Dear Dr. Peterson:
My name is Micah Merrick. I graduated in 2009 from the Wharton School of Business with an MBA in Entrepreneurial Management. I went on a failed startup adventure in the year following my graduation and wrote a free book based on my experiences called Rethink the MBA.
I am writing to ask you to reconsider the nature of your recent partnership with the Acton School of Business, or any school of business, that sells MBA degrees to aspiring entrepreneurs.
No Axes Here
I have read your book, 12 Rules for Life, and listened to many of your online lectures with interest. I am not penning this letter with an axe to grind. Others can judge for themselves, but what I’ve heard on podcasts with Joe Rogan or Dave Rubin is the voice of someone genuinely trying to help the world, one person at a time.
Furthermore, I’ve followed with interest your stated intention to start a new venture in the education space. There are many problems with The Academy, as you well know, and funding from Peter Thiel (buddy of your fellow traveler, Eric Weinstein) to support a new educational venture seems like a match made in heaven. I remain hopeful that this new venture continues apace.
The MBA Steel Man
First, let me offer a “steel man”, which supports your decision to create an MBA fellowship with Acton in the first place.
Unlike many higher education credentials, MBA degrees, especially from top-ranked schools, continue to earn graduates high salary premiums in exchange for 1-2 years of time and money. The quality of instruction is typically high. Many instructors come directly from industry with little patience for business theories that have not survived in the “real world”. Finally, the MBA experience itself can be deeply rewarding on a personal level, allowing students to connect with talented peers, and spend time in active personal reflection.
Furthermore, the Acton MBA, were it aspiring to serve traditional, career-oriented students, offers more value than a traditional MBA. It is shorter, less expensive, combines online and in-person learning, and uses teaching methodologies such as the famous Harvard Business School Socratic Method. These are important improvements upon the traditional MBA, and Acton has a lot to be proud of with regards to its academic innovations.
The Critical Caveat
Unfortunately, Acton is not trying to serve traditional MBA students pursuing careers in management consulting, banking, or technology. They are trying to serve aspiring entrepreneurs. This is a critical, even fatal, caveat to the steel man above. I know, from first principles and first-hand experience, that aspiring entrepreneurs are the wrong students for an Acton MBA, or any MBA at all. Here’s why:
Human beings with the courage, drive, and risk tolerance to attempt to start their own business are rare. On the other hand, entrepreneurs create massive economic wealth for the societies where they live when they are successful.
Unfortunately, entrepreneurs are statistically headed for failure, and it’s the fate of these failed entrepreneurs, and a society’s ability to “recycle” their talents, which determines whether you wind up as Silicon Valley, or not. If failure is not a fatal blow, or even celebrated, you get the former. If it is financially debilitating or stigmatized, you get something…well, not good.
This means that from statistical first principles, we must judge any form of entrepreneurial education by how it handles the students who “fail” to start a new business, and not fall for the trap of merely judging a program by the “successes”.
So, let’s do this, by comparing Acton against the undisputed benchmark for entrepreneurial education, Y Combinator in Silicon Valley. We’ll do this exercise, not by comparing the fate of the winners, but comparing the fate of the losers:
|Acton MBA||Y Combinator|
|Time||9 Months||3 Months|
|$ Earned||$0||Living expenses paid by salary|
|Equity Cost||0% of Company||7% of Company for $150k|
|Cost of Failure||9 months and $65,000||3 Months and $0|
Clearly, despite its innovative approach, Acton, not to mention every other “entrepreneurial” MBA offering, is far more expensive for failed entrepreneurs than the best alternative. This expense prevents failed entrepreneurs from being “recycled” in the entrepreneurial ecosystem. Rather than trying again to start a new, potentially successful company, they are stuck pursuing traditional employment in order to pay back their student loans.
It Gets Worse…
There are myriad additional problems to consider:
- Adverse Selection: The best aspiring entrepreneurs are busy starting companies, not trying to get a credential called an MBA. Hence, Acton will adversely select for students more likely to fail, exacerbating the moral dilemma I outline above.
- Skin In The Game: Entrepreneurial MBA programs have no financial alignment with their student’s success. This lack of Nassim Talebian “skin in the game” presents an intractable conflict of interest.
- Entrepreneurial Knowledge is a Commodity: Like all other forms of knowledge, entrepreneurial knowledge is a near commodity available in books, websites, and podcasts from the best practitioners, like Paul Graham, Naval Ravikant, and Marc Andreessen. Charging more than a hardcover book for this content, let alone $65,000, is unjustified. (I am not talking about customized advice from these actual practitioners! Paying PG, Naval, or Marc $65,000 for their startup advice would be a bargain.)
One Path to Redemption
In order for Acton, or any other MBA program to align with failed entrepreneurs, they must solve the problems above. They are not intractable, as Y Combinator, TechStars, and 500 Startups have all shown. However, redemption comes at the cost of a completely different business model: allowing students to pay with equity in their venture rather than with cash, financed by student loans.
If Acton, or any other MBA program, is truly adding value to the education of an aspiring entrepreneur, then the value of their equity portfolio will be on a par with a successful venture capital investor. I would support any MBA program taking this approach 100%.
However, if an business school recruiting aspiring entrepreneurs is not willing to be paid in equity, then they are unfortunately just virtue signaling about “helping entrepreneurs”, while harming those entrepreneurs that will inevitably fail in the future.
Ultimately, there is a solution to this conundrum for you personally. By all means, continue to work with Acton, Founders Institute, or any other entrepreneurial program to integrate your suite of psychological tests and writing exercises. Every student can benefit from this form of self-reflection.
On the other hand, please do not actively encourage aspiring entrepreneurs to pursue an MBA. It is simply a form of educational “help” that does more harm than good.