Stanford: New All-Time High For MBA Startups

by John A. Byrne on

During the dot-com era, MBAs at many business schools rushed off campus to start all kinds of e-commerce companies. The frenzy to get in on the Internet action back then led to many well-funded but ultimately failed businesses. For most business schools, the years 1999 and 2000 saw record numbers of graduating MBAs start their own companies.

For the first time since then, the percentage of MBAs who are shunning traditional corporate jobs in favor of going out on their own is hitting new records once again. At Stanford’s Graduate School of Business, an all-time high of 16% of the Class of 2011 chose to start their own companies at graduation. The school said the percentage of MBA students who shunned traditional MBA jobs in favor of the start-up world reflects a three-fold increase from only 5% in the early 1990s and is a third higher than the 12% peak during the dot-com bubble.

More importantly, the ten-year trend data, says Pulin Sanghvi, director of Stanford’s Career Management Center, suggests “a generational shift toward entrepreneurship.”It’s not only showing up in the placement stats that show greater numbers of graduating MBAs launching their own companies from scratch. It’s also showing up in the number of MBAs who are anxious to work for smaller companies and startups that are, by nature, more entrepreneurial.

STANFORD’S MBA STARTUPS RUN THE GAMUT FROM HEALTH CARE AND CLEAN TECH TO FINANCIAL SERVICES

At Stanford, MBA entrepreneurs last year pursued a wide diversity of industries and companies. Stanford’s Career Management Center found that there wasn’t as nearly “as much aggregation in technology/internet/social media as you might otherwise expect,” says Sanghvi. About 30% started companies in Internet services and e-commerce, but 15% ventured into the investments and financial services space, 7% each in food and beverages, retail or wholesale, and sport or sports management. Roughly 5% of the Stanford MBA entrepreneurs launched enterprises in healthcare, with another 5% in clean tech and alternative energy.

Sanghvi, who expects the Class of 2012 to chose the entrepreneurial route in similar numbers, believes there is a significant difference in this generation’s startup intentions. “The difference between now and the late ’90s in the dot-com boom is the Internet was an emerging, poorly understood space that seemed very new and risky,” says Sanghvi. “There was more of a mentality in the late ’90s that there is a wave happening and ‘I don’t know how long that wave is going to last.’ In 2012, we now have 20 years plus of history where this part of the economy has thrived and thrived surprisingly well even against the recent financial crisis. All these companies that have gone public were building in 2009 and 2010 when the economy went to hell.”

As reported earlier by Poets&Quants, more MBA grads are gravitating to the startup world than at any time other than the dot-com boom of 2000-2001. The “generational shift” referred to by Stanford raises the prospect that many traditional MBA recruiters in consulting and finance are bound to see a smaller percentage of the best and brightest in any graduating class. That is bound to lead to some frustration by firms that pay among the highest starting MBA salaries. But Sanghvi says they are already adapting, alternating the way they recruit MBAs at top schools to better connect with students.

MBAS BECOMING MORE CONFIDENT TO TAKE A CHANCE ON A STARTUP

The new entrepreneurial fever is partly a reflection of the success of that sector of the economy, the ascension of the late Steve Jobs as one of the great entrepreneurial geniuses of our time, and the flourishing of a number of new startups from Facebook and LinkedIn to Twitter and Zynga. Another underlying cause for the shift is that students are more confident to assume the risks of starting a business from scratch.

“There is much greater knowledge and understanding on how to start and build and grow a new enterprise,” says Sanghvi. “We have dedicated a significant part of our curriculum against this discipline and we now have so many alumni who have blazed a trail. Many of the faculty here are practitioners who have founded and launched companies and are mentors to students. And now there is a science on how you launch a company and bring it to meaningful fruition. The flip side is there is not as much security in the larger companies, anyway. The financial crisis led many companies to cut down their hiring and layoff large numbers of their workforces.”

The swelling interest in startups by graduating MBAs also is due to the encouragement of business schools. The schools have launched business plan competitions, dangling significant cash awards to student winners so they can start their new businesses. They’ve increased the number of elective classes on entrepreneurship in the course catalog, and they’ve put startup projects into the basic MBA curriculum.

“It isn’t a goal for Harvard Business School to graduate more entrepreneurs, but this will be a side benefit,” says Alan MacCormack, a Harvard professor who recently oversaw the school’s startup initiative. That new addition to Harvard’s MBA curriculum assigned an entire class of 900 students in teams of six to launch micro-businesses with seed capital from the business school. At Harvard, he said about 8% to 10% of this year’s Class of 2012 went the entrepreneurial route.

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  • Prusd

     My heart is with these entrepreneurial Stanford grads, but once again, I must raise the question like I always do…How can these MBAs afford to start a business when they have 100,000 in student loans?  Can P & Q do some interviews with MBA grads who started businesses right out of school?  How did they manage their finances. 
    I would like to get an MBA and start my own business, but with 150000 in loans, I just dont see how I can do it.  I am comfortable, but not wealthy.

  • Adsd

    Entrepreneurs don’t need an MBA.

  • Dtg03

    Yea, why would a business owner want to know anything about business… Oh, wait…

  • Asd

    Yeah, how many successful business founders have an MBA? I’m sure Gates and Zuckerberg have an MBA from a top school.

  • JohnAByrne

    We’ll definitely do a follow-up based on interviews with a number of MBAs who have started their own ventures right out of school. I agree with you: that’s a very major issue so it would be interesting to get some perspectives on it.

  • JT

    Those two don’t, but I have plenty of MBA friends who have helped to build Facebook and Apple into what they are today.

    I agree that being a successful founder doesn’t require an MBA, but claiming that start-ups/entrepreneurs can’t benefit from structured business education is laughable.

  • JT

    Sorry, MSFT – not Apple. Figured it was going to be a Jobs reference without reading fully.

  • Dtg03

     This is laughable. Gates and Zuckerberg are your proof? My god. And Usain Bolt didn’t need to learn how to run but how many people are born with that innate ability. You picked two of the most genetically gifted intellectuals in the history of the world and labeled the MBA useless to business owners based on their success?????? I hope you aren’t going into consulting with that kind of sage advice.

  • Dtg03

     Exactly. Learning how to navigate financial statements, negotiate and identify property marketing channels and business strategy isn’t going to set you back. No one is saying you MUST attend a top 25 $150K program, but the MBA as a whole is exceedingly valuable to business owners. Not all chefs went to culinary school but to argue it is pointless would be nonsensical. This is a silly conversation.Sure a gifted few are an aberration, but that is precisely what they are… an aberration.

  • http://www.mbaapply.com/ Alex Chu

    What’s even more important than entrepreneurship and b-school is the greater diversity of career choices post-MBA. That is ultimately what b-school administrators want (and not have a majority of people get funneled into or become beholden to a handful of industries *ahem* banking and consulting).

    They want more folks going into entrepreneurship.
    They want more folks going into non-profit. Into technology, media/entertainment, sports, etc. If you look at a lot of the initiatives b-schools are focusing on these days — look at the big picture and you can sense that that’s what they’re really after. The value of the “brand” of the MBA only increases if alums end up becoming leaders in a wider variety of industries and fields.

    With Stanford, I think this is great news, and I hope that there will be more students at other b-schools as well who would consider the road less traveled: not necessarily just entrepreneurship, but to consciously seek out other careers and industries other than the banking/consulting trap (where 80-90% end up leaving it in 18-24 months anyhow).

  • http://twitter.com/ystocks ystocks

    I would think many Stanford grads received scholarship money and, therefore, don’t have as much debt. In fact, I would argue that the 16% who went on to start their businesses probably received more scholarship money than the 84% who didn’t. Because, as Prusd noted, the debt does make it more difficult to go the entrepreneurial route.

    On the other hand, the ones who do go the startup route could have received a decent amount of VC funding or a promise for funding soon, on the basis of which the students took the decision to go w/ the startups.

    With the hundreds of VC firms near Stanford and the reputation of the Stanford GSB, it’s not difficult for the VCs to be able to put graduates on financial life support for a year or two until they can raise a significant chunk of capital.

  • http://twitter.com/ystocks ystocks

    You’re right in that the “education” an MBA provides can easily be obtained through books, online courses, and other media.

    But I’m sure not all people who become entrepreneurs wanted to actually go into entrepreneurship when they first started at b-school. Also, there is something to be said about having a top-MBA on your resume as a fall back in case your venture doesn’t work out. Most importantly, however, a top MBA gives you the strong alumni network, the students and professors to bounce ideas off of (or even have as partners), and lots of incubator-type support.

    In general, however, I do believe that entrepreneurs don’t “need” an MBA. In fact, I’m of the belief that if people who know that they want to do entrepreneurship apply and attend a b-school, then either their are somewhat risk-averse, or they know they want to start their own business but don’t know what product or service to sell…they need ideas. Or, if they are already entrepreneurs to begin with, then they are probably failures to some degree (you try and fail and then go to b-school thinking you’ll learn how to not fail as badly).

    Otherwise, if you want to start your own business, why would you first spend two years and $100k on an MBA, right? Unless, of course, the reasons mentioned above apply.

    I would say most of the Fortune 1000 companies founded in the last 20-30yrs did not have MBA founders, probably less than 25%, maybe even much lower.

  • http://fundless-sponsor.blogspot.com/ Capitalistic

    It’s actually easy. Upon graduation, you apply for student loan deferment.That’s what I’ve done since I graduated in 2009.

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