Wednesday, April 2, 2008

Is there a best time to start an MBA?


By: George

So it’s been a long road but you’ve finally made the decision to pursue an MBA. Congratulations! Now there are a couple of things you might want to take into the consideration when making the next decision about when you actually start your future MBA. As usual, please keep in mind that following are just my personal subjective thoughts and may or may not work for you and are definitely not meant to act as de facto rules.

In this blog post I will discuss couple of potential factors that might affect the ROI of your MBA investment. In particular I will focus on those factors which are associated with the timing of an MBA: such as current economic conditions, your age and years of experience.

Following discussion is going to based on a 12 month MBA program format as that’s the type of program I am currently attending here at Ivey. You might also find it interesting that one of the reasons why I chose Ivey was because it is a bit easier to plan around since it’s only a one year program. Shorter program means lower probability that economic conditions are going to shift drastically while I am at school affecting my career search strategy.

First, let’s talk about global economic conditions or at least economic conditions of a country that you are planning to start your post-MBA career at. Even though I was not able to find any empirical data to confirm this, one can probably sense that the type of jobs that a brand new MBA grad would be going after are a bit tougher to find during a period of economic recession as compared to a period of prosperity. It is especially true for the high paying consulting and investment banking jobs; those types of jobs are highly correlated to the GDP growth. Having said there are still all kinds of jobs available during a recession. Industry jobs are usually much less dependent on the economic cycles (See following interview). What the economic slowdown or a recession means is that MBA grads would typically have to be much more proactive in their job search, orienting their search towards the hidden job market. Unfortunately, there might be some unforeseen consequences associated with graduating during the tough times: "A growing body of research on both MBAs and undergrads suggests that graduating into an economic downturn will substantially reduce lifetime earnings" (BusinessWeek).

Furthermore, I’m going to take a subjective view that Canadian economy is still tightly coupled closely to US economy (good thing that IMF agrees). If you combine that with the fact that US economic recessions has lasted on average 11 months with longer ones taking up to 16 months to unwind and are typically followed by an average of 57 months of economic expansion. The logical conclusion would be that the best way to start your Ivey MBA would be within a year or two after a recession has passed. That appears to be the best way to capitalize on ones investment if that would be the only factor that you are looking at. (Recipe 1: Add a one US Recession, wait for it to cook for 11-16 months, and then add the Ivey MBA within a year or two)

To make it a bit more fun, there are a couple of other factors that get added to the mix. Years of experience appears to be another good one to look at. This one is particularly interesting one for me personally, as I only have three years which is on the lower end of the curve for Ivey. Talking to number of people in the industry and Career Management team at Ivey, the optimal number of years appears to fall in the range of 3-5 years. You would get the biggest % boost to you salary. Lets assume that the average salary for 4 years of experience would fall somewhere around $60,000 per year and even if you get the average $85,000 salary upon graduation that’s a 42% boost to your salary. Not bad! However if you wait another 3-4 years and you are already making around $75-80K/year, the starting salary might not be that much higher than what you had going in. I also know couple of people that came in expecting pay cuts right after the MBA, hoping that MBA will ultimately act as a strategic tool which will help to increase the longer term salary ceiling. 4-5 years of experience in would also allow you to take the full advantage of the learning opportunity available at Ivey. (Recipe2: add 4-5 years of solid experience and the Ivey MBA, mix well)

The last thing I’m going to mention is role of one’s age. I will be honest; being on either extreme of the age spectrum has its potential challenges. For one, it might be a bit harder to “connect” with your classmates. Having said that there are enough people with diverse backgrounds and in various age groups that there’s always opportunities to socialize and form life-long friendships. (Recipe3: Be yourself and respect others, age matters not)

So let me quickly recap this post: Years of solid work experience is probably the single most important factor contributing to the high ROI of an MBA. Graduating during a recession – a bit more stressful but doable none the less. Those are universal factors that might affect you ROI in Ivey, there are certainly variety of other factors such as personality, ability to learn, etc that also affect ROI as well, but they are much more individual, and therefore I can’t speak to those.
Having said all of this, keep in mind that there are always exceptions to every rule, as correctly pointed out by an Anonymous reader of this blog. The example that comes to mind is the one from our Venture Creation elective class when we had a chance to talk to couple of Ivey grads who founded a successful business right after their graduation (PolicePrep).

I hope you found info in this post useful.


Till next time,
George
P.S. Here's an intersting collection of thoughts from BusinessWeek magazine about Graduating into a Recession

P.S.S. For those of you wondering, I did not end up buying the Asus Eee laptop. I had horrible experience trying to purchase it online at The Source by Circuit city which totally screwed up my online order loosing it in the process, so I’ve decided to hold off on that purchase until I can find an easier way to buy it (read not involving The Source)

8 comments:

Anonymous said...

George, so what your saying is that right now is a bad time to start an Ivey MBA? :)

George Kesselman said...

I was trying to argue in my post that Economic situation is simply one of the considerations that one might look at when making their decision with regards to the timing of their MBA degree.

Anonymous said...

Hey George,

If you're still looking, I've seen the Asus Eee in stock at Canada Computers in Toronto.

http://www.canadacomputers.com/index.php?do=ShowProduct&cmd=pd&pid=016830&cid=896

Tom Maryniarczyk
Ivey MBA 2009

Anonymous said...

Thanks for your analysis. There are however some exceptions. I am one of them. I graduated in 2005 from Ivey MBA and I was 36 years old with 12 years of pre-MBA experience from a developing world country (with language difficulties in the first year of Ivey). I made +500K as an independent business broker in Toronto last year. Still a hell of an ROI despite my extreme age!

George Kesselman said...

Thanks Tom, I will for sure check it out.

George

George Kesselman said...

Dear Anonymous,

First of all I have to command you on doing so well only three years after the graduation.

Thank you for your comment; in my original post I have implied that those are not absolute rules. As you correctly pointed it out it was not 100% clear so I've updated the post and added it explicitly at the end.

George

Anonymous said...

Great Analysis.

However, I would like to dissent from your analysis that the econimic situation is just one the factors to be taken into consideration.

The present economic downturn is one of the worst we have seen in several decades. This coupled with the pervasiveness of the effect it has/will have on a multitude of industries, makes this a really rough time to be graduating from a business school.

I personally think that a business school along with giving you a plethora of contacts that will last you a lifetime, also gives you a much needed break into an industry/sector, that would otherwise be almost impossible for you to break into. Not graduating into a job of your choice makes it extremely difficult for you to make the switch later on.

Lets look at the finance stream.

Given the curtailing of the M&A activity we have been seeing recently, and the large number of lay-offs makes one really wonder how the recruitment scene will be for the class of 2009? Inspite of all the claims being made, IBs tend to be extremely short-sighted, over hiring in periods of booms, and under hiring in downturns. Sales and trading jobs are also being eliminated.

And I think we have still not seen the end of write downs. Banks are being very slow in marking down their books. And given the high leverage ratios being employed, and the short comings of the regulatory capital requirements, a single rumor is all it takes to put a bank into distress and ultimately bring it down( SEC is investigating if this was the case with BS).

I agree with your argument that Canada is positively correlated with the US economically. If thats the case, why haven't we seen more write-downs from the Canadian banks? Are they waiting for liquidity to return to the markets?

The major reason for the recent affluence of the Canadian dollar is the surge of commodities and energy prices. Inspite of the presently high prices, a global downturn will decrease the price of these commodities ( this includes demand from China and India also going down. The world is indeed "flat" as the emerging markets failed to be a hedge against the downturn). If thats the case, then the Canadian dollar furthur weakens, thereby significantly hurting the M&A activity happening in Canada, which was mostly favorable because of the strength of the Canadian dollar.

Think about all the students coming into the class now without a background in finance. Not only do they have to compete against the thousands of industry professionals who have been laid-off or are being laid-off, but also have to weather the rough markets.

And who knows how long this downturn is going to last. Inspite of the average duration for a recession being about a year, we all know that "Past performance is not indicative of future results".

Anyways, my 2c. Best of luck to one and all!!!!

George Kesselman said...

Dear Anonymous,

I'm sorry to hear such a pessimistic outlook on the current economic conditions and the MBA job market situation. There are definitely some challenges associated with graduating during the period of economic uncertainty but at the same time, everybody tends to overestimate effects of economy on the MBA job market. As I've mentioned in the post, while top Finance (IB) and Consulting jobs might be limited during a period of economic uncertainty, the industry jobs are still quite plentiful.

It would be ideal to start an MBA a year or two after a slowdown, however that doesn't mean waiting for the crisis to finish. For one, waiting typically introduces a lot more uncertainty. For example, it might mean the difference between doing MBA with or without kids which complicates things significantly. Waiting two years and going into an Investment Banking (IB) or a Consulting job right after the MBA with a family in the picture could put a lot of pressure on the relationship.

Fact 1: An MBA from one of a top school adds a significant boost to your career no matter if you decide to go into IB / Industry / or start your own business.
Fact 2: Combined with the fact that the market for industry job is not as closely affected by the economic conditions
Fact 3: Waiting to do your MBA would not necessary lead to those high paying IB jobs

The above three facts lead in my mind to the conclusion that one should start an MBA when they are mentally ready and have sufficient work experience. The economic conditions should not be taken as a main indicator of whether one would find a job, but rather the indicator of the level of effort that would be required to find that job.

Hope this at least partially addresses your concern.

Regards,
George