As some of you know, I often share some personal gems of my book collection with those I hold dear. But rarely you will see me passing down business management books. One of the things that authors of management books have in common with bankers, academics, consultants, and managers, is that they very rarely have much skin in the game about which they write. Sometimes they even have no skin in the game at all. As a result, they lose absolutely nothing if it turns out their advice is harmful rather than beneficial. With nothing at stake, they are free to inhabit an idealized parallel universe in which businesses can be reduced to tidy models and Gaussian bell curves. In these sunlit uplands of the mind, it is vanishingly rare for businesses to meet the absorbing barriers that would prevent the game from continuing. The focus is almost always on how to develop a business under typical conditions and almost never on how to handle the existential threat that might be hidden around the corner.

To merit of having skin in the game

Many of the ideas these authors discuss reflect an alternate reality dreamed up by economists who are less interested in the survival of businesses than in producing elegant theories that will be published in prestigious journals, or published in bestseller books. The “tests” these theories are subjected to are the critiques of fellow authors, who are themselves busily attempting to burnish their academic and business reputations. While these folks are debating, entrepreneurs are in the trenches, betting big on the actual decisions they make. These entrepreneurs don’t have time to debate because they have businesses to run, but they nevertheless, I propose, have more useful insights than those who live by paper and pen.

Entrepreneurs almost inescapably have a huge amount of skin in the game, and this acts as a protective spell against business superstition. The threat of losing everything has a tendency to keep a person honest, at least in the sense of accepting error and changing direction to stay afloat. The academic, by contrast, risks nothing more than a bruised ego. He or she thus has little reason to test their theories in the brutal world of practice.

High-priests of business management

The detachment of the theorists from the messy world of the practitioners leads to models that are excessively deterministic and which seem to almost perversely ignore the randomness and chaos with which the real world is replete. Despite the history books being full of collapses and unprecedented events, crises and unforeseen turning points, there is an almost neurotic attachment to the illusion that the world is predictable. Perhaps it is because the alternative is terrifying to a mind that demands order. Whatever the reason might be, the result is tome after tome of what can only be described as business superstition. A tribal shaman who sees the first drops of rain fall immediately after he picks his nose might well ascribe the cause of the former to the action of the latter. In just the same way, a whole class of business prognosticators propagate similarly naïve beliefs rooted in crude correlations. Most likely, your business plan is made up by the same silly superstitions as the tribal belief how picking your nose will start a downpour.

With their dogmatic insistence on universal rules based on the flimsiest of empirical evidence, the high priests of business management share more in common with the leaders of religious cults than with those directly engaged in entrepreneurial activities. I dare to suggest we need more parlez-vrai, not more fancy recipes for success. As every entrepreneur knows – but not every manager – is that the markets we operate in are messy, highly complex verging on the random, and rough. Just as life is.

The MBA dogma

There is no paint-by-numbers approach that can be followed mechanically to ensure that a business is a global hit. If there were, we would all be billionaires, and the world would be filled with Microsofts, GMs, UCBs and Googles. Yet millions of readers continue to purchase instructional books that attempt to reduce the irreducible. Indeed, some charlatans have built whole institutions dedicated to lifting cash out of the wallets of those who crave documentary evidence that they can administer a business. These programs are, it seems, worse than useless. A 2002 study by Jeffrey Pfeffer and Christina Fong reported zero correlation (let alone any hint of causality) between successfully acquiring an MBA and being successful in business. Yet the frameworks these institutions teach go on to be preached as theological dogma out in the real world. From an entrepreneur’s perspective, it is hard to see these programs as anything more than glorified support groups that allow insecure managers to swap cash for confidence.

Yet great harms can follow when this circumscribed usefulness is mistaken for evidence of the objective truth of the world entrepreneurs operate in. The institution of established wisdom also has its own pitfalls: degree certificates set the seal of authority on models and men, feeding egos and dazzling both the holders and those who behold them. This is all the more worrying when one considers the results of a recent study which found that CEOs with an MBA background are more self-serving than those without, putting their personal interests over and above those of their businesses, employees, and shareholders.

Experience and common sense as an antidote

So, while these traditional schools spread ineffective, even dangerous, models for understanding the business environment, they might entrench dogma and elevate the selfish. And – most importantly – they suggest that theory can replace, or may even be preferable to, experience. As Jack Welch, the former head of General Electric, once said, running a business isn’t rocket science. It is one of the world’s simplest professions. I wholeheartedly agree. But while the task is simple, it is also messy, because businesses, and fast-moving entrepreneurial businesses in particular, are embedded in an unpredictable and chaotic world. 

Experience and common sense are the two most important tools we have for navigating that world. But we also need to protect ourselves from the temptation of promises of order and easy comprehension. And the best protective spell available is to ensure that those in positions of responsibility have real skin in the game. Otherwise, the pull of imaginary causalities, elegant models, and a predictable world will often prove too powerful. So, if you don’t have an MBA, you’re not missing much. If you do have one, great, but don’t take yourself too serious…