Can an MBA really help your start up succeed?
So, you’re thinking of starting your own business. You’ve got a lot of big decisions to consider and you’re not really sure what you’re doing. You’d like to learn more about running a business, but is an MBA a worthy investment of your time and money? As with most things in life and love, there’s no absolute answer. Every business is different. However there is real-world evidence and research out there that can help you make your MBA judgment call.
What salaries tell us about the MBA return on investment
With the cost of MBAs increasing steadily (some top-tier courses now cost over US$100,000), the first question you want to ask as an entrepreneur is; ‘what is the return on investment?’ Here’s a breakdown of the figures, conducted by Financial Times.
- The average cost of an MBA (not including opportunity cost): $90,000
- The average opportunity cost of a full time MBA (2 years of an average salary of 60k): $120,000
- Average salary increase for MBA students who started the course aged 24 or under: $69,000 or 145% increase within the first 3 years.
- Average salary increase for MBA students who started the course aged between 24 – 31: $67,000 or a doubling of income in the first 3 years.
- Average salary increase for MBA students who started the course over the age of 31: $56,000, or a 70% increase.
- Average time it takes to pay off the total cost of the MBA: 4 years.
Overall, the figures tend to indicate that an MBA pays off as a long-term investment. In another study exclusive to graduates who became entrepreneurs, there was amoderate overall increase in start up salaries in those who had MBAs versus those who don’t. It’s essential to remember, however, that not all MBAs are created equal. You don’t want to begin your entrepreneurial career saddled with a mountain of debt and a bad education. Make sure you do your research and try using an MBA ROI Calculator.
The lifespan of MBA versus non-MBA startups
The success of a business in the first few years is typically measured by survival rather than salary. Another recent Financial Times survey canvassed 7,800 MBA graduates from the world’s top 100 business schools. Of those, 22% went on to create startups. Of those students who did so, 84% of them were still operating three years later. That’s a significantly better survival rate than the standard, which in the US sits at about 60%.
Another key discovery of this survey was that schools which specialise in teaching entrepreneurship tend to result in the highest rate of surviving start ups. For example, 39% of students who graduated from Babson College (which specialises in teaching entrepreneurial skills), started a business. A whopping 93% of those were still operating three years later.
39% of students who graduated from Babson College (which specialises in teaching entrepreneurial skills), started a business.
So, what’s creating the results?
When you start looking at what entrepreneurs have to say about the role of their MBA in their business success, you come across a few consistent points. Having an expanded knowledge of running a business and the business world is the most common theme. This broader vision ultimately leads to better strategy.
The second most cited benefit is the skill set. A fledgling business can benefit significantly from effective operational principals, quality market research and other practices learned during an MBA. The third most common way an MBA has assisted entrepreneurs is the networking element. Attending a college gives you access to staff and other fledgling entrepreneurs as well as mentorships, industry internships and partnership opportunities. And as we know, networks are everything.
Pick the right course
All the research on this topic keeps coming back to the relative value of different courses, and their usefulness depending on application. Picking the right course is paramount when it comes to making sure your MBA pays off.
A criticism often leveled at MBAs for entrepreneurs is that the standard course content doesn’t cater to the distinct, creative skill set required for startups. It’s argued that the standard MBA is focused on running the operations of an established business instead. Although there’s MBA educated entrepreneurs out there who disagree with that, the Financial Times survey results do seem to point in that direction.
Responding to the need for that specific skill set, KBS have just launched their own revamped MBA specialising in Entrepreneurship. The course aims to develop in students those specific skills in innovation and creativity which startups require while simultaneously covering the MBA essentials. Subjects cover entrepreneurship fundamentals, small business administration and corporate venturing. With a price tag of $36,000 – $39,000, it’s going to take 50% less time to pay off than a standard $90,000 MBA.