Dan Romero

Good and bad reasons to do an MBA

I occasionally get introduced to people considering an MBA who have long-term aspirations to work in tech. It’s typically someone who has spent a few years after graduating from college working in management consulting or investment banking; others have finished consulting/banking and have an additional few years experience working at an established tech company or lower growth/later stage startup.

My general advice is an MBA is expensive both in direct tuition costs and, more importantly, indirect opportunity costs. While direct tuition costs are straightforward to value, most people tend to underestimate an MBA’s true opportunity cost, especially if one chooses a post-MBA job primarily based on cash compensation to help pay off student loans. The 2 to 4 years of not working in your long-term field has significant costs when you consider that work experience is a non-linear function, i.e. there are compounding benefits to continuous work experience.

Further, the average person gets more risk-adverse as they age–so the risky-but-high-upside opportunity that would have been attractive as a single 20-something is less attractive as someone in their 30s with a young family.

That said, I do think there are good and bad reasons for doing an MBA–but I do not think it’s usually an ROI positive investment for people who want to work in tech.

Good reasons

Fun: you are looking for a 2-year break from 80-hour work weeks and are keen to socialize with like-minded (mostly) single peers and getting to travel. This is expensive (see the opportunity cost paragraph above), but for some the utility is worth it. Of course, having fun doesn’t improve your qualification for a job in tech.

Career shift: you started your career in something non-business oriented–teaching, in the military, working at an NGO–and are looking to break into business. Related, you started your business career in a more narrow field–pharmaceutical sales, automotive engineering, etc.–and want to get more general exposure to business and/or switch industries. As for working in tech, the MBA itself doesn’t add much in the way of relevant skills for a tech startup. You’d be better off taking an entry-level customer support or ops job at a startup and making the shift internally to another function after you’ve proven yourself.

“Requirement”: you are interested in working at more established Fortune 500 companies or certain types of consulting or investment firms that “require” an MBA for a specific role. I’m the most skeptical of this reason when I hear it–I can usually quickly find a counter-example via Google or LinkedIn. But for someone who wants to do career shift into management consulting, an MBA from a top-tier business school allows of a chance at interviewing. I’m not aware of any quality technology company (later stage or startup) that requires an MBA.

Bad reasons

“Learning business”: the best way to learn about business is to do actual business. This is even more true about entrepreneurship: you learn entrepreneurship by being an entrepreneur. Further, the vast majority of business school case studies are available via [blog posts], books or even [a la carte] from the business schools themselves.

“The Network”: again, the best way to build a relevant professional network is to work in the relevant industry. You’ll be interacting with people both internally and externally from your company in an actual work setting vs. academic setting. Additionally, the varying levels of tenure and seniority will offer you more opportunities for future jobs and future talent to recruit. Contrast this to business school: it’s academic, i.e. non-real world, environment and the closest connections you’ll make in business school will almost certainly be your classmates–who are also entering back into the work force at roughly the same seniority/responsibility as you are.

“The Resume”: there’s a myth that having an MBA will open up a category of jobs not available to normal people. While this may be true in consulting or banking, in most high-growth technology companies and/or startups, an MBA is at best neutral and at worst a negative on a resume. These companies will inevitably favor the person with 2 years of on-the-job learning over 2 years of academic learning.

“X successful person has an MBA”: correlation not causation. Further, if you are trying to replicate someone else’s career path in order to achieve a similar level of success, it’s unlikely to happen for the simple reason that the successful person’s arbitrage opportunity is no longer available.

Caveat lector: I do not have an MBA.

First published on September 1, 2020