A long time ago, I had to make a really tough choice: invest in an MBA from New York University, or make do with my bachelors. I was newly married, had a child on the way, and didn’t have much in savings. The degree would set me back tens of thousands of dollars and take years to complete—especially if I did it part time. And I couldn’t imagine doing anything but programming computers for a living.  So why learn finance, marketing, and operations management, I wondered? Well, I decided to enroll because my understanding of the business world lacked depth, and I harbored a deep-rooted desire to get the best education possible. My wife and I moved into a small one-bedroom apartment in North Bergen, NJ, and we made do with what we had.

For a couple of years after getting my degree, I wondered whether I had made the right choice. Even though I scored a great job at CS First Boston in its IT department, I was just writing code and designing systems. Yes, I started to enjoy reading BusinessWeek and the Wall Street Journal; but had the financial sacrifice and time away from my family been worth it? It didn’t seem to have been.

Over time, I started rising through the ranks in IT. I went from being a programmer to becoming a project leader and then a vice president. I found that I could communicate effectively with user departments and my bosses; I could deliver projects on time; I knew how to manage and motivate employees; and I had the confidence to present business proposals to managing directors and board members. I was even able to help persuade IBM to make a $20 million investment in the technology that my team had developed. We spun off a startup called Seer Technologies, and I became chief technology officer. And that’s when my education really began to pay big dividends.

In the startup world, it’s simply survival of the fittest. You have to involve yourself with almost every aspect of the business—and use all skills. I would find myself having to develop and manage budgets; help market and sell; hire; assist in setting corporate strategy; and review legal contracts. As well, I still had to develop technology and deal with all the uncertainties and failures that come with a startup.

My MBA classes seemed to fit our business needs like the pieces of a jigsaw puzzle. Even obscure topics like corporate finance came in handy, in IPO discussions with investment bankers and later, in raising capital for my own company.

So I have no doubt that my MBA was the best investment I’ve ever made, and my education helped me achieve success.  Which leads me to the reason for this post: a Twitter debate with Guy Kawasaki, Managing Director at Garage Technology Ventures. Kawasaki argues that MBAs are not needed in the startup world; in fact these provide negative value. He insisted that I was “in denial” when I challenged a piece he had written in Forbes several years ago:

What is the value of an MBA these days for young college graduates who want to start their own company?
Probably about a negative $250,000. (I have an MBA, and I was once a young college graduate.) I don’t think an MBA matters very much for starting a company. A much better educational background is an engineering degree. You can always hire MBAs, but if you don’t have the ability to conceptualize and deliver a product, you’ve got nothing.

In email exchanges, Kawasaki explained that his issue with MBAs is that they are “taught that the hard part is the analysis and coming up with the insightful solution”. In other words: implementation is easy and analysis is hard. “But this is the opposite of what happens in startups. Implementation is everything in a startup.” Kawasaki believes that MBAs aren’t a good fit for startups, and engineering graduates are.

I agree that engineering degrees are important. They provide a level of technical depth and analytical capability that is invaluable in the tech-startup world. But not everyone needs to be an engineer. You need smart people coming up with creative marketing campaigns; managing finances; and selling your products. And the CEOs and CTOs need to master all domains.

In my experience, the most successful entrepreneurs have been those with a strong technical background who have been through some sort of “finishing school”. (I am not talking about college dropouts such as Bill Gates and Steve Jobs—I consider them to be outliers). Engineering degrees can be very technical and can actually narrow one’s horizons. To innovate, you need to understand customers and markets. To build a successful product—one that actually sells and makes an impact, you need to understand distribution and finance. So even in the lower echelons of technology, a broader educational background is a plus.

Is the MBA the best degree for engineers? Maybe not. Programs such as the one I teach at Duke may be a better fit. The Duke Masters of Engineering Management program is a one-year program that teaches students marketing, finance, intellectual property and business law, and management. It’s like a mini-MBA. Engineers don’t need to learn how to price an option with the Black–Scholes Model, for example. They certainly don’t need to learn how to create new types of financial products. There are also many other degrees that can provide the needed balance to engineers. These don’t have to be tech or management oriented; even an education in diverse fields such as psychology can be a plus: anything that broadens your horizons and teaches you how to come up with “insightful solutions”. The point is that education is the best investment that one can make. Unlike stocks and bonds, education never loses value; and when you add experience, it gains even more value.

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  • Administrator

    Srikumar, my previous research showed that elite education doesn’t provide much of an advantage. It’s the networks that provide the real value. I agree with Steve that this is where the value is.

    Steve, once I learn a little more about HTML and CSS, we can negotiate on the web maintenance gig! 🙂

  • Hi Vivek,

    This site looks good – let me know if you want to contract and help us fix our blog 🙂

    re: MBAs – imho their is huge value in the network that you build by going to a top 10 school – like any top tier school they are good at filtering for talent, ambition and drive. I have heard people say that MBAs don’t start companies though – I haven’t run into that many MBA founders.

  • Hello Vivek!

    Glad that you set this up as a separate site where you can moderate responses!

    When I am advising start-ups I generally advise against hiring MBAs and especially against MBAs from top schools. They are certainly bright and driven but they have unrealistic expectations more suitable for large companies with discretionary monies than start-ups scrambling for resources. This is a generalization and there are obvious exceptions, but the rule generally holds.

    Top business schools somehow create a culture of entitlement with a short-term focus on status perquisites and little of “lets share the pain in order to grow this company together.” They also tend to breed arrogance and the feeling that a short spurt of heavy work makes a person an “expert”.

  • John E. Vande Woude

    Vivek, It is definitely an interesting topic to analyze and discuss. Prior studies on this topic have tended to focus on the salaries commanded by those who receive an MBA suggesting, on average, that there is about a 20% pay differential between those with an MBA vs. individuals without an MBA. However, these studies are flawed in that the results are primarily indicative of American corporations affinity for MBA graduates; especially those individuals who attend top 10 B-Schools. Having said that, this information in and of itself suggests that an MBA education does yield a better return than an undergraduate degree. However, that return is somewhat offset by the cost of an MBA education and the lost opportunity cost (for some individuals) in terms of the career/salary advancement they may have sacrificed while attending business school full-time. Obviously, lost opportunity cost is not as big a factor for individuals like yourself who worked and went to B-School at night (although one could argue that the demands of B-School do negatively impact working students ability to advance in the workplace given the focus that is required to earn an MBA degree).

    An interesting dimension to look at would be to evaluate how MBAs impact a company’s bottom line? More specifically, because firms pay a higher premium for MBA graduates (especially MBAs from the top schools) when you sum it up are MBAs [collectively] providing an acceptable ROI.

    Lastly, another interesting question to ask is at what point does an MBA providing a diminishing return (if any)? This is a question I asked myself over the years as I contemplated going back to school. As I reached a certain age I speculated, like many others, that my work experience, accomplishments and reputation were an acceptable offset and that the lack of an MBA was not an impediment to success. Nonetheless, on occasional job interviews in my late 20s and early 30s the lack of an MBA did represent a glass ceiling of sorts and I have met individuals whose eyes immediately divert to the education section on my resume noticing that I only obtained an undergraduate degree. I guess this is what many would call the “network effect” or the presumed benefits one gets simply by earning an MBA.

    One thing is clear: if the purpose of obtaining an MBA is pure (based on a desire to learn new skills required to be a well-rounded and successful entrepreneur or C-Level executive) that purpose on its own probably translates into individual success and a “win” for the organization. Conversely, if the pursuit of an MBA is solely to “tick the box” on a degree that you believe automatically entitles you to better opportunities, higher pay and other entitlements you may get some initial benefits but chances are someone will ultimately find out that your MBA diploma “is just a piece of paper”.

    Hope all is well with you too.

    Regards,
    John

  • Administrator

    John, I actually have a lot of data that we didn’t mine on the revenue and headcount of companies founded by the founders that we surveyed. It will be interesting to run an analysis and see if anything stands out. I also have another study which showed that MBAs become entrepreneurs earlier than other degree holders. I may write about this topic again and present new data.

    Thanks and hope you’re doing well…

    Vivek

  • John E. Vande Woude

    Conventional wisdom suggests that getting an MBA will deliver outstanding returns in terms of being able to cherry pick the best career opportunities, garner a higher starting salary than peers with ordinary undergraduate degrees and facilitate rapid advancement within an organization. While this may be true in some instances (or perceived to be true by those without an MBA), studies suggest that the real value of an MBA can be narrowly defined as helping an individual land a good job after graduation. Following, the benefits are almost non-existent. That is, no automatic “free-pass” is extended to MBA graduates and your career/success is decided based on raw talent, accomplishments, interpersonal skills, etc. With that in mind, Vivek seems to have hit the nail on the head asserting/proving that the real value of an MBA is how you apply what you learn and how the knowledge you acquire correlates to the requirements of your job and future career goals.