What They Do (and Don't) Teach You in Business School

An M.B.A. will help you run an established business, but it can't provide the real-world experience needed to run a start-up. A look at when an M.B.A. comes in handy.

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Take it from experienced company builders: an M.B.A. can be really helpful. Sometimes

A Master's in Business Administration helps most when your company is well established, according to a recent Inc. fax poll of seasoned company builders with M.B.A.'s. But business-school training isn't much help during the start-up stage. Most respondents agreed that business school taught them little about the process of establishing a new business--finding sources of capital, recruiting and hiring employees, scrambling to make that all-important first sale, and learning how to outmaneuver larger competitors.

"You do a lot of grunt things in starting up," says Michael Stopka, who graduated from Roosevelt University's business school in 1988. Stopka is now the chief executive of Design Toscano, in Chicago and Arlington Heights, Ill., a maker of European-art reproductions for the house and garden that has projected 1997 revenues of $13.5 million. He says, "For things like 'The employee is sick, the heater's broken,' the kind of things you face in starting up, the M.B.A. is not much help."

Brad Cary agrees that what he learned at business school wasn't particularly relevant during his company's start-up period. "There is nothing in business school that prepares you to deal with customers, invoices, or managing cash flow when money is tight," he notes. Cary graduated from the Wharton School of Business at the University of Pennsylvania in 1989 and now runs CIBT Inc., a provider of support services for international travel and business based in McLean, Va., with projected 1997 revenues of $12.5 million. "They teach you wonderful schemes for sweeping cash flow between accounts to maximize returns, but what if you don't have anything to sweep? That's more often the case. What do you do when you have to meet payroll and pay the landlord?"

In fact, too much attention to business-school topics may be detrimental to the health of a new enterprise, say some executives. Among them is Fay Wu, chief financial officer of Castek Software Factory, a $12-million information-technology management company in Toronto. She served as a vice-president at Citibank before giving in to the entrepreneurial itch. "You can sink an entrepreneurial company by using some of the classic business-school tools," she contends. Take capital-cost-budgeting techniques, for example. As Wu recalls, laborious scholastic effort went into painstakingly calculating the different fiscal pressures created by a variety of capitalization sources. "For a start-up," Wu notes, "it doesn't matter what the capital costs, you are going to need what you can get." Entrepreneurs could fall victim to analysis paralysis if they waste time calculating capital costs according to the algorithms Wu learned in York University's M.B.A. program. "You'd eat up the little capital you might be lucky enough to get," she figures.

What he was taught in business school "was too academic-oriented" for starting a company, says Bill Grainger, who graduated from the executive-M.B.A. program at Vanderbilt's Owen Graduate School of Management in 1988. Grainger is the founder of National Safety Alliance Corp., a third-party administrator of substance-abuse testing programs in Nashville, with projected 1997 revenues of $11 million.

"Most business schools recognize research and publications, not real-world experience," he says. "We had a half semester on Federal Trade Commission stuff, but unless you're Microsoft, or some kind of monopoly, you really never have to worry about the FTC. That was a waste of time." Meanwhile, Grainger recalls, "no one ever came in, sat down, and went through contracts."

Dealing with failure, Lorne Merkur says, a mostly verboten subject at business school, would be a welcome addition. Merkur, who graduated from the University of Toronto School of Business in 1984 and now runs Merkur & Sister AdWear, in Toronto, a company with projected 1997 revenues of $2 million, says, "I'd love a course where some CEOs who've been through bankruptcy come in and talk about what went wrong."

"They don't do a good job of dealing with that," agrees Art Dodge III, CEO and president of Dodge-Regupol Inc., in Lancaster, Pa., a company that makes recycled-rubber products and has projected 1997 revenues of $30 million. "All your human-resources classes are about motivating employees, goal setting, things like that. But how do you recognize a bad decision, kill it, bite your tongue, and move on? You've got to be able to make mistakes quickly, find out, and get out of them quickly. They teach you a lot about how to be a success but not what to do when something goes wrong--when you fail, which you are going to do."

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