How Should Business Schools Prepare Students for Startups? – Jeff Bussgang and Michael Seibel

Hey, this is Craig Cannon, and you're listening to Y Combinators Podcast. Today's episode is a conversation about business schools and startups with Jeff Busgang, a lecturer at HBS and GP at flybridge Capital Partners. Jeff called in to talk with YC CEO Michael Seibel after Michael was tweeting about trends he saw in YC applications from MBAs. And since we recorded this interview, HBS has actually announced a joint degree that combines their MBA with an Ms.

Degree.

I'll link that up in the show notes where you can also read the transcript. Okay, here we go. Okay. So on April 10th of this year, Michael tweeted reading YC applications and observing that business schools are doing a criminally poor job of prepping students to start tech companies.

Yes.

And Jeff then replied. What did you say, Jeff?

Well, I said as a professor at hbs, I was particularly intrigued by that tweet because a lot of my students are applying to yc. And I know we take a lot of pride at Harvard of trying to prepare our students to be great founders and to be effective in the startup land.

Cool. So I wanted to break apart a little bit, like, why you actually thought that. And if the opinions of Silicon Valley and the MBA world actually match each other in terms of when you look at the data.

So I think the thing that kind of triggered the frustration is that most people don't realize that as YC partners, we have to read approximately 500 of the 6 to 7,000 applications that come in every batch. This usually involves two weeks of extremely intensive application reading. The piece that triggered it was after some countless number of applications from MBA students that we're clearly missing kind of basic core tenets of what YC would consider a qualification for doing a startup. And I think what clicked in my head wasn't so much the idea that whether business schools are good or bad at teaching entrepreneurship in terms of in a classroom setting, but just more that business schools tend to be expensive. And these are extremely simple rules that either these students didn't know or didn't realize were important. And that was extremely frustrating because it's one thing to teach someone accounting or case studies about previous companies, so on and so forth, but there are probably three to five kind of core YC tenants that if you don't know or you don't do, you don't get into yc. And so I think that's what really triggered the outreach. And it was great because, to be honest, a number of business schools reached out and kind of. It started A dialogue. And I started realizing a little bit more kind of what I'm facing here.

In what way? What are the things you're facing?

I think that it's extremely one. I think, unfortunately, YC has created this model for entrepreneurship that people are trying to replicate, and it's extremely hard to replicate. Everybody wants to have an incubator, but man, it's a hard model. And I think too, very specifically, it's extremely hard for the people who are leading entrepreneurship efforts in a school. It's hard for schools to recruit entrepreneurs to do this work. And so it's really hard to learn how to do a startup from someone who's never done a startup before. And that tends to be the case for a lot of people running these programs.

Can I throw in something here, please? Yeah. So first, I love Michael's tweet and I love our back and forth because I think it does put the spotlight on this question of how do you prepare students to get out into the field and be great entrepreneurs? And that's something that we think about a lot. And what YC's framework represents is pretty general for all of startup land. I don't think there's anything, I mean, there's a lot that's unique about yc, but I think the tenants that we'll get into in a minute are tenants that we're trying to teach in general to all budding aspiring entrepreneurs. So I think putting the spotlight on encouraging students of all kinds to take a step back and get out of the ivory tower and get into the field and be more practical and be more attuned to what's happening in startup land, I think is spectacular.

I agree with you. And what do you think historically, people have been doing wrong that has led to this preconceived notion that MBA students are not ones to create startups?

Well, first, I don't know if that's true. If you look at the data, there have been a lot of great companies founded by MBAs. There's a group called Poets and Quants that does this analysis every year of the unicorns and large high value startups that MBA has created. I did a couple of analyses on this a few years ago, and there's just a ton of examples. Whether it's a Cloudflare or Rent the Runway or an Earnest, all three of whom were founded recently by Harvard Business School alums. There's just a lot of great MBA startups. But I think this general set of points that Michael is highlighting are lessons for all entrepreneurs for Example, one of the things we've gone back and forth on is this question of research versus MVPs. I think it's just that MBAs, because of their nature, may be more likely to fall into the spinning too much research time mistake as compared to a tech founder who's going to be more likely to jump right in and build something. So I think it's not that these lessons are not applicable to all entrepreneurs, they're applicable to all entrepreneurs. That MBAs are more susceptible to these mistakes.

I believe, and I think I totally agree with that. And I think that in many ways the challenge here is that oftentimes an MBA is either passively or actively putting themselves forward as someone who's received an education around business issues. And I think that, like, when I think about that group of people, they should be doing disproportionately well when pursuing startups. And so to me, this is not a situation where I say, oh, an MBA applicant is worse than the average YC applicant. Of course not. And we accept tons of MBA applicants. We accepted a number of HBS applicants. I think the question that comes to my mind is why aren't they doing disproportionately better? They should be doing disproportionately better. On average, they should be some of the best applicants we see because the vast majority of our applicants have no formal training, mentoring or experience in the classroom dealing with any issues around startups. And so I think that gap is what I'm trying to figure out how we erase.

And so what do you guys suspect are like the main issues right now? That if addressed, MBA students would be more successful disproportionately?

It's interesting because I'd love Jeff to talk through like the causes. This is what I see as kind of the red flags. So the first one is a lack of a technical co founder and the general willingness to outsource the tech part of a tech business. The second one is commitment. It's can you get your entire team committed to working on this startup first and foremost, as opposed to, we will do this startup if we receive funding, if we get into yc, if a variety of other criteria are met. And then I think the last one is what I like to call traction, which is just basically this idea of how long you've been working on this and what have you done. And that speaks to Jeff's point around MVP versus research. I think research is extremely important, but I think that being able to do research with a live product is far more valuable than Being able to do research with a general survey. And so I think those three things like time and time and time again, and don't be wrong, those are the central problems that most YC applicants have. But once again, I would imagine that within this population, these should not be the things taking these folks down.

Yeah. So I think the root causes of the problems that Michael is identifying, which are excellent issues. One of the root causes is that a lot of MBA programs are created in silos. And there may be technical talent in other parts of the university, but that technical talent is inaccessible to the MBA student. They don't mingle every day with engineers in the way that they're mingling every day with salespeople and marketing people. So that's, I think, a real issue that a lot of MBA programs need to work on. Secondly, there's not enough technical proficiency within the class. You know, this year for the first time, HBS started a club called HBS Coders. There's been sales clubs, there's been marketing clubs, there's been fashion clubs for years and years and years, but there's never been a coders club until this year. So that's a great sign. But do other MBA programs have coder clubs? And you know what? Percent of the students coming into these classes have technical proficiency and can mingle with the bankers and the hedge fund people and the consultants to mix it up a little bit and help them with some of their technical skills and prototyping skills. And then the final thing I'll say is there just aren't enough practitioners walking the halls. Michael and I were having this conversation just before we started taping, you know, this game in Startup Land. It's moving so fast. If you're out of the game for five years, you're old, you're out of touch, and you know, the models that might have worked 10 years ago, 15 years ago, 20 years ago, when some of these professors themselves might have been startup entrepreneurs like me, or worse, academics who never had an operating job in startup land and have a great theory about this or that, and then they're teaching a class with no actual experience building product and building companies. That's really dangerous. So at Harvard, we've tried to create a lot of fluidity with current entrepreneurs coming in and out as entrepreneurs in residence and guest lecturers and advisors. But it's really hard to do that well in a lot of these environments where maybe they don't have access to as many great founders floating around, because great founders are only sitting in three or four or five cities around the world in high volume.

Over the past week I've been trying to think through what I would do if I were a business school dean and a business school dean with no shackles on. And time and time again I come to this thought that I probably can't change my teachers fast enough and I probably can't unsilo my organization fast enough or effectively enough. And so the one thing that I can do is I can control who I accept. And so one thing I wonder is, do you think we're going to see a day relatively soon where a school like HBS is going to accept, you know, 1/3 of its students will have engineering backgrounds or will be, you know, people who actively write code? Because I mean, the one thing I think about is that like that in and of itself would create an environment where you wouldn't have to change anything else. You just put the right people in that room, they organically become friends with each other, but they can find technical co founders right within their class. Is that in the cards do you think?

I think it's a great question. I'll give you one data point in my class of 100 students this year and this is an entrepreneurship class for second year MBAs. The most ardent entrepreneur bound students take only 4 or 5 can write code out of 100. So now 15 or 20 are taking code Academy courses or you know, Flatiron school courses or Coursera courses. Trying to get facile in software development and at least familiar, but it's a pretty small number. I think it's more likely, yeah, they'll probably increase that a little bit, but I think it's more likely that they're going to add more analytical skills and coding skills as part of the curriculum.

Really like basically, let's see if we can teach business school kids how to code.

More about, let's teach business school kids the product prototyping skills and technical architectural skills to be good business managers of technical companies? I don't think we're going to teach coders, but I think we can do a better job teaching managers of technical companies.

So assuming that we can't change the composition of the school, I guess the second thought that I had around this was is there any way that a set of courses offered at business schools could be radically changed in order to almost mandate a 50, 50 engineer non engineer population? So in other words, if we can't make it so that 50% of the folks who are at HBS know how to code, can we create a class where we grab people who do know how to code from elsewhere in Harvard and that's like a required ratio. Because I do think that, man, it's really hard to meet people outside of class where you live and like the normal school activities.

I think it's a great suggestion and there's definitely a lot of that percolating at Harvard and at mit. By the way, MIT does I think a better job of integrating technical people into the MBA program. What's happening at Harvard is the School of Engineering and Applied Sciences is physically moving across the river, across the Charles river to be co located with the business school. And that's a multi year project that's been funded by folks like Steve Ballmer and John Paulson and others. A lot more social engagement as that opens up in 2019 and 2020. In fact, I'm already seeing classes that hit being considered by the business school that hit exactly what you're saying. I think taking classes at the MIT Media Lab, I love it because it shows that they're mingling with the engineers and with the visionaries and with the futurists. And I think we all know great startups and great ideas come from cross pollination. And that's why the silo thing is so heartbreaking to me because we have so many really smart kids getting siloed in these narrow lanes. And I don't know what you see geographically with the YC group, but I think if you're not in cities where you're seeing a lot of cross pollination, it's a real disadvantage for those entrepreneurs.

That kind of relates to what I was wondering, which is like we're talking about all this top down organizational structure of business school program. And I was wondering, Jeff, if you had run into people who just on their own had been incredibly successful at making those technical connections and doing some of that cross pollinating. Because what we're talking about is it's hbs, right? It's the cream of the crop. And so what if you're at an MBA program that's not that and you're in the middle of a place that might not be focused on tech. What have you seen people do that has been successful that that someone who's getting their MBA, who just got their MBA can replicate?

Yeah, look, I think it's hard if it's on a platter for you at Stanford and at MIT and Harvard and it's not on a platter for you in other environments where you can't just walk out the door and take a lift or a Subway and find a fantastic bunch of technical people running around in a coffee shop. So what do people do in Indianapolis? What do people do in St. Louis? What are people doing, you know, elsewhere in the country in Ohio and Michigan? I think it's hard. But look, there are engineering programs, computer science programs in all of these places. And there's also a ton of online tools. I mean, we have an entrepreneur in Boston that's an AI in Kentucky, and he just hustled his way to build a network of angel investors and software developers and AI specialists and has become really plugged in to the AI community from Kentucky to Boston subsequently. But he got his company off the ground and funded out of Kentucky because of his hustle. So it does take a little extra hustle and a little extra connectivity.

What about breaking these other molds? So, you know, research versus mvp. What are the things that someone can do to get out of the research mindset?

I mean, I have to be honest. The number one reason why people stay in research is they can't build their mvp. This is one of the things I often say to founders, is that this is a hard problem, but it's not a complex problem. These aren't complex issues. These are not counterintuitive issues. But if you have a bunch of people who are trying to build a technology business and they don't have access to people who write code, the path's going to be harder. I think the one thing that always gets me is every entrepreneur has this sense of hustle. And when I see founders overextending the hustle to compensate for these core issues, that's what often kind of frustrates me, is that, like, okay, we don't have a technical co founder, but, man, I found some dude in India who's going to build this thing for me. Like, don't I deserve a pat on the back? Like, I got through that no technical co founder challenge. And it's as if no one's telling them that some things are foundational, like, some things you can't hustle around, or if you hustle around them, you're decreasing your chances of success significantly. And I don't know how to communicate that to people. It's really strange because, I mean, like, we talk about this stuff all the time at Y Commander, but people still apply without this information. And, you know, over the past two weeks, I've talked to a number of kind of directors of entrepreneur centers. And the constant thing that I'm surprised by is that they know these things that I'm talking about, but they still accept teams that don't abide by these rules. So they're kind of rewarding something that they know is gonna necessarily make these teams lives harder. I don't really understand why, like that's like no VC would do that. But like, you know, the head of an entrepreneurship program at a university, like for some reason that's completely acceptable.

One of the insights that I feel.

Like people miss, Look, I'm a venture capitalist by day, so I totally get this tension. But one of the things that we should be careful to distinguish is the purpose of the university. It's not to create billion dollar startups, it's to have a pedagogical experience for their students. And so it may be that there's a little bit of a mismatch of goals here. Sometimes you have to look at incentives and goals because VCs of course are going to push entrepreneurs really hard. And there's this dynamic of you don't get funding unless you're taking the right approach. But in a university environment, the attitude is, hey, you're here to learn. So we'll be a little softer, we'll let you run the hoops, we'll let you run the experiments and make your mistakes and you're still going to have your nice dorm room and your nice classroom and your manicured lawn the next day. You're not going to go out of work and lose your job and lose your funding. So there is a little bit of a coddling maybe is the thing to say, that MBA programs do put forward, but they're doing it for the reason of just providing, because they're providing an academic and pedagogical focused goal.

I think though, that's my challenge though, because there are some areas of a university that it's clear they're trying to expose all of the students in a very open and honest way. But there are many other areas of universities that are completely locked behind prerequisites and recommendations and that are extremely exclusive. I mean, for example, there was a whole major at Yale where I went to school, that you had to apply to even be able to major in that subject. Yeah. After getting into Yale, you had to apply to be able to do this major. And so it's interesting to me that there's this mental framework that entrepreneurship is at the kind of 101 level and only there when, if you look at the odds, I mean, we're talking about the same odds of becoming an NBA basketball player. And there's no high school team that accepts Everyone who walks in, let alone college, right? So once again, it's like if I want to go to a 400 level physics class and I walk in the front door and I don't know how to do calculus, I'm not staying in that class for very long. And that's undergrad. So I'm not really asking where's the place for the 101. I think that that should exist. What I'm asking is what's the 400 level class? Because the one thing that we've noticed here at YC is that the best people only want to be around the best people. And if you put a class together and you're trying to attract the best, but you also are in the 101. Man, that's hard. That's really, really hard. So sometimes I feel like the educational institutions are not using all the tools they could. And I think this is a general theme. There's this general theme, oh, anyone can build a billion dollar company. And it's like, sure, anyone can, but like it's kind of like telling your kid that you can be a rock star or you could be a Kobe Bryant. It's like it's a high bar. So I think the other thing that I'm trying to figure out is what should people in the meantime who are considering business school and want to be entrepreneurs, what should they do? Because I think that a lot of people here in the Valley would argue that if you're a business person, you don't have access to a technical network. Spending two years at an early stage startup in the Bay Area might be more fruitful than spending those two years at a HBS or a like school.

Look, I think there's an argument for that trade off in the short term. I think the harder question for people is 10 years from now, 20 years from now, 30 years from now, where am I going to end up? Because if I spend the two years stepping off the treadmill at a Harvard or a Stanford or an mit, I'm going to come back with a network, a set of relationships and a skill set that may not be immediately high roi, but in fact I have a lot of my students who come from startup land and go back into startup land at the same level that they left after two years of spending 100 something thousand dollars on their MBA program. It's brutal. I've got a woman I've been coaching who's graduating this year, who's in that exact boat, but 10 years from now, 20 years from now, she's going to be an awesome CEO and she's going to have an extraordinary network. And I don't know if she would have had that. I can't say she would have had the same benefits in the long term that she would have if she had never done the program.

But let's push back on that. If she were to build a successful company, she probably would have that network. Right? I mean it's a lot easier to build a network when you're doing something that people are attracted to.

I think the risk though is that do you have the tools to scale as an executive while that company scales? You know, let's look at Sheryl Sandberg as an example. Would Sheryl, if she had never gotten an MBA and never taken the two years out, would she have scaled as an executive and as a leader at Google and then later at Facebook or was she enabled or enhanced because of her two years at, you know, in the MBA program?

See, I think I find that tricky because I think that if you were to grab the, the average person on the street in the valley and, or the average angel investor in the valley, they would say that that MBA might have been much more of a filtering and kind of rewarding process than it was an educational process. And I don't know many people in the valley who would say that you learn more getting an MBA than you learn two years in, in the grind at an early stage startup. So it's tricky. It's tricky because like there are a lot of MBAs that have been successful, but there are also a lot of non MBAs that have been extremely successful.

Well, to present the other side, there are a lot of startup founders that are incredibly unsuccessful. Very technical.

Exactly. And technical, yeah, certainly being technical is not a ticket to success. I just, I guess the thing that I think about is that, and I.

Would say there are a lot of high functioning mid level people who get stuck as directors and VPs.

Yes, I guess that's the thing I think about. I think the thing I think about is not whether or not the MBA can be valuable. Maybe a better way of putting this is if I have to choose to spend that 100 and some thousand dollars and those 10 years and I also have the opportunity to be at an early stage startup in, you know, a valley or somewhere else, how do I make that decision?

And I think what I say to people when I talk to young professionals who ask me that question is if you have high conviction that you're in the middle of a Google or a Facebook or a LinkedIn and you've got mentors and you've got a great path, then you should stick around. But that's a one in a thousand, one in a million situation. If you're in that situation, stay in it. But if you're kind of bumping around in a company that's growing 20%, 40%, even 60% a year, it's not clear it's going to be a $10 billion plus company, then you would benefit tremendously from taking two years off the treadmill. And to take a page from Stephen Covey's book Sharpening the Saw a little bit. You know that story of the guy in the woods who's sawing like crazy a dull saw, but he can't get the, you know, he said, hey, why don't you just stop and sharpen the saw? He says, well, I'm too busy sawing. I don't have time.

Do you think that applies past the top five business schools in the country?

No, that's a great point, Michael. And I should have said that. Okay, yeah. I think I say to students, look, go to the top five, which are cities who happen to be in the middle of startup land. Cities, you know, rich innovation ecosystems.

Yeah.

And that's it. I'm not sure I would go to others if I'm in the middle of a startup, if I'm trying to transform myself, who knows? But if I'm in the middle of a startup that's going well in New York or in Tel Aviv or in Boston or in Silicon Valley between. I don't want to name a school to be too negative, but if it's a non top five school, then I'm not sure you go.

So I think that's an extremely important point. I think that, like I could say that hands down, I could say that if you're not going to a top five school, you are not technical and you want to get into tech startups, it makes no sense to me why you wouldn't try to get a job in an early stage company in a startup city. And I think the one thing that people might not realize is that people do not see the NBA as a startup. What is that called? It's not seen as like a positive resume item.

No, not a positive credential.

Credential is the word I'm looking for. So you better squeeze as much fucking value out of it as humanly possible because it's not going to be like, oh, that's on your resume. Here are some extra points. And I think sometimes people don't think about it that way, and it's interesting is my wife went to business school and what surprised me more than anything were the number of career switchers at business school. I think people often, I originally thought most people went to business school to advance within their current career. And strangely enough, more than half of her class was doing banking or consulting and then looking to do something else. And it was tricky because they were pitched, oh, come to this business school and we'll do this for you. And then in the end of the day, they kind of got scooped up into middle management from like, you know, the big companies in the Bay Area. And I'm not exactly sure that's like, maybe that's better than banking, I don't know. But like, I don't know if that's. So I think, you know, the other thing that I want to dig into is that what do you do if you're a student and you know, you're not getting good advice? I mean, like, you look at the person giving you advice and you're like, they are legitimately not qualified to talk to me about startups. What do you think you do? Like, what would you advise a student in that situation?

I mean, the thing that's amazing to me is I think the blogs of people like Paul Graham and Brad Feld and Fred Wilson and the books that have been written by those folks, or at least in the case of Brad and others, you know, I mean, those are the real valuable pieces of content. You know, if you're not learning Eric Rees's book, if you're not taking Reading Four Steps to the Epiphany by Steve Blank, if you're not seeing that content in your class, you have the wrong class. So that's the advice I give is like, make sure you're reading the canon. Like there exists a canon in startup land. And if you don't, if you're not studying the canon, then it's like trying to be a minister without memorizing the Bible.

Totally agree. And I think the last question is in my mind is we talk about what I see when I see these students. You guys are much higher in the food chain. A lot of times I assume MBAs think that they can and should just raise from VCs straight away. So what happens when you see these folks? What are the challenges that you have in investing in an MBA student when they come directly to you?

It's the same thing you're pointing to and about. Add an additional spin to it. We as a VC only invest in massive market opportunities and truly transformational, disruptive industries and markets. And so if an MBA has a cute app or a neat little business spin on something that's well trod, that's not investable for a venture capitalist, it needs to be something really transformative. And to get something transformative, you need to have vision and you need to see a lot of white space where no one else is seeing it. And that does tend to happen from technical founders. Often it can happen from business founders, but it's got to be something special. I mean, Blue Apron is a good example. That's a purely business model insight that a business and a Harvard MBA discovered. And we'll see if that company is as successful as it seems to be. But that's a great example of something disruptive and transformative that was purely based on the business model.

Yeah, totally. I totally agree with that. All right, well, I think we're running into time here, so, Jeff, this was awesome. Thank you, man.

Yeah, it's great. Great to chat with you about it. Thanks for giving me the opportunity. Sa.