Should You Drop Out of School to Start a Company?

During SXSW Interactive 2014, 3 Day Startup hosted a panel to discuss a much debated topic among student entrepreneurs: “Should you drop out of school to start a company?” Some of the points discussed included, entrepreneurial timing, the university as a startup platform, and the culture of risk taking.

The diverse panel of individuals included, Mike Gibson, VP for Grants at the Thiel Foundation, Connie Bourassa-Shaw, Director of the University of Washington’s Arthur W. Buerk Center for Entrepreneurship, and Andy O’Hara, Founder and CEO of Chiron Health. Cam Houser, CEO of 3 Day Startup, moderated the discussion.

College Debt and Entrepreneurial Timing

A number of factors affect the ability for students to start companies. The panel discussed a few of those factors like college debt. According to Bourassa-Shaw, students who graduate with under $50,000 in college debt are just as likely to start a company than students that graduate with zero. However, when students accumulate over $50,000 in college debt, they are more likely to get a job instead.

Assuming if most student entrepreneurs graduate with under $50,000 in debt, does this mean most would fair just as well staying in school to work on their startups rather than dropping out? Gibson argued, “Timing is an issue. Let me be controversial here — if there are qualifiers, a student should drop out to work on their startup. It’s now cheaper to start a company. Not just for tech but for biotech and other industries as well.” Gibson works for the Thiel Foundation which awards 20 entrepreneurs under the age of 20 with a fellowship to pursue their projects in lieu of going to college.

Bourassa-Shaw agreed with caution, stating what those qualifiers usually mean, “If everything is going your startup’s direction, you do have to pay attention to that. What’s the traction? Who’s paying attention to you? For many young entrepreneurs that usually means investment,” she said.

Timing was also very important for O’Hara, who’s startup is in the telehealth space. “If I stayed in school to finish my MBA, that window of opportunity to launch Chiron Health would have closed in the next couple of years. If I waited until I finished school, it would be too late,” he said.

“Maybe we can agree and say that the market should be the driver that pulls you out of school,” said Gibson.

Individualization vs Team Work

The panel also discussed how conducive the current university environment is for entrepreneurial activity. “A lot of universities atomize you. When you’re assigned individual projects, you may not have the opportunity to work on a promising team,” said Gibson.

Bourassa-Shaw argues that the landscape is changing and that most universities are responding to this change. “I’m getting more inquiries from different departments interested in teaching entrepreneurship. Chemical engineering students don’t want to work at chemical plants, they want to start their own companies,” said Bourassa-Shaw. “Current students entering the university are thinking about their careers differently — they want to take charge of their own paths. Entrepreneurship fits well into that mindset.”

From O’Hara’s experience in the MBA program at The University of Texas at Austin, he agreed that he had a lot of opportunities to learn about entrepreneurship. “The university not only offered programs for those that were interested in starting companies, but they also had programs for students interested in working for smaller startups,” he said.

The Culture of Risk Taking

Despite differing philosophies, the panel agreed that the culture of risk taking is important for entrepreneurial ecosystems to thrive at all levels. “It makes it a lot easier to start a company when there is a strong entrepreneurial culture in your community. Interestingly, if you look at Boston, Seattle, Austin, and Silicon Valley — cities that are top entrepreneurship hubs — there is a major research university in each city,” said Bourassa-Shaw.

Gibson agreed, but believes that having a major university in an entrepreneurship hub is not a necessary condition to startup success. “Take a look at Silicon Valley versus Boston. Boston has more major research universities, but more startups are coming out of the valley. You also have to take into account the history of the region. California is the land of dreamers — from LA to San Francisco. Historically it was home to a lot of counter culture and hippies. Dropping out or leaving school isn’t such a big deal here,” he said.

To add to that point, O’Hara mentioned that his experience at the University of Iowa was a lot different than at UT Austin. “Not many people were starting companies while I was an undergrad at Iowa. Here in Austin, it’s a pretty common thing,” he said.

University Startup Resources 

The university is often a platform for students to start companies due to built in resources. “As a student, you have a magic card. People are willing to spend time with you just because you’re still in school. If you choose to attend a university because you want to stay in that city , that means you have over four years to integrate yourself into that community and build your network,” said Bourassa-Shaw.

Both Gibson and O’Hara also agreed that the university is good for finding cofounders and lifelong friendships.

For Thiel Fellows, who choose not to go to college, Gibson said, “At first it’s not too different than going to college. The biggest difference is when their friends are about to graduate. Walking across the stage is usually a life event, and fellows don’t get that experience. But other than that, our fellows think about what they want to do with their lives a lot earlier, versus those that address those questions later after college.”

The Future of Higher Education

If the university is not the ideal platform for students to launch a company from, than what is?  Gibson touches on the future of higher education. “Colleges are really great real estate companies with hedge funds and a dating service. There needs to be a solution to unbundle that value to meet the individual needs of different students,” he said. “I don’t just mean online learning, but other emerging solutions that are cheaper and more accessible.”

Gibson also criticizes the current grading system and how it prohibits innovation. “People avoid really hard classes because they don’t want to destroy their GPA. If we can change that mindset, it would encourage students to tackle hard problems rather than worry about what grade they’re going to make in some class,” he said.

So should you drop out of school to start a company?

“Drop out is a pretty strong word. You can take a leave of absence,” said Gibson. “The reason why Y-Combinator programs start in the summer is so that students can test their ideas. If things aren’t going great, you can always go back to school. If you have that safety net, that’s great,” said Gibson.

Bourassa-Shaw adds, “I’m not opposed to students dropping out of college, but they need to have all of their ducks in a row. If things are going your way, you can’t ignore that. But students must remain cautious that a high percentage of companies fail, especially the younger you are.”

For O’Hara, he thinks the decision of  dropping out for an undergrad student versus a graduate student should be weighed differently. “If my startup fails now, I still have marketable skills from my undergraduate degree that I can fall back on. As an undergrad student, you may have less options. If you have a bit of early traction and your startup team is the right one to chase this opportunity, then go for it,” he said.