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MBA Entrepreneurial Grads Report Significant Payoffs

entrepreneurMBA entrepreneurial grads—specifically those who launched startups during or soon after business school— can expect to make as much as their peers who follow more traditional career paths not long out of school, according to survey data collected as part of the Financial Times’ 2015 business school rankings research.

Of the 7,800 MBA graduates from the world’s top 100 business schools who responded to the FT, 22 percent had launched a start-up. Within three years of graduation, the average annual income of these entrepreneurs was $134,000, compared to $132,000 across the entire sample, the FT reports.

A mere 5 percent of startup founders reported an annual salary of zero three years out, though the FT points out that survey respondents did have an option to not reveal their income level, so the data may not fully reflect the financial risk taking faced by entrepreneurial grads. That said, of the companies launched by survey participants, 84 percent did report still operating a full three years later.

In general, startups launched by MBA grads tend to fare better than those launched by non-MBAs. Citing the U.S. Bureau of Labor Statistics, the FT noted that roughly 60 percent of new businesses survive three years, far less than the findings of the FT survey and less still than reports from individual business schools. At MIT Sloan, for example, 36 percent of the 2011 MBA graduates started a business, and 86 percent of those were still operating three years later, according to the FT report.

“Of course,” say business school professors. Startups launched by MBA grads do better because their founders have prepared for challenges within the classroom, IESE Professor Pedro Nueno told the FT. “If someone is prepared they are more likely to be willing to take a lower salary or cut back to maintain cash flow,” he said. “They tend to manage better than somebody who just sees an idea and launches without too much analysis.”

Nueno has been tracking the start-up success of his MBA students for several years and has found that 80 percent of those who started companies were still in operation five years after graduation. The majority of startups launched by his students are small—solo ventures or businesses with just a few employees. Still, Nueno has found that they earn as much if not more than their peers who went to work for large corporations, the FT notes.

The FT’s MBA survey revealed that a gender gap exists within entrepreneurship among MBAs, with only 16 percent of female graduates reporting starting a company, compared to 24 percent of male grads. But, notes the FT, “this divide is little different to the wider world of start-ups, in which male founders are more common the female ones.”

Not all survey respondents went as far as to say that business school itself was helpful with the practical matters of launching a startup (30 percent said no) or securing financing (a full 60 percent disagreed). Likewise, enthusiasm for the value of business school’s alumni networks in the startup launching process was lukewarm. A third disagreed with the statement that alumni helped start their business and more than half (55 percent) stated that alumni provided no help with fundraising.

Both the success of MBA graduate founders as compared to their classmates in traditional fields and the startup survival rates varied from business school to business school, with institutions ranked in the top five for entrepreneurship teaching faring the best. For example, entrepreneur MBA grads from top-ranked Stanford Graduate School of Business reported average salaries of $190,506 three years after graduation, compared with $170,433 for fellow graduates who didn’t launch businesses.

Despite these encouraging statistics, entrepreneurship is still pursued by relatively few within business education, the FT noted. Taken together, the survey findings suggest that just 8 percent of the 2011 MBA graduate community currently makes an income solely from entrepreneurial ventures.

Read the complete FT article, “Start-Up Costs for MBA Graduates Pay Off.”