How dotcom fever taught Stanford a lesson
5 April 2001

Time out: Stanford MBA students take a
break in the sun with hot dogs and beer

Applications to Stanford, the university situated in the heart of Silicon Valley, plunged as people fled to join dotcoms. But students are now rushing back to school, discovers Chloe Veltman

PICTURE the scene. The sun is shining and a bunch of students are loafing around in bikinis or shorts, throwing Frisbees and drinking cans of beer.

No, this is not a Budweiser advertisement or a scene from Baywatch, nor are these students enjoying their summer holidays in Goa. This is Stanford University on the West Coast of America, famous for its MBA (Master of Business Administration) course.

Based in Palo Alto, the students are surrounded by some of the biggest names in the high-tech sector, such as Oracle and Cisco Systems, but big business could not be further from their thoughts. By mid-afternoon, several hampers of beer have been emptied, a few hundred hotdogs have been consumed and there is still not a business plan or a sober suit in sight.

If this is the life of an MBA, it seems a little easier to understand why so many people flock to the course, returning to study for two more years after university and paying the price to do so. The sun worshippers splayed out on the grass behind the new student digs on Stanford's Palo Alto campus were the best 370 candidates of the 5,431 who applied for a place on the two-year programme.

Stanford's PR machine assures me that this is the students' first free afternoon since their exams, which ranged from finance to organisational behaviour (don't ask). Then again, if they had spare time during the term, there is always the chance to really get down and party at the Entrepreneur and Private Equity Club. David Carmel, a 28-year-old student from New York, says: "There's too much going on here. The average student gets about a hundred Stanford-related emails a day."

Not that we should feel sorry for these students. Alongside rival institutions such as the Harvard Business School and The Wharton School at the University of Pennsylvania, Stanford's Graduate School of Business ranks as one of America's foremost research and teaching institutions for those in pursuit of power and fat pay cheques.

Stanford's MBA graduates reap higher starting salaries than the graduates of any other business school. A recent study of the world's top business schools by the Financial Times showed that the average Stanford MBA alumnus who graduated in 1997 now earns $180,500 (£125,700), with a Harvard graduate trailing behind (but not exactly struggling) on $173,338.

The extra cash certainly comes in handy. A year at Stanford costs around $50,000 in tuition fees and expenses, which is partly justified by the small class sizes at the university. In 1999, there were 731 students across both years, compared to 1,774 at Harvard and 1,545 at Wharton.

The academic leaders of Stanford's business school have an heroic explanation for Stanford's success. "A major competitive edge of Stanford is the people themselves who come here to study and to teach. We have the most competitive student body anywhere," says George Parker, senior associate dean of Stanford Business School.

If there is anything that truly separates Stanford from its rivals, it has to be its location. "I chose Stanford because it is in the middle of Silicon Valley and I want to learn about entrepreneurship," says another 28-year-old student, Julian Abdey. Even East Coast stalwarts such as Harvard and Wharton have spread their assets out west, with Harvard opening its Menlo Park research centre in 1997, right next to Stanford, and Wharton due to inaugurate its San Francisco-based campus in August this year. "We have around 7,000 alumni in the northern Californian region so our presence is already strong there," says David Schmittlein, deputy dean of Wharton. "Our new campus will enable our students on the East Coast to participate in summer courses in conjunction with alumni and businesses located on the West Coast."

Since the 1930s, when engineering professor Frederick Terman encouraged two of his students - a certain William Hewlett and David Packard - to turn a graduate project into a commercial product, Stanford has been nurturing relationships between academia and the business world. The computer giant Hewlett-Packard, based in Palo Alto, was founded in 1939.

David Kaplan, author of the bestselling The Silicon Boys and Their Valley of Dreams, says: "Unlike most other schools that traditionally believed commerce sullied their academic pursuits, Stanford has always been smart in not fighting the relationship between academia and commerce."

This approach has rewarded Stanford with an impressive list of former students such as Scott McNealy, founder of Sun Microsystems, Philip Knight, co-founder of Nike, and Charles Schwab, founder of the eponymous online stockbroker.

Former students frequently drop by to give talks, or something a little more substantial. Many of the buildings on the campus, such as the Schwab Building and the Hewlett-Packard Auditorium, have been donated by alumni. Some ex-students even come back to teach, such as Andrew Grove, the Hungarian-born chairman of Intel.

With companies in the Bay Area of San Francisco perpetually on the lookout for promising MBA graduates, the relationship works both ways. "You cannot separate Stanford's success from Silicon Valley's nor the Valley's from Stanford's. They have a symbiotic relationship that hasn't been truly replicated anywhere else," says Kaplan.

This relationship has been tested recently. During the internet boom, Stanford saw one of the steepest slides in applications of any of the business schools, from 7,061 applicants in 1998 to 5,431 in 2000. Marie Mookini, admissions director of Stanford Business School, admits: "Over the last few years, Silicon Valley has been our direct competitor. With all that venture capital out there, people wanted to jump in and start their own companies rather than go back to school."

The scramble to launch start-ups also affected the corporate world, which had traditionally been the main source of business school applicants. "When the dotcom world took off, many banks and consultancies lost their best people to start-ups, which meant that even fewer people applied to business school," she says.

Although it is still too early to tell, recent developments in the dotcom world, which has gone dramatically out of favour as quickly as it rose to glory, are likely to reverse this trend. As casualties from imploding internet start-ups start the search for an alternative career, the bankers and consultants are also returning to the corporate fold.

Figures for the final round of applications for 2001 entry have not yet been released, but Mookini predicts a turnaround. "My best guess is that this year's numbers will be similar to last year's, but that the proportion of applications from ex-dotcom workers will have increased. Next year I expect there will be an increase in the overall number of applications."

As laid-off dotcom employees struggle to find work in a tight market, which is seeing daily announcements of redundancies or closures, even Stanford's bright young things are not finding the recruitment process easy.

"The job market has become a lot more competitive this year. Technology companies are not hiring and there is more competition for jobs in traditional sectors like finance," says Conway, who hopes to find a summer job as a product manager in a technology company.

Carmel adds: "There's risk aversion on both sides of the market right now. Jobseekers are not willing to risk working for a new start-up and companies don't want to risk hiring someone who isn't exactly right for the job."

It is a very different atmosphere to the Stanford of two or three years ago when people such as Josh Hannah, co-founder of Flutter.com, a person-to-person online betting site, were at Stanford.

It was de rigueur to go dotcom at the time. Hannah went on to raise a remarkable $44m funding for Flutter.com, which is based in Clerkenwell, central London.

While the high-tech economy continues to perform its erratic summersaults, the academics at Stanford are quick to explain the school's stance towards new technologies. Stanford has always fancied itself as a bastion of technology, its community acquiring email addresses way back in 1991 (Harvard was stuck with snail mail until 1996).

"We try to look beyond the hype cycle," says Haim Mendelson, co-director of Stanford's Centre for Electronic Business and Commerce. "Right now, there's a high degree of disappointment in Silicon Valley and beyond, but from the beginning we tried to take a balanced view."

His approach is to integrate technology courses and technology-oriented case studies with all parts of the curriculum, rather than teaching technology separately. "We believe that e-commerce shouldn't be a separate activity. It should be driven by business requirements," explains Mendelson. "Most of what we can learn from new businesses can be applied to old businesses, and vice versa.

"No one seems to want to criticise Stanford. Can it really be as good as people think? Last August, an article in Business Week magazine dared to report that over-confident MBA students were failing to turn up to their recruitment interviews on campus. The cheek of it! The Business School's dean, Robert Joss, was not amused. Still, the incident was just one black mark on the school's otherwise untarnished reputation.

"Companies are looking for quality and a Stanford MBA is a mark of quality," says John Foley, chief executive of Resmatic, publisher of the recruitment website SiliconValleyCareers.com. Even Wharton's Schmittlein concedes: "Stanford is a good business school."

The Silicon Valley bug is obviously infectious, transforming students such as Abdey with backgrounds in banking into first-class geeks. "I'm not a techie but you can't help it rubbing off on you," he admits. "What's going on in Silicon Valley is impressive, no matter what the short-term difficulties might be."

Copright The Telegraph Group Ltd