We Now Return To Our Regularly Scheduled Programming

July 4, 2009 – 5:05 am

Whew, writing seven ATHM posts in seven days (in addition to everything else I’m doing) has been interesting, but tiring.  While I’m glad I had the discipline to do it, and I enjoyed helping so many people, I’m afraid I’m going to have to return to my usual weekly pace.  Keep your questions coming!

By admin | Posted in Uncategorized | Comments (2)

Should I join my friends in a new medical startup instead of going to b-school?

July 4, 2009 – 5:01 am

I applied and was accepted to both Wharton and Stanford GSB. I only applied after my parents practically begged me to do so after my last business (real estate) failed.

Although I fully understand their concerns, I still remain upbeat about the future and undaunted by my failures. I believe my parents got a bit spooked by the economic downturn, and, concerned for my economic well-being, pushed me to apply.

Although I am fully aware how much of a blessing it is to be accepted into not just one but two of the nation’s top b-schools, I believe there is a time and place for everything. I feel confident giving myself another shot and joining my friends in a new medical technology venture instead of going to b-school.

Shoot straight with me, Chris: given this situation, what would you do? I place a high premium on my time and believe that two years spent away from helping this project become a reality is not worth the boost in security (perceived or real) that comes with a quality MBA, especially if I’m going to miss out on such a rare opportunity.

The Harvard MBA says:

I remember when I was applying to business schools.  It was 1997, and the dot com boom was in full swing.  I wondered whether I was making a mistake.

My friend Rock, a Stanford MBA, gave me some good advice.  “Chris,” he said, “Do you think it makes sense to maximize the number of years in your *before* you get your MBA, or *after* you get your MBA?”

If you intend to get your MBA, it generally makes sense to go to b-school as soon as possible (assuming you have worked enough to know what you want out of your b-school experience).

Nonetheless, general advice doesn’t always apply.  In fact, I would probably be far richer today if I had simply decided not to toss my invitation to Google’s launch party in the trash (one of the first two employees after Larry and Sergey was an old work colleague from my D. E. Shaw days) and gone to work there as a janitor.

I can’t tell you what to do without understanding more about your circumstances and the opportunity (you should feel free to reach out to me again; perhaps we can do a follow-up post).  But I can propose the following framework for thinking about the decision:

1) Lay out the probable income stream associated with going to business school.  This might look something like this:

  • 2009: +$25,000 ($50,000 in income; $25,000 in school expenses)
  • 2010: -$30,000 ($20,000 in income from a summer job; $50,000 in school expenses)
  • 2011: +$50,000 ($75,000 in income; $25,000 in school expenses)
  • 2012: +$157,500 ($150,000 in income + a 5% annual compensation increase)
  • and so on.

2) Lay out the potential income streams associated with joining your friends in a medical technology venture

  • 2009: +$50,000 ($50,000 in income; reflects 6 months of $100K/year income)
  • 2010: +$40,000 ($40,000 in income; reflects a full year of minimal founder pay)
  • 2011:
    • 60% chance the venture fails; you may then go back to having a regular job getting paid a market salary
    • 35% chance the venture raises a larger round; you are then getting paid a market salary
    • 5% chance the venture is very successful and results in a liquidity event which pays out $1 million

By laying out the scenarios, you can then do an apples to apples comparison and decide what makes economic sense for your situation.

Or, you may end up deciding to do what you really love.  Remember, all these tools of economic analysis are merely that–tools.  In the end, they cannot substitute for judgment.  It’s you’re decision–make the most of that freedom to choose!

By admin | Posted in answer, career, entrepreneurship, mba | Comments (1)

How many graduating Harvard MBAs start their own businesses?

July 3, 2009 – 12:11 am

Larry and Sergey in their garage.

How many of the students that graduate at HBS open their own business? You mentioned that recessions are a great time to open businesses, what kind of business do HBS students open or get into?

The Harvard MBA says:

The entrepreneurship bug bites a lot of Harvard MBAs.  It is estimated that over the course of their career, nearly half of Harvard MBAs will try to start their own business.

On a more concrete level, the school reports that 27 members of the Class of 2009 (out of 889) decided to start their own business right out of school.  That may seem low (3%), but remember, most people go to HBS to take advantage of the recruiting machine that funnels you into high-paying jobs with established companies.  It’s hard to turn down $200K/year or more in exchange for ramen and pinto beans.

Of course, I was part of the brave/foolhardy entrepreneurial group from my class, so form your own opinions here!

In terms of what kind of businesses students tend to start, there are three basic types:

1) High-tech startup

2) Low-tech startup

3) Search fund

The high-tech startup is your classic startup, often in Silicon Valley (though sometimes in Boston, New York, Seattle, or Austin).  Usually the HBS student who starts the company is the business person, and works with a technical founder he or she met in college, or at a previous employer.  For the company I started, I worked with both an old college friend, and an old high school friend, both with technical backgrounds.

Of course, in this kind of economic environment, it’s not always easy to convince investors to give untested MBAs millions of dollars, so you will probably need to show some market traction before raising serious money.

The low-tech startup is much rarer, largely because it’s much less sexy.  One of my HBS friends, for example, started a chocolate business.  On the other hand, while tech may be sexy, there are plenty of other ways to make money.  My friend’s business is doing quite well, as have other Harvard MBA-founded restaurants and even maid services (though I don’t think the Havard MBAs were doing the cleaning).

Finally, a small number of graduates opt for the search fund approach.   In this model, a graduating student raises some money from investors (usually rich guys he or she knows personally) to go out and buy an existing business to operate.  In many ways, this is like a mini-LBO, except that the transactions are much smaller, and done with equity from investors rather than a fund.

One of my classmates went this route and bought a printer cartridge refurbishing company.  As far as I know, he’s still doing well.

As for what kind of business to start during a recession, my classic advice is to focus on businesses that help people save money.  A number of my investments play off these theme, including RepairPal (when no one is buying cars, people want to save money on car repairs), and they’re doing well.

By admin | Posted in answer, businessmodel, career, entrepreneurship, mba, recession | Comments (0)

Should I attend a lesser-known program where I have been offered a full scholarship, or a Top 100 school where I have to pay in full?

July 1, 2009 – 2:01 pm

I got a stupid question, I am sure it is, but I would still really appreciate your help.

I am European and have to make a decision this week whether to do my MBA at a rather unknown, small University in California (accredited though) with a full scholarship or at a (lower) TOP100 Financial Times MBA Ranking school that I have to pay almost full. Both programs take the same time. What would you recommend me to do?

The Harvard MBA says:

As usual, the answer depends on your circumstances.  Here are the variables in play:

1) What is the relative value of the two different MBAs for your career?

For example, if you are a business owner, the delta in value is relatively small.  On the other hand, if you’re looking to get a job at a major management consulting firm, the delta in value is high, since these firms hire disproportionately from the top schools.

One way to gauge this delta is to find alumni from both schools in your chosen field, and ask them about their thoughts.  Not only will their opinions help you make a decision, simply comparing their relative achievements may provide an answer.

Geography is also important; if the lesser-known school is a big player in the area you want to live, it may be a better choice, even if the more prestigious school would provide a better platform in other geographical areas.

2) How much hardship will paying for the more expensive MBA entail?

Your financial circumstances also need to be taken into account.  In many cases, a more prestigious MBA can provide a delta of $30,000 per year or more over a lesser-known school; at that rate, you’ll make up the cost difference in a matter of years.  Don’t forget that you have to consider pre-tax dollars, unless you are able to deduct the cost of your MBA from your taxes.

On the other hand, if you already have hefty student debts from college, or don’t have enough of a cash cushion to easily afford the investment, you might want to do a little scenario planning.  Let’s say the global economy doesn’t recover by the time you graduate, and you have trouble finding a job…would adding the additional debt represent too great a risk?

3) Which school do you think you’ll enjoy more?

One final thing to bear in mind is whether or not you like the students and faculty at the school.  You’re going to spend two years of your life there; that’s a long time to spend with people you dislike.  Make sure you either spend some time there, or talk with alumni of the schools, to get the story on student life.

For example, while both schools are certainly prestigious, it is generally acknowledged that it’s a lot more fun to attend HBS than MIT’s Sloan School!

Good luck with your decision.

By admin | Posted in answer, career, mba | Comments (1)

How do we sell direct to consumers from our website and not upset our existing channel?

June 30, 2009 – 1:55 pm

How do we sell direct to professional consumers from our website and not upset our existing “wholesale customers”? The wholesale business has dropped by 20% this year with more and more prosumers wanting to buy our custom frame products.

The Harvard MBA says:

Channel conflict is a very real issue for a lot of companies, especially because of the rise of the Internet.  The traditional role of the channel was to cover specific markets and provide end-user support.  The Internet changed all this, allowing manufacturers to sell directly over the Web.

Unfortunately, it’s difficult to start selling direct without upsetting your existing wholesale partners.  Rightly or wrongly, they will perceive this as bad for their business.  The best you can do is minimize the channel conflict.

A lot depends on the specific circumstances.  For example, what markets do your wholesalers cover?  If your wholesalers focus on true consumers, and the prosumer business is only a small part of their revenues, you may be able to explain to them why your direct-to-prosumer sales won’t interfere with their main business.

Alternately, you may be able to involve your channel partners in your prosumer business.  Perhaps the prosumers buy the products directly from your Web site, but are referred to your channel partners to purchase support and customization services.

Either way, be careful about taking risks with your main business.  It’s human nature to be overly optimistic about new businesses.  Proceed incrementally and avoid doing anything that would pull the plug on existing sales until you have clear indications of success.

By admin | Posted in answer, businessmodel, channel | Comments (0)

Do Harvard MBAs value cooperation, or is it a cutthroat classroom experience?

June 29, 2009 – 4:58 pm

I’m in the process of applying for the Harvard 2+2 MBA program. I will graduate with B.A. from Purdue University next year. While Purdue is a large state school, I can say that I’m a well-rounded and competitive applicant. (I’m only saying this so you understand my perspective- not to garner any type of attention.)  Anyway, I’m running into a roadblock. When I visited the campus and stayed with a friend this spring, I got the vibe around Harvard that everyone had at least some sort of an ego. Whether or not that is true, it was just my experience exploring the undergraduate side of things. Does the same hold true for the business school? Is co-operation valued, or is it a more cutthroat classroom experience?

The Harvard MBA says:

I chose this question because it’s representative of a lot of questions that I get.  Many of you seem concerned that unless you go to an Ivy League school for undergrad, that you won’t be able to get into HBS.  That’s simply not true.

While it is true HBS accepts more students who did their undergrad work at Harvard than any other university, Harvard grads only make up a small proportion of HBS students.  In fact, the majority of HBS students did not go to Ivy League schools for their undergrad years.

Don’t get me wrong–all other things being equal, going to an Ivy League school will help you get into HBS.  But all other things are seldom equal, and if the choice is between going to a state school, or going to an Ivy League school and bankrupting your parents, I know which one I would choose.

This same concern about snobbery comes through in the question about student attitudes at HBS.  There is no doubt that HBS students are arrogant.  The school practically encourages it.  But it is also true that HBS students are generally more well-rounded, and a reasonable number of us are actually decent human beings.

When I was in school, one of my friends produced a shirt for the entire class that read, “HBS 2000: Leaders of the New Millenium.”  Another mutual friend remarked, “Yeah, that shirt is fine, but I don’t think you should wear it down in Roxbury. [one of the rougher, working-class neighborhoods in the Boston area]”

The truth is that (at least when I was in school) HBS students are generally very supportive of each other.  “Sharking,” which consists of tearing down a fellow student during class to score points for yourself, is definitely frowned upon, and the “Sharks” who make a habit of it tend to be ostracized by the other students.

Ironically, HBS and HBS students are actually more supportive than Harvard University’s undergrad program, which is famously indifferent to whether or not you graduate.  My wife earned her BA from Harvard, and constantly marveled about how differently (and better) HBS treated its students than her undergrad alma mater.

By admin | Posted in admissions, college, mba | Comments (1)

What good is an MBA? Isn’t a skill where you can build value a better idea?

June 28, 2009 – 3:45 pm

What good is an MBA?  Aren’t MBAs the turkeys that led us into financial crisis while getting rich themselves?  Isn’t a skill where you can build value rather than devise complex money laundering schemes (like CDOs) a better idea?

The Harvard MBA says:

Since I’ve already addressed the role of Harvard MBAs in financial crisis, I’ll focus instead on the second half of the question: Does business school teach you any valuable skills?

The implicit assumption in the original question is that unlike in other fields, business education doesn’t build value.  No one wants to board an airliner designed by a college dropout, appear in court with a lawyer who learned his skills from reading popular law books, or submit to surgery by a self-taught doctor, yet when it comes to business, many people seem to have the attitude that anyone can do it, and that the MBA degree is simply an old boys’ club, much like a Ivy League secret society.

It may be that people feel this way because there are so many examples of successful self-taught businessmen; Bill Gates and Steve Jobs spring to mind immediately (somehow no one ever points out that the universally revered Warren Buffett studied at Wharton and earned an advanced degree from Columbia, along with his University of Nebraska BS).  Yet even these exemplars have benefited from the help of folks like Steve Ballmer (a Harvard MBA)  and Tim Cook (a Duke MBA).

The fact is, while business is not a hard science like medicine or engineering, it is a real discipline with a broad set of knowledge and skills, and business education does serve a purpose.

For example, how many regular folks understand accrual accounting or discounted cash flow analysis?  If you asked a man on the street to analyze why Wal-Mart is successful, would he be able to provide any insights beyond, “Low prices?”

Indeed, the very fact that MBAs were responsible for disastrous financial engineering products like CDOs (again, how many folks without an MBA really understand how these work) demonstrates the power of business knowledge.  Any tool of great power can be abused; medical knowledge can be used to devise bioweapons, engineering knowledge can be used to destroy buildings; why should business be any different?

It is also true that there are other ways to obtain these skills beyond attending an MBA program.  You could certainly find textbooks to teach you many of the same principles you might learn at HBS.  But the same applies to medicine, engineering, or any other complex field.

What an MBA does is give you a broad business education.  The fundamentals of business, if you will.  What you choose to do with that tool is ultimately up to you.  Choose wisely.

By admin | Posted in answer, economy, mba, recession | Comments (7)

Why do Asian women prefer white men? Seriously… why?

June 27, 2009 – 3:39 pm

“Why do Asian women prefer white men? Seriously… why?”

The Harvard MBA says:

Ah yes, this is an oft-observed but seldom-analyzed phenomenon!  The key is to focus on a market-driven analysis.  The inevitable conclusion is that Asian women prefer white men because white men prefer Asian women.

The concept of market segmentation is both basic and powerful.  Businesses succeed by identifying the market segments with the greatest willingness to pay, and then catering to them.  There’s no value judgment involved–if young people want to watch trashy reality television, let there be “The Hills”!

In the case of Asian women, over the past several decades, they discovered an important fact: Most white guys have an Asian fetish. Heck, pretty much all (non-Asian) American males do.  For example, take the Outkast song “Hey Ya“.  In it, the African-American recording artists sing, “Now all Beyonces, and Lucy Lius, and baby dolls, get on the floor,” implying an equivalent level of attractiveness between Beyonce and Lucy Liu.  I consider myself an connoisseur of female beauty, and I can tell you that Lucy Liu would not be considered hot if she weren’t Asian.  Beyonce is way hotter than Lucy Liu (though neither can hold a candle to Jessica Alba or Megan Fox).

Lest you think this is a unique phenomenon, let me point out that many white girls have similar fetishes for British, French, Spanish, and Italian accents (This is most entertainingly demonstrated in “Love Actually“, where a British loser decides to travel to America, where all the women love English accents; he ends up in Milwaukee, and within a few hours, is engaged in group sex with three American girls, including Elisha Cuthbert.  See also, “Banderas, Antonio”.)

These fetishes represent a market inefficiency; the British loser in “Love Actually” would have no chance at bedding a single attractive woman in his native England, let alone three.  Thanks to the White Guy Asian Fetish (”WGAF”), even unattractive Asian women have a chance to score a significant other or mate.

And remember, race isn’t even the only factor.  The millieu also matters.  One of my friends once taught Economics at UC Berkeley; he told me about the time he heard two Asian undergrads in his class talking about their frustration with the Asian chicks who went the Berkeley.  What really offended them wasn’t the exploitation of the WGAF, but rather that the Asian chicks at Berkeley weren’t even that hot, because “all the really hot ones went to UCLA.”

Put yourself in the typtical Asian woman’s shoes.  Let’s say that you have your choice of two guys.  The first guy is average-looking, of average intelligence, and has an average career.  The second guy is good-looking, smart, and has a good career.  Which one are you going to choose?  If the only difference is that Guy #1 is Asian and Guy #2 is white, my guess is you’re choosing Guy#2.  That’s not racism, that’s smart market segmentation.

P.S. The logical follow-up question is, what should I do if I’m an Asian guy?  My advice:  Try to exploit market inefficiencies and go for chicks who dig martial arts movies.  Do you think Jackie Chan or Jet Li ever lacks for babes?

By admin | Posted in answer, marketing, relationships | Comments (149)

Heeeee’s Back!

June 27, 2009 – 2:19 pm

Jack!

Loyal readers:

As you’ve probably noticed, it’s been about two months since my last post.   Things have been insanely busy for me (for a sample, check out this post on my personal blog) and I haven’t kept up.

To make it up to you, I’ll be answering one question per day for the next week.  I’ve got enough questions in the backlog to fill several decades worth of posts, but if you think you’ve got a good one, now is the time to send it in.

By admin | Posted in Uncategorized | Comments (0)

Question For My Readers: GMAT Prep Via iPhone

June 15, 2009 – 11:24 pm

Hey guys, do you know of any iPhone apps for GMAT preparation?  I’m looking for such an application to pass on to my readers.  Let me know if you’ve used one!

By admin | Posted in Uncategorized | Comments (3)