WSJ: A Smart Investor Would Skip the M.B.A.

Water Cooler Careers
#1

The Wall Street Journal has an interesting perspective on the value of an MBA in a recent article by Dale Stephens.

“What matters exponentially more than that M.B.A. is the set of skills and accomplishments that got you into business school in the first place. What if those same students, instead of spending two years and $174,400 at Harvard Business School, took the same amount of money and invested it in themselves? How would they compare after two years?’”

The author closes with this:

“put yourself in the shoes of your future boss and imagine whom you would rather hire: the candidate who built a profitable business over the course of two years, or the candidate who sat in lectures and reviewed case studies to get a degree?”

Here is a link to the full article: http://online.wsj.com/article/SB10001424127887323884304578328243334068564.html?mod=WSJ_hps_MIDDLENexttoWhatsNewsThird

#2

I’ve said that all along…but at the same time I think there are cases where the MBA program can open more doors. Its more about the connections you make. Some people wouldn’t know what to do with 174k except “buy connections” at a top level university. Interesting article, thanks for the post.

#3

I saw that article the other day. Probably true for most programs, but for most people going to a top 20 would pay off much better.

#4

In a previous thread on the value of FT vs PT MBA programs, I started pondering that - if FT MBAs are more valuable because you have to be better to get into them - maybe the optimal strategy is to top notch business schools, but not go once accepted, then put “accepted into HBS/Columbia/Booth/Wharton FT MBA program” on your resume.

I’m sure someone could then create an inexpensive networking tool so that people who got accepted can party and drink with others who got accepted. Voila - an arbitrageable MBA! :wink:

#5

I think for many people an MBA is a safety net. Even if you are incredibly bright and can get into Harvard or Wharton, it does not mean you can succeed as an entrepreneur.

I think an MBA is for the risk averse. The networking aspect is compelling as well.

#6

Nice thought. But if I literally saw “accepted to HBS/Wharton…” on a resume, my first thought would be: total dbag.

#7

Hacksaw

#8

So true, some people may have the skills to eventually be a C-level executive but never could cut it starting out on their own. Even if they could, that person would still benefit much more from the network he would have access to at a M7 than simply running around pub to pub in his respective city trying to network.

#9
  • that is genius
#10

I get the article and while I agree, for the perspective of a hiring manager I would disagree. If I was assessing a key hire, I would potentially ding them if they started their own business and then were looking for a corporate job to be an employee somewhere. Especially if I was comparing the candidate to someone with the degree (going along with the risk averse statement above, it would be a less risky hire).

Being entreprenuarial is a good attribute, but not it depends on what you are looking for because they are more risky and will strike out on their own more readily if opportunity presents itself. It would raise a flag in my view of:

  1. They are not a long-term employee and are biding their time until they can launch their business.

  2. Similar to above. Business failed or something? Why would they want to be an employee? Or are they just saving some money so they can go all-in the business. Either way they aren’t fully devoted to this company, they are devoted to their own company.

#11

I’m not even disputing the main point, but the author would really have an awesome case if the choice was really between and MBA and a business that is 100% guaranteed to be profitable after 2 years.

How about " whom you would hire: the candidate who got a degree and 1 year post-MBA experience, or the candidate who built a multibillion dollar company out of the blue in 3 years?"

It goes along with what JCAT wrote above. If some person build a successfull business in 2 years, why would they give that up to come run some spreadsheets for me?

#12

[warning: long post – I haven’t been writing here as often lately, but thought this was an interesting discussion and wanted to chime in.]

This is an interesting perspective, but I personally loved my MBA experience. Sure, had I actually known that I wanted to stay in finance, let alone work at a hedge fund, I may have tried to network my way out of private equity into a good buy-side institution.

But I had no idea at the time. I was working on leveraged buyouts in 2009 and 2010, during one of the most frustrating times in the deal-making and capital formation business. I felt like I had a lot more skills to offer the world, than could be realized at a private equity firm during one of the most historically tepid capital markets environment.

I was fortunate to get admitted to a leading business school that people here often talk about, where I had the opportunity to consider what other interesting industries I could be working in besides finance, and meet many like-minded peers and alums in the process. (Actually, it was the unlike-minded ones that I found most interesting since I had always wondered how those people could see the world the way they do.) I had a chance to learn about many different aspects of business beyond finance to understand how people from other industries think, develop a more rigorous framework for analyzing businesses, and be challenged intellectually in case-based discussions. And I had a chance to travel extensively, both for pleasure and professional reasons, which in the process led me to live in countries for several weeks/months that I’d been curious to explore and improve my local language skills in a meaningful fashion. At the end, I had interviewed for consulting, business development, and internal strategy roles before ultimately realizing for sure that buy-side public equities was where I needed to be. I would never have had the opportunity to see carefully consider these other industries if I were working full-time.

And so I interned at a hedge fund the summer after my first year, though I graduated business school without having signed an offer anywhere. There were times when I thought to myself how my employment prospects could have been different had I just continued to work through the 2010-2012 timeframe. I was perceived as being too experienced and expensive for some of the traditional analyst roles (not to mention that the compensation offered didn’t match what I had been looking for), yet not experienced enough for some of the roles I had hoped to get coming out of business school, especially given the availability of many recently unemployed buy-siders that were looking for work. I met with dozens of funds on both East Coast and West Coast, and also in London as well as Hong Kong. Many of these funds employed alumni from my undergrad and business school institutions.

However, the right fit just didn’t seem to come along. I thought to myself, “How can this be so hard? I paid so much for my MBA, I’m supposed to have access to this fantastic alumni network and even *they* can’t help me find the right job. Business school gave me time to meet with a lot of companies, see the world, and do a lot of soul searching…but still, I haven’t found a job. What’s going on here?” It also didn’t help that my parents and grandparents were comparing me to the children of their friends who landed “cushy and prestigious i-banking and consulting jobs” and asked me why I couldn’t just do the same thing.

However, I think what I’ve mentioned above is the wrong way to look at it. I’m glad I stayed the course and pursued what I wanted to do, i.e. be a buy-side eqiuties analyst. Maybe it’s easier now that I’ve landed with a hedge fund in New York that I’m excited to be a part of, and one that seems equally excited to have me on board. I spent upward of $150K during business school (this is excluding the effect of scholarships and the like) and it’ll be some time before I recover those expenses. It also means I’m now two years behind the hard-charging peers in the hedge fund industry that I aspire to be like, in terms of both experience and income (not to mention they didn’t have to have two years of business school expense like I did).

That said, my life is much richer for having had the experiences I mentioned above, and in ways that money itself simply can’t buy. I have the rest of my life to make money, and if money were the only thing that brought me happiness, I would be pretty miserable. The truth is, I loved business school for the people that are now part of my network of friends and my network of people I call when I want to hear their perspectives on a company I want to invest in. I’m also much more disciplined in terms of work and how I analyze companies. Ultimately, business school changed how I view people, business, and the world in general. I would have missed all these learning opportunities had I continued to sit behind a desk crunching spreadsheets and analyzing companies 60+ hours a week.

Maybe I’d have a different perspective on the value of business school if I had this high-octane lifestyle, or some other misguided impression that Wall Street was what it used to be. Everyone is facing the secular contraction and lower compensation packages, whether or not they went to business school. I live well within my means, have a job that keeps me intellectually stimulated, and a very happy personal life. Even if buy-side compensation doesn’t come back to what it used to be, I still will look at business school as being a great personal investment and I would never regret my decision to get my MBA.

I worked hard in business school, networked like crazy, and had a number of sleepless nights. However, it was because of these efforts that I really felt like I got my “money’s worth” (both metaphorically and literally speaking) and I wouldn’t trade my degree for anything, let alone working for two additional years.

#13

There are always success stories of bschool, of course.

if there were no success examples, they wouldn’t exist anymore.

#14

There’s a thing called “The Economics of Information” that come into play here.

E.G. - Say you’re standing on the street in Fort Worth, Texas, a place you’ve never been before. You are hungry, have money, and see two steakhouses–Ruth’s Chris or Bob’s. Which one do you go for?

Most people would go for Ruth’s Chris. It has restaurants all over the nation, Rush Limbaugh promotes it (your opinion of L. Rushbaugh is irrelevant–the fact that he’s willing to put his name on it means something), and everybody you meet says it’s a good place. You know from all the advertisements you’ve seen that it’s an upscale restaurant, with a nice setting and clean restrooms. You know the steaks are grilled on open flame, and they only use prime cuts.

You could have gone to Bob’s, but you didn’t know anything about Bob’s, so you went with the one that you knew would give you a good meal. And you were right to do so, because every Ruth’s Chris is good, but there are a lot of really bad no-name steakhouses.

And if you chose Ruth’s Chris, you were wrong–because Bob’s is much, much, much, much better than Ruth’s Chris. (Bob’s Steak and Chop House is a real restaurant in Dallas and Fort Worth, BTW. And I highly recommend for anyone visiting.)

*********************************************************

So, why pick somebody who has a Harvard MBA? Because if they have a Harvard MBA, they’re more likely to have connections (like Swannie says), a pedigree (which is important to some firms), a well-above-average IQ (140 is average for Harvard grads, don’t have data on postgrads), and hard work ethic (because you won’t survive B-school without it).

If you pick a guy who graduated from Local State with his BBA in Marketing, who knows what you’re getting? It’s entirely possible that he’s better than the Harvard MBA, but it’s not likely. If you go this route, you’ll likely have to kiss a bunch of frogs before you find your prince. You can be pretty assured that the Harvard MBA will be a prince, or at least pretty close to it.

So, in this example, the Harvard MBA is the “Ruth’s Chris”, and the LSU BBA is the “Bob’s”. You know what you’re getting with the former–the latter is a total mystery, and has a good chance of being subpar.

The value of the Harvard MBA stems mainly from the fact that they have all the skills to complete the Harvard MBA–not whatever the degree taught them during the process.

#15

I suspect that there is at least something useful in the curriculum at HBS.

#16

summary: Hiring a Harvard grad means the candidate has been pre-screened for you. less risk.

#17

Another dimension to think about–say that you do pick the guy who graduated from Online Diploma Mill University, because you really do think he’s the best candidate. (and let’s assume that he is, at least for the sake of this argument).

How do you explain to your clients/shareholders/bosses that you believe this guy is better suited for the job than the Harvard grad? It’s an even harder sell if your clients/shareholders/bosses are Harvard grads themselves. Are you really gonna put your ass on the line for a graduate of Savannah State? Are you going to put the reputation and the future of your company on the line for a guy who went to Texas A&M–Corpus Christi?

Tom Brady went #199 in the draft because he was a subpar quarterback. He was skinny, slow, and had a mediocre arm. Ryan leaf went #2 because he was big, fast, had a good eye, and a cannon for an arm. (He probably would have gone #1 if the other guy didn’t have a daddy who was an nfl quarterback.) Which one do you think was easier to justify to the owner?

#18

“No one ever got fired for buying IBM.”

Given how little incentive HR and recruiters face for going out on a limb for finding a perfect fit, and how much flack they get for offering one that doesn’t work out, it’s no wonder that they mostly box-check for as much brand name stuff as they can find.

#19

A mind is a terrible thing to waste. Lately I’ve felt dumber than the day before. At least in school I was constantly challeged, stressed, and devleoped through many different subjects.

#20

And what I find beyond strange is Iteracom has this vice against anything but a BS+CFA while working in ER in NYC. He’d probably chastise his doctor for not doing a Top 2 MD+CFA.

Life can’t be quantified into a DCF bro. Live a little.

And before he tries to whip out his BSD (after sterlizing his hands), let me end with this;

How many CFAs are on the Forbes list?

MBA>CFA