For Most Startup Entrepreneurs, College Isn't That Bad an Idea

Dropping out could end up being a great decision—or not.

In May 2011, PayPal co-founder and tech mogul Peter Thiel proposed a radical concept. Through his Thiel Fellowship, he would fund about two dozen entrepreneurs under the age of 20 as they started their own businesses—instead of going to college. The United States is in a higher education bubble, he said. College is overvalued. Some in the media saw his point, but other pundits and educators called him a contrarian and said his message was wrong.

Three years and 58 incubated startups later, it’s clear that Thiel was onto something. Now, the idea of dropping out of college to start a small tech business isn’t considered crazy; it has become romanticized, perpetuated by the success stories of  Silicon Valley celebrities such as Mark Zuckerberg and Steve Jobs.

For some, a risk that extreme could end up being exactly the right move. But for everyone else, now there’s a middle ground that allows aspiring entrepreneurs to get a jumpstart on their startups while taking advantage of what university life has to offer. Four years of college can be exactly the right amount of time for aspiring entrepreneurs to test the waters and hone their skills to launch companies in full force once they graduate.

Even though startups have become increasingly popular, with 320 new entrepreneurs out of 100,000 adults in 2011, they are still risky endeavors. Numbers vary, but a 2012 study by Shikhar Ghosh, a senior lecturer at Harvard Business School, indicated that three out of every four startups fail to return funds to their investors. Others estimate that the rate of failure is closer to  90 percent—or even higher.

For students who want to establish a startup, college rarely shows them how to get started, says Kathrina Manalac, a partner and outreach coordinator at Y Combinator. Y Combinator is a San Francisco-based startup incubator that provides seed funding to early-career entrepreneurs. "The best way to learn [how to run a startup] is to do it," Manalac said. "It’s really difficult to do while you’re in school because of the time commitment they both require."

Judith Scott-Clayton, a professor of economics and education at Columbia University’s Teachers College, thinks that more people should be going to college overall.* But she agrees that incurring the financial burden of college isn’t worth taking on if the student is occupied with a new business. "It’s like exercise," she said. "More people should exercise, absolutely—the data is very compelling. But that doesn’t mean you should pay a whole bunch of money for a gym membership you won’t use. College is similar in this way—you have to have buy-in on the part of the person doing the investing."

Occasionally, a college student comes up with an epoch-making idea at exactly the right time, pushing school down on the list of priorities. "I imagine if you have some really awesome idea, time is really important," Scott-Clayton said. "If you wait four years, someone else could have that idea." If you’re a creative person, she added, you would probably have more ideas down the line. But sometimes those ideas just can’t wait. And without many financial responsibilities, Manalac added, young startup mavens are able to channel all their energy into a project—and even take risks—that older entrepreneurs may find unpalatable.

Manalac has seen some of these pressing ideas first-hand—and many of them have come from students who are still in high school. The youngest person ever funded through Y Combinator was 17 at the time, and students as young as 14 have applied. Still, making it big is very rare: "I’ve met one or two people who have dropped out of high school because they were making enough money on projects they were working on, but that’s still very uncommon," Manalac said. And even if they’re successful, most of these entrepreneurs aren’t prepared to run a startup at such a young age.

And that’s where Y Combinator comes in."Y Combinator was originally formed to help young entrepreneurs who were facing credibility issues and couldn’t be taken seriously by investors," Manalac said.

Credibility is still a fairly common problem, and it’s easy to understand why. Even though a lot of entrepreneurs of tech startups have taught themselves how to code, they don’t have a lot of experience in other fields, and that limits their understanding of all the needs a company would need to address. "If you have not yet worked in any industry or understand the problems that face it from the inside, it’s a little harder to know how to tackle them," Manalac said.

For individuals who don’t fall into this exceptional category of young entrepreneur, college can help them polish certain skills that they can use for the rest of their careers, such as communication and problem solving. A university experience is also great opportunity for students to broaden their horizons and find new interests. "When you’re in school, work on projects that interest you," Manalac said. "Learn and build for the sake of learning and expanding your understanding of the world." Typical college courses only go so far in teaching students how to run a startup, but some formal businesses courses would probably help, too.

But what college students don’t find in their books is just as important. "One of the most difficult things about starting a startup is finding good people to work with," Manalac said. "Never again will you be surrounded by so many talented people as you are in college." Even the startup celebrities who dropped out of school used their limited time in college to form relationships with classmates that ultimately helped make  them successful.

Most of us are not members of this exceedingly rare breed of young entrepreneurs who are predestined to, say, run the next big social network, so college is still a good choice. And budding entrepreneurs can take small steps into the startup world as they wait for their really great idea to bloom and company co-founders to come into the picture. "So it doesn’t necessarily need to be an either-or [when it comes to college and startups]," Scott-Clayton said. "It might be nice for students to keep their feet in both worlds until there’s more clarity for the potential of this special project."

Manalac knows what it takes to create a good startup and, while she didn’t say that young entrepreneurs should go to college, those four years could go a long way toward shaping the skills she says are necessary to make a business successful. "The first step of starting a startup is to have the baseline technical information—learn how to code," she said. "The second step is to start building products that interest you. Then you’ll come up with that idea. It will likely be an organic process of what’s most interesting, what works, what people want."

"Most successful tech companies started out as side projects," Manalac added. "While you’re in college, find out how to use that time to your advantage."

* This post originally omitted Judith Scott-Clayton's full surname. We regret the error.