Philosopher Versus MBA

And as I discussed last week in the Greymatter podcast with my friend and Blitzscaling co-author Chris Yeh, I believe that a knowledge of philosophy is actually a great asset for entrepreneurs. During that conversation, we talked about some of my favorite philosophers and how I’ve applied their ideas to my own career.

This week, we discuss how a philosophy degree compares to a much more conventional business background: the masters in business administration or MBA.

I have a standard aphorism I share when I speak with a group of MBA students:

“There are two things that need to be explained away in order for me to invest in your startup: An MBA or a background in management consulting.”

Notice that I didn’t say I wouldn’t invest in a founder with an MBA; there are many amazing entrepreneurs and investors with MBAs, such as my friend Aneel Bhusri of Workday.

To say categorically that MBA equals “not entrepreneur” is a foolish assumption, just like saying Masters in Philosophy equals “not entrepreneur.” Success or failure comes down to the individuals and their dispositions.

But if you ask me whether I’d rather invest in the entire class of Computer Science graduates from Stanford, MIT, Georgia Tech, and CMU, or the entire class of MBA graduates from Harvard Business School, Stanford’s Graduate School of Business, Wharton, and Kellogg, I’ll take the CS graduates.

In fact, I generally view pursuing an MBA as an adverse signal for entrepreneurship.

In the essay below, I outline some of the reasons I believe that an MBA isn’t the best path for prospective entrepreneurs. I also discuss why I believe a philosophy degree (often in combination with another specialization) can be more impactful than the traditional business degree on an entrepreneur’s career.

You can listen to the podcast of this discussion here.

Top Drawbacks of an MBA Program

Not Prioritizing Action

The broad brush description of entrepreneurs is that they are Nike fans – they just do it. If they don’t have the right skills or resources, they’ll pick them up along the way by hiring someone, partnering with someone, or just learning it themselves. Nothing gets in the way of their pursuit of startup success.

In contrast, earning an MBA or working as a management consultant is less a final destination and more a way station on the way to a better future, usually with a vigorous salary. (As opposed to taking a potentially smart risk on equity)

They’re not doing, building, or taking risks like an entrepreneur.

I try to give MBA students tough love; I’m not trying to insult them, I’m trying to get them to reflect on why they’ve chosen a particular path, and what the path ahead looks like.

Not Teaching the Right Skills

A lot of MBA students tell me that they’d like to found a startup, but aren’t sure if they’re ready.

My general advice is to go join a startup as an employee, and learn from experience.

It’s okay to prepare yourself first. When I decided I wanted to start a company, I realized that I needed to pick up certain skills first, like product management, knowledge of online services, and a practical understanding of commercial software development.

I was still unprepared; I had no idea that I also needed to learn about go-to-market strategy and distribution. Like many first time founders, I ran over that landmine. But what I wasn’t doing was trying to earn a credential or boost my salary. I was just trying, as quickly as practicable, to start building something.

By the way, one of the things that I find to be a positive predictor of entrepreneurial success is when an MBA drops out after realizing that the standard curriculum won’t help them start a company, and that they should just start doing it. Jeremy Stoppelman of Yelp falls in this category.

The Network May Not be as Valuable as It Seems

Even critics of business school will generally acknowledge that attending a top-tier school helps the student build a strong personal network. But how strong is that business school network actually useful for entrepreneurs?

There’s no question that going to a business school builds your network. You’re going to school with somewhere between 200 to 800 people who are going to be future global business leaders; these relationships can be enormously valuable. But I would argue it’s not as valuable for startups as you would think, because the majority of the people that you’re going to be interacting with are going to be going into investment banking and management consulting.

In the startup world, one of the most important parts of building a network for non-technical entrepreneurs is getting to know brilliant engineers and technologists. Going to business school is one of the worst places to accomplish this. You’re much better off going to work for a phenomenal company, which does a great job of recruiting not just engineers, but also product managers, designers, go-to-market specialists, and many more, all of whom have a strong bias towards action, and all of whom are interested in the challenge of building a great technology company.

The risk-averse argument is that a strong network is a safety net. Networks are both safety nets and trampolines. Entrepreneurs should build a trampoline network that helps them reach higher, and the best place to do that is at an amazing company that is growing rapidly– the next Workday, Palo Alto Networks, or Airbnb.

Network strength is one of the reasons that people who want to build great software businesses have, and will continue to move to Silicon Valley. Despite the overblown stories about the decline of Silicon Valley, the fact is that it remains the strongest entrepreneurship network in the world. That’s why I continue to be bullish on Silicon Valley and perhaps not so bullish on Miami, despite the great progress that city has made recently.

The Case for Pursuing an MBA

In the interests of fairness and learning, I’m also going to allow my Blitzscaling co-author and fellow podcaster Chris Yeh, who earned an MBA from Harvard Business School, to provide his MBA perspective on the value of that degree:

Many MBAs student are performing what I call “career laundering.” You’ve heard of money laundering? The same principle applies to careers.

Many of my classmates at Harvard Business School had come out of the military or out of the nonprofit world. For these MBA students, the power of the MBA brand is overwhelmingly positive. You enter business school as someone with no business experience and who knows literally nothing about the business world. And you come out as a Harvard MBA, the equivalent of the other Harvard MBA.

And by the way the management consultants and investment banks in the world are now wining and dining you, begging you to work for them. If you’re not looking to be an entrepreneur, it’s a great deal!

The challenge that business schools face is that entrepreneurship is learned, not taught.

For example, one of the common tools for teaching entrepreneurship at the business school level is the business plan competition. The problem is that these competitions seldom produce massively successful businesses. The Harvard Business School’s business plan competition has been running since 1998; the only competition winner that has achieved any sustained success is Cloudflare (2009).

What business schools can provide is an opportunity to learn a set of skills that can be helpful on the entrepreneurial journey. MBA programs teach valuable analytical skills that can help you evaluate and refine strategies and business models. But while this is valuable, none of it is the actual learning of entrepreneurship.

Once again, here is some perspective from Chris Yeh, who believes that his time at Harvard Business School was helpful in his entrepreneurial career:

I actually worked in the startup world for three years before I started at HBS, helping to start two companies during that time. As a result, I didn’t go to business school thinking, “I need to learn how to start a company,” or “I want to get a job in management consulting.” I went to business school because I thought, “I don’t have first-hand experience with how a normal business works. And if I’m going to defy conventional wisdom, I want to understand it first.” And so I ended up going to Harvard Business School, not to learn about entrepreneurship, but to learn about regular business, so if I were selling to those businesses in the future or dealing with them, I’d understand them.

I will say that there were a few classes that were directly relevant to entrepreneurship. In particular, Bill Sahlman’s Entrepreneurial Finance course was excellent. I think a lot of entrepreneurs don’t fully understand how venture capital works. Of course, any academic course is very different from what actually happens in the real world. It’s not like after completing the class I was prepared to negotiate a term sheet.

If you look at an MBA as a way of obtaining a broad general business background to help you understand how different ecosystems work, it is valuable for entrepreneurs.

An MBA can also help you fill in some of those blanks that most of us would otherwise never learn. For example, MBA students take classes on accounting and finance. Before I went to business school, I didn’t know how you debited or credited or the difference between an income statement and a balance sheet. Those topics don’t come up every single day. But if you’re founding a company, you should understand how every aspect of your business actually works.

Venture Capital and the MBAs of Silicon Valley

Of course, there is a pocket of Silicon Valley where the MBAs do in fact wildly dominate. Something like 40% of venture capital general partners have a degree from Stanford or Harvard, generally either Harvard Business School (HBS) or the Stanford Graduate School of Business (GSB).

I think the reason why MBAs are so common in venture versus entrepreneurship is that entrepreneurs are focused on gathering the necessary resources to execute on a vision, whether that is hiring people or raising capital. In other words, execution. Whereas investors have to be much better at asking the question, “Do I think this is the kind of business that will be enormously valuable?”

Venture returns tend to be correlated with industry and business model–for example, do the public markets award this kind of business a high P/E (price/earnings) multiple? Or maybe valuation depends on growth rates or operating margins. Even if a VC isn’t a great public market trader, they need to have a sense of whether or not a business can achieve a large, rapid exit.

A startup might be offering a great product or service that has a positive impact on the world, but that doesn’t mean it’s a good investment. An MBA often encourages a focus on market value is one of the central aspects to the investing mindset, yet is less essential to the entrepreneurial mindset.

Of course, these valuation measures are based on historical market data. They don’t apply to entrepreneurs who create entire new industries. When Elon Musk started SpaceX, I’m sure there were many venture capitalists who passed, believing that there wasn’t any evidence, based on comparable companies, that space would achieve a premium multiple. It turns out that if you’re an incomparable company, you can.

What about Philosophers?

There is a Reddit discussion thread where people debate the practical application of philosophy and many cite my own career as either proof that a philosophy degree can lead to business success, or as an exception that doesn’t really prove anything.

There is a legitimate reason why people don’t picture philosophers as making good entrepreneurs, and that’s because philosophers tend to deal with remote abstractions. They don’t tend to have an orientation to experimentation and taking action in the real world.

Philosophers who are drawn to the subject by the abstraction won't make very good entrepreneurs. However, the students that take what is good in philosophy – namely an ability to state theses with precision – and apply it to entrepreneurship, will find tremendous value.

They will find value in crisp thinking about premises, conclusions, and reasoned argument for why a product and service will be useful in the future.

There is an entire element of philosophy which focuses on speculating on how humans might interact with something that’s not there–the counterfactual. This part of philosophy can conduct thought experiments (the subject of my Oxford Master’s thesis) and ask, “If we build it, will they come?” And just as importantly, how might potential competitors respond.

This kind of predictive anthropology is one of the potential strengths of philosophical training.

The best philosopher-entrepreneurs possess a multidisciplinary focus. “Philosophy AND,” if you will. My undergraduate major at Stanford, Symbolic Systems, is a great example of Philosophy AND computer science, psychology, linguistics, along with a student-selected concentration (mine was computation and cognition).

In the field of technology startups, a multidisciplinary focus tends to be a higher predictor of entrepreneurial success than even a sole focus on a topic like computer science.

Think of all the canonical examples where an entrepreneur added “AND” to classic computer science and engineering. Steve Jobs and Brian Chesky added design, for example. Other possibilities include economics, marketplace dynamics, and so on.

Taking a multidisciplinary approach to iteratively engaging with the world is central to entrepreneurial success. And philosophy can be a really key element of that.

One of the historical legacies that Oxford has as an educational institution is the belief that no one is mature enough as an undergraduate for a pure philosophy degree, so their philosophy degrees are always mixed. Philosophy and politics and economics. Philosophy and physics.

By the way, the same multidisciplinary approach applies to MBAs as well.

The MBAs that I’ve learned from in my career combine the intelligence and drive it takes to get into a top MBA program with that extra “AND”. Jeff Weiner, Wharton undergraduate, blended those traits with compassionate management and leadership. Sheryl Sandberg, HBS, brought her experiences at the World Bank and serving in government to solving entrepreneurial problems at scale, hence her ability to staff up the AdWords team.

In the end, there’s no reason to pit philosophers against MBAs, or vice versa. Each of these disciplines has the potential to bring the “AND” that is so necessary to entrepreneurial success, provided they are combined with the desire to engage with the real world and iterate their way to success.