More Thoughts on MBA’s and Startups

by Sam on February 10, 2010

Charlie O’Donnell’s recent post for MBAs considering working at startups drew some harsh reactions, but also raised some excellent points. I wanted to add my own thoughts since I have an MBA and know the startup space from both the perspective of a potential employee and as a CEO making hiring decisions.

First two key points should be clarified regarding Charlie’s original post and that carry forward to this one. I believe we’re referring to a specific type of MBA and specific type of startup: the MBAs we’re discussing are non-technical and the startup is early-stage (i.e. no more capital than seed or A round).

Skills vs. Stage: Early-Stage

In the earliest stages of internet startups there isn’t much room for more than 1 or 2 people who are non-technical (read: coding skills). The priorities of the company at this stage are in customer development and determining product market fit via some sort of live, demonstrable product. Whether you’re an MBA or not doesn’t matter – it’s difficult for a non-technical, non-founder to find a situation that lends itself to success at this stage. An employee’s success is measured against what aspect of the business they can advance, relative to the hunk of the burn rate they are eating. It’s tough to find good fits here simply due to the nature of the priorities: building product and iterating.

Skills vs. Stage: Post Early-Stage

The interesting thing is that the paradigm begins to shift once product market fit is found. At this point, the skills an MBA does have (management, strategy, number crunching, big rolodex) all become significantly more important. Managers can better co-exist with makers. When the business has a scalable and repeatable business model in play, things like sales and business development take on new meaning and an MBA has a much better environment to thrive in. It’s much easier to match an MBA’s contribution against a worthwhile salary at this point because the MBA and the startup have reached a mutually beneficial scale.

Compensation.

The difficult thing then becomes when a non-technical MBA decides they’d like to join an early-stage startup.  The fit simply isn’t a good one in most cases.

MBA’s can earn good money out of school. While you learn about risk/reward in school, when you’re faced with the prospect of applying the time value of money to your own personal financial situation, it’s a different situation. Coupled with the fact that many MBA’s are in their late 20’s when ramen is looking less and less appealing, justifying the opportunity cost forgone by joining a startup is difficult.

My suggestion would be for MBAs aspiring to work at startups to join part-time, signing an agreement that you would bring them on full-time (and at a competitive salary) once a B-Round is hit. In addition, I’m sure there is a way to tie compensation to non-technical contributions, even in earlier stages. However, the issue is that most non-technical contributions (everything but code!) can likely be handled by the 1 or 2 technical people, without the need for additional overhead. Early-stage “business development” is almost impossible to quantify. And no matter what people say, the ability to model a business can be done by anyone and simply is not a critical skill to an early-stage startup in this day and age. That said, MBAs can add value by learning the new concepts fundamental to the lean startup movement (see below).

Summary.

MBAs should not go into startups expecting to get rich. An MBA can be very valuable to a startup, but usually his or her value is best captured in later stages of the startup life cycle. Due to the unique nature of startup culture getting some experience before jumping off the deep-end is a good idea. Also, there are plenty of skills and activities MBAs can pick-up that are non-technical and increasingly important to startups. Become a jedi in these and you’ll be just fine.

Personal Note.

Overall my MBA has served me very well. If I had to do it over again, I would still get an MBA. The skills I learned were fundamentally different from anything I got from my liberal arts college education. Also, because I worked during school and took full advantage of every opportunity offered to me through the school, I was able to really have the best of all worlds. If you only want to work at a startup, an MBA doesn’t make sense; just go work at one and save yourself some money. However, startups are fickle and most fail, so diversifying your skills sets through an MBA is still a smart move. Education is what you make of it, and IMO an MBA is a worthwhile degree — even in startup land.

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  • subbu4

    I humbly disagree with a lot of this post – I'm looking at this from the perspective of a startup founder. In this economy, there's no benefit to hiring someone as a part-timer, regardless of whether they have an MBA or not. There's a glut of amazing talent that will work full-time.

    The fact that an applicant may have an MBA is actually not optimal for us – it holds little value at best in an early stage company where you'll be asked to wear many hats and do many non-mba things. In fact it can be a source of strife during 2nd and 3rd round interviews, as an MBA expects a certain salary level.

    That said, I fully agree with your statement: “If you only want to work at a startup, an MBA doesn’t make sense; just go work at one and save yourself some money” – startups would only want people who only want to work at startups – not people who are hedging their bets.

  • http://leveragingideas.com/ Sam Huleatt

    Hi there,

    I guess I am not sure that you read my post correctly. I said MBA
    should really only be involved in startups that are past the Seed or
    Series A level. Otherwise, for the reasons you have outlined, the fit
    is most likely not a good one. It sounds like your company has not yet
    made it past a Series A.

    Also, I am not suggesting that you simply hire an MBA part-time. I'm
    saying that if you were considering hiring one (for sales, smarts, or
    whatever reason) that way to do it would first be one a part-time
    basis, again to see if it's a good fit for your company.

    Thanks for the thoughts!

  • subbu4

    ha ha – i think i did – in fact i wrote a comment in the middle of the night, then deleted it because i thought it could be interpreted as so! – i rewrote it again this am, and it still was. sigh.

    i prefer your other terminology – pre/post product-market fit vs seed/series a (these days, a lot of companies continue boot strapping or start revenue production earlier, and may not need vc to scale).

    that said, i personally don't think an MBA gives someone the right qualifications post product-market fit – i still would want a generalist who isn't afraid to get his hands dirty, and if i wanted a specialist, i'd look for someone with previous startup experience at that stage – not a first time startup employee who perhaps has an MBA. therefore the presence or absence of an MBA is a non-issue to me – it's startup experience.

    As far as hiring an MBA for sales smarts etc on a part-time basis to see if it's a fit – i actually feel this economy allows startups to hire folks on limited contracts (3 months at a time, say) on a full-time basis – that's a much better way to see if there's a fit. you can even extend the 3 month contract a second time. I understand there's no security for someone with an arrangement like that, and that probably makes it less of an ideal opportunity for an MBA, but again, someone having an MBA doesn't matter to me.

    jmho.

    awesome blog, btw.

  • http://leveragingideas.com/ Sam Huleatt

    I see what your saying but keep in mind an MBA is not a set of skills so much as a type of person. It's someone who has been trained in strategy and critical business-centric thinking. Customer development, etc, are all skills that an MBA should be able to pick up easily and excel at — they just aren't think like accounting that are taught in the classroom.

    And I disagree with contracts as an alternative to full employment at startups. I believe that for a startup to succeed the core team needs 100% buy-in. For example if I were making angel investments I would never bet on team of part-timers. You need to full focused on the task at hand and encouraging contarcts among smart people just means they are going to be focused on lots of different jobs/activities meaning that your return will never be as good as simply incentiving them to be full time and basing compensation off metrics or revenue that are quantifiable

  • http://leveragingideas.com/ Sam Huleatt

    and thanks for the props :)

  • subbu4

    Hi Sam – I didn't realize you were talking about hiring for the core team. I thought you meant a standard hire. Apologies. :)

    I can see your point of view a bit more clearly now. That said, there is one thing that we'll just have to disagree on.

    Your post is written as advice to a specific MBA subset who may want to work for a somewhat established startup (post product-market fit). You suggest to these MBA applicants that they seek work on a part-time basis – and as a member of the core team – and contingent on future funding, they would become full-time. (I have a problem with the contingent on future funding, but that's another discussion for another day.)

    Then, in your comments to me (a founder who would be looking to hire) – you suggest that I should be creating a situation where there is 100% full focus. But if I hire these MBAs you're asking to seek work on a part-time basis, aren't they going to “be focused on lots of different jobs/activities to maximize their personal income”. On the face of this, the advice to both parties seems incongruous when placed side by side. Maybe I'm missing something again, I've already done it once here.

    With regards to hiring for the core team then – Personally, I would take the person with or without an MBA who has previous experience working for a startup vs the person with or without an MBA who doesn't have previous experience working for a startup – and I would only hire that person as a full-timer – They must believe in the startup concept, they cannot hedge between us and other opportunities. If I don't have the luxury of making that choice, I'm not sure that I would choose the MBA sans startup experience over the non-MBA sans startup experience. My decision would revolve around other factors, I guess – probably more centric to the actual job that we were trying to fill.

    FYI: this is what I meant when I thought we were discussing a standard hire (not for the core team) – A contract basis can be a fulltime endeavor for the hire (40 hours per week or whatever), for a discrete time period (12 weeks). Both sides learn, and perhaps the prospective long-term employee learns they don't want to work for the startup. Plenty of companies do this – 37signals included.

  • subbu4

    Of course! – and I'm enjoying the discussion in the comments sections – I'm trying to do this more – I've been reading Suster for some time, and saw your post quoting his – Comments are the new black!

  • alcinawhite

    Everyone wants to be a MBA today but it is really important to become a real MBA then just then just obtaining just the degree.
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