Stanford biz school to MBAs: Easy on the start-ups

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The dean of Stanford University's Graduate School of Business is cautioning MBA students to keep start-up activity in perspective.

In an environment of billion-dollar valuations for private companies and cloud-based software that makes start-up launches easier than ever, staying focused on academics can be challenging. Should you hit the books, or try to launch the next, great start-up when the idea and capital strike?

Over the last few years, as the economy has recovered, Garth Saloner,outgoing dean of Stanford University's Graduate School of Business, has watched the number of MBA graduates who launch ventures (in founding roles) rise to 16 percent for the class of 2015, slightly lower than the all-time high of 18 percent of graduates reached two years ago. "We've never seen that before. It's a big number," Saloner said. A decade ago that figure was in the single digits.

Of course, graduates launching start-ups is something to laud and a testament to Stanford's competitive two-year MBA program that can open a lot of doors in Silicon Valley. U.S. News & World Report ranked Stanford University's business school No. 1 for 2015, and edged out Harvard University and the University of Pennsylvania's Wharton.

On the other hand, more ventures founded out of business school also suggests students are spending a huge bulk of time creating ventures. Aspiring entrepreneurs may not be taking full advantage of lessons from professors and visiting professionals during the business school program.

"What gives me pause is when students get so engaged in the start-up itself in the second year that they devote their energy to it at the expense of their second year," said Saloner in an interview earlier this month. "That's a lost opportunity."

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By the way, it's not like Stanford business school students are dropping out in droves for start-up dreams. Drop-out rates in the MBA program are nominal. The larger worry is MBA graduates who aren't preparing for the long game that is a modern career. Navigating workplaces, from multinationals to small businesses , require a variety of skills and knowledge, from accounting and finance to managing growing teams and enterprises.

"What I often see is a student who has devoted a big chunk of time to an idea that doesn't pan out," Saloner said. "Realistically most fresh start-up ideas just don't survive the rigorous tests of the marketplace," said the departing dean. He announced his resignation in September amid a lawsuit related to a contentious divorce.

Of course, you can't blame an MBA student for dreaming and building a start-up. There's lots of capital available.

We're in an age of tech "unicorns," a term given to start-ups valued at $1 billion or more, though 2016 could be a year of reckoning. Tech experts forecast valuations edging lower and funding rounds becoming trickier to secure.

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The first nine months of 2015 saw $98.4 billion invested into venture capital-backed companies, an 11 percent jump compared to all of 2014, which was a record year for VC-backed investment. That's according to a quarterly global report on VC trends published jointly by KPMG International and CB Insights.

Beyond capital, there are plenty of start-up summer camps, incubators and accelerators. The Princeton Review now ranks both graduate and undergraduate entrepreneurship programs.

For four-year colleges and universities in the U.S., about 77 percent of public and private not-for-profit institutions offer at least entrepreneurship courses. That's according to research from the University of Illinois at Urbana-Champaign, on behalf of the Kauffman Foundation, which tracks entrepreneurship.

Programs for students who are not business majors are also growing in numbers, according to University of Illinois research. Roughly 21 percent of schools offer minors or certificates open to undergraduates students from multiple majors. These undergraduate programs often emphasize the entrepreneurial mindset as much as launching a start-up immediately.

Bottom line? This frothy environment can create an impression that instant riches might be just a few clicks away on a laptop, with a dorm buddy and some late-night code.

But academics and researchers argue the broader point of entrepreneurship and MBA programs is to learn to think like an innovator and business leader. The goal is to acquire the relevant skills to launch an idea or project — whether as a stand alone start-up, or inside a massive Fortune 100 organization.

"Everybody should be equipped to start an opportunity at some point in their career," said Donna Kelley, entrepreneurship professor at Babson College. "If they lose a job or they see an opportunity, it should be in everyone's tool set so they can enact a plan when the timing is right."

Not surprisingly, workers launching businesses based on perceived opportunities and a broad optimistic outlook — a group sometimes called opportunity entrepreneurs — has grown as the U.S. economy has improved. On the flip side during the recession, launching ventures out of need — a category called necessity entrepreneurs — rose during the downturn.

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In fact in the U.S., entrepreneurs in some cases exercise their start-up ambition while still working within large companies, according to research by Babson College in Wellesley, Massachusetts. This group is sometimes referred to as employee entrepreneurs, according to the latest Babson's Global Entrepreneurship Monitor, a large annual survey of start-up activity.

"The point is entrepreneurship is not just about start-ups," Kelley said. "It's about being entrepreneurial wherever you are."

Stanford Graduate School of Business student Kudzi Chikumbu is working on a career transition into the entertainment industry from management consulting. He has a show on YouTube called, "The Snatched."

By just being in Silicon Valley, there are plenty of temptations to dive into start-up waters. So what keeps him in class? "Once you leave, you can't come back to school. You don't get a second chance at a Stanford MBA," said Chikumbu, originally from South Africa.

Not to mention the expense. The full-time, two-year MBA program costs roughly $190,000 to $200,000 based on two years' tuition.

"If you take too much time to get distracted, you won't have time to brush up on your other skills," he said. "You'll have the network."

As Saloner said of Stanford, careers travel a long trajectory. "This is the time for you to be investing in that."

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