The Young and the Cautious - Industry Trend or Event

Industry Standard, The, April 16, 2001 by Des Dearlove, Stuart Crainer

MBAs still want to start their own businesses, but these days they need a safety net.

As MBA students go, so goes the nation. Business school students have always been good barometers of business fashion. If it's hot, students flock -- investment banking and consulting in the 1980s, high-tech startups in the 1990s, and now banking and consulting as the pendulum swings back again. MBAs studiously follow the herd, and the last few years the herd took them off a cliff.

"It's been a wild ride -- people graduating in 2000 got caught up in the Net just as it was tanking," says Laurent Berman, cofounder of Silver Beacon Technologies and a member of the Harvard Business School class of 2000. Students graduating last year watched the Internet Economy peak within the space of their two-year education. Many jumped wholeheartedly into dot-coms only to watch them quickly sink.

As a result, the mood on campus is more cautious than it was a year ago. "There's less interest in joining small startups," says Erik Barmack, a second-year MBA student at Stanford University's Graduate School of Business. "Many more people are interested in going into consulting, banking and old-economy companies than they were 12 months ago." Anna Lorch, a second-year student at the Owen School of Management at Vanderbilt University, says she's taking the long view: "This year it's about job security and putting in your time."

The herd instinct may be bringing MBAs back to familiar pastures, but that doesn't mean they're giving up on the new economy. Many are still going into technology, just as they did before the Internet surged. For those choosing old-economy careers, the business world they're entering is radically different than it was five years ago. Students may be going back to banking and back to consulting -- the new meaning of b-to-b and b-to-c, as the joke goes -- but the companies they're joining have been transformed.

Top strategy consulting firms like McKinsey and Bain now have extensive "e-consulting" practices. They've also embraced venture consulting, taking equity stakes in companies in lieu of fees and spreading any resulting wealth to recruits through equity pools. That wealth may have dried up for the time being, but consulting firms now speak the high-tech, entrepreneurial lingo that grads want to hear.

Consulting companies have changed because the worldviews of their future employees have changed. Today's MBAs are different from those of previous generations. They are far more entrepreneurial, whether they start their own companies or join the business units of traditional firms.

"The new economy has spurred a huge increase in interest and enthusiasm for entrepreneurship," confirms London Business School dean John Quelch. "That enthusiasm is not abating despite the market aberrations of the last 12 months."

An impressive number of MBAs start their own companies straight Out of business school. Stanford reports that 14 percent of its MBA class of 2000 launched businesses either while at school or shortly after graduation. At Harvard, the figure was 12 percent. The Wharton School at the University of Pennsylvania and the Sloan School at MIT report a more-modest 5 percent rate of entrepreneurship during school or immediately after graduation. While the numbers aren't yet in for the class of 2001, professors agree that the entrepreneurial spirit is alive and well on campus, even if the prospects for starting new companies aren't good right now.

The companies being planned these days are chasing the latest trends -- wireless, infrastructure, biotech and social entrepreneurship. Michael Roberts, senior lecturer at Harvard Business School and head of the school's business-plan competition, reports a swift move away from Internet startups.

In 1999, he notes, 85 percent of Harvard startups were dot-coms. This year he's seeing a trickle.

MBAs get involved in startups earlier in their careers, as well. According to Roberts, between 30 percent and 40 percent of Harvard MBAs do something entrepreneurial during their professional lives. But since the mid-1990s he's noticed a big change: Students now start companies within four to six years of graduation, rather than the 10 to 15 years previously. At French business school Insead, more than one-third of MBAs start their own companies within 10 years of graduating.

Entrepreneurial instincts still find expression in the business-plan competitions that many b-schools run. In 2000, 226 business plans were entered at Wharton, 206 at MIT and 100 apiece at Harvard and Stanford. This year, participation in these competitions is down by about half, but the plans going forward appear to be more realistic. "There's less pressure this year in terms of being the 'in' thing," says Harvard's Roberts. "Students are more serious about it."

Wireless and infrastructure are hot, and enthusiasm for biotech is starting to take off. One of this year's finalists in the competition at Cambridge University's Judge Institute was a biopharmaceutical company offering products to accelerate tissue repair. This year at Harvard, there were so many plans addressing societal problems that Harvard created a "social enterprise" track. About a dozen teams entered plans.