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Many times during my tenure at HBS, I thought about and discussed the ROI of an MBA. With the cost of a two year degree from a top tier MBA program eclipsing $200k (not including the opportunity cost of $200-300k of foregone salary and advancement), the decision to return to school is not one made lightly. But what about people like me who have the desire to be entrepreneurs? Does it make any sense at all?

I still remember my first year financial modeling class where we worked through the ROI of a Harvard MBA. Taking into account average salaries post graduation, the average increase in salary (at a trajectory steeper than prior to receiving the degree), and the average lifetime earnings of HBS degree holders, our model, not surprisingly, showed the HBS degree to be NPV positive.

Now this entirely self-serving exercise (fully acknowledged by the professors) does little than to allow us to pat ourselves on the back and comfort us in the knowledge that we have made a superior financial decision by taking on a boatload of personal debt. But is it true?

I knew entering HBS that I would most likely leave an entrepreneur. I was leaving a comfortable job where I would be paid six figures with a great career opportunities to effectively take no salary and have no career prospects beyond the company I'm building. I don't even need to consult the model to know that if I plugged in my current salary of $0, significantly increased the discount rate (to account for the high beta choice associated with startup life), and adjusted my future cash flows to be reflective of average entrepreneurs coming out of HBS, it would very clearly reveal that the decision to go to HBS was an NPV negative one.

Then why does it feel so right? Is it because I'm rationalizing my decisions? Is it because I have bought into my own hype and have created a reality distortion field around myself? Is it because I look at outliers (Dropbox, Facebook, Microsoft, Google, etc.) and ignore the data that shows clearly the excessively high failure rate of startups? Is it because I place an inordinate (and perhaps undeserved) amount of value on the Harvard name and network?

Yes, Yes, Yes, and Yes.

But am I wrong? Am I simply gambling with my career and putting my personal, professional, and financial life at risk?

Looking forward to feedback from others who are in my shoes or are considering this path.

(This post is part of a 2-part series and part 2 will share my perspective on why I believe that HBS was a good decision for me as an entrepreneur... although though it may not be a good financial decision on paper.)

Edited to add: It's interesting that this blog post was published the very day that my company and I were mentioned in a Wall Street Journal article entitled "Student-Loan Load Kills Startup Dreams"

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Comments (26)

  • CRE's picture

    eskimoroll:

    But am I wrong? Am I simply gambling with my career and putting my personal, professional, and financial life at risk?

    Life's a gamble, eskimo man, especially if you want to be an entrepreneur. One assumption I make automatically since you are in HBS is that you're either very intelligent, very driven, or some combination of the two. I'm also going to assume that you're either getting a world class education, making world class connections, or some combination of the two. In the end, none of that is trivial, and really just having that Harvard MBA diploma is going to validate you in the eyes of people like me (potential clients) as you try to get your business off the ground.

    All of the above is valuable. Is it worth $200,000? Will you get a positive return on your investment? Well that's up to you, Mr. Entrepreneur. If you start a business and one of your classmates convinces his company or his wife to buy $300,000 of your product or service, then boom - instant validation.

    The real answer is "who knows?" You are gambling with your career and everything else, but so are the rest of us. NOT going to HBS is a gamble as well.

  • wannabeaballer's picture

    I think we're entering an era where building an app doesn't qualify you as an entrepreneur.

  • junkbondswap's picture

    I have invested in entrepreneurs and start-ups in the past (outside of my PE career) and would say that my two biggest observations are as follows:

    1) Most entrepreneurs are strong in one or two areas and terrible at the rest whether that be: financial background, marketing/operating experience, creative insight, impulse control, inability to delegate, etc.

    2) Most entrepreneurs are incredibly impatient and underestimate how longs things take and how much it costs to get things up and running.

    While HBS will not necessarily make you a successful entrepreneur it will provide you with a valuable educational skill set, vast network, and instant credibility.

  • TheBigBambino's picture

    It's funny, I've never thought about the cost, ever. Only about the time value, the network, and learning curve.

    As a VC analyst on the other side I don't care where management team members went to school. I care about the business their creating, the market their in and what the trends of it are, validation data they can show me, and whether or not I really think they can execute (which usually means previous experience managing a stratup and not a MBA).

    Regardless though, going to a top 10 MBA is invaluable, both as a startup CEO and as a VC. Your network is your lifeblood. If you're doing things right you're gonna fail horribly at least once. You will want this network around for that moment to help pick you back up and find your next idea. They will also be your validation when investors come knocking. I can't tell you how many 'old HBS classmates' of company X management team I've talked to while on reference calls.

    End of story: I've never thought once whether or not I will do a MBA. It's a given for me.

    Minor anecdote:
    My boss at my last fund was a HBS grad and while being a MD at a top tier VC they also own a bunch of fast food joints. Now I'm at a different fund in a different industry and still yesterday I met with a random guy that vends a key product to fast food joints and it turned out my old boss was his semi-mentor at HBS and they hadn't talked in years. I've now just re-connected them and that good old HBS network will probably lead to them working together in someway, whether it be a VC relationship or a fast food supplier one.

    "If you want to succeed in this life, you need to understand that duty comes before rights and that responsibility precedes opportunity."

  • In reply to wannabeaballer
    OGBanker's picture

    I would tend to agree with this comment...though when you've "raised $200k in seed money" as the WSJ article mentions, I think you're ok calling yourself an entrepreneur (assuming the $200k didn't come from your rich uncle).

  • STIBOR's picture

    wannabeaballer:

    I think we're entering an era where building an app doesn't qualify you as an entrepreneur.


    This. Thank you.
  • In reply to OGBanker
    eskimoroll's picture

    OGBanker:

    I would tend to agree with this comment...though when you've "raised $200k in seed money" as the WSJ article mentions, I think you're ok calling yourself an entrepreneur (assuming the $200k didn't come from your rich uncle).

    Actually to put some more context on that number... The $200k reflects money that we put in ourselves and also the funding that comes from being part of the TechStars program. We've taken no salary and we have also raised some more money from investors to give us more time to grow. We'll be raising a formal round of funding later this fall so that we can accelerate our growth (hire more engineers).

    The business didn't start as an app, rather we developed on the desktop first while working with a diverse group of businesses over the last two years. What we learned is that the pain that we are trying to solve is much more pervasive on a mobile device. To dismiss companies that develop business solutions on a mobile device as mere "app developers" when the world is moving mobile is naive.

  • In reply to wannabeaballer
    PutINweRK's picture

    Kinda true. Think what he meant is just that it's so widespread these days. Everyone and their grandma is a programmer. Don't know why you got monkey shit up the wazoo.

  • IlliniProgrammer's picture

    No. If you want to be an entrepreneur, get a CS PhD from Stanford, then quit after 3-4 years to start a business like everyone else who does a CS PhD there. It costs less, gives you more options, and if you're already decent at marketing, gives you better training.

    I think there is definitely a place for some MBA-like skills in the early stages of the business, particularly in marketing and understanding the needs of the consumer, but I don't think it's worth paying $170K for a set of connections that you won't use until you need financing. I also think even the people who are good at marketing need to be better at the fundamentals of creating a quality product, at least in the early stages. And frankly, I'd rather have $170K to start the business with so I don't have to give away equity earlier than I must to people outside the business. But that's just me and my prior views (CS undergrad).

    There is some value in being surrounded by other people working on startups. Hence the value of Y-Combinator or doing an Engineering PhD at Stanford or Berkeley. Or I guess an MBA in entrepreneurship.

    If you already have a million dollars and an undergrad in something that can help in the creative process (Engineering, CS, Fine Arts), HBS may make some sense for helping you to understand marketing and maybe giving you access to a different customer base than you'd otherwise have. (CC Facebook starting at Harvard).

  • job.resume's picture

    Your goal in life is to maximize your utility, not maximize your income.

    Why are you acting like this is just a financial decision? It's a utility decision. How much happiness would 250k bring you today vs how much happiness being with some of the brightest students in the world and the happiness of having HBS credentials would bring you.

  • IlliniProgrammer's picture

    job.resume:

    Your goal in life is to maximize your utility, not maximize your income.

    Why are you acting like this is just a financial decision? It's a utility decision. How much happiness would 250k bring you today vs how much happiness being with some of the brightest students in the world and the happiness of having HBS credentials would bring you.

    Brady is that you?

    I think that there are certain traits required for working with engineers, programmers, and creative staff. One of them is humility. For a humble person, I don't think HBS and a lot of the brazen ambition there is as healthy an atmosphere, as say Berkeley Engineering, which also has smart people (perhaps smarter people) who are reasonably ambitious.

    It's good to be surrounded by people who are smart- although for someone who is also fairly smart, the marginal value of intellect starts dropping off after a 120 IQ- we all condition ourselves to be able to speak with people at about that level.

    It's good to be surrounded by people with ambition- up to a point. I'm talking about ambition for creating stuff, for working hard, for taking pride in one's work- not necessarily ambition for becoming fabulously wealthy.

    Don't get me wrong- there are a lot of humble, nice people at HBS, and my experience in grad school has tempered my views somewhat about people at northeastern schools (though I still think there is some statistical significance in the view that there are more douchebags out here than at state schools in other parts of the country). I just don't buy the "utility" argument on this one. I don't think someone who enjoys creating stuff would be happier at HBS than at Y-combinator.

  • eskimoroll's picture

    job.resume:

    Your goal in life is to maximize your utility, not maximize your income.

    Why are you acting like this is just a financial decision? It's a utility decision. How much happiness would 250k bring you today vs how much happiness being with some of the brightest students in the world and the happiness of having HBS credentials would bring you.

    Is this directed at me? This topic was a something that many people have asked me about so I decided to write a post about the question from a financial perspective and then a second post which explains why I'm glad I made the choice. It's meant to spur a dialog among others who have contemplated this decision or one similar to it.

    I already graduated from HBS and I'm loving being an entrepreneur today so no regrets there.

  • job.resume's picture

    I'm just surprised you're

    1) trying to justify going to HBS
    and 2) trying to justify it in terms of NPV

    Not trying to be too rude here but it seems rather stupid.

  • eskimoroll's picture

    job.resume:

    I'm just surprised you're

    1) trying to justify going to HBS

    and 2) trying to justify it in terms of NPV

    Not trying to be too rude here but it seems rather stupid.

    Criticism well taken. In my experience, lots of people seem to fall into one of two camps. 1. Attending HBS is a no-brainer or 2. Taking on lots of debt for an MBA is stupid for "real" entrepreneurs.

    On top of that, with the "education bubble" on everyone's minds, the national media repeatedly publishes content analyzing the "ROI of a graduate degree." While we all talk about the intangibles associated with graduate degrees, it is still a huge financial decision that needs to be made thoughtfully.

    I thought it would be fun to share my take on those things in a simple blog post. Hopefully the intent of what I was trying to communicate is a bit clearer next week when part 2 is published.

  • duffmt6's picture

    job.resume:

    I'm just surprised you're

    1) trying to justify going to HBS

    and 2) trying to justify it in terms of NPV

    Not trying to be too rude here but it seems rather stupid.

    Kinda rude and don't really understand the criticism. I don't think he was trying to justify it in terms of NPV at all.

    "For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."

  • In reply to eskimoroll
    job.resume's picture

    I hear what you're saying, i just think the fact that it's HBS kinda undermines the whole conversation. The conversation starts when the value of the MBA converges with the price.

    Additionally I think it's actually a very personal decision, more so than most people realize.

  • In reply to job.resume
    willski21's picture

    Well then, at what point would you say that the value of the MBA converges with the price? Outside top 10? Outside top 20?

  • milehigh's picture

    To OP, I think it's a very complex answer (if there even is one), but in most simple terms, I'd put it into 2 scenarios:

    1) Your startup takes off, and you build it into a sustainable, interesting, and fun Company to run and work for. Maybe you decide that you couldn't have done it without a Harvard MBA, in which case HBS was the best decision you could have made, but I'm guessing you could do it without the MBA. If so, you spent $250k you didn't have to, but if your startup is successful, you probably don't need to worry about the extra debt anymore.

    2) Your startup doesn't work out. You end up with unparalleled experience, an incredible story to tell future employers (if you decide to cut your losses and go back into the corporate world), and you have an MBA from Harvard to "fall back on". Sure, you have an extra $250k in debt to your name, but if you go corporate, you'll pay it back 10x as your MBA will presumably open a lot of doors.

    To summarize, I don't think you can summarize this on a financial/ROI basis whatsoever. Good for you for trying to venture out on your own, worst case scenario, you'll get some great experience, and will be very marketable to future employers.

    Best of luck.

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  • pcubed's picture

    "You see that building? I bought that building ten years ago. My first real estate deal. Sold it two years later, made an $800,000 profit. It was better than sex. At the time I thought that was all the money in the world. Now it's a day's pay."

  • pcubed's picture

    "You see that building? I bought that building ten years ago. My first real estate deal. Sold it two years later, made an $800,000 profit. It was better than sex. At the time I thought that was all the money in the world. Now it's a day's pay."

  • mehtal's picture