Is an MBA “worth it”?

If you look at the bottom line:

If you are already doing better than most of your peers by 20% or so (in terms of salary), you likely will not benefit financially even if you get into a top school.  If you don’t get into a top school, say a top 50 school or an online degree, and you’re already doing 5%-10% better than your peers, you will still probably lose money getting your MBA.  There’s an abundance of articles out there to support to this view, some more generous articles claim the average break even period is actually about 6.3 years from a top school (assuming you make pre-MBA money right now, thus my point above).  If you’re not doing so well financially vs. your peers and can get into a good enough school, do it.  It’s probably worth it financially for you.

Non-financial reasons:  

  • Branding  If you want the pedigree, this is one way to get it (but I would argue only to get your foot in the door).  Personally I’d rather be known for my accomplishments than where I send money for two years.  Consider the cost of this branding though, since you are treating your name like a company brand after all.  Say you work 3 years and at the end of those 3 years your net worth is $30,000.  That would assume you invested and saved quite a bit in your 3 years and had no previous savings, especially if you have student loans and credit card debt (like many recent grads).  Getting an MBA would basically mean leveraging your entire net worth 3x over, plus opportunity cost (not earning a salary for 2 years).  Let’s be really generous and call it 5x with all those factors.  What company spends 5x it’s net worth in advertising to build their brand?  If I owned stock in that company, I would say that’s a pretty big gamble and there’s probably better ways to earn a return on that money.  Let’s look at a company we love and respect, Apple.  Apple’s budget for advertising in 2008 was about $486M (page 62).  The value of their retained earnings (I’d think of that as the equivalent of our hypothetical student’s current Net Worth) in 2008 was about $13.8B(see page 54).  Their SG&A, was about $3.8B, so they spent about 13% of SG&A on advertising.  Maybe we should look at a start-up’s economics (most die btw).  I would say serious entrepreneurs would throw in their $30k, and some debt.  But taking out about $150k, JUST TO BUILD BRAND?  Doubt it.  I’d take out a second mortgage for a prototype and to get to market, but not just to build brand.  I think a wise entrepreneur would bootstrap.  Leveraging yourself 5 times over is right out (see Holy Hand Grenade manual).

Holy Hand Grenade of Antioch

  • Networking  There are lots of ways to network.  If you need to pay $100k to do it plus 2 years of your earnings, then that’s your right as a gosh darn American.  You could do a bit better by getting into the Skulls, though.

Skullz Rulz!

  • They learned me good  If you come from computer science, engineering, or even liberal arts and want to do something like start your own business, then yes, you will learn the basics of building a business, or whatever business function suits your fancy.  It’s a structured learning environment and there are tests and classrooms and everything and people know you know it afterwords (probably the most important thing here).Clearly this learning environment is effective, but again the price comes at a premium. Many people learn business skills without an MBA– ask your auto repair shop’s owner, your plumber, your dry cleaner, Richard Branson, Elon Musk, etc.  I do think the learning is worth it for some people, but these are not the majority of MBA applicants.
  • “The experience”  This is the one I “agree” with the most.  It’s the friends you make and the good times you have.  You can’t put a price tag on that (you’re welcome for the plug MBA programs).  Again, there are other ways to do this, but it is a great benefit of attending a solid MBA program (note: full time for max benefit, part time MBA’s get less of this).

So if I’m so smart, how would I improve the MBA to make it worth it?  Many MBA’s I work with tend to focus on only on short term returns when looking at decisions and ignore many other relevant factors.  I think for MBA’s to increase their value, they should look more to other disciplines for additional logical rigor and well rounded knowledge since working in the business world often entails decisions about people, the environment, and the long term progress of the human race (again, some MBA programs do this or create the flexibility for students to design it into their own curriculum, like Univ of Chicago for example).

However, I would say almost uniformly, MBA programs do not teach their students how to be good skeptics as a part of the standard curriculum (listen up and heed the words from my Carl Sagan to learn how, see baloney detection kit) and how to appreciate non-financial factors (yes, even despite the adoption of tools like the balanced scorecard in strategy departments that are cloistered away in a random corner of the corporate HQ).  Come to think of it, a worthy goal would be an MBA program that produces graduates Carl Sagan could tolerate.

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