Is an MBA Necessary for Startup Entrepreneurs?

When thinking of classic startup culture, it’s often easier to picture a bunch of Ivy League dropouts staging a nerf-gun battle during a sales meeting than a gaggle of buttoned-up business school graduates.

Because if the business world has lent us anything, it’s inspirational dropout stories that include the likes of Bill Gates, Mark Zuckerberg, and Jack Dorsey, among a long list of others. Billionaire status aside, these mega-successful entrepreneurs are all bound by the fact that they didn’t complete an undergraduate degree, let alone a Master’s of Business Administration (MBA).

Despite the industry trope, entrepreneurship is a growing trend among those considering an MBA program, and for good reason. In a 2015 Financial Times survey of 7,800 MBA graduates from the world’s top 100 business schools, 22 percent of graduates launched a startup either during their program or shortly after completing it. Three years later, 84 percent of the companies they’d launched were still operating.

Additionally, an analysis of 39 unicorn companies, or privately held startup companies that were created in the last 10 years and are valued at over $1 billion, reveals that 33 percent have at least one founding member with an MBA.

Given these findings, it’s as if an MBA program could be your ticket to launching a startup that thrives. In some ways, it is, particularly as an opportunity to gain the necessary tools, skills, network, and knowledge to run and grow your business. At the same time, it can’t guarantee success.

So, should you apply to business school—or opt-out to hit the ground running with your big idea? Here’s what you need to know.

The Benefits of an MBA for Startup Entrepreneurs

At a high level, MBA programs provide students with a well-rounded, multi-faceted understanding of how businesses operate. One of the most compelling reasons students pursue MBAs is to develop the leadership skills they need to succeed in virtually any industry.

Of those skills, some of the most valuable takeaways for MBA grads are the ability to understand the big picture of overseeing a business—and use the latest leadership strategies and business practices to do so successfully.

Strong business foundation

Because MBAs target aspiring business leaders, most programs’ core courses are geared to provide students with a foundation in major business disciplines, regardless of whether their post-graduation plans are to join a world-renowned consulting firm or launch a business from the ground up. These courses include:

• Accounting
• Business Ethics
• Business Law
• Communication
• Economics
• Finance
• Management
• Marketing
• Operations
• Organizational behavior

Lifelong professional network

As MBA programs allow offer access to school alumni, professors with extensive experience in the field, and a diverse body of students, it stands as an ideal opportunity for students to build their network—and even potentially meet their future co-founders and venture capital investor.

B-school networking success stories

• Revolution Foods co-founders Kristin Richmond and Kirsten Tobey met while completing MBAs at the Haas School of Business at the University of California – Berkeley. The two worked on their business plan throughout their program and in 2006, Revolution Foods was born. Today, their company designs, produces, and delivers two million school and community meals per week nationwide—while pulling in an estimated $43.6 million in annual revenue.
• Rent the Runway, an online service that provides designer dress and accessory rentals, took shape after co-founders Jenny Fleiss and Jenn Hyman met as Harvard University MBA students in 2007. In 2019, the brand received financial backing that boosted its valuation to unicorn status at $1 billion.
• Warby Parker cofounders Neil Blumenthal, David Gilboa, Andrew Hunt, and Jeffrey Raider met while completing graduate degrees at the prestigious Wharton School of the University of Pennsylvania. After commiserating over the exorbitant cost of glasses, they built their now-iconic eyewear eCommerce company, which was valued at $1.7 billion in 2019.

Room to develop

For the entrepreneurially-minded, an MBA is much more than a pathway to securing business expertise. Especially when considering the many business schools offering startup labs or “incubators” tailored to help students develop their ideas, pitch their business plans, and pursue investors.

Business school-based incubators are designed to help student entrepreneurs solve some of the problems commonly associated with running a startup by providing workspace, seed funding, mentoring, and training.

Overall, the experience provides a crucial advantage for students, who enter the field after graduation with greater confidence and a comprehensive understanding of how to grow a company in its early stages of development.

Noteworthy business school incubators and the companies they helped form:

• AU Entrepreneurship Incubator at American University: MEANS, Upace, Wearwell
• Startup Aggieland at Texas A & M University – College Station: GoFresh, Gazoo
• Startup Garage at the Center for Entrepreneurial Studies at Stanford University: Instagram, Trulia, StubHub
• The Donald H. Jones Center for Entrepreneurship at Carnegie Mellon University: ModCloth, Duolingo
• The Jon Brumley Texas Venture Labs Accelerator at The University of Texas at Austin: CarServ, 3 Day Startup

Specialization

MBA programs typically offer a wide range of specializations to allow students the opportunity to develop expertise in a specific area of business. Of these concentrations, an MBA with an entrepreneurship concentration is particularly helpful for helping students bring their business ideas to life.

Specific entrepreneurship courses tend to cover the fundamentals of managing and growing a company, and may include:

• Marketing strategies and principles
• Customer and supplier relations
• Supply chain management
• Operations and information management
• Human resource management
• Managerial economics
• Investments

Best MBA Programs for Entrepreneurship

Based on data from peer and recruiter assessment and placement success, among other factors, these schools are home to U.S. News and World Report’s top entrepreneurship MBA programs:

• Babson College
• Stanford University
• Massachusetts Institute of Technology
• Harvard University
• University of California – Berkeley
• University of Pennsylvania
• University of Michigan – Ann Arbor
• Indiana University – Bloomington
• University of Southern California
• University of Texas – Austin

Launching a Startup With MBA Debt

According to a report fro the National Association of Colleges and Employers (NACE), MBA graduates from the class of 2019 pull in an average starting salary of $84,580—more than $25,000 higher than the average starting salary for graduates with a bachelor’s degree in business.

At the same time, many graduates of full-time MBA programs leave with at least $100,000 in student loans. While this might not be a glaring challenge for MBA graduates who are on their way to high-profile management positions at McKinsey, it can be for graduates who are making the leap to entrepreneurship. One Stanford graduate carrying a debt of roughly half his education reported receiving 96 loan rejection letters when seeking capital for a small gym franchise he was helping to build.

But that doesn’t mean it’s hopeless. There are several options and approaches to consider when starting a business with b-school debt. In most cases, refinancing, consolidating, or deferring student loans is a viable first step.

What an MBA Won’t Teach You

While business school is a space for students to learn how to negotiate, communicate effectively and understand the foundations of the business world, it doesn’t necessarily teach students to feel confident taking risks, go with their gut, or to be so passionate about an idea that they lose sleep over it.

In some cases, those who want to start a business may be better off seeking out workshops that are specific to their industry of interest, leadership or development programs, and startup-focused conferences and events. Undergraduate or continuing education courses in accounting and business law may be also helpful.

Questions or feedback? Email editor@noodle.com