MBA OR NOT?: A New Economy chick weighs an Old Boy business standard
Never in my sunniest nightmares of Corporate America did I ever imagine my Small Punk Self pondering whether or not to get an MBA. In an ordinary world I’d shoot those French blue shirts from a mile off and never dream of succumbing to them. But this is no ordinary world: that great little invention, the Internet, strikes again. In the new economy, no one is sure what business conventions hold real value for the long-term and which will get tossed aside as old-world detritus before long.
Presenting, therefore, the lowly Case of Jude: I’m 26, with the requisite four years of work experience many B-schools prefer in candidates. I have a B.A. in English which I promptly put to work after graduating as—of all sharky things—a literary agent. While agenting is more bloody dealmaking than it is strictly about literature, I sort of dug the business side and wanted more. Ergo, the move to (online) Wall Street, first in PR and then in marketing, where I plan for the time being on staying. On the personal side, luckily I’ve reached a point where the salary isn’t entry-level anymore, and my graduate school honey and I plan on moving in together soon—two deterrants from quitting a relatively good-paying job to become a student again. And yet, maybe now is the optimal time to get a degree...how to weigh it?
On the good and happy side of why people do want an MBA, you have the rose-tinted prospect of hitting a six-figure salary by 30 with theoretically no glass ceiling to slow your advancement; scads of networking and mentoring opportunities, both during school and after you graduate. And then, of course, there’s the Education itself: rigorous real-world case studies; cross-disciplinary requirements; hard-core modeling and accounting skills you’re unlikely to pick up in your hobby-time; sterling educators, et cetera. On the evil and not-friendly side of why you might not bother with the degree, you have hefty tuitions (of the absolutely-no-scholarships-thank-you stripe); potentially lost time and income as you pursue your degree; and, in many fields, out-and-out irrelevance to your career path. Seated as I am as a financial services marketer (two huge traditional playing fields of MBAs) but at an online company (where thus far, no one needs no stinkin’ MBA to make decent bank) I sort of wonder. The following is my sordid story.
WHAT DO I GET, AND WHAT WILL I PAY?
Sharpening some pencils and firing up the Texas Instrument (or whatever New-Age equivalents that actual MBAs use these days), we could always start with a cost-benefit analysis. Not only do you have to pay (or finance) those large tuition fees; but, in the case of those pondering full-time student status, you need to factor in your opportunity cost—lost time and income, including any upcoming bonuses or raises, you might have earned if you hadn’t been in school for two years. If you pay the tuition by selling off investments, part of your cost is lost gains on those investments, plus tax consequences; if you finance it, you have to count the interest you’ll eventually pay. Offset these costs with your likely gains—what sort of pay package could you get in your field, from your school, after graduating? And how much will that jump in salary compound five years after graduating, and beyond? Depending on circumstances, pay packages include salary and maybe also a signing bonus or other incentive; in certain fields, this could even include having some or all of your loans picked up by your signing firm.
Easier said than done. To research my own case, I began by accessing U.S. News and World Report’s top B-school list and honing in on average starting salary and bonus for the top school generally (Harvard) and the top marketing-specific school (Northwestern-Kellogg). Assuming I could get into either of these schools—a large but not, I humbly assume, an impossible goal—I got the following costs:
Tuition at Kellogg or Harvard (2 years at today’s rates): $54,546
Financing at 9% interest rate for 10 years, total loan cost: $83,605*
Paying for it myself by selling investments.
Selling amount (mutual funds): $69,000
Capital gains rate (I’ve held these over 2 years): 20%
Amount left after taxes: $55,200
Lost investment returns.
At 8% annually for 2 years: $5,520 year 1, $5,960 year 2
Total cost if I pay by selling investments: $80,480
Income / living expenses:
Lost after-tax income over 2 years (if I quit and went full time),
Including living expenses for 2 years (w/o a job): $165,000**
TOTAL COSTS OVER 2 YEARS: $248,605
*Since this means I can pay over 10 years, it’s probably more economical, time-value-o-money-wise, to pay $83,605 over time rather than pay a full $80,480 right now. This is assuming I have a fixed rate loan.
** This takes my actual after-tax income now and adds a small raise in salary for the next year. Then I’ve added in extremely modest living expenses—probably too modest for most MBA types—as additional expenses, since I still have to eat, etc. while I’m an unemployed student.
For an even more rigorous, detailed analysis (ie. written by someone who actually HAS a post-graduate degree), check out The Success Principle by Dr. Ronald Yeaple, professor of business at the University of Rochester, NY (1997, Macmillan General Reference). The Wall Street Journal recommends him, so I guess I wouldn’t naysay it.
Damn, Sister Sledge! If I went to school part-time, I’d forgo the loss of income and living expense problem, but I’d still have to finance tuition (at even higher, part-time rates) and undergo the more serious difficulty of renouncing my personal life for a good three or more years. Plus, not finishing an MBA program will only saddle this girl with debt and get me basically nowhere, career-wise.
So what do I get in exchange? Northwestern’s average marketing guru walked away this year with a starting package worth $86,460, according again to U.S. News and World Report. Harvard, the top-ranked B-school generally, doesn’t allow for concentrations like marketing; their average student overall received a package worth $105,102 this year. That’s some sweet Benjamins, I must say.
How soon do I earn back the costs with my new huge salary and go into the black? Figuring how much your salary would be boosted over time solely by virtue of having an MBA is tricky business. In a recent Forbes survey of MBA graduates they estimate an average payback period of only 4.1 years, including forgone income and tuition. At Northwestern, the payback rate is exactly the average, while Harvard maxes out, efficiency-wise, at 3.3 years to pay back on your investment. However, in comparing these graduates’ salaries before entering B-school to their salaries five years after graduating, Forbes makes the admittedly arbitrary, possibly results-skewing assumption that their salary growth sans MBA would’ve been half as fast. In other words, once I’m out of B-school, it’s doable to predict how my salary could go up, but impossible to determine whether that lift was strictly due to my MBA, or to my whip-smart post-grad accounting savvy, or simply my ability to dress up an office with my big old smile. Who knows.
So numbers are hard to figure in the end. What’s even less clear, and probably almost indeterminable right now, is whether or not Internet salaries (such as the one I earn) will drop significantly with an economic or market downturn. And if that happens, what effect would such a downturn have on my prospects with only an undergraduate degree (and that in modern American literature, boy oh boy)?
Which leads me to the following shocking notion: could an MBA’s value be MORE than just mad cash?
NETWORKING, NETWORKING, NETWORKING
Traditionally, B-schools have been havens for like-minded Best and Brightest types to get together, rub brains, exchange business cards (or zap each other’s Palms), and then tap into their alumni network for a lifetime’s usefulness afterwards. The key question here is, for an Internet marketing type like myself, could I conceivably get similar or better contacts outside of B-school as I would have if I took the plunge?
Miriam Eaves, co-founder of Women in New Media in New York City, founder of CFN.com and MBA graduate, notes that “industry-specific networking groups [like WINM], where similar types of women at similar stages in their careers—beyond the entry level, when you have decision-making authority—offer an opportunity to network among peers. An MBA program may or may not afford the same opportunity because of [people working in] differing industries.” That said, Eaves says several years after school that it was “absolutely worthwhile” to have gotten an MBA—strong, maybe surprising words for an Internet entrepreneur. “I didn’t have the set of analytical, quantitative tools, the ability to understand business metrics, before getting an MBA. Plus, an MBA gives you a certain credibility” that she still finds valid in her present work. That’s the kind of added cachet that could come in handy later for women needing job flexibility as they make decisions about having a family, she added.
As a member of WINM myself and other industry groups, I’m already milking the industry-group networking concept, and it seems good. Still, I can imagine how trying to change industries or move from New York (where life is sometimes a glittery and impressive, but still small, fishbowl) might necessitate contacts I couldn’t easily make through these groups.
For me, the real kicker argument for getting an MBA is the Education debate. I know, and my fluffy, disheveled, often highly amicable English professors and compadres know, that I didn’t get a lick of business education out of my B.A. Certainly the amount of time spent on the job faking marketing budgets and business proposals until I actually knew how to do them, indicates something of all the stuff I don’t know how to do, business-wise. Begrudgingly, I admit that I probably wouldn’t apply myself to learning REALLY how to calculate net present value and CAGR unless hard-core prodded by some poker-faced professor. But how much of the rough-and-tumble, ferked-up-again-type learning of regular business—the brand Internet companies thrive on—infiltrates B-school classrooms these days?
ED-JOO-KATE ME!
Increasingly, B-schools have gotten jiggy to the new economy’s way of learning and incorporated its attitudes into their degrees, even to the point of purposefully blurring the lines between canonical School and Incubator for real-life businesses. Naturally schools everywhere are offering Internet-esque classes and concentrated degrees in “ecommerce” and “technology”, but that’s just the beginning. Schools like Cornell, Emory and Pittsburgh now offer one-year programs to cater to those likely to drop out at the prospect of waiting a full two years to pursue a business venture. The University of Phoenix Online takes convenience to the limit by offering one of the nation’s only online MBA degrees. B-schools have even taken the inevitable, possibly ethically shady step of offering funding to nascent businesses started by students—and taking partial ownership in the ventures for themselves. Dartmouth’s Tuck School established the John H. Foster Center for Private Equity to incubate new business ventures founded by students, and similar programs exist at schools like Columbia and the University of Maryland.
Perusing quite a few syllabi of various schools, I know exactly where I’d need brain massage: All Those Horrid Quant Classes. Nobody said I should aim to be a CFO, but if I have a CFO around (and, uh, most smart CEOs do) I could stand to know what she’s talking about and understand the drivers behind corporate numbers. Fair enough. Then again, Wonder Girl could clearly enroll in some of these classes outside of a degree program and cover the same informational lacks: education as band-aid or spot application?
THE FINALE: WHAT THE HECK TO DO?
You’re not getting a simple answer from me, little grasshopper. You have to bust the math, sweat over the brochures, and quiz all your friends and neighbors just like I did, since obviously the benefits and concerns of getting an MBA are a highly personalized decision. That said, I know I can’t wiggle out of a frank answer on my own predicament, and the answer is probably—no. Me, I’d rather ride the wave and see what I can learn on the fly before plunking down a solid chunk of life being a student in debt. But then again, I reserve the right to change my mind. If the chick-band-coke-starlet plan doesn’t hold water, and the nuclear-fusion-plant-food scheme dries up, and the sweet-looks-and-charm emergency parachute concept falls flat, my MBA program might well be there, waiting for me.
—Jude Stewart for Green magazine, May 1999
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