to have)

3) The guts / backing to jump and take the risk

  • Enough cash to get started / survive for a while
  • Connections to sources of capital
  • Back-up plan in case of failure

4) The passion / perseverance to commit 10 years of your life (time, energy and money) to the cause

  • Flat part of exponential curve could take years… zero-to-one is hard.
  • We only notice businesses when they hit exponential growth and therefore underestimate time / effort.
  • Examples: Twitter was Odeo, Groupon was ThePoint, BizRate.com was Binary Compass Enterprises.

That said, if you have all of the above then an MBA is not necessary.

If missing some, then here is what I found an MBA can provide:
1) Two years to find your teammates

  • Lots of people in business school are open to talking about starting a business (also don’t forget about hitting up the Engineering department for complementary talent!)
  • School curriculum leads to working in teams on business cases where you can see who has complementary skills you need
  • Business school is not rocket science, so it leaves you time to pursue other interests.
  • Top Schools (Ivy League) Advantage: Powerful people send their kids there.. top connections to sources of capital

2) Two years to work on refining ideas and picking a good one

  • Can take classes specifically related to your business (marketing plan, business plan, legal aspects, etc.)
  • Teammates will work on your project for free, as part of course work in above classes: BizRate.com was my entrepreneurship class project.

3) MBA from a top school can give you courage / open doors

  • Good credential that is generally respected by investors / vcs on your resume
  • Top schools have great alumni networks and work on the “old boys” networking model of helping their classmates
  • In case of failure you have the fall-back of a high income job (albeit at a lame large institution)

4) Learn the lingo of business

  • In some cases this will help you when talking to investors or trying to raise money
  • You will learn to say things like ” we will achieve increasing returns to scale upon reaching critical mass” instead of “once we get going, things’ll be really fucking great!”

Other points:

  • In general I would not consider an MBA from anything but the top school.  The connections / credentials are just not there at some rinky dink MBA.  (Think of the adage: “In business it’s not what you know, but who you know.” which, like it or not, applies.)
  • I really did not find much of the information (other than lingo / some legal aspects of setting up a corp / financial analysis stuff) that was offered in my MBA curriculum that was particularly helpful to actually starting / running a business.  Most of the curriculum (at least when I was in school, 1994 – 1996) was geared to getting you ready for a life as a cog in some big business or fortune 100 (bank, consulting firm, fortune 100).
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