The Five Things I Learned In Business School

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The Five Things I Learned In Business School

I've come to realize that a lot of young people who are just starting out in the business world and have an interest in venture capital read this blog. I love that this blog can be a place where they can learn something.

I also realize that many of them struggle with the choice about whether to get an MBA or not.

I think MBAs are worth getting if you want to make a serious career change or need to take a couple years to figure out what you want to do with your business career. However, if you are sure about what you want to do and are on a track that can get you there, I think MBAs are less useful.

I went to business school because I wanted to be a VC when I got out of college and everywhere I asked, I was told that I needed an MBA. So I went and got one. I went to Wharton which is one of the top schools and I had a good experience there.

But it wasn't like MIT, where I attended undergraduate. At MIT, I learned so much that I could never blog all of it.

I learned five things in business school. They are five important things, but there are only five that I can list.

I told them to Charlie a couple weeks ago and he seemed to get something out of hearing the list so I figure others might as well.

Here they are in no particular order:

1 - A dollar today is worth more than a dollar tomorrow. I knew about interest rates and such before I went to business school, but the concept of the time value of money and present values were foriegn to me until I got my MBA.

2 - You will make more money if you take more risk. I did not understand that there was an explicit relationship between risk taking and expected return before I went to business school. I do now :)

3 - You can value an asset if you know its cash flows, the timing of them, and can quantify the risks of acheiving those cash flows. The whole area of the capital asset pricing model and modern portfolio theory was my second favorite thing I learned at business school. It made sense to me and given my engineering background, I found the math around these theories fascinating. I don't use the formulas very much any more, but my brain is now hard wired with these theories and I don't think of value any other way and never will.

4 - Markets are made up of speculators and hedgers. You can't have one without the other. Speculators take risk and hedgers reduce risk. You can do some amazing financial magic by mixing and matching these concepts. I loved speculative markets. It was by far my favorite class at business school and it is the one class that I find myself going back to regularly for inspiration.

5 - The best price to sell something isn't always the lowest price. My favorite case study was the champagne producer who couldn't sell his product in the US until he tripled the price. Then his sales went through the roof. Tom Evslin has a post on this topic on his blog today and it was the inspiration for this post.

That's it. Two years and who knows how much money got me five concepts.

But they are a big five concepts. I find that my MBA gave me incredibly strong fundamentals in finance that I use every day (at work and in my personal life).

I am glad that I went to business school but I also recognize that its not a "must" for the venture business or any other business.

I honestly don't look to see if someone has an MBA when I look at a resume. I look at the track record and the person, not the pedigree.

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Posted June 16, 2005 in Venture Capital and Technology

Comments

Don't forget what is past is prologue. History always seems to repeat itself.

Love Tom's post also. It is amazing how some people feel if they pay more something, it is better.

Posted by: ellen | Jun 16, 2005 7:49:57 AM

Thanks for the post. I'm currently 1/3 through my MBA and took the summer off to work on a personal business project. I don't know if I'll be going back but this gave me some things to think about.

Posted by: Chris | Jun 16, 2005 8:32:50 AM

That's a good list. I especially like how some of these tie to one another. For example, the frontier of efficient returns (alluded to in #2) is very tied to the concepts of portfolio theory (in #3 and #4). I think there's also a good amount of value add in building on more concepts to the finance areas you mentioned above. Course like entrepreneurship and venture investing (in b-school) can do a good job of connecting strategy, soft stuff, etc. into financial frameworks (which are not as cut and dry as one might think).

If I had to add another lesson that I learned in b-school, it would be operations theory and things like Little's Law, use of statistics, etc. Perhaps not as important to know for some segments of business as others, but I always find new areas to apply the concepts (even though I was also an engineer).

I do feel that b-schools can always make some improvements. I look for opportunities to contribute wherever I can.

Posted by: Steve Shu | Jun 16, 2005 9:00:59 AM

Thanks. More fuel to add to my raging fire. I guess this brings me to the white elephant question. How does one handle the issue (a woman typically) where "risk" was associated with relationship (a man) and consequently her "track record" appears scattered on paper? Translation: Can I get back in the game after not having been focussed in one particular area when the truth is a great deal of it had to do with gettting married (twice) and having children and planning according to someone else's future?
I've got the "pedigree" (Berkeley, UCLA, Notre Dame) and the drive - but am now a bit older with a "track record" that does not reflect my true capabilities. But - getting employers to look pass the ever-powerful white sheet of paper! thoughts?

Posted by: kristin | Jun 16, 2005 9:53:52 AM

Came here via Laoch of Chicago.....thanks for the insight on the 5 things you learned in business school! I am looking at a return to school, and business is the plan for me, works with my background well, might as well draw on the experience I already have!

Posted by: islandgirl | Jun 16, 2005 11:44:00 AM

That's a good top-five. The most important thing I learned in business school (and even all through college really) was one sentence in the chapter summary of the most boring accounting book in the world:

"Sunk costs are sunk."

The sentence was so seemingly tautological and meaningless that I had to read it over and over about a hundred times before I realized just how important it really is. Not just in business, but in life as well. It applies to everything. When evaluating the future, all that matters is the future... not how much you spent creating the present.

Posted by: Mike D. | Jun 16, 2005 1:36:11 PM

'You've got to find what you love,' Jobs says
http://news-service.stanford.edu/news/2005/june15/jobs-061505.html

Steve Jobs In Praise of Dropping Out
http://apple.slashdot.org/article.pl?sid=05/06/14/0057205&tid=146

Larry Ellison's speech at Yale University
http://apple.slashdot.org/comments.pl?sid=152625&cid=12809127

Oracle CEO Larry Ellison - On The Record
http://sfchroniclebiz.blogspot.com/2005/05/oracle-ceo-larry-ellison-on-record.html

Posted by: Dimitar Vesselinov | Jun 16, 2005 2:54:02 PM

That's a great list. I've worked in the overlap between technology and finance for quite some time now and I find that a lot of people who are great marketers, technologists or product people don't have a solid grasp of those concepts. Which is too bad because I think a lot of inefficiency and bad decision making could be eliminated with such decision-making skills. But, I guess that's why there is a market for consultants like myself that help them understand it.
Great post.

Posted by: Jake Kaldenbaugh | Jun 16, 2005 3:12:30 PM

What I learned while Fred was at Wharton was that Philadelphia is cool, and that John Lee Hooker invented everything, I'm glad you advised me to take his class Fred.

Posted by: jackson | Jun 17, 2005 1:15:49 AM

I fall in the "planning a major career change" category and have been struggling with the issue of "do I go to business school, or will that make me seem over-educated?" and "if not b-school, what do I do to get a foot in the door that will capitalize on my academic research background?" question. Posts like this are very helpful.

Posted by: Christy | Jun 17, 2005 11:09:48 AM

I, too, have a few "things I learned" while in biz school. Since I was marketing/mangaement, they tend not to be finance oriented, like yours.

1) Mergers and acquisitions are almost always a mistake - unless you're the investment bank brokering the deal.

2) Stock picking is for suckers (many of my classmates refused to believe this.)

3) When starting a business, a great team with a mediocre idea is likely to fare better than a mediocre team with a great idea.

"Sunk costs are sunk" is a great one, too.

Posted by: Todd W. | Jun 18, 2005 11:50:05 PM

Have fun with market average returns your whole life Christy. You could do worse, but you could also do so much better at the expense of a life-long commitment to learning.

Posted by: Jon Tait | Jun 20, 2005 6:56:43 PM

Err Todd W. rather. Sorry =)

Posted by: Jon Tait | Jun 20, 2005 6:57:44 PM

that's a great top 5 list.

i have a question regarding #3 (valuing an asset based on future cash flows). Do you use this concept to value early stage companies and if so how (as guiding principle or not at all)? Seems like capm is less relevant for early-stage vc's and entrepreneurs to think about when valuing a company. Early-stage valuations are ultimately decided through horse trading and negotiation by the founder and the VC.

The value more or less gets determined by (a) the strength of the management team (b) quality of the concept (c) reputation of the VC firm, and the leverage that each of these factors give the VC or founder. An entrepreneur and a VC will spend far more time arguing over participating preferred and accruing dividends then they will assigning a value to the company's projections and ability to hit numbers (that comes later). . . .

Posted by: steve | Jun 25, 2005 11:50:16 AM

I can't help but feel that you wasted your dough since I learnt the same stuff at a very average public university at a fraction of the price, unless of course others are more interested in the "labels" than you claim to be.

Posted by: Dan Hill | Aug 31, 2005 2:29:36 PM

One exclusive jargon that has impacted my mind time and again during the course work is "bullsheeting" a profound all pervasive vocal to establish ones perspective

Posted by: Dr Dash | Nov 14, 2005 11:42:54 AM

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Posted by: amateur couple | Nov 30, 2005 8:14:00 AM

Aside from all the finance stuff, I've also found explanations of expectancy theory & utility theory useful in the MBA

Posted by: Jing Lee | Apr 1, 2006 9:40:35 PM

A VC

Musings of a VC in NYC