Which MBAs Make More: Consultants or Small-Business Owners?
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I really doubt than anyone having the dollars to do that need this article, however it will mislead the rest.
It is also worth noting that all the figures relating to the acquired business are purely hypothetical and not data driven. Moreover businesses having this level of predictability are usually not the most affordable.
The thing is MBAs do not train people to be entrepreneurs, it trains prople to administrate a business already having positive cashflow and having access to some sort of leverage (debt, significant cash, etc...).
Unless you are already in business and feel you need a MBA to complete your skillset and move from a 200 people company to a 2000 people one, a MBA should be done to work for / with a big firm. The only dichotomy is whether you buy this firm or not. The fact is rven in the case where you already own a company, it is still about managing a big firm.
I'm not sure that trying to do otherwise is the smartest use of one's money.
The article is not phony, but my reproach is that the discussion is of limited practical use. It's like asking : which former basketball players make more: sport consultants, or small clubs owners ? Then you click and find out that 1) what they call consultants are TV consultants paid by big firms, 2) the so called small clubs need to be based in Dubai. 3) it only applies to NBA players in the first place, exactly those who need free-internet advice the less.
They are not suggesting that the money comes from the recent MBA grad. They're suggesting a typical private equity approach where new company debt and outside money are used to buy out the current owners. Then cash flow repays debt, investors, then finally the person who put the deal together who will earn 20% of profits going forward.
This type of management (as you said, running an existing company instead of starting one from scratch) seems exactly like what an MBA prepares someone for, much more than it prepares them to launch new ventures.
http://www.forbes.com/sites/vanessaloder/2014/08/07/the-sear...
The company that Kellogg guy acquired, which sector was it in?
Which, quite frankly, many MBA students in their mid 20's are unqualified to do.
> The company that Kellogg guy acquired, which sector was it in?
Daycare services.
Also, don't forget part-time and executive MBA programs. Students in these tend to skew older (early 30s for part-time programs, mid-40s for executive ones), with 10/20 years of work experience in a relevant industry and deep networks that often include access to capital.
Spot on. I should have clarified... I assumed MBA the author was talking about was the "2 year program for candidates with 3-4 years experience". MBAs (exec MBA, MSx, etc) that require more experience, you're way more likely to see search funds.
However, it neglects to consider the ceiling of income. For a "typical post MBA job," sure income might increase for a few years, and even triple as the article says. But eventually, there is a ceiling. In finance for example, the funnel gets progressively narrower toward the top. At first 50% of associates might be promoted to VP, then 25% of VPs might be promoted to MD. But there are very few C level positions, so only the top few MDs will ever be promoted further. Most MDs will eventually reach max compensation, then wait around for 10 years in the hopes of being promoted to C level. If that never happens, maybe they eventually grow impatient and leave to start their own firm. But at that point they're in the same position as the "small business owner," but ten years behind and with a limited skillset.
Whereas for those who start a business after MBA, income might start slowly, but there is no ceiling. The business could turn into cloudflare (in the case of Matthew Prince, to use an HBS example) with a massive valuation that clearly beats any income earned by his wage slave peers. Or, the business might fail, in which case the MBA can either start another business, or jump into the same corporate ladder he originally avoided.
Also, this article assumes that a "small business" takes investment. In this case, there is very little risk to the personal salary of the MBA, since he will have investor money to pay himself a salary close to market value of his peers, but with much higher upside.
I've never understood the appeal of jumping immediately onto the corporate ladder when you're young, limiting your upside and constraining your options. It seems much more sensible to take the risk of your own business, with a much higher upside, and a downside that allows you to either start another one or join the corporate ladder anyway. If you're good enough to raise investment, there really is very little personal risk.
All of my college friends jumped on to their respective corporate ladders straight out of college. They out earned me from day one. In fact, the first two to three years of being in business got me in to about £30k of debt which was used to fund the startup. In hindsight this was a small price to pay for the lessons I was taught. At the time it took a huge amount of mental strength to stay the course - my friends all seemed to have more money, more time and infinitely less stressful lives.
Ten years later the business is in very good shape. I'm definitely amongst the top earners compared to my peers but that's not as important as the flexibility owning the business offers me. Amongst other things I get to:
* Call the strategic shots - hire people I want to work with, work with the management team to define our company strategy and vision
* Launch new software products and pitch new custom software clients - both things I enjoy and I'm good at. There's nothing more satisfying than getting a new software product to profitability or landing a new £500k software development contract
* Work in the office or from home as I see fit. In fact, there have been times when I've worked from another country altogether for weeks at a time because I can
I wouldn't give up my business to go work as a consultant for another company for anything at this stage. Having said that, if things went south and I was left without any other option but to take a job I would hope that my decade of experience would be of huge value.
One guy works full time from at home because he prefers it and the project is setup in a way that we can accommodate him working at home.
Other people tend to work from home on a case by case basis. So if they need to be at home for any reason they can dial in - we're not precious about people being in the office all the time.
Having said that, the team largely prefer to be in the office, especially as they all live locally. If anybody else requested to work from home full time I suspect we'd create a company policy which was overarching rather than working on a person by person basis. Interestingly one of our strategic issues at the moment is finding enough office space to home all the new hires we've taken on recently. So allowing/requesting that more staff work from home might be a solution to that problem.
Above a certain amount of annual income I don't really care how I stack up against my peers who opted for the 9 to 5. What I now have in return for the upfront risk of failure is the flexibility to work how, when and where I please. This is something I know for sure my peers don't have.
Are you sure? The author writes: "We’ll assume the salary in a traditional post-MBA job grows at a 12% compound annual growth rate (CAGR) so that it more than triples in the first 10 years, which is in line with post-MBA salary surveys we’ve done here at the Harvard Business School. "
So if it's based on survey results (presumably averages or medians), then yes, it takes that into account.
I would personally make this decision on some other grounds than the (very small) likelihood of getting megarich, though. The lifestyle, set of skills rewarded, etc. are pretty different on the two routes.
I think a lot of people understand this, but there are significant financial barriers for most 20 year olds (or even older recent MBA grads) preventing them from starting (or buying) their own businesses. Where are you going to get the initial capital? Your typical 20 year old has negative net worth, so nobody is going to loan to him. Speaking of debt, all that debt you took out to get that MBA (not to mention the undergrad debt you're still paying) needs to be paid back--you can't just tell the bank "See I'm starting a business so I can't pay you your $2000 a month". So get outside investment? From whom? Most 20 year olds do not have access to the investor class, and even if they did they're unproven--who's going to dump a few million onto them? As for your "MBA network," most of your newfound MBA friends are all broke too--they're not going to be able to help.
Most of the people I know who started businesses young were already financially very well off. They did not have to go into debt for their education, and could afford both the initial bootstrapping, AND had a cushion in place in the event they failed (family money).
Are there any recommended guides/books/MOOCs that one can go through, in order to learn more about this?
* It seems a bit crazy to me to have a newly minted MBA jump into a CEO role. Of course, this is not unprecedented with the search fund model (https://en.wikipedia.org/wiki/Search_fund) but those are MBA grads from top 5 schools (and mostly just Stanford MBA grads)--very different from your average MBA grad * The top 5 MBA grad can expect to make on the order of $20-50M over the span of a career with a Mck/Bain/BCG role. Yes there is a limited number of people who make it to the top, but tbh that is much more due to people wanting to leave for other career paths than it is a weeding out.
An even smaller group are the students who did truly impressive things pre-MBA. People who joined a PE firm out of undergrad and were very quickly on the partner track. Or people who started a successful company pre-MBA and didn't really need to go back to school, but wanted to. There are usually a handful of these folks in every class. These are the ones where it makes sense they got a C-level role at a company right out of their MBA. Again, it wasn't the MBA that got them the role, but rather what they did before they got in.
[1] https://hbr.org/2016/03/why-more-mbas-should-buy-small-busin...