Tag: MBA

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Venture Capital Test Suggests Some Weaknesses About MBAs and Consultants

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?

Updates (12/4/06): Guy here. Charlie here.

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Adding Some Color (Blue Tone) To The MBA Discussion

David Maister has a great post entitled, "Why Business Schools Cannot Develop Managers". While I generally agree with what David says there, in that business schools can teach primarily only analytical skills, I think that it may be worthwhile to shed some additional light on that subject so that people who are evaluating business school (or those that come from business school backgrounds) can better appreciate the underlying value.

I view business as a bit of a craft and art, so to continue with the color theme, I see the business value of MBA programs as covering three primary color schemes:

  • Blue – the cold hard facts, the analysis aspects, the language, and theory of business (learning WHAT to do)
  • Yellow – knowing where the warning lights are, when something is good or bad, going to work or not, and going to incent parties (learning the HOW to do something)
  • Red – the passion, the leadership, the drive, and the fortitude of business (WANTing to do something)

For now, I will concede that the MBA only works on the "blue tones", and one can’t create a business without other primary colors.

That said, when my one of my kids gets crayons at the local restaurant consisting of black, green, and orange, and my kids want to draw Captain America or Cinderella – I tell them to "please make the best of the situation". You be surprised how creative kids can be with even the wrong tools for the job.

So here’s some perspectives on the "blue aspects" of the MBA:

  1. MBAs Are From Mars and Engineers Are From Venus – Having both MBA and engineering degrees, I can see where parties can misunderstand one another in situations such as capital raising meetings, sales pitches, and executive presentations. The MBA provides a common communication language for business people. Sure there can be too much business-speak going on with MBAs, but I have seen many situations where engineers in start-ups are unable to pitch their stories to angels or venture capitalists because the two are speaking different languages. At the same time, I have seen MBAs better left out of the meetings with venture capitalists because they are just too shallow. All said, recognize that each type of participant has a different communication style and that MBAs add some value. When one tries to do business in Japan, one tries to speak Japanese and not French, right?
  2. MBA Training Is A Portable Skill And Can Facilitate Working Relationships – Just like C/C++/Java programmers follow conventions for putting things in reusable functions or libraries, apply different methodologies for avoiding deadlock or multithreading of executing code, and communicate using different diagramming techniques, MBA have toolkits too. Toolkits may include common frameworks for competitive analysis (such as the 3Cs), profitability analysis (such as 5 Forces), or operational process breakdown (such as ABC or "activity-based cost" analysis). Having these types of frameworks have helped me to quickly interface with other consultants (even ones from other firms), business people, and even overseas folks whom are outsourcing more straightforward MBA activities.
  3. MBA Frameworks As A Way To Make Sure Analysis Is Thorough – One of the common cases covered in business school is one that covers the pricing of a contact lens product for chickens. The purpose of having such an outrageous case is to teach students how to analyze business problems where they may have no prior business experience. Since students can’t leverage past experience and industry-knowledge, the case teaches students to use structured methods for attacking pricing problems. Students are trained to look for things such as cost data, competitive data (such as the market prices of alternative products being used to solve the real business problem at hand – in this case, perhaps the true operational problem is the cost to farmers of losing chickens in a cannibalistic world where chickens kill one other because they can see one another). In the end, students are supposed to get an in-depth look at how pricing can be addressed, e.g., in terms of cost, margin, value, and competition.

A good analysis foundation is invaluable. From that foundation, one can apply other skills to get business "street-smart" and to develop leadership skills. Although I have not pointed out some of the other aspects of the MBA that can help out in these latter areas, I do feel that there are some yellow and red tones to be found in the business schools too. David Maister even goes on to say in his post that the title of his post is perhaps "too pessimistic" on the value of business schools. On this point, I also agree. Perhaps I’ll post more on this subject at a later date if folks are interested.

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Q&A With Deloitte Consulting On The Industry And Career Guidance for MBAs

This post has been reproduced from my BusinessWeek MBA blog. Comments and trackback only taken over at the original post.

I had an excellent opportunity to phone interview management consultant, Mike McLaughlin, about the overall management consulting industry today and about employment opportunities for MBAs in the field. Mike is not only a blogger at award-winning Guerrilla Consulting but also a principal at Deloitte Consulting LLP and the former Managing Partner for Deloitte Consulting Chicago, where he had market responsibility for a practice of 800 consultants.

Steve: Mike, it’s been awhile since I worked as part of a larger, management consulting firm. Please talk a little bit about how strategy consulting has shifted over the past five years and where things are at.

Mike: Strategy consulting has been the bedrock of the industry. There are some firms, like McKinsey, BCG, Bain, etc. that are branded as strategy firms. The market has been cyclical for other firms that are not branded that way. But there has been a market uptick, e.g., for the former Big Four consulting firms. The difference in the overall industry, however, is that there has been a slight shift. It has to do with what strategy consultants do.

Strategy consultants do more on executable strategies these days – less credenza-ware.

Steve: I like that term. I know exactly what you are talking about, but I’ve never heard a term that evokes such imagery.

Mike: Lots of management consulting firms have negligible implementation capabilities. Clients are looking for the implementation tail and a roadmap of how to execute. As a result, what we are finding is that some of the best strategy teams are those that have a mix of strategy and implementation backgrounds, whether those be in operating roles in companies, IT groups, etc. The successful consultants these days are those that have a good mix of strategy and operations background.

Steve: Consulting seems to be beginning to boom again. What’s your take?

Mike: A handful of reasons come to mind. In the decline phase of prior years, companies were battening down the hatches. Management consulting fell into the discretionary fund pool. Lots of companies got swamped. Many consulting firms were not bringing good ideas to the table. Operating companies got tired of the strategy prescriptions where one or two firms dominate. Now there are a lot of new developments around managing a company, whether this be offshoring, managing a workforce, or fostering an environment of innovation. Management consulting engagements are not coming back as mega projects. Shorter projects. Smaller teams. Plus there was an awful lot of consultants back in the operating company workforce. After 2001, consultants went out into the streets. Many of these people are buying services from consulting firms, in part because they can get high-caliber people. Current growth in consulting now is probably 7%-9% these days as opposed to the 25%-30% growth rates of the wave.

Steve: How would you recommend business school students look at opportunities in consulting versus an operating company? Would the internal consulting arms of operating companies be another good place to look if people like consulting? I saw some of these crop up post some of my engagements in the profession.

Mike: One fundamental question to answer is whether people like industry or professional services. If you like services, then people should look at things like consulting and investment banking. If one is looking at industry, then one should be looking at a functional role like brand management or finance, say. I haven’t seen internal consulting arms work. Maybe one or two companies come to mind that could pull this off. There is a lot of backwater in most of the internal consulting groups in that they either have no budget or are understaffed. Not a high probability bet to go down the internal consulting path.

Steve: What dark sides do you see to consulting?

Mike: None of this is going to be new to you, I’m sure. The upside is that one can make a lot of money in consulting. You can get about tens years of normal industry experience in about two years. You can run the risk of an extensive lifestyle focus.

Steve: You mean travel?

Mike: Travel is a good catch word for something much broader. It’s about where you are living your life. You could have consulting projects in the armpit of the world. Or there could be family issues.

Another dark side is that the longer one stays with a consulting firm, the more important the number game becomes. A drive to sell, execute, make sure that partners get paid emerges. There can be ethical challenges. Not a problem with firms like Deloitte or firms like your past firm (PRTM), but there becomes a point when the interests of the client and the management consulting firm diverge. If you cross the path of not acting in the interests of the client, you’ve compromised yourself, and you are done. No one will work with you again.
 
Steve: Since this post is geared for the BusinessWeek MBA Blog community, can you give some tips for current b-school students on interviewing.

Mike: Consulting firms like Deloitte are looking for talent. We don’t care what course you took. Be yourself. Let the talents come through but not in an arrogant way. We want to see how you think on your feet. How this is done at Deloitte is through the case interview. A decision is pretty much made on the spot. There are diminishing returns for multiple interviews. The importance of using business school frameworks and practicing for the case interview are more for the purposes of freeing yourself so that your talents can show through. Not so much for the process itself.

The other aspect of interview is what I call, "passing the airplane test". This is the cultural stuff. As an interviewer, can I bear to be with this person ans sit next to him/her on an airplane? Can I put this candidate in front of a client?

Steve: How does Deloitte manage to make sure that interviewing does not fall into the trap of the Pepsi sip test, where the short interview and trial does not reflect how the person will actually work out in the long run?

Mike: The trends are way up at Deloitte in terms of only making offers to people that have done internships with the firm. If you didn’t intern with Deloitte, then we will make these candidates jump a higher bar.

Steve: Was great talking with you live for the first time as opposed to exchanging emails. I’ll let people know that if they have any questions, they should feel free to post comments to my blog, and I’ll pass on to you so that you have an opportunity to respond.

Mike: That will work great.

P.S. by Steve: If you don’t use a newsreader, consider using something like NewsGator and add Mike’s RSS feed to your reading list or subscribe using Bloglines. High value and free cost!

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New Blog For Me At BusinessWeek Online MBA Blog Community

This entry has been reproduced from my 21Publish blog.

I have a new MBA blog over at BusinessWeek Online here.
I’m not only a vendor but also a user and participant in the community.
I’m personally excited that the MBA blog community at BusinessWeek
(* a blog community just being launched this afternoon on the 21Publish platform*) has turned out so nice
looking! Also very happy to see Clear Admit (one of the influential blog sites in the MBA world) and other cool MBAs early in the process of
signing up at BusinessWeek. Stefan has some personal words over at his blog
which are quite visonary and address end-user generated content. Kudos
to both the BusinessWeek and McGraw-Hill folks we’ve worked with to get
this done!

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Top Business School To Put MBAs Through Blogging Bootcamp

The Michigan Business School has a very cool, innovative project course aimed at helping a small enterprise increase Internet visibility through blogging (no more calling MBAs a bunch of blaggards!). Bud Gibson at The Community Engine posts:

In a nutshell, our plan is to divide the students up into five or six
teams of five people. Then the fun starts. Each team blogs about the
industry the company is in. They learn who the blog opinion leaders are
for that industry. They learn how to track the company’s products and
competitors in the blogosphere using tools like technorati, pubsub, del.icio.us, and flickr
tags. They’re graded on making effective blog posts with a portion of
the grade being decided based on getting themselves noticed and cited
by opinion leaders. The blogging efforts will be completely open for
all to see, so competition will be based on how well the team does its
research, networks, and crafts its message.

I would imagine that for a project that spans only a few months that the results could be overly sensitive to the amount of offline networking that the MBAs do, perhaps tending to make things a bit of a free-for-all. Perhaps to control for things on the downside, the competition should also be based on whether any backlash occurs. This is something that the MBA would have to live with if they were a permanent employee of the client company. Visibility is a nice goal, but perhaps not the only goal. In any case, Michigan sounds like it has ingredients for an awesome course. Will be great to hear how this goes.

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Personal Experience: How MBAs and Non-Profits Can “Profit” From One Another

Prior to my move to Dallas last year, I spent three years (voluntary work) in the capacity of the finance officer on the board of a non-profit organization (that provided child care). My experience at the non-profit was post-MBA and post management consulting with PRTM. I got a lot out of the experience, and I was honored to be able to contribute to the organization.

What I got out of it:

  • I found that non-profit boards tend to be more diverse than corporate boards – the experience forced me to learn how to minimize MBA jargon talk and the like.
  • The board size was much larger and decoupled than one might find with boards of many corporate organizations (twelve people versus three to five) – the experience forced me to continue to refine facilitation skills because large boards can be cumbersome.
  • It was often easier to connect finance with both the human policy and vision of the organization – governance at the board-level directly affected children and families (some of which are very disadvantaged [e.g., single moms, low income]), and it was gratifying to get the organization to points of commitment and resolve.
  • I learned to appreciate the need for a separate operating board versus a fund raising board (something more typical of non-profit organizations).

There many things that one can bring to table for non-profits. As examples of some MBA concepts that I applied:

  • Operations background – Assume that many manufacturing facilities operate at a normal load of 70% utilization. Now consider an organization like a child care organization that is make or break based on child enrollment numbers and where the budgeted numbers for the organization require breakeven to be 95% of capacity. Does this raise a warning flag that a correction is needed somewhere?
  • Operations and competitive strategy – Suppose there are long waiting lists (queues) for the two-year old rooms in the facility and that capacity in the surrounding, competitive facilities is scarce. What does this like say about the price sensitivity of the market (i.e., how much the organization can raise enrollment prices)? Probably one can raise prices more than one thinks.
  • Marketing – Other organizations are marketing lower prices yet they hide the fact that their coverage hours are shorter. How does your organization want to position itself in the market from a competitive viewpoint, and what concrete tactical things could be improved to make sure that people are educated about comparing apples to apples? Perhaps the organization should market itself as value-based, full-service and draw out the differences in a nice chart.
  • Finance and Controller – When the financial situation gets tough, it becomes easy to want to take out small things (like water coolers), but where the dollar impact is small. Attack the problem from a different angle – first attack the problem from a "required hurdle perspective" as opposed to "a triage perspective". Use MBA spreadsheet, multimedia projector, and meeting facilitation skills to get the group on the same page as to how many dollars actually need to be cut out of the budget to affect the monthly enrollment fee for each family. Then come back and triage the budget at the line-level.
  • Board governance – Non-profit boards can frequently benefit from practices used at the board-level in for-profit companies. Things like knowing about by-laws, employment laws, handling conflict of interest, etc. in the commercial sector can be adapted to the non-profit world.

For what it’s worth, I would highly recommend that MBAs look for ways to apply their skills to non-profit organizations to whatever extent they can. Some business schools like Yale have reputations for being strong in the non-profit sector, but straight-up MBAs are also good. The relationship with non-profit boards can be as little or as much as you want in many cases. The upside is good for all parties involved. You can’t always find that in the commercial sector.

Steve Shu

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Article on the Value Debate Over MBA Degrees

Last week I cited an article by Professor James Carlini that captured a big but sometimes forgotten point about the WorldCom fiasco. This week he begins a two-part series on the debate on the value of an MBA. Professor Carlini had picked up on a thread of MBA topics on this blog (potentially starting here) and was motivated to write some of his own perspectives.

One paragraph from Professor Carlini’s article really jumped out at me. He writes:

In today’s competitive and mobile society, values have changed. Some working professionals want convenience and expediency in getting an M.B.A. They have been sold on this as the criteria to select a school. There are online schools, extension programs and other avenues to go through instead of the traditional approaches that some schools still use. Tens of thousands of people graduate with an M.B.A. every year.

I haven’t followed the MBA supply and demand issues that closely, but from my vantage point in the blogosphere, I have heard from respected industry people that there may be too many MBAs out there and that this diminishes the value of the degree. Perhaps so.

My biggest concern would be that business schools need to make sure that their curricula and reading material are up-to-date. There has been some significant shocks and changes in the world over the past half decade. Some that come to mind are:

  • major economic shift related to offshoring and potential marginalization of even innovation
  • big changes in technology and viral diffusion models (e.g., Tipping Point-type stuff)
  • stock market bubble bursting and change in demographic needs of business school students beyond consulting and investment banking
  • corporate scandals and corporate governance concerns
  • ballooning US trade deficit that will not be reversed for many years to come.

When I asked Malcolm Gladwell to what extent the "The Tipping Point" was diffused in business schools, he replied something to the effect of "it is too early to tell". Granted, I can appreciate the needs of business school professors to balance academic caliber literature vs. popular writing. Yet, for something that is on top of the business world (i.e., viral models) … well Gladwell’s response made me a little uncomfortable.

Steve Shu

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Continue reading “Article on the Value Debate Over MBA Degrees”

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Pretty Good Example Of Who The MBA Is Designed For

Apparently quite a few people still visiting my site to investigate what the MBA is all about.

The London Business School website has a pretty good one-page summary of who the MBA is targeted at. Different schools vary on the exact demographics mix both pre- and post-MBA, but I think it’s helpful to point out the vertical move and career switch aspects (I personally feel that intentional, dramatic career switch is the most common reason). I am less in agreement on how helpful business school training is for entrepreneurial start-up situations (having participated in this type of environment), but the experience also varies by school.

Business Week and some of the other magazines used to run pre-MBA salary versus post-MBA salary numbers. Sometime you can also get this information from the schools. Some of the schools also go one step further to show the payback, ROI, etc. analyses.

List of MBA bloggers is also here (mostly current MBA students as opposed to alums). May be useful for people to tap into that source of info.

Update (3/19/05): 2004 survey info from Graduate Management Admission Council (GMAC®) which provides additional information supporting my comments on career switching (switching industries or job functions).

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