The MBA Hedge

A response to the debate on

As someone in the startup world who's long pondered whether to get an MBA, I enjoyed the debate on Boston.com's The Hive about whether or not an MBA is a worthwhile investment for those looking to join or create a tech startup:

What's at stake in getting an MBA is fairly obvious. You're putting yourself $70-$100K in debt in exchange for three assets:

  • The Education about financial accounting, pricing strategies, and other topics that are somewhat esoteric if you're not already a business owner or senior executive. The volume of non-MBA tech CEO's, however, suggests that these skills are very acquirable; for this reason, seed/angel investors don't seem (from everything I've read) to place much value on these skills. In my view this is the most debatable value of an MBA for tech/startup-minded folks (significantly less debatable for those looking to work in finance or business), unless you're so insulated from these types of skills in your pre-MBA job that you'll be highly unlikely to ever acquire them without time spent in the classroom.

  • The Network. You're buying into friendships among many young, bright, ambitious people as well as the alumni. That's incredibly valuable; acquiring such a high-quality network is not easy to do on your own. Dale Stephens' article in The Wall Street Journal, "Why a Smart Investor Would Skip an MBA", seems to completely gloss over this aspect.
  • The Signal. You add a line item to the Education section of your CV that signals to future potential employers/investors/partners/etc. that you have the level of aptitude and ambition to make it through a rigorous Admissions process. The Admissions process at a top-flight university is more labor-intensive and thorough than many employers would ever administer during the hiring process, and in a way they're offloading some of the diligence work on future hires to the university. For more on signaling theory in the Job Market, see Bryan Caplan's excellent body of work on this topic.

Back to the debate on The Hive. The arguments for and against "Is an MBA a worthwhile investment for the startup-minded?" make valid points, but they're missing an important nuance: You'd have to be either naïve or extremely risky to go get an MBA with the sole intention of joining or creating a tech startup.

You're going to come out with major debt, and startups generally don't pay at a level that will help you pay it back easily (even if you're the CEO). Sure, a successful startup on an exit/IPO-trajectory compensates better than almost any other job, but that's rare. VC's investing in your startup are aiming to win big on only 1-in-10 startups in their portfolio and get some money back on 2 - 3 more. And investors are usually pretty smart - you can't think you're going to to be among the 3 - 4 that are likely to return money because it's not as if they're just taking sure-why-not flyers on the rest of their portfolio.

Why might you get an MBA even if you are startup-minded? Perhaps because you're willing to hedge! If an amazing position in the tech/startup world becomes available to you (or if you make it happen, like Tristan Walker, Stanford MBA and former Head of Biz Dev at Foursquare, did or you align with some great partners in your class, a la the Wharton-alumni founders of Warby Parker, that's great. You're still taking a risk, but you can have your techy cake and eat it too. But what if that amazing job opportunity in the startup world doesn't come around? Good news: You've got a signal on your CV and a terrific network that's going to put you in a job where you can afford to repay your loans within a few years.
From where I sit - no MBA and haven't founded a real company yet (whoops!), I'd surmise that an MBA is probably ill-advised if you're dead-set on staying in the tech startup world (the WSJ piece, in particular, oddly neglects the career path for people who are business-, not tech-, minded). If you're willing to compromise on this, then an MBA may be worth the risk. Whenever my time comes to finally make the call about whether to get an MBA, I'll be weighing how much I can compromise, and whether I'm willing to hedge.

For more on the MBA-in-the-tech-job-market, check out these posts:

I much prefer the nuance in these posts to the debate on The Hive. But as usual, I don't really know what I'm talking about, and would love feedback from anyone can point that out eloquently (or vulgarly!). Feel free to tweet me at @libovness, email at jonathan.libov AT gmail, or continue the conversation on Branch.

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