Want to Be a Successful Entrepreneur? Don't Drop Out

Twenty-five-year old Neil Parikh has never had a full-time corporate job. The co-founder of Casper, a mattress startup rethinking the way people buy beds, Parikh studied biotechnology at Brown University before going on to study medicine at his undergraduate alma mater.

In 2014, he took a leave of absence for medical school to launch Casper and a year later he runs a company with 63 employees and $15 million in funding. 

"Today, you see all these entrepreneurs coming straight out of University of Texas, Stanford and other schools saying they can start up something right away," said Parikh. "But 10 years ago that wouldn't be something that college grads would do. You would be a serious black swan." 

Parikh is among a growing group of college-educated entrepreneurs who started new businesses or became their own bosses in 2014. The just-released 2015 Kauffman Index on Startup Activity reveals that 33.0% of new entrepreneurs last year were also college graduates. That's a significant increase from when Kauffman's Index started in 1997 and just 23.7% of entrepreneurs pursued higher education. Today, entrepreneurs with college degrees are the biggest educational category of new entrepreneurs in the United States.

While in the late-90s it was more likely for high-school educated Americans to opt into owning their own business or being self-employed, the Kauffman Foundation is finding that more and more college graduates are going down an entrepreneurial path -- and researchers only see the cohort expanding in the future. 

“We all know the Mark Zuckerberg’s of the world that bypass formal education and see success in entrepreneurship,” said E.J. Reedy, the director of research and policy at the Kauffman Foundation. “But the most popular path to success in entrepreneurship still typically involves formal education.”

There are few debates that can get more heated in Silicon Valley and the larger ecosystem of startups than the value of higher education. While famed investors like Peter Thiel are strongly against entrepreneurs going to college (he has even paid some to drop out), academics and professionals alike have long stood up for the historic institution.

“College matters. It just does,” Bruce Martin, the President of Drive 180, wrote in a recent LinkedIn post. “It matters because of the cold, hard fact that we all live and work in an ever increasingly competitive and specialized career environment.”

While the rate of new entrepreneurs is highest among Americans with less than a high-school degree, the Kauffman report explains that this is due to a high-level of “necessity entrepreneurship.” Unlike entrepreneurs with more formal education, those with less than a high-school degree are more driven into entrepreneurship due to limited job opportunities elsewhere. The rate of new entrepreneurs with college degrees who are opting into entrepreneurship because of opportunity, however, continues to grow at a consistent rate.

Reedy acknowledged in an interview with LinkedIn that there is still a lot we don’t understand about the relationship between education and entrepreneurship.  Yet pointing to another report, he said that Kauffman has found a strong positive relationship between years of schooling and entrepreneurial performance. In other words, entrepreneurs tend to be more successful the more formal education they receive.

Tony Brown, a professor of the practice at Duke University's Sanford School of Public Policy, teaches classes on social entrepreneurship. His current research focuses on the leadership development of young adults during college and as young alumni. There is a fundamental trend toward entrepreneurship in the country, he said, which plays a large role in the increasing number of college graduates starting their own ventures. While he doesn't overstate the importance of college to entrepreneurs, he says the top lessons he sees students learning through formal education are analysis skills, communications skills, as well as developing social and psychological maturity.

Nicholas Sanderson, the CEO of San Francisco-based startup Laundry Locker, graduated from the University of California, San Diego and went on to get his MBA at Presidio Graduate School. He said formal schooling has definitely helped him become an entrepreneur -- but not in the ways you might expect. 

"The most valuable aspect of formal, post-graduate schooling is the experiential learning opportunities and ad-hoc business cases you create throughout the two years of business school," he said. "Learning how to create fast, back-of-the-envelope business models, have difficult conversations, and scratch great ideas quickly has helped me tremendously running my company now."

Of course, for every entrepreneur like Sanderson or Parikh who found value from formal education, you can find several others who view their lack of education as equally essential. Jacob Jaber, the CEO of San Francisco-based Philz Coffee, only graduated from high school and is now running a startup with more than $30 million in venture capital funding.

“I didn’t like school because I was forced to learn things that I wasn't interested in from people who weren't that interesting,” Jaber said in April about the decision to drop out of college. “I am a lifelong learner, but of people. I built a lot of experience interacting with people.”

Casper's Parikh saw evidence during his many years of schooling that the higher education system is adapting to be more useful for entrepreneurs by making teaching more practical and less theoretical. Describing his college years as "pretty unstructured," Parikh said 25% of his classes were independent studies that forced him to leave the classroom and solve real-world problems. 

"I think it depends on how you use the experience of college," he said about going to college and graduate school. "Is it a very expensive way to get that experience? Yes. Are there cheaper ways to get a similar experience? Yes. But I don't know many 17 or 18-year-olds who have the maturity to start their own company -- do you?" 

What's your take on the value of higher education for entrepreneurs? Share your thoughts in the comments below. 

For more posts from LinkedIn's New Economy Editor Caroline Fairchild, click the yellow follow button above and follow Fairchild on Twitter here.