Credentials, Who Needs ‘Em?

Albert Wenger had a great post about the credentials needed for college.  He home schools his children, and they are starting to look at schools.  Schools require certain things, like standardized college testing.  But, tests aren’t always predictive.  I haven’t met Albert’s children.  My gut says because Albert is the parent they’d make a pretty good admit no matter where they wanted to go.

Credentialing is epidemic in all societies.  It used to mean something but I think it means less and less.  For example, if you attend the “right” school, you get a little more respect than the person that didn’t go to the right school.  Hence, if you talk to someone from the Ivy League, they will let you know either directly or indirectly that they went to School X within the first five or ten minutes of the conversation.

But, if one looks at many things, credentials pretty meaningless.  For example, Jack Lew is Secretary of the Treasury.  Does anyone think Jack Lew has the expertise and capability to execute on the mission of the Treasury Department.  He’s got credentials but overall, he is just a government hack.  Similarly, Bart Chilton was a career bureaucrat that garnered a lot of power in the CFTC.  Bart didn’t know that much about trading and markets, but he knew how to work the system.

The next natural step for big time government bureaucrats is to get a cushy job making a lot of money lobbying their former colleagues.  Glenn Reynolds has advocated for a revolving door tax and it’s a good one to fix that negative externality.

In all kinds of occupations I see the same thing again and again.  Consulting, investment banking, private equity, venture capital.  Make sure your sandwich board is peppered with the right schools, degrees, and other touchstone things and customers/investors feel safe.  They rarely do the diligence necessary to find out if there is any execution and outcome correlated with the credentials.

In the book, The Hard Thing About Hard Things, Ben Horowitz wrote extensively about building a world class team.  He also said when he was CEO of Opsware, he hired a head of business development the person didn’t fit the mould.  He wasn’t textbook.  In most companies, he would have never got hired.  But, in his, he did and he executed flawlessly.  Merit before credentials.

One of the reasons I went back and got an MBA at Chicago was the credential.  I always had a bit of a chip on my shoulder because I went to three colleges in four years; and my occupational choice wasn’t one that cared a whit about credentials.  Nobel Prize winner Merton Miller and I used to have lunch together and he told me, “If you get an MBA, you do it at Chicago.”  On the trading floor, our inside joke was about the trader who had an Ivy PhD in finance and was getting killed in the market.  He shouted, “But I have a PhD from Harvard, I can’t fail.”  The wily trader retorted, “I have a PhD too, Parents Have Dough.”  Credentials don’t keep you from failing and they are meaningless when it comes to executing.

Once I was talking to an entrepreneur.  He had two degrees from different SEC schools.  He point blank asked me, “Does it matter where I went to school?”  I said, “No, Ivy League and competitive university kids fail just as much as anyone else.  The only thing that matters is if you can execute.”  By the way, some of the wealthiest people I know don’t have a college degree.  Not just floor traders, but bonafide business people that have built massive multi-national companies.

The most important thing about going to a competitive school, or any school for that matter, is the shared experience.  It’s often a signal of shared values.  It allows network connections to be built faster.  Think about Greek system people.  Same frat but different colleges?  No matter.   There is a shared common experience that helps each person break down some barriers, find some commonality, and get to what they need to get to faster.

References are way more important than credentials.  Way more.  I learned the hard way that before I make an investment I should try to check out the team with as many people as I can.  I try and find out how they performed.  What’s the outcome?  What’s the result?  How’d they deal with failure?  How easy were they to work with?  Were they stubborn or flexible?  Do they delegate or are they controlling?

Has my credential helped me?  Dunno.  It hasn’t helped me change my career.  It hasn’t helped me raise money for an early stage VC fund.  Raising a fund doesn’t have much to do with your degree.  Some of it’s political, and much of it is finding the right investors that will take risk.  In many ways my MBA has hurt me since I took two years out of my life to do it-and did it after the age of 40.  I spent time and money away from my job and probably would have made a lot more money during that period.  At the same time, I have a network that I never would have had.  Prior to my MBA, I had a very good network too.  The Chicago Booth moniker on my LinkedIn profile gives me credibility, even though I might not deserve it.  But, if you look at what I have done and measure by that the degree has more weight.  It’s way to early in my life to total up the costs vs benefits to come up with a bottom line calculation of worth.  That probably won’t be able to be completed for years and years.

Problems arise when the people in elite networks use it to build barriers and keep the network pure.   That’s what we see a lot in government and other networks.  Network diversity helps strengthen, not weaken a network.  One thing I learned as a floor trader was to respect everyone.  It didn’t matter where they came from if they could do it, they deserved respect.  I try and carry that to the entrepreneurial community in Chicago.  There are a lot of great people here, the network is diverse and it’s supportive.  I really like what the community is building here.

In the future, I think distributed social networks will have more weight than credentials.  We already see that sort of effect on sites like Github.  It might be cool if someone built a blockchain app that allowed people to transparently check out people and also review them.

For a clear example of the credential effect, check out the current Presidential candidates.  If they are measured on their credentials, they stack up one way.  Measure them by what they actually did when they had power and were in office, they stack up entirely differently.  I think this is one reason that candidates like Trump, Fiorina, and Carson have a lot of traction this go round.  People are sick of credentials because in the last two administrations we found out they were meaningless when it came to actual execution in the office.  The good news is America is a resilient country and we have survived 16 years, especially the last two terms, of some poor choices by leadership.

Moral of the story, next time you meet someone, listen and interact with the person.  Don’t pay attention to their credentials.