This article first appeared in Entrepreneur Magazine.
With a plentitude of resources at our fingertips, there has never been a better time to build a business. Sites like F6S, Appsumo and StartupStash list hundreds of low-cost resources available to businesses of all sizes. But, while available resources make it easy to set up the operations, the more challenging task is actually managing the business.
Traditionally, the go-to resource that has prepared tomorrow’s business leaders for the management of businesses has been the MBA. Yet, a recent report from the Financial Times shows that over the past two years MBA graduates have cooled on entrepreneurship, with less than one in five choosing the less stable startup experience. This begs the question: Does the MBA just attract a different breed of people or is it less suited for entrepreneurial endeavors?
While there are many benefits to pursuing an MBA program, this path also comes at a major cost; tuition as well as opportunity cost can weight heavy on an entrepreneur’s wallet. The good news is that today, there are options that provide equally as much value at less of a financial hit.
At the end of the day, being an entrepreneur means being able to assess opportunities and risks in uncertain situations. The same due diligence should be applied to assessing the benefits and costs associated with an MBA. Here are three essential items to include in the assessment:
The MBA is not built for growth companies.
MBA programs were originally designed to professionalize the management of the industrializing economy of the early 20th century. Since then, the programs expanded to incorporate the needs of Wall Street, business consultancies and other monolithic businesses. Yet despite MBA programs’ evolution, the pattern remains that the program was targeted for scalable, process-driven businesses. As a result, and as the name itself indicates, an MBA is a master in “administering” businesses.
These types of businesses for which MBA programs are built, however, require skill sets that are in sharp contrast to the needs of the entrepreneurial growth businesses of today.
At their core, MBA programs are built to provide predictability for corporate decision-makers. As such, they teach decision-making based on evidence and historical data. The real world of growth businesses, though, is messy and packed with wicked problems. Core business decisions are often questions of judgment, building on a deep understanding of the specifics of customers and the business environment. Since those two elements are changing rapidly for growth businesses, they cannot build on the luxury of predictability and reliance on historical data. Instead, they require a forward-looking perspective and intuition.
Another essential ingredient of MBA programs is the use of standardized tools and frameworks like the Five Forces model or SWOT analysis. While these are helpful to a certain extent, the problem is that they do not inspire original thinking. Standardized tools do not encourage the launch of original products and business models in crowded marketplaces. In contrast, it’s more often than not multidisciplinary thinking and a broad perspective, which lead to outstanding products and business models.
Journalist Philip Delves Broughton, recounts in his New York Times bestselling memories of his Harvard MBA experiences how this standardization approach can lead to narrow-mindedness. He recalls, “They liked to think of themselves as renegades and rule-breakers, and yet they struck me as a hardened monoculture. When one of them took up bicycling on the weekend, they all did. If one had pale blond wood in the conference room, they all did.“
Ultimately, MBA programs do provide a useful toolkit, but they are still designed for the stable businesses of the Industrial Age.
The principal value of MBAs can be earned in alternative, cheaper ways.
A huge chunk of an MBA’s value is implicit, extending well beyond the teachings. One of the most valuable aspects of an MBA is the resulting alumni network that students gain. In an interview with the Financial Times, one entrepreneur and Stanford MBA graduate notes, for example, that one of his biggest customers was a former classmate, with the revenues generated from that client alone being enough to cover the cost of his degree.
While there are apparently cases where the network pays off, the question remains: How much is a network really worth? Most graduates start their careers with a mountain of debt. Let’s assume you sell a product with a customer acquisition cost of $100. If we assume the tuition for the MBA to be $50,000 to $100,000 (not considering opportunity cost), then this amount of money could already acquire you the first 500 to 1,000 paying customers.
This does not even take into account that today, the opportunity to build a network outside of MBA schools has multiplied. Meetups as well as conferences enable you to build your real world network, while LinkedIn, AngelList and other business-focused social channels can help you build and maintain your network from your desk — all at a fraction of the cost of an MBA.
To some extent an MBA provides social proof when looking for VC funding, partnerships or jobs. But, so does work experience with companies like Google, promising growth companies or entrepreneur-in-residence programs, as well as social media influencer activity. When it comes to social proof, you may want to ask yourself why you need to invest in an MBA just because investors, employers or business partners aren’t able to judge your skills based on other measures.
The skill economy is expanding.
Opportunities to gain work experience and learn the relevant functional skills are expanding rapidly. General Assembly, Udemy and Udacity, among others, offer many courses and nanodegree programs, which can help you develop skills in a targeted way.
But, this is not to say that you should skip studies altogether and only take courses. Building a business requires a mix of these technical skills as well as intellectual skills, such as critical thinking, problem solving and lateral thinking. While technical skills take center stage early on in a business’s life cycle, it’s the critical and original thinking that will ultimately set the business apart. And with AI increasingly replacing many routine tasks, the thinking will remain as a true unique selling proposition. As Mark Cuban suggests, “Knowing how to critically think and assess them from a global perspective, I think, is going to be more valuable than what we see as exciting careers today which might be programming or CPA or those types of things.”
To develop this mindset, some form of traditional studies, at least at a BA level, is essential. This can then be coupled with learning the technical skills that one requires for today’s jobs. The exact skills that a business requires depend on the type of business as well as the type of business function that they are applied to. Looking at the hiring boards of some successful companies in that space, however, is a quick way to figure out which skills are needed in one particular industry.
Across industries, two big subject themes are of critical importance today. First, software is still eating the world, now more than ever. Computer science, data science and the like not only teach a valuable toolkit in this economy, but they also train critical thinking. The other primary skill is understanding humans. One of the biggest challenges for businesses today is reaching, engaging and converting customers. Accordingly, fields such as user experience design or psychology will be of critical importance to most consumer facing businesses going forward. These skills find application areas across product development and marketing.
Create an action plan.
While the MBA certainly offers value, it is not well-suited for those looking to the startups and growth companies of today. Rather, entrepreneurs now have the opportunity to develop their skills and networks by tapping into alternative resources that come at a lower cost.
For those who want to build their skills through alternative means, the first step is to look at the hiring boards of businesses in the industry you are active in and create an inventory of requirements. This can be followed by a personal development day. That day would be used to go through available resources such as courses and meetups in order to design a path to unleashing the skill set that best fits the requirements from step one. It’s best not to go this path alone, and industry-specific social media groups and forums are a good way to find like-minded companions.
Did you learn skills in alternative ways or did you spot relevant skills that are not included in the traditional curriculum? Share your experience as a comment, tweet or email with the hashtag #FounderSkills.