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4 ways an MBA can help with an entrepreneurial career

One could easily argue that entrepreneurship is vital to our nation’s spirit. America’s history is full of aspiring business owners who, armed with innovative ideas, began small businesses and grew them into multimillion-dollar corporations. Starting your own company is exhilarating and fills you with a sense of pride upon success.

However, this type of prosperity requires more than just a great product. You need a certain amount of business savvy to make it as a long-term entrepreneur. According to 2016 statistics from the U.S. Small Business Administration, only about 50 percent of new companies last beyond five years. That survival rate falls to one-third after 10 years. Despite the fact that 406,000 startups opened in 2013, another 401,000 closed that same year.

Even with these odds, the idea of owning a business is a dream shared by many. In addition, small businesses are vital to the economy. They’re the nation’s biggest jobs creators – according to the SBA, they were responsible for 63 percent of all new positions between the third quarter of 1992 and the third quarter of 2013.

Any business veteran will tell you that being an entrepreneur is a risky lifestyle. The number of failed businesses drastically exceeds the success stories. The reasons are numerous, but a common thread among them is lack of preparation. Many people underestimate how much knowledge and hard work goes into creating a business and believe a simple guidebook is enough to help them succeed.

If you dream of starting your own company, a Master of Business Administration can become your greatest asset. An MBA gives you the background to brainstorm, draft, organize and finance a business in the industry of your choice. Here are several ways an MBA aids your entrepreneurial pursuits:

1. You’ll learn financial literacy

Research how many businesses fail each year, and you’ll come across dozens of articles filled with depressing statistics. One could conclude anywhere from 50 to 90 percent of new companies are doomed to collapse before their first 12 months are up.

Part of the reason for such a high failure rate is a lack of financial literacy among newfound entrepreneurs. These individuals might have a great idea, but they lack the skills necessary to market their product or service and maintain a budget for a new company. In addition, many fall into the trap of over-investing, taking too intensely the notion that they have to spend money to make money. Others force themselves to grow too fast, adding equipment and payroll at the first sign of progress without making sure they can sustain it.

Taking MBA courses gives you the foundation to make solid financial decisions during the critical first few years of operation. Classes in entrepreneurship, financial management and accounting teach you how to analyze risks and rewards, create value for shareholders, finance a newly established company and price your service to maintain your bottom line. Financial accounting courses in particular prepare you to create and read income statements, cash flow statements and balance sheets, giving you an overview of your business’s financial health.

 A woman at a desk in a home office with a laptop and desk calendar.
You can learn to read financial reports as part of your education.

You’ll also review famous case studies during your education, allowing you to obtain important insights into successful business strategies. You’ll learn what works, what doesn’t work and what warning signs to look for if you suspect your company is starting to fail.
Although a master’s degree is an investment, an MBA could save you millions in rookie mistakes. Furthermore, school provides a safe place to test ideas, giving you the opportunity to experiment with different business concepts and research startup costs. You’re also free to solicit feedback from teachers and peers, which you can then use to improve your company ideas.

2. You’ll gain interpersonal skills, allowing you to be tough when it counts

Some businesses are technically profitable but still fail for financial reasons. Their issue doesn’t stem from a lack of payments – rather, these entrepreneurs don’t push their clients to pay them before expenses are due. In their efforts to be amicable business partners, they accept payment conditions based on their customers’ terms and not their own financial needs. Thus, even though the business prices its product to make a profit at the end of the year, it can’t pay its suppliers in July and is forced to close.

Collecting payments on time is especially important for aspiring owners of business-to-business organizations. Research from Euler Hermes found these companies see the longest days sales outstanding. Included in this list were businesses in the technology, healthcare, industrial goods, construction and materials, chemicals and household goods industries.

Part of the reason inexperienced entrepreneurs are willing to accept such long collection periods is that they feel they have no other options. The first few years are arguably the most important for a business, and entrepreneurs don’t want to risk alienating customers by setting strict payment terms. Without accepting payments in a timely manner, however, a new company can’t sustain funding.

Your experience in graduate school will stress the importance of monitoring your cash flow so that you’re consistently able to manage your expenses. You’ll learn how to conduct meetings with clients and assert your business terms fairly but firmly. Contrary to popular belief, an MBA education gives you a mix of both hard and soft skills, making you a better leader, negotiator and all-around businessperson.

3. You’ll learn how to operate efficiently

Entrepreneur Magazine profiled the owner of an organic baby food company who credits her business’ success to her time in graduate school.
“My MBA education helped me personally put all of the pieces together in a clear go-to-market strategy and implementation plan: from an idea in 2014 to a product approved by 450 Whole Foods stores in 2016,” Liliana Cantrell, founder of Sweetie Pie Organics, explained.

Cantrell said her experience in school taught her the importance of organization and efficiency, both vital qualities for attracting the attention of Whole Foods. It’s not uncommon for a small business to suffer from numerous operational errors such as missed deadlines, lack of resources and compliance issues with state or federal laws. Cantrell learned how to avoid these mistakes while obtaining her MBA, putting her above other entrepreneurs and proving to Whole Foods that she would make a satisfactory business partner.

“Efficient operational principles not only opened a lot of doors for us and gave us a competitive advantage but also saved us a lot of money,” Cantrell told Entrepreneur.

Your MBA experience can provide similar benefits. With courses in operations management, supply chain management and data analytics, you can graduate with the knowledge and ability to operate your business efficiently from the day you first open your doors. This can potentially impress future business partners and give them reason to work with you over your competitors.

A financial statement focusing on cash flow and net income.
With the knowledge you obtain from graduate school, you can create an efficient business from the outset.

4. You’ll have essential networking opportunities

Some of the best parts of graduate school are the professional connections you’re able to make. Even if you pursue your MBA online, you’ll obtain a valuable network comprised of peers, teachers, alumni and guest speakers. These people will become valuable allies upon graduation – they might join your company or put you in touch with clients or investors.

The value of networking in business cannot be over stressed. While business leaders aren’t necessarily averse to risk, they do prefer making educated guesses and relying on credible information before agreeing to a deal. That’s why the saying “It’s who you know” rings true in business circles – people in your network are more likely to partner with you because they already know your work ethic.

Networking is even more important during periods of economic uncertainty. A widely cited New York Times article revealed how much established corporations relied on employee referrals in wake of the Great Recession. The article mentioned how accounting firm Ernst & Young increased the amount of referred employees it hired for non -entry-level positions from 28 percent to 45 percent in just three years. Deloitte began offering attractive incentives in addition to its cash payments, including televisions and iPads, for staff members who recommended successful new hires.

This same concept can apply to entrepreneurs. A business might be more willing to work with your company if you went to school with one of its employees, and the connections you make during graduate school could catch the eye of wealthy investors.

On the other hand, some of your graduate-school peers could become lifelong business partners. Think of all the major companies that started from college friendships. Hewlett Packard, the self-proclaimed “original silicon Valley startup,” stemmed from two college friends who began their business in a garage. Starbucks was the brainchild of two coffee-roasting classmates inspired by Herman Melville’s Moby-Dick. If you approach your education with a desire to make these types of connections, you’ll most likely graduate with either a business partner or an address book full of potential collaborators and clients – perhaps both.

Sources:

https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2016_WEB.pdf

http://www.eulerhermes.us/economic-research/economic-publications/Documents/EI-PaymentBehavior-DSO-June2015.pdf

http://www.nytimes.com/2013/01/28/business/employers-increasingly-rely-on-internal-referrals-in-hiring.html?_r=2&adxnnl=1&pagewanted=all&adxnnlx=1396555550-p+OUX05h245nsWchzpvhhw

https://www.bloomberg.com/news/articles/2013-05-22/why-entrepreneurs-need-an-mba

http://www8.hp.com/us/en/hpe/hp-information/about-hp/history/overview.html

https://www.starbucks.com/about-us/company-information

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