The opportunity cost of entrepreneurial education

A friend tonight tweeted a column about why entrepreneurs shouldn’t get MBAs. The Wall Street Journal column last Monday says “I no longer advise startups to hire M.B.A.s and I discourage students who want to become entrepreneurs from doing an M.B.A.” and a follow up Friday on LinkedIn makes similar points.

The author, Vivek Wadhwa, is a former entrepreneur who’s made a point of being an iconoclast on trade, immigration, education and a variety of other topics since taking his first adjunct position in academia at Duke back in 2005. Having seen some strong opinions in areas where I have direct knowledge, I’ve always tended to take his postings with a grain (if not a kilo) of salt.

The LinkedIn column identifies some important risks for entrepreneurs. The first is the cost ($100+K) of getting an MBA, which tends to push MBA graduates towards corporate rather than entrepreneurial opportunities. (This problem has gotten more severe as state-subsidized MBAs have gone away: a Haas or UCLA MBA that 20 years ago cost $10K in tuition is now over $100K). Related to this is the opportunity cost, i.e. two years out of the workforce: if you have the next Facebook, you should be starting it rather than getting a degree.

Wadhwa also questions the relevance of MBA programs for new and small companies — a point I observed when taking MBA classes (during my PhD) back in 1994-1996. Still, this is a terribly broad brush, given the wide range of programs around the country, and the number of serious entrepreneurship faculty (such as Tom Eisenmann) trying to provide real entrepreneurial insights in the MBA classroom.

I’d agree with Wadhwa that a good one-year specialized master’s is a reasonable compromise. I don’t know much about his own program at Duke, but certainly could recommend the engineering management programs at Berkeley or Stanford’s highly influential part-time program.

However, I find some of Wadhwa’s advice more than a little contradictory:

I believe very much in the value and importance of education and consider the bachelors degree to be a basic requirement for success in business — whether you are working for someone else or starting your own. If you don’t have this, you are at a severe disadvantage because you have too many gaps in your knowledge and you have not had a chance to develop important social and learning skills.
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My team at Harvard and Duke looked into the backgrounds of tech entrepreneurs found that, on average, MBAs start their companies 13 years after graduating. Subsequent research revealed that what makes entrepreneurs successful is their experience — including previous successes and failures; management teams; and luck. Next on the list are professional networks and education. 

Yes, it’s redundant for someone with a good undergraduate business degree to get an MBA — whether trying to be an entrepreneur or not. Those with undergraduate business degrees may be well-suited at starting a franchise or retail firm, or (after many years’ experience) of being the finance or marketing cofounder of a tech startup.

However, the advice to avoid an MBA is problematic for would-be tech entrepreneurs. How do you get a bachelor’s in business when you’re majoring in engineering or computer science (or molecular biology) at a top school? The normal route — the one I have long advised — is for would-be entrepreneurs to get an undergraduate tech degree and a graduate business degree.

And just because you got your degree 13 years before you start your company, doesn’t mean it wasn’t valuable. A good degree from a good school admits you into a good firm, good experience, and good professional and social networks. Without some sort of business training, 13 years later an engineer or scientist will still be (“just”) an engineer or scientist.

I never got a formal business education before starting my company, but I did have a few UCSD Extension courses that helped tremendously. I would have done much, much better if I’d understood VC, entrepreneurial exits and consumer marketing before co-founding a company in a burst of excess (and unjustified) optimism.

Overall, these columns show the problem with black-and-white, one-size-fits-all advice. On the one hand, getting an MBA has a cost, and sometimes the cost is too high. On the other hand, tech entrepreneurs have almost insurmountable disadvantages if they don’t understand the basics of business — which might be solved by an MBA, a dual major, a business minor, or a well-trusted relative who will look after their interests when they are starting their firm.

So if the point is to say that entrepreneurs should never get an MBA, that’s clearly an exaggeration to make a point. If the point is to caution would-be entrepreneurs to carefully assess the risk-benefit of an MBA before starting, I’d say Amen! — but that would also apply to anyone getting a graduate degree, whether an MBA, a Professional Science Masters’ or a PhD.