Lackluster improvement in the unemployment rate, which still hovers over 8 percent, and disappointing job growth has stalled our economy and our hopes of a swift recovery. MBA programs are beginning to have a more entrepreneurial slant, because, truly, only with the development of new businesses can we create the number of jobs that make a tangible difference. But the graduates of our most prestigious business schools aren't creating companies. Instead, over 40 percent are choosing a career in the financial services industry and another whopping 30 percent are choosing careers in consulting according to the class profiles of our nation's top business schools. So if some of the most equipped business people in the nation, our MBA recipients, are still not choosing to build new ventures, what hope do we really have?
Harvard Business School has made fostering entrepreneurship their mission. Last year, the school introduced the FIELD program in its first-year curriculum, where students must develop their own company with other classmates. But even with a robust program such as this and the attractiveness of the funding environment for startup companies right now in Silicon Valley and Silicon Alley, 90 percent plus of Harvard MBA students are still saying "no" to going out on their own.
One of the primary reasons for such a low percentage of entrepreneurs coming out of MBA programs is clearly the amount of debt that they incur. According to the website for Stanford's Graduate School of Business, an MBA's budget is between $90,000 -- $115,000 per year. This means that for a two-year program, students will spend close to $200,000. This excludes the opportunity cost associated with leaving one's job to complete a full-time MBA, which can often be triple the total cost to students. This means that upon graduation, the attractiveness of a $20,000 signing bonus and $135,000 salary on Wall Street goes up exponentially.
I am not a stranger to this debt load. When I decided to start my company and put my MBA on hold after launching my business during my first year at school, the loans became payable. In the past year and a half, I have created jobs in Boston and New York, yet, I am penalized every month for it when I pay over $1,000 off my Stafford Loan, which has a 6.8 percent yield. As a startup company CEO, I also make a fraction of what I made before I pursued my MBA. No wonder my peers go back into finance.
Another reason is the inherent risk aversion of most MBAs. Getting an MBA is considered a checkbox on a list of career milestones to many. It is something that is often considered part of a "cookie cutter" plan that is necessary to get to the next stage in one's career rather than a time to open up one's mind to new industries and ideas. An MBA is a breeding ground for incredible innovation. It is a place where top young players with different experiences discuss how to problem solve and lead businesses, so it is a natural place to incubate entrepreneurship and where people have the ambition to do so.
In all fairness, MBAs do start companies... eventually. They typically start them many years post graduation. Harvard notes that nearly 50 percent of its MBAs are becoming entrepreneurs by their 15th reunion. But, we can't wait over a decade for a marked impact on job creation. If we believe that this is truly a source of job growth, policymakers should put together relief packages at not just our MBA programs, but at all of our graduate schools to incentivize students to take the leap. This could make a real difference.
If we could overhaul the way we think about the cost of education and the pursuit of entrepreneurship at our nation's MBA programs, perhaps, only then, we would see more entrepreneurs coming straight out of business school. Some schools offer grants and loan relief to entrepreneurs and students that choose non-profit careers, but these are in the $10,000 -$20,000 range. I can't afford to have a relief package that is merely 10 percent the total cost of my education.
Lastly, if we saw a greater outreach to other industries beyond just finance and consulting and saw greater diversity of industry knowledge in our MBA classes, perhaps we would see more innovative solutions to some of the problems that plague businesses today. There are several industries vastly underrepresented -- Human Resources, Manufacturing and Consumer Products. If we started to evaluate who was leading the discussions in these classrooms, perhaps we could change the conversation.
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Come on, MBA programs create corporate bureaucrats!
If one wanted to pursue the entrepreneurship route then one would need to choose between paying $100K to join a course to make a company versus investing $100K directly into some venture. In these terms it shows that the person is more focused on having their own company, perhaps in any field, rather than focusing on some field in which they have some expertise or relative advantage.
This is just discredited supply-side thinking. If we have lots of entrepreneurs, they'll create lots of businesses, and the economy will soar. Oh, really? And where are the customers with money in their hands supposed to come from?
And what good does it do if an entrepreneur creates a company? Sure, it makes him a gazillionaire, but is that our problem, that we don't have enough wealthy people? No, we have plenty of wealthy people. The problem is we don't have enough jobs, and entrepreneurs don't create employment. Look at Facebook, Google, and Apple. Revenue-per-employee at Facebook is almost a million dollars and over $400k at Apple. In other words, society has to give Facebook almost a million dollars before Facebook hires another person. That's expensive job creation! And in Apple's case, the $400k society gives Apple only creates a $30k job.
By that measure, McDonald's is much better job creator. Google and McDonald's had similar revenues in 2010, but while Google employed 5k people, McDonald's employed 400k. And revenue-per-employee is $40k at McDonald's, of which the worker gets $16k. Yet nobody would consider McDonald's entrepreneurial anymore.