Are MBAs Cooling on Entrepreneurship?

In recent years, business school graduates have been shunning cushy corporate careers and instead have founded their own fledging ventures, or joined one.

At Stanford Graduate School of Business, in the heart of startup cluster Silicon Valley, 16% of the most recent MBA cohort launched businesses in a broad array of industries: software, finance, healthcare and others. Tony Xu, for instance, founded food delivery firm DoorDash with a throng of Stanford classmates in 2013.

But recent data suggest the hot trend might be cooling. The proportion of MBAs starting companies peaked at 22% in 2015 and fell to 16% in 2017, according to figures published by the FT in January 2018. Is entrepreneurship, with its freedom and potential riches, losing lustre?

Of the 400 or so MBAs at MIT’s Sloan School of Management last year, about 20 — fewer than 5% — founded a company around graduation. That is down from 35, or 9%, in 2013. “There is a trade-off between taking a job with more certainty and a salary, and taking more risk with a startup,” says Bill Aulet, managing director of the Martin Trust Center for MIT Entrepreneurship. “As the price of getting an MBA gets higher, and the economy gets stronger, taking a job looks more attractive.”

The price tag of an MBA at a top US school is around US$118,000 — 81% higher than a decade ago, according to the FT. And the US jobs market has recovered on the back of strong economic growth, pushing up the salaries being offered to business school graduates by large companies. The average global remuneration for MBAs currently stands at US$79,829, while MBA graduates from top US business schools can expect to easily earn upwards of US$100,000, according to the QS TopMBA.com Return on Investment Report 2018.

Aulet says: “It makes sense from an economic point of view that there would be less people choosing full-time entrepreneurship, but MBAs are not simply coin-operated. Many want to have more impact in their job and control their own destiny, so they choose the entrepreneurial path.”

Nuno Sebastião founded Feedzai in 2007 after getting an executive MBA from London Business School. The company uses artificial intelligence to spot fraudulent payment transactions and has raised US$76 million in venture capital. “When I told my family I was going to quit my job to pursue this wild idea, everyone told me I was crazy — but I said I was doing it anyway,” Sebastião says.

He believes business school is still a great place to launch a business. “Other than all the skills and education, London Business School was how I gained access to global venture capital and a network that really helped turn Feedzai from an idea into a high-growth reality,” says Sebastião. “For instance, at LBS I met Keith Willey, himself a successful entrepreneur, who is giving back as a professor at the school and now sits on Feedzai’s board.”

While the headline figure of MBAs founding firms has fallen, an increasing proportion of students are also becoming entrepreneurs inside large corporations, according to Andrew Corbett, chair of entrepreneurship at Babson College.

“We don’t just focus on ‘traditional’ startups, but teach our students to be entrepreneurial in all that they do, to prepare them to practice entrepreneurship in corporations, non-profits, government and civic groups,” he says.

“Just like in ‘traditional’ entrepreneurship, it is a continuous trial and error process of testing hypotheses and continually reshaping your ideas and opportunities. Markets are never standing still. No matter what you did yesterday, to be successful you need to be constantly exploring new opportunities.”

Many MBAs also prefer to launch companies later in their careers — once they have had a chance to pay off some student loan debt.

According to QS’ MBA Applications and Aspirations Report 2018, 60.5% of prospective MBA students see themselves running their own business in 10 years’ time. This clearly shows the long-term ambitions of the majority of MBAs.

Jodi Gernon, director of the Rock Center for Entrepreneurship at Harvard Business School, says that 50% of the school’s alumni will start a business between 5-15 years after graduating, when “they have got the experience and the industry expertise and can see a problem that no one is addressing”.

Gernon adds: “If you have a product idea that you are gung-ho about, and you have funding, should you come to business school? No. But a lot of people who come to Harvard don’t know what they want to do, and use their time here to see what options they have.”

It seems more likely that savvy MBA students are temporarily capitalizing on a buoyant jobs market, or hedging their bets, than cooling on entrepreneurship altogether.