19 May 2012

Education level (MBA - an area of concern) and entrepreneurial success

By Paul Smith - Regenesys Entrepreneurship Lecturer

Much confusion exists around the relationship between education level and entrepreneurial success. Contrary to popular belief, research has shown that it is unusual for university dropouts to start businesses that perform better than businesses founded by graduates and postgraduates.

Robert Fairlie, a professor of economics at the University of California, Santa Cruz, has done some research that shows that entrepreneurs with postgraduate degrees started businesses that had 75% higher sales than those of university dropouts; entrepreneurs with degrees started businesses that, on average, had sales that were 25% higher than new ventures founded by dropouts.

Other studies, looking at the highest performing entrepreneurs in a particular economy, have shown that most of the best entrepreneurs have a higher level of education than that of their peers. For example; Amar Bhide, a Harvard University economist, did a study on hundreds of America’s most successful entrepreneurs and found that 89% of them had some form of tertiary education. Furthermore, there was an over-representation of entrepreneurs with MBA degrees with 35% of the group having an MBA or another form of postgraduate qualification. This means that entrepreneurs with MBA degrees are six times more likely to become high-growth entrepreneurs than entrepreneurs with only a degree.

SA’s most successful entrepreneurs
My own research has revealed a similar situation in South Africa. Analysis of the book, South Africa’s Greatest Entrepreneurs, by Moka Makura shows that 82% of successful entrepreneurs have graduate degrees and 50% of those entrepreneurs have a postgraduate degree. Many of these postgraduate degrees were MBAs. For example, Koos Bekker (the founder of M-Net) has an MBA from Columbia University, Gary Morolo (the chairman of Datacentrix, one of south Africa’s leading listed IT companies, and co-founder of AKA Capital) aquired an MBA from Michigan State University. A few other South African entrepreneurs with post graduate degrees include Sol Kerzner of Southern Sun, Alan Knott Craig of Vodacom, Mark Lamberti of Massmart, Adrian Gore of Discovery holdings and Whitey Bosson of Shoprite holdings.

Education vs. entrepreneurial spirit
Another common idea I have come across in discussing entrepreneurship with students and business people is that education may stifle an entrepreneur’s creative spirit. Contrary to this belief, much research has shown that individuals with a higher level of education are actually more likely to become entrepreneurs. In his book The Illusions of Entrepreneurship, Scott Shane, who won the equivalent of the Nobel Prize for entrepreneurship research, showed that individuals with a Grade 12 education are more likely to become entrepreneurs than individuals with only a Grade 5 education. Individuals with a master’s degree are more likely to become entrepreneurs than individuals with a bachelor’s degree and individuals with a PhD are more likely to become entrepreneurs than individuals with a master’s degree. In short, the higher ones education level the more likely one is to become an entrepreneur.

As we can see, the evidence overwhelmingly shows that a higher level of education increases the chance of an individual becoming an entrepreneur. Furthermore, education increases the chances that an entrepreneur will succeed.

This is not only important information for aspiring entrepreneurs when planning their careers, but it is also important information for governments when making policy decisions. If individuals with higher levels of education, specifically MBAs, are more likely to start businesses that created employment, generate large tax revenues and improve South Africa’s trade balance it would be good public policy for government to encourage MBA graduates to start businesses.

High-growth entrepreneurs in South Africa
As a result of these findings, Regenesys is seeking to answer the research question: What incentives would be needed to encourage more MBA students to become entrepreneurs? At the same time, we want to help to our MBA students to better understand what incentives would motivate you to become an entrepreneur.

My personal experience has brought me into contact with many people who believe that education may not be the best path to achieving entrepreneurial success. Their ideas have usually been shaped by dropouts such as Steve Jobs of Apple, Bill Gates of Microsoft and Mark Zuckerberg of Facebook. However, many people tend to forget that Zuckerberg and Gates dropped out of Harvard University (one of the world’s top academic institutions) and Steve Jobs had dropped out of Reed College (a leading American art college).

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