How to Create Your Own Real-World MBA

311 Comments


(Photo: DavidDMuir)

It’s fun to think about getting an MBA.

They’re attractive for many reasons: developing new business skills, developing a better business network, or — most often — taking what is effectively a two-year vacation that looks good on a resume.

In 2001, and again in 2004, I wanted to do all three things.

This post is the first of two that will share my experience with MBA programs and how I created my own…

In the process, it’s my hope that these writings will make you think about real-world experiments vs. theoretical training, untested assumptions (especially about risk tolerance), and the good game of business as a whole. There is no need to spend $60,000 per year to apply the principles I’ll be discussing.

Last caveat: nothing here is intended to portray me as an investing expert, which I most certainly am not.

Beginnings

Stanford University Graduate School of Business (GSB). Ah, Stanford, with its palm tree-lined avenues and red terra cotta roofing, always held a unique place in my mind.

But my fantasies of attending GSB reached a fever pitch when I sat in on a class called “Entrepreneurship and Venture Capital,” taught by Peter Wendell, who had led early-stage investments in companies such as Intuit. The class is now co-taught by Eric Schmidt, CEO of Google, and Andy Rachleff, founding general partner of Benchmark Capital.

Within 30 minutes, Pete had taught me more about the real-world inside baseball of venture capital than all of the books I’d read on the subject.

I was ecstatic and ready to apply to GSB. Who wouldn’t be?

So I enthusiastically began a process I would repeat twice: downloading the application to get started, taking the full campus tour, and sitting in on other classes.

It was the other classes that got my panties in a twist. Some were incredible, taught by all-stars who’d done it all, but others — many others — were taught by PhD theoreticians who used big words and lots of PowerPoint slides. One teacher spent 45 minutes on slide after slide of equations that could be summed up with “If you build a crappy product, people won’t buy it.” No one needed to prove that to me with differential calculus.

At the end of that class, I turned to my student guide for the tour and asked him how it compared to other classes. He answered: “Oh, this is easily my favorite.”

That was the death of business school for me.

How to Make a Small Fortune

By 2005, I was done chasing my tail with business school, but I still ached to learn more.

Then, in 2007, I started having more frequent lunches with the brilliant Mike Maples, a co-founder of Motive Communications (IPO to $260,000,000 market cap) and a founding executive of Tivoli (sold to IBM for $750,000,000).

Our conversations usually bounced between a few topics, including physical performance, marketing campaigns (I’d just launched The 4-Hour Workweek), and his latest focus: angel investing.

“Angel investing” involves putting relatively small amounts of money — often from $15,000 to $100,000 — into early-stage start-ups. In Mike’s world, “early-stage” could mean two engineers with a prototype for a website, or it could mean a successful serial entrepreneur with a new idea. The angels usually have relevant business experience and are considered “smart money” — their advice and introductions are just as valuable as the money they put in.

After several lunches with Mike, I’d found my business school.

I decided to make (in my mind) a two-year “Tim Ferriss Fund” that would replace Stanford business school.

Stanford GSB isn’t cheap. I rounded it down to $60,000 a year, for a total of $120,000 over two years (these days, it’s $80,000+ per year).

For the “Tim Ferriss Fund,” I would aim to intelligently spend $120,000 over two years on angel investing in $10-20,000 chunks, so 6-12 companies in total. The goal of this “business school” would be to learn as much as possible about start-up finance, deal structuring, rapid product design, initiating acquisition conversations, etc. as possible.

The curriculum could be thought of as “The Start-up Lifecycle from Birth to Acquisition/IPO or Death.” But curriculum was just part of business school; the other part was getting to know the “students,” preferably the most astute movers and shakers in the start-up investing world. Business school = curriculum + network.

The most important characteristic of my personal MBA: I planned on “losing” $120,000.

I went into the “Tim Ferriss Fund” viewing the $120,000 as sunk tuition costs, but also expecting that the lessons learned, and people met, would be worth that $120,000 investment. The two-year plan was to methodically spend $120,000 for the learning experience, not for the ROI.

I would not suggest mimicking this approach:

1) Unless you have a clear informational advantage — insider access — that gives you a competitive advantage. I live in the nexus of Silicon Valley and know many top CEOs and investors, so I have better sources of information than the vast majority of the world. I don’t invest in public companies precisely because I know that professionals have better access to information than I do.

2) Unless you are 100% comfortable losing your “MBA” funds. You should only gamble with what you’re very comfortable losing. If financial loss drives you to even mild desperation or depression, you shouldn’t do it.

3) Unless you have started and/or managed successful businesses in the past.

4) Unless you limit angel investment funds to 10% or less of your liquid assets. I subscribe to the Nassim Taleb school of investment, with 90% in conservative asset classes like AAA bonds and the remaining 10% in speculative investments that can capitalize on positive “black swans”.

The problem is often that, even if the above criteria are met, people overestimate their risk tolerance. From my previous post, ‘Rethinking Investing: Common-Sense Rules for Uncommon Times’:

I’ve come to realize that the questions most investment advisers (and investors) ask are the wrong questions, or incomplete. Even if you have only $100 to invest, this is important to explore.

Most advice and decisions center on one question: what is your risk tolerance?

I had one wealth manager ask me this, and I answered honestly: “I have no idea.” It threw him off.

I then asked him for the average of his clients’ responses. The answer:
“Most answer that they would not panic, up to 20% down in one quarter.”

My follow-up question was: when do most panic and start selling low? His answer:
“When they’re down 5% in one quarter.”

Unless you’ve lost 20% in a quarter, it’s hard—neigh, impossible—to predict your response.

It’s not dissimilar from a common boxing maxim: everyone has a plan until they get punched in the face.

To would-be angel investors, I suggest the following: go to a casino or racetrack and don’t leave until you’ve spent 1/5 of a typical investment and watched it disappear.

Let’s say you’re planning on making $25,000 investments.

I’d ask you to then purposefully lose $5,000 over the course of at least three hours, and certainly not all at once. It’s important that you slowly bleed losses as you attempt to learn the game, to exert some control over something you can’t control. If you can remain unaffected after slowly losing your $5,000 (or 1/5 of your planned typical investment), consider making your first angel investment.

But proceed with caution.

Even among brilliant people in the start-up world, there is an expression: “If you want to make a small fortune, start with a large fortune and angel invest.”

The First Deal and First Lesson

So what did I do? I immediately went out and broke my own rules.

There was a very promising start-up which, based on comparables using Alexa ranking correlations to valuations, was more than 5x undervalued! If it hit even a “base hit” like a $25,000,000 exit, I could easily recoup my planned $120,000!

I got very excited — it’s the next Google! — and cut a check for $50,000. “That’s a bit aggressive for a first deal, don’t you think?” asked one of my mentors over coffee. Not a chance. My intuition was loud and clear. I was convinced, based on other investors and all of the excitement surrounding the deal, that this company was on the cusp of exploding.

Two years later, it still hasn’t popped.

[TIM UPDATE, 2013: This start-up is now dead, so I lost that $50K.]

Following the Rules

Lesson #1: If you’ve formulated intelligent rules, follow your own f*cking rules.

I learned many more important lessons over the following two years, most of which I’ll share in the next post. Thus far, following the rules, the stats look something like this:

15 total investments (some of which are listed here)
0 deaths
1 successful exit

The one successful exit thus far, DailyBurn, guarantees that I will not lose money on my two-year fund. But, as they say, “Once you’re lucky. Twice you’re good.” I’m still not convinced I know what I’m doing.

My hope, and that of most angels, is that each start-up will “exit”, or be bought within 3-5 years. I’ll therefore have a more complete view of the “Tim Ferriss Fund” two-year portfolio by 2013 or 2014. There will be fatalities, no doubt.

[TIM UPDATE, SEPT. 2013: Now, I’m in 20+ investments, and I’ve made (cash in bank account) about 3-5x back what I invested. I have several million dollars on paper with investments like Twitter, Uber, Evernote, and others. If half of them pan out, I will make more in angel investing than all of my books combined. Only time will tell. Still plenty that could go wrong. Oh, and there have been more startups “deaths,” too. It’s a full-contact sport.]

But recall that the learning was my main reason for doing all of this.

I had one other exit: my own company. Using what I learned about acquisition deal structures through angel investing, I became less intimidated by the idea of “selling” a company. It need not be complicated, as I learned, and BrainQUICKEN was sold in late 2009. This means the ROI on my personal MBA is, so far, well over 2x and could end up more than 10x.

Creating Your Own MBA

How might you create your own MBA or graduate program? Here are three examples with hypothetical costs, which obviously depend on the program:

Master of Arts in Creative Writing – $12,000/year

How could you spend (or sacrifice) $12,000 a year to become a world-class creative writer? If you make $50,000 per year, this could mean that you join a writers’ group and negotiate Mondays off work (to focus on drafting a novel or screenplay) in exchange for a $10-15,000 salary cut.

Masters in Political Science – (same cost)

Use the same approach to dedicate one day per week to volunteering or working on a political campaign. Decide to read one book per week from the Georgetown PoliSci department’s required first-year curriculum.

MBA – $30,000 per year

Commit to spending $2,500 per month on testing different “muses” intended to be sources of automated income. For an example of such, see “How I Did It: From $7 an Hour to Coaching Major League Baseball MVPs.”

If you’re interested in experimenting with angel investing, whether as an angel or as a start-up, here are a few of my favorite resources:

AngelList (I’m now an advisor; here is my profile)
AngelSoft
VentureHacks

Commit–within financial reason–to action instead of theory. Learn to confront the realities and rewards of the real world, rather than resort to the protective womb of academia.

Question of the day (QOD): what would you like to learn specifically about start-ups, angel investing, or start-up financing? Please let me know in the comments with “QOD”.

Continued in Part II…

Posted on: June 28, 2010.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Comment Rules: Remember what Fonzie was like? Cool. That’s how we’re gonna be — cool. Critical is fine, but if you’re rude, we’ll delete your stuff. Please do not put your URL in the comment text and please use your PERSONAL name or initials and not your business name, as the latter comes off like spam. Have fun and thanks for adding to the conversation! (Thanks to Brian Oberkirch for the inspiration)

311 comments on “How to Create Your Own Real-World MBA

  1. Dude, what an eye opener you just wrote. I attended an MBA program for 2 semesters until I realized the monumental waste of time and resources it was draining from me. Sure, some of the lessons I learned were great theory, but nothing taught me more about business than getting out there and testing different ideas. I believe you hit the nail on the head with creating your own MBA. You’ve been a great influence in my life and this is a prime example why. Thank you for all the insight you’ve given me into modern business.

    Like

  2. Thanks for this Tim. Regardless of which way you go, investment in yourself is only going to help in the long run. One would the think the more you learn, the better you become.

    I went to a seminar where someone defined INVESTMENT as ‘I INVEST IN ME’.

    My personal mantra is that the minute you stop learning, is the minute that you’re dead.

    Thanks for providing the informative post once again.

    Cheers
    Anthony

    Like

  3. This is good advice, Tim. I’ve gained the vast majority of my training in the real world, only taking a school credential to fill in some blanks, also enabling me to put something (including the name of a respected school) in the place many managers automatically look for it.

    QOD: I’d like to know what kind of package startup CEOs typically negotiate (or try to negotiate) for the possibility that they’re forced out or otherwise need that parachute.

    Thanks!

    Like

    • Hi Michael,
      I’m interested in something along the same lines of a school credential to fill in some blanks – what you would recommend.
      Thanks!

      John

      Like

  4. Angel investing is new to me. I see the name cropping up everywhere on the web and your post has certainly made it clearer. Looking forward to the other posts on the topic.

    Like

  5. Love it, love it, love it. This is the exact article type that I first fell in love with way back in the day. Tim, I would pay you for more posts of this high quality. Thank you for your insight.

    Like

  6. Nice encapsulation of Angel Investing and how creating your own Personal MBA curriculum can increase the chance of getting better ROI over the investment in education in today’s time.

    I have also created a personal MBA program for myself which consists of books recommended from PersonalMBA.com (Josh Kaufmann) and few other mentors giving there industry specific insights into the liking of my subjects.

    Awesome read, Tim! Waiting for the next post!

    Like

  7. Once again your out-of-the-box perspective on things puts your ahead of the curve.
    I do believe that a “real world” education can be far more valuable than an MBA. Here in Australia the value of having an MBA has been eroded due to the slacking of entry requirements of the major universities.

    Once I have enough leverage, the advice you have offered in the article is something I am going to take up.

    Awesome stuff Tim:)

    Like

  8. Tim,

    Great read. I very much love the idea that you’ve presented with “Tim Ferriss Fund”. I don’t have that kind of money but I’d really have to come to terms with ‘losing’ that amount of money.

    Still, the idea of creating one’s own MBA program == pretty damn awesome.

    Like

  9. Hi Tim,

    I think you made a damn cool real world MBA and based on your crunchbase, I predict a financially successful one to boot.

    To answer your question… Did you enjoy angel investing? What was the process like, especially for someone new to the game?

    Finally, after doing some angel investing has your perspective changed on muse project/lifestyle businesses versus (venture backed) startups?

    Like

  10. Tim,

    I read Rework right after I had a chance to watch your last episode of random. The book had a lot of advice like yours and was a good refresher with some new angles.

    Something about this last read mentally pulled my trigger finger from “what if” to “what the hell” and I am testing like a mad man.

    Great article, would love to hear about start-ups. Bar tending and working security at a night club for the moment seem to be enough for start up financing using the methods suggested in your book.

    Best Wishes,
    Jason

    Like

  11. Tim, you’re an impressive guy.

    On the surface, this isn’t your most impressive work. Two years to double or triple 120k. Lots of business success books come out every day. Nor is it necessarily an inspiring story of turning a passion into success.

    The proof will be in going forward – how strong are the connections and wisdom you’ve acquired?

    Here’s my challenge to you: Become a billionaire, then show us how it’s done.

    Sure the money becomes meaningless after a point, but money is also an economic measure of how much value you’ve delivered to people, and a partial measure of power to influence the world.

    Like

    • JB,

      Good points. The financial return is definitely not the most valuable part of what I’ve gained, but I would argue that doing 3x ROI isn’t anything to dismiss. In absolute dollars, it’s not a ton, but in percentages, it’s a pretty damn good return from 2008-2010.

      To your last point, I’d rather create a thousand millionaires than become a billionaire.

      Tim

      Like

  12. “The Ten-Day MBA” by Steven Silbiger is a good resource if you want to know what you’re missing in some of the theoretical classes.

    And three months in a face-to-face commission sales job can also be highly educational.

    Like

  13. Thanks for the post Tim

    I have never liked university, and have relied on the school of hard nocks to teach me what I need to learn.

    It’s good to put into perspective for universities as well.

    Ads.

    Like

  14. Tim

    99% of MBA students are financed through their courses and come out jacked to the hilt in debt. If you’ve $120,000 in free cash you’ve unfortunately been successful enough to not require an MBA, for your CV or otherwise.

    I say unfortunately because obviously, and despite your successes, you appear still to have an inferiority complex about your lacking this ‘vital’ qualification which you rightly sight as a two year long, very expensive holiday.

    Good luck in your investing but don’t let’s pretend we all have access to the resources necessary to imitate your actions.

    Like

    • BenJam,

      Thanks for the comment but…

      I have an inferiority complex? Funny that’s how you should read it. Despite the fact that we are all, I believe, insecure on some level, not having an MBA isn’t one of my pet insecurities. Not having a PhD in something else, perhaps.

      Perhaps, also, you didn’t take the time to read the intro and what I hope readers to get from these two posts. I never indicated that all readers would have $120K to spend. That was never the point.

      Tim

      Like

  15. Interesting how quick we are to put money towards “education” but we’re much slower to invest in real world education even if it would be a smaller cost.

    Like

  16. Tim,

    Any thoughts on how much more your learn through investing in a start-up rather than just having a relationship wth people. You seem to have learnt from people like Mike Maples and Nicholas Taleb without the risk to your cashflow.

    Also would be interested on the multiples on BrainQUICKEN, if you’re including this in your ROI then 2x seems low.

    Like

  17. I just started yesterday with reading the Four Hour Work week (at page 98 now). And as with many things I’m going, how on earth do I implement that?!
    For example, how do I cut back on 8 hours a day of work, when my important task spans more than just 1 day?
    If I work too fast it’s going to look bad, because then we planned the project incorrect and we could’ve done the project cheaper. That would not make the customer a very happy customer.

    Then getting to the article, my passion is with writing a novel. It assumes an income of 50,000… I don’t even make half of that! (around 18,000)
    So how do I spend 12,000 a year and cut down on my salary, when my salary is that low already. (filled in the dreamline worksheet and my buffer is more than I make in a month…)
    And to think I have a well paying job for being just 23.

    Like

  18. Great Post Tim!

    QOD: If you are working in a “conservative and conventional” industrial market (i.e. selling optical backbone equipment, like I am), how would you help or guide or protect a two-person startup looking to sell key technologies to a huge company like Cisco or IBM? What can an angel investor do to protect the small from the big while still attracting the big companies as customers?

    How can a start-up/university spin-off make sure they are to be taken seriously by big customers?

    Like

  19. Dear Mr. T.

    100 years from now, there will be scientists analyzing how the hell your brain worked. You’re so smart, I feel inferior.. but hey, that’s the only way you can look up to someone, right?

    Do you usually define your goals and schedule what it takes to accomplish it with isolation (like with yabusame) and just work your face off until it happens? is that how you break down your “being” goals? I keep going back to that section on your book, I can’t wrap my head around it.

    If you can’t answer, no worries. I’m not gonna start an anti-Ferriss blog :)

    BTW wish you luck with Evernote.. I LOVE it!

    I’m starting to sound a little fruity here, I’m gonna go to bed now. Can’t wait for part 2.

    Like

  20. QOD

    Tim, your work is so inspirational and outstanding, love it!

    I am starting a non-profit to help underprivileged teens or those in a bad homelife get the chance to travel. I hope to arrange a trip for them(anywhere they want to go) for 1to 7 days so they can get a new perspective while learning a few life skills and escaping their problems for a little bit. What is the best way to get funding/donations? Have you ever had to do anything like this?

    Like

  21. Thanks for this Tim, great insight.

    I visited one of the biggest this weekend, and I thought that being a market stall trader is a very pure business education, you face your customers and the market head on, if they do not like you, your product or your stall they walk away. For those not able to lose enough money to get into startups, work on a commission basis on a market stall, I think what you learn can be applied in any business environment.

    Sale, Marketing, Market Analysis, Customer Service, Suppliers, it is all there.

    Like

  22. My QOD: how do you know when you’re ready to be an angel? I sold my business recently and now have funds to invest but my instinct has been to go straight for starting another business (previous one was a services business and now I want to have a crack at a product business to test whether I was lucky or good…) I would be really interested to know your thoughts on what makes a great angel versus a successful serial entrepreneur – or are they 2 sides of the same coin?

    Like

  23. Tim,

    I don’t know if you’ll address the following questions in the next post, but here we go anyways:

    Do have to move to Silicon Valley?

    What if you have money, but are really young or don’t have much wisdom to offer companies?

    (sorry this is kind of off topic…) I am a 18 and going to college soon and not majoring in business, but planning to start my own company as soon as I can. I read your book and realized that the automated business model would be perfect to have while in college. Do you think it’d be possible for a student to create a business like how you described Brainquicken – outsourcing everything, with the minimal hour workweek and all? You should write a post on how students can apply the 4-hour workweek.

    Here’s the vision: Taking only a laptop, or cell phone, study abroad for an entire year while getting rich off your automated business. -Possible?

    Like

  24. For many years I lived amongst the Wharton MBA students in Philly…

    When you talked to them, say at a bar, they’d always be looking at their watch, and over your shoulder for someone else more important to talk to. This whole conscious *networking* mindset, I found to be ridiculous. It was like they were all speed-dating each other!

    In 1996 or 1997 Michael Dell showed up on campus for a guest lecture which I sneaked into. The room was absolutely packed and the man really delivered. These same MBA clowns were palpably drooling at a guy who was just about their own age – if not younger.

    Like

  25. Yep – definitely one of your best posts Tim!

    I had the exact same struggle with business school. Too much theory – not enough practice. Also, most business schools are filled with former i-bankers and consultants who will go on to middle management jobs – not become entrepreneurs. Stanford is somewhat of a an exception to this rule, but I still found this very discouraging.

    Thanks for sharing your experience!

    Like

  26. If anyone’s interested in conservative investing to take care of all the other money than what you want to be angel investing (and you don’t have access to Nassim Taleb personally :-), then The Intelligent Investor has a similar comes highly acclaimed by both myself—not that important—and Warren Buffett.

    Like

  27. Like Tim mentioned, his situation was favorised by the fact he lived in the S. Valley and the fact that he already knew CEOs and top notch people.

    But I like his main advice. Instead of paying $XXXXX in theoretical education, try to find ways to spend it in actual learning experiences.

    I didn’t realize he was involved in so many startups (I knew about RescueTime and DailyBurn).

    Great post!

    Like

  28. Tim, this concept is wicked smart, and I think it takes 4HWW concepts to new levels. You are, in a sense, testing out your concepts to find the real opportunities. This has potential for a new book, or a new chapter…how to find angel investors for your startup. Which begs the question:

    QOD: How were your investments valued as a percentage of the companies you invested in? How did you make sure your investment was properly valued? Was it a negotiation, or handled by an investment banker?

    Lastly, my wife and I have been planning a less practical, though potentially more enjoyable degree…in Life. I half-jokingly call it a Masters in Living from the Real World University’s School of Innovation. It will include cooking classes (and hosting weekly parties), learning a foreign language, mastering Yoga, and living in various places around the world for short periods of time. We’ll probably include some academic classes, but only for fun.

    Brilliant post!

    Like

  29. Oups, forgot to answer your last question Tim.

    Startups being such a high risk investment, why do angel investors put their money in there instead of safer investments like properties?

    Like

  30. A Real-World MBA sounds enticing. Unfortunately, unless you plan on becoming a serial entrepreneur or full-time private investor, how do you translate a “Real World” degree to something that is marketable on your resume for those who seek to advance their professional careers?

    Also, I would imagine there would be an IMMENSE amount of work involved in preparing yourself for this type of learning. What a good business school arguably provides, besides the networking, career counseling, prestige etc. are a structured curriculum that enables progressive, specialized learning. Unless someone was a very astute learner, a trial-by-fire approach like the one you suggested could be extremely frustrating and overwhelming. If I were to try this, I would not do so without a support group of incredible mentor(s); that, of course, not everybody can have access to.

    Thoughts?

    Like

  31. Tim you legend;

    I have been feeling a little deflated and disconnected with my muses and life as of late. This article has made me a laser again (not an incandescent bulb).

    Thanks buddy; time to hack away at the unessential.

    QOD: How do you keep on top out developing muses while traveling?

    Like

  32. You’ve just summed up what many successful investors & businessmen know but rarely share: real world knowledge occasionally differs with classroom notes. Plus it comes without all the fancy equations and unnecessary charts.
    IMO, there are two important things you get when you do an MBA:
    1. Knowledge (duh). But this tends to be delivered in a convoluted manner – to much chaff in the wheat.
    2. A Network. The people you meet could open up several avenues in many areas of your life: business, friendships etc

    You also get certification, but I don’t consider this important.

    You don’t need $120,000 to do your own MBA. If you can find a way to gain knowledge, test many assumptions and network (very important), then you can consider yourself as having an MBA.

    This will vary with your personal goals in life. For some, an MBA or any degree or form of certification is an end in itself. The “real world” approach favors those who see these “items” for what they truly are: a means to an end.

    Like

  33. Hi Tim,
    thanks for this amazing post. It is awesome. I am in awe at your achievements. I believe I can do it all, and I keep testing muses, unfortunately I seem to continously make errors, years are passing by and I am not getting anywhere. I dont want to settle for less than what I am capable of, my motives like most other people are often towards wellbeing of others rather than ourselves, I want to pay back my parents for all the opportunities that they gave me. But I am getting punched so many times, and every time just to get back and make that little money to try again, takes ages. What recommendations do you have?

    On a sideline, more mundane note, with regards to testing muses and outsourcing, one point I am often stuck is the quality of the work – you outsource a task, a spreadsheet for example, and then how do you check that it is not full of errors? I am always given back the complete work and I am asked to check that there are no errors, I would like them to do it. Shall I get a second outsourced resource to check the work?

    Many thanks Tim. Keep up the awesome posts.

    Like

  34. Educating yourself through different routes than the traditional uni system has massive benefits!

    I have done both and find that it is cheaper and more efficient once you find a good mentor to see returns on education investment outside of the university environment.

    Robin

    Like

  35. Thanks for the post Tim.
    QOD: Bootstrapping vs. Investing – presumably one would bootstrap rather than invest in order to provide some illusion of control, though I’d like to see your comparison of the 2 approaches (lets assume bootstrapping = developing & funding your own idea into a moneymaking venture and Investing = funding another person’s idea in hopes of the same result)

    Like

  36. Great Post!
    QOD1: what are your own criteria for investing in startups? (I am sure you put it elsewhere but want the fresh update if any)
    QOD2: do you invest in European based companies?
    QOD3: if not, what could still be a power reason you would still invest in a far far away company?
    QOD4: on the QuantifiedSelf/selftracking space, specifically on DailyBurn, can you tell us what worked, what did not work (why they did not go “thunder lizzard”?)

    ** Wish I read your post 10 years ago: started an MBA (partly sponsored by French Army/BSPP thanks! :) then dropped out 4th semester to join startup in Mill Valley … I will share your post with my MBA friends ;) **
    Thx for this sheer business hacking advice

    Btw/evernote do you Snaptic? Love these guys.

    Like

  37. Hello Tim and other readers!

    This topic is really important! Unfortunately I decided to leave school at 16, but since then I`ve worked in and participated in many startups. Many of them who died for several reasons, bad management, wrong marketing focus etc. Of the ones succeeding, one of them succeeded by being flexible and switching over to their (in their past unknown) Bi-Product as their main product (technology company) and thus generating the necessary cashflow.
    For me it has been important to write down and organize my experiences so I can rehearse these.

    I have to ask about another aspect of your Real-World MBA:
    Instead of hard-cash as investments. Many of us have liquidity in personal knowledge and contacts that are valuable to many start-ups. For those who doesn`t have the 120k (yet) to invest, this might be a great way to get involved and learn lot`s at the same time you are rewarded with stock options.

    I´ve been approached to be an advisor for several companies recently, but I`m unsure of how much time I should exchange for how much percentage?

    Is there requirements you recommend to be set?

    Grateful for any answers or suggestions to models of doing this!

    Best regards.
    Bendik L.
    NORWAY

    Like

  38. I totally agree that an MBA is a waste of money for most people, but it is a nice holiday from the “real world”.

    One thing that you should talk about is to get the legal documents done properly, don’t just give someone your money ;-)

    Like

  39. I love this.

    Tim, you might want to cover a bit about what makes someone an Accredited Investor in your next post, Obviously not everyone has $120,000 to invest, but those that are tempted to put anything into a startup by this post should also learn a bit more about if they’re allowed to invest. Here’s a description from the SEC: http://www.sec.gov/answers/accred.htm

    Also, for entrepreneurs who are looking at getting an MBA, I personally think the current replacement are incubators. Instead of applying to Harvard, apply to Y Combinator, TechStars, etc… Friends of mine who are alumni of those programs have always had a HUGE leg up in the startup world, just like MBAs typically have had a leg up in the normal business world.

    I admittedly made the mistake of attempting an MBA program and quit 1/2 way through because I didn’t think it was worth it. A $50,000 mistake chronicled recently here http://bit.ly/bUOB13.

    Thanks for this post.

    Like

  40. Having done 2 degrees in German (planning to become a prof) and then switching tracks to do an MBA instead while also working as a “screener” for an angel investing group, I agree with a lot of what you are saying, Tim, but I would want to put it in perspective to anyone that I would pass this on to. I believe that MBAs are vastly more valuable for people, who would otherwise be completely out of their element and potentially not have the abilities to chart a direction or build their own plan of study, than they are for people, who already have some mind for or education in business. In my case, I was 100% focused on the liberal arts, teaching language and history, etc, etc. While I might consider myself smart, I lacked either the ability or the wherewithal to structure my own real-world MBA. Thus, I made what I believed to be the smart choice of going to an MBA school I could afford. While a lot of what I learned could rightly be applied to investing, I believe that the one of the greatest benefits of my education there was that I was exposed to a different set of decision-making criteria than I had been previously. Yes, 90% of it may have been theory, but I did not have access to (or did not know how to get access to) people and resources to learn the same things in the real world. All in all, I felt it was very valuable for a person with my background, but I would only recommend it for people with very specific backgrounds, intentions, etc.

    As far as your investing track record goes, I haven’t looked into it in a few years since I’ve been out of angel investing for a while, but I believe the stat in 2008 was that 1 out of every 10 angel investment breaks even after 10 years, while only 1 out of every 30 returns double or more. Screening applicants for my group, I had to keep all of that in mind of course and then make recommendations on who the group should actually hear. It sounds to me like you’re pretty far ahead of the game there.

    Like

  41. Tim

    this is the post i have been waiting for and bugging you about so,

    firstly thank you so much

    secondly my question:

    i have been trying to design my own study program to understand business architecture so far i have decided to photo read and take notes on all the Harvard business review books and analyze and synthesize them into some set of principles or as you would say “follow your own rules” along with that i have decided to absorb in as much as i can and have any questions i have answered by these sites:

    http://selfmadescholar.com/b/self-education-resource-list/

    http://www.jonasblog.com/

    and you of course

    and invest in:
    http://inventright.com/ (ur recommendation which is great for my architecture and inventor background)
    http://www.onlinebusinesspuzzle.com/Earning-Extra-Income.html (to catch myself up to speed since i am a caveman when it comes to the internet and computers, its my attempt to catch myself up to you in computer savvy)
    also the products that David De Angelo (who you did an interview with funny and awesome by the way) under Eben Pagan on marketing and Entrepreneurial business.

    so finally the question, are their any 80/20 insights that come to mind if you think about the hierarchy that exists, for example how learning math makes physics and chemistry and biology easy but not the other way around because at the top of all the western sciences lies math in a smaller domain the science of business architecture i was told it composes of marketing and sales, i wanted to know your thoughts on that and if you believe that’s true, and if not why and if so how you personally would go about investing your time and energy trying to master both from the angle of passive low maintenance cash flow architecture, since that’s ur specialty, and also angle investing
    so basically how would you explain what you know now to you in the past when you didn’t have any cash and didn’t want to waste time making all the unnecessary mistakes that you don’t mention in your books

    god i hope u can read between those lines because i am at a loss of words trying to describe it

    ur long time fan

    -josh

    Like

  42. “One teacher spent 45 minutes on slide after slide of equations that could be summed up with “If you build a crappy product, people won’t buy it.” No one needed to prove that to me with differential calculus”

    I find this a bit narrow minded: The reason why there is such a mathematical focus in finance, as you know, is to have a common language that is testable instead of a lot of ambiguous bla bla. This is actually one of the good things about theoretical finance courses that they teach you how to to transfer your own questions into a mathematical context that you can test.

    Obviously, if you are interested in investing in startups, a course about the latest findings in option theory will not be very helpful 99% of the time. You might be better of taking rigorous classes on corporate finance and then try to get (historical) data from as many start ups as possible to find what makes or breaks them. If you have no business contacts a top university can be extremely helpful here.

    As far as the theory itself is concerned, everyone can check out the Open Courseware stuff that is online (MIT for example) and you should quickly get an idea how appealing that is for you…

    Like

  43. Nice post, here are a few thoughts from a math ph.d. who rolled his own university for a few years, and has also done angel investing:

    – I rolled my own first 2 years of university (with help from my parents, i was 13 then), where I wasn’t a student anywhere but was sitting in on classes unofficially at local universities and also doing classes through other programs. If you want to roll your own MBA (which is preferable to paying the $$), remember you can include sitting in on classes at the best universities and/or auditing classes, and you can pick and choose, as part of your mix. So I’d encourage one to consider the opportunities to roll your own MBA outside of angel investing. You can move to a city with a great university. You can also spend money on some interesting conferences for the networking component of the mba.

    – Even if you don’t have a strong network at first, you can focus on building that before jumping into the angel investing.

    – For those interested in angel investing, check out the info on accredited investors, fyi.

    Like

  44. Tim, what about a “listener pass” for certain courses that you’re interested in? (i.e. Entrepreneurship and VC)

    I think a 500 or 1000 Dollar which are wisely invested if you pick the right courses. Same goes with books (maybe recommendations by other business people?)

    Like

  45. QOD: How did you discover these angel investing opportunities? You had mentioned much of it by way of networking but what about the first few, before your name and the popularity of the 4-Hour Work week? Also, what do you do to analyze opportunities (after the first $50k one!) to know whether or not it’s a good investment?

    Thanks for the post.

    Like

  46. QOD:

    I would like to know why you suggested to learn creative writing? is it because it help to create your own marketing campaign and self story telling?

    Like

    • Just an example, but a personal one. It’s a fantasy of mine, so it was the first to pop to mind :) I do think storytelling is powerful, though, and Gary Vaynerchuck would agree.

      Tim

      Like

  47. Awesome post, Tim. This is some really inspiring stuff. While I’ve decided I won’t go back to school for my MBA, the idea of “creating my own” is very intriguing.

    Like

  48. Hi Tim,
    Contacting you seems a bit daunting, but here it goes! If you visit the URL, you will see the product my partner and I are wanting to produce. We have our first 5 samples taken care of via trade ($1000 worth), but are considering an angel investor for production. If you’re interested, please contact me at the email address provided.
    Thanks for reading! I enjoyed this post on education – graduate school seems to be taking a more societal role than a genuine pursuit of knowledge…

    Like

  49. Just a heads up about the site http://personalmba.com/best-business-books/ – They’ve been around for a few years with a list of top business books to give yourself a MBA without attending school.

    Perhaps you could do a book list like, or append, the above – a “Real World MBA Book List”, I’m sure Seneca would feature on that list as well as some other books that you’ve found valuable to your Business “career”.

    Like

  50. I got my MBA at a nearby state university. Part time – no need to quit my day job, but it took 3 years and during that time my evenings were busy. ($60,000+ per year? Really? Wow. Mine was less than a tenth that much in total.) The information and networking were very valuable, especially from one particular entrepreneurial class. The total cost in both money and time were reasonably low.

    But I have to admit that I’ve learned a great deal more just by running a small craft business. Make some stuff, sell it at local craft fairs, and see what happens. The lessons about dealing with taxes, paperwork, logistics, accounting, inventory, and regulatory interference have been better than any formal schooling.

    In general, I found that what they teach in most MBA classes assumes you’re going to turn into a corporate drone soon after graduation. Or that you’re going to hire an expensive team of lawyers and accountants to handle all the details. Thus the material isn’t always appropriate for two-guys-in-a-garage startups. Something to think about.

    This summer I’d like to get started on some biz ideas that can be fully automated 4HWW style. The education continues.

    Question about non-angel investing: How do you invest in AAA bonds? Is it part of a bond mutual fund? A professionally managed account? Somehow I don’t think you’re the type to stay up all night worrying over every single bond…

    Like

  51. Hi Tim,

    QOD: How did you meet all of the power players that you wound up getting advice from? I’m thinking in terms of beginnings- like when you were first gearing up to promote the book, etc. and then maybe later too when you were meeting the mentors that guided you through your improvised MBA?
    I’m particularly interested from the point of view of someone who has entrepreneurial experience in a different field and just moved to Silicon Valley to find a point of entry into the startup community.

    Thanks!

    Like

  52. Q’sOD: Do you think one can profit from angel investing if they are not based in Silicon Valley? What are the advantages and disadvantages of being outside of SV? How small of an amount of money can one start to build an angel investment portfolio?

    Interesting post. Made me think.

    Like

  53. Very cool post! I just graduated from Chicago with an MBA. It wasn’t cheap, and it was indeed full of 3-hour powerpoint lectures three to four times a week for two years.

    That said, the classes helped me a lot at the beginning, but mostly because my undergrad degree was not in business (it was in computer science), and because I was 22 when I started and I was done at 25. If you have even a few more years of work experience than me, you will probably not gain nearly as much from the curriculum as I did.

    The one thing I gained that is harder to gain via other means (like writing a NYT bestseller) is an incredible network and a “pass/permission” to do certain things that I couldn’t have done without the degree.

    I agree with Tim though, if you can circumvent this tedious check from your list of things to do to get where you want, your money is better invested elsewhere, and you can probably learn a lot more by choosing your own curriculum rather than following something set by an institution.

    Like

  54. Great article Tim!

    With open course ware from these prestigious schools such as Standford, there are multiple “free” avenues to learn all about entrepreneurship without having to eat the cost.

    I think what is valuable about this though is realizing that all the schooling in the world can’t make up for actually going out there and experiencing and learning from people who are already in the trade (if you are so lucky). Living in a small town such as my own (in canada) offers up some limitations to finding people who are actually worth being mentored by. Looking for a valuable mentor is difficult but as you’ve said in the past, all it takes sometimes is a phone call and making yourself vulnerable to a complete stranger who has the entrepreneurial skills and traits that you would like to learn.

    Any thoughts on owning and renting real estate? You seem to have traveled all of the other paths (entrepreneurship, and angel investing (investing)).

    That’s got to be next for you…

    Anyway thanks again Tim! Very insightful.

    Like

  55. Tim, I’ve had my business for 4 years and realised within the past year that I have no business savvy whatsoever! However, I began my business because I love what I do and want to keep doing what I do. It seems that in business the way to make money is aiming to make enough profit to sell my business and do something else. Do you think that being passionate about what I do and, therefore, emotionally attached to my business will prevent me from ever being distanced enough to make good business decisions?….

    Like

  56. I’m still seriously considering getting my MBA from a top institution in the country. Not so much for the knowlege but for the challenge of-one, getting in-raising the money without borrowing and just to enjoy the feeling of accomplishment that I’ve become addicted to.

    Didn’t you mention in your book that you created an audio book on how to get into the Ivy Leauge? I’d buy one of those, actually.

    Digg this post Tim, great as usually.

    Like

  57. Hi Tim,
    These are all very interesting ideas that I would definitely pursue… if I had the money to do so !!!
    The sums of money you are talking about are HUGE for me as a PhD student with 13000 GBP a year of income, so I was wondering if you had any idea for poor people like me :P. In particular, how would you go about building a network of fellow entrepreneurs if you actually have no more than, say $500 to spend on you business idea ?
    Thank you, keep up the great work.

    Like

    • Here you go:

      Create a “meet up” group or otherwise secure an audience of 100+ people, then invite business icons nearby to be on a panel. Give the speakers a nice private dinner beforehand, which you organize and preside over.

      Problem solved!

      Tim

      Like

  58. The concept of creating a self directed, time AND monetarily invested project on your own terms is excellent Tim! It’s all about creating the projects and self guided path towards a lifestyle that scratches your own particular itch…

    Loved rule #1 and truly enjoyed hearing you describe your own breaking of the rule… Gotta love the live and learn concept. Just stings when they’re costly on the ole piggy bank!

    Cheers to this post Tim!

    Patrick Hitches

    Like

  59. Tim,

    Great post, as I am currently planning to return to school for and MBA in the next year or so. I was wondering what your thoughts are on risk, and the differences between school and your real-life MBA. I understand your circumstances, but what if I don’t have an extra $120,000? For school, it is easy enough to get loans, as the promise of a future well-paying job will entice lenders. Is the same true for angel investing? As you said, you cannot expect ROI for a good length of time, and private loans generally need to start getting paid back immediately.

    Supposing you do receive or have money to angel invest, how does one go about getting business acumen? Should this be by way of testing one’s monthly muse? In this case, it may alleviate the lack of funds problem, for at least a few months. Even in this case, I’d imagine some background in business would be helpful, do you have a place we should start?

    Thanks for everything,
    Brian

    Like

  60. To anyone thinking about an MBA,

    I currently am in an expensive, midwest, top-tier part-time MBA program while I work a good job related to the kind of career field I will likely continue on in once I finish the MBA program. First off, I actually have wanted to go to this program for quite a few years, so making it into this competitive program actually fulfills one of my big-hairy-audacious-goals such as Tim recommends we all do from time to time in his book. (which I do enjoy, although it’s not the end-all-be-all book, nor should it be) And yes, it’s costing me a small fortune in tuition and books.

    I think Tim is just trying to provide an alternative solution to MBA school for those of you who are driven in different ways than simply “book smarts.” In my program, the same problems exist as what Tim describes seeing at Stanford: real-world and academic winners teaching right alongside real-world, academic losers – winners and loser in the sense of how much anyone can actually learn from these professors. However, I still am really glad I’m investing my money in this manner. I have found I need this kind of structure and team environment to push me along since while I am a self-starter, I am motivated much more to excel by surrounding myself with other self-starters. Enter MBA school.

    Honestly, it was reading Tim’s book about 2 years ago that really got me over the hump of hunkering down to study hard for the GMAT so that I could achieve this goal of getting into and attending this MBA program. But if your goals are to provide well for yourself and your family and you know that going to MBA school isn’t what you want, then don’t do it! There are as many ways to get from here to there as there are people on this planet. Find yours.

    Like

    • Hi Jeremy,

      Thanks so much for the comment.

      I want to clarify one thing for all readers: I DO believe MBAs can be valuable. It depends entirely on your goals and resources. I know many studs and studettes who kick ass in the trenches and have “MBA” at the end of their names.

      Just think hard about your motivations and desired outcomes.

      Tim

      Like

  61. This post could not be better timed for me personally, since I recently decided to look at my first entrepreneurial endeavor as my own real-world MBA. I already partly blamed you and The 4-Hr Workweek for this decision (since you basically removed all of my excuses), and then you write this…

    But enough about me. Here are my questions:

    QOD: Caveat #1 for angel investing was “access”, which I assume is also a problem for startups as well (i.e. access to expert advice & feedback). Was this an issue for you when you first started BRAINQuicken? If so how did you deal with it.

    QOD II: Since you now have access to the best and brightest in Silicon Valley, what is one of the key differentiators in talent you look for when trying separating the wheat from the chaff? You mention Alexa ranking (a form of traction) not translating, so I’m curious what is now at the top of your list.

    Thanks again!

    Like

  62. I like the beginning of this series. I’m currently creating my own MBA as well. I think your first rule should also include the value of a SUCCESSFUL mentor. Right now I’m breaking even on my education by not making a living and working for a start up with one condition: the founder (mentor who has had 26/28 successful businesses) teaches me about business. This opportunity was all luck. Since starting my ‘MBA’ in February I’ve learned and practiced so many things that an MBA doesn’t teach.

    Side note: my mentor has a fund in escrow towards Wharton. If Wharton wants the money they have to change their MBA program to actually teach business.

    Like

  63. Tim, I love your approach to personal learning. Education is like the workforce, we think we *have* to do things a certain way because they are the norm.

    But many times, going with the norm means not going with one’s intuition, out of fear. That’s something that has to be unlearned.

    Your personal MBA program is a great example of taking control of one’s life and learning and that’s a powerful practice. Once again, thanks for sharing your journey! -Jesse

    Like

  64. Great post Tim,
    Thanks for putting on paper what a lot of people are thinking including myself. I if I ever opened a business school the final exam would be to create a successful muse. The educational system will have to change as it’s not preparing us for the real life.
    All the best with your investments, Mat

    Like

  65. Understanding that your stated goals here are/were to develop new business skills and a better business network, and that starting a new company may be an inferior way to accomplish those things as compared to angel investing/advising… How tempted are you to start another company of your own? How does starting another company compare in your own mind to being involved in other people’s companies?

    Like

  66. First time poster; Tim’s books/posts have been really enlightening and encouraging. On this post though, I used to think along these lines until recently. I’m 32 and have put off MBA for the last few years in order to maximize my learning in the real world the best my finances will allow. If I could do it over, I would have started MBA coursework about two years ago.

    Tim’s methods are more applicable and better suited to prepare someone; but at the end of the day you don’t have the piece of paper, the accredited degree.

    It’s kind of sad, but it’s the rules of the game if you go the non-silicon valley or non-entrepreneurial route (I’m a Midwesterner). I got tired of seeing people with half my ability getting ahead because they simply furthered their education. Even if it meant qutting their jobs.

    My prediction for the future; If you’re not an enterpreneur or an attractive female (who will soon be taking over the entry/mid levels of corporate America) then you will need an advanced degree.

    Great post though on the alternative.

    Like

  67. Ferriss, another breakthrough. This is by far the most valuable stuff you have put out since the first book. Seth Godin’s views on MBA’s are excellent and similar to yours. .And, of course,Taleb is essential, even critical. I just finished “Black Swan” for the fourth time. I’m still learning from it. It seems you have been drifting in search of your next big book. Drift no further. You’re right on it. Warning, if you see an “expert” economist in a suit and white shirt, RUN!

    Like

  68. Great stuff once again. I know you were searching for a topic and you found a good one here.

    QOD. Almost all the advice on this subject is geared towards the Startup to IPO make a lot of dough in a couple of years model. So many of us “entrepreneurs” are looking to develop a successful, highly profitable business with no intention of going public. Would love to see how the “Superpreneurs” would approach the private vs. public model.

    Thanks Tim…

    Like

    • Hi Lon,

      Much more coming on the “muse”-specific model soon. I just wanted to write on something a little different to expose y’all to the opposite model.

      Thanks for reading,

      Tim

      Like

  69. I really enjoyed the testing the muses idea. This is something we can all do to some extent and I can personally say I have learned a lot with a few e-commerce sites I have started.

    Great Post-

    _ Jose Castro Frenzel

    Like

  70. this is guerrilla education, learning hands-on in the jungle not the state sponsored classroom. But how come it took a genius like Ferriss so long to figure it out? – i mean i left school at 15, regardless, Tim continues to demonstrate tall forehead thinking….and acting!

    Like

  71. Tim,

    US is a Entrp friendly economy, yet despite all the mature support , you had a succesful exit in 1 out 15 investments , this is certainly some thing to think about.. If you had been in a place like India ? I wonder what will happen?

    Like

  72. QOD

    Hi Tim,

    Firstly, I found this post very “MBA Version 2.0″ from something that I wrote about my first 6 months as an entrepreneur: http://alturl.com/sqp5 (feel free to delete this link if it doesn’t follow your blog rules).

    Going into 100K+ debt to learn business theory in college is unnecessary when you can put that money into your own muse ventures.

    QUESTION:

    On the subject of business debt:

    I come from the school of thought of not taking in any debt…but I understand the power of leverage.

    What is the gist of your philosophies on business debt?

    Do you avoid business with too much debt? Or, have you ever recommended a business to take on debt? If so, why? Where do you define and draw the line?

    Like

  73. Wow! This article definitely was an eye opener. So many people see the value of putting money into schooling, but never consider that the money (or a good portion of it) could serve even better purposes with real life learning experiences. This really got me thinking….

    Like

  74. Wow, I read the title on my RSS and I couldn’t wait to read the post…

    I had decided in 1999 to pass on a JD/MBA program for a well paying job and then again passed on it in 2004 to start my own company. Millions in gross revenue later, and I’m still not rich, but what an education. After 4HWW I removed myself from the company, (thank you TFerriss), it still generates a return, but I find myself unfulfilled.

    I think having your own business is like a real world undergraduate program, and necessary prior to a real world MBA or angel investing.

    Question: What other activities, aside from angel investing and constant reading, would you recommend to develop the next skill set level for someone who has built a successful business?

    -will

    Like

  75. Love the viewpoint of this article…

    Much better in my mind to learn “in the real world” than “resort to the protective womb of academia.” (haha love that line!)

    I especially like the idea of investing a portion of your salary to create a “muse” or small business instead of a degree.

    I was thinking about this the other day, for me, I started my business early 2006, 4 years later, I’m making WAY MORE than any of my friends who went to college …

    Did I miss out on anything?

    — Was I poor like a college kid through most of those 4 years? Yup.
    — Did I drink like a fish through those 4 years? check
    — Did I live off Ramen Noodles? Oh yeah.
    — Relationships with many women? You betcha!

    Looks like my own ‘College De Caleb’ worked pretty good :)

    Later!
    Caleb

    Like

  76. Tim,

    I have yet to read your book yet (it’s next on my list)… but am fascinated by what I’ve seen so far on your blog. I look forward to learning from you.

    QOD: Everyone says that you can start out small – with “nothing!” – and make it in this world, right? Well, I’m a broke, just-married college student with practically nothing to my name… except an entrepreneurial itch that I cannot get rid of. I have aspirations for starting my own businesses, but seemingly no way to do so. …how would you advise a young, aspirational, broke college student to pursue his entrepreneurial dream?

    Thanks a lot man!

    Like

    • Samuel,

      Welcome to the party! Few resources just mean you need to be more clever in your testing. I don’t say it often, but I’ll say it here: grab the book and check it out. At least half of it answers your question exactly.

      Good luck :)

      Tim

      Like

  77. Tim, I have long been working towards what I called a “working-man’s MA” in fields that interested me, from religion to astrophysics to literature. Basically the best of graduate school is found in reading great books, discussing them with smart people and volunteering/interning with relevant organizations. Total cost: Library past-due fees.

    You add the element of investing, and I think it is an important one. Great insights.

    Like

  78. Hey Tim-

    First, QOD:

    A few summers ago when I was still in college (undergrad), I had the opportunity to work at a prominent Angel Fund in the LA area. I learned a ton about what makes a good pitch, what makes a sound investment, how to properly articulate a deal at every stage of the negotiation, and many other things. The one thing I had trouble with however was valuation. So you have this start-up company, with none to little revenue, but a seemingly gang-busters idea. What is that worth now, and what is it worth in 5 yrs? This is necessary to negotiate the value of your investment as an investor.

    Take for example investing in an unproven web-startup (aka YouTube) vs. investing in a manufactured goods company (aka Method). Both have exteremly different markets, buyout processes, etc. The “YouTube” had no revenue at first, but the “Method” company probably did. The “Method” company will most likely show revenue earlier on with steady growth because they have a proven business model. This is easier to determine the current and projected value of the company, and thus your investment. However, an investment in a YouTube would be much more speculative, thus yielding higher value in your investment. So how is value determined on a speculative business model such as a YouTube?

    And yes, everyone says, “these numbers are a conservative forecast…”

    Second, MBA:
    After recently graduating from undergrad, I’ve been considering the MBA path. But after being in the working world, along with working on 2 muses, I am leaning towards the strategy you mentioned. I recently interviewed a successful CEO who graduated from HBS in the early 2000s. He said the most valuable asset from his HBS MBA was the connections, which ultimately lead to creating a very successful business. Other than that though, you can learn the curriculum from books and meet successful mentors (aka would-be professors) through persistence.

    Regards,
    Kai

    Like

    • Hi Kai,

      Thanks for the comment.

      Valuation is pure alchemy. For ages I couldn’t get over the “WTF?? Did they just make that up?” mind-set for valuations of unprofitable start-ups. Let’s be clear:

      The valuation is what is negotiated. Nothing more, and no more based in objective reality, at least when dealing with unprofitable companies.

      How do you negotiate? Using comparables, which were equally made-up or based on other comparables. It’s a house of mirrors, but if you understand that, you can play within the rules and make more informed decisions.

      A start-up in the geolocation space, if valued during a period when such period are “hot”, might get a Series-A 10-million post-money valuation, whereas they might get only 3 million if the next hot thing is making the rounds.

      It’s an dance from Alice in Wonderland. As always, reality is quite negotiable. No one gets what they “deserve” — they get what they and their lawyers can negotiate.

      Check out Bebo for a great example of selling at the right time. Ditto for FlipCam.

      Tim

      Like

  79. Great outside of the box thinking. But still, I would not recommend your approach to most people (even if all your criteria are fulfilled). This is also the reason, why schools shouldn’t close their doors yet.

    The majority simply isn’t capable to keep the necessary commitments. Putting social pressure and society approved career paths aside, most people simply cannot educate themselves (especially over an extended period of two years). Education for most people needs a tight corset of restrictive rules and schedules enforced by an evenly strict faculty. For Petes sake, most students I know cannot even keep simple appointments or deadlines for ten pagers (I was a faculty member for quite some time). Trust me. After the first failed investment, the first sessions in writers club, the first books or the first lame muse, it is just to much for most of us.

    I know all your readers are successful men and women that know how to keep grand personal commitments. But for all us less self controlled schools offer a far better ROI on our money.

    By the way, there are other examples that you would never do, but that makes sense for most of us.
    – You don’t pay a personal trainer for training you, but for kicking your butt.
    – You don’t pay Weight Watchers for their ridiculous point system, but for putting peer pressure on you.
    -You don’t pay hundreds of dollars for a Tony Robbins seminar, you do it to increase the perceived value of the information he provides so it has greater impact on your behaviour.
    – You don’t pay tuition to get educated, you pay it so they force you to do something you can not do alone.

    Like

  80. Hey Tim,

    I have an MBA from a top-3 MBA program in the US, and I wholeheartedly agree with your post.

    During my MBA program I met some amazingly smart individuals, developed lasting friendships, and had an opportunity to learn fascinating things from rockstar teachers. The school brand name opened the doors for me to work at pretty amazing places. And yes, I sleep better at night knowing that I have a safety parachute which will allow me to land a well paid job if all else fails.

    But if I was to do it all over again, instead of getting an MBA, I would take 2 years off and do series of 5-8 internships /apprenticeships, working for free if necessary. And I would travel the world the rest of the time.

    I think that’s another creative option for someone who doesn’t have $250K to spend on investing but wants to do something more practical than sitting in classes for 2 years.

    Like

  81. Awesome post dude!

    QOD: I would like to learn more about the networking side. How do you go about building relationships when you dont have the experience of running a successful business or living in an area where there is lots of talent/tradeshows/events/meetups like SV.

    More so, how do you screen the people you do meet to know if they are going to be a correct fit in your network in terms of your goals. If you live in a less happening area, or are say a nomad like myself, its difficult to know how to meet people that are aligned in their values and goals.

    So, how you identify, screen and build relationships with mentors/peers that will help you develop your MBA/Start up.

    Like

  82. QOD: I’d like to hear more about how you sold Brain Quicken. Since you have that under your belt why not write about it. I think it would help people starting their muses to hear about one mans end result of his muse. The article could come from a couple different angles; the man behind the muse, if you would have been an angle investor looking at B.Q. as a start up, and also from the angle of the buyer who now owns it.

    Good luck and I look forward to your next post!

    Cheers!
    Lacey Scott

    Like

  83. Noted on 3x ROI.

    Ok, fair point – empowering 1,000 millionaires is not an unreasonable target for you.

    But I hope you will keep the extra-ambitious among us interested, by continuing to scale the orders of magnitude of wealth you teach how to create.

    Like

  84. Tim Tim,

    You imply that you chose angel investing over business school because you didn’t think Stanford GSB was worth your time. Certainly, however, failing to gain admission to the school must have influenced your decision. Rejection to an institution of that caliber is nothing to be ashamed of, but you mislead your readers by conveniently leaving out that tidbit. If you actually did have sufficient merit–intellectual and otherwise– to be accepted to Stanford at the time, I think it’s much more likely you would have done like the masses and attended comfy business school.

    In short, your deviation from the rest of the pack–what you perhaps like to call innovation–is much more out of necessity than of courage.

    Like

  85. I think this article has some very interesting ideas. Though I imagine you could replicate the results on a smaller scale, I appreciate seeing the ratio of investments that were profitable v. otherwise.

    What I don’t really understand is why not do both? It seems that too often financial advisors (Padawan or Jedi) recommend one option over another. If we vary our time spent on one project as juxtaposed by another, let’s say taking classes and investing seed money, we can reap a potential rewards from either end. This way you can learn from the CEO’s teaching at GSB and then apply what they taught to your own circumstances.

    This position also reduces risk, for obvious reasons.

    Like

  86. QOD: Hi Tim, ultimately you don’t know if a venture is going to succeed or fail, you can only analyse the information in front of you and make a decision. What makes the difference between a marginal no-investment and the one you do go for? Just instinct/intuition?

    Excellent post by the way – going through the resources mentioned now!

    Like

  87. Hi Tim

    Impressive post!

    QOD: How about the process to follow if you have a company, a small startup that’s doing OK (not great, but OK) and you want to sell it? Where can you find potential buyers? What’s the process to follow?

    Thanks!

    Like

  88. Nothing teaches like experience, and I like how you focused on the intrinsic value over the market value in designing your own school of hard knocks.

    QOD – How to pick among all the different customer segments and choices of experience to focus on — and analyze market opportunity, tech opportunity, value, and differentiation? I think differentiation is the key to dominance and value is the multiplier.

    Like

  89. Hey Tim:

    I think what you’re saying makes a lot of sense in terms of so-called “practical degrees” like an MBA (assuming you want to become an entrepreneur) or creative writing (assuming you want to become a novelist). However, I think it likely has less utility for most other fields.

    For example, if you wanted to make up your own course in engineering, or political science, or law, or scores of other fields, you would be hard-pressed to get the same education or contacts, and whatever you did on your own time wouldn’t replace a Masters, or even give you close to the same level of recognition for it. Unless you want to work for yourself, you need the Masters as the credential of your knowledge, skills, and abilities.

    Why would you not want to work for yourself, you might ask. Well, there are plenty of reasons. If you are working towards some sort of cause, a non-profit, government, or foundation career is probably the best choice, and you’ll not get your foot into that field without a Masters degree, or at least be able to advance past a certain point. That’s just the name of the game. Ok, so start your own NGO, right? Well, that’s unfortunately what everyone thinks, so you end up getting dozens of NGOs working towards the same thing but competing for scarce resources and often impeding one another’s progress.

    Your posts and writings on the importance of minimalism in a business model are very, very important and spot on, and I think there are applications for the public sector as well, but I think it’s important to make the distinction between an organization with a profit incentive and an organization with a goal that has public benefit. In the latter case, teamwork isn’t just nice, it’s often necessary. In a private business, you always have the option of a publicly-traded company where your responsible to shareholders, where in the public sector, there are always stakeholders, and you don’t have that choice, in fact you’re entering the field because of those stakeholders. So if you’re a psychologist, or a teacher, or an economist, or an engineer, society has a real, vested interest in you completing a Masters degree. I agree that universities often get in the way of education, in that they encourage students to focus on the wrong things, or to move at a slower pace then they are capable of, or to embrace dogmatic ways of thinking, so auto-didactism isn’t a nice addition, it should be a sine qua non of education. However, the reason that those who serve public goals need a Masters degree is because society needs assurances that professionals who will work towards those goals have had the requisite training, and putting scattered coursework on your resume isn’t quite the same thing. It may be just another hoop to jump through for many, but it’s partly about showing your commitment.

    That having been said, I think one drawback to “making your own MBA” is that there has been a real backlash against top business schools like Wharton and Stanford in the wake of Enron and the financial crisis because it’s been alleged there is little attempt to teach ethics or social responsibility in business schools, and a lot of school are starting to take that criticism to heart. The truth is, as a businessperson, you’re not just making profit for yourself, you’re contributing to a good to society, and therefore society has a stake in how you conduct yourself, whether or not you pollute, whether or not you create a equal and beneficial work environment, etc. I think that revamped business schools would have the opportunity to instill a sense of social responsibility that is sorely lacking in the business world, and that “making your own MBA” wouldn’t afford one that opportunity.

    I would guess that programs like Stanford’s Center for Social Innovation (http://csi.gsb.stanford.edu/) are a case in point.

    But again, you have very strong ideas that nearly all organizations could benefit from and as usual my suggestions are on the margin. Keep up the good work.

    Like

  90. Tim, you should do yourself a favor and go for the MBA for at least five solid reasons:

    1) You’re overestimating the costs and underestimating the benefits. Re-read pp. 271-72 of David Schwartz’s “Magic of Thinking Big.” Even at $120,000 in tuition, there are ways for people even of modest means to make it happen financially. And even if you have to pay full-freight, that’s still chump change when the average MBA graduate will earn $4 million + over the course of a working career.

    2) The MBA is faster than trying to learn on your own. Do you want to spend years trying to master the intricacies of accounting/finance/other hard disciplines in “the real world?” Or would rather get that out of the way in the 10-15 weeks it takes to complete a course? I’ll take the latter.

    3) It’s not mutually exclusive with your angel investing activities. You can take courses on the side, etc. You don’t have to take the time off. And b-schools are incubators of new businesses—are you missing out on a big project a la PayPal (launched by Stanford students)?

    4) B-schools are great for finding mentors. Based on my multiple readings of 4HWW, it sounds like you wouldn’t be half the man you are today without having met Professor Zshau at Princeton. Are you missing out on the opportunity to meet someone who can transform your life like that again?

    5) You don’t know what you don’t know. I’m doing an MBA program right now (as you might have guessed), and it has introduced me to at least two entire fields that I didn’t even know existed before enrolling. You can’t hit a target you can’t see—and no amount of discipline or self-study would have allowed me to fill gaps like that in my business education.

    Tim, this post resonated for me because I have been there (on a much smaller scale)—I spent years reading one book after another, experimenting with the stock market (complete with losses in the thousands of dollars!) in an effort to get the “real world equivalent” of an MBA. Ironically, it was your book that made me realize that all this activity was just an excuse to not pursue a goal that I viewed as too big and too far outside my comfort zone to complete. But trust me, Tim, if you have the itch, it will gnaw at you till you do it. Quit deferring your life and your dream and go for it, man!

    Like

  91. Perfectly spot on. Wish I had read it years ago.

    When I went for my Stanford MBA, I already had a degree from the top US engineering school, had lived in Palo Alto for years, had worked in early stage VC-backed startups, and had made VC and industry contacts. I honestly did not realize how well positioned I already was. The MBA, though interesting and fun, was an extremely costly distraction from real-world experience.

    MBAs are a necessary condition to get those high-salary, long-hours jobs at investment banks, management consultancies and Fortune500 firms. There’s a place for that. But those folks are not Tim’s audience, are they?

    Tim, in support of your argument, don’t forget to include the opportunity cost of the MBA. If someone is earning $100k before b-school, then he loses $200k (pretax) while inside, on top of direct expenses. This probably didn’t occur to you because you are so successful at generating passive income.

    Like

    • This is a great point and one I neglected to underscore. Thank you. To emphasize your point:

      “… don’t forget to include the opportunity cost of the MBA. If someone is earning $100k before b-school, then he loses $200k (pretax) while inside, on top of direct expenses. This probably didn’t occur to you because you are so successful at generating passive income.”

      This also doesn’t even include the likelihood of increasing your annual income over that period of two years. Like you said, if an investment bank or other institution requires it for a promotion, so be it, but this isn’t the case for most.

      Tim

      Like