College Dropout Chic: Don't Try This at Home

By Edward Tenner

Abandoning higher education is hardly the recipe to financial success that some news suggests

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Mainstream media have been running what seem to be nonstop stories on the incredible power of dropping out of college, inspired by the dubious grant program of Peter Thiel. The latest is by Thomas Heath of the Washington Post: a profile of janitorial-services tycoon Chad MacDonald.

Nothing against either Heath or MacDonald, who is clearly very good at what he does. Economists have long pointed to the superior opportunities in fields that have fewer entrants because they're not prestigious subjects of cocktail-party chatter. (Anybody considering entrepreneurship, or in fact any business venture or investment, should look up Dan Lovallo and Daniel Kahneman's 2003 Harvard Business Review paper on optimism bias).

As McDonald says in the Post article:

"Grass always grows. Toilets always get dirty. Buildings always need to be heated and cooled. So every time you think of toilets, toilet paper and dirty floors, think of me."

As long as there are paying tenants, at least. (See the Post's story on Flagler Co., Florida's vacancies.)

Heath's core skill seems to be the ability to recruit, train, motivate, and retain. That's the famous point the management guru Peter Drucker made to executives of ServiceMaster, a similar company, their real business wasn't maintenance services but "the training and development of people."

So far, so good. I doubt many colleges teach how to run such operations. The only one I've seen is the Cornell School of Hotel Administration, the West Point of the hospitality industry.

What caught my eye was how MacDonald financed his expansion:

At 18, he quit school, established a $25,000 line of credit for working capital and rebranded from Advanced Carpet Care to Advanced Maintenance Services (AMS).

Within a year, he was grossing $1 million in revenue and earned a six-figure salary. He borrowed $700,000 on his credit cards to finance his company's growth, buying vehicles and cleaning equipment. He even used it to make payroll.

Can young entrepreneurs do likewise in today's bank-credit climate? I don't think so. And since MacDonald acknowledges that his company was touch-and-go at times, what are dropouts going to do to pay their bills if their first ventures don't succeed while looking for a new opportunity? There may be no stigma in a business failure, but automated resume screening may weed non-graduates out of job searches. I wonder how many college dropouts the Post has hired for business or editorial positions in the last few years.

(Anybody considering entrepreneurship, or in fact any business venture or investment, should look up Dan Lovallo and Daniel Kahneman's 2003 Harvard Business Review paper on optimism bias).

This article available online at:

http://www.theatlantic.com/business/archive/2011/06/college-dropout-chic-dont-try-this-at-home/239970/