Myths of Entrepreneurship: The MBA Version
The tacit business school definition shies away from messy reality
Myths about entrepreneurship, both unspoken and explicit, surround us: Entrepreneurs are hard-charging, street-savvy extroverts. An entrepreneur’s goal is to accumulate massive wealth. Entrepreneurs are psychologically driven to embrace risk. And so on.
Each myth describes characteristics of a few entrepreneurs, but misleads with respect to most. Entrepreneurs comprise a diverse group of individuals with widely differing motivations, goals, and values.
So as a teacher of entrepreneurship in business school programs, it pains me to confess that my profession, too, has created its own unspoken, yet pervasive, myth of entrepreneurship, one tacitly accepted by many MBA students and faculty.
A formula explicating this myth might read like this:
E = BP + PF
or Entrepreneurship = Business Plan + Professional Funding
Operating under this tacit definition, business schools imply that the central challenge of entrepreneurship is to secure funding from professional investors based on highly compelling business plans. This notion is often reinforced by a sequence of courses and events leading up to a business plan contest, which is the climax of the entrepreneurial journey insofar as it can be emulated within a university setting.
But there are several fatal flaws with the E = BP + PF definition.
First, 99% of all new enterprises worldwide — for-profit and nonprofit alike — never receive a penny from professional investors. In other words, the definition of entrepreneurship implied by business schools excludes 99% of all new enterprises. This bespeaks a certain lack of realism.
Second, robust research studies have demonstrated that the existence of a formal business plan is unrelated to entrepreneurial success. In short, a business plan is neither a necessary nor sufficient condition for success.
Third, there are different types of business plans, each with a different purpose. Investment pitches comprise only one type. More to the point, getting funded is just one milestone near the beginning of the entrepreneurial journey (and the least common milestone at that). It is hardly the journey’s endpoint.
Why, then, do business schools focus so heavily on business plans? I believe there are three reasons.
First, the business plan is one of the few tangible “outputs” students can create in a classroom without actually starting a venture. And teachers need something tangible as a basis for assigning grades.
Second, teaching business plans is, in one sense, easy. There are hundreds of nicely-formatted templates available for free online. Students can download them, fill them in, and presto! They’ve created a “business plan.”
But it’s far more difficult to teach the real work of early-stage venture planning: business model development and validation. One reason is that business model development and validation is a process during which conventional market research techniques, with the exception of expert opinion, prove largely ineffective.
A third reason for teaching business plans is that they make possible activities such as pitch practices and business plan contests, which are fun and exciting. For most participants, though, the real value of these activities lies in gaining presentation experience. In my entrepreneurship classes, written business plans count for less than 25% of a student’s grade.
A more realistic equation for entrepreneurship à la Clark might read:
E = BM + BMV + SE + P + 26X + C (s) + L, where
Entrepreneurship = Business Model + Business Model Validation + Sweat Equity + Partnering + 26 Unknown Factors + Capital (sometimes) + Luck
Messy and chaotic, isn’t it? Just like real entrepreneurship!
So beware the implicit MBA myth about entrepreneurship. And if you’re considering going to business school, choose your program wisely.
You may also enjoy:
“The Surprising Truth About Why People Become Entrepreneurs“
“Three Things I Wish I’d Known Before Starting My Own Business“
“How to Go Solo Without a ‘Big Idea’“
“The Soul of an Entrepreneur, the DNA of a Business“
“Making Money: The Right and Wrong Questions to Ask“
“How to Create Wealth, How to Keep Wealth“
“For Entrepreneurs Starting with Nothing, Here’s the Ultimate Strategy“
“Entrepreneurship: Why It’s Not about You“
“Quiz: Are You the Entrepreneurial ‘Type’?“
“Why a Company Founder Worth $14 Million Took a Beginner’s Class in Entrepreneurship“
5 Comments to Myths of Entrepreneurship: The MBA Version
Having started my own business and worked with several new ventures, I agree 100% with your entrepreneurship “equation.” Though it never ceases to amaze me just how many people start out believing that professional funding is the panacea of all business models.
It’s a very good thing I had a savvy entrepreneurship professor when I was in school
I’d like to meet your teacher. I bet he’s learned a lot just in the couple of years since your course
I like your equation because it shows that each of these elements can balance each other out – to some degree. Some people are stupid lucky, some work harder than imagination, etc.
I want to comment on your two points:
1. Having the physical artifact of a business plan should be the beginning of a conversation in school about all the other elements and how they work. It’s good to have the basics, but now what?
2. I read “Small Giants” and “Reality Check” just after my initial research and writing period and together made me realize that I did not want to run a company that is venture funded from the start.
Good point about the equation — I fall into the “stupid lucky” category.
Business plans are useful, but I think business schools focus excessively on business plans per se when they would do better to help students learn to develop and evolve business models.
I think the biggest problem with business plans is that people spend most of the their time on the plan and trying to raise funding, rather than working on the business.
I am guilty of this myself. I have probably written 30+ business plans over the years. Most of these never made it past the idea stage.
It is so cheap and easy to build an online business now. It is far better to just build something and find customers, rather than writing a business plan, doing market research and chasing funding. Just go and build it!