The “Billion-Dollar MBA”

By Nnamdi Okike and Jonathan Smith

Harvard

Whether to obtain an MBA is often a dilemma for founders who have entrepreneurial ambitions, especially founders who are seeking to build category-defining companies. The conventional wisdom is that an MBA is not required to found a great startup. Many of the best tech founders, such as Bill Gates or Mark Zuckerberg, didn’t even finish college, let alone go to business school. Some people even look down on MBAs, viewing them as opportunistic, tending toward groupthink, and lacking entrepreneurial instincts. Peter Thiel once said “Never ever hire an MBA; they will ruin your company.”

The alternative view is that an MBA can provide valuable skills and resources on a founder’s startup journey. A top MBA program can provide a network that enables access to capital, not to mention access to ideas and talent that can help spark a new entrepreneurial venture. Many well-known startup founders began their businesses in MBA programs. As an example, Phil Knight started Nike in a Stanford MBA class, when he wrote a business plan on the Japanese athletic shoe market. Food delivery business Grubhub, today a public company with a market cap close to $4 billion, was co-founded by Chicago Booth Alumnus Matt Maloney, and won Booth’s New Venture Challenge in 2006.

More often, top MBA founders start their companies after graduating from business school. As an example, Michael Bloomberg, now one of the richest people in the world, started Bloomberg LP fifteen years after graduating from Harvard Business School, after being fired from Salomon Brothers.

We decided to analyze the data to identify the traits of MBAs who build the largest technology startups. Our aim was to do a deep dive into historical statistics to find out the truth. What are the career paths of the best MBA founders, which MBA programs produce the best founders, and does an MBA provide a better chance of having a successful exit?

For this project, we analyzed a dataset composed of companies which had at least one MBA founder, and which exited for $500M or greater. We focused on technology companies in the software and consumer tech industries, and we included companies across geographies. To narrow our data set to a manageable set, we analyzed companies from the list of top business schools in US News & World Report. Ultimately, we compiled a list of 91 companies that met these criteria and were founded by individuals from top business schools. From there, we compiled and analyzed data on these companies from sources such as Crunchbase, CB Insights, and Pitchbook. A representative list of the companies and data set can be found below:

Top MBA founders exits

In this article, we summarize our most impactful findings from this study. Our aims are to provide insights into the paths of the most successful MBA founders, and to disprove myths about how MBAs build successful companies. We are hopeful that this information will be useful for investors, students, current entrepreneurs, and anyone who is interested in entrepreneurship in the future.

Who Are Top MBA Founders?

Gender

Only 8% (7 out of 93) of the companies in our population were female-founded companies. We defined “female-founded” as having at least one founder who is a woman. We believe there are a few potential explanations for this low ratio.

One potential reason is the fact that women are under-represented in the pool of MBAs. The Forte Foundation diligently tracks MBA enrollment information and stated that “U.S. schools have roughly 39% women enrolled overall – up from 32% in 2011”. GMAC also stated in its comprehensive report that in terms of the top 100 MBA programs, women comprise 36% of students today, up from only 30% ten years ago.” As the enrollment ratio shifts, the ratio of exceptional female MBA founders may shift as well.

A second reason may be that female MBAs are less successful in raising venture capital due to well-documented challenges in receiving funding, which may make it more difficult to get to large scale. In 2019, only 20% of startups receiving funding globally had one female founder, and only 2.8% of U.S. venture capital funding went to all-female teams.

It is important to change these ratios in order to ensure a more balanced playing field for female MBA founders who are seeking to build billion-dollar businesses. In our view, access to venture capital is the most important factor. There are signs of progress here, with women raising more capital in 2019 than in any other year, and also an increasing number of women joining VC firms and starting their own funds.

MBA Program

With regards to which MBA programs are producing the most exceptional startup founders, there were a few surprises in terms of which programs scored best, as well as which specific sectors they excelled in. Below is an overall summary highlighting the total number of companies for each MBA program, as well as breakout by sector:

MBA Breakdown

Harvard Business School led the pack with 43% of all founders, more than twice the figure of the 2nd place school (Stanford). In fact, HBS produced more companies (40) than the 2nd and 3rd place (Wharton) schools put together (34).

These three schools were the highest-ranked business schools by U.S. News in 2020. Surprisingly, MIT Sloan, despite its top engineering graduate programs, only produced 2 companies in our group, and finished toward the back of the pack.

While there appears to be a correlation between a business school’s ranking and the number of successful founders it produces, there are other factors to consider in order to draw a conclusion on which schools increase the chances of entrepreneurial success, such as the size of the MBA class. For example, HBS’s class size is more than 2x Stanford's for the class of 2021 (938 vs. 417 students). As such, it’s possible Stanford may be producing more founders on a per graduating student basis.

The school’s focus on entrepreneurship should also be accounted for. Some schools pride themselves on providing an exceptional entrepreneurship curriculum as well as providing a plethora of resources for students who are interested in this space, which would result in a higher percentage of students starting companies, and therefore a higher denominator of total founders.

Undergraduate Major

The table below displays what the founder studied as their undergraduate major, and the type of company that founder went on to build:

MBA Undergraduate Breakdown

Around half of the total population of exceptional founders studied either economics (26% of founders) or engineering (24%), with computer science coming in third overall in undergraduate majors (12%).

Notably, economics majors produced a similar number of software vs. consumer success stories (15% vs. 12% of all companies), while engineering and computer science majors produced more than twice the number of software success stories vs. consumer success stories. One question this raises is whether technical skills are better suited toward the scaling of software companies vs. consumer companies, or whether technical founders are just more likely to start more technical companies.

Previous Work Experience

We also analyzed the previous work experience of the founders to better understand which job roles produce the most successful founders:

MBA Previous Work Experience

It was interesting that consultants comprised the highest percentage of the overall group (18% of founders). Venture capitalists have been known to be skeptical of consultants as founders, but the data appears to show the opposite. Engineers comprised the second-highest percentage of the total group of successful founders, with 13% of all founders being former engineers.

It was also compelling to see that founders with marketing backgrounds stood out, in particular in founding consumer companies (9% of all companies and almost 20% of the consumer group alone). The marketing knowledge of go-to-market strategy, brand equity, and how to conduct consumer diligence are likely valuable to scaling a consumer company.

Notably, traditional operational roles didn’t produce nearly as many founders. For example, product management produced 4%, sales produced 4%, and design produced 1%. Former marketers (12%) produced more companies than these three categories combined. Even former venture capitalists produced more than either of these traditional operating roles, suggesting than conventional wisdom around the value of operating experience in these categories may not be entirely accurate.

Age at Launch

Age was an additional characteristic that yielded results that were different than we expected. The young, scrappy, and hungry entrepreneur exists, but the companies in our population had a different profile, with a median age of 34. The table below shows the average age of the entrepreneur at his/her company’s launch, stratified by his/her MBA program and the type of company founded.

MBA Age At Launch

*Please note, since birth date information was not readily available, ages were estimated. We assumed that the founder was the U.S. average age of 22 when graduating from his/her undergraduate institution, and then calculated the assumed age at launch from this date.

While the average U.S. age at graduation for an MBA program is 29, our founders had an average and median age of 34. This may suggest that obtaining additional, tangible work experience after receiving an MBA actually increases the chance of building a successful startup. Alternatively, MBAs may tend to wait longer to build startups, due to being more risk-averse, or preferring more traditional roles before launching a new company. At the very least, the data suggests that there is no penalty for MBA founders being patient, gaining more skills, and not rushing into a new endeavor.

What Are the Characteristics of Companies Founded by these MBAs?

First, let’s dive into some summary statistics on the companies, separated by company type:

MBA Companies Characteristics

On average, it took these companies 9.7 years to exit, with a median of 8.3 years. This was not entirely surprising, given the challenges of scaling a company to large scale.

Companies raised a median of 5 funding rounds, and an average of $353 million of equity. Most interesting were consumer companies, which raised an average of $608 million of equity before exiting, more than 3x in comparison to the averages of the other two categories. The average consumer exit was the largest of all categories, $3.6 billion.

While it takes a long time and significant capital to build an MBA-founded exit, overall the size of the exit is more than large enough to justify the investment. Median exit was $1.4 billion, and average exit was $3.2 billion. Also, median and average exit values are almost 10x the total equity raised, so returns for funds and limited partners continue to be fruitful overall.

It is also worth noting that of the 93 companies, 69 (74%) exited via a merger and acquisition as opposed to an IPO.

An additional statistic that we found interesting is where these founders headquartered their companies. The commonly held belief is that Silicon Valley is the best geography for startup formation, and while the data validated this assumption, there were a few surprises. See below for a summary chart showing the founders’ MBA program and where they ultimately settled:

MBA By Location

California comprised 39% of all companies, while Massachusetts comprised 13% and New York comprised 13%. Altogether, these three locations comprised 65% of the total group, indicating the relatively limited geographic range of companies formed by top MBAs.

Harvard Business School showed interesting statistics. 43% of HBS-founded companies remained on the east coast and were launched in Massachusetts or New York. Of all business schools, HBS was the only one with a meaningful number of exits that had the majority of its companies outside California.

Are MBAs Successful When They Partner With Each Other?

From the 93 companies that we analyzed, only 18 (19%) had two co-founders with an MBA. It was relatively rare for companies to have multiple MBA founders, and much more common for MBAs to have a co-founder with complementary skills, for example as a CTO, VP Engineering, or COO.

Interestingly, Stanford GSB was the only school with a high percentage (33%) of dual-MBA companies. See below summary characteristics on the total number of companies with two MBAs, and the breakout by business school:

Double MBA teams

Conclusion

We set out to better understand the profiles of successful MBA founders, and we found several compelling results that could be the subject of further analysis. Future analyses could expand the list of schools and include industries other than technology, such as biotech, pharma, healthcare and retail.

Future analyses could also determine whether companies founded by individuals with international MBAs have different founder/company profiles than their American counterparts, and whether non-tech industries carry unique founder/company characteristics.

In addition to expanding the scope, one could also dive one layer deeper into the MBA programs to better quantify probability of success. Both tangible and intangible traits of the schools could be quantified (e.g., number of MBAs in the class and school’s resources towards entrepreneurship), and one could subsequently generate a scorecard of the school’s performance and therefore the likelihood of it producing a successful founder vs. its competitors.

Statistics on founder undergraduate majors and previous work experiences could also be further analyzed. Which specific employers produce the most founders in the population of successful MBAs, for example? Are there specific undergrad programs that tend to produce a disproportionate number of MBA founders?

Our overall conclusion to this study is that while some of the stereotypical traits of successful MBA founders were proven true, many more were disproven. There were many surprising results, including the fact that consulting produces a high percentage of founders, that top MBA founders start their companies later than expected, and that traditional operational roles don’t appear to produce a high percentage of MBA startups.

For the future entrepreneurs and investors out there, we hope that you found this study impactful and inspiring. Best of luck on your journey.

Footnotes:

  1. See “https://news.uchicago.edu/story/grubhub-chicago-booth-startup-winner-goes-public
  2. See updated list of top business schools from US News and World Report here: https://www.usnews.com/best-graduate-schools/top-business-schools/mba-rankings.
  3. See “EOY Diversity Report,” TechCrunch, at https://news.crunchbase.com/news/eoy-2019-diversity-report-20-percent-of-newly-funded-startups-in-2019-have-a-female-founder.
  4. See “U.S. VC Investment in Female Founders Hits All-Time High”, at https://techcrunch.com/2019/12/09/us-vc-investment-in-female-founders-hits-all-time-high/.