Unemployed? Harvard MBA or Launch a Startup?

Posted by fashionentrepreneurreport On Tuesday, October 20, 2009

The situation: You’ve lost your job. And the market to get another one as you well know is dismal. With this as a backdrop, you may be thinking that now is the time to invest in yourself. Perhaps by going to business school and getting an MBA? Or perhaps it is time to start that business you’ve had in the back of your mind for some time?

There are plenty of people advising that now is the perfect time to start a business. But if debating between business school or starting your own business, how should one think about this decision?

We sat down with business school graduate Kofi Kankam graduate (Wharton MBA, Harvard BA) and founder of a successful startup, to get some perspectives on these questions. Most notably, Kofi runs,Admit Advantage, is an MBA consulting company which helps professionals with admission into top-tier MBA programs.

Even though he is in the business of helping people get into business school, Kofi warns, “What is clear to us after a few years of formally engaging in this process is that going business school is not as much of a slam-dunk choice as many are led to believe. It has to be analyzed carefully because going can be a mistake even if you can get in.”

Below are excerpts from our detailed conversation with Kofi. For those of you considering business school or starting your own business some tips, Kofi offers insights and questions to consider as you think about these very important decisions.

First, it may be useful to understand what Admit does.

Admit works with prospective candidates internationally to help them gain acceptance to top MBA programs. It took a few years, but we have developed a fairly robust process to help these candidates mitigate their weaknesses, craft engaging narratives, develop a rigorous brand, and position themselves to compete.

In terms of actual services, we offer items like overall strategy, essay structure/editing/review, mock interviews, resume development, school selection advice, recommendation management, and a few others including “Ding” analysis which involves working with students to determine why they were not accepted and plot their strategy for their reapplication. It’s an intense process.

Interestingly, for many of our prospects we encounter some of the very issues of this ChubbyBrain dialogue: Does it make sense for them to go school? What if they have a great idea/company? How can they take most advantage of it if they do go? What are the risks?

Before we get into the questions specifically around business school or startup, give us some sense for business school applicants and admission trends and any quick tips for those who are considering applying.

Ok. We have observed two dominant trends in the past nine months. First, we are seeing a lot of younger applicants who have had a job for only few years and have had limited ability to demonstrate leadership in the workplace. For these candidates, we are strongly suggesting they seek leadership in their company through peripheral initiatives such as recruiting or community service.

The second interesting, yet unsurprising trend, is a large set of people with more significant gaps in their work experience due to the economic layoffs. A few years ago people filled those resume gaps with nebulous independent consulting assignments, today this strategy is a lot more risky as admissions committees are very aware that “independent consulting” is usually an employment gap. Also, there is a risk that this employment will be scrutinized in the background check process. We advise people to be honest about employment gaps, and if they lose their job, to immediately identify a leadership role in a community service organization or to write a business plan. Community service can demonstrate that candidates are well-rounded and have leadership opportunity while a business plan underscores initiative and innovation. Both of these tactics can turn an employment gap into a positive asset as opposed to a sheepish effort to cover it up.

Since your business is about helping people get into business school, can you give us some context for the picture applicants are facing? How competitive is the market?

The market already was really competitive for some of the top schools, but in the last year it has become even more intense. For the top programs, candidates often feel discouraged. We had a candidate who is at Harvard who told us that a recruiting event she attended for prospective female candidates which had 240 persons in 2007 had over 400 women at the same event! Applications at the top ten to fifteen programs were up over 13% in a single year. Of course, the number of spots is not increasing so the competition is fierce. Obviously, the economy is a huge factor in this increase: Last year (most applicants applied by January of 2009 for entry this fall), people were beginning to expect to get fired. This year, the layoffs actually happened. We’re finding candidates who are seeking an MBA as much for the refuge from the corporate tsunami as for the typical training, contacts, credibility, and industry-transfer reasons. Also, more individuals want to raise their safety net a bit thinking it is harder to get fired from a firm if you have an MBA – I don’t think that is totally correct, but many candidates believe this notion. The time when a candidate with a strong GPA, reputable firm, and strong recommendations could feel comfortable gaining admittance into a top-tier program without compelling essays and expressed contribution to a school’s MBA community is over.

A recent article by a Harvard MBA posited that an MBA from Harvard Business School which was “once regarded as a golden ticket to riches” is “more like scarlet letters of shame” today. Do you give any credence to the idea that the value of an MBA has diminished given our current woes and the feeling amongst some segment that MBAs drove these issues?

No, I really do not. Of course there are many articles lambasting the ill-formed and greedy actions of those with MBAs. Frankly, some of those stories are appropriate and may have persuaded the general public to look with derision on this degree. So, you may not be able to impress a potential date with the fact you have an MBA degree (not recommended, by the way) – does it really matter in terms of your career progression? Hardly, in my opinion. Beyond the general populace not being as enthralled with an MBA, I’ll concede even more points on the diminished value of the MBA:

First, beyond the top 20 to 25 MBA programs, the value has diminished because companies are shortening their list of feeder schools (dropping some altogether and lowering the amount of students they take from others). Much as a coach shortens his or her bench in the NCAA tourney, many firms are not hiring as aggressively outside of the ‘name-brand’ programs.

In a related manner, an MBA holder from a program outside of this elite class may not enhance his or her status in the same manner as previously.

Additionally, the timeline for paying back the MBA loans has lengthened. Financial companies, the destination of several MBA alums (including those who eventually start their own companies) are restructuring their salary/bonus configurations (or just slashing bonus pools). If this effect stays in place, which it likely will for the companies who are now bank holding companies as opposed to investment banks, the loan payback will take years longer. Also, premier consulting companies will not hire as many people, compelling students to seek employment in other companies (consulting and non-consulting) whose pay packages are not as rich.

So, why is an MBA still of great value for Chubbybrain readers and others even within this current dismal economic climate and environment of disdain for some with MBAs?

The training is still really relevant for staring your own business or working within the popular fields of consulting, marketing, and finance. In fact, amidst this economic mess, who are some of the folks called in to help fix the problem? MBAs. The head of the office of Federal Housing Enterprise Oversight is a Harvard MBA which is untangling the mess of Fannie and Freddie Mae. The current person in charge of overseeing the distribution of the head of the $700 billion TARP fund distributions is a Wharton MBA. The value of the training is needed more than ever.
The opportunities in several fields of entrepreneurship which are arising due to the disintermediation/disruption in the entire global economy are ripe for those with strong financial training, ability to devise strategy, a wide base of contacts/relationships, and the credibility to be heard. Those characteristics are endemic to MBAs.
Though there are new entrepreneurs to become household names like Bill Gates, Warren Buffett, or Richard Branson in emerging fields like solar, clean/green tech, nanotechnology and others, their cadre of first-tier employees will likely consist of MBAs. And, those employees will be well-compensated, may be counted as founders, and will likely be well-positioned to start their own companies in other fields. This very evening, I’m going to meet with a friend with a top-tier MBA degree who was an early employee (#3) of a technology company and who recently received funding to start his own related venture. Often the best entrepreneurs who get their shot to run their own venture are ones with contacts to angel investors and VCs – a built-in advantage for well-connected MBAs.
When people get laid off, some of the best networks for potential employment opportunities are derived from their MBA contacts/MBA alumni networks.
The MBA is a long-term play. Even three years ago, few economists beyond Nassim Taleb, predicted the economic markets would be roiled by widespread malaise. Who knows where we will be in five years or ten years? So to focus on the snapshot of now is not really sensible. In fact, a member of Chubbybrain who applies to school this fall/winter will not finish school until 2012 in three years! The assets of training, contacts, credibility and others will likely be constant. It’s questionable that the economic environment will be.

With financial services and consulting industries being a major source of jobs for MBAs in the past, do you think the ROI on an MBA holds?

I do. As previously mentioned, I think that the long-term stature of the degree has to be factored into any analysis of the return on investment (including time and lost wages). The return is present if an MBA candidate is attending for a specific and actionable purpose. It may be there is the person is going to school to ‘figure out what they want to do’, but that is a very risky proposition and a steppingstone for buyer’s remorse. For me, that’s not good enough to risk that time, money, and lack of immersion within my career path. Most MBA programs feel the same way and spend a copious amount of time reviewing the essays to test the focus and reason for seeking admittance of all their candidates.

With that context, let’s discuss the question of business school vs entrepreneurship.

Ok.

There are some people considering business school who may be contemplating studying entrepreneurship while at business school. There are many successful entrepreneurs who say that you learn by doing and so that business school is not required and that the $100k+ investment you’re making could be used to fund and grow your business and that $100k+ can buy you real-world lessons. As someone who went to business school and who has started their own successful business, what are your thoughts on this for yourself and more generally?

Well, $100K is actually closer to $300K. Most top-tier programs cost about $70K in terms of tuition and budget (books, meals, travel, entertainment, etc. . .). Let’s assume that most candidates to business school have worked for three to four years and are making $65K per year (high in some areas/fields and dramatically low in others, even today). That’s $140K for school and $130K in lost wages. So, a price-tag of $270K is more realistic. But, business school is still a great choice for many people for the following reasons:

In my estimation, the $140K they spent is likely not going to be enough money for them to build the product, harness a team, market the product/service, and distribute it. For most people, even with $270K, the lack of additional funding, limited skills, and restricted time (assuming the individuals work part-time to maintain their salary) will prove very difficult to overcome.

Additionally, so many people have creative ideas or entrepreneurial energy, but not necessarily an actual potential business. Business school is a great place to get your ideas vetted, and gain the skill/training to launch your company or join a young company, get well-compensated with time and be situated to start your own later.

On-the-job training is always necessary a bit, but too much can paralyze a company if the entrepreneur cannot move quickly enough. With an MBA, you give yourself a chance to ask the right questions (if you can’t provide the answers) and have resources amongst those who can help.

Even with an idea, most entrepreneurs need serious funding. For people who are not independently wealthy or from prominent business undergrad schools like UVA, Wharton or Sloan, the MBA is a great chance to build a rolodex of influential angel investors and potential VCs amongst classmates and, potentially, professors.

An entrepreneur has a strong platform on which to contact and interact with successful entrepreneurs. As an MBA student, the entrepreneur can leverage the program related clubs (i.e. Entrepreneurship Club) to establish access to anyone in a way that he/she would not be able to do on their own. As an example, in my second year of school, I had the chance to meet and interact with Bob Johnson, the billionaire media mogul, because I invited him to speak at a conference I led. I never would have made it past his secretary if I had called without the banner of Wharton.

Investor credibility – While investors would be most impressed with someone who built a successful company and is e seeking funding for a second company, having a strong MBA degree with a well-constructed business plan, financial model and executive summary are a boon also. Suddenly, the entrepreneur is no longer a ‘random’ figure with no track record. She is an alumnus of school “X” with an interesting idea and a great chance to gain a meeting. When investors, customers, and potential employee have ‘nothing to go on’ with a new entrepreneur, having a strong school on which to hang your hat is really significant.

In business school, you develop a base of contacts to get pulled into ideas by other people. It is typical for one classmate to have an idea and build it with another friend who may not be the creative type.

The entrepreneur builds a “Plan B” while working on his idea. With an MBA, there is an opportunity to make serious money to either moonlight (like writing business plans for others) while working on his concept/new company or get a strong job (even now) to fund his moonlighting entrepreneurial activities.

Many people start companies related to the field in which they work: i.e. New York Mayor Mike Bloomberg worked at Salomon Brothers before developing his financial terminals that gained him acclaim and eventual billionaire status. Business school can help an entrepreneurial aspirant break into a field in which there is entrepreneurial opportunity.

Most of the top business schools have strong implementation components: a) Classes that one takes to implement a plan related to product development, pricing, marketing and distribution, copyright protection, venture capital, and angel networks; b) Business plan competitions for funding, feedback, and support; c) business incubators where one’s company can be nurtured and grown; and d) Alumni networks and angel investment groups after graduation.

Can business schools create better entrepreneurs?

No, they cannot. I resist the word “create” because I just don’t believe in that conception. The business schools can nurture entrepreneurial spirits, but I don’t think they are going to create entrepreneurs. An MBA candidate who becomes a successful entrepreneur is going to have to enter with stock of some of these assets: a) Idea; b) Prodigious skill/talent; c) Ability to deal with ambiguity; d) Relentless ability to execute; e) Strong communication skills; f) Ability to bring varied people/interests together. If a person has those assets, for the reasons mentioned above, a school can nurture them. But, paradoxically, because of the debt that many students find themselves in and impending adulthood (i.e. marriage, buying a dwelling, kids, etc.. .) it gets difficult to have flexibility to pursue that idea. Now, one is $270K poorer and needs to address some human needs on Maslow’s level before embarking on a strenuous and financially arduous journey. He or she may be more risk-averse due to this increased financial burden. That is the paradox. A person can be better trained, but more restricted from acting on that premise. So, to pursue entrepreneurship at business school, one has to have a real operating plan for how to leverage the program. They have to think about the financial horizon and plan accordingly.

In contrast to the above group, there are also many wondering which thing should they pursue, e.g. business school or starting their own business. As someone who is an entrepreneur, who has attend business school and whose business is advising people on getting into business school, how do you think someone thinking about business school vs. founding a startup should think about this question? What framework or questions should they ask themselves to help make their decision?

The questions/frameworks that should be considered rely on the previous discussion points. A little bit of advice I would offer your readers include several key items to consider.

One, you must distinguish if you: A) Have entrepreneurial spirit and plan to attend business school, but are considering not attending because you worry about thinking of an idea and being hamstrung in pursuing it versus B) Are an entrepreneur now with a idea/concept who is considering whether you should go to school to further develop it.

It takes a bit of honesty to classify yourself in group ‘A’, but I think this position is where most people lie. The romance of starting a company is powerful, but most MBA applicants don’t actually have anything to build and may be satisfied being close to the action with a bit of equity upside if the service is a hit. In that case, business school is a bit more tenable provided the other issues raised (the candidate’s plan) are addressed.

The latter classification, ‘B’, is not just someone who ‘wants to start something’. If you have a viable idea, there are a myriad of other questions that you have to consider before you opt to venture to business school or stay out and build. These questions include:

Do you have the skill set to implement the idea or do you not have the skills to build the product/service into a company? If you need those skills, then you may need to go to business school to have a viable shot. If you actually have the tools, business school may be more of a desire than a necessity.

Even if you have the capacity to build your product/service, do you have the contacts and credibility to obtain funding from angels and venture capitalists? Determine the approximate capital outlay that you need to build your company. If you can build a company with capital from your reserves, this issue may not be relevant (i.e. building a web design firm). If you need outside capital because you are of limited means and/or need a lot of money, business school can be a fantastic entry point to obtain capital.

How will you obtain employees? Do you have a reservoir of management or technologists to help you or you “outside the matrix” for finding those people? Who is going to help you build? Who will you partner with and who will you hire? If you are not clear on your personnel assets at the beginning, you are likely not going to make it work. If you are seeking a unit of other managers, business/strategists to hire, and even technologists, business school may prove very fruitful.

Is there time-sensitivity to building your company due to either the marketplace or even your own timeframe? Business school is not an option if you see other competitors in your marketplace who are months ahead of you and/or signing up limited customers. Of course, if that corporate nemesis exists, you may not even want to enter the industry for any reason. If you are thinking of buying a house/apartment in three years, it is hard to see how you can attend business school and start a new company at the same time.

The critical step is to analyze both your intended industry’s lifecycle and your own personal life schedule to determine if you can afford to push your effective start-date back by two years (three if you accept that you won’t be starting business school until Fall 2010 at the earliest)

Do you have the financial capacity to absorb the $150K debt (and $270K in economic impact including lost wages) and build your company after school? Determine what your monthly loan payment will be and how you will pay for it. Will you take a job immediately after business school? Do you have savings to lessen how much money you borrow? How does this analysis mesh with the previous exploration of time-sensitivity? Even if you gain the fullest training, contacts, and credibility, is the weight of the huge debt going to compel you to work within a firm for multiple years so that you won’t pursue your entrepreneurial idea anyway?

Again, the critical thing is to determine if you are willing to sacrifice working on your product/service full-time while you work within a job to help pay off the debt after school? Determine if your partner is willing to accept the sacrifice in time for your relationship

Is there a way to creatively be in school and still move your company forward so that solid progress is achieved before you graduate? Determine if you can start your company now with a partner who can run it while you go to school to leverage the aforementioned assets (contacts, training, credibility) while your partner runs operations during the day? Also, determine if you can take the company concept and work on it through your classes through developing the business plan, finding team members, obtaining legal representation, and possible funding sources.

What tools are you going to actively obtain and leverage on campus? Think about the courses that you will seek to take. What the types of classmates that will be important for making your company successful (skill sets, industry positioning, international placement)? What clubs or organizations will your join and lead? Who do you need/want to meet for your company and how can you leverage the assets of school X to obtain this access? How will you harness the alumni or other school affiliates for your company?

For us, it’s a challenge to determine for most applicants who are looking to traverse the well-traveled path of working in specific industries. For individuals like the readers of ChubbyBrain and those of us seeking entrepreneurial success, it is even more difficult. Ultimately, we’re pretty bullish on business school, but only after a sober assessment for each applicant.