Categorized | the strategy notebook

Should you get an MBA? Part One: The Penny Roll

I spend most of my working time with entrepreneurs and, as such, I’ve had a front-row seat at one of the most diverse and grand human shows. I’ve worked with ordinary folks and Harvard MBAs, with bootstrappers and the super-wealthy. Inevitably, an entrepreneur, usually lubricated by a couple scotches, will ask me a question that goes something like this:

“Should I get an MBA?”

Like all “should” questions, I always answer, “It depends.” If I wrote an essay on the “depends,” I’d be here for a month. Because it “depends” on how far you plan to take your entrepreneurship, how big you plan to make your business, and how long you plan to stay with it. It “depends” on your work-life balance. It “depends” on how much time you have. How much money.

More entrepreneurs that I can count have succeeded wildly without an MBA. More entrepreneurs than I can count have succeeded wildly with an MBA. Like everything else in business, an MBA is an investment with a definable return and an even more definable cost.

Since I have an MBA, I’m going to talk about the return. And I’m going to start with a penny roll.

More after the break.

The Penny Roll
In an earlier life, I initiated, headed up, and was the principal designer of an online project management software designed for creative professionals. It was a brilliant piece of design with enormous potential — in fact, the two heads of the company are making pretty good money off of it.

At the same time we were developing this software, SalesForce.com was in its initial development stage. Much of what SalesForce.com has in its software, I was advocating for in our software (without knowing about SalesForce.com).

The problem with the founders I was working with is they were small businessmen and they thought like small businessmen. The folks who founded SalesForce.com were MBA’s and they thought like big corporation businessmen. That different mindset made a huge difference. The company I worked for is slogging along making pretty good money (somewhere around a million a year); SalesForce.com is a billion-dollar international company. They started at exactly the same size and exactly the same capitalization.

I call the difference The Penny Roll argument. When I was twelve, my mother, who worked at the Federal Reserve Bank, came home with five penny rolls from the San Francisco mint (she came home many coin rolls for me). I collected coins and added them to my collection. Being a twelve-year old with a twelve-year old mind, I eventually used all those coins for important 12-year old things like comic books and Dairy Queen.

Turns out those coins were “faulty,” stamped with a small date, and within a few years were worth up to $100 each for an uncirculated coin. And I had had five rolls of these suckers, that is, five hundred uncirculated small date SF pennies. Fifty thousand dollars of coins.

It’s not that I didn’t get any value out of the coins. I did. Five dollars worth. But I had fifty thousand dollars worth of coins, and I never realized that value.

The Penny Roll problem is the one I encounter most frequently among entrepreneurs without experience thinking big at the corporate level. They are more often than not small businesspeople, often at the level of two or three employees. They think in small business terms, not in complex international corporate terms. As their business grows, they don’t. They take the small business mindset into the medium-sized business and, like a manager who has been promoted to their level of incompetence, bring the whole growth of the business to a crashing halt.

The fact is this: with rare exceptions, to realize the full growth potential of a startup, the founders and early managers have to think in large and international terms. Small business experience rarely equips you for this act of imagination and planning.

It is a truism in leadership and management that moving up the corporate ladder means learning entirely new skills and abandoning the skills that make the individual successful in lower jobs. When a highly skilled and product worker is promoted to a manager, their first temptation is to use all the skills and habits that made them successful as a worker to make them successful as a manager. They almost always fail, because the skills and habits that made them successful as a worker aren’t applicable to their new position.

The same happens when a manager is promoted to become a manager of other managers. The skills that make a manager of workers successful are not the skills that make a manager of managers successful. The same happens as you move up the ladder to an executive (a manager of the managers of managers) to a unit head to an international CEO. The skill set, habits, and personality required changes at each step. If you attempt to do the new position the way you did the old position, you fail.

The same applies to the managers or founders of a small business or startup. As the business grows, the skills and habits required of the managers and founders changes dramatically. They are tempted, just like their hapless counterparts in the corporate world, to rely on all the skills, knowledge, and habits that made them successful when the business was small to carry them through when the business expands.

I have never, in two years of independent consulting and six years of marketing communications consulting before that, I have never, never seen this succeed in growing a business to anywhere near its fullest potential. I have watched business after business halt, falter, or crumble when it achieves a certain size. And the fault almost always lies at the top.

In all the start-ups I’ve studied, the best track record for moving from small to multi-billion dollar internationally huge organizations is among MBAs, usually because they start the business knowing what the multi-billion dollar business will look like.

You remember, however, that I said “depends.” The Penny Roll argument only has meaning if you want to maximize the value of your business. There are plenty of small business owners that are perfectly content to realize a smaller value to their business provided they can continue to do what they like to do, which is run a small business. That, of course, is a lifestyle choice and is perfectly valid in delimiting the business choices. At the age of twelve, I, for instance, was perfectly content exchanging my fifty thousand dollars of pennies for a few Dilly Bars.

When I designed that project management system oh so many years ago, the company had the potential to be a SalesForce.com. It’s doing fine, but it’s SalesForce.com that became SalesForce.com and made its founders international executives and its investors (and founders) millionaires many times over. The difference, in my experience, is the knowledge and skills that an MBA represents (but that you could get elsewhere — the non-MBA founders that do very well for themselves, like Steve Jobs, do learn the MBA curriculum quickly and efficiently, just in a different forum).

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2 Responses to “Should you get an MBA? Part One: The Penny Roll”

  1. Israel says:

    Wow, very poignant. Two very expensive lessons. Thanks for sharing.

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  1. [...] the downside, I want to focus on the deficits you face in the day-to-day running of your business. In my last post on the subject. I talked about how an MBA gives you tools to fully realize the value of your business. Here, [...]


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