You might be skeptical if an MBA is worth the $100K+ investment in tuition, not to mention the opportunity cost of lost income. I had those same doubts, but now a couple years after graduating, I can tell you why the ROI on the investment is more than worth it, and will continue to pay dividends as you advance in your career.
Before I begin – just a few caveats to what I’m about to say. First of all, this doesn’t apply to any MBA program. A low to average-ranked MBA program might very well not be worth the investment in time and money. I am referencing top 50 programs, which have an impressive alumni roster with influential people in industries you’re interested in. Secondly, if you are a web developer looking to start the next Facebook or if you’re already a successful hedge fund manager, you also don’t need an MBA. In these two cases, you are less dependent on relationships for success. Success in business comes down to who you know. That’s where the exponential value of an MBA lies.
My own experience is a perfect example of this. I was working in finance when I applied to business school. My salary was exactly $200,000 a year. Not bad for a 26-year-old. So why would I spend $50,000 a year on tuition plus $200,000 of forgone salary a year to go to Harvard Business School? That’s $50,000 x 2 plus $200,000 x 2 = $500,000 over two years! Call me crazy, but the moment I stepped on campus until now, a few years since I graduated, I’ve never doubted the value of my business school experience for a single minute.
The two areas where you’ll see the most value of an MBA is 1) social status and credibility and 2) building personal wealth. While I haven’t changed as a person, my MBA definitely changes the way people look at me. You immediately have credibility before you have earned it. People perceive you to be smart and capable from the start, and you really need to botch things up to change that perception. This respect is something that an average person needs to earn, but it has been gifted to me because of my MBA – and that pay-off comes anytime I’m recruiting, starting a job, or just meeting people for the first time.
The other pay-off is in the area of income potential. I’ve always wanted to be in a position where I didn’t need to worry about prices on a restaurant menu and could travel wherever I wanted, whenever I wanted. I wanted to buy myself freedom from the daily grind of the 9-5 job, and gain access to opportunities that would enable me to make several million dollars a year. I wanted to build real, generational wealth.
An MBA opens the door to that possibility, and here is how: most of business today is still done based on relationships, and business school is one of the most important places to build relationships because every single person there 1) has chosen to pursue a career in business and 2) has already been pre-qualified by an admissions committee as ambitious and likely to be successful.
These relationships will prove invaluable as you progress in your career and 5, 10, 15 years after graduation, your friends and classmates will likely be in senior positions of power. This is when just one or two relationships could change your career overnight.
Here are just a few examples of how relationships from business school can transform your earnings potential:
- Landing a Major Client. If you become an investment banker, the most important driver of success is the ability to win new clients. If one of your business school classmates is the CEO of a company that sells for $500 million and your relationship with him or her earned you the opportunity to represent his or her company, you would generate $5-10 million in fees. That’s just from one deal. Now imagine if your business school network helped you win several M&A assignments. This is how many investment bankers become as successful as they are, pulling in $2-5 million annual salaries.
- Or, if you are a management consultant, once you begin winning new clients is when you begin pulling in a 7-figure salary. Your business school classmates will become chief executive officers, chief financial officers, managing directors, heads of divisions, and other high-ranking corporate officers who look to hire consulting firms like yours. They will become a great source of new client leads for you. All you need is to land one major client and your career could take off overnight.
- Raising a Fund. If you are an investor and you are raising your first fund, access to pension funds, endowments, fund-of-funds, and wealthy individuals becomes critical. Many MBAs become money managers at these types of institutions with authority to direct millions of dollars into new investment funds. If you leverage your relationships and raise a $500 million fund, your annual management fees alone would be 2% x $500 = $10 million. A successful fundraising process often comes down to knowing one person who can help introduce you to the right circle of people, or that one person who knows you from business school and is willing to make that first $50 million commitment to your fund based on the trust built during school.
- Breaking into Finance. Even just breaking into the finance industry could transform your earnings ability. Careers in investment banking, venture capital, private equity, and hedge funds are in a completely different bracket from other jobs and could equate to annual salaries of anywhere from $200,000 on the low end to $1 million and above on the high end, just a year after business school. Because thousands of people apply for high-paying Wall Street jobs each year, firms focus only on sources where candidates have already been pre-qualified, such as the top MBA programs.
When you go to a top business school, you become friends with people who will move into positions of power. People in positions of power have access to opportunities. When these people are your friends, that’s when you have real leverage to make money. Doing well in life and making money often simply comes down to knowing the right people to bring these opportunities to fruition.
And these opportunities go beyond just the finance and consulting industries. It could mean knowing someone who is involved in a new commercial real estate development opportunity where you can buy some property on the cheap before the public knows about it. It could also mean meeting a manufacturer who knows how to create a new high-tech fabric, which you then license exclusively to launch a new sports clothing brand. It could mean getting preferred access to a unique restaurant franchising opportunity. It could mean getting introduced to the founder of the next Google, where you could make millions of dollars as an early employee or investor. It all comes down to number of opportunities and the possibilities are endless when you know the right people.
You don’t need an MBA to do well in life, but an MBA gives you access to those relationships that can open doors that others don’t have or need to work much harder to earn.
So is an MBA worth $1 millon dollars? We think it’s worth more.