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

Hey, this is Craig Cannon, and you're listening to Y Combinator's 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. 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 the tweet. A lot of my students are applying to YC, and I know we take a lot of pride. Harvard is trying to prepare our students to be great founders and to be effective in the startup plan.

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 kind of triggered it was after, you know, the countless number of applications from MBA students that were 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 of 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, you know, case studies about previous companies 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.

It was great because to be honest, a number of business schools reached out, and kind of it started a dialogue. I started realizing a little bit more kind of what I'm facing here in my way.

What are the things you're facing?

I think that it's extremely—what I think unfortunately YC has created is this model for entrepreneurship that people are trying to replicate. It's extremely hard to replicate. Everybody wants to have an incubator, but man, like it's a hard model.

Ending to 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 going to 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. 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 tenets that we'll get into in a minute are the four tenets that we're trying to teach in general to all budding aspiring entrepreneurs. So, I think putting the spotlight on encouraging all times to take a step back and get out of the ivory tower and get into the field, 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's 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—large high-mountain value startups that MBAs created. I did a couple of analyses on this a few years ago. There are a ton of examples—whether it's a Cloudflare or Rent the Runway or an Earnest—all three of them were founded recently by Harvard Business School alums. There are a lot of great MBA startups, but I think this general set of points that Michael is highlighting are lessons for all entrepreneurs.

You know, for example, one of the things we've gone back and forth on, there's 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 entrepreneurs that MBAs are more susceptible to these mistakes.

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. I think that, like, when I think about that group of people, they should be doing disproportionately well when pursuing startups. 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 applicants have no formal training, mentoring, or experience in the classroom dealing with any issues around startups. I think that gap is what I'm trying to figure out how we erase.

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

I just think it’s interesting because I'd love Jeff to talk through the causes. This is what I see as kind of the red flags. 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, you know, 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. That speaks to Jeff's point around MVP versus research. I think research is, and time 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.

So I think those three things, like time and time and time again—and don’t get me wrong, those are the central problems that most YC applicants have—but once again, like, I would imagine that like within this population, these should not be the things that take them down.

Yeah, so I think the root causes of the problems that Michaels identified, which are excellent issues, one of the root causes is that a lot of MBA programs are created in silos. 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 they're mingling every day with salespeople and marketing people.

So that’s a—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 have been sales clubs and bargaining clubs and fashion clubs; there’s that, but there’s never been a coders club yet, so this year—so that’s a great sign! But do other MBA programs have coder clubs? And you know, what percentage of the students coming into these classes have technical proficiency?

They’re mingling with the bankers and the edge folks kind of falling through it. You know, mix it up a little bit, 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 is a good game and startup plans move so fast that if you're out of the game for five years, you're old; you're out of touch.

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—we 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 and residents and guest lecturers and advisers, 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 around the world at a night.

Over the past week, I’ve been trying to think through what I would do if I were a business school dean. You know, a business school dean with no shackles on. Time and time again, I come to this thought that, like, I probably can’t change my teachers fast enough, and I probably can’t unsilo my organization fast enough or effectively enough.

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, one-third of its students who 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; 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, only four—and this is an entrepreneurship class for second-year MBAs; the most ardent entrepreneur-bound students take their buildings—only four or five can write code. We’re 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, at applying. We spent 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, let’s see if we can teach business to business school kids how to code more about let’s teach business school kids the product prototyping skills and technical architectural skills to be a good businessman who’s effectively on 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 to almost mandate a 50/50 engineer or non-engineer population?

So, in other words, you know, if we can’t make it so that 50 percent 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 at 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 with 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 Charles River to be co-located with the Business School.

That’s a multi-year project—it’s been funded by folks like Steve Ballmer and John Paulson and others to create a lot more social engagement as that opens up to 2019 and 2020. In fact, I’m already seeing classes that are being considered by the Business School that kid 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 know when 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, you know, those entrepreneurs.

So that kind of relates to what I was wondering, which is like we're talking about a lot of this top-down organizational structure of business school programs. I was wondering, Jeff, if you had run into people who just on their own had been incredibly successful at like making those technical connections and like doing some of that cross-pollinating.

Because, you know, what we’re talking about is like 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, you know, in the middle of a place that like might not be focused on tech? What have you seen people do that has been successful that someone who’s getting their MBA, who just got their MBA, can replicate?

Yeah, look, I think it’s hard. It's on a platter for you at Stanford, at MIT, and harder—when it’s not on a platter for you in other environments where you can’t just walk out the door and take a list in or a subway and find, you know, a fantastic bunch of technical people running around in a coffee shop.

So, you know, what do people do in Indianapolis? What do people do in St. Louis? What do people do, you know, elsewhere in the country—in Ohio, Michigan? I think it’s hard, but look, there are engineering programs, computer science programs in all these places, and there’s also a ton of online tools.

We had an entrepreneur in Boston as an AI in Kentucky, and he just hustled his way to build the network of angel investors and software developers. That AI specialist has become really plugged into the AI community in Kentucky to Boston subsequently, but he got his company off the ground and funded out because it was possible.

So it does take a little extra hustle and a little extra connectivity.

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

I mean, I have to be honest, like 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—that this is a hard problem, but it’s not a complex problem. I’m like, these aren’t complex issues; these are not counterintuitive issues, but if you have a bunch of people who are trying to build the technology business and they don’t have access to people who write code, the path is going to be harder.

I think the one thing that always gets me is every entrepreneur has the sense of hustle, and when I see founders overextending the hustle to compensate for these core issues, you know, that’s what often kind of frustrates me is that like, okay, you know, we don’t have a technical 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, though 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, we talk about this stuff all the time at Y Combinator, 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 entrepreneurship 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 going to 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 in the university—like for some reason that’s completely acceptable.

One of the insights that I feel like people meditate on, you know, look, I’m a venture capitalist by day, so I totally get his attention, but one of the things that we should be careful to distinguish is the purpose of the university is not to create billion-dollar startups; it’s the pedagogical experience for their students.

And so it may be that there’s a little bit of a mismatch of goals here, you know, subject to look at incentives and goals because, of course, entrepreneurs are really hard as there’s this—I mean, am I good? 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, you know, we’ll be a little softer, we’ll let you, you know, run through hoops, let your monkey’s experiments’ sakes, and it’s—you’re still going to have your nice dorm room and your nice classroom and your—and if you’re gone the next day, you know, you’re not going to not going to go out of work 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, you know, because they’re providing an academic and pedagogical-focused goal.

I think so—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, I had—there was a whole major at Yale where I went to school—that you had to apply to even major in that subject.

Yeah, after getting into Yale, you have 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 is no high school team that accepts everyone who walks in, let alone college. Right?

So it's, once again, it's like, you know, 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 is 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. It’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 do?

Because I think that a lot of people here in the valley would argue that if you’re a business person and 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 HBS or a like school.

Look, I think there is 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 Harvard or Stanford or at MIT, I’m going to come back with a network, relationships, and a skill set that may not be immediately high ROI and guide.

I had 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 a hundred-seven thousand dollars on their MBA program.

Yes, brutal. I’ve got a woman I’ve been coaching who’s graduating this year, who’s in that exact pose. But ten years from now, twenty 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'd have 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: like, 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, look at Sheryl Sandberg as an example. When 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, the MBA program?

C, I think I find that tricky because I think that if you were to grab the average person on the street in the valley 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 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.

Go technical.

Exactly, and technical, yeah. Certainly, being technical is not a ticket to success.

I just suggest the thing that I think about is that—and I was there—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 NBA can be valuable. Maybe a better way of putting this is, if I have to choose to spend that hundred and some thousand dollars and those ten years, and I also have the opportunity to be at an early-stage startup in, you know, 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’re in it—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 the company that’s growing, you know, twenty percent, forty percent, even sixty percent a year, but it’s not clear it’s going to be a ten billion dollar 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.

“Story.”

But the guy in the woods whose saw is dull, like crazy, but so sloppy can’t read out.

“Hey, why don’t you just stop and sharpen the saw?”

It’s once you’re busy sawing, you get the message.

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

No, that’s a great point. My friend, I should have said that. I did—I said it too quick.

Go to the top five, which just so 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 Silicon Valley, you know, between—I want to name a school to be, you know, things—but if it’s an on-top high school, then I’m not sure you go.

So I think that’s—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 MBA as a startup.

“What is that called?”

It’s not seen as like a positive resident resume item!

“Modeling credential?”

It credentials the word I'm looking for, so you better squeeze as much value out of it as humanly possible because it’s not going to be like, “Oh, like that’s on your resume, here are some extra points."

I think sometimes people don’t think about it that way. And it’s interesting, 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 mostly went to business school to advance within their current career. 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 how, but like I don’t know if that’s so.

I think that, 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, I think it’s amazing is I think the blogs of people like Paul Graham, I'm Brad Feld and Fred Wilson at the books that have been written by those folks or, 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 Ries's book, if you’re not taking reading "Four Steps to the Epiphany" by Steve Blank, you’re not seeing that content in your class, you’re in 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 that, you know, if you’re not studying the canon, then it’s like trying to be a minister without, you know, memorizing the Bible!

Totally agree.

And I think the last question is, you know, in my mind, is you talk about what I see when I see these students. You know, 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 VC 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 to your directly?

It’s the same thing you’re pointing to it about at an additional spin to it. We, as a VC, only invest in massive market opportunities and truly transformational, disruptive industries and upper-end 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 will state that company is as successful as it seems to be, but that’s a great example of something disruptive and transformative. It 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, great to chat with you about it.

Thanks for giving me the opportunity!