Archive | September, 2011

A Solution to the MBA/Entrepreneurship Paradox

5 Sep
cunning plan

As cunning as a fox that's Professor of Cunning at Oxford University

There’s a paradox that comes with doing an MBA and then trying to be an entrepreneur.

I’m not talking about whether or not MBAs make good entrepreneurs, or whether anything you learn on an MBA is useful for a startup. Sure, most MBAs go off to become management consultants or work in finance, but from my school I think there’s at least 10% that go off and start companies after their degrees.

No, I’m talking about the paradox of leaving a degree with a shed-load of debt and trying to “bootstrap” a startup. You can reduce many costs to try and extend the metaphorical runway, but the massive £500-600 a month loan repayments that kicks in 3 months after you finish the course makes for quite an elephant in the room.

The problem is that when you explain to investors what your personal bootstrapping cash burn-rate is you have to inflate it from a fairly reasonable £21k to around £30k (gross salary equivalents before tax), which doesn’t sound much like bootstrapping to an investor.

Put bluntly, the MBA loan repayments make it damn difficult to live cheaply after your course finishes. Of course not everyone has to take such a big loan to do the MBA, but I think I’m far from the minority (Note: my running out of runway problem doesn’t even include my loan repayments as I’ll have run out of money before they even start. Ha!).

Fear not though, I have a cunning plan that might cure this paradox!

Problem: Business schools want to encourage entrepreneurship. MBAs are expensive and most students have to take chuffing huge loans to pay for them, which impedes entrepreneurship.

Solution: business schools refund the MBA loan to the bank and converts it to convertible debt based on the startup the student has started during the course. The loan would convert to equity in the startup at the first qualifying financing round. If they don’t raise any finance within a certain time-period, then the loan reverts to a normal personal debt, with interest accrued.

There would of course have to be some safe-guards to prevent wide-scale abuse and people setting up fake companies after the degree, but I’m sure with some more thought it could be possible.

Of course it will never happen. The amount of money the school would “lose” in the short-term would be massive. Perhaps a benefactor could finance the scheme?

I know it sounds like a fairly hare-brained scheme, but put it this way – if a business school really believes its MBA programme is compatible with entrepreneurship and it really believes in the students it recruits, then it should have confidence in the businesses they start. If they got one or two home runs, then they could make a good return.

Potentially true

I was considering titling this post, “would anybody like to pay off my student loan for me?”, but that seemed a bit too blunt.


Running out of runway

2 Sep

This is what happens if your runway is too short

It’s the start of September and I have approximately 1 week of my MBA left with our Capstone Course next week. Technically I think I remain an Oxford University student till the end of September.

I also, by my calculations, have enough cash left in the bank to last me until the end of November (based on my current burn rate, which is pretty low). Oh, and come January, repayments for my rather massive MBA loan kick in. None of this would be a problem if I was being sensible and trying to look for a regular job like most of my class (quite successfully it seems recently), but oh no, I’m trying to become an entrepreneur.

So over the Summer I’ve been working on a Strategic Consulting Project (SCP) with a couple of classmates, looking at my original startup idea in more detail and as a result you might say the original concept has evolved, or “pivoted”, to something a bit different, but still with the original idea at its core.

The question now is – how do I pursue the idea? I want to, but in many ways the SCP has left me with more questions than answers. Still, I’m convinced there is a real opportunity there, but the rather practical problem of paying my rent and bills is getting in the way.

So there the advice falls in to two distinct camps – the “you need to just go for it and commit 100%” camp, and the “get some part-time consulting gigs to support you while you develop the business” camp. Which is right?

I know I prefer the “100%” camp, but it doesn’t really answer the “pay my rent” question. I unfortunately don’t have any rich benefactors to support me for those extra 3 months I need to give this a decent shot beyond November, and when you factor the loan repayments in the amount of “salary” I need is a bit above what you might call “bootstrapping”. Such is the MBA/entrepreneurship paradox.

I know what the recently published Startup Genome Report says – people who do a startup part-time raise 24x less funding that those that commit full-time.

“Temporary moonlighting is permissible but significantly curbs performance and potential.”

Another entrepreneur did say to me the other day that if I can’t convince someone to give me money to live for a few months then maybe the idea is not good enough. I’m not sure about that. Rich people tend to be rich because they don’t part easily with their money. I think maybe my problem is that, despite a year of study, I am still at the idea stage – and people don’t tend to get investment at the idea stage. Ideas are easy.

In the meantime, what do you think I should do – is part-time entrepreneurship possible? Is the “100%” camp biased by the Silicon Valley echo-chamber? Leave a comment below!

This startup malarkey is a bit of an emotional rollercoaster, and I’ve barely even got started! I have to admit it is beginning to stress me out a bit.