How many graduating Harvard MBAs start their own businesses?

Larry and Sergey in their garage.

How many of the students that graduate at HBS open their own business? You mentioned that recessions are a great time to open businesses, what kind of business do HBS students open or get into?

The Harvard MBA says:

The entrepreneurship bug bites a lot of Harvard MBAs.  It is estimated that over the course of their career, nearly half of Harvard MBAs will try to start their own business.

On a more concrete level, the school reports that 27 members of the Class of 2009 (out of 889) decided to start their own business right out of school.  That may seem low (3%), but remember, most people go to HBS to take advantage of the recruiting machine that funnels you into high-paying jobs with established companies.  It’s hard to turn down $200K/year or more in exchange for ramen and pinto beans.

Of course, I was part of the brave/foolhardy entrepreneurial group from my class, so form your own opinions here!

In terms of what kind of businesses students tend to start, there are three basic types:

1) High-tech startup

2) Low-tech startup

3) Search fund

The high-tech startup is your classic startup, often in Silicon Valley (though sometimes in Boston, New York, Seattle, or Austin).  Usually the HBS student who starts the company is the business person, and works with a technical founder he or she met in college, or at a previous employer.  For the company I started, I worked with both an old college friend, and an old high school friend, both with technical backgrounds.

Of course, in this kind of economic environment, it’s not always easy to convince investors to give untested MBAs millions of dollars, so you will probably need to show some market traction before raising serious money.

The low-tech startup is much rarer, largely because it’s much less sexy.  One of my HBS friends, for example, started a chocolate business.  On the other hand, while tech may be sexy, there are plenty of other ways to make money.  My friend’s business is doing quite well, as have other Harvard MBA-founded restaurants and even maid services (though I don’t think the Havard MBAs were doing the cleaning).

Finally, a small number of graduates opt for the search fund approach.   In this model, a graduating student raises some money from investors (usually rich guys he or she knows personally) to go out and buy an existing business to operate.  In many ways, this is like a mini-LBO, except that the transactions are much smaller, and done with equity from investors rather than a fund.

One of my classmates went this route and bought a printer cartridge refurbishing company.  As far as I know, he’s still doing well.

As for what kind of business to start during a recession, my classic advice is to focus on businesses that help people save money.  A number of my investments play off these theme, including RepairPal (when no one is buying cars, people want to save money on car repairs), and they’re doing well.

One Trackback

  1. […] My hunch is that most good software engineers only work for cash because they don’t feel that working for equity is worth the risk of failure. They can make good money consulting or working as an employee of another company. They can easily get great benefits and a six figure salary. The risk of failure doesn’t seem worth it, especially when the potential reward seems so far away. But an important distinction is that this has to do with their options, not with their profession. If we look at business people who have skills-specific training like software people have, they fall in a similar risk-averse bucket: only 3% of Harvard MBAs use their educations to start a company. […]

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