93% MBA grads don’t get jobs as 99% Indian businesses don’t recruit from B-schools

India is a country of small businesses, by and large. A car-dealer here, a dosa-idli place around the corner, a grocery store just by the street or the vegetable vendor on the go. Indian streets are a place to do business and they are almost always open.

Just two decades ago, in the 1990s, 85% of the Indian population was self-employed. While this is a living testimony to the power of Indian entrepreneurship, small businesses struggle with scale and profitability.

At the other end of the spectrum are businesses such as Reliance Industries, Sun Pharma, Infosys that started small and went on to dominate their respective industries.

When one reads about the jobs crisis for fresh MBA graduates, often it is blamed on lack of education quality or poor communication skills. What doesn’t get enough attention is the positioning of the B-school recruitment process.

Almost all the schools exclusively target large businesses and are the preferred destination of choice for graduates based on their ability to pay competitive salaries. Because of this positioning, during times when large businesses are not expanding, the demand for graduates dries up.

A possible way to fix the problem might be to find an alternative model by which MBA students can direct their services towards small businesses. Small businesses do not have the ability to offer the same kind of salaries that large businesses can but can equity be an alternative compensation for helping these businesses grow?

A potential model for MBA students to help small businesses could involve a 4-way partnership between a business school, a family business, a current student and a professor or alumni.

For example, a business such as Adigas, which sells South Indian fast food might benefit from some of the sophisticated supply chain expertise available at Subway. In this model, the business school should introduce a compulsory 2-year industry internship with a small business as part of the curriculum.

A portion of the fee from current students should be taken and invested in the small business in exchange for equity. The current student in combination with professors and alumni can then participate in the growth of the small business as both management and shareholders.

The students who participate in this program would benefit from getting a brass-tacks understanding of issues such as inventory management, working capital cycles, cost of capital et al. All management problems they are being coached to analyse and rectify in the classrooms.

Over a period of time, interventions like this would not only allow dissemination of know-how from large businesses into small ones but also expand the data around return on capital/risks in small businesses in India which can feed into Indian case studies to be taught in college.

The students who participate in this program would benefit from getting a brass-tacks understanding of issues such as inventory management, working capital cycles, cost of capital et al. All management problems they are being coached to analyse and rectify in the classrooms.

Creation of VC/PE (private equity) jobs on the campus would be a positive side effect of this model. Students who accumulate equity by investing in large businesses can over a period of time draw up a portfolio which consists of the financial performance of an Adigas vs the neighbourhood pharmacy.

Greater data around return on capital around different businesses in the sector would allow for better understanding of risks and probably access to cheaper capital.

Can students drive this through the clubs on campus?

The placement process at most business schools is driven through the students with college providing the necessary support. If there are legal difficulties for a college to put together a fund, nothing stops students from pooling together resources and starting their own fund.

Over a period of time, some of these investments can be divested for a profit with both college and students partaking some of those gains. A good performance over the years would translate into jobs around investment tracking, divestitures, fundraising and better policy making for the small businesses of the country.

How will it impact business school rankings?

One of the true measures of business education is using the analytical skills imparted in the classroom to turn the proverbial penny in a hundred different ways. Once, an idea like this takes root, college rankings such as those published by FT and Outlook can rely on fund performance as data to rank colleges.

You could find answers to questions such as whether IIM A or ISB or IIM B has a better return on capital over X years? Is IIM A better at growing companies in retail than say an IIM B? Or does the technology focus of Bangalore as a city help IIM B to be better at identifying better opportunities in that space? A lot of future growth in India is going to come from Tier 2 and 3 cities.

And a lot of that growth in smaller towns is going to be driven perhaps by local businesses. Regional business schools might see that as an opportunity to have a fund investing in smaller cities and local businesses and develop expertise/specialization which gives them an edge over more established business schools.

Rajesh K., Account Manager with M&A experience at Tech Mahindra, is an alum of IIM, Bangalore. In his LinkedIn profile, he says his experience in Operations/R&D/business development/M&A has allowed him to synthesize the complexity of business into simple ideas for growth.