Why Stanford is cautioning MBA students against entrepreneurship

Stanford University’s Graduate School of Business (GSB) has long been an idea factory for new business, and when it asked students to go slow on their aspirations to launch startups, a hot debate was triggered in the business world and academia. Academics at GSB are said to be advising students to focus on their courses and earn their degrees, instead of chasing entrepreneurial dreams.

There are some good reasons why this hallowed cradle of business wizards is seeking to put a temporary halt to its students’ startup ambitions. One reason is that students are missing out on course studies and campus life as they burn the midnight oil fine-tuning their strategies and wondering where the money will come from.

At least a few of the faculty believe that the pursuit of a business concept is an emotional journey that can leave students dejected if their enterprises fail. Faculty members feel many of the students’ business proposals are bound to sink before long.

Stanford GSB believes student entrepreneurs lack experience to launch and run startups. Many students have no work experience, and they need to submerge themselves in their courses for an excellent foundation in business principles and exposure to the practicalities of the marketplace.

They have more to do. Leah Edwards, who runs the Center for Entrepreneurial Students at Stanford, feels second-year MBA students should enroll as interns in existing companies before launching their own startups, “even if they are sure” that their blueprints will work, according to an article in WSJ.

Students with bright plans get noticed by venture capitalists (VCs) and manage to secure funds for their startups, but this immediately makes them answerable to their benefactors. Soon, students find themselves in business full-time with their MBA studies firmly placed on the backburner.
 

The MBA advantage

This may not be a good thing even if the startups succeed, because students really need their MBA grounding, feels Algerian-born medical entrepreneur Zak Allal in an interview to Forbes.

Allal, who completed Stanford Ignite, a certificate program taught by top GSB faculty around the world to help innovators crystallize their plans, points out that top MBA courses cover a range of industries. “Once you graduate from a top business school, you can run a startup after spending three to six months at an incubator, [but] if things grow, they can quickly get out of control. If you don’t have the tools [read MBA], you really need more to lead a company over the long-term.”

Allal says that when he was launching his first business, he was frustrated at his lack of understanding about the mechanics of launching a startup and about the nuances and theories of business. “Stanford Ignite was the right place and answer to my needs. It provides the toolbox any non-business person needs to take their venture from an idea stage to a startup stage.”

Perhaps Garth Saloner, GSB’s departing dean, had in mind these essential differences between top MBA courses and incubator programs when he said, “We are not the graduate school of entrepreneurship.” Saloner counsels students keen on starting their own firms to apply for admission to a business incubator instead of business school.

But GSB’s “new” orientation is not really new. The school started to remodel its MBA program around 2007, with a task force led by Saloner, “to create a more global and more engaging experience for students.” Unsurprisingly, encouragement to startups isn’t the centerpiece of the revised curriculum.

The “startup fever” seems to have blinded at least a few students to the wisdom in securing employment in good companies at campus interviews. Their lack of enthusiasm for these events is a worry for reputed firms seeking to grab the crème-de la crème of fresh talent.

Maeve Richard, of Stanford GSB’s career center, would very much like the students to consider a stable career after graduation. “We want to make sure they know what’s out there,” she says.

However, GSB may find it difficult to persuade its entrepreneurially ambitious students to hold their horses till graduation. The school is located near a center of VCs in California and frequently receives scouts eager to identify new entrepreneurs and fund their businesses.

No wonder that the percentage of GSB’s full-time MBAs who started their own companies was 16 percent in 2015, compared with 9 percent at Harvard Business School, 7 percent at MIT Sloan, 4.4 percent at Pennsylvania’s Wharton, and 3.3 percent at Chicago University’s Booth School.

Not just Standford GSB, other top business schools, including the University of Michigan’s Ross School of Business, are also trying to “thin the herd” of startups by students, in the words of the school dean, Alison Davis-Blake. At Ross, students are made to test their ventures before they set sail.
 

For those who dare

But some B-schools are enthusiastic about firing the spirit of entrepreneurship in students. Many top institutions, including Harvard Business School, New York University, Oklahoma State University, and Pace University, have introduced new entrepreneur courses and innovation labs.

They believe that supporting a business plan at the right time should be one of their missions. Dartmouth College’s Tuck School of Business has, for example, has often permitted students to suspend their courses to pursue their business dream. Says Rich Lyons, dean of the Haas School of Business at the University of California at Berkeley: “When somebody has passion, an idea, and the timing feels right, we wouldn’t want to dampen that.”

Of course, Stanford, too, would make sure to back a really good concept. What it is wary of is students jumping on the bandwagon without proper preparation, such as completion of their MBA program.

But for some students, startups are the way to go, come what may. They are reluctant to wait for a “better time” to launch their companies. The best time is now.

Stanford’s advice to students to look before they leap may be viewed as somewhat ironical, considering that it has been the incubator of some of the most successful startups, including Instagram, a photo-sharing app bought by Facebook for $1 billion. The school has also had business celebrities, including Intel founder Andy Grove and Cisco’s ex-CEO John Morgridge, as lecturers for years.
 

Harvard vs Stanford and other open questions

Curious observers want to know whether the amber signal to budding entrepreneurs wouldn’t affect assumptions about the efficacy of top MBA courses. If the courses are so good, why don’t the schools provide seed money to students’ startups?

Some wonder whether the top MBA courses mean just costly delays for would-be entrepreneurs. Some others ask whether companies launched by B-school students have done better than others. If the startups have survived for a few years, how well are they doing now?

Meanwhile, Harvard seems to have caught up with arch-rival Stanford in promoting entrepreneurship, a field in which the latter held the advantage for years. A study conducted by Pitchbook has it that startups by Harvard and Wharton MBAs raised more venture capital than Stanford MBAs between 2010 and 2015. But if class size is taken as a criterion, there is not much to choose between them.

Harvard once had the reputation of an institution that churned out white-collared elite for the business world, not of one that fostered startups, an image Stanford proudly celebrated for long. Are we perhaps witnessing a reversal of roles between these great rivals, with Harvard becoming a nursery for young entrepreneurs and Stanford a birthplace of new corporate scions?
 

References: 1, 2, 3, 4, 5