Why Do Entrepreneurs Get MBAs?

Davis Smith and Co-Founder/Cousin Kimball Thomas

by Sylvie Beauvais

It’s a perennial question – if you’re an entrepreneur, why would you get an MBA? After all, MBAs take time and money, so what does an education add to the entrepreneurial success equation?

Here in our Venture Initiation Program (VIP), we have a suite full of students (about 50 of them from all over the university) who think that their years at Penn provide the best possible opportunity to network, learn, develop leadership, and invent and launch a new business concept.

The Usual Arguments

As Davis Smith, WG’11/G’11, put it so aptly in his blog post about this exact question, here are some key considerations if you’re torn between going to business school and launching a business:

  1. Having an MBA makes fundraising a bit easier.  “Not surprisingly, venture capitalists value business education, many of them holding MBAs themselves.”
  2. The cost of your education needs to be considered in the context of return on investment (ROI), not total cost. “There is a strong argument to be made that an uncertain entrepreneur would be better off going to school, as he/she will likely make better decisions regarding which business to start and how to strategically execute on their idea.” In Davis’s case, after having success launching PoolTables.com and before applying to business school, he and his co-founder “decided to invest in ourselves, rather than our business,” because “I strongly believe that entrepreneurs have an abnormally high ROI from their educational investment.”
  3. Entrepreneurs don’t need MBAs, but MBAs add value. Davis and his cofounder, “believe that an MBA will help us better operate our businesses, that it will help us increase valuations, simplify fund raising and attract better talent.”
  4. Many famous founders are college drop-outs. Davis’s counter argument:  “Many incredibly successful entrepreneurs do have MBA’s…Furthering your understanding of business principles, studying factors that have influenced business successes and failures, and becoming part of incredible networks of business influencers will only help you as an entrepreneur.”
  5. Coursework can be life-changing. “I took a number of classes that impacted me greatly, even as an experienced entrepreneur. These classes help entrepreneurs avoid making costly mistakes, help them identify additional opportunities and prepare them to create large and lasting businesses.”

Davis now runs Baby.com.br, which within six months of operations had already sold more than a million diapers and has over 750,000 Facebook fans. He and his partner raised $4.4 million during their second year in business school and in the year since graduation have raised about $20 million. In 2011 Baby.com.br took 3rd Place in the Wharton Business Plan Competition and 1st Place in the Harvard Business Plan Contest.

The University Is One Big Incubator

For Doug Baldasare, WG’12, a current member of the VIP program launching ChargeItSpot, “The university is one big incubator. You have access to thought-leading professors, industry experts who come to speak, professionals at relevant conferences, financial grants, research reports that would otherwise cost a fortune, office space, collaboration with students from other degrees (i.e., engineering, design, etc.)…it’s a hotbed of innovation. All the resources you could possibly want are there and included in tuition.”

For the Entrepreneur, Getting an MBA Is About the Community and the Network

Ultimately, the impact of business school for entrepreneurs is the chance to participate in a learning community of engaged entrepreneurs. As Doug puts it, “You are surrounded by supportive classmates with interesting, diverse backgrounds. They push you and support you…it is wonderful.”

For Davis, “I was fortunate enough to be admitted into Wharton’s business incubator, the Venture Initiation Program, during my first year in business school. I spent several hours of every day sitting in a large bullpen with dozens of other entrepreneurs working on our business ideas. I was able to draw inspiration from my classmates, take advantage of mentoring offered to the students and even received several cash awards from the program to help me get my business off the ground.”

As an entrepreneur, Doug also values the reach of Wharton’s alumni network, “The MBA gives you an incredible network of established alumni across many industries and functions. I was able to leverage the alumni network to get introductions to prospective investors, customers, and employees.” Furthermore, everyone loves hearing from a student entrepreneur, “As a student launching a business, you are ‘cute and cuddly’ and can get almost any meeting with anyone.”

A Chance to Explore

Doug’s background prior to his MBA was at start-ups. For those who are interested but have not yet tried entrepreneurship, Doug comments, “students have two years away from traditional full-time work to pursue a venture, while also productively adding to their business tool kit. These two years give you an option. If things go well and you love it, you can keep pursuing it. If you decide you hate it, you can always go and work in a traditional job.”

Anyone who’s been a college student knows this implicitly: universities offer a fantastic environment for you to pursue interests, experiment with new identities and change the shape of your future. This holds true for entrepreneurs.

“I saw many of my classmates “discover” entrepreneurship while in business school,” says Davis.

Of Interest:

TechCrunch: “Tiger, SV Angel-Backed Baby.com.br Finds Legs In An Exploding Brazilian eCommerce Market” (6/3/2012)

Washington Post: “Would the Fabebook IPO have bombed if Mark Zuckerberg had an MBA?” (5/29/2012)