The Business-School Deficit

Students don't always come out of management programs as entrepreneurs, but that's not necessarily a bad thing.

Scott Maxwell/Flickr

The notion that business school can be a launching pad for budding entrepreneurs becomes catchier with every dinky startup that becomes a multibillion-dollar business. So catchy, in fact, that M.B.A. programs are falling over themselves to convince students that their campuses are basically souped-up startup camps. But in reality, launching a company out of business school is rarer than one might think.

A frequently cited survey from the makers of U.S. business school entrance exam—the GMAT—found that more international M.B.A. graduates are starting businesses right out of school. A less-frequently cited finding from the survey, however, is that most recent alumni work for somebody else after graduating. In the chart below, the pink column represents the total percentage of self-employed business school graduates worldwide. The blue column is the subset of that group that started a company right after graduating.

Entrepreneurship Among Recent Graduates

Over the past few decades the number of young American adults who own their own businesses has declined: 3.6 percent of households headed by people under 30 own stakes in private companies, compared with 6.1 percent in 2010 and 10.6 percent in 1989.

Behind the decline in entrepreneurship is the rise in business-school tuition, which increases the financial risks of starting a company. A compounding factor is that business-school students tend to be risk-averse. Many follow the well-trodden path from elite university to elite consulting or finance firm to elite business school, after which they go into finance or consulting.

Even though an increasing number of graduates is heading into the tech industry, more than half of 2014 alumni representing the most prestigious U.S. business schools (otherwise known as "M7" schools) still went into finance or consulting:

Most Popular Sectors for 2014 Graduates of "M7" Schools

For all the marketing M.B.A. programs do to lure students interested in startups, the fact is that successful high-growth startups are substantially more likely to be launched by older entrepreneurs with business experience. The average age of successful high-growth startup founders is 40, according to research by Vivek Wadhwa, an academic and tech entrepreneur, and the Kauffman Foundation.

What’s more, research suggests that most entrepreneurs come from established firms and that the further a business deviates from a founder’s prior firm in size and focus, the less likely it is to succeed.

Other research on Harvard Business School students found that more contact with classmates who were former entrepreneurs appeared to discourage those students from pursuing a startup. The research suggests that the better informed students are about the challenges of being an entrepreneur, the less likely they are to leap into that pursuit. That kind of warning might just be worth the $150,000 price tag.