MBA Not Always a Guarantee of Startup Success

Many people think that earning an MBA is going to give you the skills that you need to launch a successful start up. While there is no doubt that earning an MBA will provide you with skills and advantages in business that can lead to big jobs and big salaries, some experts believe that an MBA can make entrepreneurs risk averse and sometimes cripple their ability to innovate.

Some say that most MBA programs are not really designed to help the student become a successful entrepreneur. When many MBA graduates go out and try to launch a new company, they have about the same rate as failure as people without an MBA. According to many venture capitalists, investors and professors, having an MBA does not give you a leg up in starting a new company. In this case, all of these professionals had dealt with more than 300 new companies in the last 30 years.

There of course have been MBA startups that were successful, such as Birchbox and Warby Parker. However, the founders of the companies already had achieved a lot prior to their MBAs and they probably would have had success without the graduate degree.

According to a recent Reuters article, major MBA programs reported in 2011 that about five percent of the graduating class started a company as soon as they got out of school. If you just look at Harvard and Wharton, who graduate 800 MBAs per year, that means there were about 80 startups started in 2011. Only two of them have become well known companies – Birchbox and Warby Parkers. The failure rate even for people with good MBAs is 90%.

Many non-MBAs probably fail because they do not have enough marketing experience, experience in developing a business or are not able to manage cash flow. These are things that a good MBA program can teach you, and they are very valuable skills in many industries. But many people with MBAs often fail at startups because they are just not good at identifying innovation.

According to David Stone, a venture capitalist at Clearstone Ventures, many MBA startups are very book smart and detail oriented, but they tend to lack the needed ability to adapt to market changes. VCs such as Stone think that MBAs spend far too long thinking about the business. They should spend more time identifying the technology that will eventually create a new company down the road. One VC points out that Bill Gates once said that he spends just 10% of his time thinking about the business, and the rest of the time on the technology to deliver the business model or product.

Many VCs think that MBAs spend far too much time away from the innovation side of business. They do not identify technology that will help them to stand out from their competitors.

MBAs tend to fail at seeing innovation because they commit too early and too strongly to one ‘innovation’ and do not realize when they need to look at other innovation models. This is probably because most MBA schools teach you that if you have enough data, analysis and focus group testing, you can come up with the best solution to anything.  This is a great philosophy for many aspects of business, such as in private equity or in hedge funds. But you just cannot do that sort of analysis when you are trying to come up with a new innovation. MBAs teach you to look at previous data so that you can predict a future outcome. This often will not work in new markets and new innovative ideas.

Many MBAs, and non MBAs as well, get too committed to a certain business model early on and refuse to make changes as technology and the market dictates. We have seen this pattern of thinking trip up big companies too, such as Blackberry and Microsoft.

There is no doubt of the great value of the MBA for many business careers, and it also can be useful in the startup world. But never become too bogged down in research and past performance and case studies because being a successful startup means being able to adapt to technology and market changes quickly.