What an MBA doesn't teach you about Startups?

I have a T-shirt which says, "Trust me, I have an M.B.A". And if I could add anything to that, it would be that it is from a good institute. Now why would I do that? Because in many ways you feel proud to be associated with a good school, to be one among many high performing individuals and also the confidence that comes along thinking you've studied the very best of management education. Education that mostly involved reading Harvard case studies of world renowned companies, their difficult times, their turn around stories, their successes and failures, analyzing and cracking financial numbers and things like that. If you are able to analyse a case well, it gives you a confidence that you are better prepared for similar difficult challenges in your life ahead.


But there are two important fallacies with that approach


1. Situations rarely repeat themselves in exactly the same manner and in the same circumstances or context. There are a hundred other factors that go without getting captured or analyzed in typical case studies. So you will never be fully sure if the situation is exactly similar. Even if it is, there are chances you might have forgotten about the case you read in your MBA class. This is not to say that cases have no relevance in your learning,  they broaden your scope of thinking and improve learning, but real life understanding of situation is not as easy. 


2. The second most fundamental flaw in cases, and this only applies to an entrepreneur or start-up guy, is that almost all cases teach you to handle complex situations in large, multi-national companies. Situations that become complex because of the scale of the business and operations, amount of resources and money involvement. And as well as you know, this is rarely the case in a start-up. It is more likely to help you if you are working in a management consulting firm. Perhaps that is one reason why these firms insist on picking people with good grades (at least in India).


So if an MBA mind is prepared to handle complex situations, why is that you can't apply these to a start-up? Because at the end of the day, business is all about solving simple problems in life. Think of it, why would anyone pay you for a product or service if you were not solving their basic pain point? (Nobody pays you to over complicate things in their life). Even large companies solve simple problems, its just that their scale makes their operations complex and when big money and resources are involved, you want to be triply sure of analyzing all angles to make sure you aren't making a mistake. A start-up, on the contrary, requires a rather different approach. It requires you to act quickly, make mistakes, learn from them and then move forward. If you are stuck analyzing things, you're probably not acting soon enough. 

If you aren't ashamed of your first product, you shipped too late

Reid Hoffman 

Don't worry, be crappy

Guy Kawasaki 

By all means, I don't think we should be aiming to build a crappy product, its just that you should not be aiming for perfection and complete feature product or service in first go. You should try to capture some early adopters with a crappy product, then iterate to build upon it.


So for all the MBA education has given you, you are probably not fully prepared to be in a start-up. The challenge therefore sometimes becomes more about unlearning than learning new things. 

The illiterate of the twenty-first century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn.

Alvin Toffler

In a time of drastic change, it is the unlearners who inherit the future. The learned find themselves equipped to live in a world that no longer exists

Eric Hoffer

Well this is not to say, your education doesn't help and that you shouldn't be thinking anything at all. It does prepare you to handle a lot of challenges in an early stage company - negotiation skills, marketing concepts, operations management, some elements of strategy and importantly organizational behavior, which is often a little underrated. But sometimes, it's good to let go, not let that MBA mind of yours think too much and just act because you may be surprised at what may be there to offer.

Addressing the Middle Man Problem

If your startup is like mine, which involves a large amount of offline sales and on ground personnel, chances are you are familiar with this problem. In early stages of startup, no one really knows you so there are always more questions and apprehensions about your product and much lesser conversions. Many of us live by the simple rule of cold calling prospective clients because no matter how well connected you may be, they can be only so many warm introductions that you can get.

So even though the success rate of cold calling is less, one cannot live without them. Over time, I've realized that it is not only about having a great product or a good sales pitch, its also about many other important factors that determine whether a prospect will convert or not.

One of the difficult problems in cold calling is about meeting the right person. There are gatekeepers to all big branded organizations, people who sit between you and the decision maker, who in turn will take a final decision of whether to come along with you or not. And no matter how hard you try to avoid these gatekeepers, in order to be successful, you will have to navigate through them. 

I would say that's convincing the gatekeepers is still not that big of a problem, after all you beleive you have a great product and so it shouldn't be tough for you to convince this person as well. And let us for the sake of argument go with this thinking that you were indeed able to get him interested in your product or service. Half a battle won. Good, but now what? The second half of the battle is about convincing him to act on your proposal and this is where the real problem comes. So even though theoratically it may sound trivial - why wouldn't a guy act if he is already interested in your product? And I've learned it the hard way that this is often not the case. 

Why this happens may vary from case to case but there can be few broad reasons: 

1 - Maybe he is insecure about taking a new proposal forward for the fear of failure if it doesn't go well with higher management. 

2 - They can be a motivational or incentivization problem - why should he really care about pushing for something new, what's in it for him anyways? Why take all the risk for nothing?

3 - There can also be a time or priority problem - he may have other important things on his plate and so may take his own sweet time to get things done.

Tackling the fear of failure can be addressed by using the power of social proof - Telling him that your product or service is already being used by thousands of people and taking a few big client names is likely to convince to reduce his psychological cost. Essentially you are telling him if he takes it forward, the the chances him being considered an idiot are less but he is more likely to be a become a hero of sorts. Ofcourse it is not easy to produce proof when you have none, specially in the initial stages so cracking first few customers becomes even more important.

In order to sidestep the incentivization problem, you can market the product as a benefit which solves his personal pain and not neccesarily the pain of his organization. Simply stated, if your product helps him save his personal time, money or achieve his targets, then he is are more likely to act. But its not always an easy thing to do because you may have developed your product keeping in mind the pain point of organization as a whole or people higher up the hiearchy so satisfying this middle guy may become a problem. 

To address the priority issue, which is albeit a more generic one and can even apply to non-middle men (how do you motivate guys to act?), I came across this really interesting article from an entrepreneur turned VC guy (must read) about what he points out as three most important steps in sales. 

Step 1 - Convincing the prospect that he really has a need for a product like yours

Step 2 - That he should really only be buying your product and not others since you are the best 

Step 3 - That he should really be acting now and not later because otherwise the opportunity might be lost

It is the 3rd step that is most difficult to answer and which really separates a good sales pitch from the rest. So its about classfying customers into separate buckets and focusing on those whose buying cycle matches your selling cycle. One can also try to create some kind of artificial scarcity (act now or opportunity will be gone) and that's how most Apparel Sales work (Diwali special, Christmas special). These specials force you to act because you know that the opporunity is limited. 

Addressing some of these problems is necessary to create a long term success for your startup.