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MBAs Doing Startups At Nearly Four Times The Rate Previously Thought

Silicon Valley

Call it the Mark Zuckerberg and Elon Musk effect.

Inspired by the success of such highly admired entrepreneurs, a shockingly high number of MBA graduates — including those who assume mainstream business school jobs upon graduation — are starting their own companies.

Business school employment reports apparently understate the nearly fanatical interest in entrepreneurship, because more freshly minted graduates are dropping out of their traditional MBA jobs to do their own thing — and many are doing entrepreneurial moonlighting. While roughly only 5% of MBAs start their companies out of school, within three years of graduation the percentage explodes to 24.4%, more than a four-fold increase, according to data published today (June 27) by the Financial Times.

AT STANFORD, MORE THAN A THIRD OF MBAS LAUNCH THEIR OWN COMPANIES WITHIN 3 YEARS

The British newspaper got the data from its annual survey of MBA alumni used for its global MBA ranking published in January (see INSEAD Tops 2016 FT Ranking). The FT sliced the data to come up with an entrepreneurship ranking that puts Stanford’s Graduate School of Business in first place, followed by Babson College, Virgina’s Darden School of Business, Dartmouth Tuck, and UCLA Anderson in the top five.

Far more compelling than the ranking of the 25 schools, however, is the underlying data that shows a significant number of MBA graduates quitting their jobs within three years to launch startups.
The percentage of MBAs of Stanford’s Graduate School of Business who started their own companies within three years of graduation? More than a third, 34%, or more than twice as many as those who launched startups by graduation in 2012, which was 14%.

At Harvard Business School, 28% of the graduates did their own companies, more than four times the number at graduation three years earlier, just 6.4%. And at Wharton, it was a similar story. At graduation in 2012, only 5.7% of the class went the startup route. Within three years, the percentage jumped four-fold to 20%. The greatest leap in startup mania appears to have played out at Duke University’s Fuqua School of Business. In 2012, only five of the school’s graduating class of 442, or just over 1%, started companies. Three years later, some 17% of the MBAs in that same class had launched firms.

Of course, a good many MBA entrepreneurs are doing startups on the side. “When comparing figures for the fraction of individuals who launched a business over time, it’s important to have apples-to-apples consistency in what ‘launched a business’ means,” points out Tom Eisenmann, faculty co-chair of the Rock Center for Entrepreneurship at Harvard Business School. “Our 6.4% who founded a new venture upon graduation in 2012 pursued their venture full-time. The FT definition may include individuals who pursue an entrepreneurial venture as a side project, working nights and weekends without ever committing to the venture full-time.”

IESE’S ENTREPRENEURSHIP RATE JUMPED 13 TIMES TO 26% FROM MERELY 2% IN 2012

In many cases, school employment reports from 2012 don’t even break out the percentage of grads starting a business because they are so few and inconsequential. At Dartmouth College’s Tuck School of Business, for example, the school reported that 40 out of 240 graduates in 2012 did not seek employment because they were sponsored by employers, continued their education, or started a business.

Among the FT‘s 25 schools, the lowest percentage of MBAs launching companies is the University of Chicago’s Booth School of Business at 14%, which is nevertheless nearly five times the 3% of graduates in the Class of 2012 who started their own businesses. Even at the school with the highest rate of entrepreneurs, Babson College, the rate more than tripled to 46% from 17% at graduation three years earlier.

It is hardly a U.S. phenomenon, however. At London Business School, there was a five-fold increase in entrepreneurship over the three-year time frame, to 25% from only 5% at graduation. At INSEAD, with campuses in France and Singapore, it went to 20% from 5%. In fact, some of the non-U.S. schools were among those with the highest rates of startup activity by graduates. Some 41% of the graduates of Ipade Business School in Mexico, for example, started companies within three years, higher than any school except Babson. As Spain’s IESE Business School, the percentage of graduates pursuing startups within three years jumped 13 times to 26% from only 2% at graduation.

A SIDE VENTURE OR A FULL-TIME PURSUIT?

At the 25 schools singled out by the FT, some 23% of the alumni have started companies. Across the entire sample — including schools not ranked — 19% of the 2012 grads did startups. Many MBAs say they entered their business school programs with no intention of starting their own companies. But then they were swept up in the entrepreneurial spirit on campus, took several courses in the subject, participated in a business plan competition, and ultimately availed themselves of the support of classmates, faculty, and alumni to do a startup immediately or shortly after graduating.

In many cases, these MBA entrepreneurs are apparently hedging their bets by holding down other jobs while pursuing a startup on the side. The FT data, for example, shows that the percentage of entrepreneurs that depend on their companies as the main source of income ranges from a high of 56% among UCLA MBAs to a low of 18% for USC Marshall grads. Among Harvard Business School MBA founders, some 54% rely on their companies as the primary source of income. At Stanford, it’s 39%. At only three of the 25 schools for which data is provided, in fact, are a majority of the entrepreneurs depending on their own companies for their paychecks: UCLA, Harvard, and Birmingham Business School in the U.K.

Not all MBA startups succeed, of course. More than half the companies founded by MBAs were still operating when the alumni filled out the surveys. The most successful? Some 93% of Georgetown University’s McDonough School MBAs claimed their companies were still up and running, the highest percentage. The lowest? Chicago Booth MBAs, of which 57% said their startups were still in operation. At Stanford, 81% of the MBAs who did startups said the companies were still operating. At Harvard, the number was 64%, while at MIT Sloan it was a high 89%.

  • Zach

    fare*

    My bad ha

  • Zach

    Hello John,

    I really like this article. In relation to this article, I am very interested in a piece of information from the article you wrote 6 years back comparing Tuck to Stanford. You wrote, “However, 20 years out of Tuck, about half of its grads end up as entrepreneurs–roughly the same percentage as Stanford.” Is similar information available for other schools?

    I am interested in schools like Tuck that feed the job force straight out of B-school and then have their alumni endeavor as entrepreneurs later in their careers – I think this is the most appealing path for me and would love to see a list of how the top 50 schools fair in this category (if data is available obviously).

    Thanks!
    Zach

  • Yet another school that failed to make the FT list.

  • Zachary Mayo

    Great article John. Really interesting stats that line up well with my own MBA experience. I’d wager we’ll see this trend continue as schools continue to attract more diverse student populations and continue to emphasize entrepreneurship education.

    Hopefully we’ll also start to see more recognition of the MBA skill set in the start-up world. There’s always been plenty of healthy skepticism towards business school on the part of entrepreneurs, but I think that’s starting to change. As someone who started a company right before and right after business school, I can certainly attest to the value of the degree in my own experience, and hopefully we’ll start to see more and more MBAs going down the same path.

  • Eli

    Where’s Yale SOM?