Saturday, April 9, 2011

The Un-MBA: I teach the aspiring self-employed the opposite of what is taught in business school

Many of my clients aspire to self-employment, entrepreneurship. Much of what I teach them is the opposite of what's commonly taught in business school--and that's not surprising. I am most critical of universities' attempts to prepare people for a career.

For example, knowing that law schools, especially the prestigious ones, focus on theory not practice, good law firms have felt forced to create a comprehensive training program for their new lawyers.

Indeed, most law professors don't know how to practice law. Anthony Kronman, when he was the Dean of Yale Law School, received a frantic call from a friend who had just been jailed: "Please, Tony, get me bailed out of here!" Kronman was forced to admit, "I don't know how."

Same is true of education. I have a Ph.D. from U.C. Berkeley in the evaluation of education and, along the way, had to take courses from professors who taught in Berkeley's K-12 teacher-education program. They may have been assiduous researchers of arcana but as teachers, most were mediocre or worse. Certainly, none were the master K-12 teachers who should be preparing our future teachers.

My physician says he learned most of how to be a good doctor after he finished medical school.

But it is in the field of business where I most personally see how badly universities prepare people for their career. I have helped many of my clients to become successfully self-employed, and also have clients, colleagues, and friends with MBAs. I see such a discordance between the principles of starting and running a business taught in business school and what I've seen work in the real world:

Biz schools say "Innovate." That is very risky advice. Sure, a large corporation can take risks. Its deep pockets allow it to stay in business even if many attempts at innovations fail. But individuals or small businesses are likely to run out of money. Indeed, there are so many reasons why an innovation might fail: development costs are high and subject to overruns, the product doesn't work, the public doesn't like it, the public too-quickly stops liking it, and/or a competitor comes up with a better or better-marketed product. That's why they say, "The leading edge often turns out to be the bleeding edge."

Sure it's fun to innovate and, sure, the world benefits from innovation, but if you don't have the deep pockets to afford the multiple failures that precede even most successful entrepreneurs' success, it's wiser to replicate a successful type of business than to innovate.

It's easiest to find a successful business to replicate in the small (therefore affordable) retail space: If a reasonable percentage of small retailers in a certain category are busy, it's a sign they're successful. So, for example, at lunchtime, there are lines in front of many food trucks. I'd simply watch the busy ones, incorporating their best practices plus consumer-tested recipes. I'd hire the owner of one of those food trucks as a consultant to help me prepare to open-up shop. (I'd agree to not locate mine near his.) In sum, my mantra: Don't innovate; replicate.

If I did want to innovate, I can reduce my risk by asking deep-pocketed business owners and executives, "What in your business is annoying you?" If my queries yield a simple, doable business idea, I'd ask similar businesses if they have the same problem. If so, I could create that innovative business with relatively little risk.

Biz schools urge you to quickly get big. "Scalable" is one of biz schools' favorite words. Alas, that too is dangerous advice for small businesses and especially for individuals wanting to be self-employed. True, even if the aforementioned food truck were successful, it probably wouldn't yield enough profit to earn me a sufficient living, so I would need to clone it in another good location. But I'd stop after just a few trucks--as soon I netted $200,000 a year. The more locations, the less control you have over quality and cost control, and the difficulty of operating it well tends to mushroom. So I teach my clients, "Don't be greedy. Get just big enough." (And live modestly so you'll always have enough money.)

Biz schools focus on high-status businesses: high tech, biotech, medical devices, environmental technology, multinational corporations, etc. I teach my clients the opposite: start a low-status business, the grungier the better. That way you're competing with less capable business owners. Few Stanford or Harvard graduates aspire to owning diesel repair shops, mobile home park cleaning services, installing and removing home-for-sale signs from lawns, shoeshine stands, cleaning out and installing cabinets in basements and garages, gourmet food trucks, rehabbing tenant-damaged apartment buildings, carts selling soup, scarves, knockoff designer purses, French soap, or coffee, or placing and maintaining laundry machines in apartment buildings. It's far easier to compete successfully in such low-status businesses. I teach my clients, "Status is the enemy of success."

Biz schools focus on intellectually meaty, complex businesses like the aforementioned high-tech, biotech, etc.. Alas, the more complex the business, the more that can go wrong. I teach my clients to choose a simple business, such as those I list in the previous paragraph. Each business location may yield insufficient profit to support a family but, once you've refined the concept, as I said, just clone your simple business in another location(s.) Yes, keep it simple, stupid.

Biz schools urge, "Choose a business with high barriers to entry;" that way it's tough for competitors to enter the market. That's valid advice if you're a deep-pocketed corporation but it's usually dead wrong if you're the typical cash-strapped entrepreneur. I recommend that most aspiring entrepreneurs start a business that requires little capital and then, as mentioned, use its profits to clone it.

Biz schools proceed on the principle, "It takes money to make money." I teach the opposite: You must constantly look for ways to get what you need for little or no money. For example, I urge that, where possible, you run your business out of your home, car, a Starbucks, a condo development's community room, or friend's apartment that's vacant during the day. When buying something, I urge such cost-effectiveness techniques as to ask yourself, "What must this cost to manufacture?" That enabled, for example, one of my clients to buy silk scarves wholesale for $1 a piece than from another "wholesaler" who wanted $10. Of course, I also encourage my clients to consider buying last year's model, used or cosmetically flawed items, and using the Internet for price shopping. In short, I teach my clients, "Start with 'How can I, without undue hassle, get this for free or very cheaply?'"

Biz schools urge entrepreneurs to delegate: "You can't do everything," they urge. In contrast, I encourage my clients to, when starting their business, to do as much as possible themselves. Of course, that conserves cash--the life blood you must preserve lest you go out of business before you become profitable. Also, spending time immersed in the business's weeds tends to build your psychological ownership in and enthusiasm for the business. Most important, being hands-on allows you to gain deep understanding of how to make the business work.

For example, if my goal were to make $200,000 a year from a chain of shoeshine stands, I'd run the first one myself, taking full shifts doing the shoeshines. That would enable me to truly understand the customers, the art of shoeshining, identify upsell opportunities, how to optimize the experience for the shoeshiner and the customer, theft and vandalism problems, disgruntled customer issues, everything. Only when I really knew the business and it was clearly becoming successful would I clone it and then delegate by hiring someone to run the two shoeshine stands. I would take all the time needed to find great employees and would treat them well, for ethical reasons and because I want them loyal to me. Even then, I would remain actively involved in the business: visiting, training, inspiring, and, where needed, setting limits. My rule: Don't delegate prematurely or too much.

As a way of summarizing, here's how I'd start the aforementioned shoeshine business to maximize my chance of ethically and relatively quickly, netting $200,000 a year:

1. I'd search Google and Amazon to find the best articles and books on running a shoeshine business.

2. Using service review sites such as Yelp, I'd identify a half-dozen shoeshine stands that had excellent reviews and many reviews. The latter would indicate that a business has many customers.

3. I'd visit each of those shoeshine stands and note everything: the characteristics of the location, signage, menu and prices, equipment, products used, procedure used, ergonomics, the shiner/customer interactions, how people who needed to wait were dealt with, amenities, everything. I'd buy a shoeshine at each stand and while getting the shine, ask such questions as, "What should I know about running a shoeshine business that might surprise me?"

4. I'd amalgamate into my shoeshine stand the best practices of the articles and books I've read and the half-dozen shoeshine stands I visited.

5. I would take the time to find an excellent location that I could get for free. (Remember, my rule: "Start with free.") For example, I'd ask the owner or manager of a large office building to let me run my stand for free in the lobby. My pitch: "That enables you to provide a useful service for your tenants without it costing you a dime."

6. I'd run the shoeshine stand myself for a week, a month, whatever it took for me to fully understood the business.

7. Then, because I don't want to make a career of shining people's shoes, I'd take all the time needed to find an excellent person to replace me.

8. Next, I'd turn my attention to finding another excellent location and an excellent person to staff it. I'd keep expanding only until I netted $200,000 a year, always staying actively involved to ensure the quality remained high, my shoeshiners happy, and my profit adequate.

9. Finally, I'd sell the business or keep it as a cash cow while I turned to my next project: entreprenurial, social entrepreneurial, or volunteer--like writing this blog.

As always, dear readers, comments are welcome.


ST said...

What if you don't want to run a hot dog stand or a shoe shine business, though? Nothing against doing that, but to me it would seem, besides all you mentioned, you would need to be a naturally gregarious, or very friendly & curtious person (and really like dealing with the public), and that would make all the difference in if your business was a boom or bust (and you'd have to hire that type to run the clones, which I see as hit or miss at that hourly rate).

For you, I would say you did it more with multiple income streams with what you're good at, career counseling, speaking, writing, than cloning a basic business.

Maybe you're just using those businesses as the concept base to work from. It would be interesting to hear what types of businesses your clients have started (being general and not revealing too much if it's a confidentiality issue).

For me, for example, I'm good with numbers, logic, and processes, so I fit fairly well in a corporate cubby hole where I get to be logical all day. I don't see myself striking out on my own any time soon, unless a major event happens to my career, for example. If I did, I can see myself helping several clients with their Excel spreadsheet problems and being something like a consultant, going from short job to short job at different organizations. Maybe smaller ones that didn't have the big corporate pool of people to tap into.

One thing about starting a business, age matters quite a bit, too. Someone older, more established, maybe having family responsibilities, isn't likely to risk it all like a twenty something could do and still bounce back, if they failed.

About innovation. Surprisingly, at a big corporation (maybe depends on industry), things are very UN-innovative when it comes down to it. Why mess with the bread and butter business that is bringing in 100's of millions? They give us the innovation pep talk all the time, too. Har, har.

Marty Nemko said...

ST, I'll only respond by saying that gregariousness is a plus, not essential. But it is easy, in our job market to find gregariousness and reliability at a reasonable wage, which what, ethically, I'd pay anyway.

And as I wrote, status is the enemy of success. Most people would find plenty of challenge in building even a shoeshine business. And I daresay that it's wiser to try to build one of those than to try to defy the enormous odds of creating a business in a field that will attract lots of the best and brightest.

Anonymous said...

It's Tony "Kronman", I believe.

---YLS grad

Marty Nemko said...

Thanks, Anonymous. Fixed.

My daughter too is a YLS grad. That's how I know the story.

Anonymous said...

Two questions, Marty: Where did you get your story about Anthony Kronman? And, if you are quite so confidant of your own abilities to the point that you believe you can judge law school and business professors, why are you only a job coach (whatever that is) instead of an Ivy League president or something that better displays your ostensible superiority and educational acumen? (And please, spare us any stories about 'serving humanity' or turning your back on education out of disgust--we know you attempted to get a job at SF State and failed)

It's pretty easy to be quarterback, Marty, especially from one's livingroom.

Not that it matters, but I was curious.

Marty Nemko said...

Most recent Anonymous, I was tempted to not post your comment because it's not constructive, but merely snarky. But I couldn't resist.

As I wrote in response to a previous comment, I know the Kronman story because my daughter is a Yale Law School graduate. And with regard to my qualifications to evaluate professors, to avoid bragging, I'll simply ask you to read my bio on

Anonymous said...

I wish you were an SFState professor. I learned more from your website and radio show than most of the professors I took at SFState.

As a law student, I am sure some of my professors wouldn't make great lawyers

Anonymous said...

Marty, that's some good advice. But I wonder--have you ever started a business yourself like the ones you describe in your article and following your own steps?

Marty Nemko said...

Indeed, two of my first successes as a career counselor were in helping my clients start just such businesses: hot dog carts and then pizza-by-the-slice, which back in 1985 didn't exist in the Bay Area. And I first did my learning in this area from my father whom, as a young teenager, helped run such a low-status business.

Marty Nemko said...

Dear Anonymous who said s/he wished I'd had been her professor at San Francisco State,

As a previous commenter mentioned, around 25 years ago, I was a candidate for a professorship at San Francisco State. After the six-person team had interviewed me, the chair of the Educational Psychology Department, Mark Phillips, asked the other interviewers to leave and for me to stay behind. I'll never forget what he said: "If you tell anyone I said this, I'll deny it, but I want to save you the cognitive dissonance. You are, by far, the strongest candidate for the position, but you don't stand a ghost of a chance of getting it. The dean has informed us that the next seven tenure-track professorships WILL be filled by women and minorities." I've occasionally mentioned this anecdote but never mentioned the name of the professor. But it's been at least 25 years ago now and I can't resist responding to that snarky commenter who implied I wasn't good enough to get a tenure track position, so I decided to add credibility to the story by naming names.

I might mention that it saddens me that even when I do a purely charitable act, writing this blog, requiring great time and effort and receive nothing but your comments in thanks, that there are those who feel the appropriate response is to make personal attacks, even when unfair. I don't know why it bothers me. It shouldn't, but it does.


SYCO said...

Congratulations! Really nice article on MBA ...
Keep posting..

Anonymous said...


I love your show, listen on Stitcher. Love your blog too. But to call it "purely charitable" is a bit misleading. You don't "only get comments"; you also increase your credibility and, I would presume, potentially at least, increase your client base.

Marty Nemko said...

It is purely charitable. I have more clients than I need: I turn down many. And even if had needed clients, I could have gotten far more clients with far less effort by networking, taking ads, etc., than the zillion hours it has taken to write the 700 or so blog posts and 600 articles I've written. Also, if I were interested in money, I would, like most blogs and sites, accept advertising. Not only have I not solicited any ads, I've turned down many offers to have ads on my site. Yesterday, for example, a Big & Tall clothing chain wanted to pay me $720 a year for a single-line text ad.

Perhaps most telling, so many of my posts not only have nothing to do with career coaching but present unpopular perspectives (for example, pro-male, libertarian-leaning, skeptical about whether it's worth massive spending to try to cool the globe, etc), which, if anything, reduce my appeal as a career coach.

I guess if it's one thing I want from doing the blog is the respect that should come from my readers for my working past midnight on many days to blog, tweet, and write articles for my site--all so I can hopefully make the world better.

Marty Nemko said...

Interesting article in The Economist supporting my contention that the time and money spent on an MBA may well not be worth it, at least in terms of how to run a business.

Just because it's free and it's short, I encourage you not to dismiss the value of the un-MBA I present here.

Anonymous said...

I wish someone had say that twenty years ago!

Air Duct Cleaning Miami said...

Love to read this article again and again,and we love to read more articles from you if you like it.

Unknown said...

Hi Marty,
Do you have any ideas on potential good business that are home or internet-based? One that could be run from different locations? I'm sure you've gotten this question asked many times before!!

Marty Nemko said...

Tutoring or anything writing-centric: e.g., speechwriting, ghostwriting, copywriting.

BestKeptself said...

May I just say what a comfort to discover someone who genuinely understands what they're discussing on the internet.

Anonymous said...

Mr. Nemko

The logic of your arguments is sound. Indeed, these type of businesses stand a higher chance of success than a fancy, high tech start up.

However, keep in mind that if such businesses bear fruit, competition will come. In my part of the country, coffee stands are quite popular and market saturation has gotten to the point where its quite hard for them to make any money. If both the cognitive and capital barriers to entry are low, you will get competition who will be able to go head to head
with you since it doesnt take a genius to copy such a business.

So, you will either need to saturate a particular geographic area if it is virgin territory, or be willing to constantly innovate or lower your prices to deal with the competition. So, some of your profits will need to be re invested to keep it viable.

If a person is willing to relocate, consider a semi rural area with decent purchasing power. Many of these areas are under served by these kinds of businesses. You will be able to dominate the marketplace in a way not possible in large metro areas.