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Are MBAs Creating Another Tech Bubble?

 

“If you’re going to San Francisco

Be sure to wear some flowers in your hair.

If you’re going to San Francisco

You’re going to meet some gentle people there.

All across the nation

Such a strange vibration.

People in motion

There’s a whole generation with a new explanation.”

Those lyrics were penned by The Mamas and The Papas’ Scott McKenzie nearly 50 years ago. Back then, the Bay Area was the seat of the counterculture. The hippies experimented with free love constructs and mind-bending drugs in Haight Ashburry as the Black Panther Party plotted revolution across the bridge in Oakland. It was a destination for deeply idealistic (and sometimes troubled) people who felt marginalized and rejected the trappings of traditional American life.

Now, people heading to San Francisco aren’t wearing sandals and carrying flowers. Instead, they’re arriving in hybrids with business plan in hand. And the gentle sages they’re seeking are deep-pocketed VCs. These days, business is what’s in motion. And the big happening is tech startups. This new generation has its own explanation – fighting authority from the inside, creating models and solutions that push parity and progress as much as profit.

In such an environment, it is no surprise that MBAs are looking to join the scene. And that bothers many hard core entrepreneurs, who are as welcoming to MBAs as Altamont would’ve been to Richard Nixon.  How bad is it? As Quartz recently noted, Marc Andreessen, a search engine pioneer who has re-invented himself into one of the world’s most influential venture capitalists, had this to say about MBAs in the New York Times:

“MBA graduating classes are actually a reliable contrary indicator: If they all want to go into investment banking, there’s going to be a financial crisis. If they want to go into tech, that means a bubble is forming.” 

Ouch!

Does this mean that MBAs are the new yuppies, those hyper-ambitious 80s urban elites who cushioned themselves from the real world with their sky-high apartments and fat paychecks? Or, are they ill-equipped late adopters looking to overanalyze and oversaturate the market? Probably not. But are more MBAs moving into the tech sector? That depends on how you read the data.

This week, Quartz produced three intriguing charts regarding MBAs and the tech sector using data supplied by the GMAC. The first shows where MBAs landed their first job. Collectively, tech attracts the fewest MBAs (roughly 15 percent), two percent higher than two years earlier. Even more, the markets cited – consulting, finance, tech, and products and services – have drawn roughly the same percentages of students in recent years. That’s definitely a bubble…if you’re a six-year old in a bath tub.

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Next, Quartz cites stats the tech placement rates for five leading b-schools – Harvard, Stanford, Wharton, Haas, and Sloan. If Andreessen was talking about Bay Area programs flooding the market with MBAs, he definitely has a point. From 2009-2014, the share of Berkeley MBAs choosing tech rose from roughly 28 percent to 42 percent. At Stanford, the number has doubled during that same period, from approximately 11 percent to 22 percent (with 2013 being the high water market for Stanford tech grads at 31 percent). Wharton and MIT follow the same pattern, growing by four and seven percent respectively (though MIT has surged by 10 percent in the past three years). At Harvard, seemingly the epicenter for student entrepreneurship these days, that number has grown by 10 percent in the last five years. Assuming that many of these would-be entrepreneurs relocate to the Bay Area (a safe bet), you might agree that Andreessen’s contention is correction.

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Does this mean that tech is swiping candidates away from other sectors? That depends on how you view causality and correlation. But Quartz, using GMAC data, does supply an attention-grabbing table on the finance and consulting sectors. Here, the data shows a modest to sharp drop in graduates entering these fields from the five schools listed above. Stanford experienced roughly a 14 point drop in finance and consulting (combined) from 2009-2014. At Wharton, the decline was approximately seven percent (though the percentage climbed around five percent for the Class of 2014). The same was true for Harvard, where consulting and finance produced a five percent bounce in 2014. At Haas, however, the needle barely moved over five years.

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Obviously, this sample only includes five schools. But Andreessen does have a point: More MBAs are entering the tech sector straight out of business school. And that’s not a bad thing, especially since startup and tech experience look great on a resume (especially in the consulting industry). In the meantime, even Andreessen can probably see the silver lining to his bubble analogy. If more MBAs are joining the tech sector, they’re probably saving the financial industry from another crash.

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Source: Quartz