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Has B-School Entrepreneurship Jumped The Shark?

The last few years have seen an explosion in entrepreneurial courses and startups on business school campuses. Schools have put together seed funding for MBAs who want to do their own thing, paired up their business students with mentors and students from other schools and departments, and launched business plan competitions to get the entrepreneurial juices flowing.

But now comes evidence that MBA interest in launching the next Warby Parker or Rent the Runway is clearly waning. A new report on MBA entrepreneurship by the Financial Times shows a dramatic decline in the number of MBAs doing startups. New ventures founded by MBA alums in the past three years fell at 27 of 40 leading business schools. Startup activity increased at only 10 of the 40 schools.

In many cases, the declines were substantial. At Babson College, ranked first for entrepreneurship for 25 consecutive years by U.S. News & World Report, fell 15 percentage points to 37% from 52% when the FT did is survey a year ago. At Stanford University’s Graduate School of Business, a school at the epicenter of entrepreneurship in Silicon Valley, startups by MBA grads fell 14 percentage points to 22% from 36%. MIT Sloan showed the exact same drop, a 14 percentage point plunge to 22%.

MBA STARTUP ACTIVITY IS DOWN IN JUST ABOUT EVERY PART OF THE WORLD

At HEC Paris, MBA entrepreneurship fell by nearly half, down a dozen percentage points to 14% in the past three years. In the United Kingdom, startups are down by nine percentage points at both London Business School and Alliance Manchester Business School, respectively falling to 14% and 11%. In China, entrepreneurial activity by MBA alums at CEIBS in Shanghai fell eight percentage points to 20%.

And it is also down at UCLA Anderson (seven points to 13%), Georgetown McDonough (seven points to 11%), Wharton (six points to 19%), Chicago Booth (six points to 13%), Michigan Ross (six points to 10%), Columbia (four points to 14%), Brigham Young (seven points to 14%, UNC Kenan-Flagler (five points to 12%), and Harvard (down just a percent to 20%).

The FT measures entrepreneurship not merely at graduation but up to three years after a student receives an MBA. The figures also include startups that are side ventures by MBAs who may still hold down full-time jobs. That is one reason they are still much higher than the rates of entrepreneurship captured in school employment reports.

MBA FOUNDERS WHILE IN SCHOOL AT AN EIGHT-YEAR LOW

Deborah Whitman at Stanford GSB

Startup action among MBAs while they are still in school, however, is also down. In fact, B-school graduates founding businesses immediately after earning MBAs is now at an eight-year low. After peaking at 22% in 2015, the rate of recent grads founding businesses is at 16%, according to the FT’s surveys of Class of 2014 alumni. Last year, 63 graduates from Stanford’s GSB founded companies within three months after graduation, representing 16% of the class. The rate was a slight uptick from 61 founders in 2016, but off a peak of 70 in 2013.

At Harvard Business School, some 64 graduates (7% of the class) launched their own companies in 2017. This is a slight drop from 65 in 2016, but a more significant drop from the six-year peak of 84 founders in the Class of 2015. At MIT’s Sloan School of Management, the rate is also on a five-year slide from 37 founders — 10% of the class — in 2013 to 19  (or 5%) in the Class of 2017.

What’s up, or rather down? You can put some of the blame on the strong economy. With so many job opportunities available to MBA grads, it’s harder to justify taking the risk either in school or just out of an MBA program to launch a company. And compensation for many MBA graduates is at record levels. According to Deborah Whitman, the director of the Center for Entrepreneurial Studies at Stanford’s GSB, the decline could be the result of a frothy MBA employment market. “When it’s more challenging to find really awesome jobs upon leaving the business school, you actually see business formation numbers going up a little bit,” Whitman says.

A FROTHY MARKET FOR MBA TALENT HAS LED TO RECORD PAY FOR GRADUATES

At Stanford, the median and average annual base compensation last year of $140,000 and $144,455, respectively, surpassed the previous year’s all-time highs by about $4,000. Average annual signing bonus rose by nearly $3,000 to a record $29,534; and other guaranteed compensation passed the previous year’s all-time highs by about $10,000 in both the average at $83,065, and the median at $50,000.

Access to startup capital for MBAs, moreover, has also fallen. And most of the relatively easy e-commerce plays that allowed many MBA entrepreneurships to get a quick start are pretty much over.

What’s also occurred is that early stage companies and big tech firms have dramaticallly increased their hiring of MBAs in recent years so more entrepreneurial-minded students can find   jobs with greater responsibility in dynamic cultures than ever before. They don’t have to create a firm to suit their personal goals or values or to earn a stake. Many early stage firms these days offer equity to MBA hires.

EARNING ENOUGH MONEY TO PAY OFF THOSE STUDENT LOANS

Heather Byrne, managing director of the Career Management Center at Michigan Ross

“Behind these figures there are signs that MBA students are just as interested in being entrepreneurial as in previous years, but do not see the need to give up a full-time job offer to start a business,” according to the Financial Times. “One of the most popular options for MBA graduates has been to join one of the large technology companies which visit campuses looking for recruits. Amazon is seen by many MBA students as a stepping stone to going it alone, with the added benefit that they could earn enough to pay off student loans.”

Ah yes, student debt. The amount of MBA debt graduates are carrying out with them make it difficult to immediately become a founder without a $140,000 starting salary and a $25,000 signing bonus, the typical package offerred top MBAs by the likes of McKinsey, Bain, or BCG. “Freedom is important to entrepreneurs, but in order to be truly free you have to be financially free,” says Heather Byrne, managing director of the career development office at Michigan Ross, in an interview with the FT.

Only five of last year’s 407 graduating students launched a startup immediately after graudation versus the 38 MBAs who accepted jobs with Amazon, which is now hiring 1,000 MBA graduates a year and is the largest single employer of MBAs at Ross and many other leading business schools.

CAMBRIDGE JUDGE & WESTERN UNIVERSITY’S IVEY HAVE BUCKED THE DOWNWARD TREND

Not every school is seeing a decline in startup activity, of course. The FT report—based on data collected from its surveys of alumni for the British newspaper’s global MBA ranking—found several schools bucking the downward trend. At the University of Cambridge’s Judge Business School, entrepreneurship showed a 14 percentage point jump to 31% in the past three years. At Canada’s Ivey School of Business at Western University, startups by MBA alums were up eight percentage points to 21%.

But it seems that overall there’s less interest in taking that MBA and doing a startup these days. The MBA startup craze has jumped the shark.

(See following page for all the schools with declines in entrepreneurial activity by MBAs within three years of graduation)