MBA Students Drop Out, Link Up, Cash In on Web

What happens to a dream deferred?

If you’re an MBA student with a great Internet idea, maybe someone swipes your concept, takes their company public and gets rich while you’re still studying for midterm exams.

Which is why Christopher Jenkins and Alex Wang bailed out of UCLA’s Anderson Graduate School of Management last summer, determined to launch their automotive care “dot-com” before anyone beats them to it.

Indeed, dropping out has become the hot elective for some MBA students in the e-generation who are ditching coveted slots in the nation’s elite graduate business programs to take a flier on an Internet start-up.

Wisdom imparted on campus might last a lifetime, but the e-commerce gold rush won’t, these prospectors say. And with venture capitalists willing to bankroll top prospects with millions in equity capital, some B-school whiz kids are hitting the exits like basketball prodigies jumping early into the NBA draft.

Mallika Chopra is taking her game to the next level. The daughter of New Age luminary Deepak Chopra didn’t return last fall for her final year at Northwestern University’s Kellogg Graduate School of Management after investors put more than $5 million into her plan to build a Web-based business focusing on holistic self-improvement.

“It was a no-brainer,” said Chopra, 28, who plans to launch Los Angeles-based MyPotential.com early next year. “My opportunity is now, not a year from now.”

Even those students patient enough to hang around and graduate are increasingly shunning traditional blue-chip employers and six-figure salaries for the chance to hit it big with an Internet start-up.

It’s a warp-speed transition that has the nation’s business schools bolstering their e-commerce offerings to placate anxious would-be Internet entrepreneurs.

“There’s a feeling that if this train leaves the station, there won’t be another one,” said Mohanbir Sawhney, professor of electronic commerce and technology at Kellogg. “The opportunity cost of waiting two years to graduate has gone way up in Internet time.”

Clearly, a graduate business degree from a top-flight university remains a valuable asset. Many a Fortune 500 executive matriculated at elite programs such as Harvard, where recent salary data show the average MBA student comes in making $68,000 and leaves two years later for a job worth $164,000.

This year a record 91,954 hopefuls applied for a seat in one of the nation’s top 25 MBA programs, up 3% from 1998’s previous record, according to Business Week magazine. At UCLA’s Anderson School, for example, nearly 5,000 applicants vied for just 330 slots in the class of 2001, the most in the school’s 64-year history.

But while the overall number of B-school applicants continues to climb nationwide, the growth rate is only about half what it was a few years ago. A few top programs, such as those at UC Berkeley and MIT, experienced double-digit percentage declines in new applications over the last year.

Admission officials blame the slowdown on a strong economy that’s keeping more young people in the workplace, combined with a demographic hiccup that has produced a smaller pool of twentysomething applicants.

But some young fast-trackers have concluded that potential rewards in the online world far exceed the expected benefits of a B-school diploma.

For the first time ever, elite business schools are seeing students abandon their hard-won seats for reasons other than illness. That is, unless you count dot-com fever.

At the University of Pennsylvania’s Wharton School, for example, 25 of 765 students did not return last fall to complete their final year of the two-year MBA program. Most opted to stay with young Internet companies where they interned over the summer, while a few are pursuing their own online ventures.

At Kellogg, eight students defected to dot-com land. Three took the plunge at Stanford. At other schools, they’ve trickled out in ones and twos.

Those numbers may be small, but they speak volumes about how the Netpreneurship movement is radicalizing would-be captains of industry. Just a few years ago, a fat offer from a top consulting firm was as good as it gets for an MBA grad. Then the Internet exploded and rocked the establishment to the core. The campus counterculture these days is all about building new businesses and challenging old ones. To heck with working for the man.

Jerry Engel, executive director of the Lester Center for Entrepreneurship and Innovation at UC Berkeley’s Haas School of Business, says one-third of his students are now looking to join early stage companies or start their own ventures.

At UCLA, 22% of the class of 1999 chose employment with tech-related firms, up sharply from a few years ago. The revolution is here, says MBA academic director Jack McDonough, and no one wants to miss it.

“The hype and enthusiasm is palpable on campus,” he said. “I got three business plans across my desk yesterday.”

Small wonder. Never in the history of capitalism has so much equity been available to so many young people with so little experience. Those signing up with emerging online firms are commanding stock options, the preferred currency of would-be Internet tycoons. And in an ironic rev1701999457of the old “stay in school” mantra, some students are finding that the earlier they get out, the better.

“I got a much better package as this company’s 16th employee than I would have gotten had I waited to get my MBA,” said John Griggs, a 27-year-old Texan who gave up a seat at Harvard to join Salt Lake City-based Campus Pipeline, which creates intranet systems for universities. “The whole equation has been turned on its head.”

Likewise, those seeking to raise funds for their own start-ups are finding that venture capitalists are not hung up on gray hair, track records or diplomas.

Students like Mallika Chopra don’t need an advanced finance class to calculate that $5 million in capital and the chance to run her own show are worth chucking her $25,000 investment in first-year tuition at Kellogg.

“It’s an unprecedented phenomenon,” said David Schmittlein, academic director of Wharton’s new e-commerce major. “You don’t need 15 years of experience anymore. All you need is an idea that someone is willing to fund.”

But the defections also reflect a creeping panic on campus that this bonanza could be over before graduation. Conventional wisdom says that investors’ passion for all things Internet-related will cool as the industry matures. Ditto for currently overheated dot-com valuations. Meanwhile, new competitors are crowding into the field daily.

Which is why Wang and Jenkins felt such urgency to leave UCLA and start Santa Monica-based Motoreyes.com. Their auto maintenance venture is slated to launch later this month.

“The first-mover advantage is critical,” said Wang, 27, using dot-com speak to convey the importance of getting there ahead of the other guy. “We figured that in another 12 months the window would be closed.”

That might sound like the impatience of youth, considering that the Internet is still in its infancy. But industry watchers say he’s got a point. Some market segments already are dominated by a few strong players whose head start in cyberspace has become a huge barrier to competitors. Consider Amazon.com’s juggernaut in online book retailing.

Whether Wang and Jenkins become the Jeff Bezoses of the automotive set remains to be seen. They’ve already collected nearly $800,000 in seed capital and are in talks for another round of funding.

Even if they stumble, they say, the real-world education they’ve gotten in a few short months rivals anything learned in the classroom. Lessons like securing office space in a red-hot Westside real estate market. (Another start-up snatched their first choice.) Or recruiting staff in an era of low unemployment. (“Everybody wants equity,” Wang sighs.)

Recently an old school chum complained to Jenkins about his grueling workload back on campus.

“Pressure?” replied the intense, bespectacled 29-year-old with a chuckle. “You don’t know pressure until you start your own company.”

This just-do-it mind-set has business educators scrambling to keep their MBA programs relevant in the Internet Age. Elite schools are adding more e-commerce courses. Kellogg and Wharton recently created majors in the field. UC Berkeley’s Haas School has set up an incubator to nurture student businesses and a business-plan competition to put students in the path of potential investors.

Meanwhile, Internet entrepreneurs have become the most sought-after guest speakers on B-school campuses, where they typically receive rock-star treatment.

Kellogg invited talk show superstar Oprah Winfrey to the Northwestern campus last fall to teach a leadership course to 110 business students. In keeping with its capitalist teachings, Kellogg allocates its class space through an auction system, where each student is given 3,000 points annually to bid for entry into all courses. Price of admission to Winfrey’s class, which included guest appearances by power brokers such as former Secretary of State Henry A. Kissinger, was a stiff 1,100 points.

But that’s chump change compared with the 1,486 points--nearly half the year’s allotment--it took to buy a seat in professor Sawhney’s technology ventures course next term. The highlight of that class is a weeklong field trip to Silicon Valley, where students get precious face time with technology experts.

“I’ve got students e-mailing me saying they’ll just die if they can’t take the course,” Sawhney said.

“Oprah is fun. But these kids are more worried about making their own millions.”

The vast majority of them likely won’t, which is part of the reason some business schools are allowing the prodigals to return. Kellogg and Wharton will let MBA students defer completion of their degrees for up to five years. Other schools don’t have such liberal policies on paper, yet administrators have expressed a willingness to accommodate these 12 o’clock scholars.

After all, young technology barons represent the nation’s deepest new source of philanthropy dollars. Witness the $1-billion minority scholarship fund set up recently by Harvard dropout and Microsoft Corp. Chairman Bill Gates.

And if the students strike out in their Internet gamble?

“We’ll still be delighted to have them back,” UCLA’s McDonough said. “Even if they lose, they’ll have a hell of a story to tell in class.”