Saturday, January 22, 2005

Why MBAs can't normally become Entrepreneurs

These are some thoughts which came to mind during some class discussions this term on how new businesses get created, how the entrepreneurial companies and individuals "create" rather than "adapt" to the environments... and in the process, often violate (and change) the way of doing business...

...and it occured to me that why the typical B-school environment does not provide any groundings for making entrepreneurs... in fact, inadvertantly, it desists people from becoming entrepreneurs... so my take is that if MBAs become entrepreneurs, it is not because of the MBA degree, but in spite of it!!

Reasons?

Firstly, let's look at why people want to do MBA. In many ways, the motivation for doing MBA nowadays is same as why people used to prefer a government job in yesteryears - security!... a government job provided job-security, while admission to a good B-school provides the security of getting a well-paying job.

Secondly, unlike most other professions (e.g., engineering, medicine, CA, etc.), MBA admission is the only one which does not require an aptitude - or a basic grounding of the 'discipline'. For instance, to become an engineer or a doctor, one can apply for the admissions in the professional institute, only if one has a basic grounding in certain specific subjects (whether maths, physics, or biology, etc.). The admissions tests would also try to assess the robustness of this grounding.

However, an aptitude to manage can only be judged in a real-life situation; it cannot be judged by the paper-pencil tests which are used for admission.... with the result, for all practical purposes, the MBA admissions are based on the premise that anyone can become a manager!

And lastly, the predominant B-school curriculum is focused on learning from companies - as cases or as theoretical frameworks - who have already moved up to the latter-part of the S-Curve. So people learn, for instance, about
  • how to analyse industry to craft a strategy
    (and not how to strategise when the industry itself is in formative stage),
  • how to compete in a market
    (and not how to create a market),
  • how to manage resources efficiently
    (and not how to create and acquire resources),
  • how to operate within regulatory boundaries
    (and not how to push the regulatory boundaries to evolve to accommodate new business realities), etc.

  • in fact, if a person learns all these things, he is actually at a handicap for any entrepreneurial venture!!!

    25 comments:

    Anonymous said...

    Agree. Not too sure if this is true ....

    Larry Ellison (Oracle) was called to address the graduating class of a top US management school. He talked about his success, and then said "now that you have a MBA you will never be as successful as me"!!

    Garibanco said...

    Good analysis. I agree most with the point on job security or, in another words, opportunity cost. The more an employee gets paid, possibly with the help of the MBA credential, the more incented he is to stay in his own field.

    Meanwhile, I'm conservative on the discussion about what's educated and what's not. Exclusion of curriculum in starting a business does not necessarily reduces student's capability in that area.

    Of course, I'd see some advantages that a MBA has in creating a business:
    Relations which induces new business opportunities;
    Reflections that allow a bored employee to re-think his/her own business opportunities

    Sonia Chawla said...

    I think I can add a few more of mine here.

    The focus in a Business School throughout is on conforming or how to obey.Infact in our own communication classes the stress is on how to be a part of a set culture, obey, adjust and follow. Essentially how to sell yourself to a company. With a grounding like this and the peer group pressure to get placed in a big company defining your success, no wonder by the end of MBA the few who started with any enterpreneurial drive don't have any left.
    (PS - Thanks for the correction it should have been 'conspiracy' and controversy')

    Yash said...

    Your comment : "anyone can become a manager!" is valid only in the Indian mgmt education's context. I believe, that the selection procedure for none of the "established" b-schools in India are designed to test the student's entrepreneurial abilities and business acumen, what with work experience and student diversity not being given any importance. Given this state of affairs, it is but natural for one to feel that an MBA (in Indian context) does not build business leaders at all; rather business leaders build themselves. I would request you to re-evaluate your comments wrt the top-notch foreign B-schools and also ISB (Indian b-school set up along international b-school's standards).

    Secondly, your comment that MBA admission does not require any aptitude is also applicable only in the Indian b-schools' context. For all the top b-schools across the world, the quality of experience and proven ability to perform in corporate / business environment are primary attributes to make the cut. Certainly, in the Indian context, these two attributes are eclipsed by the scores in entrance tests rendering the admission procedure irrelevant for a b-school worth its name.

    Thirldy, saying that MBA precludes entrepreneurial spirit is unfair. What you have said, "MBAs become entrepreneurs, it is not because of the MBA degree, but in spite of it!!", is equally applicable to those who **do not** become entrepreneurs as well.

    In conclusion, the challenge is to create an environment where firstly right people are selected and they are not discouraged from taking risks.

    Krish said...

    I would agree to the first and last point...but I couldn't possibly think that the second point is completely true...it might be true that MBA aspirants want a high paying salary..it would also be true that curriculum might be one of looking backwards, but then it would be an extreme statement to say that Management tests are based on the premise that anyone can become a manager...the premise is that anyone who can take decisions with many constraints, and who can analyse certain information to arrive at an optimal decision can replicate this in the business environment. Many of the MBA aspirants, who had cracked the entrance tests, were the ones who were able to take a split second decisions as to what was their priorities, which would give them an optimal result and which one will be less difficult to achieve....they were the one's who were able to "arrive"..also I would like to see the statement "MBA admission is the only one which does not require an aptitude - or a basic grounding of the 'discipline'", as MBA education is the only one where you cannot possibly say that this is the aptitude that one would need...but a pattern of ability to use the other aptitudes, would lead to using or acquiring the necessary aptitudes at a later stage...

    Madhukar said...

    Krish,
    I would partly agree with you, but then taking split-second decisions is only a small part of a manager's job - it is also about managing people, managing resources, carrying people along, dealing with uncertainty, etc... none of the components of the admission tests (unless, one counts a 20 minute interview as an accurate assessment for all these abilities), assess these abilities.

    Krish said...

    Ya!! but that is a trade-off we need to live with...ofcourse one can take an extreme position that a life time is not enough to assess personality....there is some truth in such a position also...but within the constraints, the best possible way is to go about this way..ofcourse there are improvements possible..say for example, increasing the timing of the test and putting up some personality traits and seeing whether this would be compatible with what is required..but then who will define what is required...all we have been able to do is to find a pattern in those traits that have lead to success and not the causes perse...
    So, there has to be a cut-off somewhere, threshold somewhere that can be used to get what we want...may be the entrance tests can serve as a good starting point...actually, if we accept conditioning theories, then it follows that, whatever we "feel" as entrepreneurial qualities can be developed in the curriculum part of education....entrance tests can be used to jus silt people and pick those who will be "malleable"....

    Joydeep said...

    Hi,
    I agree to most of the part, if not all of it. But here I’ll give an idea!

    Let the BIG b-school’s have a course dedicated for entrepreneurship minded people, who receive a ‘Corpus’ instead of a ‘job placement’ at the end of the course to fund their ‘ideas’ on a grand scale. This fund can be made up with contributions form all the VC's out their who are always hungry for good ideas…

    The schools can train these buddies in all the aspects (fin, law, mkt.) of creating and running a business with specializations in the sectors (retail, textiles etc) they wish to build their businesses in.

    I am sure our government would also chip in, given they spend millions on creating employment in this country, much of which goes into ‘safe investments!’

    Maybe this may serve the purpose to some extent...

    vs kumar said...

    sir,
    i do not agree with most of what is written..
    there is very little evidence to say the MBA has been an impediment in becoming successful manager ot entrepreneur..true there have been some who became entrepreneurs without mba education but that does not make it universal..companies after companies have been training their recruits in management principles through either their own institutes or by sending them to reputed schools and all have found them to be useful..otherwise why will they waste money..
    having said the above, i agree with the fact that b-schools are not imparting management education in the way in which it is to be done and by the right people..
    this is a dilemma even the top b-schools abroad face..somehow the faculty in b-schools have to be a PHD and it is they who stand a bright chance of getting positions and moving ahead..most of the b-schools even in India have very small percentage of faculty from the professional management stream..i do not know the reasons..pehaphs academic stream is not attractive..
    a passing thought..to teach how to play on piano would you hire a person who knows how to play piano or one who has a research degree on the innards of piano and its music quality??
    medical and law schools hire only doctors and lawyers respectively for their faculty..why not b-school??

    M a D a N said...

    B-school education has to find its roots in India. The classroom is the most dangerous place to study the outside world. The future is only for niche b-schools, and general management is out. Specialised skills with general awareness is important to succeed. Indian b-schools are swimming with the tide. The day water turns rough all MBA's will perish.

    Rajan said...

    I agree with what what you said, the post reminds of an article by Ghoshal that I read some days ago. It was also heavily debated in ISTT groups. Link to an economist's article on the article by ghoshal can be found here.

    http://thiyagarajan.blogspot.com/2005/03/mba-member-of-beancounter-association.html

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    Chad said...

    VERY TRUE. I visited & interviewed with a top 3 school (Wharton) this year while on the verge of launching www.CarArt.com (which will revolutionalize the vehicle graphics industry when launched in May 2007).

    None of what I witnessed in the classes I visited or in the curriculum summaries of the courses would have helped me in creating this new business model, in pulling together something out of nothing, etc to start my new business. The coursework is designed to create financial analysts & wizards with business math. I don't want the kind of job that it would have prepared me for. I want a career spent recognizing new opportunities, pulling together resources & being creative to capitalize on them, then launching/growing/and selling the resulting businesses. After considering a top MBA program, I don't see it helping me with this goal -

    Chad
    Founder
    CarArt.com

    Nilesh said...

    Here are my comments on this.

    Firstly, one cannot generalise as there are instances of successful MBA entrepreneus. But in general, I guess at a macro level, this is true.
    In my opinion, this can be held true for any education stream right from Engg, BCom etc.

    I feel that, education makes you very close minded. It makes you believe that you can only do what you studied. So if I did Marketing, I can't learn software programming and so on. Entrepreneurship requires to be able to learn and pick up things without any formal classes which a fact which most MBA will not be able to digest.

    The second is the fear element. Most of us dread to live a style with a minimal amount of earning; we would like a minimum amount of per month to sustain our lifestyle which should incl. liberal usage of the cell, flight travel, a car, a fancy house... Even if you see MBA attempts at entrepreneurship (mostly failed ones), the process is topi pehnavo one VC so that you have a certain amount to spend till the venture goes bust.

    I think this will only change if our societal stereotypes change and our education right from school is more flexible. In India, society would assume you can programm only if you are a BTech Computers. This theory is clearly debunked by the fact that majority of the programmers in the US (the biggest and most advanced IT market) are college dropouts. The few who are Engineers are Indians or Chinese.

    So in a sense, learning and education need to be delinked and we need to believe that one can learn even after 25 or post our MBA.

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