Episode Transcript

[00:00:07.290] – John

Well, hello, everyone. Welcome to Business Casual, the weekly podcast of Poets and Quants. I’m John Byrne of Poets and Quants, and I have my cohost here, Caroline Diarte Edwards and Maria Wich Villa. Caroline, as you all know, is the former Director of Admissions at INSEAD, who is a co founder of Fortuna Admissions and Maria is the founder of Applicant Lab. So we’re going to talk about two things today. One is something that’s a real wow, and that is the latest compensation numbers to come out of the Stanford Graduate School of Business. They are a new record not only for Stanford, but for all business schools in the world, the median total compensation. Now, this means your salary, your sign on bonus and your expected performance bonus in year one now exceeds a quarter of a million dollars for a newly minted Stanford MBA. That is just remarkable. The actual number, incidentally, is $257,563. Now, that’s one thing we want to get into. The other thing we want to get into is for all of you people who want to make that kind of money, should you apply in Round Three to an MBA program, and particularly to Stanford, where you can apply in round three?

[00:01:38.990] – John

As many of you will know already, Harvard does not have a round three. Maria, would you pay a Stanford MBA if you were in a hiring role at a company? Would you pay a Stanford MBA $257,000 to start?

[00:01:57.000] – Maria

If they’re going to make my company $3 million or more in profit, then sure.

[00:02:01.700] – John

She’s doing the multiple.

[00:02:07.690] – Maria

The market go capitalism, right? Supply, demand. If these employers are willing to pay that much, it’s presumably because these graduates are providing a minimum that much value, but presumably much more value than that to whomever is employing them. So, great. Good for them. Haza, haza.

[00:02:31.550] – John

Now, the base salary, what this comes down to is 182,272 for base salary. Sign on bonus, about $34,000, and then the expected performance bonus. And this could be an optimistic number because you never know what can happen is $91,000, up from 78 the year before. So a really big jump in that number. There was also an increase in the actual salary number as well. Caroline, what do you make of this? Why do you think Stanford MBAs make much more than MBAs from any other school in the world? Why?

[00:03:09.800] – Caroline

Well, Stanford is in the heart of Silicon Valley and it attracts a lot of people coming from venture capital and private equity and a lot of people who plan to stay in that industry or who are looking to make a career switch into private equity or venture capital. Right. This is the sort of mecca for those people that career focus. So I don’t think it’s that surprising that they are ahead of the game in terms of average salary for graduates. And also, it’s a very small class, right, compared to some other programs like Harvard Business School. So Harvard actually may be placing more people in terms of actual numbers into private equity and venture capital overall, but it just happens to be a high percentage of the Stanford class and therefore that pushes the average up. So I think it is largely driven by that particular industry.

[00:04:11.550] – John

Yeah, that’s really true. The interesting thing about that, and this bears on admissions, is that in most cases you can’t get a PE job or VC job out of business school unless you’ve had prior experience in the field or at least experience in investment banking. So this also suggests that admissions on one level is favoring people who come from private equity or venture capital because there’s no other way that 26% of the class, more than one in four of the graduates are going into one of the two fields. And the three most lucrative fields that MBAs can enter are private equity, venture capital and hedge funds. And in all three of these there are usually very large year end performance bonuses that are given to everyone who works on those teams. And that is really the secret of why these numbers are so big. And you look at even Wharton, Columbia and Chicago schools that historically are well known for their finance programs and tend to put a lot of people in finance jobs, their numbers come not close at all to the numbers at Stanford and private equity investor capital. Harvard’s close. 22% of the latest graduating class at Harvard went into PE and VC, but no one’s at this kind of level at 26%.

[00:05:39.840] – John

And that’s really the secret behind the big numbers here over the years. Caroline, have you noticed that people who do come from these backgrounds have any kind of advantage in admissions at Stanford? Because I can’t imagine they can place this number of people without an actual concerted admissions policy. I know I’m creating a conspiracy theory here, but I just don’t think it’s possible that you can put one in four people out of your graduating class into those two fields without admissions focused on this.

[00:06:15.610] – Caroline

Right. Private equity and venture capital notorious for favoring people with a very relevant background for recruitment. So it’s not always easy for people to switch into those industries. Post MBA people do do it, but it’s one of the tougher career switches to make. And so I’m not sure what percentage of the incoming class is coming from that industry. But I think that it’s not just Stanford. I think that young professionals coming from those industries typically do pretty well across the board with admissions to the top schools. I saw that at Incyed. I think that’s also the case at Harvard Business School, and it’s partly because there are fewer people right, with those backgrounds than there are, for example, investment bankers or management consultants. So it’s not such a common profile that it has become so ridiculously competitive as it has for some other typical pre MBA feeder profiles.

[00:07:19.630] – John

And here’s another interesting thing about the employment report, one that you might not expect given what’s happening to the tech sector right now. More Stanford MBAs went into tech in 2022 than in previous years, making more money, and many more started their own tech ventures. Now, one wonders, when the pink slips are given out, how many of them will go to Stanford MBA? I tend to think that if you land a Stanford MBA, you don’t want to let a Stanford MBA go. Maria, am I wrong or is it just a dollars and cents calculation for a company that’s wanting to reduce expenses and they don’t really care?

[00:08:01.870] – Maria

I mean, I don’t want to give the same answer twice to the questions that I’ve been asked, but if that Stanford MBA shows up and they knock it out of the park, no, I’m not going to lay them off. But if they show up and they’re like, I have a Stanford MBA and I’m just going to sit here and stare at a wall and not do anything, then of course I’m going to lay them off. I think once you get out into the re real world and you’re working your work itself, your work performance itself is what dictates whether or not you’re on the chopping block or not. I think going back to the topic of, yeah, a lot of people are getting into venture capital and private equity, but that’s because a lot of them already had it. I would say that I have definitely seen that, and I think specifically, it’s not just simply having a job at a venture capital firm or any job at a PE shop. I think the people who are having a lot of success, in my mind, they’re sort of a hierarchy. And if you want to get into, say, a Stanford or a Harvard from the Pevc world, it’s not just enough to simply be working in it.

[00:09:03.570] – Maria

I think you have to have been for example, you have to have evidence that you’ve been driving portfolio decisions, that you have had an impact on the investment committee where you work. The people that I have worked with who have had the most success at the very elite schools, for example, they have convinced their private equity fund to invest in a new sector that they were not previously considering, or they take over a portfolio company for six months and they turn it around. So just as a heads up, when we’re talking about the fact that these people have this experience in order to get into the higher the higher the school is, the higher that Bar is for not just simply saying, well, I work at firm X or firm Y, but actually having that track record of impact. And so then if you think about it, it becomes a self fulfilling prophecy. Because if I accept the people in the applicant pool who have been who were the temporary COO or whatever of a portfolio company. And during those six months, they turned the company around. Of course, then those people will command a higher salary when they graduate because they have an actual track record of saying, look, we raised our second fund and I helped divert some of that.

[00:10:14.800] – Maria

We were going to invest more in, I don’t know, cryptocurrency. And I said, no, let’s instead do something else. And that turned out to be a really good bet. And I was able to turn this company around, this portfolio company around, in other words, because these people have these achievements. The sorts of achievements that get them into Stanford to begin with are the sorts of achievements that I believe firms are and should be willing to pay for, assuming that they can replicate that track record of success and in fact, build upon it, given that they now have the MBA education in their pocket. So I do think that the school does select for those people. So it does become a self fulfilling prophecy.

[00:10:57.570] – John

Yeah, exactly. So if you’re out there and you’re thinking, oh my God, if I go get an MBA, I can make not only more money, but a lot more money. In fact, I can graduate and get a job and earn a quarter of a million dollars in my first year out. Think twice, if not three times about that, because we are really talking about exceptions in special circumstances. And with the economy going the way it is, I would expect that we’re not going to see record compensation for the graduating class of 2023. If anything, we’ll see a little setback probably, don’t you think?

[00:11:41.330] – Caroline

Yeah, I think that’s likely. But in any case, for someone who’s thinking about going to business school, I wouldn’t take the short term trends into account because it’s a long term project. Right. Or at least it’s a medium term project heading to business school. So someone applying now is going to be graduating the earliest in a couple of years, and the economy may well be very different then. So no one has a crystal ball and can predict exactly when is the perfect time to head off to business school, so that when you graduate, you are at the peak of graduate salaries. And in any case, right, these things, I think they sort of iron out over time. So if you do happen to be coming out into the market when there is a terrible recession, maybe you won’t get your first choice job or employer, but people find ways to take additional steps and maybe make that career transition a year down the line or two years down the line. The MBA is something that serves you in the long term. So it’s not just about landing that immediate post MBA job, but it’s about equipping yourself to manage your career effectively in the long term.

[00:12:53.550] – John

Yeah, very true. Which leads us to round three. These are the deadlines that at many schools are the final deadlines for admission in the fall of this year and 2023. And most of them are in late March and early April. In fact, on April 11 is the deadline day for round three at Stanford, Chicago, Yale, MIT and Cornell. April 5. It’s Kellogg. March 27. It’s Dartmouth Tuck. March 20. It’s Wharton. But we also know that Round Three tends to be the smallest round, and it’s the round where admission officers often are looking for people who fit a certain profile to help the diversity of the class. Is it worth even applying in Round Three? And I’m imagining that there will be many people who could apply in Round Three, given the extent and the lateness of many of these tech layoffs, where you have a lot of young people who may not have a graduate degree and this could be a perfect time for them to apply. Maria is round three sensible.

[00:14:09.090] – Maria

Normally I tell people to not even bother with round three, that at this point you might as well just wait the extra six months and apply in round one, mostly because I feel like most of the seats on the bus have already been given out, and so it’s basically standing room only by the time you get to round three. However, I do think that this year has been a very strange year. And we keep saying that every year it’s like, oh, this year is an even stranger year. But what’s been strange about this year is that the quote unquote end of COVID last year and there was the end of COVID so to speak, and the war for talent and employers were throwing all kinds of money at people to get them to stay and to get them to come back to the office. And so I think in the earlier part of the admission season, that is mostly Round One and even into Round Two, I think a lot of young people were thinking, well, I’m just going to stay at my job and make this money and have a nice life. And now with the layoffs that have started really taking off in sort of November, December, and even now into January, I think admissions applications, I think applications for domestic candidates have been down this year pretty significantly.

[00:15:19.660] – Maria

And yet I think that they are they might pick up all of a sudden very quickly. And so I think the schools themselves are signaling to us that they are, that this round three is not like other round threes, because the schools have started saying things like, well, maybe if you’ve been laid off, maybe you don’t need a GMAT. Maybe we’re willing to overlook certain things and we’re willing to roll out the red carpet and extend the deadlines for you. And I don’t think the schools would be making any of these concessions and certainly not signaling these concessions if they themselves were not looking at this Round Three in a very different way than they normally do. So I do think that this Round Three, especially for domestic US candidates applying to US schools, I do think that this is a rare time. I can’t believe I’m saying this, but I do think that Round Three is a viable round this year.

[00:16:08.710] – John

Yeah. Just in the past week or so, Dartmouth Tuck announced that they’re offering GMAT and GRE waivers for laid off workers. And not just tech workers, but workers of any industry who have laid off for their full time program through March 1. Kellogg has extended its test waiver through Round Three, basically continuing its overture to laid off tech workers. What do you say about all this, Caroline? I think you are less than they say. Or about round three.

[00:16:41.120] – Caroline

Yeah, I totally agree with Maria that this year is different with the top US schools. I think that they’ve been disappointed with the application volume that they’ve seen so far. And they anticipate that as we head into a period of perhaps a recession or at least an economic greater economic uncertainty and with more layoffs, they anticipate that the following season is likely going to be much busier for them. Right. So they’re expecting that probably there’ll be higher application volume for Rounds One and Round Two in the next season. So the fall of 2023 and spring of 2024. And so they’re trying to pull some of those candidates forward exactly to apply now. I would certainly encourage candidates to give that a shot, especially if now is the right time for them to go to business school. And if they have been laid off, it’s not ideal to have to wait until the fall to apply and then they would be heading off to business school 18 months from now. Right. So that would be a very long time to wait if you are not sure what you’re going to do in the meantime. So I think it makes a lot of sense for those candidates to apply now.

[00:18:01.000] – Caroline

I would imagine that with a school, it’s not going to be a magic formula for getting into, for example, Stanford, right? Perhaps there will be a couple of extra slots and some people will be lucky. But it’s still going to be very competitive. Right. It doesn’t mean that there’s now some sort of magical backdoor to get into business school. A lot of people will have the same idea. But still, I think that now may be a better time to apply than in the following season for many candidates. Sorry, I was just going to say, having said all that, I think it is very much a phenomenon with the top US schools that Round One and Round Two are particularly competitive. With the international schools. That is not so much the case. And many of them have more than three rounds rather than four rounds. Some of the other international European schools have five or six rounds or rolling admissions, so that it just gives you more options for when you can apply. And those could be great options for candidates who are thinking, right now, I’d really like to head off to business school later this year and not have to wait for another full year.

[00:19:16.450] – John

Right, exactly. And I think another point that we have made already in earlier podcasts was the sense that we felt admissions officers were putting a lot more people on waitlists because they didn’t know how each round would fall, given the decline in domestic applications. And if that’s true, it would indicate that there’s a little bit more room in the available classroom seats for Round Three candidates, because there are probably too many on the waitlist from Round One and Round 02:00 A.m.. I right on that.

[00:19:55.860] – Caroline

Yeah. I think there may be some movement on the waitlist now. You’re right that there has been a lot of weightlifting this season. I think it’s an uncertain period and likely rounds one and Round Two were a bit disappointing, so they’re sort of hanging on to some candidates to see what else they get coming through the pipeline now.

[00:20:17.830] – John

Right. If you apply in Round Three, should you apply differently in any meaningful way from someone who would apply in Round One or Round Two? I can’t imagine that you would, but maybe I’m missing something.

[00:20:29.820] – Maria

Maria, I think the fundamentals of your application would be the same. However, you may want to explain why now, why are you applying now in Round Three? If you were laid off and business school wasn’t originally something you were considering or you were only mildly considering it? I do think that explaining the circumstances to why you’re applying in round three, I would address that probably in the optional essay, just to make it clear that what your thought process has been and why now is the time for you to apply. Because it is uncommon to apply in round three for the US schools. So that’s the only difference. But everything else I would do exactly the same.

[00:21:08.780] – John

And I imagine there can be no better justification than, I just got laid off, I was intending to get an MBA all along, but I wasn’t going to do it until next year. But because I’m laid off, it’s just a great opportunity for me to take the time out, to develop more skills and to go for it now. Isn’t that right?

[00:21:27.580] – Maria

Exactly.

[00:21:28.570] – Caroline

Yeah, I think so. And just from experience of reviewing candidates in the final round, it is yet it is more common and that’s probably why schools allocate far fewer places to their final round. It is true that there is more variable quality in that final round, so you tend to get more candidates applying in the last round who have just, you know, they’ve prevaricated, they haven’t got their act together and they’ve sort of thrown things together at the last minute. The average quality is typically higher in the early rounds because then you get the candidates who are really well prepared and have been planning this for perhaps years in advance and have really thought very carefully about their timeline. So you want to make sure, if you are applying in a final round, that you make it clear that you’re not one of those sort of last minute candidates who has thrown things together in haste. Right? So I think it’s always important, as Maria said, to put together a strong application and do a thorough job. But perhaps even more important in the final round, just because the schools are so used to seeing candidates who are somewhat slapdash apply in that final round that you can stand out if you submit a really well, thoroughly thought through application.

[00:22:58.090] – Caroline

And just be careful to make sure that you haven’t made any careless errors in your submission, because they do see that more frequently in that final round.

[00:23:07.310] – John

So this could very well be the case where the late bird gets the worm, right?

[00:23:14.080] – Caroline

Absolutely.

[00:23:15.150] – John

So that old proverb, the early bird gets the worm, one who rises first is the best chance for success, may, in fact, not necessarily be true this time, particularly because of all the layoffs and the different sort of waiver policies and extended round three deadlines that we’re seeing schools offer right now. And given the decline in domestic applicants, So even if you don’t can’t get in, I also think in round three, what it is to me is practice. Practice for round one next time, if in fact you don’t get in. Because if you’re doing an application now and a standardized test this late in the game, you may not be able to put your best foot forward, let’s face it, but you’ll be laying the groundwork for a really good application around one of the following time and that’s worth something as well. So for all of you out there, good luck on your MBA journey. Maybe you will get into Stanford, maybe you will be among the stats next time, earning a quarter of a million dollars to start. We hope you are. This is John Byrne with Poets and Quants. Thanks for listening. Thank you.