Y Combinator Startup Podcast - #12 - How Should Business Schools Prepare Students for Startups? - Jeff Bussgang and Michael Seibel

Episode Date: June 21, 2017

Jeff Bussgang is a lecturer at Harvard Business School and General Partner at Flybridge Capital Partners.Michael Seibel is CEO of YC.

Hey, this is Craig Cannon, and you're listening to Y Combinators 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 YCCE CEO Michael Seibel after Michael was tweeting about trends he saw in YC applications from MBAs. And 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? One of my students are applying to YC to be great founders and to be effective. 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 NBA 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. And so this usually involves two weeks of extremely intensive application reading. And the piece that kind of triggered it was after, you know, the, some countless number of applications from MBA students that were clearly missing kind of basic core tenants 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 that 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, so 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. And it was great because, to be honest, a number of business schools reached out.

And kind of it started a dialogue and I started realizing a little bit more kind of what I'm facing here. In what way? What are the things you're facing? I think that it's extremely one. I think unfortunately YC has created this model for entrepreneurship that people are trying to replicate. and it's extremely hard to repricate. Everybody wants to have an incubator. But man, like, it's a hard model.

And I think, too, 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 done a startup before. and that sends to be the case for a lot of people running these programs.

Can I throw in something here? Please. Yeah, so first, I love it does, but this question of how do you? Why C'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 tenants that we'll get into in a minute are tenants that we're trying to teach in general, putting the spotlight on encouraging students. of all 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 like preconceived notion that MBA students are not ones to create startups? Well, first, I don't know if that's true analysis every year of the large high. And there's just a ton of loud flare recently by Harvard Business School alums. There's just a lot of great points that Michael is highlighting. lessons for all entrepreneurs. You know, for example, one of the things we've gone back and forth on

is this question of research versus MVP's. 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. So I think it's not that these lessons are not applicable to entrepreneurs, just that MBAs are more susceptible to these mistakes, I believe. And I think, like, to, 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. And I think that like when I think about that group of people, they should be doing disproportionately well.

when pursuing startups. And 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 NBA 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. And so I think that gap is what I'm trying to figure out how we erase. And so what do you guys suspect are like the main issues right now that if addressed MBA students would be more successful disproportionately? It's interesting because I'd love Jeff to talk through like the causes. this is what I see as kind of the red flags.

So 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 men. And then I think the last one is what we, 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.

And that speaks to Jeff's point around MVP versus research. I think research 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. And so I think those three things, like time and time and time again, and don't be wrong, those are the central problems that most YSE applicants have. But once again, like I would imagine that like within this population, these should not be the things taking these folks down. Yeah, so I think the root causes of the problems that Michael is one of the root causes 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 that they're mainly, there's not a this year for the first time, HBS

started a club called HBS coders. There's been sales clubs, there's been marketing clubs, there's been fashion clubs, for years and years and years, but there's never been a coders club until this year. So, that's a great sign, but do other MBA programs

have coder clubs? And, you know, what percent of the students coming into these classes have technical proficiency and can mingle with the bankers and the hedge fund people and the consultants to, you know, mix it up a little bit and 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 walk in the hall this conversation just before we started taping.

You know, and this game in startup plan, it's moving so fast. If you're out of the game for five years, you're old. You're out of touch. And, you know, 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 who never had an operating job in startup land, and then they're teaching a class with no actual experience building product and building companies. You know, that's really dangerous.

So at Harvard, we've tried to create a lot of fluidity with current entrepreneurs coming in at residents and guest lecturers where maybe they don't have that. Those are only sitting in three or four or five cities around the world in high volume. Over the past week, I've been trying to think through what I would have. do if I were a business school dean. Like, and, you know, a business school dean with no shackles on. And 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 un-silow my organization fast enough or effectively enough. And so the one thing that I can do is I can control who I accept. And so one thing I wonder is, like, 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 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, but 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.

A class of 100 students this year, and this is an entrepreneurship class, found students take. Only four or five can write code out of 100. Or taking Code Academy courses or Google courses or Coursera courses and 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, they'll probably end coding skills as part of curriculum. Really? Like basically, let's see if we can teach business school kids how to code.

More about let's teach business school kids the product prototyping skills and technical architectural skills to be good business managers of technical companies. I don't think we're going to teach coders, but I think we can do a better job teaching managers of 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 in order 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% 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 in 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. He does, I think, a better job with integrating technical people into the NBA. What's happening at Harvard is the School of Engineering

and Applied Science. sciences is physically moving across the river across the Charles River to be co-located with the business school. And that's a multi-year project that's been funded by folks like Steve Ballmer and John Paulson and others. More social. You're already seeing classes that hit exactly being considered by the business school that hit exactly what you're saying. He's 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 breaking to me, because we have so many really smart kids getting siloed in these narrow land. I don't know what 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 for those entrepreneurs. That kind of relates to what I was wondering, which is like we're talking about all of this like top down organizational structure of a business school program. And 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 if it's supposed to, I mean, we have an entrepreneur. He just hustled his way to build software developers and AI specialists and has really plugged in subsequently. So it does take a little extra hustle and a little extra connectivity. What about breaking these other, these other mold? So, you know, research versus MVP. what are the things that someone can do to get out of the research mindset?

I mean, I have to be honest, the number one reason why people stay in research is they can't build their MVP. Like, this is, one of the things I often say to founders is that this is a hard problem, but it's not a complex problem. 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's going to be harder. I think the one thing that always gets me is every entrepreneur has this 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 co-founder, but man, And 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 those, 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 like we talk about this stuff all the time at Wycommoner, 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 entrepreneur 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, like, no VC would do that. But like, you know, the head of an entrepreneurship program at a university, like, for some reason, that's completely acceptable. One of the insights that I feel like people miss. But one of the things that we should be careful to distinguish is the purpose of the university. it's not experience students and so it may be

that there's a little bit of a mismatch of goals here, you know, sometimes you have to look at incentives and goals because VCs of course are going to push entrepreneurs really hard and there's this 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 mistakes and it's funding. So there is a little bit of a maybe is the thing to say that MBA programs do put forward, but they're doing it for the reason of just... I think, though, 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, there was a whole major at Yale where I went to school that you had to apply to even be able to major in that subject. Yeah, after getting into Yale, you had 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's no high school team that accepts everyone who walks in, let alone college, right? So, 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. That'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?

What should they do? Because I think that a lot of people here in the Valley would argue that if you're a business person, 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 a, a HBS or a like school. Now, 20 years from now, spend the two years stepping on MIT, and a skill set that may not be immediately high to start a plan at the same level that they left

after two years of spending a program. It's brutal. Who's in that exact boat. But 10 years from now, 20 years from now, she's going to be an awesome CEO, an extraordinary network. And I don't know if she would have had that. I can't say she would have had the same benefits

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, let's look at Cheryl Sandberg as an example.

Would Cheryl, if she had never gotten an MBA, would she have scaled as an area? See, I think I find that tricky, because I think that if you were to grab the average person on the street in the valley and 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

then 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. Yeah. Or technical. Exactly. And technical.

Yeah. Certainly being technical is not a ticket to success. I just, I guess the thing that I think about is that. Yes. I guess that's the thing I think about. I think the thing I think about is not whether or not the MBA 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 10 years, and I also have the opportunity to be at an early state startup in, you know, a valley or somewhere else, how do I make that decision? That question is if you have high conviction, you're in that situation, stay in it 20%, 40%, even 60% a year. It's not clear it's going to be you would book sharpening the saw a little bit to

sawing like crazy, a dull saw, but he can't get the tree down. So I'm too busy. Sawing. I don't have time. Do you think that applies past the top five business schools in the country? No, that's a great point, Michael. And I should have said that. Okay.

Yeah, I say to students, look, which are cities who 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, you know, who knows. But if I'm in the middle of a startup that's going well in New York, Boston or Silicon Valley, you know, between, I don't want to name a school to be too. So I think that 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 NBA as a startup. up, what is that called? It's not seen as like a positive resume item. No, it's not a positive credential. Credential is the word I'm looking for. So you better squeeze as much fucking value out of it as humanly possible because it's not

going to be like, oh, like, that's on your resume. Here's some extra points. And I think sometimes people don't think about it that way. And it's interesting, because my wife went to, business school and would surprise me more than anything were the number of career switchers at business school. I think people often, I originally thought most people went to business school to advance within their current career. And 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. But like, I don't know if that's. So I think, 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? What would you advise a student in that situation? In the case of Brad, seeing that content in your class, you have 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. And if you're not studying the canon, then Bible.

Totally agree. And I think the last question is, you know, in my mind is, you know, we 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, they can and should just raise from VCs 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 you, directly to you. It's the same thing you're pointing to in about as a VC only invest in massive market opportunities and truly transformational disruptive industries and

markets. And so if an MBA has business spin on something that's well trod, that's not investment. 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 I know, else is seeing it. And that does tend to happen from technical founders, often, something special. I mean, Blue Apron is a good example. That's a purely business model insight that a business and a Harvard net, you know, we'll see that kind of seems to be, but that's a great, something disruptive and transformative that was purely based on the business model. Yeah, totally. I totally with that. All right. Well, I think we're running into time here. So, Jeff, this was awesome. Thank you,

man. Yeah, it's great. Read the chat with you about it. All right, thanks for listening. So if you want to read the transcript or watch the video of this interview, you can check out blog.w.ycommodator.com. And as always, please remember to subscribe and rate the show. Okay, see you next time.