During the summer of 2014, Personal Capital, a fintech company that offers everyone free financial tools to manage and optimize their wealthy, had the luxury of hosting three MBA interns in the marketing department where I consult part-time. One was actually a Harvard JD/MBA, which is darn impressive because she has to get into both schools separately. The other two were from Stanford. They did a great job brainstorming and executing fantastic ideas.
In addition to our summer MBA interns, our head of business development (Stanford), our head of client engagement (Stanford), our digital marketing executive (Michigan), our CMO (Cornell), and our CEO (Harvard) also have MBAs . Then there’s me, a Berkeley MBA grad. In other words, the marketing department is a majority MBAs. But having an MBA isn’t a requirement for joining. Relevant experience is much more important.
Most MBA graduates will probably say that an MBA is money and time well spent. It’s kind of like spending big bucks on a fancy dinner. To justify the extravagant expense, of course you’re going to tell yourself and all your friends, how incredibly amazing the dinner was. But we all know that spending $250 per person at Jean Georges isn’t worth 100X more than a tasty In N’ Out cheeseburger for $2.5.
For similar reasons why going to private university without a scholarship is probably not the best use of your money unless you have plenty of it, getting an MBA is also becoming a tougher choice today.
For those of you with MBAs, be forewarned. This is not a cuddly, feel-good post on why getting an MBA is a no-brainer. There are a lot of hard truths from what I witnessed as a manager who consistently interviewed MBAs during multiple bull and bear markets. I’m also providing the perspective as an MBA eight years after graduating. Readers trust me to speak candidly, so that is what I will do.
SHOULD YOU GET AN MBA?
Here are some realities:
1) Many MBAs couldn’t survive downturns. There’s a perception that MBAs are highly qualified individuals with tremendous amounts of interpersonal, leadership, and managerial skills. Sure, many MBAs are well-rounded individuals with plenty of charisma. However, there is a reason why MBA applications surge during recessions. Employees get laid off left and right during this time. Going to graduate school is the logical safe haven step many laid off employees take. During the 2000-2003 and 2008-2010 meltdown, business school applications rose by 20-40% a year.
Of course not everybody who gets laid off is a poor performer. They are usually just at the bottom 10-20% of the heap. Employers can’t lay everybody off. In other cases, there might be a complete department shutdown, a company bankruptcy, or a merger where those who are not politically connected lose. There’s no fault in that. For those employers hiring MBAs two or three years after a recession, ask them about about why they left their previous employer because chances are, they really didn’t have a choice.
Those who were able to survive and get promoted during difficult times might be the true performers. And perhaps the most amazing candidates are those who gave it all up during a bull market to go back to school. I realize that this section may offend a lot of MBAs who went to school during recession times, but we can’t deny the statistical data.
2) One big intense vacation. If you’re a 20-something year old and still finding your “purpose” in life, then getting an MBA is a great way to explore new things. An MBA is like one amazing two-year vacation filled with networking events, group projects, morality training, traveling and hobnobbing with many well-to-do foreign students.
Some students utilize their MBA experience to the maximum. They start companies, work multiple internships, and build incredible personal networks that will help them in the future. Other MBA students use their time to unwind and ponder the meaning of life. Recharging is healthy for the mind, but being out of the work force could leave you quite rusty given technology is changing so quickly. As an employer, be prepared to question the candidate on practical matters.
3) You don’t learn or remember very many hard skills. Unlike going to trade school, you can’t really do something specific with your MBA degree. An MBA gives you very broad knowledge in finance, marketing, communications, leadership, economics, organizational behavior, and more. You learn to be a well-rounded person who should be able to socialize better with more of the population.
Even if you are the greatest student in your class, you’ll probably end up only retaining a maximum of 20% of what you’ve learned in school. And if you don’t constantly review your case studies and text books, you’ll probably forget 90%+ of everything after a couple years.
Post business school jobs have pretty specific responsibilities. It’s highly likely most of what an MBA learns or remembers will not apply to the specific job function. However, soft skills such as communications, strategic thinking, and leadership will always be there. Just be careful not to hire too many thinkers, and not enough doers. Ideas are useless unless acted upon.
4) An MBA is incredibly expensive. Whether you attend a public business school or a private business school, expect to pay between $50,000 – $100,000 in tuition alone. But the real opportunity cost is the salary you forgo and the two years of career experience you lose. If you are in banking, two years is an eternity because it generally takes three years to get promoted to the next level e.g. three years as an Associate before you can be considered for VP, three years as a VP before you can be considered for Director, and three-to-four years as a Director before you can be considered for Managing Director.
If you truly do not like what you are doing, and find no other way to get in a field that you think you’ll enjoy, get an MBA. You still have to go through the rounds of interviews to land a coveted job, don’t forget. Just know that getting an MBA could easily set you back three to five years worth of savings as you pay instead of earn.
5) There is a glut of MBAs. Whenever there’s increased supply, prices go down. Marina Murray, associate director of research at the Graduate Management Admission Council (GMAC), estimates there are at least 250,000 students enrolled in MBA programs annually, and some 100,000 MBA degrees are awarded per year, representing at least 66 percent of all graduate business degrees conferred in the US. Universities are now conferring 74 percent more business degrees than they did in the 2000-2001 school year.
From the chart above, it sure looks like the red student loan debt line is about to surpass the gold income line. Imagine getting an MBA and deciding not to work after five years due to family or whatever reason. Such is the making of a financially poor scenario. If you are going to get your MBA, promise to at least work for 10 years after graduation.
THE BENEFITS OF GETTING AN MBA
So far I’ve described a pretty weak value proposition for getting an MBA. But the reality is that companies are hiring MBAs quite steadily during good times and bad times. For example, in 2010, 88 percent of the MBA graduating class enjoyed full-time employment upon graduation. In 2011, the rate at which business school graduates found employment after getting their degree was 86 percent, similar to 2010. It’s almost as if getting an MBA makes you somewhat recession-proof. Here are five other benefits of getting an MBA below.
1) Getting into specific industries. I’ve argued that there’s no need to go to private school to get a good job and get paid. But if you want to go into specific fields like private equity and certain money management funds, an MBA from a specific set of schools is all but mandatory. One money management firm down in San Diego requires all their research analysts and portfolio managers to have MBAs and CFAs, for example. VC and PE firms are very incestuous in who they hire from particular business schools.
2) Potentially massive pay. Every other week I play tennis with a friend who so happens to be the #2 guy at a large private equity shop in San Francisco. I teach his high school daughter tennis during the off season for fun and coaching experience. I asked him whether it was true that fresh MBA grads with previous work experience get hired on for $400,000+ a year, and he said, “it’s in the ballpark.” $400,000 is an absolutely incredible amount of money for a 28-31 year old to make. Even more incredible is that his or her salary will likely rise to well over $1 million within the next five to ten years.
3) Gain more purpose in life. In an incredible Gallup poll survey, 70% of employees revealed they were “not engaged” or “actively disengaged” at work. That is a travesty! Can you imagine going through your entire 40 year working career not really enjoying or caring what you do? Getting an MBA allows you two years to find something you think will provide more happiness and meaning in your life. Perhaps this ability to find more purpose is an MBA’s greatest gift given an MBA gives you the knowledge and tools necessary to switch careers.
4) Gain more confidence. There are certain ages that allow people to feel more confident. Age 30 was a big one for me. When I was in my 20s, I felt somewhat like a faker for sharing my thoughts on Asian politics, economics, and stock markets with clients. But after I turned 30, I quit feeling like a novice, and started believing I had just as much credibility as anybody. I also just graduated from business school at age 29, which further gave me confidence in the workplace. If you believe in yourself, you will more than likely go much farther in your career than if you lack confidence.
5) A more senior alumni network. MBAs are a very cliquey group of people. There’s something about giving up two years of pay and all the bonding events that make MBAs gravitate towards taking care of other MBAs. Remember, we like to justify our sacrifice, even if the sacrifice might not be worth it. As more MBAs get older and more senior in the work force, it could become more of a detriment to employees who don’t have an MBA. If you are planning to join a firm full of MBAs, then it’s best you get one beforehand or part-time. On the flip side, watch out for senior management who do not have MBAs. They will likely have an equally opposite bias where they believe an MBA is not worth it given they got to where they are without one.
EVERYTHING GETS DILUTED OVER TIME
Just like how a dollar in the future is worth less than a dollar today, the MBA degree will probably be worth less in the future as well due to the increasing supply. Given it’s becoming more commonplace to receive an MBA in certain industries, those without MBAs will become more and more of an outlier.
To put things in perspective, only about 31% of Americans hold bachelor’s degrees, and only 11.5% hold master’s degrees. Therefore, we still have a long way to go before we get to a majority of Americans holding college degrees. That said, it’s evident that it’s becoming harder for Americans to get positions that may have only required a high school or undergraduate degree in the past. (Related: Do You Make As Much As A Union Electrician?)
One of the biggest ironies about getting an MBA is that an MBA is most useful for entrepreneurs. An entrepreneur needs to utilize almost everything she or he has learned in business school to get ahead e.g. marketing, finance, pricing, financial accounting, communications, etc. At the same time, many successful entrepreneurs don’t have MBAs.
Unless you go to a Top 25 school, it’s going to be difficult justifying getting an MBA, unless your main purpose is to change industries and find more meaning to a profession. Before attending a full-time business school, see if there are part-time MBA programs in your vicinity and attend an info session. US News & World Report rank UC Berkeley, Chicago, Northwestern, NYU, and UCLA in the top 5 for 2014-2015.
Student loans can crush your dreams and happiness. Make sure you run a cost / benefit analysis before you send in your deposit. Make yourself a promise to work for at least 10 years after graduation to get a decent return on your investment. Otherwise, there’s always the strategy of finding a wealthy spouse while in school!
I know this post comes across as quite critical of the degree. I just want those who are about to give up two years of salary and work experience to really think things through before attending. Chances are high you will have an absolutely fantastic time attending business school. It’s one of those experiences that appreciates over time. The MBA is more than anything, a career passport stamp that provides employers and clients some confidence in your abilities. Whether you have an MBA or not, it’s up to you to prove your value.
Manage Your Money With Personal Capital
Whether you plan to get your MBA or not, it’s important to keep track of your finances to build great wealth over time. Sign up with Personal Capital, a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances and waste a whole bunch of time. Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing. I can also see how much I’m spending every month.
The best tool is their Portfolio Fee Analyzer which runs your investment portfolio through its software to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was paying! Next, link up your investment accounts and run them through their amazing Retirement Planning Calculator to see whether you’re on track. There is no better financial tool online that has helped me more to achieve financial freedom. It only takes a minute to sign up.
Updated for 2020 and beyond