Why MBA for budding entrepreneurs?

Source: GMAC prospective students survey, conducted from January to December 2011

‘Students will learn fundamentals of business, test new ideas and meet potential investors'

Julia Tyler
GMAC executive vice president

By Kim Da-ye

Entrepreneurs have had mixed opinions on a master in business administration as it has been often regarded as a fast track to higher salaries at consulting firms or investment banks.

The outgoing chairman of Fila Global and Acushnet, Gene Yoon, for example, criticized business schools in Business Focus' article last week, saying, "Business schools do not teach you innovative strategies. Speaking of case studies that are popular teaching methods in MBA programs, the power of a strategy is completely gone once it is open to the public. The same strategy doesn't work twice. The really working strategy comes from your experience."

But the population of the budding entrepreneurs who want to do an MBA is growing. According to the Graduate Management Admission Council (GMAC), an association of business schools that owns and administers the Graduate Management Admission Test (GMAT), more than 12,000 or around 5 percent of nearly 226,000 GMAT exam takers between July 2011 and June this year said that they intended to concentrate on entrepreneurship. The council added that it is a record number.

Furthermore, while most business schools now provide entrepreneurship as an elective or a concentration, among the business schools that accept the GMAT test, some 50 degree programs include the word "entrepreneurship" in the title.

Julia Tyler, the executive vice president of global market development at GMAC and the managing director of its U.K. subsidiary, visited Seoul in late November and discussed why an MBA can be still helpful to budding entrepreneurs. Those who want to run their own businesses need to know about general management, after all.

"If you have a great idea, but cannot bring the idea to the market, cannot find the funding for the idea, cannot sustain the production or delivery of your service or product, you are going to go out of business. You can reduce risks in your business by learning about the fundamentals of business," Tyler said.

She added that a 2012 research by GMAC shows 37 percent of the graduates who started their own businesses were in the "products or services" industry, compared to 20 percent of the self-employed in consulting and 17 in technology. Finance, marketing and operations — the core compulsory subjects in most MBA programs — are the musts to know for those who offer products and services, Tyler said.

Business schools also provide the safe environment for entrepreneurial hopefuls to test their ideas before entering the real business world, Tyler said. She said that one of the common teaching methods in entrepreneurship-related courses is making students develop business plans and pitch them to real venture capitalists that schools bring in.

Before joining GMAC, Tyler was an associate dean of the London Business School MBA program, which has a compulsory course called "Discovering Entrepreneurial Opportunities."

"I witnessed, gosh, tense and emotional affaires. Students worked often many months on developing the idea, the school brings in people in finance who do it for living and there is a competition on who will get the money. You will be sitting in a big lecture theater with the spotlight coming down on the students standing in front of everyone," Tyler said.

"They are doing it not only in front of real-life venture capitalists, but also in front of their colleagues, peers and professors. So you learn it in a hard way what works and what doesn't."

Tyler said that venture capitalists often put money into the person rather than his or her particular idea and business schools help students hone their skills for presenting themselves. "You are who you are, but you can improve the way you communicate what you are. The business school gives you the chance to build it to your business model and pitch it to venture capitalists," she said.

Business schools are also ideal places for networking where budding entrepreneurs can meet their role models as well as potential financiers, Tyler said.

"If you think about a typical MBA program, a significant proportion of the graduates go into finance and some of them into venture capital. Down the road people who may be financing your next business may be the person who was sitting next to you in the classroom," Tyler said.

Role models can be either the classmates or the experts that schools bring in. A research by GMAC shows that 5 percent of students graduating in 2012 planned to be self-employed and 39 percent of them had owned a business before doing an MBA.

When asked which country is leading in offering degrees on entrepreneurship, Tyler said that a majority are in the United States, the country famous for its start-up culture, although it is difficult to pick one for having outstanding programs.

A GMAC survey of nearly 4,000 prospective students in 2011, however, showed that most prospective students aspiring to start their own businesses were in emerging regions such as Africa, Central Asia and Latin America. Thirty seven percent of African students considered entrepreneurship as a career goal after graduation, compared to a mere 19 percent of the respondents from the U.S.

But can entrepreneurship be taught well in a country like Korea, which has been internally and externally criticized for cultural intolerance toward failures, favorable treatment toward conglomerates and little support for small and medium businesses? Tyler said that a good entrepreneurship program should actually help budding entrepreneurs by educating them about the barriers and how they can overcome the barriers.

"In the U.K., for example, it has become very hard for small businesses to get loans in the current economic climate. So you should know that you need to do more due diligence in order to get your idea funded. An MBA program can really help by giving a broad range of business contexts. Most programs introduce you to macroeconomics as well as microeconomics. Some of them will talk about the government policies and the environment for doing business," she said.

Tyler said that the Social Entrepreneurship MBA program (SEMBA) to be newly launched next spring at Korea Advanced Institute of Science and Technology (KAIST) is worth paying attention to. The school has formed a partnership with SK Group to open the SK Center for Social Entrepreneurship.

The school will admit 25 students each year who aim to launch social enterprises, a business to maximize benefits to society instead of just profits for shareholders. Baik Yoon-suk, an associate professor in strategic management and the director of the SEMBA program, said that KAIST's SEMBA is the world's first MBA program focused on social entrepreneurs.

While the curriculum is still under development, the program will largely be divided into two parts — business and economics classes for students to learn management skills and the humanities for them to understand problems in society such as poverty, health issues, the aging population and low birthrates, and come up with solutions.

Baik acknowledges Korea's lack of the culture and environment that encourage entrepreneurs, let alone social entrepreneurs, and KAIST has been collaborating with foreign institutions and SK Group to make sure the program works. With support from SK Group, the center will run, for example, information-sharing and mentoring programs for start-ups and an incubating center.

"We know that the environment for social entrepreneurs is tough, so we are establishing a whole infrastructure for them. The center will financially support the students until they finish two years of studies, have business plans that are equivalent to dissertations, and launch their businesses," Baik said.