Paul Brown tipped me on Guy Kawasaki’s post on the Venture Capital Aptitude Test. (Disclosure: Paul’s kind words come from years of he and I working together in a startup where he and the other developers did all the hard work) . Thanks, Paul.
In Guy’s post, Guy gives two positive nods two areas I’ve had lead roles with (engineering & sales) and disses two other areas I’ve been also been involved with (MBA and management consulting) in terms of how it affects one’s ability to be a venture capitalist.
Guy writes about management consultants:
The three worst backgrounds for a venture capitalist are management consulting, investment banking, and accounting. Management consulting is bad because it leads you to believe that implementation is easy and insights are hard when the opposite is true in startups.
Guy writes about MBAs:
Finally, there is the issue of the pertinence of an MBA to venture capital. The upside is that such a degree can provide additional tools and knowledge (such as calculating that 25% of $1.6 billion is $400 million) to help you make investment decisions and to assist entrepreneurs. The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested. All told, the downside of an MBA outweighs the upside.
While I won’t address Guy’s claim about the whether these areas are good or bad for venture capitalists (as I can’t claim to be an expert about picking good venture capitalists), what I will address is Guy’s claim that "Management consulting is bad because it leads you to believe that implementation is easy and insights are hard when the opposite is true in startups" and "The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested. All told, the downside of an MBA outweighs the upside."
On the point about management consulting I simply disagree (with no disrespect) with Guy. Guy’s statement is an overgeneralization. There are different types of consulting firms out there, and Guy’s perspective may be more influenced by pre-2000 practices. Consulting firms pre-2000 that were focused on strategy might have more of a tendency to be focused solely on stategy, but these firms got burned by making recommendations without focusing on ease of execution. On the other hand, there were firms that grew of of an implementation background (and potentially interim management background) and moved upstream into more strategy consulting. Although markets started to overlap a bit, structurally I think consulting firms and client were better off by having this type of cross breeding.
All said, if one has not spent any time managing or working in a business role prior to management consulting, I think this can be a weak point that one needs to work on careerwise. But there are strong benefits to management consulting that should not be underestimated either – by working in management consulting, one can get exposed to the internal operations of a lot more firms than one could by working for one firm straight for five to ten years. In five to ten years as a consultant, one may have seen the detailed operations of twenty to forty firms versus two to five as an operating person.
On Guy’s point, "The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested."
To this, all I can say is that my hypothesis would be that MBAs may tend to attract arrogant people [who overstep their bounds in terms of what they think they’ve accomplised over non-MBA entrepreneurs]. I don’t think the MBA naturally breeds this type of person.
Overall, I think Guy is onto something when he says people should value the difficulty of implementation and value and proximity of market insight. I also think he’s onto something when he talks about arrogancy affecting the ability of VCs to do the job effectively. But Guy’s characterization overly discriminates against consultants and MBAs. What about the negatives to engineers who only think about technical beauty and miss the market need? What about the salespeople who only sold what the customer already bought and never hunted for a deal?
it’s too bad you had to include those last three sentences. and you’re missing the point.
first, your statements in the final sentences are themselves over generalizations. for such a hypocritical rant you lose any credibility you may have previously established.
second, i believe guy’s point was that people who get an mba and don’t have real world experience in the industry for whicch they would be investing, ought to get some before going into venture capital.
separately, guy’s logic applies to people trying to start a career in any industry. i think it would difficult to cite an example of a person who went directly to undergrad to grad school. and, upon receiving the graduate degree landed a job as ceo of a public company or litigation specialist in an established law firm. it doesn’t happen in the legal field, it doesn’t happen in the medical field and it shouldn’t happen anywhere. it should espcially be avoided in an industry whose job it is to invest other people’s money. in many cases this is state managed employee retirement money and their financial stability. our livelihoods should be in the hands of an experienced investor and an experienced investor should invest in experienced entrepreneurs. succesful entrepreneurs who i know tend to look for experienced investors because they get to parlay that investor’s experience to get such perks as having steve jobs’, jeff bezos’, meg whitman’s door opened. former business people who are board members make for good credible references who prospective customers may want to talk to. this trait or attribute is called wisdom. to me, wisdom is your brains ability to apply experience and knowledge to the decisions that you make.
my definition of wisdom minus the experience is arrogance. it’s my definition and i can do what i want with it! 🙂
my $.02
Torno,
Thanks for the comments. All great points. I think I may have misled you and others a bit with my last few sentences. My comments were a bit in jest and only superfically had any substance.
I do think there is a tendency to have a negative opinion of consultants and MBAs. Whether deserved, this is the ground I intended to defend.
MBA and entrepreneurship – this can sometimes be a difficult mix, yet most academic programs have some form of entrepreneurship emphasis in their MBA programs. I know becasue I earned my MBA in entrepreneurship. Here is the real issue I think we are discussing:
The MBA is merely a mechanism to open more doors of opportunity. It is still up to the individual to make the most of the opportunities put in front of them. Entrepreneurship is 10% strategy and 90% execution.
I remember being hired as the CFO for a company founded, owned, and run by a high school drop-out. He asked me why I felt my education could benefit him and his company after he had built it all without a high school education. My answer: “To help him grow it to level he had not ever imagined possible.”
Within two years we have almost tripled sales and quintupled profits. And I can honestly say it was all about implementation. The strategy was clear and occasionally needed a few tweaks, but we worked our tails off executing. And it paid off.
My conclusion – an MBA is only as good as what the person behind the degree brings to the table.
i believe guy’s point was that people who get an MBA and don’t have real world experience in the industry for which they would be investing, ought to get some before going into venture capital.