M7 MBA - Worth It?
Recently I had a chance to have a long conversation with my friend's roommate, who finished MBA business schools">M7 MBA 2 years ago and now works in BB IBD. He previously worked in consulting.
As someone who currently works in consulting and was thinking about doing MBA in near future and potentially doing the IB thing as an associate, his story caught my attention.
Contrary to the viewpoint of many starry eyed college kids who glorify I-Banking positions, what he mentioned is that the vast majority of his co-workers who joined his BB at the same time he did are miserable and about to quit within this year or next year. Ridiculous hours, stress, repetitive/ unfulfilling tasks, etc were main reasons behind their misery.
What he also mentioned - is that the exit ops coming out of BB IBD at associate level - didn't seem too great. Most of the BB IBD associates out of MBA who hadn't done BB IBD analyst stint before MBA didn't have good shot at lateraling over to PE or HF, and many times, their best exit ops were Corp Dev positions at F500 that come with huge pay cut. (I was told these positions usually pay 150k-ish for ppl with 2-3 years of BB IBD experience at associate level)
I was thinking - if the exit ops out of BB IBD as an associate, after finishing up MBA business schools">M7 MBA, isn't that great, is it really worth it, from ROI perspective, to pursue MBA business schools">M7 MBA? I am assuming for the vast majority of matriculants at MBA business schools">M7, they take out gigantic loans to finance their degrees.
More specifically, if someone is making 90-100k a year in a 2nd / 3rd tier consulting gig, is it worth the risk and hassle of going for MBA? I am 3rd year out of school, work in 2nd/3rd tier consulting, and make close to 100k a year. Even if I get admitted to MBA business schools">M7 this year, I am looking at 200k in MBA debt + 200k in opportunity cost. Would it make any sense for me to pursue MBA?
i'm in the same boat as being 3rd year out of school. I would say that if you want to do IBD you gotta go to the M7 MBA.
LOL are you serious? It's easy to get BB & EB IBD from even a top 20 schools if you're not a slacker. MBA business schools">M7 is great for consulting, tech and other highly coveted finance roles like PE, HF, IM. This is not to say that you'll have any problems landing IBD but it's not the focus.
^
Yeah, but the impression I've got from talking to my friend's roommate is that everybody seems to want to do IB, until they actually do IB. Judging from the fact that 80-90% of IBD associates post MBA don't last more than 3-4 years in banking, one has to wonder about the exit ops after BB IBD and what the comps/ career trajectory are in that path.
If the best case scenario for someone who did M7 MBA -> BB IBD associate is to end up at a Corp Dev job making 150k a year, I wouldn't call that a 'great' outcome, both career-wise or ROI-wise.
Being a M7 grad and having done IB (now one of those corp dev people making way less), I would say the work/life balance is way more worth it than staying in IB or staying in M/B/B consulting.
Yes, it's easy to get caught up with the herd mentality to do IB and the more traditional routes. But like the BofA story and everything else you've heard (and may possibly live through), you quickly ask yourself whether this is all worth it.
There are a ton of jobs out there that are just as interesting and stimulating that involves modeling, valuation, etc. but don't require you to work like a slave. Sure, there is a pay cut, but your quality of life improves since you don't need to be traveling every Monday morning or working until dawn.
If you think you want to stay in consulting long term, then the MBA may not be worth it at all. But if you want the network, resume build, experience, higher education, and possibly career switch, it is worth looking into this option. By the end of the day everyone gets a graduate degree for different reasons, some of which may be worthwhile longer along the road than others.
Appreciate your input. This brings the ultimate point that one isn't very much likely to get much financial benefit out of a top MBA in the long run.
I am assuming that the majority of folks who end up at M7 MBA had good work experiences before MBA anyway and were making good money. So, the value add of a top MBA, it seems, is quite miniscule. (except for the fact that it gives you the privilege to work in I-Banking for 3 years before you wash out and get a much lower paying job)
Do people pursue top MBA knowing this ROI estimate, or do they attend due to something like 'quarter-life crisis' where they think their jobs suck and they believe a shiny M7 MBA degree will somehow completely turn their lives around?
For ROI - I am thinking that unless you get I-Banking after your MBA and stay on to make Director or MD level, there isn't that much of a financial 'gain' or upside, as opposed to someone not having done MBA at all. For example, people at my firm can crack 300k when they make director level...without all that MBA debt and hassle. Compared to this group, I somehow doubt that M7 grads fare much better long-run money-wise.
Great question, Ivy.
Quick background - I'm a former Management Consultant and a current MBA1 at a top 10 program (non M7). I'm also a CFA charterholder.
Ultimately I chose to do the MBA to blow open finance career opportunities that weren't available to me. BB IBD certainly has it's drawbacks, but don't gloss over MM IB, Boutique IB, and Equity Research too quickly. MM and Boutique IB can both be solid careers with a reasonable work life balance, and ER can often lead to buy side roles post MBA (more often than IBD does).
Lastly - you should rethink your 200k opportunity cost assumption. The opportunity cost is really much lower - it should be your post tax annual savings, not your pre-tax, pre-expense, gross income.
Assuming that 200k MBA debt does not include living/eating/travel expense, then your opportunity cost should be post-tax but pre-expense
Yeah, you are right about the Opp cost estimate. Point taken. But still, MBA looks to be an enormous cost for me, because I wouldn't bother doing an MBA outside of top 10, and for top 10 programs, I don't have the qualifications that would merit me big scholarship money. (crap college gpa, second/third tier consulting background, etc) Even if I get into an M7 school, I would most likely end up paying sticker money to attend.
As you hinted at above... just run the numbers. You might be surprised how quickly you can make up the total cost. I was doing quite well pre-MBA in terms of comp (work life balance wasn't so strong however) and just 2 years in BB IB at the associate level (assuming average comp) would cover my entire MBA cost (excluding my scholarship). That's pretty damn good. It's not hard to extrapolate that into other careers (MM IBD, ER, etc.), especially ones where you may have a longer runway, and see how valuable those longer term payoffs may be.
Lastly - don't write yourself off from getting a scholarship. I got a substantial one just before the deposit deadline by playing my cards right
the 200k debt definitely includes living expenses. it has to since tuition is ~110k.
the point is to not double count LE. you'd be incurring LE regardless of MBA, so only include LE to the extent that it exceeds the LE you'd be incurring had you not gone to school.
Who cares about the debt, adjust your living accordingly after the MBA and pay the debt off in ~3 years. This also assumes you do no internships and get no financial aid/scholarships which will also offset the cost. You should be evaluating whether you want to do IBD as an associate or not. That's the question.
I have quite a bit of interest in finance, in things like valuation, etc. However, I haven't experienced banking first hand, and the guy I've talked to has told me that most people want to do IBD really bad and end up hating it with a burning passion, within their first year.
This has led me to question if doing MBA -> IB is worth it at all in the long run, not just for me, but also for the majority of others who pursue IB after MBA.
Just to be clear: The cost of an MBA is: (1) Tuition (2) Loss of income (after tax)
Living expenses shouldn't be much different if you go back to school or not, so they don't count. If they are different, factor this in, too.
If your income is $90K, and you pay 35% total tax (income, state income, social security, etc.) then you're looking at 902(1-.35)+110 = $227K total cost
As for advice about what to do, I heard a quote (on these forums?) that I like: "A career is like a poker tournament, all of the money is at the final table."
Really, if your firm makes $300 k at director level, and you could make $1M as a director somewhere else, then this $227K doesn't really matter.
I think the real question is are you motivated enough to take advantage of the extra opportunity? Regardless, in the short term, you will be worse off financially. It's a longer term play (obviously). Just keep this in mind when/if you're a year or two out of business school and looking at your balance sheet.
A couple of extra points to this:
Many M7s will charge more than $110k for tuition. You still aren't fully capturing the opportunity cost of attendance because the forgone income would also be earning interest as it would likely be invested. In addition to the lost income for 2 years, you are also losing 2 years of experience in a role so that is something else to consider that potentially, the salary you earn in the first year out of the program could potentially still be lower than the income you would have been earning in your prior role with the benefit of 2 additional years of experience. Lastly, you are tax-effecting your lost income but are not grossing up the tuition cost, which is paid in after tax dollars.
Opportunity costs will vary widely from person to person, but for someone who is leaving either a banking or pe / hf position, the opportunity cost of a top b school is usually ~$1mm.
your current and future circumstances will dictate this. won't be the same answer for everyone. say you are currently making $100K in a career with predictable upward mobility and can potentially reach the $150K comp level over the next 4-5 years. during this time you continue living normally and are able to spend and save money as you please if you don't go back to school. the alternative scenario of bschool would have you going into debt with little income over a 2 year period, and then spending 2-3 years in banking to pay off the debt and essentially get your net worth back to even. if you then take a job in industry following the banking stint making around the $150K comp level, you can argue that over that 5 year period you would have been better off not going to bschool. your net worth would be higher had you continued working and your current salary at that point would be roughly equivalent. the big unknown is, whether your next 5-10+ years will be significantly different depending on whether you have or don't have a top MBA on your resume. i think there is definitely value to having the degree and the career benefits associated with it, but it is difficult to quantify. for someone who is already earning a good living and has bright future prospects, the MBA is more of a gamble that could potentially pay off in the long run. for someone who is in a dumpy career, the quantitative factors will be more favorable to pursuing an MBA. Still, I feel like an already successful person getting an MBA in this economic environment will be supported predominately with qualitative reasoning (i.e. want to change careers, unhappy in current role, want to establish a network, etc.). i think the bschool life for 2 years would be a blast, but is it worth dealing with massive debt, and then spending 2-3 years grinding in a job that you only took to pay off debt? not sure it's worth it.
Over the long run having an MBA will PROBABLY pay off, but as bird indicates it very well may not in the medium term. What you really need to ask yourself is, "Do I want to do investment banking?" The only way to answer that is to learn a lot more about the business.
The job itself isn't that hard. It's the irregularity of the hours. You can have absolutely nothing going on for 4 hours and then 6 pm rolls around and you and your team have a rush and need to get numbers out by 10 am the next day. It's incredibly frustrating to not work during the work day and then spend your entire night working. As far as the work itself, it's pretty interesting and not that difficult, although I still don't understand how a person can become an IB associate with no relevant analyst experience when they have to know the analyst's job better than the analyst does (to ensure numbers are correct, if nothing else, let alone hiring...).
IB hours are long, but you really don't "work" more than at any other job--you just have to be able to stomach the irregularities (ha! No pun intended...). Plus if your ultimate goal is to become a managing director then you need to be kind of a salesman. Nobody is just "hired" as an MD or VP--you have to know your stuff really well and you have to be able to bring in business. Any fool can learn the IB trade, but it takes a special individual that can produce business. You can't learn business production at Harvard. Either you have the "it" factor or you don't.
I think you should ask where you see yourself in the long term, and do you need xyz degree to get there.
There are other options for an M7 MBA that doesn't require quitting your job, too. Some M7 programs have part-time, others executive/weekend. Some people couldn't afford to quit, while others think the full-time network, recruiting opportunities, and relationship building is worthwhile.
http://www.wallstreetoasis.com/forums/why-you-dont-leave-banking-for-b-…
To say that people don't get a long run financial benefit from a top MBA is painting a pretty broad stroke. You are going on a slippery slope assuming that all M7 grads are worse off than coming in, and you are only looking at one variable which, on average, shows a different picture.
Longer term, on average, those with MBAs will likely end up making more than peers without. There is research that shows that people with MD, JD, MBA, and other form of masters degrees (engineering, etc.) have a higher salary curve than BA/BS only people. For doctorates, not so much different from a masters from what I can tell.
From your analysis, one can argue that you shouldn't even have gotten an ivy undergraduate education (based on your username). Besides, someone from a state school could've gotten the same job you have now, and his ROI would've paid off in multiples compared to yours.
When I have kids they can go in-state to a Virginia public university, to an Ivy League school not named Columbia (I'm not paying for a radical left wing and utterly useless degree), or to a military academy. If you live in a state with really quality in-state universities then there is little reason to pay the out-of-state dollars or the private school dollars. But get into Harvard? I'll see what I can do...
Also, how is a degree from Columbia worthless? Most schools tend to have a liberal bias so that's not a valid reason, and your kid is studying a STEM discipline I don't think any of the above irrationality applies...
Are you worried that he is going to be subjected to an overly socially conscious and entitled perspective on vectors or differential equations?
Pretty myopic view of the world. Hopefully you won't be having kids for a while. A mature, well-adjusted parent who isn't battling insecurity would want their child to go to the school that is the best match for their goals and dream for their future.
I fully support this idea (though it's a pretty easy statement to voice when you're a Virginia resident).
Well based on the observation that a rather large chunk of post MBA IB associates wash out in 3-4 years and end up making salary level that is very much attainable for people without the MBA and IB Associate stint to begin with, I am not entirely convinced that the top MBA in and out of itself provides much financial benefit to someone's career.
Sure, someone who had no career or a very low paying job pre-MBA (such as non-profit or Peace Corps) who got M7 and went banking from there would benefit tremendously from the MBA. However, I am more talking about 'traditional' white-collar corporate drones, namely from consulting, finance, F500, etc who apply to MBA programs en masse each year. This subset of the crowd, I believe, doesn't get much income boost out of a top MBA over long run based on my observation... unless the said individual ends up making MD or director at IB.
I went to an Ivy undergrad but the cost of attendance for my Ivy wasn't much higher than the state flagship school for me due to generous financial aid, so ROI didn't factor into the equation when I was choosing where to go for college. Not to mention, going to a college incurs no opportunity cost, but going for MBA does incur massive opportunity cost given that I am making decent money now. MBA seems to be an entirely different beast from college in terms of cost vs benefit analysis complexity.
i would agree that for most people there is a long-term financial benefit of going through a top mba program. it's just that it is difficult to quantify the incremental benefit of attending vs. not. that's really the important consideration for someone who is already doing well and on a good track. how much more money/success/power will you be able to achieve having invested the time and money into an mba program. I think it's fact that the benefit is decreasing and is significantly less than where it was 10-15 years ago. So, when you are hitting the 26-28 age range, maybe thinking of getting married, buying a house, having kids, taking whatever next steps you have coming up in life, are you willing to go through a rather tough 5 year period (2 years of mba followed by 2-3 years in a tough demanding job) and most likely put those things on hold when you cant be totally certain or calculate the benefit of all that work?
This is a topic that is discussed often, so I won't write out a super long response. See a recent discussion here: http://www.wallstreetoasis.com/blog/is-an-mba-worth-it
@IvyGrad, there are a million reasons why people decide to get an MBA, and the vast majority of them are not financial in nature. There are also a million reasons why an MBA does not make sense for some individuals. I believe it comes down to how much value you place on the intangibles. Everyone has a different answer and only you can decide if it is right for you.
To address some of your more particular questions surrounding Associate IB exit ops, you are correct in that the role does not open up the world to you. Likely PE and other high finance jobs will be difficult to obtain. However, like consulting, IB roles (combined with an MBA) do open up a tremendous about of doors that would otherwise remain shut. I'd encourage you to do some soul searching and try to determine what job you'd ultimately like to end up with. Then go on LinkedIn and look at the backgrounds of people in those roles. If everyone has their MBA or is an ex-banker, you should take that into consideration. For example, I've seen a lot of Corp Dev job postings at F100 companies that require IB/PE/Consulting experience. While it may be a pay cut to all of those roles, they seem to have enough finance guys willing to take the cut that they can recruit (exclusively?) from that talent pool.
For me, I place an extremely high value on the experience and the protection that an M7 degree offers. I think it is worth the ~$1mm opportunity cost. If you care to take the time, and I hope you will because this is one of the biggest career decisions you'll need to make, you can read my thread here: http://www.wallstreetoasis.com/forums/to-anyone-considering-an-mba
CompBanker,
Thanks for the insightful reply. I was reaching a conclusion that for many, a top MBA's purpose is not financial/ income boost but rather qualitative in nature, such as changing industry, job function, or to meet quality classmates and network.
However, it is quite disheartening to observe that post top MBA and massive costs to finance the education, the exit ops don't seem to be very strong. Since you were a banker, you'd know much better about this than me. But, post MBA, where do most IB associated end up? Besides F500 Corp Dev type of jobs, do other more 'lucrative' opportunities exist for this population?
Also - do you happen to know roughly what % of post MBA associates at IB make the cut at VP promotion?
I am asking these questions to better inform myself about the reward vs risk trade-off before looking deeper into the MBA program. Ideally, I would like to pursue top MBA if cost was less of an issue for me and I was more convinced of its potential benefit on my overall career trajectory.
Again, thanks a lot.
MBAs are two year parties. You end up breaking even at least, or more than likely come out head financialy while having an awesome time. Not everything in life has to fit into a spreadsheet model for it to be worth it
I'm not sure if anyone else has pointed this out, but aren't you looking at the post-MBA outcomes in an overly narrow view?
There are a lot of bases to cover here, but first of all, if you really want to be in BB IBD, and you can't get into it any other way, then yes, it is worth it. There is an opportunity cost, but how else are you going to get from 2nd/3rd tier consulting into Goldman? You're not. On that same note, you will get a pretty significnt raise from your current ~90k salary, so that alone should make it pay off pretty quickly.
In the end, though, isn't it raelly about what you want to do? If you're happy in your current gig, then of course the cost/opp. cost isn't worth it. If you're not, and are looking to make a leap that would not be possible without an MBA, it's hard to argue against it. Additionally, I think you are looking at the exit opps. way too narrowly. You are absolutely correct that the window to lateral to PE/HF goes away if you are an Associate, but that's not cut and dry. You also will have a pretty solid network of classamtes, friends, and fellow alumni, all of whom are doing different things. Maybe you work at BB IBD for 3 years, and then jump on board to be a director of finance at a Venture-backed startup that your buddy from school started.
Last, I think it's important for you to define what you want. If there's one that this economy has reinforced, it is that it's crazy to leave a good job to go to school to "see what happens". You define your thought process currently as "doing MBA in near future and potentially doing the IB thing as an associate". Great, perfectly reasonable, but my opinion is that you need to give it a lot more thought than that. What are your long term goals? Are they PE? If so, you'd probably be better off doing MBB out of school - much better chance to work on Due Diligence projects and get into PE that way. Are they VC? Probably would get into the startup world out of business school - much better chance to get the relevant experience that way. Or, are they to work for F500 in some corporate role? Sounds like IBD might work well for you then. That's few examples, but it speaks to defining long term and then working backwards.
It's impossible to determine if an MBA is worth it without clearly defining your goals and options. However, the better the school that you go to, the better off you'll be with less defined goals.
IvyGrad,
I think BGP2587 has a great response to your questions directed at me. You're taking a super narrow approach to evaluating the value of the MBA. It seems your analysis is that the MBA is only worth it if you get an IBD Associate gig and are willing/able to stick around until the VP level or above. I think this is the completely wrong way to approach the degree. If you completely negate the intangibles your ROI will definitely turn out negative.
Regardless, here is my attempt to answer to your questions:
Exit ops for post-MBA associates are far less defined than they are for analysts. I've seen and heard of a ridiculous number of outcomes. A number of them join clients in meaningful roles. They get enamored by the company they are representing, build a strong rapport with management, and then transition over after the deal is done. Depending on the company, this can be in a very senior capacity (CFO) or a mid-level capacity (business development). Obviously they aren't becoming the CFO of a F500 but the MM companies this is certainly possible. A lot join start-ups. Others quit and join their family businesses. Some quit and do freelance consulting projects. A few successfully transition to the buy-side. Some quit, live off their savings, and take a few years to work on individual projects they find fascinating. Really, the options here, compared to MANY other professions, are quite numerous.It's impossible to say what % of IB associates end up making VP. I think there is a lot of bias in the actual number. I know some associates that were absolutely crushing it, would have easily made VP, but decided to go with one of the above choices. I think if you're at least an average performing associate and you want to stick it out to become a VP, the option is available to you (personal opinion based on the MM). If you're attempting to handicap your odds, don't look at the actual conversion rate from associate to VP.
Anyone have any thoughts on pursuing Lev Fin post MBA and exit opps for that vertical? Seems like most m&a / coverage post mba candidates go to Corp dev.
A few reasons why full-time MBA programs make sense:
You make a moderate amount all-in before business school. I was in this category pulling under 70K annually. If your compensation package is too low before business school, it becomes very hard to get admitted to a selective business school. If you are in the sweet spot, say 60-80K per year, you are a prime candidate.
You want to switch industry or function. I ended up switching industries.
You want to take a break from the corporate grind and monotony.
In your case, you make too much in mgmt consulting, If you wanted to switch out of that function, you might have a case, and with a hefty scholarship. If you want to make it to senior mgmt later, then it may be worthwhile. Over the long-term, like over 10 years out of business school, the ROI is quite good given proper work ethic and networking.
H/S/W MBA worth it for Fortune 500? (Originally Posted: 11/12/2012)
Lets say that a person worked in F500 finance/accounting for 4 years after undergrad...and got into H/S/W.
If you don't intend to go into IB, Consulting, PE, VC and want to go into a solid Fortune 500 company in corp fin/ general management and become director/vp later on...is getting a H/S/W MBA really worth it?
Thanks!
Whoever told you that it was difficult to lateral to PE from BB IBD associate class is wrong. I have a bunch of LinkedIn connections who made it to PE from associate gigs and surprising thing is most of them are sternies. One of them is even runs a PE fund in Middle East.
This is also an incorrect way to view life in finance. You need to be focused, curious, hard working, good networker, well-informed about the world and your area of interest, in order to get a job. Any job. No school or a particular gig is a ticket to those highly coveted jobs.
Moreover, PE is entirely up to you. No PE firm goes on campus - just 20 investment banks and 10 consulting firms, who go to every campus. 1500 PE firms hire through personal networking.
It depends on if the company is paying for it and how much they're covering. Just make sure that there's an advantage for the situation you're in. I can't speak for you since I don't know, but examine the situation from your own perspective.
Yes. You need to get an MBA so you stop thinking like a short sided accountant.
In other words, assess the situation from your own perspective.
If you get into HBS, it's always worth to go because you can become a member of their PE club. You'll be able to wear a PE t-shirt when you hit the bars in Boston. Needless to say, hot chicks melt when they see an HBS jersey or a PE club t-shirt - they start touching themselves instinctively, wanting to bear your offspring. So I'd say apply anyway.
In my opinion, if I got in and I was planning to go into F500 and not any other role, I would still attend one of these programs. For the following reasons:
Connections: let's face it, the alumni networks are really what you're paying for, and who knows down the road your roommate from the MBA program and/or your classmates/friends could very well become the heads of some of the biggest corporations in the world; some companies you may choose to do business with, acquire, or even try to become an employee of
Scarcity of the Opportunity: this is a once in a lifetime opportunity, and you may seriously regret it if you don't do it; not many people in the world, let alone the US, have the opportunity to attend such a prestigious program
Credibility: no one in the business world will doubt your credibility and/or intelligence if you've already proved that you were one of the small population that got into one of these programs and successfully graduated
Just my thoughts though. This post may not resonate with everyone on this board, and I don't intend for it to. It's up to you what you end up doing.
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