MBAs and the "paper world syndrome"

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Disclosure: I have an MBA. This is not a rant or an MBA bashing post. I am no better than anyone else out there. I get punched in the face on a regular basis. The frequency of such events is declining with time. Thank God for that! This post is going to be slightly long. This comes from my experience of dealing with entrepreneurs and angel investors. Hopefully it won't be a complete waste of time. 

Time and again I encounter something that can only be described as a "paper world syndrome". It is not something that can be single-handedly responsible for the downfall of startups, but it is serious enough to delay success (which often leads to failure). My personal experience has been that this problem is severe in people who have a business degree. It is not just about the oven-fresh MBAs (I rarely get a chance to work with them) but also business graduates who have spent some time in the corporate industry. Some of them even 10-15 years.
In business schools we used to eat models for lunch and cases for dinner. While does build an appetite and acumen for discussing business problems, it does a lot of harm too. It disconnects us from the real world. We did so many case studies that by the end of it our brains started to believe in a paper world. 10 people or 100 people were just figures. We got insulated from the fact these figures represent real people who exist in flesh and blood. It might be useful to have two personal experiences.  

Example 1: Few years back I had hired some fresh MBAs to brainstorm ideas for increasing traction for a company I had invested in. It was a B2B product for the education sector and we were looking for creative ways to generate sales leads. On a consistent basis they would came up with ideas that were either too expensive or just irrelevant. Not that they were silly or lacked knowledge (some of them had 3-4 years of corporate experience). It is just that a risk for someone else, is not a risk at all.

"You should promote a series of trade-show like events using newspapers. In these events you could invite decision makers to have lunch and use your product". 

It seems alright, doesn't it? The only problem is that ours was a B2B product and that means we needed to reach out to few hundred decision makers in a city. Displaying advertisements in public newspapers like that would mean that we reach a lot of people who wouldn't care about us. If at all we had the money to spare, we would buy ads in a B2B magazine that these people were likely to read. The product was also not a "regular use" product and that meant it was unlikely someone would call us just by looking at an ad. Free lunch sounds exciting but not really for Directors and Deans of top colleges. There is a better chance to just invite them personally and 1 in 10 would finally meet us after weeks and months of followups. To them of-course the company, people, market, risk- everything exists only on paper.

Example 2: An entrepreneur from my personal network approached me for investment in his company. It was a 2 person company with some temporary sales people hired on a need basis. He had gaping holes in his present business model (one of them being that the product looked like a copy of major company in the same field). He was however very upfront with information and said the money they are raising is for a different model. It had some similarities to what they were doing right now but of-course the model existed only on paper. He had plans to expand this to multiple cities and the only thing that was holding him back was capital (having been on both sides of the table, I know that it is rarely true. Most people really bad ideas).

He was a bright guy with a good track record of advising big and small companies (and an MBA). He was trying to raise money for a business model existed only on paper with absolutely no progress in the real world. He had no prototype/platform, no team, no relevant experience in that field, no revenue or traction. And yet he seemed a bit confused by my assessment that I would have to keep an unfair amount of equity to justify the high risk (even though I was planning to return it back to the team over a period of time). 

Despite having worked part-time on a startup for a few months, he had acute "paper world syndrome". He hadn't yet realized that running a startup is not like having a job. Just because it is someone else's money, the risk doesn't go awayI was a bit confused as to what am I supposed to invest in - a piece of paper with some figures on it? He actually he wanted me to pay for his experiments (with a salary for him to commit his full time) and saw nothing wrong with that. It is important to note that his ideas were anything but ground breaking (ideas don't have to be life altering for building a successful business, but still).  He, like most, MBAs was extremely good at extrapolating things which is not a bad skill to have but it is certainly not a replacement for real things. 

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