Does an MBA Pay Off? Ask Paul Ollinger

Sometimes, applying to business school can seem like such an uphill slog that you really need to disconnect from the process from time to time in order to recharge and remember that there are other people in …

Paul Ollinger book cover

Sometimes, applying to business school can seem like such an uphill slog that you really need to disconnect from the process from time to time in order to recharge and remember that there are other people in your life that you’ve probably been neglecting, and other interesting things you could be doing in addition to brainstorming MBA essays and filling in data forms.

If you’re looking for something to occupy that down time, you should check out the new book by Tuck School of Business grad Paul Ollinger, “You Should Totally Get an MBA: A Comedian’s Guide to Top U.S. Business Schools.” 

Ollinger has graciously allowed us to post some excerpts of his book on the blog. Here, we’re sharing a chapter that will answer a burning question for many professionals wondering whether going to business school is a wise financial decision.

Chapter 5: Does An MBA Pay Off?

Me: Hell yes it pays off.

You: Is that a guarantee?

Me: Yeah, man. Haven’t you been paying attention?

You: So it will absolutely, positively have a positive financial ROI?

Me: Well… While attaining an MBA will move you down the road to enlightenment, getting an MBA is still really, really expensive. You might logically ask yourself, “What’s the ROI on enlightenment?” Excellent question!

Now you’re thinking like an MBA. Let’s do the math. For our purposes here, we’ll assume that you are going to HBS (hey, you deserve it).

Investment:

  • HBS first year tuition for Class of 2017 = $61,225
  • HBS books, materials, fees = $7,655
  • Total for first year = $68,88011 We will assume that tuition and fees increase 5% for year two, so that:
  • Total tuition and fees for second year = $72,324
  • Two year total = $141,204

Yikes! That’s a lot of dough. And like the guy selling knives on late night TV says, “But wait—there’s more!” The average HBS grad walks out with about $84,000 in student debt, and that debt costs money. The price is the interest that you pay until you pay it off.

If you have the means, you can pay it off more quickly, but let’s assume it takes you a decade to knock it all out:

  •  Student loan interest: 6% * $84,000 * 10 yrs = approx. $27,908
  • $141k in tuition/fees + $28k in interest = $169,000

And we’re still not done. Because you won’t be working during your two years at HBS you have to factor in your lost wages in the calculation. Let’s say you make $85,000/year at your good preMBA job.

Including your foregone income of $170,000, the total cost of getting a Harvard MBA (or one similar) is about $339,000. Holy crap. Enlightenment is expensive! Is it really worth $339,000?

Enlightenment is hard to put an exact number on, but wage growth isn’t. And this is where HBS has a dynamite return on average (we’ll get back to the assumptions we’re making a little later). If you go to HBS, you will not only get a bunch of crazy smart friends and a closet full of crimson hoodies, you’ll also get on average a very juicy pay bump and an accelerated career path.

Here’s what that might look like:

Return:

  • Base pay bump from $85,000 to $140,000
  • Signing bonus: $25,000
  • Summer internship income: $20,000
  • Career accelerator (4% raises v. 2% raises)

Let’s take a look at what that pay bump and career accelerator look like in action. Your MBA begins paying off in the form of increased income in your first year out of school. You make $55,000 more than you would have without it, and life is good. But wait—there’s more!

Because HBS has put you on an accelerated career path (and the steeper income growth trajectory that comes with it), your pay grows at a faster rate than it would have sans-MBA. So that annual pay differential continues growing as you relish your MBAness and continue to kick business world ass.

It is in this stream of MBA-powered increased income that we answer the question, “Does an MBA pay off?” You can see that over your first 10 years out of HBS, your income will be $750k more than it would have been had you never pursued that MBA. Using our friend NPV (Net Present Value), we then measure how much that stream of income is worth today, relative to the $369k that the MBA costs.

While the NPV is less than the $750k, and varies depending on your weighted average cost of capital, in both scenarios, an HBS MBA is a homerun, positive ROI fiesta de dinero! By the way, weighted average cost-of-capital is one of those great things you’ll learn about at business school.

And this is just for the first 10 years out of HBS. You will likely work for another decade or two beyond this, and in those prime earning years, that pay differential will—theoretically—be even more pronounced.

ON THE OTHER HAND… There are some really meaningful and impactful assumptions we’re making in the model above. And, to paraphrase the monetary philosopher Ol’ Dirty Bastard, assumptions’ll “bust yer ass.” So we should be aware of them, lest our assuming asses get busted.

First, remember that the average first year income for HBS alumni includes very non-average people making crazy money in consulting, investment banking, hedge funds and the like. If you are not committed to a career in one of these fields (or if you’re in these fields but below the mean earners in those fields), your income will likely be lower-to-much-lower.

This doesn’t mean that your HBS degree will have a negative ROI over the long run, but it just might take longer to break even. That’s worth keeping in mind. Second, these reported incomes are skewed way high by alumni living in New York, London, San Francisco and Hong Kong, i.e. the most expensive cities in the world. So while they may be making hundreds of thousands of dollars a year, they may also be paying $4,000/month (or lots more) to rent a one-bedroom apartment.

You shouldn’t look at these average incomes and think, “I am going to live like a king on $175,000/year in Tulsa, OK!” ‘Cuz that’s probably not where you’re going to find these juicy pay packages. Third, you are a growing and evolving human being. Your interests, desires and passions will change over time. The career you find intriguing right out of business school might not float your boat 5, 10 or 15 years later.

Maybe you just decide that you’re not interested in doing [fill in the name of career] any more, and that you really want to [work with kids / do something for the developing world / become a stand-up comedian]. Or maybe the grind of an 80+ hour work week is something you can tolerate when you’re young and single but not when you’re older, married and raising children.

Or maybe some health issues present themselves and you need to hit “pause” on your career to deal with them. In any of these scenarios, the juicy comp packages and steepened earning curves pretty much fly out the window.

Fourth, the model above represents an uninterrupted, positive career trajectory. Due to the vicissitudes of the market, the economy and personal wackness, careers often do not maintain a smooth progression upward and to the right. If historical economic trends continue, you should expect some kind of ugly macroeconomic tornado to blow through every seven years or so.

Whether it’s dot-com bubbles busting, global mortgages imploding or Adam Smith’s invisible hand getting caught in the cookie jar, bad stuff that is way out of your control happens, and it’s going to affect your career. You get out of school and everything goes dandy for two years. Then in year three, the world explodes and you get fired/laid-off/made redundant from your job.

Maybe you saw it coming or maybe you didn’t, but that doesn’t really matter as you getting canned is the result of an industry-wide meltdown and no one—I mean no one—in your industry is hiring. So you sit on the sidelines for a whole year and log a goose-egg in the old income column. Meanwhile, you still got those big ol’ student loans hanging over your head, with the interest meter still running.

An MBA isn’t a Harry Potter invisibility cloak that hides you from nuclear macroeconomic meltdown. It also won’t give you x-ray vision or the ability to fly. Further, some people just aren’t down for the whole business school experience itself. The long hours, grueling workload and late night stress-busting parties don’t suit everyone’s lifestyle.

Prospective business school students should do their due diligence to make sure they know what they are getting into. Some MBA programs saddle their graduates with massive piles of debt without providing an income that enables the graduate to battle that debt monster.

A degree from a school ranked #50 might provide you with a leg up, but it will not do the same thing for a career that a degree from Wharton or Kellogg would. Even from the top schools, an MBA is a powerful credential, but it is only potential financial energy until you turn it into debt-slashing income through year after year of hard work.

Net: don’t pursue business school unless you can pay for it outright or you’re committed to paying back your loans. Enter the process with eyes wide open—these loans are big numbers that grow while you sleep. Their very existence will exacerbate the stress of any fluctuations in your career. Banishing them from your post-grad life might mean sticking with a job you don’t love for a lot longer than you otherwise would have…assuming that’s even within your control.

You may also be interested in:

Paul Ollinger Says “You Should Totally Get an MBA” 

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Confessions of an MBA Consultant: White Spaces

As part of our month-long anniversary celebration, I’m highlighting some of my favorite blog posts from along the way that I think will really resonate with applicants who are gearing up for submission this fall.  …

why

As part of our month-long anniversary celebration, I’m highlighting some of my favorite blog posts from along the way that I think will really resonate with applicants who are gearing up for submission this fall. 

Enjoy!

I’d rather listen to Celine Dion on a loop, I think to myself, knowing there has to be a torture less painful than listening to a business school applicant recite his resume line by line.   Getting to know a new client is ordinarily a pleasure, unless he or she drones on about “what” they’ve done rather than why.

“Minnesota,” says today’s candidate, Alan.   “Mendota Heights actually,” he explains. “It’s a suburb of…”

“Minneapolis,” I chime in.

“Right, Minneapolis. Then I went to Penn undergrad.”   He stops, bites his lip, then continues.   “Well, after a year at…” he says rushing and apologetic. “Then I went on to a mid-level firm in…”

Chicago, I guess to myself, without looking at his resume.

“San Francisco,” he says.   Same thing, I think.   “So?” he asks.

“So what?” I reply.

“So what are my chances of getting in to…?”

EVERYONE WANTS TO KNOW IF THEY CAN GET INTO THE SCHOOL OF THEIR DREAMS

“Harvard and Stanford,” I interject, knowing full well this kid isn’t planning on going home with an MBA from the University of Burbank.   In more than ten years as a B-school admissions adviser, I’ve been asked thousands and thousands of times some version of: “What Are My Chances? Am I Going To Get In? What’s It Going To Take?”

Much of the time, even top candidates like Alan are not going to get in. Not because they are unqualified or didn’t deliver when it comes to their GPA and GMATs, but because they are clinging to the notion that a perfect score will make them the perfect candidate. They believe they are “what” they’ve done, not why.  As Alan’s adviser, it’s my job to get him ready. That means it’s my job to tell him the truth.

BUYING A WINNING LOTTERY TICKET IS THE ONLY THING WITH WORSE ODDS

The truth is, the only thing with worse odds than admission to Harvard Business School is buying a winning lottery ticket. With the competition being so fierce, you have to be more than a resume.

Sitting in front of Alan, the banker from Minnesota, I know nothing more about him than when I didn’t know him at all. He didn’t need to take three airplanes to meet me only to tell me what I could find out on a Google search and neither does the dean of admissions of any graduate school.

We want to know who you are, not what you did. You’re not being asked to talk about yourself for any other reason than to help a school learn why you made the choices you did. What those choices were is hardly relevant.

THE REAL STORY IS NOT IN THE WHAT OR THE WHEN; IT’S IN THE WHYS

By skipping over the “why’s”: why did Alan leave his first choice university, why did he choose a West Coast firm instead of the more typical Manhattan bank, why B-School when it sounds like he’s already doing just fine, Alan relegated himself to being just a bunch of categories on a piece of paper: Background. Education. Work Experience.

But what about the transitions that got him from his education to his work experience? These transitions give a director of admissions insight into how you think, what kind of student you’ll be and, more importantly, what kind of impact you’ll have on the world of finance post B-school.

Again, I ask Alan the question he’ll get asked over and over by every interviewer: “Tell me a little bit about you.”   “Mendota Heights,” he repeats. “It’s a suburb outside of Minneapolis, but my parents wanted me to go to …”

I stop him.

FILLING IN THE WHITE SPACES

“Tell me about the white spaces,” I say.

“White spaces?”

“Yes,” I say. “Tell me about the white spaces on your resume,” repeat, as I take his resume, tear it up and throw it in the trash.   He smiles, finally understanding what I’m getting at.

AN MBA CANDIDATE COMES TO LIFE

By learning that Alan graduated at the top of his class from Minneapolis’ most prestigious private boy’s school as a son of one of the teachers, I get a picture of a hard driving outsider, determined to succeed. By learning that he left his first choice university because it was just too small for this small town native itching for more, I see a future leader willing to take risks.

And by choosing to get his work experience at a West Coast firm, I learn of Alan’s desire to think out of the box and not just “follow the pack.”   By telling me why, Alan becomes so much more than another set of scores on paper. He becomes a well-rounded candidate who stands out in a crowd.

It’s very rare that you’re going to have the highest GPA from the best university with the best GMAT score. And if you do, there’s probably going to be someone who rates as well, if not better “on paper.”

Like Alan, you are not just your resume. You are the white spaces in between.  You are the transitions that got you from A to B and that will get you from B to B-school.  So celebrate who you are, if you want an admissions director to do the same.

Photo credit: Eric at Flickr (CC BY-ND 2.0)

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5 Ways to Prepare for the 1st Year of Business School

This post originally appeared on Stacy’s “Strictly Business” MBA Blog on U.S.News. Throughout the business school application process, MBA candidates spend ample time filling out applications, writing essays and even honing interview skills to successfully …

networking at business school
This post originally appeared on Stacy’s “Strictly Business” MBA Blog on U.S.News.

Throughout the business school application process, MBA candidates spend ample time filling out applications, writing essays and even honing interview skills to successfully gain admittance to their institution of choice. But it is equally important to prepare for the first year of coursework, which will have a long-reaching impact on your job prospects.

Whether you’re just starting to complete applications or you are about to embark on your first days as an MBA student, here are five ways to successfully prepare for your first year of business school.

Attend all orientations and meet-and-greets: I can’t overemphasize the importance of choosing a school that instantly gives you a sense of community. One of the best ways to make the program feel like a perfect fit is to attend as many social mixers and orientation events that are planned for incoming students.

Welcome Weekend and other preterm social events are prime opportunities to begin connecting with your future cohorts. If you’ve participated in the MBA forums or followed other MBA applicants’ blogs, then you may already have a head start on building relationships with your class.

By spending time on campus weeks before the semester begins, you’ll also have time to familiarize yourself with the many resources available to students. This will give you an additional comfort level and allow you to adapt more quickly and focus your attention on other exciting opportunities that come your way.

If you live halfway around the world and aren’t able to come to campus early, find out if your program hosts a Facebook group for your class so you can start connecting with fellow students. If it doesn’t, offer to help set one up.

In the highly competitive MBA world, it’s common for first semester students to go through periods of self doubt. But in reality, the introvert has a natural advantage in making allies at b-schools. Extroverts who need to be heard will naturally seek out good, thoughtful listeners.

When introverts think about building their friendships and network during b-school, they should take the long view. While extroverts may make the strongest first impressions on their classmates, it’s the introverts who often make meaningful and lasting connections with less effort. Besides, many of the introvert’s skills – among them team building and problem-solving – are key to successful businesses.

Maintain and build upon your existing network: The process of connecting with your new cohorts is the first step in building your existing network. But don’t forget to tend to your existing network once you’re admitted, though.

If you’ve stayed in touch with your favorite college professor or know anyone in your network who has gone to business school, this is the ideal time to reconnect and inform them of your own MBA plans. Ask for their advice on how to maximize your business school experience, and let them know your professional goals and the companies you’re interested in. You never know when a mutual connection can give you a leg up in recruiting.

Prepare for recruiting season: The summer before business school is a great time to make a list of interesting companies that recruit at your campus. Research contacts at your target companies to see if you can arrange an informational interview.

If you revised your resume as part of your MBA application, now it’s time to go back and make sure the professional version of your resume is up-to-date. Take a look at your social media accounts, including your LinkedIn profile, to ensure each represents your passions and abilities in a professional way.

Once you have your shortlist in hand, set up a Google alert with each company name so that you’ll automatically receive news updates that will provide great material for your interviews with recruiters.

Try not to get too attached to one company, though. Competition is fierce, and recruiters will interview dozens of equally bright and qualified students for just a few available spots.

Brush up on quantitative skills: A fair number of soon-to-be first-year students lack some basic quantitative skills. Many top MBA programs offer math camps for accepted students during the summer as a refresher of critical concepts.

Review the course syllabus online and purchase textbooks in advance, if you can. If you have any weak spots in this area, sign up for the math camp early so that you’re ready to hit the ground running once classes starts.

A growing number of students – even those with a finance background – have realized that these additional learning opportunities provide valuable time to network and bond with their future classmates before the rush of classes and recruiting hit in the fall.

• Ramp up your reading habits: First-year business school students read hundreds of pages a week to prepare for class discussions. If you haven’t had time to read anything longer than a Wall Street Journal article in the past couple years, now is the time to ease back into the practice to minimize fatigue.

If you don’t like to read, that’s all the more reason to start exercising those latent muscles now. An added bonus of extra reading is that you’ll likely become a much more interesting MBA student and potential summer hire to recruiters as a result.

Image credit: Flickr user Richard Foster (CC BY-SA 2.0)

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Tuesday Tips: Chicago Booth Fall 2017 MBA Essay Tips

The Chicago Booth School of Business is consistently rated in the top echelon of MBA programs in the United States and is known for a strong intellectual community. This application is designed to evaluate candidates on …

chicago booth essay tipsThe Chicago Booth School of Business is consistently rated in the top echelon of MBA programs in the United States and is known for a strong intellectual community. This application is designed to evaluate candidates on their ability to handle the Chicago curriculum, contribute to the community, and grow in their careers.

Academic ability will largely be communicated through your GPA/GMAT, transcripts and other fixed data points, though intellectual curiosity can be demonstrated in the essays and the interview.

Along with academics, Chicago will be looking for demonstrated leadership, team building skills and community involvement, as well as your fit with Chicago Booth and the perspective you will share with your classmates.

It will be important to strategically work in leadership and work accomplishments into your application. If you choose an image from the options that focuses on professional topics you can work some of your own work examples into the essay.

If you decide to focus on some of the community or academic topics, you can use your resume and certainly the interview to describe your work accomplishments and goals.

ESSAY QUESTION
View this collection of shared Booth moments. Choose the moment that best resonates with you and tell us why.

Presentation/Essay Guidelines:
• Choose the format that works for you. Want to illustrate your response visually? Submit a slide presentation. Like to express yourself with words? Write a traditional essay. Use the format that you feel best captures your response, the Admissions Committee has no preference.
• Determine your own length. There is no prescribed minimum or maximum length. We trust that you will use your best judgment in determining how long your submission should be, but we recommend that you think strategically about how to best allocate the space.
Technical Guidelines:
• File Size: Maximum file size is 16 MB.
• Accepted Upload Formats: Acceptable formats are PDF, Word, and PowerPoint. We strongly recommend converting your piece to a PDF file prior to submitting.
• Multimedia Restrictions: We will be viewing your submission electronically and in full color, but all submissions will be converted to PDF files, so animation, video, music, etc. will not translate over.

The new Chicago Booth essay question gives you a set of photos and text describing and depicting a range of student activities at Booth – from students in India as part of a Global Social Impact Practicum to an MBA sailing race – and asks you to choose one that resonates with you.

Your first step is to do as much school research as possible on Chicago. Visit campus. Attend events. Speak to alumni. Read the admissions blog. Whatever you are capable of doing to experience the community for yourself before starting your application will be invaluable as you set pen to paper.

Chicago Booth’s open-ended essay format is daunting for most applicants. Whether you choose to write an essay or prepare a presentation, take a step back from the unique format and think about the question strategically. The format’s open-ended setup simply gives you the freedom to express who you are in words, images, graphics or some combination.

Keep in mind what Chicago Booth represents in the image you choose. Booth is a school with a tradition of intellectual rigor, non-conformity, and innovation. When discussing the image that resonates with you about Chicago Booth you can share almost anything from any context, from work to home to extracurricular activities.

It’s also important to explain why your chosen image resonates with you and to bring in important elements of your application strategy. Maybe the image of GrubHub founder Matt Maloney on the floor of the New York Stock Exchange resonates with you because you dream of an entrepreneurial career, and you can use the essay to describe more about your career goals.

If you decide to write an essay response, you have enough space to tell a story that describes something new about yourself. If you decide to prepare a PowerPoint in response to this essay question, refine your story to its key elements.

To keep a visual essay interesting and high-impact, consider how you will format. Can you use photos? Drawings? If you use words, keep them clear and focused. Take every point up a level, so you are communicating a vision rather than a thesis.

Optional Essay:
Is there any additional information that you would like the Admissions Committee to know? If so, please address in an optional essay. (300 word maximum)

This optional essay is a flexible question, allowing you to provide the information you need to put forward the best possible application. If you have any areas that need to be explained in your profile, such as academic issues or gaps in work experience, this is the ideal place to add more detail.

Because the essay is open-ended you can also use it to add any additional information you wanted to inform the admissions committee about. Anything from an interesting personal background to meaningful extracurricular could be relevant context to add to a successful application.

Contact Stacy Blackman Consulting to learn more about how we can help you approach your Booth application.

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Tuesday Tips: London Business School Fall 2017 MBA Essay Tips

London Business School is a close-knit program with an international focus, set in one of the most exciting centers of culture in Europe. Among one of the top-ranked programs in the world, LBS is equally …

London Business School essay tipsLondon Business School is a close-knit program with an international focus, set in one of the most exciting centers of culture in Europe. Among one of the top-ranked programs in the world, LBS is equally valued by employers in both the US and Europe.

This year LBS has further refined the essays in the application to one career goals question and an optional question. To cover all of your career accomplishments, extracurriculars and personal attributes will require using other parts of the application like your resume and recommendations.

Make sure your resume highlights what you are most proud of at work and in extracurricular activities, and that your recommenders support those stories. Your recommenders can also talk about your leadership, ambition and teamwork.

Essay 1
What are your post-MBA goals and how will your prior experience and the London Business School programme contribute towards these? (500 words)

Self-awareness about your strengths and interests will help you refine what you truly want in your career. To take your research into your post-LBS options deeper it could be helpful to talk to colleagues and alumni who have MBAs in your field to identify various career paths. Make sure that your career goals are both realistic and aspirational. Think about the short term roles that may lead to your most ambitious longer term goals.

Your past experiences have certainly informed your post-MBA plans, and touching on those most relevant will be helpful to setting the background for your current pursuit of an MBA. To make this essay more than a rehash of your resume, think about explaining the rationale for your decisions throughout the essay.

Why did you pursue your past experience and what has been the impetus behind subsequent career choices? At this point, why are you choosing LBS? If space permits, you will want to discuss the question of timing – why you have made the choice to pursue an MBA at this time, and why you want to attend LBS now.

Essay 2
Is there any other information you believe the Admissions Committee should know about you and your application to London Business School? (500 words)

The formerly optional question from the LBS application is now required. This open-ended question is a great opportunity to touch on a personal story or add color to your career goals. This could be the ideal place to describe a unique background, experience or attribute that did not fit elsewhere in the application.

If you can’t think of a topic, consider using a story that illustrates your passion for London or an aspect of LBS culture. To inform your story, make sure you have done as much school research as possible. Ideally you have visited the school or attended an admissions event, or at a minimum, spoken to current or former students.

Because this essay is required, we would recommend using at least part of it to cover a positive aspect of your application instead of explanations of weaknesses, but taking a paragraph to address an issue like a low GPA or GMAT score may be a good use of this essay.

Challenged by the LBS essay questions? Contact us to learn how Stacy Blackman Consulting can help.

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August ‘To Do’ List for MBA Applicants

The summer may be winding down, but MBA admissions season is just ramping up. By August, all of the top MBA programs have announced their deadlines and essay questions, and applicants should have a solid set …

MBA interviewThe summer may be winding down, but MBA admissions season is just ramping up. By August, all of the top MBA programs have announced their deadlines and essay questions, and applicants should have a solid set of schools they plan to target.

If you’re ready to start your application, one of your first decisions is whether to try for Round 1 deadlines, which are in September and October, or aim for Round 2 in early 2017. After you’ve made that decision, the two heavy-duty areas applicants need to focus on right now are prepping recommenders and brainstorming and drafting essays.

Ready to learn more? To read the rest of my August “To Do List” for applicants, click on over to Business Insider!

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