MBA startups at Stanford reach all-time high

A record-breaking 16% of Stanford B-school's class of 2011 chose to start their own companies at graduation, exceeding the school's 12% peak during the dot-com boom.

By John A. Byrne

(Poets&Quants) -- During the dot-com era, MBAs at many business schools rushed off campus to start all kinds of e-commerce companies. The frenzy to get in on the Internet action back then led to many well-funded, but ultimately failed, businesses. For most business schools, the years 1999 and 2000 saw record numbers of graduating MBAs start their own companies.

For the first time since then, the percentage of MBAs who are shunning traditional corporate jobs in favor of going out on their own is hitting new records once again. At Stanford's Graduate School of Business, an all-time high of 16% of the class of 2011 chose to start their own companies at graduation. The school says the percentage of MBA students who decided against traditional MBA jobs in favor of the start-up world reflects a three-fold increase from only 5% in the early 1990s and is a third higher than the 12% peak during the dot-com bubble.

More importantly, the 10-year trend data, says Pulin Sanghvi, director of Stanford's Career Management Center, suggests "a generational shift toward entrepreneurship." It's not only showing up in the placement stats that show that greater numbers of graduating MBAs are launching their own companies from scratch. It's also showing up in the number of MBAs who are anxious to work for smaller companies and startups that are, by nature, more entrepreneurial.

At Stanford, MBA entrepreneurs last year pursued a wide diversity of industries and companies. Stanford's Career Management Center found that there wasn't as nearly "as much aggregation in technology-Internet-social media as you might otherwise expect," says Sanghvi. About 30% started companies in Internet services and e-commerce, but 15% ventured into investment and financial services, and 7% each in food and beverages, retail or wholesale, and sport or sports management. Roughly 5% of the Stanford MBA entrepreneurs launched enterprises in healthcare, with another 5% in cleantech and alternative energy.

Sanghvi, who expects the class of 2012 to chose the entrepreneurial route in similar numbers, believes there is a significant difference in this generation's startup intentions. "The difference between now and the late '90s in the dot-com boom is the Internet was an emerging, poorly understood space that seemed very new and risky," says Sanghvi. "There was more of a mentality in the late '90s that 'there is a wave happening and I don't know how long that wave is going to last.' In 2012, we now have 20 years-plus of history where this part of the economy has thrived, and thrived surprisingly well, even against the recent financial crisis."

More MBA grads are gravitating to the startup world than at any time other than the dot-com boom of 2000-2001. The "generational shift" Stanford is referring to raises the prospect that many traditional MBA recruiters in consulting and finance will see a smaller percentage of the best and brightest in any graduating class. That is bound to lead to some frustration by firms that pay among the highest starting MBA salaries. But Sanghvi says they are already adapting, alternating the way they recruit MBAs at top schools.

What's behind the startup spike?

The new entrepreneurial fever is in part due to the heightened attention to tech startups like Facebook (FB) and LinkedIn (LNKD) to Twitter and Zynga (ZNGA), and the ascension of the late Steve Jobs as one of the great entrepreneurial geniuses of our time. Another underlying cause for the shift is that students seem to be more comfortable assuming the risks of starting a business from scratch.

"There is much greater knowledge and understanding on how to start and build and grow a new enterprise," says Sanghvi. "We have dedicated a significant part of our curriculum against this discipline and we now have so many alumni who have blazed a trail. The flip side is there is not as much security in the larger companies, anyway. The financial crisis led many companies to cut down their hiring and layoff large numbers of their workforces."

The swelling interest in startups by graduating MBAs is also due to the encouragement from business schools. The schools have launched business plan competitions, dangling significant cash awards to student winners so they can start their new businesses. They've increased the number of elective classes on entrepreneurship in the course catalog, and they've put startup projects into the basic MBA curriculum.

"It isn't a goal for Harvard Business School to graduate more entrepreneurs, but this will be a side benefit," says Alan MacCormack, a Harvard professor who recently oversaw the school's startup initiative, which assigned an entire class of 900 students to launch micro-businesses as part of six-person teams, with seed capital from the business school. At Harvard, he says about 8% to 10% of the class of 2012 went the entrepreneurial route.

It seems that the trend is even more pronounced at highly ranked schools. A new study by the Graduate Management Admission Council -- based on 5,366 recent or soon-to-be graduates of business schools -- found that only 5% of students plan to own or start their own business after graduation. That's roughly half the percentage at Harvard and just a third of the percentage at Stanford. The study, released on May 21, was conducted between Feb. 15 and March 18, 2012.

Of course, many students are attracted to Stanford because of its location in the heart of Silicon Valley, widely considered the epicenter of American entrepreneurship. "Despite an uncertain economy, more of our students are willing to take the risk of starting up new enterprises," adds Sanghvi.

The school says that its graduates describe the ideal business culture as one that is flat, non-hierarchical, encourages risk-taking and has a strong culture of mentorship. "Growth potential and early responsibility are increasingly priorities for students while money and job security are lower priorities," Sanghvi says. "It's part of a broader generational story that is now taking on clear dimensions."

B-schoolers holding out from traditional MBA jobs?

A greater number of students, says Sanghvi, are less eager to commit to companies during the typical fall recruiting season when the big MBA hirers come to campus. Instead, they're holding out until the spring before graduation to pursue different types of opportunities, often with smaller companies and startups. "They don't want to take themselves off the market so soon," says Sanghvi. "More students feel confident in letting some of the traditional offers go in the fall. We've been seeing this sharply at Stanford for many years. Other schools are also seeing a market shift in this direction."

To satisfy that demand, Stanford's Career Management Center held what it called "The Fewer Than 300 Event," inviting 32 companies with fewer than 300 employees to campus to meet MBA students. Sanghvi took over the main boardroom on the fourth floor of the school's Bass Center last April and brought in couches to create the event.

"Many of the companies had buzz that they might go public over the next year or two," says Sanghvi. "Eight of them were on Goldman Sachs' IPO list. A lot of the companies had no hiring positions open when they came, but after meeting our students, changed their minds."

Traditional corporate recruiters, meanwhile, are adapting their approach to students so that they are in closer alignment with shifting generational motivations, says Sanghvi. For example, some companies are offering opportunities for early responsibility and the flexibility to work on ideas and projects that appeal to the employee. Other sectors have seen shifts in interest that reflect an increased entrepreneurial spirit among graduates. In the financial sector, MBA grads are migrating to jobs in investment management, particularly private equity and venture capital, where they can play principal roles.

"It is important to recognize that as the field of opportunity available to graduating MBAs has broadened, it hasn't made the more traditional opportunities like consulting less attractive," adds Sanghvi. "It has made the traditional paths even more attractive because as the field of competition has increased, the traditional firms have put even greater emphasis on early exposure, responsibility, ownership and mentorship. Our students have very good choices in front of them."

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Compensation of top school MBA grads continues to rise

The value of the MBA, in terms of the starting salaries of graduates, hasn’t lately served as a ringing endorsement for the degree. According to a report last month by the Graduate Management Admission Council, which publishes the GMAT B-school entrance test, median starting salaries have been more or less stuck at $90,000 since 2008.

What about the degree’s value over the course of an entire career? Exclusive new research suggests that this, too, has stalled. What’s more, while top-ranked programs continue to deliver the greatest returns on the b-school investment, the gap between them and the rest of the B-school pack is growing.

“The effects of the Great Recession on the labor market for MBAs can still be felt today, a full three years after the official end of the recession,” says Katie Bardaro, analytics manager at PayScale, which conducted the research. “Jobs are fewer and further between and wage growth is far below its pre-recession levels. The only MBAs who appear to be escaping these stagnant wages are graduates from top-ranked programs.”

For the fourth year, Bloomberg Businessweek asked PayScale to tap into its database of 100,000 MBA graduates to calculate the median cash compensation—salaries and bonuses—for those with degrees from ourtop-ranked U.S. full-time MBA programs. PayScale, which collects salary data from individuals through online pay-comparison tools, determined the pay for graduates with pre- and post-MBA work experience of less than two years, five years, 10 years, 15 years, and 20 years. We then used those data to calculate a rough estimate ofmedian cash earnings over the 20-year span.

Harvard Business School took the top spot in the ranking, with 20-year pay of $3,639,643, followed by the University of Pennsylvania’s Wharton School($3,460,707) and the Stanford Graduate School of Business ($3,432,013).

On average, graduates of all 57 programs earned about $2.4 million over the two decades, or $122,513 a year. That amounts to a slight increase from last year, when annual pay for the group was $122,146. Graduates of the 10 programs with the highest earnings took home nearly $3.2 million apiece, or $159,122 a year, an increase of 3.6 percent. The remaining 47 schools averaged $2.3 million, or $114,724 a year, virtually no change from last year.

Over the course of the 20-year period, graduates of all 57 programs averaged a 90 percent increase in pay. But numerous factors, from geographic location to the career paths of graduates, resulted in wide differences among schools. Those institutions with the lowest starting salaries typically had the biggest increases. The University of Georgia’s Terry College of Businessexperienced the biggest gain—174 percent, to $139,000 at the 20-year mark. The Massachusetts Institute of Technology Sloan School of Management had the smallest, at 41 percent, to $169,000.

The MIT numbers highlight one of the study’s inherent limitations: Pay data for smaller schools such as MIT may be based on fewer than 50 reports and may not accurately reflect pay for the entire class. The pay figures themselves do not include stock or stock options, which can make up a significant portion of MBA pay, especially in later years. And the study itself is not longitudinal—the pay reports are for groups of people who graduated from the same school at various times, not for one group of people who reported their pay throughout their careers.

Despite those qualifications, however, the PayScale study yields a number of insights. For example, the average compensation for all 57 schools at the 20-year mark is $147,000, about three times the median income for all U.S. households. On average, total compensation for the entire 20-year period for every school except Harvard is two-thirds that of Harvard, ranging from 95.1 percent for Wharton to 49.5 percent for the University at Buffalo. The value of the MBA degree closely correlates to rank. Of the 10 schools with the highest career pay, eight are top-10 schools in the latest Bloomberg BusinessweekBest B-Schools ranking; of the 30 schools with the highest career pay, all but five have a top-30 Best B-Schools ranking.

A key factor in determining how much an MBA degree pays out over time is the career path followed by graduates. Among the 10 schools with the highest career pay, about 28 percent of 2011 graduates went into consulting and 34 percent pursued finance—figures that have been fairly consistent for at least 10 years at schools, like Harvard, that publish historical data. At schools such as George Washington University, where nearly one of four MBA graduates ends up in government or nonprofit service, or Rice University’s Jones Graduate School of Business, where four-fifths get hired by regional employers at graduation, both starting salaries and career pay are far lower.

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Managing Energy's Biggest Risk: Leadership

This is a guest article written by Carol Singleton Slade, Trent Aulbaugh and Steve Goodman of Egon ZehnderInternational. The firm specializes in senior-level executive search, board consulting and director search, management appraisals, and talent management.

Just when it seemed that the role of energy CEO couldn’t become any more complex or demanding, it did.  Macondo, Fukushima, Keystone, Iran, the Arab Spring, and the rise of unconventional plays, offer only the sparest shorthand for the risks, regulatory blowback, and geopolitical uncertainties that now dominate the agenda of the energy chief executive.

In the past, driven by a relentless search for value, energy CEOs devoted much of their time to strategy.  Today, CEOs tell us, they spend far more of their time dealing with external stakeholders, making sure the voice of the industry is being heard by governments around the world and managing boards that have become highly risk-averse, short-term focused, and even bureaucratic

Thanks to the relentless focus on risk from a broad array of threats, the CEO role requires extraordinary understanding of many disciplines, from finance to operations to technology.  Meanwhile, with boards preoccupied with risk, many CEOs lack the depth and breadth of advice they formerly received.

The role also requires new leadership skills: the ability to act as the public face of the company in an era of unprecedented “headline” risk, to diplomatically champion upside potential with wary boards that tend to focus on down-side risk, and to engage with governments, policy makers, and regulators around the world to help the public understand energy’s critical role in a growing global economy.  As a result, the industry faces what could the biggest risk of all: a shortage of future chief executives and top leaders who have the requisite competencies for navigating this complex new world.

Many of today’s energy CEOs are acutely aware of the threat.  They tell us that in addition to devoting more time to external stakeholders and to board management, they also spend more time on leadership development than ever before. They know that the typical development path of many of today’s top executives did not take into account the unforeseen changes in the CEO role.  And they know that their companies have to compensate for that gap – and soon, especially given the coming “silver tsunami” of experienced leaders retiring.

The urgency of the issue presents a classic dilemma of talent development: speed versus derailment.  Companies need to develop potential leaders rapidly, while ensuring that they acquire the requisite skills.  Move too fast, however, and you run the risk of putting people in jobs for which they aren’t ready, setting them up for failure, and derailing them.

The complexity of the role presents a second classic development dilemma: depth versus breadth. Traditionally, organizations have taken one of two paths in developing future leaders: the functional and the rotational.  On the functional path, the executives rise primarily through a single function – whether it’s production, operations, projects, exploration, or finance.  They then get broader exposure to other parts of the company as they enter the upper tiers of management or the C-suite.   On the rotational path, promising executives are posted to different functions and areas early on in their careers, gaining broad knowledge of the business.  Both approaches have limitations.  The functional approach imparts depth, but may fall short on breadth.  Rotation provides breadth, but may lack real depth.

There’s no magic formula for instantly resolving the tensions of speed versus derailment and breadth versus depth. But in our experience, there are some concrete steps you can take to significantly mitigate their risks and – with all deliberate speed – identify and produce the kind of leaders that will be needed.  Those steps include:

• Assess for potential. Too often, the identification of “high potentials” is based solely on their experience and past performance, both of which are important, but don’t necessarily predict future behavior.  Potential is the capacity to take on leadership roles that are greater in both size and complexity, and the speed with which someone can do so – precisely what energy companies need to know right now and with great accuracy about possible CEOs.

• Revisit the CEO profile. Take a fresh look at the competencies the next CEO will need – not just in terms of strategic considerations like business drivers, industry trends, markets, and financial goals that will help shape the company’s future, but also in terms of what kind of leadership competencies will be required – especially, the skills to influence external stakeholders, a proven record of developing and mentoring talent, and the ability to build organizational capability and create solid teams.

• Put a stake in the ground. Assess internal candidates against those competencies and then benchmark them against external talent.  By measuring internal CEO talent against best-in-class external talent, you can further determine any shortfalls and use the information along with the assessment for potential to create highly specific and targeted development plans for each promising individual.

• Accelerate integration. When moving a high potential into a major complex role, institute a structured program to accelerate development.  Much like an onboarding program for new hires, it should be designed to rapidly help the executive understand the role, the culture, team dynamics, and the networks he or she will need to develop in order to succeed.

• Provide ongoing support. Create a structured program that continues to provide the executive with behavioral feedback, coaching, and learning – even after the executive becomes CEO.

Many organizations already do some of these things in the normal course of succession planning and talent management. But these practices need to be tightly integrated and deployed in a conscious and concerted effort to address the urgency and complexity of today’s energy leadership issues.  To do anything less is to take a big – and unnecessary – risk.

Source: Forbes