Policy

To Improve Startup Odds, Say Yes to College


A business school classroom at Bentley University

Courtesy Bentley University

A business school classroom at Bentley University

A recent New York Times story, “Saying No to College,” depicts “a groundswell of university-age heretics” and interviews a handful of entrepreneurs who dropped out of college to launch their own technology startups. It mentions familiar dropouts like Bill Gates, Steve Jobs, and Mark Zuckerberg, as well as Peter Thiel’s controversial fellowship program that pays teenagers $100,000 to skip college and start their own ventures.

The story doesn’t touch on higher education being an obvious way for young entrepreneurs to increase their chances of business success. But plenty of research shows it is.

One 2008 study (PDF) of just over 500 tech startups found college graduates had twice the average revenues and number of employees as their counterparts who skipped college. Or, as the report put it: “Startups founded by those with only high school education significantly underperform all others.” Vivek Wadhwa, who co-authored the report and has been debating Thiel, told me Monday that higher education is “more important than ever” for entrepreneurs to remain relevant as “technologies are changing dramatically and entire industries are being wiped out and recreated.”

Scott Shane, an economist who dug into founders’ backgrounds in his 2008 book, The Illusions of Entrepreneurship, and again on our site in his 2010 commentary, “The College Dropout Turned Billionaire Entrepreneur,” cites numerous studies that show that higher education reduces business failure rates and increases profits, sales, and employment:

“People with little education who become successful entrepreneurs are few and far between. If you want to become a successful entrepreneur, your odds are much better if you graduate from high school and go on to college. Many studies show that better educated entrepreneurs have greater access to external capital, lower business failure rates, greater business sales and employment growth, and more profitable ventures. In fact, the data show that the average startup founded by a college graduate has 25 percent greater sales than the average startup founded by a high school dropout, and the average startup founded by a person with a graduate degree has 40 percent greater sales than the average startup founded by a college graduate.”

Fine, fine—I buy all that, you say. But I don’t want to saddle myself with student debt, which now totals around $1 trillion, and I just heard the delinquency rate is getting scarier.

“People should not spend beyond their means,” says Wadhwa. “You don’t have to go to an Ivy League college to be successful as an entrepreneur. Our research has shown conclusively that you can succeed no matter which school you graduate from. Indeed, you may be a better entrepreneur if you go to a state university [rather] than an Ivy League, because if you go to Harvard you’re not motivated to be an entrepreneur anymore; you’re motivated to be an investment banker.”

Nick-leiber_75x75
Leiber is Small Business editor for Businessweek.com, Entrepreneurs editor for Bloomberg.com, and covers small business for Bloomberg Businessweek.

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