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Conventional wisdom among smart technology entrepreneurs says not to hire people with Masters in Business Administration (MBAs) into startups. Aaron Patzer, founder of Mint, expressed the sentiment well when he said: “When valuing a startup, add $500k for every engineer, and subtract $250k for every MBA.” My friend Peter Thiel once warned a young entrepreneur: “Never ever hire an MBA; they will ruin your company.” I chimed in myself with this Quora answer. At Andreessen Horowitz, we believe that once everyone thinks that something is true, that might be a good time to do the opposite. So, with everyone convinced that MBAs are useless, I wonder: Is now the time to hire MBAs?
When considering this question, the first thing to understand is that MBAs have not always been the scourge of startup society. When I began my career in the late 80s and early 90s, MBAs ran most of the best new technology companies. Scott McNealy and Ed McCracken, Stanford MBAs, ran the two best new computer companies, Sun and Silicon Graphics, respectively. John Morgridge, Stanford MBA, ran Cisco, the best new networking company. Bill Campbell, Columbia MBA, ran a hot new consumer software company, Intuit, and Dave Duffield, Cornell MBA, ran the premier new enterprise software company, PeopleSoft.
So, what happened? How did startup world grow to loathe MBAs?
It turns out that the success of the MBAs from the late 80s and early 90s created an insatiable demand from startup companies and their backers to hire MBAs from top schools. With only a small number of top schools, the newly minted MBAs became the belles of the of the startup ball. Every Stanford and Harvard MBA received multiple offers from top startups and, not surprisingly, many MBAs developed a strong sense of entitlement and overconfidence.
They began to stroll into startups with insane lists of demands. They wanted lofty titles, they wanted to manage hundreds of people even though they had no management experience, and they wanted salaries that matched people with 10 years more experience. And the MBAs got what they wanted, which ironically precipitated the MBA’s long and painful fall from the penthouse to the outhouse.
It turns out, as I pointed out in my Quora post, you can’t learn management exclusively from a class or a book. It takes real world practice. Many of the MBAs who got the big management positions turned out to be some of the worst managers that Silicon Valley has ever seen. While understandable given their total lack of experience, the people assigned to work for them did not understand. When these employees asked themselves how such incompetent imbeciles could acquire such important jobs, all evidence pointed back to an all too familiar culprit: The miserable, sorry, weak manager that you suffer under got his position not by merit, but by MBA.
To make matters worse, the entitlement bug spread through the MBA community like a social game with full access to the Facebook feed controls. It got so bad that at one point an MBA employee of mine asked for a promotion because most of his classmates at Stanford had been promoted and he felt left out. Had I been a more experienced CEO, I would have fired him on the spot. Being young and naïve, I simply replied: “I’m sorry. You must have me confused with somebody who gives a crap.” In any case, the episode did not make me want to hire more MBAs.
Perhaps worst of all, many MBAs carried intense ambition for themselves, but no strong bond to the company’s mission. While everyone else in the company was “ride or die,” these MBAs could be seen carefully plotting their next career move. When you’re working 16 hours/day with a team of dedicated people driven towards achieving a nearly impossible goal, this does not sit well.
Finally, the MBA schools of the late 90s and early 2000s did a relatively poor job of preparing people for startups. MBAs learned how to analyze existing markets, but knew nothing about creating new markets. In general, the MBA education was geared towards attaining positions in large, established companies rather than new entrepreneurial ventures.
At this point, it’s probably not difficult to understand why MBAs carry little credibility in startup world. So why am I even asking the question? I think we have thrown the babies out with the bathwater. More specifically, we’ve thrown the outstanding talent out with the bad behavior of an old, irrelevant sub group. Broad categorizations usually tend to be a bad idea when it comes to people and in this case, the trends that led to the negative characterization have reversed. In my observation, there are four key reasons to consider hiring today’s MBAs.
The world largely beat the arrogance, overconfidence and sense of entitlement out of the current crop of MBAs. Most now exhibit a level of humility and willingness to learn that was unheard of 10 years ago.
The course material has become much more relevant. Innovative instructors like Tom Eisenmann and Alison Wagonfeld at Harvard explore the challenges of scaling new companies. Mark Leslie and Andy Rachleff at Stanford teach key lessons in building enterprise sales channels. Bob Sutton and Huggy Rao at Stanford teach novel approaches to incentives. Today’s MBAs bring some interesting knowledge and relevant skills to the table. This is in stark contrast to the old curriculum, which focused on big company problems.
The kids are still smart. Even in the late 90s and early 2000s, you had to be extremely smart and ambitious to get into the Stanford or Harvard MBA programs. That’s still true today.
- A different perspective can be helpful. Engineers run most technology startups and that’s great. But it is important to recognize that engineers tend to look at the world from the product out. Having a few people in the company who see the world from the market in can be enlightening.
In the public equities market, everyone knows to buy low and sell high. However, the momentum of the day usually overwhelms that obvious strategy. In practice, public market investors pile into stocks as they become overvalued and abandon high quality companies at the first sign of trouble. Similarly, when it comes to hiring MBAs, technology companies have historically bought high and sold low. The current price is low.