Business School Rankings Need a “Start-up Upgrade”

Changing the B-School Rankings to Include Entrepreneurship

Each year, I watch while some business school or recently minted MBA Facebrags about their school’s ranking in the latest survey ― and every year it bugs me that these surveys do not include any measure of entrepreneurship.  It’s time for business school rankings to wake up and add entrepreneurship as a primary factor in their algorithms that rank the best business schools.

Why? Because entrepreneurship is vital to the future of a vibrant and competitive US economy. And, if rankings don’t change to reflect the priority of entrepreneurship, the schools soon become radically less relevant.  

Copyright IStockphoto/jeremkin

Copyright IStockphoto/jeremkin

Let me try to explain.

Most business school deans manage specifically to the annual rankings by BusinessWeek. A full 35% of BusinessWeek’s score comes from the category “Placement Success,” which is narrowly construed to equal outgoing salaries. Other rankings systems have similar metrics: The Economist gives 20% weight to salary changes and another 26% to the number of recruiters and effectiveness of career services  neither of which is a useful metric for measuring entrepreneurial success.

All of this makes it clear that a business school’s top priority is to optimize the short-term outgoing salaries (and bonuses!) that their second-year students can command (sigh).  This dynamic is ironically similar to a public company focusing on short-term quarterly earnings at the cost of building strong fundamental value over the long term.  

Unfortunately, the rankings don’t factor-in the ability of B-schools to prepare their students to be entrepreneurs. Thus the deans of the B-schoolswith a few exceptions like Stanford, Berkeley, MIT, Babson and a few others  don’t really care much about entrepreneurship (Eship, for short). They seem to view Eship as a distraction from the “real work” of consulting, iBanking or the Fortune 500 companies that are their customers ;). Consultants, iBankers and Fortune 500 companies tend to pay the most right out of the proverbial B-school gate and reward the B-schools that feed them graduates, thus perpetuating a vicious cycle.

This is incredibly frustrating to me, for several reasons.

First, it’s short-sighted. Entrepreneurship creates more value in our economy than any other discipline, when one considers the value created over the past three decades by new entrepreneurial companies such as Amazon, Google, Facebook, Microsoft, Genentech (acquired by Roche), and Akamai. An MIT entrepreneurship-impact study published in 2009 estimated that 25,800 then-active companies founded by MIT alumni employed about 3.3 million people and generated annual world revenues of $2 trillion, the equivalent of the eleventh-largest economy in the world ― and that’s just one school. How can a responsible B-school dean ignore such facts and view starting new companies as a sideline to global commerce?

Compare the academic staff at most business schools by discipline and you’ll find many more resources in finance, accounting and marketing. These disciplines were important to train business leaders in post-industrial 20th century, but the skills required for the 21st century are radically more interdisciplinary and start with a focus on Eship. Many of the world’s best and brightest are attracted to the top B-schools, where they get the wrong message: maximize short-term salary gain and become an investment banker, consultant or an executive in a mega-corporation.  

I actually had one dean at a prominent Top 20 business school tell me: “We have as many as 30% or 40% of our entering students that express interest in entrepreneurship, but by the time they graduate, less than 5% go take entrepreneurial paths. I [the Dean] think these students figure out that they need to get ‘real jobs’ at ‘real companies’ before pursuing entrepreneurship.” “Figure out?” It was all I could do not to jump across the mahogany desk and shake the guy!  He literally hadn’t considered the fact that his school was beating the entrepreneurial interest out of the students during two years of brainwashing as wave after wave of interviews with McKinsey, Bain, Goldman, and Morgan Stanley convinced them that it would be easier to just take the jobs they don’t want instead of starting their own companies so that they can pay off their school loans.

Second, B-school deans aren’t likely to change their thinking easily. (See also: “How Business Schools Lost Their Way,” a Harvard Business Review article written in 2005 by Warren G. Bennis and James O’Toole.) Many deans are former B-school professors, who usually have to struggle to “teach” Eship because it’s very experiential – and many of them have never taken significant risks in their lives. Nothing against them: it’s just not their risk profile. Most of these dudes taught the traditional disciplines (including, God forbid, accounting, like our Dean friend above). So, why would they want to focus on something unknown to them, particularly if it doesn’t help the rankings and if the people who practice Eship scare the crap out of them?  (Starting a company and paying yourself $0/year actually hurts the outgoing salaries.)

It’s important to note that there are some B-school professors who truly excel at teaching Eship, such as Phil Anderson @ Insead, Bill Aulet @ MIT, Gregg Fairbrothers at Tuck/Dartmouth, and Steve Blank @ Haas/Berkeley. But they are exceptions.

A lot of people say “Someday I’m going to start my own business.” Why? In many cases because it’s fun, creative, and intellectually stimulating. If the B-schools leave teaching Eship to incubators and the like, it won’t be long before the best and brightest talent decides to forgo B-School altogether. They’ll take a couple of courses as required to get oriented to finance and accounting and then go through Techstars ― it’s about $200K cheaper and you don’t lose two years of your life working on your idea.  

Third, BusinessWeek could solve this problem by changing its rankings. All this would involve would be adding a few simple criteria to their rankings this year:

  • number of new companies started by students ― before and during B-school
  • amount of venture capital raised by students within four years of starting B-school
  • number of new companies started by students throughout their careers

This result could be a two-fer: Once B-schools were forced to track these numbers to keep or improve their rankings, most schools would likely have a better understanding and appreciation of Eship ― and how it fits with their curricula and marketing strategies to attract the best students. Thereby a virtuous cycle is created.

So, let’s work together to make this happen, shall we?

An Action Item

If you think that BusinessWeek should add some measure of Eship to its rankings this year, please forward the link to this blog to your fellow entrepreneurs. Tweet it, Like it on Facebook, or post or share it on LinkedIn.  And be sure to add your comments.

Together, maybe we can get these stuffy old accounting professors to embrace the reality of today’s business environment, which is more about Eship than investment banking or consulting. And help raise the awareness of Eship as a legitimate and valuable discipline worth cultivating and teaching future generations of business leaders.

#EshipRules!

This entry was posted in Education, Entrepreneurship, Founders, Start-Ups. Bookmark the permalink.

One Response to Business School Rankings Need a “Start-up Upgrade”

  1. Carty Castaldi says:

    awesome.

    “please forward the link to this blog to your fellow entrepreneurs.”

    done.

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