Life After a Startup Exit, Is an MBA Worth It if I Want to Be an Entrepreneur? and The Algebra of Wealth

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0:41Welcome to the second episode of the PropGPod special series covering the future of entrepreneurship. In last week's episode, we answered your questions about work-life balance, raising capital for your business, and what makes a good entrepreneur. Here's the bottom line. The founder is the one that went home to their spouse and said, yeah, work was really hard this month. It really sucked. I'm working my ass off. I realize I can't see you or the kids that much. And in exchange for working my ass off, we get to pay the company$100 ,000 this month because we need to invest to keep the company alive.

1:14That is called a founder. And most people are not willing to do that. I've raised over a billion dollars for my companies and special purpose vehicles. And I think I'm really good at it. And I've always found it really, really hard. I just got to kiss a lot of frogs, make a ton of contacts, call people, meeting after meeting to find out, oh, they loved it, but they're not going to invest for the fund. I've always found fundraising really, really difficult. If you want to have a more sane job and balance, then I think you're going to have to take a job with someone where you don't make as much money or have as much upside, but it's more manageable.

1:56If you want to start your own business again, you're either 110 % in or it's probably not going to work.

2:05Today, we'll be answering questions on life after startup exit and whether to pursue an MBA. After that, we'll be featuring an excerpt all about entrepreneurship from my new book, The Algebra of Wealth, A Simple Formula for Financial Security. Question number one. Hey, Scott, this is your neighbor, Alan, from London. I hope you're enjoying living in the best city in the world. I absolutely love the podcast and I've got a question for you, which I think that you are ideally placed to answer. I've got my own podcast called Bulletproof Entrepreneur, where I speak with founders and the focus is about the human journey as much as the business or financial one.

2:41So now 20 something episodes in, there's a theme emerging that surprised me a little. Several business owners who exited and received life-changing sums of money such that they never need to work again have struggled with life on the other side of a business sale. It seems to me that so much of a founder's identity is wrapped up in their business. And once that's gone, and despite all the financial rewards, it leaves a hole that's hard to fill. As an entrepreneur who's had successful exits and advises other business owners, is this something you've observed? And what's your advice to those planning on a sale and exit in the future?

3:18Thanks again, and I hope to see you around town. Alan from London. Thanks for the question. I've heard about this a lot, that people at a young age usually register enormous success financially, and then they struggle with their identity, and they're actually sad. To be blunt, I just don't get it. But I mean, I know it's out there. I know it's true that some people suffer from this. Jesus Christ, when I finally hit financial security, when I finally sort of, when did it happen? I guess it kind of happened slowly and then suddenly, which is how Mark Twain describes how you go bankrupt. But when I really got to a point where there was just no way I could be anxious about my financial security, yet I still managed to be anxious about my financial security.

4:03But when I got to a point where rationally I knew I was kind of done and that I could focus on other things, I'm about 10 years into a 20-year exhale. I love it. I mean, I just am so happy about it. So I want to be clear. I don't relate to it. I guess when you work so hard at something and you devote so much of yourself to it in pursuit of the goal and then you reach the goal and you think, well, what's next? I don't get it. And I got to be honest. I don't have a lot of empathy for them. I think there would literally be people who would kill for their problems. So I think it's a flaw. I think that to not appreciate stuff, to not be able to find great ways to be productive and happy once you have economic security, that means something is truly, in my opinion, you are not thinking creatively enough.

4:53I just think the money gives you so much opportunity to do different things. It might be a bit of a letdown for some people that once they get there. I remember taking a long walk on the beach when I sold my company. I'm like, okay, that's it. I'm done. And I remember thinking, does it feel different? And it wasn't that it was like a sensation or a high. It was just a bit of a feeling of like an absence of anxiety and a feeling, quite frankly, of pride. I felt really good about the people I'd worked with and I felt good about myself. I wasn't thinking about anything I was going to buy or anything like that.

5:28I pretty much had everything I wanted. But it sounds like whoever registers this type of crisis deeply needs therapy to recognize their blessings because the only thing that's getting in the way of them and happiness is them. And unfortunately, the majority of the world has a lot of real obstacles that stand between them and happiness. I'm sorry I don't have a better question for you, But I appreciate the call and congrats and good luck on your podcast. Bulletproof, what a great name. Next question. Hey, Scott. My name is Evan. My question relates to the pursuit of entrepreneurship through the avenue of an MBA.

6:06Many MBA programs now tout their new venture centers, startup courses, entrepreneurship concentrations, et cetera, all geared towards students who wish to launch their own business. Do you think it's smart to go this route, that is, gain an MBA-level business toolkit to confidently launch a company? Or do you like the mindset that launching a business is in itself its own form of an MBA, if you will, and therefore entrepreneurs are better off jumping into the deep end without pursuing an MBA? I'm sure you have some interesting thoughts on this, and I look forward to hearing them. Big fan of the pod.

6:42Keep up all the good work that you do. Thanks. Thanks for the question. I get a lot of questions around. This is sort of a different twist on to MBA or not MBA. Today, over 30 % of CEOs hold MBAs, up from 20 % in the 80s and 90s and up from 12 % during the 70s. look, okay, so should you get an MBA as a means for pursuing entrepreneurship? I would separate that. I would say, okay, do I want to get an MBA? Do I want the learning, the networking? Am I fascinated with business? Because the key attributes around being an entrepreneur aren't domain expertise or financial information. It's going to help.

7:20It's going to help you to have business skills, no doubt about it, or increase the likelihood of your success, the contacts. But the primary skills to be a great entrepreneur are to be incredibly risk aggressive, to sell, to be able to sell. You're selling funders, employees, clients, and also the willingness to just endure rejection. You have to be incredibly risk aggressive. And most people aren't. People say, I'm a risk taker. Well, are you willing to sign the front of checks, not the back of checks? If you have those attributes and you have a good idea, maybe a partner, maybe someone, an idea, you're ready to go, then I would just skip the MBA.

7:54Having said that, if you like the idea of business school and think maybe there's a chance you end up going to work for a company or a startup, someone else's startup, or you think you need a couple of years to sort of brainstorm and meet some potential co-founders, the co-founder of my first business prophet I met in business school. And the wonderful thing about Ian Chaplin, my co-founder, if you met us, you would think we were a different species. He is an introvert, very strong technically, operationally, very buttoned up. Everything I'm not. And that's why we made great partners, because I could sell.

8:27I was sort of the front man, the client person. And he basically ran the firm, the back end, the operations, the finance, the technology, all that good stuff. And it was a good partnership. And you'll meet those types of people in business school. So I think it's not the question around, is this the best way to get to entrepreneurship? The question is, you know what business school is. It's two years. It's great certification. It's great learning. It's a chance to establish a good network. I do think you have to be thoughtful about getting an MBA outside of now, say, the top 30, because I just don't think the ROI is there, given how expensive it's become, unless you're wealthy or you get scholarships.

9:03Can you be an entrepreneur now? Can you get to the business you want now? Then go for it. will an MBA make you a great entrepreneur? No. So just divorce your kind of aspirations about being an entrepreneur and say, do I want the skills and the experience that an MBA offers? And then if you decide to be an entrepreneur, great. To a certain extent, getting an MBA, we don't have the most entrepreneurs. More entrepreneurs come out of the undergraduate school because if you're getting an MBA, you're usually a little bit more risk averse. Do you want to be an entrepreneur? Do you have opportunities now?

9:34Or would you like to go spend two years in business school at a good school and can you afford it and what is the opportunity cost appreciate the question best of luck to you kind of again under the auspices of a good problem we'll be right back after a short break for an excerpt from my new book the algebra of wealth

10:21We'll be right back. at linkedin.com slash campaign. Terms and conditions apply.

10:29Welcome back. Here's an excerpt from my new book, The Algebra of Wealth, A Simple Formula for Financial Security. Also, just a quick note, if you publish or if you post in any social media and tag me a receipt for the book, that you purchase the book, I will donate$50 to Charity Water that is bringing potable water to sub-Saharan Africa. I've been involved with Scott Harrison in Charity Water for a good, gosh, the better part of 20 years now. This is an inspiring man and an inspiring company, organization that's doing great work, and I'm proud to have been associated with it for a long time. And anyways, please just post the receipt and then 50 bucks to Charity Water.

11:16Entrepreneur. One of the many things I learned working at Morgan Stanley was that I didn't want to work at Morgan Stanley or any other large organization or for anybody else at all. I resented people senior to me, didn't take criticism well, took offense at trivial injustices, and was not motivated unless I felt a direct connection with rewards. See above, I lack the skills needed to succeed in a large organization. Fortunately, that's the defining characteristic of an entrepreneur. As a society, we romanticize entrepreneurship. I've met hundreds, perhaps thousands of entrepreneurs, and I'm convinced the majority did not start companies because they could, but because they had no other options.

12:01Young people seem deflated when I tell them this, but working at an organization or platform offers better risk-adjusted returns. The reason the organization exists is it can pull together resources and be greater than the sum of its parts Be one of those parts and it will share that excess value with you If you have the skills and patience to navigate the obstacles and the politics and the maturity to endure the guaranteed injustices You will over the medium and long term reap rewards I started at Morgan Stanley with a colleague who is now a vice chairman We ended up in a similar place economically, but I'd guess he's endured substantially less stress and volatility.

12:47Our economy benefits from the mythologizing of entrepreneurship as we need people to pull the future forward in ways that challenge orthodoxy and disrupt legacy businesses. But the stories we tell ourselves about entrepreneurship are based almost entirely on the sliver of ventures that become phenomenally successful. 20 % of startups fail in the first year, and in a way, they're the lucky ones. Over the next 10 years, another 45 % will be put out of their misery and less than 15 % of new businesses last two decades. Media attention is lavished on outliers among the outliers, consumer apps and product services that are familiar or understandable to us.

13:31Among the exceptions, startups that make their founders and investors wealthy, most are in less sexy categories. The highest survival rates belong to companies in utilities and manufacturing that require industry experience and expertise, not just a good idea and some ambition. Two kids in a garage tinkering with a computer can change the world. It happened a few times, but as a strategy for obtaining economic security, you're better off working at Google and tinkering in your garage on weekends. Moreover, win or lose, trying your hand as an entrepreneur is signing up for round-the-clock work and stress.

14:11The more initial success you have, the more stress. Say your product idea is compelling and you obtain funding. Funding really means money to hire other people. The first morning you walk into your new office, where you probably signed a 24-month lease, you have no means of paying to term, and see the fresh-faced, ambitious young people who've bought into your vision. It's a great feeling. The feeling lasts until lunch when reality sinks in. Not only does your own economic security depend on your crazy idea, but now you've taken on the economic future of other people. And for every new hire, every new customer, the amount of responsibility and stress increases.

14:52Employees need health insurance and payroll. The new hire you could barely afford goes on disability leave after two days in the office. and the sponsor at your key client gets fired. Oh, and your key employee is displaying signs of what looks like serious mental illness. So you spend the evening debating whether you should call their parents. And your CFO informs you we need to do a board call because your opiate-addicted assistant has charged$120 ,000 on your credit card at pharmacies all over Manhattan. Everything in the previous paragraph happened in the same month at the same firm? Yay, entrepreneurship.

15:32But if you're still reading, what are the positive qualifications for successfully starting your own business? Successful entrepreneurs are typically strong communicators, able to motivate a team, persuade investors to step up, and clients to get on board. Entrepreneur is a synonym for salesperson, full stop. We sell our vision to investors, employees, and customers. At the beginning, vision is all there is. How do you know if you can sell? You know if you have a knack for this from a pretty young age. Escaping punishment for missing homework, getting your mom to lend you the car, approaching a strange girl or guy and getting their number.

16:13All are sales training for youth. You have to be able to get back up off the mat. Entrepreneurs miss more shots than they hit, and they take a lot of hits. For me, it began in high school. I ran for sophomore, junior, and senior class president, and I lost all three times. Based on that track record, I decided to run for student body president, where I, wait for it, lost again. Amy Atkins turned me down for the prom, and I was cut from the baseball and basketball teams. Then, I was rejected by UCLA, the only school I could afford, as I could live at home. However, I never lost my sense of enthusiasm.

16:55I appealed the rejection, UCLA admitted me, and by my senior year of college, I was president of the Interfraternity Council. Weak flex, I know, but it felt important at the time. I graduated with a 2.27 GPA, but that didn't stop me from getting a job in the analyst program at Morgan Stanley, applied to 23 firms, one job offer, or getting into graduate school at Berkeley, applied to nine schools, rejected by seven. In sum, the secret to my success is rejection. When you're running a small business, cash flow is so important. If you aren't willing and able to watch what comes in and, more important, what goes out every day, you'll go bust.

17:40If your obligations get out ahead of your opportunities, you'll go bust. If you're in tech and it's a boom phase of the cycle, there will be venture capitalists willing to dump large chunks of cash into your business. Don't be fooled. It's not out of kindness. The more you spend, the more you need, and eventually your funders will own the company, and you'll go from being an entrepreneur to an employee. Make your business work up the money your business makes as quickly as possible. Product is important, market fit is essential, culture and talent retention are critical, but cash flow is your company's lifeblood.

18:18Finally, founders have to simultaneously hold two diametrically opposed views of the world. They have to be irrationally optimistic about their ultimate success. That's essential to the salesmanship and the resilience to failure, of course, but it's even more fundamental. If your startup idea is rational, Google or GE is already doing it. The only reason the market leaders have left you an open lane is that your idea is probably irrational. You have to have the optimism to see past that. At the same time, day to day, you have to be the harshest pessimist in the organization and worry about everything.

18:59Is a client account tenuous? Might key employees leave? Are you one bad month away from not making payroll? The answer is yes. The upside to entrepreneurship is similar to that of parenting. You conceive something, care for it, love it, and nothing in your career will likely cause as much stress or deliver as much joy. When things work, there is a real sense of achievement that you started something that is working. People recognize how hard it is and show a level of appreciation and respect that's close to what it feels like to be loved. In addition, there's no ceiling on what you can make. Employees, even the CEO, are somewhat range-bound by what seems fair or reasonable to pay you.

19:45In the years I sold firms I started, I made tens of millions of dollars. No employer, however good I was, would have ever paid me so much. That's all for this episode. If you'd like to submit a question, please email a voice recording to officehours at PropGmedia.com. Again, that's officehours at PropGmedia.com.

20:14This episode was produced by Caroline Shagrin. Jennifer Sanchez is our associate producer, and Drew Burrows is our technical director. Thank you for listening to the Prop2Pod from the Vox Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice, as read by George Hahn, and on Monday with our weekly market show.