Entrepreneurship: 5 Reasons Why MBA is not necessary, ROI is just one factor...Bigger Issues Still Exist

We found it extremely hard to compile the list of Billionaire Entrepreneurs with MBA. Several of them in the Forbes Richest list are Bachelors & Master’s Degree holders with many of them earning PHDs before venturing out on their own. The need for an MBA program or knowledge of management best practices were not featured in the must have qualities for Entrepreneurs.

In this article, we will evaluate five factors that have turned the tide against MBA Students pursuing Entrepreneurship.

1) Cost vs. Return

Most top MBA Programs cost around $85000 to $90000 (includes personal expenses) per year. For Entrepreneurial MBA students, the post-MBA goal is to fund their startup and release products/services to the market at the earliest. The weighted salary post-MBA of top schools is in the $150,000 to $190,000 range. This is a relief, as the 5% to 7.5% interest rates on loans are manageable. Still it will take 1-2 years to recover the cost of an MBA even if you have completed an MBA from a top Business School (Read MBA ROI Using Net Present Value where we compare MIT vs. Stanford)

For a regular MBA Student, this is a reasonable proposition but for Entrepreneurs, 2-3 years is the time that they would require to establish their brand with several pivoting, and iterations that are part of a company’s journey from start-up to small or scalable Business.

2) Analysis Heavy – Not a Virtue

MBA courses are analysis heavy. The program teaches students to analyze historical data, find patterns, and with enough information make decisions that would take the company forward. But if you have seen the trends in recent history especially in technology sector, no one would have predicted the rise of Facebook, when the market already had several social networking sites, including the dominant MySpace. Case Study Method, a popular teaching methodology encourages thinking according to scenarios that have been already faced by companies around the world. Unfortunately, successful Entrepreneurs don’t think logically for the most part of it. They would prefer testing out new, ‘crazy’ ideas and pivot several times before finding an optimum market.

3) Experiential Learning vs. Real Experience

Business Schools have incorporated Experiential Learning to offer a similar experience that an Entrepreneur might face. However, it is not the same. Experiential learning has a high margin of safety for errors committed in decision-making. In fact, professors encourage students to think big, and take on risks that in real-life, students would never take. As a start-up, certain decisions would mean the end of their Business. Understanding Context in which decisions are made is more important that risk taking itself. The Leadership Development programs are commendable but the leadership challenges that a start-up Entrepreneur face are completely different from the Field Exercises that MBAs are exposed.

4) Myth of Brand Name

The primary reason why Entrepreneurial students pursue MBA is due to the brand name. Although it is true that Business Schools opens up wide networking opportunities with the Alumni Network and top Employers, for a start-up, the product defines the company. For initial meetings with VCs, an MBA might be a turn-off in several cases, as Silicon Valley and VC community are known to have certain level of disdain for Entrepreneurial MBA students. They might be more critical about the idea, and might just reject the idea, just to make a point.

5) Peer Pressure

The challenges that a start-up faces are huge. When a start-up is part of a Business School community, the Entrepreneurship Centers can be effective if the student spends more time with other Entrepreneurial students and less time with regular MBAs. This is not feasible. Several Entrepreneurial students realize that they have spent endless hours, preparing the presentation deck, doing field studies, collecting market research data, developing products and completing the MBA Courses with reasonably good grades to earn $100k Round 1 funding and large student loan debts, while their colleagues have received $150,000 job offer with half the effort. It is an added distraction, and peer pressure leads some of the best Entrepreneurs off-track.