Do MBAs or Entrepreneurs Make Better CEOs?

Last Updated May 10, 2011 7:50 PM EDT

Do MBAs or Entrepreneurs Make Better CEOsPundits and researchers have been trying for decades to figure out whether MBAs or entrepreneurs make better CEOs. Finally, we have an answer to the age-old question, and it is a shocker.

In a recent interview, SpaceX and Tesla Motors CEO Elon Musk says he's forced to run the companies he founds because he's "better than the CEOs we hired." He also claims that, "Professional managers - MBA CEOs - are not very creative or adaptable, and their skills don't suit a startup."

Is Musk right or just drawing a significant conclusion from a couple of insignificant data points? Speaking of data points, here are three quick ones that come to mind:

  • Eric Schmidt - an experienced senior executive - seemed to do a pretty good job of running Google, if you ask me.
  • I can think of plenty of reasons why some CEOs don't work out in all sorts of situations that don't reflect on their ability.
  • I don't think Musk has ever hired or worked with a professional CEO at any of his companies. Tesla's founding CEO, Martin Eberhard, was a fellow entrepreneur. Hmm.
While Musk's argument appears to be baseless, it is a conversation starter that invokes a number of myths that we should probably deal with if we're going to find the answer we seek. I don't know about you, but I've got no axe to grind in this debate, so let's see if we can achieve some level of objectivity here, okay?

4 Myths About MBA and Entrepreneur CEOs
Myth #4: MBAs make better CEOs
A recent study of 1500 companies over 15 years found no link between "CEO education and long-term firm performance." And, in The Truth About MBAs, Like It or Not, I explain that, while getting an MBA might facilitate your climb up the corporate ladder, it won't make you a better manager. That said, I don't agree with Musk, either. Lou Gerstner had an MBA and he brought IBM back from the brink of extinction by changing the company's culture and business. I'd call that creative and adaptive, wouldn't you?

Myth #3: Entrepreneurs make better CEOs
Citing examples like Steve Jobs, Bill Gates, and Larry Ellison, I wrote that founders can make good CEOs ... when they grow up. Nevertheless, those notable examples are the exception, not the rule. Yes, there is an argument for why VCs like founders to stick around as CEOs for a while, but I know plenty of successful serial entrepreneurs who didn't go that route and their companies did fine. Google's a great example, also Cisco, Intel, eBay, dozens of others.

Myth #2: Experience makes better CEOs
While it does indeed count for a lot, I explained why experience is overrated as an indicator of business or management success in a recent post, citing dozens of examples - including Musk, incidentally - of inexperienced leaders who've become successful CEOs. The truth is that, at least in executive jobs, talent can often trump experience. Who knew?

And Finally, Myth #1:
People smart enough to found companies that can send rockets into space would never make broad generalizations to support their self-serving and subjective views based on nothing but a couple of flimsy data points. I mean, come on now, that's just absurd.

Bottom Line. Researchers can study empirical data or theorize until the cows come home, they'll never find a significant correlation between successful CEOs and any of the above factors because there are simply too many variables.

Not only is every industry, company, and individual unique, but each changes over time, as well. You might just as well ask what type of person makes the best spouse or friend. It's an amorphous question, as is the headline of the story. Still, I promised an answer, and here it is. It's neither.

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