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Elizabeth Bertolino
19 November 2014
Steve Owens
WRTG 2010
The Young Business Entrepreneur:
External Pressures to Leave School

As retention rates in high schools and colleges steadily decrease with the incline of
students dropping out, and abundance of studies, articles, and research has surfaced to
offer evidence of a better life through staying in school. It is no secret there is a correlation
between higher paying, more satisfying jobs and education. However, out of the scrutiny
and dismal predictions for students dropping out emerges a heroine; the entrepreneur. In
fact, the stories of entrepreneurs who have dropped out of school with nothing but an
idea, and yet have gone on to unimaginable success and riches before they leave their 20's,
such as Mark Zuckerberg or Elizabeth Holmes, creates a figure of hope and romanticizes
the idea of leaving school to pursue an idea. What happens when this figure of hope turns
into much more, and students begin to be encouraged to leave school? Through my
research I have found evidence of a phenomena where adults are encouraging young
students in the business sector to leave school and start a business. In this paper I will
show the detrimental effects of leaving college, and how it is being masked by the pedestal
young entrepreneurs are being put on by the business sector with only economic growth
in mind.


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The authors I have researched for my paper all belong to the business sector, and
have extensive knowledge of both business and economics. Henry Levin of the New York
Times, Henry Blodget of Business Insider, and Caron Beeley of the Small Business
Administration all support my thesis that leaving college has detrimental effects even for
entrepreneurs, while Catherine Clifford of the Entrepreneur business journal, Gary
SHapiro of Forbes, and Rachel Crane from CNN Money oppose my argument stating there
are benefits and proof of potential success for young adults who leave school to pursue
and develop their ideas. One more character brought up is Peter Theil. Peter Theil started
a foundation where he picks twenty teenagers he sees potential in, funds the development
of their ideas for two years, and only asks they do not attend college and focus completely
on their project. He is a good representation of the business sector pressuring or
encouraging young adults, in his case teenagers, to not attend college.
Some of the areas I will be exploring that involve some background explanation are
items such as structural unemployment versus cyclical unemployment resulting from
decreasing retention rates, as will as factors leading to a widening class gap.
Structural unemployment is a result of a certain sectors of the labor force having a
higher demand for jobs than there are available, due to a surplus of workers in that sector,
typically occurring with labor not requiring a degree or any sort of higher education.
Cyclical unemployment on the other hand, occurs within the natural cycles of the
economy. When the economy is growing, more jobs are available, and when the economy
is contracting there are less jobs available. The class gap I am discussing is the gap
between the extremely wealthy upper class and the lower class who often need


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government assistance to even live. I discuss how the decreasing retention rates lead to
this widening class gap, and discuss the two types of unemployment within my analysis.
To begin, college degrees as I will discuss, have become more relevant for
specialized areas in our labor force. However as young entrepreneurs find success, the
question surfaces of whether certain individuals truly need an education. If some are
bound for success, why would they waste time, resources, and money on higher education
when they can enter the workforce immediately? The group at the center of this
discussion are the entrepreneurial-minded business students. In an article by Gary
Shapiro, "College Degrees are Vastly Overrated as Today's Entrepreneurial Dropouts
Routinely Reveal," made no attempt to be conspicuous in opinion. In the article, Shapiro
strongly conveyed his opinion on talent overruling a diploma by listing off wildly
successful people such as Spotify creator, Daniel Ek, Tumblr creator, David Karp, and of
course Mark Zuckerberg, instead of using statistics and numbers to support his opinion.
After his long list of success stories, he concluded, "What they share in common isnt a
prestigious degree but a passion for innovation, a great idea, and the strength of purpose
and business savvy to make people listen" (Shapiro, Forbes.com).
Despite lacking statistical evidence, Shapiro managed to create an inspiring feeling
throughout his article, which seemed to be a common theme in the articles I reviewed
supporting the lack of a degree, such as the next writing by Rachel Crane.
Crane, the author of She's America's Youngest Female Billionaire - and a Dropout,
an article which highlighted Stanford dropout, Elizabeth Holmes and supported Shapiros
idea of natural talent outweighing the usefulness of earning a degree. The articles subject,


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Holmes, cashed in her tuition money and left Stanford with an innovative idea for
healthcare which resulted in Theranos, her company which made her a billionaire by age
thirty. Holmes states, I think a lot of young people have incredible ideas and incredible
insights, but sometimes they wait before they go give their life to something," and
continued on to say, "What I did was just to start a little earlier, (Crane, CNN).
This article obviously shared converging ideas with Shapiros, and both used
stories of young entrepreneurs who dropped out of college and go on to be wildly
successful to impose the view of a college degree becoming less relevant for certain
individuals.
What these authors leave out is the difficulties which come with starting a company
in todays economy. Even in an entrepreneur-driven economy where growth and
production is so highly valued, the chances of actually starting a successful company are
slim. The argument above demonstrates it can happen and helps inspire those who are
thinking of leaving school that there is hope, but fail to mention the enormous risk and
potential failure involved within this plan. Henry Blodget, author of DEAR
ENTREPRENEURS: Here's How Bad Your Odds Of Success Are, and Caron Beesley, author
of How to Estimate the Cost of Starting a Business from Scratch, both create the
argument opposing the idea of leaving school. Not only do they both provide statistical
and logical arguments, but paint a transparent picture of the business world the young
entrepreneurs are entering.


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My research provided me with a sense that students are being encouraged too
young with too little opposition to leave school to start a business. Within my research I
reached two main conclusions.
The first conclusion I reaches was students should stay in college to improve their
chances of success, despite the encouragement and potential success. In an article I read,
Entrepreneurs do better with college - studies, by Nick Leiber, it is concluded although
there are success stories, more entrepreneurs succeed when they have a degree than
when they do not. In the article a study from 2008 demonstrates this point when it found
just over 500 tech startups found college graduates had twice the average revenue and
number of employees as their counterparts who skipped college and concludes that,
"Startups founded by those with only high school education significantly underperform all
others. (Leiber, Business Insider). In the article, Peter Thiel and his foundation is also
brought up and debated for his encouragement to leave school. The article states, higher
education is more important than ever for entrepreneurs to remain relevant, since
technology is changing and growing so quickly and entrepreneurs need to be able to keep
up (Leiber, Business Insider).
The opposing side of this argument is some people will be successful whether they
leave school or stay. They question is why would they waste money on school when it can
be put toward developing and growing their idea. It is the opportunity cost analysing
where any money they may have would be put to the best use, or in more technical terms,
what choice is more optimal through the idea of profit maximization. If these young adults
spend all their resources on school, they may not have any left to grow their company.


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This could leave them stuck in a job where they do not reach the potential they could have
if they spent their money elsewhere. Also, many students end school with a large sum of
debt. According to CNN Money, the average student debt at time of graduation is $27,400,
and, Seven in 10 seniors graduated with student loan debt, and a fifth of that debt was
owed to private lenders, which often charge high interest rates (Ellis, CNN). The
mounting debt students now leave school with makes it even more ideal to leave school or
not go at all.
To retaliate, if these young entrepreneurs are destined for success, a degree can
only help. It would be relevant for a young adult trying to start a business to have taken
college level classes in understanding the economics and dynamics which go into creating
a successful business. It is not presumptuous to argue college training would benefit
someone starting a company. Also, in the likelihood they fail, as seen in the previous
statistics, a degree will give an entrepreneur a cushion to fall back on.
The next conclusion I reached was the realization that the encouragement of young
adults to leave school is not for the benefit of the student, but for the economy because the
encouragement in coming from within the business sector, where economic growth would
firstly benefit. In the neoclassical, production-driven economic paradigm we belong to, it is
not a far stretch to connect the motive of economic growth to the encouragement of young
adults to leave to school for the purpose of starting a business. Even though college
degrees increase the earning potential and productivity capacity of an individual, the
increase in startups entering the economy, even if most fail, increases growth in the
economy. This can be proven through the investment-savings nexus model, which is used


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to speculate recessions and growth spurts in the economy, and proves in a linear process
how an increase in start-ups leads to a growing economy. When new businesses enter the
economy, real investment rises and begins the cycle. When investment increases,
aggregate demand rises, resulting in the demand for more products overall. This means
more people need to be hired, more goods produced, and thus decreasing unemployment
and prices paired with an increase in gross domestic product.
It is not unreasonable to reach the conclusion this encouragement of young adults to start
businesses instead of going to school is somehow motivated by the potential economic
growth, especially when it seems the encouragement is coming directly from those adults
within the business sector.
In objection to this, this encouragement may come from a less selfish place. It is
reasonable to assume young adults need to realize college is not their only option. It seems
as though students need to stay in college to be successful, but that is not the case as we
have seen with the flourishing of start-up companies with young adults behind them. Even
if there is economic motives, lowering unemployment and growing production as a result
of newly entering businesses is by no means negative. When this happens, everyone in the
country benefits, therefore encouraging young adults to start businesses is resoundingly
positive. It is important for young adults to know college is not the only option, and more
businesses will help the economy. Therefore, it is not unjust to encourage these young
adults to use their intelligence and resources to grow a business in place of going to
college.


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The problem with this, although more businesses entering the economy may help,
is there is in turn more failures as well. The statistics show the likelihood of startup
success has been greatly exaggerated. The romantic idea of leaving school and becoming a
billionaire created by the business sector, as well as found in both the Shapiro and Crane
articles is abruptly destroyed by the numbers proving a large potential for failure. In fact,
according to my Blodget article, only one in every 200 companies that applies to Y
Combinator will succeed, and further states out of those, startling 93% of the companies
that get accepted by Y Combinator eventually fail, (Blodget, Business Insider). These
overwhelming statistics show the downside of trying to start a company with or without a
degree, and show just how difficult it is to become one of the success stories. If more
young adults are attempting to start businesses instead of going to college, the numbers
show how the correlated failure rate will rise as well. In other words, if more people are
attempting to start a company, more people will fail as well since the success rate does not
rise with the influx of start-ups. This means these young adults now have a failed business,
possible debt, and no college degree to help them find a job. This results in a larger labor
force filled with underskilled workers seeking jobs which are already in high demand. This
becomes a problem in the form of structural unemployment. Although cyclical
unemployment may decrease as with more businesses to hire, structural unemployment
will rise. Certain parts of the labor market will experience an influx in demand for jobs
when only a certain amount are in supply. In other words, unemployment itself will not
decrease, and the rising unemployment of young adults without college degrees will have
to be subsidized through government spending to support the unemployed. A growing


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unemployment rate paired with widening labor gap will only lead to a larger class gap,
thus furthering the inequalities already present within our country.
Overall, the idea of leaving college to pursue an idea can be attractive and often
have a picture painted where the potential failure is omitted. There is a view constructed
of a young entrepreneur bound for success being held back by staying in college to pursue
a degree instead of dropping out to pursue their innovations and ideas, and this message
is conveyed through real stories of self-made, successful entrepreneurs. The opposing
view on the other hand, presented statistics and facts that indicate the unavoidable
struggle and potential failure which comes with not staying in school. The financial
struggle of starting a company alone is enough for someone to want a back-up plan that
would be provided if an individual could fall back on a college degree in the likely event of
failure. The article by Leiber was the best conclusion since it analyzed success with and
without a degree. Education gained by the young entrepreneur staying in school more
than likely will not prove to be detrimental as the individual attempts to struggle
becoming a young and relevant business owner in a demanding environment with
constantly changing market. To conclude, after reviewing converging and diverging views,
the research shows the opportunity cost of leaving school is not as high as it may seem,
and getting a degree will not only help a young entrepreneur succeed, but also give them a
plan to fall back on if they do not. Therefore, young business students need to ignore the
external pressures and tempting propositions to leave school because the opportunity
cost and potential risk is far too high to take that plunge.
Workcited


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Entrepreneur.15June,2014.BusinessJournal.Web.
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Ellis,Blake.AverageStudentLoanDebt.CNNMoney.5December2013.Web.
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