Elite MBAs and Wealth

15 points

16 years ago

"If you work your way down the Forbes 400 making an x next to the name of each person with an MBA, you'll learn something important about business school. After Warren Buffett, you don't hit another MBA till number 22, Phil Knight, the CEO of Nike. There are only 5 MBAs in the top 50. What you notice in the Forbes 400 are a lot of people with technical backgrounds. Bill Gates, Steve Jobs, Larry Ellison, Michael Dell, Jeff Bezos, Gordon Moore. The rulers of the technology business tend to come from technology, not business. So if you want to invest two years in something that will help you succeed in business, the evidence suggests you'd do better to learn how to hack than get an MBA." - http://www.paulgraham.com/start.html

I will argue that this is, nowadays, complete nonsense. It might well have been true if you were born early enough to start a company during the dot-com bubble, like Paul Graham was. But it is definitely no longer true.

If you look at the list of the top 50 wealthiest people in America (http://en.wikipedia.org/wiki/List_of_members_of_the_Forbes_400), you will indeed find a lot of technical people there. However, trying to succeed in the industry that has just made a whole bunch of people billionaires can be a sucker's game, because whatever market inefficiency those people exploited is probably gone by the time all of those people got rich enough for you to hear about them. It can be like trying to get rich off of real estate in 2008, or trying to get rich off of gold in 1981. Markets are anti-inductive (see http://lesswrong.com/lw/yv/markets_are_antiinductive/).

What you really want to look at is what things are causing people to become successful, right at this moment. How does technology stack up? Here is the list of the top 20 most visited websites in the US: http://www.alexa.com/topsites/countries/US. Of the ones that were founded after the Bubble:

- Facebook appears to be the only one which will give the founders a decent shot at becoming billionaires.

- YouTube was bought by Google for $1.6 billion- a nice amount, to be sure, but that's only a few hundred million per founder, not the billions that earlier founders got.

- Wikipedia is, of course, a nonprofit.

- Blogger was acquired by Google. The amount was undisclosed, but it was probably in the low-mid tens of millions range, a (comparative) pittance.

- MySpace was bought by Rupert Murdoch for $580 million, again leaving only a hundred million or so per founder.

- Twitter is an interesting case, but the large percentage of their users that are inactive makes me believe pretty strongly that they'll either burn out or sell out for a relatively low amount. I'd bet on that, if there's any way for me to short Twitter stock.

- LinkedIn has a fairly stable valuation of around $1B, again leaving a few hundred million per founder.

So, for whatever reason, the mechanism that allowed so many people to become billionaires by starting companies during the dot-com bubble and earlier appears to be mostly gone. On the other hand, there are few indications that an elite MBA is losing its value, because it's not tied to any one industry: if the coal industry or the drug industry or the computer industry went bust tomorrow, an MBA would still be a valuable asset. There are, as of now (2010), seven people with MBAs in the top 50 richest people in America. It is also important to consider that, out of those 50, 18 simply inherited their wealth; any idiot can become a billionaire by inheriting a billion dollars. So, out of the self-made billionaires, 7 out of 32, or 22%, have MBAs from a top business school. Those aren't bad odds.

Of course, there are matters to consider other than pure pursuit of the largest number of dollars. At a certain point, after all, having more money won't really improve your standard of living. A hundred million dollars should be enough to maintain any reasonable lifestyle. And there are certainly people here who would be very happy writing computer software and unhappy taking business classes.

So, what about becoming a "mere" centimillionaire? Well, I must admit that I don't have hard data here, but I suspect that you'll also do better trying to make a hundred million in startups by focusing on skills other than hacking. The reason is simple: the idea of Silicon Valley has spread so far that it's now seen as the way for technology people to get rich. Hence, the industry is flooded with technology people. So, if there's type of startup 1), which focuses more on pure technical skill, and type of startup 2), which focuses more on social skills and deal-making ability, it's probably going to be a lot harder to make money doing type of startup 1), because there's so much more competition. Hence, the most successful people tend to be people like Sam Altman, who is a good programmer, but who also does "businessy" things that a lot of hackers wouldn't like, like doing deals with cell phone company executives.