Battling it Out During Tough Times: MBAs vs. Entrepreneurs

entrepreneurs-versus-mbas I am beginning to wonder if mainstream education and conventional wisdom is treating entrepreneurship all wrong.  Last week, I had a conversation with my boss-in-start-up, who introduced the term the “iterative process” into my business vocabulary.  Today, I came across this eye-opener.

The article, and the paper discussed, questions if there is any fundamental difference between the way MBAs and your average boot-strapping entrepreneur bring product ideas to market.  And the answer is a resounding yes.

1. Change the question.

During the research, it was found from the get-go, the two groups appear to attack two potentially different sets of problems.  Entrepreneurs prefer to be in an unpredictable market, since the market can “be shaped through their decisions” as well as their select group of stakeholders and customer-partners.  Reasoning that someone smarter and with deeper pockets can always come in and do it better than they do, many entrepreneurs stay off the beaten track and experiment with new markets themselves.

The researcher attribute this behaviour to to the logic: To the extent that we can control the future, we do not need to predict it. Whereas most MBAs are taught to act based on the assumption and logic that: To the extent that we can predict the future, we can control it.

2. Conqueror vs. explorers.

Alas, the paper is full of analogies like these.  Actions of MBAs are compared to Genghis Khan, whom given a pre-determined goals and set of means, seek to identify the optimal route and result.  An entrepreneur, on the other hand, is compared to Columbus, whom does not begin with a specific goal, but a given set of means.  They allow “goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with.”

3. Dealing with setbacks.

During business school, we used to write a lot of business, or marketing, or strategic plans, from every stage of the product life cycle to those dreaded case studies.  Usually towards the end of such plans, we stick in a section that deals with contingencies – what happens if one of the key variables or assumptions don’t work out? According to car accident law firm | Gruber Law Offices, LLC, when fear kicks in then people cannot make the best decisions in the current situation and that leads to car accidents and injuries. In reality, of course, the whole piece on hand was based on nothing but assumptions.  But we still had to scratch our heads and attempt to answer to our self-selected obstacles.

It turned out that most successful entrepreneurs don’t work that way.  Although in fairness, I’m not sure product development within a corporate environment can be compared to one that takes place in the anarchic environment that entrepreneurs inhabit.

Based on the research, most of those self-starters initiate the process with little elaborate planning, and instead, executes plans that are constantly revised and recast through “action ad interaction with others on a daily basis.”  The end goal also changes at the beginning stage, because surprises that come along sway it so.  And instead of treating at those contingencies as unwanted elements in an otherwise deterministic path, the most successful entrepreneurs actually see it as the norm, “the flora and fauna of the landscape, from which one learns to forge a path through the jungle.”

I’m reminded of the article here that discussed the role side projects (many results of accidental discoveries) played in the entrepreneurial success of America.  We can probably add Twitter to that list in 2009.

4. The role people play.

Entrepreneurs are also highly dependent on a good team of people.  The network of enduring relationships outlive failures and create successes over time.  Essentially, MBAs will work with the idea that “a particular effect has already been chosen such as a target segment within an existing market, the people we hire an partner with will depend on the effect we want to create or the market we want to penetrate.”

On the other hand, the converse idea will dictate the actions of a self-starter. Markets do not pre-exist, they are only built with the people that are brought together to create it.  Thus, the ultimate creation is not a static entity, but one that is dynamic and ever-changing.

So given the current economic environment, the consensus it that entrepreneurs may fare better. Your thoughts?

picture source: Deinha1974

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  • http://onemint.com Manshu

    What about MBA Entrepreneurs? How would they behave and what would they end up doing?

  • http://onemint.com Manshu

    What about MBA Entrepreneurs? How would they behave and what would they end up doing?

  • Skydaemon

    As you allude to, I’m not sure that I see any comparison between an MBA and an entrepreneur. They are equipped for different things and their tasks are really not comparable.

    MBAs approach business as tacticians in established enterprises with an eye to fighting a larger scale war. They have to not only grow, but also defend existing markets.

    Entrepreneurs just wish to exist, and that means latching onto anything in front of them. More like bar brawlers than tacticians. They have little to defend, or defending it would be pointless. There is little to no strategy at all, just opportunistically grabbing at anything that offers money in the short term and hoping it works out. All of this is fine, but it amounts to throwing a bunch of darts and hoping one works out. Entrepreneurs aren’t known for having high success rates, and in a big organization flailing around is a distinctly bad idea.

    If you took an average small entrepreneur and put them in charge of marketing and product strategy for a big multinational firm, you’d very quickly end up in a lot of trouble. Big companies cannot change direction like a 10 person shop can, the cost of strategy and market failures scales with the resources deployed. Scrapping a failed product can be very expensive. You can seriously damage a big company if you proceed in a haphazard or shortsighted way. Short term thinking doesn’t get you very far when you have serious direct competitors and high costs of failure. What happens to Apple if it spends it’s R&D budget creating a next generation of Mac which only ends up being appealing to 50 people? Or what if Microsoft offers a new product that renders Microsoft Office obsolete and busts an existing business? Or howabout if Google doesn’t pay attention, and doesn’t respond to an advance from Microsoft (say buying yahoo) in an attempt to wrestle away the search market?

    I guess I would say, the relevance of MBAs is tied to the dominance of big organizations. To the extent that the world becomes more oriented towards startups instead of mega-corporations, MBAs decline in importance. That said, MBAs are also suited for even small businesses that have achieved stability and have resources for growth.

  • Skydaemon

    As you allude to, I’m not sure that I see any comparison between an MBA and an entrepreneur. They are equipped for different things and their tasks are really not comparable.

    MBAs approach business as tacticians in established enterprises with an eye to fighting a larger scale war. They have to not only grow, but also defend existing markets.

    Entrepreneurs just wish to exist, and that means latching onto anything in front of them. More like bar brawlers than tacticians. They have little to defend, or defending it would be pointless. There is little to no strategy at all, just opportunistically grabbing at anything that offers money in the short term and hoping it works out. All of this is fine, but it amounts to throwing a bunch of darts and hoping one works out. Entrepreneurs aren’t known for having high success rates, and in a big organization flailing around is a distinctly bad idea.

    If you took an average small entrepreneur and put them in charge of marketing and product strategy for a big multinational firm, you’d very quickly end up in a lot of trouble. Big companies cannot change direction like a 10 person shop can, the cost of strategy and market failures scales with the resources deployed. Scrapping a failed product can be very expensive. You can seriously damage a big company if you proceed in a haphazard or shortsighted way. Short term thinking doesn’t get you very far when you have serious direct competitors and high costs of failure. What happens to Apple if it spends it’s R&D budget creating a next generation of Mac which only ends up being appealing to 50 people? Or what if Microsoft offers a new product that renders Microsoft Office obsolete and busts an existing business? Or howabout if Google doesn’t pay attention, and doesn’t respond to an advance from Microsoft (say buying yahoo) in an attempt to wrestle away the search market?

    I guess I would say, the relevance of MBAs is tied to the dominance of big organizations. To the extent that the world becomes more oriented towards startups instead of mega-corporations, MBAs decline in importance. That said, MBAs are also suited for even small businesses that have achieved stability and have resources for growth.

  • http://investoralist.com Dana

    Manshu,

    Probably quite linear way of thinking and (according to this study), most likely will come up with ideas in an already existing market. It’s of course, very broad and generalized, but I do think there is some truth to it. When you are trained to think a certain way, it is hard to go with the flow and see mishaps as opportunities.

  • http://investoralist.com Dana

    Manshu,

    Probably quite linear way of thinking and (according to this study), most likely will come up with ideas in an already existing market. It’s of course, very broad and generalized, but I do think there is some truth to it. When you are trained to think a certain way, it is hard to go with the flow and see mishaps as opportunities.

  • http://investoralist.com Dana

    Skydaemon,

    I think the point of the study was to find out if there is any consistency to entrepreneurial success. There are consistently successful entrepreneurs, just as there are consistently successful managers. The point is to see which one comes up with what kind of products, and how they deal with setbacks and value relationships in the process.

    They are indeed bred for different things. Perhaps that’s why large companies that cannot grow internally acquire outside start-ups so often. I like your point that as the world becomes more oriented towards startups, MBAs decline in importance. And you are right, startup founders are rarely good executors of operations once it reaches a certain size.

  • http://investoralist.com Dana

    Skydaemon,

    I think the point of the study was to find out if there is any consistency to entrepreneurial success. There are consistently successful entrepreneurs, just as there are consistently successful managers. The point is to see which one comes up with what kind of products, and how they deal with setbacks and value relationships in the process.

    They are indeed bred for different things. Perhaps that’s why large companies that cannot grow internally acquire outside start-ups so often. I like your point that as the world becomes more oriented towards startups, MBAs decline in importance. And you are right, startup founders are rarely good executors of operations once it reaches a certain size.

  • Skydaemon

    “Perhaps that’s why large companies that cannot grow internally acquire outside start-ups so often.”

    This is a really interesting topic all on its own. Probably worthy of an entire branch of academic research. It points to a huge number of internal organizational problems and failures of organizational ability and structure, which could really use solving.

    There are several categories of reasons this happens.

    1) Resource commitment. The company doesn’t maintain a research and development group for future needs. Or at least it isn’t sufficient to achieve what they want. They look outside to buy what they couldn’t justify funding internally. They probably have no vision or strategy thought out. Effectively, they aren’t thinking like MBAs at all, or show no evidence of the skillset at any rate. It’s also possible the managers are new or unfamiliar with existing skillsets within the organization, and unwilling to trust expenditures on a mere possibility of success.

    2) Political bickering. Companies can get paralyzed with politics. Boss A cannot allow innovation to happen within the company because the people that drive it would upset the political apple cart. Boss A also does not trust the opinion of any of his reports as being unbiased or trustworthy. Boss A sees outside consultants, or purchasing outside products as a way of moving forward while escaping political consequences of allowing an internal group to drive the project. There are other variations on policial problems, but this is fairly common.

    3) The company is not set up to innovate. Large scale process oriented businesses are naturally bad at innovation. This isn’t just because process is stifling, but extends all the way to the type of employees suitable to the organization. Innovative/startup type employees often do not fit in well, or are inherently unsuitable for working in process companies.

    4) Some companies naturally do not wish to innovate. They see themselves as shells or pipelines with scale who can bring things to market, they don’t actually want to own the innovation task and prefer it outside for some perceived strategic reason.

    Then there are the category of acquisitions designed to make the CEO look good, or paper over some flaw in the original business, regardless of the long run feasiblity of it. This can happen purely to point to an achievement rather than on any kind of merit. It can also happen to prop up a failing business a while longer (ie, raiding a new corporation as a source of cash flow or something needed to prop up the whole organization in the short run). Sometimes it’s a strategic hole, such as having missed the boat on a major trend (like the internet), and trying to correct strategic failures by patching it with a whole company that may or may not integrate well. Or perhaps they simply need the revenue or profit margin numbers to go up to appease shareholders, and they just wish to buy it rather than make it. Most of these end in expensive failures, but that doesn’t stop them from trying to make themselves look good.

    Cheers 😉

  • Skydaemon

    “Perhaps that’s why large companies that cannot grow internally acquire outside start-ups so often.”

    This is a really interesting topic all on its own. Probably worthy of an entire branch of academic research. It points to a huge number of internal organizational problems and failures of organizational ability and structure, which could really use solving.

    There are several categories of reasons this happens.

    1) Resource commitment. The company doesn’t maintain a research and development group for future needs. Or at least it isn’t sufficient to achieve what they want. They look outside to buy what they couldn’t justify funding internally. They probably have no vision or strategy thought out. Effectively, they aren’t thinking like MBAs at all, or show no evidence of the skillset at any rate. It’s also possible the managers are new or unfamiliar with existing skillsets within the organization, and unwilling to trust expenditures on a mere possibility of success.

    2) Political bickering. Companies can get paralyzed with politics. Boss A cannot allow innovation to happen within the company because the people that drive it would upset the political apple cart. Boss A also does not trust the opinion of any of his reports as being unbiased or trustworthy. Boss A sees outside consultants, or purchasing outside products as a way of moving forward while escaping political consequences of allowing an internal group to drive the project. There are other variations on policial problems, but this is fairly common.

    3) The company is not set up to innovate. Large scale process oriented businesses are naturally bad at innovation. This isn’t just because process is stifling, but extends all the way to the type of employees suitable to the organization. Innovative/startup type employees often do not fit in well, or are inherently unsuitable for working in process companies.

    4) Some companies naturally do not wish to innovate. They see themselves as shells or pipelines with scale who can bring things to market, they don’t actually want to own the innovation task and prefer it outside for some perceived strategic reason.

    Then there are the category of acquisitions designed to make the CEO look good, or paper over some flaw in the original business, regardless of the long run feasiblity of it. This can happen purely to point to an achievement rather than on any kind of merit. It can also happen to prop up a failing business a while longer (ie, raiding a new corporation as a source of cash flow or something needed to prop up the whole organization in the short run). Sometimes it’s a strategic hole, such as having missed the boat on a major trend (like the internet), and trying to correct strategic failures by patching it with a whole company that may or may not integrate well. Or perhaps they simply need the revenue or profit margin numbers to go up to appease shareholders, and they just wish to buy it rather than make it. Most of these end in expensive failures, but that doesn’t stop them from trying to make themselves look good.

    Cheers 😉

  • Skydaemon

    I guess regarding the article you reference itself, I’m not sure I see any difference in most of the points.

    1) This is just a manner of how to deal with the entrepreneurs lack of resources more than any particular skillset. They are limited to the skills and means of what they currently have, as they do not have the wherewithal to acquire other skillsets or resources. What the researcher describes as “effectual reasoning” I would simply call being driven by limited resources and talent pool. An MBA with no budget would be restricted to the same thought process. MBA programs don’t really teach starting from poverty, as few sophisticated strategies work all that well from that starting point. And really, if you didn’t spend the money on an MBA, you would be less poor to begin with.

    2) I see this as a function of specialization. Entrepreneurs are often involved in the means of production or operation of the business or whatever is most similar or at a minimum very well aware of the details. It’s part of wearing multiple hats. MBAs generally aren’t. The difference described is what you would get at a big company if you let the people that make the product talk to the customers about what they would like them to build. There’s really no reason a big company can’t do that, it just doesn’t necessarily come from an MBA. It’s part of specialization in big companies. The MBA would then help tweak the result into something good for the organization and possible to roll out to larger markets.

    3) This is very much an apples and oranges comparison. What the entrepreneur calls a business the MBA calls a pilot project, or market research. The manner of alterations an entrepreneur goes through is similar to what an MBA might do with focus groups. The entrepreneur isn’t worried about releasing unfinished products as they have no brand to protect and likely have lower professionalism standards from customers. And there is no real reason for MBAs to be using stacks of unwarranted assumptions if they are able to engage in market research or are already involved in similar or related markets. If they are already involved with the customer base they should have a very good idea of how a new product will be received. Or at a minimum it shouldn’t take much to find out research wise.

    4) I’m not really sure I see any meaningful difference in point 4 either. If anything, the entrepreneur must assume the market pre-exists as they do not have the marketing resources to change perception or fabricate a need, and don’t have the market dominance to push customers to come to them. The changing nature of their approach is based mainly on catering to whatever customers will talk to them, and not an eye to maximizing profitability. This is fine for a pilot or small scale approach, but doesn’t scale all that well. Large companies are rarely able to be profitable customizing their products for every customer that walks in the door.

    I’m done for the night, but I’ll leave you with an excellent quote I once heard. I cannot remember where I got it, but it was great all the same. To paraphrase. “Big companies don’t win by building great products, they win by sucking less than other big companies.”

  • Skydaemon

    I guess regarding the article you reference itself, I’m not sure I see any difference in most of the points.

    1) This is just a manner of how to deal with the entrepreneurs lack of resources more than any particular skillset. They are limited to the skills and means of what they currently have, as they do not have the wherewithal to acquire other skillsets or resources. What the researcher describes as “effectual reasoning” I would simply call being driven by limited resources and talent pool. An MBA with no budget would be restricted to the same thought process. MBA programs don’t really teach starting from poverty, as few sophisticated strategies work all that well from that starting point. And really, if you didn’t spend the money on an MBA, you would be less poor to begin with.

    2) I see this as a function of specialization. Entrepreneurs are often involved in the means of production or operation of the business or whatever is most similar or at a minimum very well aware of the details. It’s part of wearing multiple hats. MBAs generally aren’t. The difference described is what you would get at a big company if you let the people that make the product talk to the customers about what they would like them to build. There’s really no reason a big company can’t do that, it just doesn’t necessarily come from an MBA. It’s part of specialization in big companies. The MBA would then help tweak the result into something good for the organization and possible to roll out to larger markets.

    3) This is very much an apples and oranges comparison. What the entrepreneur calls a business the MBA calls a pilot project, or market research. The manner of alterations an entrepreneur goes through is similar to what an MBA might do with focus groups. The entrepreneur isn’t worried about releasing unfinished products as they have no brand to protect and likely have lower professionalism standards from customers. And there is no real reason for MBAs to be using stacks of unwarranted assumptions if they are able to engage in market research or are already involved in similar or related markets. If they are already involved with the customer base they should have a very good idea of how a new product will be received. Or at a minimum it shouldn’t take much to find out research wise.

    4) I’m not really sure I see any meaningful difference in point 4 either. If anything, the entrepreneur must assume the market pre-exists as they do not have the marketing resources to change perception or fabricate a need, and don’t have the market dominance to push customers to come to them. The changing nature of their approach is based mainly on catering to whatever customers will talk to them, and not an eye to maximizing profitability. This is fine for a pilot or small scale approach, but doesn’t scale all that well. Large companies are rarely able to be profitable customizing their products for every customer that walks in the door.

    I’m done for the night, but I’ll leave you with an excellent quote I once heard. I cannot remember where I got it, but it was great all the same. To paraphrase. “Big companies don’t win by building great products, they win by sucking less than other big companies.”

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