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Business Education Gives Entrepreneurs Better Start-Up Survival Rates

MBAs enjoy significantly higher success rates than start-up founders without formal business education – and higher salaries than corporate workers, says a new survey.

Mon Jan 19 2015

An MBA degree will give start-up founders higher salaries than corporate workers and a better chance of success than other start-ups, according to new research.

Start-up companies are usually confined to years of low salaries, risks and often failure.

But in a sample of 7,800 MBA graduates who were survey by the Financial Times, start-up owners with MBA degrees earn more in salary than their peers who have corporate careers three years after graduation.

What’s more, they enjoy significantly higher success rates than founders without formal business education.

Three years after graduating, the average annual income among these MBA entrepreneurs was $134,000, compared with $132,000 across the entire group surveyed.

Only 5% of MBAs who launched companies said they had an annual salary of zero three years after graduation, although this percentage includes those who did not to reveal their income level in the survey.

Of the companies launched, either during the MBA’s time at business school or after graduation in 2011, 84% were still operating three years later.

The data was compiled by the FT for its widely respected MBA rankings, the 2015 version of which is to be released next week.

The impressive survival rate for MBAs is significantly higher than the overall start-up rate, even among companies in regions regarded as having the best start-up ecosystems, such as the US.

About 40% of new US companies do not last three years in business, according to the Bureau of Labor Statistics.

The data suggest that business schools are better at breeding successful start-up companies, despite the fact that many in the entrepreneurial community think the opposite.

But the success of MBA founders compared with classmates in corporate roles varied from business school to business school. Start-up survival rates were also significantly higher at schools ranked in the top-five for entrepreneurship teaching.

Four of the top-five MBA programs for start-ups are based in the US. And these leading four have better success rates than the average for the 100 business schools included in the FT’s MBA rankings.

At MIT’s Sloan School of Management, for instance, 36% of the MBA graduates started a business, with 86% surviving the three-year mark, according to FT data.

At Babson College, 39% of the class started a business, and 93% of the companies were still operating three years after being founded.

Successful entrepreneurs’ ventures from US business schools include mobile payments group Braintree, a product of Chicago’s Booth School of Business, which was acquired by eBay in 2013 for $800 million.

Harvard Business School has produced Dafiti, an e-commerce group that raised $249 million in funding, and health insurance firm Oscar Insurance, which has raised investment amounting to $150 million, according to 2014 data.

However, some European schools also boast impressive start-up survival rates. At London Business School, for example, over a nine-year period about 90 MBA graduates started companies – but 80 of those were still operating in 2014, according to LBS data.

At IESE Business School in Spain, about 80% of those who started companies were still trading five years after graduation, according to data compiled by Pedro Nueno, a professor of entrepreneurship.

Salaries earned by entrepreneurs are also higher among those founders who studied at a highly-ranked business school.

Graduates of Stanford Graduate School of Business in the US earn the most, according to the FT survey, with start-up founders earning on average about $190,000 three years after graduating, compared to around $170,000 for MBAs who did not launch companies.

Notable Stanford start-ups include OkCupid, the matchmaking website, which was founded by MBA graduate Sam Yagan and was later acquired by Match, the dating website, for $50 million in cash in 2011.

Yet business schools were less helpful in certain areas. Some 30% of the MBA graduates completing the FT’s survey disagreed with the statement that their classmates helped with the process of starting their companies.

Furthermore, 60% disagreed with the statement that their school had helped with securing finance.

Salaries appear to be higher for business school entrepreneurs – but of those respondents to the survey who had launched a venture, only 42% said it was their main source of income three years after graduation.

The FT said this data imply that only 8% of the 2011 MBA graduate community now make their living from start-up companies.