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MBA entrepreneurs: Why many bschool grads may never launch a startup

Written by Sameer Kamat

Here’s an intriguing phenomenon. We have seen the same trend in applicants who work with us on the MBA Mock Application Process (MBA MAP). A significant number of MBA applicants explicitly list entrepreneurship as a post MBA goal in their admission essays.

They do a fantastic job in explaining the brilliant entrepreneurial idea they have in mind, the skills & resources need to execute that plan and how an MBA will provide them with the perfect platform to launch their startup in technology, healthcare, education or any of the other ‘sunrise’ sectors. So far, so good.

But something changes the minute they step into the bschool campus and the mindset change continues as they move into the job hunting phase. The idea of launching a startup gets pushed back – “I’ll work in a regular job for a few years, make some money and then think about my dream to become an entrepreneur.”

The issue is that this self-consoling monologue moves out of sight and out of mind. For years the topic comes up in bschool re-unions and online interactions. But in their minds they know very well that it’s not going to happen any time soon.

What are the main reasons why this happens? MBA Crystal Ball shares a few points to think about.

Top 5 reasons why many top MBA grads won’t become entrepreneurs

MBA loans and sky-high fees

Many of the top MBA programs have fees that cross $150,000. Including the cost of living and the opportunity costs (lost income for 2 years), the overall cost of attending a top MBA program can be close to $300,000. That’s over 1.5 Crore Rupees!

Many of the MBA loan programs have payback tenures that run into 10, 15, 20 years. Unless you come from a filthy rich family, that kind of money isn’t exactly going to be pocket change for you. That itself might discourage many top MBA graduates (who hail from more modest backgrounds) from launching their dream startup companies and becoming entrepreneurs immediately after an MBA.

Predictability of corporate jobs over entrepreneurship

For intellectually rich but financially poor (immediately after completing the MBA) grads, the prospects of getting into high paying jobs in management consulting and investment banking careers seems like a quicker way to address the immediate goals of getting their bank balance health back to normal.

Startups, in contrast, have a much longer gestation period (often running into several years), before the entrepreneur can even expect to break even. Profits can take longer. The unpredictable nature of entrepreneurship ventures goes beyond finances. There’s the big question mark that accompanis every single facet of running the new company – market demand, operational inefficiencies, serious talent shortage.

Lack of real world skills

Reading ‘How to swim’ written by the best swimming coaches of the world would still not be sufficient unless you actually get into the icy cold water and get your butt wet. The same goes for entrepreneurship. It’s one thing to know about the ‘right’ way to launch a company, the ‘right’ way to recruit talent and the ‘right’ way to raise finances.

In the big bad world, knowing the right way could at best give you a direction. Nothing more than that. Often, many of the theoretically right ways to do things (taught in the class) are completely ineffective in gaining a competitive advantage in your niche. The challenge is to stay on the right path (i.e. not do anything that’s unethical or risky) and yet think of creative ways for yourself and your startup to reach the goals.

Cozy Corporate World versus the School of Hard Knocks

Entrepreneurship may look glamorous from the outside. But it can be damn messy specially in the initial stages when the supporting framework around the idea isn’t as perfect as it should be. Concepts that seemed fantastic when you first thought about it can be painful to implement, or you may realise that the market needs something different.

As the founder of the startup, you should be in a position to quickly adapt your product or service to the market needs. This could mean dismantling and rebuilding the operational process. Everyone around you – from competitors to clients – would be looking to knock you around because they’d assume you are too puny to fight back.

For those who have ‘grown up’ (professionally) in a comfortable corporate environment, it can be a pretty humbling experience. And the (bloated?) egos of many top MBA grads aren’t ready to take that hit.

Potential entrepreneurs waiting for the eureka moment

Many MBA students assume there would be that magical moment somewhere in the MBA program or after they’ve graduated that’ll give them all the answers they’ve been waiting for. The Grand Vision of how everything around their entrepreneurial startup falls in place, so all they need to do now is raise finances and set the ball rolling. Ain’t gonna happen, my friend!

Maybe there are other reasons as well, and we’d love to hear your thoughts.

If you are planning to go to a bschool (or even if you don’t have MBA aspirations), what would you prefer – working in a regular corporate job or starting your own company? Why?


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Sameer Kamat

About Sameer Kamat

Founder of MBA Crystal Ball | Author of Beyond The MBA Hype & Business Doctors Connect with me on Google+ | Twitter @mba_cb | Facebook


6 Comments

  1. Madhukarreddy Kamineni   |  Wednesday, 12 September 2012 at 1:46 am

    Hi Sameer,

    All the reasons mentioned here ( and innumarable other )are true for the people who are desiring to be an entreprenuer. But none of the reason is valid for the people who are really passionate to provide solution to unmet need. i.e. what all about entrepreneurship.

    1.5 crore study loan is very small amount and can be repaid quickely if someone is smart enough to capture even 1croreth of total economy by providing unique, innovative product/service.

    Yes, intellectually rich can predict the corporate job for entire life and fool themselves by making someone richer in the process of making money for them. Entrepreneurship is worth taking risk considering the benifits it would offer. Fame, self satisfaction and of course money. Even if you work for 100 entire lives you can’t make money by employing 1000 smart people in single life.

    Lack of real world skills is the main problem. Without understanding what the real business is and how it works most people think that they would master the art by completing MBA. Most MBA’s create managers/ leaders who can run the existing show properly but not the entreprenuers, thinkers. If someone wants to do business after MBA he should be doing that before too( Either part time or full time). MBA will help you to fill the gaps if any, and improve the quality of the service/product.

    For true entreprenuer corporate world would never be a cozy place. He would never be comfertable with bounded rules. Instead would be loving to face challenges more often and surmounting them. It would give the combined adrelin rush of sky diving, scuba diving and bungee jumping.

    Entrepreneurship is not an art but a practise. Who ever wish to use this tool to get into bschool they can do so, but never fool yourself that you will plan and start something after making some money by working few years. You will never start. Even if you do, you will never be successful. If you are serious you should have the guts to face it. You will be successful only if you are short of money to pay salaries, your children school fees, rents etc. Then true innovation comes out to face these problems and eventually leads to profits &success.

  2. Sameer Kamat   |  Wednesday, 12 September 2012 at 4:33 am

    Thanks for sharing those perspectives, Madhukar.

    The world is far from perfect and there are many problems waiting to be solved.

    For someone who really has an eye to seek out these opportunities and the passion to really make a change, the entrepreneurial route can be very appealing…not to mention lucrative & rewarding.

  3. ravi   |  Thursday, 14 March 2013 at 5:45 am

    i read this article i dont know why my ideas will not how can i find faults in that so that i can fill the loop holes in that and make the project run i really like the book and this article to need some more help on enterprenuership despiratelyl

  4. Sameer Kamat   |  Thursday, 21 March 2013 at 4:19 am

    Ravi, I’m not too sure about your query, but I’m assuming that you are trying to find a way to find out if your startup plan is good enough. Is that correct?

    You could check with a few folks (preferably entrepreneurs) who are familiar with the business that you are planning to get into. Share your business plan with them and get their views.

    Start small and see if there is potential. Then scale up, once you are comfortable with the way it’s shaping up.

    Good luck!

  5. Royal   |  Friday, 08 November 2013 at 3:07 pm

    Wonderful article ! Completely enjoyed reading it. I would like to share my experience, and tell you why I want to take up the MBA in entrepreneurship program.

    I have gone through the initial startup phase when I was helping out a friend who “said” that he would give me equity in lieu for salary for an initial period of three months or more until we could get some investments, after which salaries could be issued to all. This period extended to 5 months, and the demo day is approaching on Nov 16. Due to lack of knowledge in the field, I failed to get the same on papers before starting work, and worked hard being the operations manager, and handling a team of 5, as is the strength today. By the time I did my research at home to know what kind of equities exist and how to calculate the same taking different risks into consideration, it was late. To avoid any more delays and problems in the company, I requested for the contract to be drafted as to how much of sweat equity would be given to me, and on what date, etc, after taking the advice of a CA. One thing I would like to mention is that when I joined the startup, it was in a total mess. With 15 employees, and no work done, I did spend about 10-12 hrs every day to fix things, and eventually fired 12, and hired 2 in their place. The response I recieved from the board was – a maximum of 2% sweat equity with a vesting period of 2 years (for a company that will take about 2 years to see profits post investments), and this would be given on papers after 6 months (which is the initial 5 months + 6 months)! I quit the company a week back, after fixing it and setting it at a good pace. I have the spirit that drives an entrepreneur, but I lacked the financial and legal knowledge required to excel as one, and hence never got what I deserved being a co-founder and the operations head (COO as its known). This is why I want to do the MBA in entrepreneurship course, so I can get the base setup first, before converting an idea into a company ! Regarding the finances, I have a relative who wants to sponsor the fees, but for a med ranked b-school only. Now what should I do Mr. Sameer ??

  6. Sameer Kamat   |  Sunday, 17 November 2013 at 8:23 am

    Royal: Sorry to hear about the way you were treated at the startup. However, it’s not an isolated story. For the handful of fantastic startup stories that figure in the media, a whole lot of experiences like yours get sweeped under the carpet.

    Given the experience that you have and the hard-hitting lessons that you’ve got in the real world, what is it that you are expecting the MBA to give you?

    Considering all the justifications that you’ll have to give the Admission Committee (with very little formal / documented track record of what you’ve done), why not just start off afresh independently on your new idea?

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