I've recently hired my second employee, a newly-graduated technical writer who aspires to one day run his own business. He's proactive, punctual, hardworking and very capable. The mentor in me wants to make sure he has a great career ahead of him. So imagine my alarm when I heard him say, “Yeah, I'm thinking about going for an MBA in a few years.” As the holder of not one but two MBAs (it's a long story), I have a somewhat negative view of the degree. An MBA often costs a lot of money and provides very little return. However, as I began to consider how to tell my new employee that his plan was flawed, I also began to reevaluate my view of the MBA.
So, if I'm going to be honest with my employee, I first need to be honest with myself. Was the MBA worth it? Or was it a big waste of money? Was there a flaw to the program itself? Or was I to blame for not taking advantage of what was offered me?
I first tried to do this calculation in purely financial terms. Take the cost of an MBA and the average return per year and see if the return on investment (or ROI) makes sense. Unfortunately, both costs and returns vary widely. For example:
- A full-time MBA program at a top-tier school might cost you $80,000 in tuition and $140,000 in opportunity costs, but that assumes you're paying for it yourself.
- A part-time MBA at a middle-tier school will cost $50,000 and very little in terms of opportunity cost, but the return might be lower depending on your chosen career.
- And what about students who get their MBA programs paid for them by their employers?
In the end, I decided that a financial analysis would be too generalized to be worthwhile and focused more on the actual deliverables of the MBA.
Marginal Benefits of an MBA
Schools will tell you that their advanced degrees will help you earn more, advance faster, work smarter and in general be a better human being. But what does that actually mean? What do you really get out of an advanced degree that's supposed to help you in getting all of this? Let's take a look.
- Knowledge. First, you gain a lot of information. This information could be useful or it could be useless but either way, you know it. For example, after the MBA, I know a lot more about how the Federal Reserve operates. Is this going to advance my career in tech? Probably not, but it's useful nonetheless. Personally, I believe that no knowledge is ever truly useless (except possibly knowing that James Cameron's first movie was Piranha 2: The Spawning) but the problem with this knowledge is that I could have picked it up elsewhere for a lot cheaper. During business school, I had several classes (at $8,000 a course) from Nobel laureates and I could have picked up the exact same knowledge by reading their books ($19.95 a copy). So really, the MBA experience is not worth it if you're looking for knowledge.
- Skills. As opposed to knowledge, skills are the ability to do something. For example, business school taught me how to analyze a balance sheet, value a company, and negotiate a deal. These are directly applicable to my day-to-day work. Could I have picked up these skills elsewhere? Probably. In fact, almost certainly. There are plenty of books out there on these topics. You can also learn by doing, or you can just download video podcasts of many business school courses if you want. However, learning from a qualified teacher is better, in my opinion, so score one for the MBA program.
- Network. Graduate schools are a great place to make friends with people who will be able to help you later on. It certainly was for me. However, I could have made the same sort of connections in other ways. In fact, I find that former coworkers are a much better network than my fellow MBA grads.
So really, what I gained was knowledge that I could have picked up elsewhere, skills that I could have picked up (more slowly) without the MBA, and a network I could have built myself. So far, this isn't looking so good for the MBA.
Actual Benefits of an MBA
There are two more intangible advantages to an MBA which I've yet to come to. Namely:
- Inflection point. Going to business school is a good point at which to reevaluate your career and make a change without any penalty. In fact, this is almost expected; many people make career-path changes post-MBA. You could probably do this in other ways, but the business-school path is very easy.
- Prestige Yep, there's a certain amount of prestige that you get simply by holding an MBA, especially from a top-tier school. Sure, some people may not care, but for the most part Western society places an emphasis on advanced schooling. This means that simply by having an MBA, some people will pay more attention to you and your opinions, which does help with career advancement. This is especially true in large traditional companies. In these companies, an advanced degree like an MBA is almost a must-have for moving up the corporate ladder.
As I looked at these items, it occurs to me that the value of business school is really the fact that you can put “MBA grad” on your resume. Which means that an MBA is only worth it if your career is in a place where an impressive resume makes a difference.
The two best cases:
- You plan to work for large traditional companies like GM, Pfizer, and others. In this case, the MBA is a wonderful investment.
- You're trying to make a career change and you work at a large company, especially from a technical field to a business-oriented one. For example, you want to move from being an engineer to being in marketing. The MBA will give you the credentials to make a lateral move like this without taking a step back in your career.
Notice that in both of these cases you have a very specific career path planned.
The Bottom Line
So, is an MBA worth it? In some cases, yes. What makes an MBA worth it?
- Working at organizations that appreciate the prestige if an MBA (large companies, banks, government). A quick way to figure this one is to see if your target organization has a tuition reimbursement plan. If they do, it means they value the MBA. By the way, since it's the prestige of the MBA that matters here, you're better off going to a top-10 school. If you can't afford a top-10 school, then get a job at a company with a tuition program and then apply. Don't waste your time getting a degree from a no-name school when you're essentially banking on the prestige of your degree.
- Having a specific career goal that you verify ahead of time will be helped by the MBA (technical to business, small company to big company).
Sadly, neither of these applies to my situation but hopefully I can help others make a better decision than I did.
One last note, for you wannabe entrepreneurs. If you think you need business school to teach you how to run a company, you're wrong. Business school is for people with a plan and who are averse to risk. That's usually the exact opposite of an entrepreneur.