The Young and the Cautious

Baldwin Louie — Mon, 16 Apr 2001 15:00:00 -0700

As MBA students go, so goes the nation. Business school students have always been good barometers of business fashion. If it's hot, students flock - investment banking and consulting in the 1980s, high-tech startups in the 1990s, and now banking and consulting as the pendulum swings back again. MBAs studiously follow the herd, and the last few years the herd took them off a cliff.

"It's been a wild ride - people graduating in 2000 got caught up in the Net just as it was tanking," says Laurent Berman, co-founder of Silver Beacon Technologies and a member of the Harvard Business School class of 2000. Students graduating last year watched the Internet Economy peak within the space of their two-year education. Many jumped wholeheartedly into dot-coms only to watch them quickly sink.

As a result, the mood on campus is more cautious than it was a year ago. "There's less interest in joining small startups," says Erik Barmack, a second-year MBA student at Stanford University (dossier)'s Graduate School of Business. "Many more people are interested in going into consulting, banking and old-economy companies than they were 12 months ago." Anna Lorch, a second-year student at the Owen School of Management at Vanderbilt University (dossier), says she's taking the long view: "This year it's about job security and putting in your time."

The herd instinct may be bringing MBAs back to familiar pastures, but that doesn't mean they're giving up on the new economy. Many are still going into technology, just as they did before the Internet surged. For those choosing old-economy careers, the business world they're entering is radically different than it was five years ago. Students may be going back to banking and back to consulting - the new meaning of b-to-b and b-to-c, as the joke goes - but the companies they're joining have been transformed.

Top strategy consulting firms like McKinsey and Bain now have extensive "e-consulting" practices. They've also embraced venture consulting, taking equity stakes in companies in lieu of fees and spreading any resulting wealth to recruits through equity pools. That wealth may have dried up for the time being, but consulting firms now speak the high-tech, entrepreneurial lingo that grads want to hear.

Consulting companies have changed because the worldviews of their future employees have changed. Today's MBAs are different from those of previous generations. They are far more entrepreneurial, whether they start their own companies or join the business units of traditional firms.

"The new economy has spurred a huge increase in interest and enthusiasm for entrepreneurship," confirms London Business School dean John Quelch. "That enthusiasm is not abating despite the market aberrations of the last 12 months."

California Public Utilities Commission

From: Ms. Loretta Lynch, President, California PUC
To: Gov. Gray Davis
Re: Electricity Crisis Update

Dear Gov. Davis:
So far, your suggestions for dealing with our power shortages in California - rolling blackouts of heavily Republican districts, turning off all the electricity in San Diego at 9 p.m. to see if anyone would notice - have shown great promise. We've received few irate phone calls from the affected areas, although some of that success could be attributed to the fact that we turned off their phones as well.

Other programs, such as our voluntary Eat-in-the-Dark Week and the statewide Wear-a-Mining-Helmet-to-Work Day, have been slower to catch on, but we still have high hopes for them. It would also help if we could somehow figure out how to adjust the air conditioning here at the PUC offices so we don't have to wear sweaters and wool hats in the middle of August.

While these remedies may be no more than "quick fixes" to the electricity crisis, we believe a solution could be on its way - in the form of this summer's expected Screen Actors Guild strike. While it is true that a SAG strike would mean economic hardship for many in the film industry, it would also take offline the single largest drain on California's power grid: Julia Roberts.

For years, Californians have needlessly wasted electricity by inexplicably leaving their television sets on as Ms. Roberts appeared on talk show after talk show, inanely nattering away about her latest film. In the first quarter of this year, the PUC estimates that by failing to keep her yammering pie-hole shut about her chemistry with Brad Pitt in The Mexican, Ms. Roberts was directly responsible for the consumption of 12.6 billion kilowatts of electricity, enough to power the San Pedro Central School District until the end of the next century. Julia Roberts may be America's Sweetheart, but in California we call her Public Energy Abuser No. 1.

Perhaps the starkest demonstration of Ms. Roberts' central - and highly culpable - role in our state's energy crisis occurred at this year's Academy Awards. After winning the Best Actress Oscar for her role in Erin Brockovich, Ms. Roberts blithely waved off the official Oscarcast timer and blathered on tediously for several minutes more. "I'm going to spend some time here and tell you some things," Ms. Roberts announced - seemingly oblivious to the fact that by extending the telecast, she was costing the state of California an additional 1.4 billion kilowatts of precious electricity - electricity we shall never see again.

With any luck, the SAG strike will take place as scheduled, and we can "power off" Ms. Roberts just in time for what many expect to be a long, hot summer. In the event that SAG does not strike, we may seriously consider other options, such as stuffing a tube sock in her mouth or shipping her out of state and replacing her with a less loquacious, more energy-efficient actress such as Helena Bonham Carter.

Of course, this is all intended as food for thought, and none of it is written in stone. But I believe that only once California has solved our Julia Roberts problem can we begin to address other, more serious threats to the power grid, such as Tom Hanks.

Sincerely,
Loretta Lynch
President, Public Utilities Commission

Andy Borowitz is the author of The Trillionaire Next Door and the humor column "The Borowitz Report" on Newsweek.com.

An impressive number of MBAs start their own companies straight out of business school. Stanford reports that 14 percent of its MBA class of 2000 launched businesses either while at school or shortly after graduation. At Harvard, the figure was 12 percent. The Wharton School at the University of Pennsylvania (dossier) and the Sloan School at MIT report a more-modest 5 percent rate of entrepreneurship during school or immediately after graduation. While the numbers aren't yet in for the class of 2001, professors agree that the entrepreneurial spirit is alive and well on campus, even if the prospects for starting new companies aren't good right now.

The companies being planned these days are chasing the latest trends - wireless, infrastructure, biotech and social entrepreneurship. Michael Roberts, senior lecturer at Harvard Business School and head of the school's business-plan competition, reports a swift move away from Internet startups. In 1999, he notes, 85 percent of Harvard startups were dot-coms. This year he's seeing a trickle.

MBAs get involved in startups earlier in their careers, as well. According to Roberts, between 30 percent and 40 percent of Harvard MBAs do something entrepreneurial during their professional lives. But since the mid-1990s he's noticed a big change: Students now start companies within four to six years of graduation, rather than the 10 to 15 years previously. At French business school Insead, more than one-third of MBAs start their own companies within 10 years of graduating.

Entrepreneurial instincts still find expression in the business-plan competitions that many b-schools run. In 2000, 226 business plans were entered at Wharton, 206 at MIT and 100 apiece at Harvard and Stanford. This year, participation in these competitions is down by about half, but the plans going forward appear to be more realistic. "There's less pressure this year in terms of being the 'in' thing," says Harvard's Roberts. "Students are more serious about it."

Wireless and infrastructure are hot, and enthusiasm for biotech is starting to take off. One of this year's finalists in the competition at Cambridge University's Judge Institute was a biopharmaceutical company offering products to accelerate tissue repair. This year at Harvard, there were so many plans addressing societal problems that Harvard created a "social enterprise" track. About a dozen teams entered plans.

Students may be more entrepreneurial, but they're also more savvy about what they want from their education. People don't get an MBA just for the learning; they go, in part, to join an exclusive club - the alumni association. Wharton's network totals more than 70,000 alumni in more than 130 countries, and Harvard boasts more than 60,000 active alumni worldwide. Students now scrutinize those networks as never before, looking for open doors to the new and old economies alike.

For today's more-adventurous MBAs, the network offers a safety net. Right now that means helping graduates who joined failed startups to reconnect with the corporate world. But access to talent and capital also makes b-schools natural entrepreneurial hubs that create opportunities to connect venture capitalists with a younger generation of tech-savvy managers.

Added value also comes in the form of on-campus incubators. Most started life as launchpads for MBAs with Internet business plans, but the focus is shifting to more-robust business models, no matter which industry is being targeted. For b-schools, incubators still provide an important outlet for students' entrepreneurial ambitions - and a living laboratory to help faculty understand new business models.

B-schools are also formalizing the ties with venture capitalists that flourished during the dot-com boom. The University of Michigan (dossier) Business School has a year-old program titled "From Idea to IPO in 14 Weeks." Similar to the how-to courses that took root during the dot-com boom, the class opens with a group of VCs explaining what they look for in potential investments. The VCs return at the end of the semester to listen to pitches for startup capital. One of the VC firms - Los Angeles-based ITU Ventures - asked to sit at the back of the class to get a head start on the competition. Michigan charged the voyeuristic VCs at ITU $12,000 for the right to observe.

"Last year a lot of the students were destined for Wall Street or consulting firms and just did the program for the experience," says professor Josh Coval, who runs the Michigan course. "This year the students are more genuinely entrepreneurial."

That's a sentiment echoed by students and faculty at other business schools. The dot-com shakeout has deterred MBAs who saw a way to get rich quick, leaving the field open again for die-hard startup junkies. Many more students are entrepreneurs-in-waiting, biding their time until the economy recovers. "I'm sure I'll start another company in the future," says Melinda Rothstein, class of 2001 at MIT's Sloan School. She says she got "startup burnout" launching a dot-com last summer and this year went back to basics studying finance and accounting, so that her next startup will be more successful. She's looking for a job after graduation with a large, traditional company. While MBAs may be going back to traditional recruiters in the short term, the new spirit of entrepreneurialism is here to stay.

Over the past three years, recruiters have sweetened the pill of traditional employment, but not everyone is ready to swallow. The new MBA generation includes its share of rebels like Alex Chalmers, class of 2001 at the University of Michigan. By rights, Chalmers should be running into the arms of an investment bank or consulting firm, but he has other ideas.

Chalmers left Michigan's business program early to join Volera.com, a Novell (NOVL) spinoff that has attracted two other Michigan MBAs. "After working in consulting and at large tech companies before my MBA, you couldn't pay me enough to be a salaryman," he says. "Quite simply, I want the ride - whether up or down - not knowing each morning what the day will bring. Making the choice to go in one direction when all others are going in another is exactly how I want to live my life."

It may sound like youthful exuberance, but it's a voice that b-schools cannot ignore.

The Industry Standard - The Young and the Cautious - Comments

The Young and the Cautious