People seem to always be talking about bubbles. This is an especially popular worry to be intellectualizing about – practically a national pastime – ever since the 2008 financial crisis. Since every adult alive today experienced the very real drama and even scariness of that era, it’s still fresh in the minds. And, humans like to worry. It’s just what we do.
So it’s not surprising to see the worry about possible bubbles migrate from asset class to asset class, and even to other elements of the economic ecosystem. Like the MBA. On a fairly regular basis we get doom-and-gloom articles from the media forecasting the end of the MBA as we know it. There are warnings about too many MBAs graduating, and too high tuitions, and all sorts of worry about the over-inflation of the degree.
Today’s post is not actually about that.
Today’s post is about the frothiness that many are seeing in the VC market. Where new ventures that don’t really have a viable business model underneath the business are still getting funded at huge valuations lickety split.
It’s similar to what (some of) you may remember from the first Internet boom.
Actually no. Probably most of you reading this today weren’t business-aware when the dot-com crash happened in 2001.
That was the era of pets.com and furniture.com and buyanythingontheinternet.com. And Webvan, and Kozmo. Names you probably don’t even recognize.
We won’t bore you with a history of those startups but let’s just say that they don’t exist anymore. And as they tanked, so did the economy.
The reason we mention this again is the same reason we did last year in a similar post. There are more and more bschools jumping on this entrepreneurship bandwagon. Maybe it’s something you’re keen on, too.
But going to business school is probably THE MOST EXPENSIVE way to start a company.
And how you fare with it will all come down to pure timing, and luck.
Say you’re looking to start your MBA this fall. And you’re going to start building this business that you’re hot to trot for. Awesome.
Or maybe you have a +1 year timeline, where you’re only starting to put together your plan to apply this fall, in order to start in 2016. Great. No problem.
But what if the economy cools in between here and there?
Or more precisely, what if it tanks? What if all funding for bright eyed and bushy tailed MBA students just dries up?
If it happens soon enough, then you can pivot (see what we did there? 😉 ) and go get that consulting job that you have in your back pocket. Or you can try for one, provided you haven’t missed the on campus recruiting cycle, during those weeks and months that you were head-down diligently working on your business plan for your awesome Idea That Will Change The World.
No matter what, you’ll still graduate with your MBA. The degree has value. The experience is transformative. It’s worthwhile. You should be able to use that currency in some marketplace or another. Well, provided that whatever meltdown in the VC markets hasn’t spilled over to all other parts of the economy and caused all MBA hiring to freeze up.
EssaySnark was starting to get mildly concerned about the possibility of a startup bubble about a year ago, mostly after hearing some VCs we respect sound some warning bells about it. However we’re feeling more and more concerned about it now. Here’s a recent post from one of those VCs that touches on these issues. It doesn’t require much effort at all to find similar stuff out there.
Have you seen what’s happened to the real estate market in the San Francisco area? Prices are worse than Manhattan.
Things are tightening, and not in a positive way, if you ask us.
Those signs of frothiness are a concern.
Maybe it depends on what happens with interest rates, and the global economy, and things like Greece and debt and everything else.
Bubbles are very difficult to predict. If it were easy, then everyone would see them coming and step to the side, and then it wouldn’t be a bubble, would it?
Some people are more wired to see the possible catastrophes around every turn, and others find glee in predicting utter crisis and mayhem. We try not to be that type, but you can find them at any happy hour.
If we keep predicting a possible bubble every year, then eventually we’re gonna be right. 😉
All we can say is, with the mass exodus of so many BSers from Wall Street to Silicon Valley, the get-rich-quick mentality that is the underlying driver for many MBA students has transferred from derivatives trading to some glamorized view of entrepreneurship.
If you time it right – and you actually do have a good idea – and you don’t burn out before you can get it off the ground – then sure, you could be the Next Big Thing.
We just hope you’re doing your research and going into all of this with a level head on your shoulders, understanding the risks and appreciating the lessons of history.
And hopefully we’ll be wrong! There are very smart minds saying that no, we’re not in a bubble at all . (Pro Tip: Go through that slide deck and examine the argument. Can you follow it? Read the charts. Do you understand what they’re saying? If you don’t, then sure, you will learn the tools that will let you be more fluent in such analyses in bschool – but it would surely help if you have some of those tools now, before you launch into that journey.)
All we can say is, none of us wants to live through another bubble bursting.
If entrepreneurship is in your blood and you’re chomping at the bit to pitch the adcoms with how you’re going to go conquer the world with your new startup, launched through bschool…. please read our Career Goals Research Starting Point on Entrepreneurship first. Do it now. Thanks.