Ni Xu (left) and Kunal Rai, both former Apple employees and current Harvard Business School full-time MBA candidates, elected to work on their startup, AluluClub, full-time this summer.
Photo by Nathan Allen

Spurning traditional internships to pursue startup dreams.

By John A. Byrne and Poets&Quants
August 27, 2016

This piece originally appeared on Poets&Quants.

For generations of MBAs, the summer has been a time to intern with a world-class company paying world-class money. McKinsey, Goldman Sachs gs , and Google goog are at the top of many resume-boosting opportunities that pay students median monthly salaries of more than $10,000 a month. A ten-week stint could easily help to offset $25,000 of tuition expense.

But an increasing number of MBA students have essentially decided, in the words of one professor of entrepreneurship, to “stick it to the man.” This past summer, more students than ever spurned traditional summer internships to pursue their own startup dreams, sometimes with the funding and encouragement of their business schools.

Meet two of them: Ni Xu and Kunal Rai, a pair of MBA classmates at Harvard Business School. Instead of working in some modern office tower for a world-class company, the pair spent their summer inside a converted brick duplex in Oakland, California. Parked outside the building is a 2001 Ford Expedition f with about 209,000 miles on the odometer. Inside, a narrow, steep staircase leads to a flowing room with hardwood floors, scattered bikes, a few Macbooks, and some cases of craft beer. Ni Xu and Kunal Rai pace between the living area and what appears to have once been a dining room. No longer. Now it’s crammed with marketing materials for their startup, AluluClub.

“In my mind, this is the best way I could’ve spent my time in business school,” says Rai, 30, a former global supply chain manager at Apple aapl . “Trying to start a company, you have to be all in, otherwise it doesn’t work out.”

There’s no doubt Rai and Xu, also a former Apple employee, are all in. AluluClub is a marketplace and delivery service for microbreweries and beer snobs or just people dabbling in microbrews. When the two moved cross-country from Cambridge to Oakland, they purchased the Ford Expedition — dubbed the Beer Wagon — for $2,000 to personally do pickups and deliveries of the microbrewed suds, and to ferry them around on brewery visits. So far, Xu and Rai have bootstrapped and fronted nearly all the cost to launch the platform themselves.

For more on Business, watch this Fortune video:

‘Sticking it to the man’ for the summer

Dave Mawhinney, executive director of the Swartz Center for Entrepreneurship at Carnegie Mellon University, calls the sort of enterprise Xu and Rai are engaged in “Sticking it to The Man” for the summer. And he says he has seen more MBAs from Carnegie Mellon’s Tepper School of Business sticking it to The Man than ever before. To be sure, Tepper’s not unique.

“Certainly in the aggregate, (the number of) MBAs participating in startups and new ventures is going up,” concurs Karl Ulrich, vice dean of entrepreneurship and innovation at the University of Pennsylvania’s Wharton School of Business. Some 11% of Wharton’s graduating full-time MBA class of 2013 spent the summer between their first and second year either at an early-stage venture or working on their own. This summer, that number has climbed to more than 16%.

Many elite B-schools like Wharton, Harvard Business School, Stanford’s Graduate School of Business, and Columbia Business School have funds or organized programs for MBAs wanting to spend the summer working on their own ventures or at early-stage startups. Steeped in ample anecdotal evidence, those programs are beginning to track numbers to back the influx. Wharton’s Venture Award, which is open to all University of Pennsylvania students and awards $10,000 to students spending the summer working on their own ventures, has seen applications jump from 23 in 2012 to 48 this summer.

Read More: Tyra Banks Is Going To Teach a Class at Stanford Business School

Influx of Interest Across Schools

Meanwhile, Harvard’s Rock Summer Fellowship program has seen MBAs launching ventures jump from 18 in the summer of 2011 to 52 this summer — largely thanks to boosted funds, points out Tom Eisenmann, faculty co-chair of Harvard’s Rock Center for Entrepreneurship. The 52 Harvard MBAs working on their own ventures this summer represent 6% of the class of 2017. For comparative purposes, 6% of Harvard’s class of 2016 took internships in investment banking, 8% spent the summer in general management positions, and 15% were in marketing summer positions. And as Eisenmann notes, the 52 are not representative of all Harvard MBAs working on their own ventures during the summer — those are just the ones who were awarded funds by the school to do so.

At Stanford’s Graduate School of Business, entrepreneurial summer interest has remained fairly flat over the past five years. Last summer, 47 full-time MBAs participated in the Entrepreneurial Summer Internship Program, which only provides a living stipend for some students working at early-stage startups, compared to 40 students in the summer of 2011. “Most students find this experience very helpful in thinking about whether they’d like to start their own venture at some point, to join an early stage company, or to work at a firm that’s further along in it’s growth trajectory,” Deb Whitman, director of the Stanford Center for Entrepreneurial Studies explained in an email exchange with Poets&Quants.

Stanford’s year-round Venture Studio program supports student entrepreneurs with co-working space, advising sessions, and additional resources, Whitman says. “Like entrepreneurs (around) the world, they make trade-offs by working evenings and weekends during their internship or choosing to focus their time on their startup idea instead of taking a summer internship,” Whitman says of why Stanford does not fund students working on their own ventures.

While Columbia Business School’s Summer Startup Track also doesn’t provide funding, it does provide a school-sanctioned opportunity for MBAs to work on their own ventures for the normal internship summer. Applications have climbed from 11 in 2010 — the program’s first year — to 36 this summer. Columbia’s rise, though, could have to do with the school’s strategic decision to include students working on ventures while doing traditional startups.

“We’re seeing the trend of more MBAs doubling down where they are getting the operational experience by day in a traditional internship. And then taking that operational and industry experience and taking it to their startup at nights and weekends,” says Vince Ponzo, senior director of the Lang Entrepreneurship Center at Columbia Business School. “They are almost leveraging their MBA and summer internship experience by 2x.”

The Musk Effect Sweeping Over B-Schools

Both Ulrich and Eisenmann say their respective school’s funds have gone through big fundraising efforts to meet the demand of student entrepreneurs. Why the influx? Ulrich believes the reason is three-fold. First is a generation enamored by Elon Musk and formed in a digital universe created by Mark Zuckerberg. Next is what Ulrich says has become an “overinflation of interest” in tech. Lastly, incoming MBAs are byproducts of the last global financial meltdown.

“I think it’s always been the case for MBAs using their two-year period to transform their careers,” Mawhinney says. “But I think the financial crisis did something for the way this generation looked at the world. They began realizing these large institutions aren’t going to be here forever and aren’t going to be safe and secure opportunities. And what I’ve seen at Carnegie Mellon and the Tepper School of Business is that we have students that come back to get their MBAs knowing that they want to start a company.”

Ponzo concurs, noting entrepreneurship’s rise as a “pervasive and accepted” career option has led to more MBAs entering Columbia with either an already established business or “fleshed-out ideas.” He sees those students treating business school like a “laboratory” where they may take chances and calculated risks with fewer consequences.

Nowadays, many B-schools house some form of accelerator or incubator for their entrepreneurial-minded MBAs to explore and take risks. Young professionals come into programs and are able to use first-year coursework and networking to develop an idea and team. They then may use the summer to fully build a product or platform and test it with potential customers. When they return in the fall, students can build out second-year electives almost entirely around their startups. At Wharton, Ulrich says, he has seen increasing numbers of students spend their summers in San Francisco developing their startups and then participating in Wharton’s Semester in San Francisco during the fall — a program he pioneered a couple years ago to continue the foundation built during the summer.

Read More: The Job Market for MBAs Is the Best Since 2010

Two Techies Tap into Craft Beer

Before stepping foot in Cambridge, Xu and Rai knew they wanted to start their own venture. The two met at a Bay Area networking event for Harvard Business School admits in the spring of 2015 and immediately hit it off. Xu had had some success creating an in-house startup for Apple called ImHungry. After spending an hour daily waiting in lines at Apple’s cafés on the 16,000-person Cupertino, California campus, he pitched an app-based delivery and pre-order system to senior management. Upon approval, Xu recruited a team of three engineers and one designer to build the platform. Its success led to a $1.2 million grant from Apple to expand the app and has upped productivity among Apple employees.

But by the time Xu met Rai, his new passion had become microbrewed libations. As Xu points out during a conversation in his hybrid apartment-office in Oakland, beer in the U.S. is an almost $106 billion industry — and craft brews make up more than $22 billion of that amount. While overall U.S. beer sales dropped by .2% in 2015, craft beer sales surged by more than 12%. All the same, says Xu, 32, many microbreweries are small and the beer distribution channels really haven’t changed much in decades. “We thought if we could aggregate all of the small brewery owners it could be very beneficial,” he says. “Many don’t have distribution channels and very limited resources for marketing and technology.”

So the two techies began working on the idea as a side project the summer before coming to Harvard. Once on campus, they immediately began tapping into Harvard’s massive reserve of entrepreneurial-focused resources. They used its Innovation Lab and the Rock Center for Entrepreneurship at Harvard Business School. The duo even tapped into the expertise of law students and professors to navigate the thorny details of alcohol distribution and sales. In January, when fellow classmates spent the first week of spring semester interviewing for traditional internships, Xu and Rai flew to craft brew-rich — and alcohol legislation-lax — California to drive up and down the coast, enlisting brewery owners to join their yet-to-exist platform.

Summer Startups: A Test without ‘Blowing the Opportunity of Full-Time Employment’

Harvard Business School launched the Rock Summer Fellowship program in 2007 to aid MBAs interested in starting their own ventures or spending summers at early-stage ventures. Since then, the school has handed out more than $2 million at a clip of $600 per week (or less) to the fellows. Historically, Eisenmann says, Rock Summer Fellows have been split down the middle between those starting their own ventures and those joining early-stage ventures. This year, that’s changed: Fifty-two are “starters” and only 19 are “joiners.”

“You don’t do it because you think it’s an amusing way to spend the summer,” Eisenmann says of the “starter” track. “You do it because you think you have a business, and it’s often the case that you don’t know if you have a good one or not until you test the concept.”

Eisenmann believes three months is the perfect amount of time to fully explore the viability of an idea. Student entrepreneurs often spend the first month meeting and chatting with potential customers to nail down a problem worth solving. The next phase, Eisenmann explains, involves brainstorming solutions to the problems. Finally, ventures may hack together a prototype and test the minimum viable product with customers.

Ulrich concurs that summer can be a safe time for MBAs to test a venture — particularly for those coming from traditional MBA industries. “It’s a way to test that without blowing the opportunity of full-time employment,” he says.

Read More: Only 1% of Recent Job Listings on Monster Require an MBA

From Investment Banker to Robot Entrepreneur

Austin Webb, a current MBA candidate at Carnegie Mellon’s Tepper School, fits Ulrich’s description to a tee. A former investment banker at a mid-market Washington, D.C.-area bank, Webb’s clients were mainly entrepreneurs and small business owners either selling their businesses or building equity. When his brother quit his job and moved to San Francisco to co-found a startup, Webb decided he’d use his MBA to do the same. On campus, Webb met the eventual co-founder to his venture, RoBotany — an automated robotic solution that increases efficiency in vertical farming — at a workshop sponsored by the school’s Swartz Center for Entrepreneurship.

“We went on what I like to call co-founder dates,” Webb, 28, explains. “We went and had coffee, talked about our ideas and the challenges in the space and how we thought we could solve it from a technology standpoint.”

With a master’s degree in robotics from Northwestern University, Austin Lawrence wasn’t even a Carnegie Mellon student when he met Webb. Still, the duo quickly bonded through a mutual interest in farming solutions for food deserts and the world’s increasing population. Next the two snagged Daniel Seim, another Tepper MBA student, and came up with the idea to create a robotic solution and software management system to improve vertical farming.

All the while, Webb continued to recruit and interview for summer internships.

“At the end of the each interview I left thinking, this isn’t what I really want to do,” he admits. “It became obvious to me that we could make a ton of progress if we were able to just focus on it for the summer.” Webb turned down a highly coveted internship at a venture capital firm in New York City and decided to spend the summer building farming robots with his teammates. “You’re seeing all of your classmates coming in and saying this is the job I want and they went and got it,” Webb says of the tough decision to pass up the offer. “It makes it hard when you’re thinking, ‘Did I make the right decision?’ Because I don’t want to fall flat on my face.”

Summer Venture Award Programs Have Produced Super Successful Startups

For MBAs “100% committed” to starting their own ventures, Ulrich says the summer is a great time to do it. Each summer at least 10 University of Pennsylvania teams or individuals are awarded $10,000 via the Wharton Venture Award to “pay the rent and buy Ramen for the summer,” he says. For Penn entrepreneurs, the path is a progression. Students are expected to take entrepreneurship courses through Wharton and apply for the Wharton Innovation Fund. “We will give that to almost anybody,” Ulrich says of the allotments, which often amount to about $1,000. But then, if the entrepreneurs execute well and have a polished plan, they many apply for a larger grant — perhaps $10,000. Ulrich warns, however, “We’re not giving $10,000 for someone to go find themselves touring the world.”

Of course, the schools like to list the darlings that have gone through their summer venture programs. Most notable for Wharton is Warby Parker, which earned the Wharton Venture Award under a different name in 2009. Salt Lake City-based outdoor gear company Cotopaxi was also a venture to go through the program. Last summer, Denver-based interior design startup Havenly’s co-founders went through the program and have now raised more than $13 million in venture capital backing. At Harvard, Grab, the Singapore-based taxi hailing app that has raised more than $680 million in venture capital backing, has its roots in the Rock Summer Fellowship program. Also coming out of Harvard’s summer program are Hello Alfred, a “personal butler” service, and Rallypoint, a network of active and former military members. Both startups have raised around $12 million.

Read More: Your MBA In 300 Words

‘Not Many of Those Summer Teams Are Going to Go on’

Such examples are, however, the exception and not the norm. Ponzo believes business schools must prepare students for the hard truth that entrepreneurship is tough, and failure is always a looming possibility. “We’re doing our students a disservice if we don’t expose them to those truths and realities while they’re still in school,” he says. “If we shuffle them off and say, ‘Yeah, entrepreneurship is great, go do it,’ and then a year or two later they realize it’s hard and it’s not for them.”

Eisenmann says it’s a “steep funnel” from the fraction of MBAs who work on a startup while in B-school to the fraction who end up doing the ventures full-time and raising venture capital. “The reality is, not many of those summer teams are going to go on and do this beyond the summer,” he points out. “Not many of them will make it but the ones who do will get a huge edge from going full-time for three months.”

Xu and Rai know what he’s talking about. So far only five breweries have signed onto their platform AluluClub, site traffic has been slow, and the Beer Wagon hasn’t made too many runs. Not from lack of effort. When they arrived in Oakland, they were weeks away from launch with only one brewery signed on. The duo hustled to sign two more before launch. Yet there are about a dozen craft breweries within a five-mile radius of their home office.

Undeterred, they’ve rolled up their sleeves. To garner more on-the-ground support, they’ve spent Saturdays at local craft beer festivals and parks like San Francisco’s Dolores Park handing out guerilla marketing materials. They’ve even briefly employed direct-mail marketing efforts.

“Right now our biggest problem is not the operational aspects. It’s how to attract customers and breweries,” Rai says. Though that’s certainly not the only hurdle facing an alcohol delivery service. In July the team was still unable to hold or control inventory. They were eating a lot of profit by using the gas-guzzling Beer Wagon to personally pick up and deliver the suds.

Still, the two believe there is an opportunity for whomever can master the expensive and complicated interstate shipping process. “The distribution channels for alcoholic beverages have remained unchanged for a very long time,” says Rai, who is likely leaving the company once Harvard’s semester starts later this week. “This market should be disrupted by someone. We have not come across one brewery yet that is happy with their distribution relationship.”

Despite likely being down a co-founder and business partner, Xu remains optimistic. There is more to do, and he is still deciding if he’ll press on during his final year.

Tepper Team Growing Microgreens and Potential Investors

The likelihood of continuing seems greater for Webb and RoBotany. “We made sure to identify a market problem so we didn’t build something nobody wanted,” Webb explains. Their system has increased labor efficiency in its test warehouse by up to 50%. From the spacing of rows of vertical farms to the fact that many reach upward of 30 feet in the air, there are inherent dangers. But the human-free grow rooms have allowed the team to move racks closer together, increasing the amount of production space, and Webb says RoBotany has already been growing microgreens, arugula, and baby spinach with robots. Meanwhile, the backend software is now complete.

Over the next two to three weeks before school resumes, the RoBotany team will continue testing in their Pittsburgh-based warehouse; conversations are ongoing with potential investors. Webb says the team may be able to secure a $300,000 to $400,000 seed round this fall.

Webb spoke with many people about skipping an MBA, using the time and resources for other pursuits. He’s glad he didn’t. “You have such a concentrated set of resources that you can tap into that it seems to be creating a trend of people going to get their entrepreneurial MBAs or their MBAs in entrepreneurship,” he says.

‘The Man Is Still Needed. But We Need the Rebels to Push the Envelope to Create New Value’

Though sticking it to “The Man” can be an attractive and enjoyable experience for ambitious young professionals, Mawhinney believes there is a cap. He calls it the 80-20 rule. “Twenty percent of the students have the risk-taking profile and the curious mind and the immense energy that it takes to follow that entrepreneurial path,” he explains. “And the other 80% are people who go to work in wonderful places like Deloitte or McKinsey or Google or Facebook fb and they are the people that keep the franchise moving forward. But that 20% are the ones that are creating the new franchises. They’re changing the world.”

Ponzo, on the other hand, doesn’t necessarily see a cap — at least not in the need for MBAs to think entrepreneurially, whether they are working for The Man or not. “The entrepreneurial way of thinking and the disruption is here to stay,” he says matter-of-factly. “Change is only going be more dramatic and we need to prepare all of our students to think entrepreneurially. If it’s not thinking entrepreneurially for starting a business, it should be thinking entrepreneurially about your job or career. Or if you’re at a more traditional company, it’s thinking entrepreneurially within that company to keep it as a leader and viable.”

Still, the irony, Mawhinney explains, is that eventually, some of those 20% end up creating the next Man.

“Entrepreneurs are the ones who build the companies that become the next Man,” he says. “Google, in a sense, is The Man today. And before that, Microsoft msft was the Man. And that progression will continue. The Man is still needed. But we need the rebels to push the envelope to create new value. And those rebels are the entrepreneurs.”

SPONSORED FINANCIAL CONTENT

You May Like