1/n Do MBAs add any value in tech? I’m relatively new to the “valley”. As an MBA myself I’ve been trying to understand the disdain for “the suits” as @stoolpresidente would say. https://twitter.com/draecomino/status/1358456549908377603

2/n One of the perks of my job is to meet a number of great entrepreneurs, especially the ones who have crossed over after helping to build huge businesses like @Facebook @Twitter @Nextdoor @honey @Square etc.

3/n It has been interesting to observe the way these ex-entrepreneurs evaluate investment opportunities. Despite their experience in the entrepreneurs’ seat, they are often asking the same risk mitigation questions as “the suits”.

4/n But why so much overlap between “the suits” & entrepreneurs? They are risk takers by nature, no? They should give benefit of doubt to others like them vs spreadsheet monkeys like MBAs?

5/n At this point we can talk about incentives, reputational risk, financial outcomes etc but I think the core comes down to a simple premise that risk taking needs to be balanced with risk mitigation to give a company a chance at reaching a higher level of its potential.

6/n Ask any entrepreneur talking to a Vc and they will feel this convergence. If all these “smart” people converge to similar worldview it could mean “market” goes there for a reason- it’s likely the highest probability way to maximize value for most companies.

7/n And this brings me to the general disdain for MBA types- a big problem with MBAs is they don’t often do a good job of balancing risk and reward. They are sometimes asked to play “free safety” and are more comfortable playing zone than blitzing sometimes. (Super bowl Sunday)

8/n If u r in the business of always saying “no” or what can go wrong, you end up not balancing downside mitigation w/ upside reward. This is akin to product iteration vs cannibalization question every tech biz faces. This worldview doesn’t make u a good short seller either.

9/n Bezos has always understood this, probably better than anyone: https://twitter.com/sjosephburns/status/1205846107881906176

10/n In business school (or most schools for that matter) no one teaches how to evaluate the two most important variables in that Bezos quote ->10% probability of success & what a 100x outcome actually looks like.

11/n I’d argue the lack of time developing skills around evaluating these 2 variables are where MBAs earn most of their reputations as “suits”—>uncreative, soul crushers. Even the derivative biz plans they spin up are another form of this.

12/n The problem is both the % of success & upside case are truly unknowable (else they likely wouldn’t exist in a competitive mkt). So what to do?

13/n I remember meeting with the BMW CFO in 2015 & asking what they planned to do about EVs. He said if they went after it like $TSLA the mkt would punish them-> they aren’t allowed to run losses like them.

14/n BMW has essentially traded @ <4x EBITDA for 10+ years. They had added an entire new 3rd leg of the stool with China (+ US+EU), expanded margins & grew units a lot, yet no love. My retort: mkt already punishing you.

15/n So did BMW CFO evaluate upside correctly? At a minimum he likely got the downside wrong in that had he was not getting any credit from mkt for current operations given the low valuation.

16/n So what if he borrowed from Munger & inverted to actually understand the real downside case-> let’s say 25% or profits per year for 3-5 years. So if he bounded risk, what was upside?

17/n BMW arguably has one of best brands in world, great distribution, loyalty, and engineering talent-> could they have achieved some version of $TSLA success?

18/n He would had to have said my stock risk is 25-30% if market prices in entire EV platform at negative value. But is that likely given BMW starting point in EV and $TSLA success?

19/n Given the mkt caps being created globally, skilled risk taking is becoming as important if not more so than risk mitigation. $DIS seems to have figured this out in their recent decision to accelerate investment into streaming content. $GM in EVs?

20/n MBAs are going to have to learn more about skilled risk taking in a world of accelerating disruption to maintain relevance. Can they get comfortable with risk of being wrong to be really right? Losing a job? If so maybe people around tech will despise us a little less.