Entrepreneurs - You Might Want To Drop Out Of College

There are many reasons why an entrepreneur might want to think about the trade off between time and money before deciding to pursue an education.

First, let’s start with the basic principle: entrepreneurs will always be able to make more money than a graduate. This is a simple calculation that economics tells us is true for most fields of study. For example, in America today you can expect to make $1 million more over your career as an engineer than if you became a lawyer - even after you account for the law school cost.

This may sound crazy, but it isn’t. It is based on the simple economic principle that engineers own machines which make things, while lawyers own nothing and sell their time.

Lawyers need to buy a house, car and eat food each month like everyone else, but there are only so many hours in the day that they can provide legal services. If you buy a machine and it produces value for years (like an engineer), you will grow rich with time.

Even if you choose to study a trade, it is very unlikely that you will ever make as much money as an engineer. I know this from experience. I studied engineering and then later went on to start a software company. To break even on your investment in both the time and money required to finish your education, it is necessary for an entrepreneur to earn over twice what the average engineer earns (approximately $70,000 per year).

Of course there are some exceptions. If you study computer science - for example - or at least have some software programming experience, than it is possible that you can make more money than $70,000 as a software engineer (by an amount dependent on how fast your product takes off).

If you have a less technical background, than the math grows much more extreme. An entrepreneur can only forgo about ten times more income than an engineer would make over his working life.

As well, business school teaches that you can actually make more money as an entrepreneur by earning less income while working longer hours. This is true if you are productive and do not burn yourself out in the process of trying to be successful. In reality, though, this is almost completely counter-intuitive. The reality is, if you are not productive, it takes much more time and energy to be successful.

There are a couple of reasons why the math works in this way, but they do not add up to anything that you should do unless you have a strong reason to otherwise. First and foremost, you should avoid business school at all costs - because it is almost certain that you will have to work harder then anyone else in your class in order to succeed as an entrepreneur.

On top of that, the reason why business school is thought of as a positive outcome for students is because of the made up story that it builds discipline into their lives. In reality, it is a myth that business school will help you to be disciplined.

First, the fact that they have to study so hard just makes it more likely that they won’t do anything else after school. The idea of the “studious entrepreneur” is a myth. Business school actually has very little long-term impact on your success as an entrepreneur. Instead, you will be better off with a measure of discipline from being in school (you have to pay your tuition or student loans somehow).

In addition, business schools rarely teach you how to make money in the real world. Instead, they teach you how to make money in the same way that everyone else does it. In most cases, this strategy does not make you successful.

You should also avoid business school because it will actually hurt your chances of becoming an entrepreneur. Even if you were an aspiring entrepreneur before going to business school, once you learn how to work in a cubicle environment - and are surrounded by people who are working on a mark-to-market basis - it is likely that your entrepreneurial spirit will never resurface (especially if you went to Harvard).

Here is why. If you want to be successful, you need one of two things. 1) A product or service that can make customers really happy or 2) An idea (like a company) that can consistently take marketshare away from your competitors.

If you have a product, the customer will choose you over your competitors eventually. This is not based on little irrational biases like “making people feel good” or “I like it more” that won’t matter in the end anyway. Instead, the reason why customers will choose you over your competitors is because they will be better off overall as a result of buying from you.

This is what makes you successful. If your product can win on this basis, then customers will continue to buy from you and your business will grow under natural selection. As a result, the probability of the business being successful is almost certain (in math they call this a ‘divergent series’).

When I say that it works like natural selection, I mean that eventually one business will take over the entire population of businesses in its market. This is how Wikipedia beat Yahoo and Google beat Lycos. It also is how MySpace lost to Facebook. More importantly, it’s how there might be only one company that tries to sell software for MacOS operating systems today (although there are many players today).

This type of success requires the following three things: 1) a product that customers are willing to pay for, 2) a service that customers will pay for (e.g. search engine), and 3) an ecosystem that is conducive to growth (e.g. an operating system).

By itself, it is hard to build all three of these things - especially with software development teams. Instead, you need a team of people with complementary skillsets who can build this thing together efficiently.

Conclusion

If you go to business school and remain there for a long time, your chances of success as an entrepreneur are much lower - and your chances of being happy on top of it all are even lower. On top of that, business school is not even helpful for the people who do graduate from it.

I took only one real piece of advice that I learned from my parents when I was young: don’t try to be popular at the expense of intelligence and hard work. To understand this idea better, one should read The Rare Breed: How Fairness and Exclusion Are Destroying America (published in 2008) by Thomas Sowell.