Using An MBA To Do A Startup + The New GRE & GMAT
ApplicantLab |
October 5, 2023

In this episode of Business Casual, our hosts will discuss two important and relevant topics surrounding MBA programs today. First, they will explore the significance of MBA programs as incubators for business ideas and showcase the success of MBA startups. This discussion will encompass the diversity of ideas and the global locations where these startups are thriving. Second, the hosts will delve into the recent changes in the GMAT and GRE admission tests, with a specific focus on the shorter duration of these tests. They will also address the implications of these changes for test-takers and how the new scoring system for the GMAT may impact applicants.

Overall, this episode provides valuable insights into the value of MBA programs for aspiring entrepreneurs and sheds light on the evolving landscape of admission tests.

Episode Transcript

[00:00:07.210] – John

Hello, everyone. Welcome to Business Casual, the weekly podcast of Poets and Quants. I’m John Byrne, the editor of P. Q. And with me today, as always, are my co hosts, Maria Wich Vila and Caroline Diarte Edwards. Maria, as you all know, if you’re listeners of this podcast, is the founder of Applicant Lab and a Harvard MBA. And Caroline is an INSEAD MBA, but also the former Managing Director of Admissions at INSEAD and the co founder of Fortuna Admissions. We’re going to talk about two things today. Number one is an MBA program, a great place to incubate a business idea. And number two, we’re going to take a look at the new accelerated shortened test for admissions, the GRE, which has now gone live and thousands of people have already taken it, and the new shorter GMAT, which will be available to be taken on November 7. So, right around the corner, and we’ll talk about what you can expect from those two tests. I want to talk about MBA startups because this past year, 19% of the graduating class at Stanford started a business which is extraordinary. More commonly, it’s something like 5% at other business schools.

[00:01:29.920] – John

Stanford has always been on the high end and every year one of the things that we’ve done for quite a few years now is to take a look at the top 100 MBA startups of the year. And we do this by going to each of the schools and asking them to identify startups that have been launched in recent years. And then we go, we find out how much money these startups have raised, largely from venture capitalists and angel investors. This year, two INSEAD startups are at the top of the list. Gorillas, which is a grocery delivery service, has raised almost $1.4 million. Cap Chase, a fintech firm from INSEAD, has raised nearly a million. In fact, out of the hundred startups on the list, INSEAD has ten and those ten firms have raised more than 2 billion dollars. So you probably know if you’re interested in starting a business and you tell someone, oh, I’m going to do it in a business school, you know what they’re going to tell you. Take your money that you would spend on tuition and use it as your seed capital to launch your business. Don’t waste the time or the money to do it in a business school.

[00:02:50.220] – John

Caroline, what would you say to that?

[00:02:53.340] – Caroline

Well, John, obviously I would say that that’s bad advice. Of course, at business school, you’re going to get a lot of knowledge and skills and network that will minimize the risk, I think, in launching your business. Although I would say I wouldn’t necessarily launch it while you’re at business school. And I know some schools discourage that because it’s just difficult to have a very intense day job as well as a very intense full time MBA program to juggle at the same time. But it’s certainly a great place to develop your plan and get feedback and have access to an incredible network that can be a fantastic resource and source of funding and so on. We often hear criticism of business schools and MBA programs, particularly coming out of places like here in Silicon Valley, and it doesn’t add value if you’re going into a startup. But I think the numbers that you have in this article really contradict that. It’s incredible to see that nearly 20% of Stanford’s graduating class now start their own venture. I mean, that’s huge, right? And also we’re looking at the number of people who start a business when they come out of business school.

[00:04:13.380] – Caroline

But of course, there are far more people who, in the longer term, start a business. Right. Not everyone is able to launch their business straight out of business school because they may need to go and work for a consulting firm or a bank or a corporate to pay off their business school loans initially. And a lot of people then go into an entrepreneurial business sort of 510 years later. So business schools are incredibly entrepreneurial communities. And I think the schools have a lot of the top schools, offer incredible programs, electives courses. INSEAD she mentioned has a wonderful entrepreneur in residence program where you can get advice from people who really have that experience in the trenches and that’s invaluable to have access to that and get feedback in a safe environment. Where you can develop your idea, maybe build partnerships, partner with people who are your classmates, and also generate ideas that you might never have thought of. One of the things that your article highlights is the value of the diversity that you get in a classroom like INSEAD and the incredible exposure you get to ideas from all over the world that you might never have thought of.

[00:05:34.620] – Caroline

So that is also something that people draw on and people start businesses that wouldn’t have been on the horizon and on their radar screen before they went to business school. It’s a wonderful environment, I think, to be able to sort of cultivate your entrepreneurial ambitions. And it’s wonderful to see how many successful startups are coming out of business school. And it’s changed a lot. Right? I mean, that was not necessarily the case sort of 1020, 30 years ago. It has grown tremendously, and business schools have really cultivated a wonderful ecosystem that supports entrepreneurs. And it’s great to see that this is being so successful.

[00:06:25.370] – John

Yeah, it really is. The top 100 MBA startups that we cite in this article have raised a combined 9.2 billion. That’s the highest number total number of amount raised in the nine years that we’ve been doing this every year since 2015. Maria, your thoughts?

[00:06:46.930] – Maria

Yeah, I agree with Caroline. I think that, first of all, business school, for people who never dreamt of becoming entrepreneurs, business school does provide a great launching pad for eventual entrepreneurship. I think the statistic is something like 50% of HBS grads eventually go on to start a company at some point in their careers. But even when you’re at school, if you’re looking in the shorter terms of launch to launch something, you might meet a co founder, you might meet someone to bounce ideas off of. You might meet someone who gives you the opposite, who stress tests your idea. And they say, well, actually, I was working at Netflix prior to business school and that’s a terrible, like, this is why you shouldn’t even pursue this idea. So sometimes even getting that sort of a feedback might save you several years worth of pain and suffering. You have this hive mind from so many diverse backgrounds which can actually be such a benefit as opposed to being if you were to join simply a startup incubator where you would be surrounded primarily by startup people and tech people. They might have a very valuable lens, but maybe one or two very specific lenses through which they look at your business idea versus at an MBA program.

[00:07:56.300] – Maria

You’re going to get people from all over with all kinds of backgrounds to really stress test that idea. And a lot of programs really offer fantastic opportunities for you to actually, in a structured way, explore a potential business idea. One of the things that I was really happy to see within the top programs or the top startups on this list were Columbia Business School and UCLA Anderson. I will routinely tell people, I will say this until the cows come home, that if you want to start a business, UCLA Anderson is actually one of the best programs you should look at. Because in their second year, they have something called the business creation option, where you can spend that entire year for course credit, starting a business. So it’s not just something you would do in your spare time through the entrepreneurship center. It’s actually a course and it’s modeled after some of the top tech accelerators. So I was delighted to see, for example, that that’s a school that I think is they always punch above their weight class, in my opinion. And I was delighted to see a number of UCLA Anderson names on the list of the top 15.

[00:09:03.330] – Maria

So I don’t know, I think that there’s always quantitative data. You might say, well, I don’t know if I feel that business school is the right path for me to start a business, but the numbers don’t lie. I mean, this $9 billion worth of funding is not chump change. So I think the market is speaking, the investment community is speaking with their dollars. And so they certainly seem convinced that these are good and solid ideas coming out of business schools. So hopefully that’s enough to convince even the most doubtful skeptic.

[00:09:35.550] – John

The other thing about them is sort of the diversity of ideas that are being generated. These are not dating app companies. They are pretty sophisticated enterprises. Six of the top 15 are in fintech. There are several in biotech, ecommerce, real estate, childcare, automotive, car sharing, consumer goods, real estate. It’s pretty amazing. The list, and I think a lot of this has to do with the fact that many business schools now are trying to connect their graduate and undergraduate students at other university departments and schools with business school students. So it’s not just a bunch of MBAs getting together and doing their own thing, but in fact they’re finding partners in schools of engineering and computer science and medicine and law and launching companies with them from a multidisciplinary point of view. So that really adds a lot. In some cases, these startups actually commercialize discoveries that have been made on campus by others and yet are just laying there for the taking. And that’s often a very big source of it. And the truth is, look, yeah, you could take the money you would save from the tuition that you pay and use your seed capital and use that as seed capital.

[00:11:06.160] – John

But the truth is, what do you know about accounting, finance, strategy, marketing, operations? What do you know about truly leading a team and getting people to collaborate with each other? Never mind not really having a natural network of people of guinea pigs even to test your idea out, or having mentors like faculty who are serial entrepreneurs who can guide you along the way and help you pivot from one thing to the next. Because oftentimes your initial idea really needs to be cultivated and nurtured along and rethought. And that’s what a great business school entrepreneurship program can, you know, just piggybacking on what Maria and Caroline said. Schools in the past quarter of a century have devoted massive resources to entrepreneurship largely because so many students are interested in it. So even among the students who don’t launch a business right away, there is always in the back of their mind, yeah, this is something I would love to do sometime in my life. And then there are many people who launch it as a side hustle where you’ll take your job, your traditional mainstream MBA kind of job, but on the side you’ll nurture along a business and see how it goes.

[00:12:24.740] – John

And if it really starts taking off, then maybe you leave your job. And one thing that Maria pointed out, of course, is even if your startup fails, and obviously the failure rate is high and much lower, probably for MBA startups, incidentally, you have the MBA to fall back upon, which is not a bad thing. Now in many of the schools have in UCLA’s case, a sort of capstone course where you can either work for a company on a consulting team or you can start your own company. So you’re getting credit for your startup, academic credit, along with all the support and help and access to funding in many cases because there are many competitions at different schools that allow you to practice your ability to deliver an elevator pitch and your ability to therefore gain access to capital to fund your business. Of the businesses that we’ve highlighted here Caroline, are there any that really caught your eye?

[00:13:28.410] – Caroline

Well I was interested to see that INSEAD had highlighted some that are addressing issues of climate change and incredibly interesting ones around the world. So for example, there’s one that it’s an aquaculture startup called Good Tom which apparently means good shrimp in Vietnamese and they’re trying to change how farming is done across Southeast Asia by empowering farmers to be more efficient, sustainable and profitable. I thought that was very interesting and actually when I graduated from INSEAD I worked with the International Finance Corporation and one of our projects was working with Seaweed farmers in Indonesia. So that really jumped out of me as an interesting and exciting business. And then there’s one that is called Prono which is a CO2 removal company. So that’s obviously a very important area to explore. We place a lot of hope in those types of ventures to save us from climate change. So I’m thrilled to see that some INSEAD graduates are focusing on that and something that I would just add as well John is so as you know my husband is a venture capitalist and what he always emphasizes when he’s assessing an opportunity is he looks at two things, right?

[00:14:54.190] – Caroline

So he’ll look at the idea and see how viable that is and then he looks at the team and the quality of the team is really important because they know that as you said, likely things will change. You may have to completely change your business model at some point, right. You have to be very nimble as a startup and the market can change very quickly or everything can you may get due to competitive pressure, you might have to change your plan very quickly. And so whilst they are looking to evaluate an idea, they know that the idea might have to change. What they care about very deeply is the team, right? And the quality of the founders and they’re backing those people as much as they are backing the idea that they’re working on. And so if you have an MBA from a top business school, those investors know that you have had a really solid education that gives you the credibility that you’ll be able to tackle pretty much any issue that comes up because you have that breadth, that really solid foundation that you’ve gained during that business school program. So it gives them some security and some comfort that you bring a lot to the table if you’ve got that top notch business school.

[00:16:25.210] – Caroline

I think when you’re thinking about showcasing your idea to potential future funders then having that credibility and that business school education can be really powerful.

[00:16:36.930] – John

Yeah, totally. Maria, any of these stand out for mean?

[00:16:42.030] – Maria

I think the diversity of topics is something that really stands out for me. But know, for me, some of the fintech ones really stood out. But one thing that I also wanted to highlight is the diversity of locations, right? I mean, up until, I don’t know, recently, there was this idea that if you wanted to build a startup, you had to go to Silicon Valley, maybe New York City for Silicon Valley. But looking at the locations for some of these, I see Berlin, Mexico City, Jakarta, Singapore. Even Lahore, Pakistan. So one of the things that I think is really exciting about this list and why I think everyone should check it out is that it shows you not just the breadth of ideas, but the breadth of geographies. And that’s very exciting to me. I think there’s an acceleration of globalization in terms of access to capital and the ability to launch your business anywhere. So I thought that was really interesting.

[00:17:33.010] – John

Yeah, definitely. So if you want to check it out, go to Poets and Quants and you’ll see our annual story on the top 100 MBA startups of the year, and you’ll have a look at some of the ideas and some of the people behind them and the challenges that they’ve had to face in launching their businesses. Now, a lot of big news here for the current applicant class, particularly those who intend to apply in round Two and Round Three, and then after that are the new admission test. GMAT and the GRE both have undergone a major revamp and are much shorter than the earlier tests that were taken. In fact, the GRE takes now almost half the time you can take it in. Really, it’s only 1 hour and 58 minutes, which is remarkable. And the new GMAT, which will be available on November 7, you can take in 2 hours and 15 minutes. The launch date for the GRE was September 22. And on that day, thousands of people took the test for the first time. And these organizations largely reduced the length that it takes to take the test by eliminating questions. So the new GMAT, for example, knocked out a whole bunch of quant and verbal questions.

[00:19:12.450] – John

Same is true of the GRE. And in fact, in some cases, the new GMAT even eliminated sections. For example, there’s no longer an analytical writing section in the new GMAT, and the new GRE reduced that section from two essays to one. So that’s how they’ve been able to squeeze the time out of the test. The new test at the GRE cost $220 to take. The new test at GMAT cost $275 to take. And the big question, really, for admission officers is how valid will the new test be? Both the Graduate Manager of Admission Council and Educational Testing Service, which administers the GRE, insist that there’s no change in the validity or rigor of the test. So what are the advantages, Caroline, you think, of having a shorter test to take?

[00:20:18.150] – Caroline

Well, I’m sure that the schools are hoping that it will be a less intimidating test for candidates and therefore encourage more people to be willing to take it. I’m sure that the test administrators have invested a lot of time and effort in making sure that the validity is still there. Right. As you say, these tests are a very important predictor of academic capacity for business schools. Of course, it’s one part of the picture, right? It’s not something that’s going to get you in or and it’s not something that will automatically get you eliminated either way, but it is still an important part of the picture for most schools. And so I think that validity is expected to be there. But the schools will definitely be very carefully tracking that right to see if there is any change in the correlation of how people have performed on those tests and then how people perform academically on the programs. But the GRE is essentially, I think it’s more or less the same test. They’ve just cut it back, so it’s not as long. And the GMAT, they’ve actually changed some of the sections, so it’s a bit more of a fundamental shift in that test.

[00:21:42.240] – Caroline

So I would imagine that the schools will be carefully monitoring those, that there’s a new section in the GMAT. They’ll be looking to see how that performs. As we’ve mentioned before, I think in some ways it’s a shame that they’ve eliminated the essay. Write at the time when artificial intelligence means that schools may be wondering to what extent candidates have actually written their own applications or not. You wouldn’t be able to get AI to write your response to an essay or I think it would be much more difficult to use that in the context of a GMAT test. So that might have been a mistake. Time will tell. But I understand that they were trying to cut it back to make it more appealing in some ways, or at least less of a huge obstacle for people to get through.

[00:22:39.330] – John

That’s true. And I should remind everyone that one of your colleagues, Caroline Judith Silverman hadera has written a piece on this called What’s Changing in the New GMAT and GRE? You should look that up on the Poets and Quants site as well to give you an overview. Maria, do you like shorter tests?

[00:23:00.170] – Maria

Who doesn’t like shorter tests, right? Come on, teacher’s pet. What kind of a question is look, I think I think the shorter test, hopefully, as Caroline said, hopefully it’s going to be a lower barrier to entry. It’s going to be perceived as it’s going to encourage more people to apply if it is perceived as being easier. I think one of my quibbles that’s happened since the first time we sort of addressed these newer tests when we first found out about them, is I just realized recently that the GMAT has issued how it’s going to be scoring its new revised GMAT. So the GRE, as Caroline pointed out, they’re just eliminating some questions. They’re taking the same test but just making a shorter version of it. And so the scoring scale is going to be the same. So presumably a 163 and quant on the old one should be equivalent to a 163 and quant on the new one. The GMAT, on the other hand, has changed the scoring in a way that for me, from a marketing perspective, god bless these people. I think the psychometricians are amazing, but I think the marketing people at GMAT are just not really capturing.

[00:24:08.990] – Maria

For those of you who don’t know. Now, instead of going in ten point increments, the scores go in five point increments and INSEAD of going so from like, say, 200 to 800, it goes from 205 to 805. Okay, so great. More granularity. Perfect, right? Who doesn’t love more granularity? It lets you really get down into the weeds and it eliminates some of the pressure of going from like a 730 to a 740. However, unfortunately, they published a new percentile ranking chart. And for example, because of this new scoring system, it’s going to become a lot harder to get a score that quote unquote, sounds good. So to give you an example, a 98 percentile on the GMAT in the past would get you about a 750 on the old GMAT exam. But now on the GMAT Focus edition, it’ll get you around a 700 flat. So I am concerned. People have been asking me, should I wait for the new GMAT? Should I take the old one? And it’s an interesting conundrum because on the one hand, the newer GMAT, because it’s an unknown quantity, there might be some lenience there, right? Because the schools have not yet had a chance to really wrap their heads around it.

[00:25:16.870] – Maria

If you’re a little bit nervous about your score, maybe there’ll be sort of a pass this year or kind of like, well, maybe they didn’t do great, but it’s a new test and we’ll just kind of look the other way. However, if you are a good test taker, I think you should take the old GMAT because a 98 percentile 750 sounds way better than, say, 695. And I’m also concerned about for generations, the GMAT score has been what a lot of people in the business world have used as a shorthand way to assess an MBA student’s academic talent. And so if I’m an older banker and I’m hiring people, new associates to join my program, and they say on their thing, well, I got a 695 on the GMAT, I’ll think to myself, that’s not terrible, but it’s not great. But that would have been a 750 before. So it’s almost like even if you are a really strong test taker, your score is going to seem lower. So the psychometrics of what the test is testing might be solid, but the psychology of what that lower score might mean to the market. I don’t know, guys.

[00:26:30.200] – Maria

I don’t think it was a great if they’re going to have a completely new test, they should have gone with a completely new scoring system. Or if anything, made it easier to get a higher score. So then that way you feel better about yourself. I’m just sort of spitballing here, but I was flummoxed when I saw the fact that a 695 used to be a 750. Am I alone? Maybe I’m just sort of railing away here in my little cubicle, but I don’t know, guys.

[00:27:08.710] – Caroline

It might cause some panic from test takers who don’t realize what’s going on here.

[00:27:13.360] – John

Yeah, I hadn’t realized that, actually. That’s really remarkable because you’re right, the magic number for many applicants over many years has been like 700. Anything above 700 and you feel really good about yourself because, after all, it’s a damn good score when the average score on the GMAT is something like, what, 546, 550, something like that. But now this kind of gets thrown out the window on some level. A lot trickier.

[00:27:47.950] – Maria

A 700 used to be 87th, 88th percentile, and now it’s 98th percentile.

[00:27:56.090] – John

Yeah. Wow.

[00:27:57.950] – Caroline

It’s kind of going against the American trend of grade inflation.

[00:28:01.440] – Maria

I know. What happens to everyone gets a trophy.

[00:28:04.430] – Caroline

Yeah. That’s not fair.

[00:28:06.890] – John

Yes, I will. You know, you raise a good point about the marketing, because that could put more people in the GRE camp more than anything else. Never mind the writing requirement that the GRE is maintaining that the GRE itself, after I interviewed them, believes is a major advantage to their test for business schools. And they claim that the new Data Insights section on the GMAT is already covered in their Quant section, and they maintain maybe they need to change the name of it to reflect that, which is what they told me. But this scoring thing is a big issue, frankly. I’m glad you raised it, Maria.

[00:28:59.830] – Maria

And it’s sad because presumably the Focus Edition was launched entirely to counter the GRE. Right. I mean, you got to imagine that that’s the main it was not. That was the main driver. So gosh g way.

[00:29:15.010] – Caroline

Maybe a bit of an own goal there.

[00:29:17.570] – Maria

Yes.

[00:29:18.850] – John

Fascinating. Now, how did you discover this? Because I missed it.

[00:29:28.870] – Maria

It’s only because I was chatting a week or two ago with a GMAT tutor. I can’t take credit for discovering this. I think people in the GMAT tutoring community, because obviously they’ve had to be keeping on top of this way more than those of us in the broader admissions field have had to. Right. They’ve been obsessively following this understandably so. And so he’s the one who brought it up and was like, this is so sad.

[00:29:57.710] – John

Wow. Yeah. I think this is a major marketing mistake, frankly. That’s fascinating. Well, there you have it, everyone. Maybe there needs to be an MBA startup that creates a third new test seriously.

[00:30:16.910] – Maria

There we go. That’s a startup we’re starting, guys. Let’s do it.

[00:30:20.260] – Caroline

Better test than a new ranking, right?

[00:30:22.700] – John

There you go.

[00:30:24.790] – Maria

New rankings and new tests. And to the moon.

[00:30:28.650] – John

And of course, I might say that because of this revelation by Maria here, you can expect a story on this over the next day or two on Poets and Quants, because I think this is fascinating. Wow.

[00:30:43.930] – John

All right, everyone, thanks for listening. It’s John Byrne with Poets and Quants. You have been listening to Business Casual.

Using An MBA To Do A Startup + The New GRE & GMAT
ApplicantLab |
October 5, 2023

ApplicantLab

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