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Comment by basseq | Hacker News Reader

Your three reasons are spot on and match my experience. A friend of mine (in finance) did the opportunity cost calculations and figured it would cost $500k to go to a top-tier program (between tuition, room, board, supplies, missed salary, etc.). My main reason to go get a MBA would be to grow my network, but there are cheaper, faster, and more effective ways to accomplish that.

Plus the average age of MBA grads seems to be getting lower. (True?) At this point, I'm 30, two levels above where my company brings on MBAs, and have MBA direct reports. So leaving to get a MBA seems like a step back.

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While it's great to do an opportunity cost, it'll also be good to evaluate the earning potential as well to be fair.

You brought up a great point about the average age. If you're entering a school where the average age is low, I would say that it's not as useful unless you know that your classmates are young high-fliers who actually have solid experience.

True, though it's harder to calculate. The average salary for a Stanford MBA is $142,834. Believe that's less than what my friend was making at the time. So, using averages, it's a net loss.

Of course, that's silly. There's still a MBA premium. Even if you assume $50k, you're talking 12 years to break even. That's simple math: you could take into account the time value of money or the fact that salary increases also impact future salary increases.

We're still talking at least a decade, we're assuming the premium is real, and we're assuming that if you're at the far end of the curve (high earners, successful entrepreneurs, etc.), you're not going to be successful anyway.

My friend's point was compounded by this fact: he could spend $500k more effectively elsewhere.

If your friend was looking to raise money and went for a Stanford MBA, his chances of getting funding are pretty significant according to this chart: https://lh5.googleusercontent.com/aNjbh5KE0PvNCiLyA2g5T9NT5y...

But agreed, the high premium is a pretty big burden if you don't succeed. Potentially crippling your future.

Let's boil opportunity cost down to two things: 2 years of your time and ~$100k of out-of-pocket costs you wouldn't pay otherwise (e.g., tuition).

While a Stanford MBA might help you get funding, investing $100k + 2 years in your business and networking might get you just as far.

Just a thought...

$500k is a pretty hand waved calculation.

It seems like he did the math (annual salary pre-tax * years in school + tuition + living expenses) and arrived at $500k.

That ignores the fact that you have living expenses whether you do the MBA or not. It ignores the fact that that the difference to your net worth between making $150k a year in pre-tax salary and $0 a year in salary is not $150k. You have to incorporate taxes.

> $500k is a pretty hand waved calculation.

Maybe, but there are lots of ways to calculate opportunity costs.

The OP said his friend was making more than $150k/yr. So if he estimated his potential net worth in thirty years staying course versus his estimated net worth in thirty years with an MBA, then discounted it to present value, a difference of $500k is somewhat reasonable.

There are plenty of other, equally valid ways for a person to calculate opportunity costs. It depends on what that person values. For example, lost wages that would have paid for vacations would not necessarily show up in a comparison of net worth, but it is certainly an opportunity cost for some people. Or having to put off starting a family, or many other milestones in a person's life.

This was a couple years ago, so I don't remember the methodology, and think it was a back-of-the-envelope type of math. (Yes of course there are ways to solve "hard problems". This isn't a quantitative proof: this is an anecdote.)

At the base, it was something like:

- I make $150k a year and I will not make that for 2 years, so $300k.

- I will make $15k as a MBA intern, so $275k.

- I will have to pay $185k in school related costs[1], so $460k.

I think there was a little more to it (e.g., PV/FV), but that's the basics. You're correct in noting that #3 has cost of living incorporated into it and you'd have to pay that anyway, though there's a difference between the cost of living at Stanford, e.g., and cheaper markets.

Yes, you could go build a rigorous financial model. That is left as an exercise for the reader.

[1] http://fortune.com/2012/12/07/stanford-mba-price-tag-hits-18...

It doesn't look like the opportunity cost was necessarily based on pre-tax salary (although it may have been). The current pre-tax salary of ~$150k (?) was compared to the average Stanford MBA pre-tax salary of $142k, which is a fair comparison.

I think that the calculation is a bit shortsighted, one thing you may consider is long term salary growth TRAJECTORY, i.e. in a corporate setting while the first couple of years after a top tier MBA you may not be making considerably more, you are on a certain career track that means 5, 10, 15 years out you are more likely to have a c-level, division level type job earning an order of magnitude more money...

Assuming you need a MBA to be on that higher career track, assuming you wouldn't make an order of magnitude more money anyway, assuming you wouldn't cap out at $200k or something, etc. etc.

You're not wrong, but if you're the kind of person who's going to be a CEO, a MBA credential might not move the needle that much. (I know lots of CEOs without advanced degrees.)

>True, though it's harder to calculate.

Any half-decent MBA program will have coursework on how to evaluate problems that seem "hard to calculate".

Nobody needs an MBA, or a CompSci degree, or any Univesity degree for that matter. But that's not to say that there aren't many skills that the programs will teach you. Is it stuff you can learn on your own? Sure, just like anything else. But there's no replacement for class-time and actual discussion and interaction.

I've spent quite a few years on these boards; there seems to be many people who mock MBAs, but conversely I'd say the financial (and sales and marketing) literacy is no better here than average, even though this place is chock-full of entrepreneurs.

The All-in cost is why it's not cost effective if you're not using it for an enormous step-up in responsibility or change in field.

For someone looking to marginally improve their standing, it doesn't help. A 30 year old director who wants to be in the same company isn't improved. Or should go to an exec program on the company dollar.

But there is no better way to get into strategy consulting or investment banking if you're not there already. And if you have a soft undergrad that isn't taken seriously, the right top 6-8 MBA will.

To your point - there are many cheaper, faster and more effective ways to accomplish most of the goals if you're already successful. (Except for learning Accounting - it's impossible to learn unless a school is forcing you and giving you exams. It's just too boring otherwise.)

> My main reason to go get a MBA would be to grow my network, but there are cheaper, faster, and more effective ways to accomplish that.

What ways are you referring to?

meetup.com

There you go!

Host a really nice dinner party every week. Start with a group of legit people you know. Do it at your home if it is big enough, or at a nice restaurant. Pay for the whole thing. Ask each guest that the only thing they need to do to pay you back is to introduce one new person to a future dinner party. If you've done your job right, they'd be overjoyed to refer someone (free dinner + awesome people = huge win)

Let's say you have 6 people at the dinner party. $60 per head = $360 per night, which is $37,440 over the course of two years, at which point you've made 520 really great connections.

At your level, it sounds like you're past getting an MBA. You may find value in an Executive MBA, which are usually done part time and have an average age of ~40, later, but it would depend on a lot of factors.

Maybe if you decide not to do an MBA because of a thorough cost-benefit analysis, you should get the MBA anyway.

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