Should You Drop Out of School to Start a Company?

Since launching Petrus Labs, I've had the opportunity to meet with ambitious college students and the inevitable question they ask is, “Is college worth it? Should I drop out to start a company?” My answer to this question may be controversial: probably not. I’ll discuss three components of what students should think about: opportunity cost, lack of data, and expected value.

1 — Opportunity cost

Opportunity cost for a student is different than that of an experienced professional. When my co-founders and I founded Tobiko, our opportunity cost was our jobs. It took me three interview attempts to get past the hiring committee at Google so in some respects, I had landed at my dream job. I was paid well, and that mattered because I have to support my family. And yet, the opportunity cost of walking away is not terrible because Google is replaceable. Google will always be there, and if it’s not Google, there are other large tech companies to join.

College, in my opinion, is a pivotal moment in life. You go from high school where your peers are selected by residential location to peers that are actively selected by interests and aptitude. For me, Caltech was a place where I was surrounded by fellow math and science nerds and as a result, I left with close friends and a network dynamic that allows me to instantly bond with anyone who has gone through that experience. As we get older, there are exceedingly few, if any, experiences in life that are as deeply immersive as college.

2 — Lack of data

Lack of data is also a particularly common issue that I see for students who are aspiring entrepreneurs. I spoke to a college sophomore once who had an idea about building software for chemistry labs. While it was possible for the idea to be good, the issue is that he took the first immediately accessible problem and decided to pursue a company. We tend to try to solve problems we understand, and while there is nothing wrong with this (and it’s somewhat necessary), the problem comes when you haven’t seen very much of the world. One can try their best as a student to try and see more of the world, but many of the world’s more complex interactions aren’t accessible to young students. More data is better, but does have diminishing returns at some point (and can risk overfitting), but I think it would be difficult to disagree with me that a 20 year-old has not received the optimal amount of training data. If you don’t look back at your 20 year-old self and think “that kid really didn’t know very much,” then you haven’t grown in your 30s and 40s and I would hope that everyone has aspirations for growth.

3 — Expected value

Finally, I think both of the previous points lead to the idea of expected value. To summarize, I would describe it as not harvesting your fruits too early. Life is finite, and startups take time and energy. We simply don’t have an infinite time to place bets. For each bet that we make, we should ensure its quality: the expected value exceeds the opportunity cost. In my opinion, the opportunity cost of foregoing college is high. The lack of data due to limited life experience reduces the expected value.

There are also other mechanics that may reduce the expected value for a student founder. One thing that comes to mind is the ability to hire and manage a team. It is already exceedingly difficult to hire for startups as good talent generally has access to jobs at large tech companies and large tech companies pay very well. What really exacerbates the issue is that a company started by a 20 year-old founder will be trying to hire talent that will inevitably ask the question, “Am I comfortable working for a 20 year-old?” Whether or not this is fair in your opinion is kind of irrelevant as it is the candidate’s perception that will influence your ability to hire. On team management, I am of the opinion that it takes time living as an adult to be able to diplomatically resolve the personal issues of adults.

If I am to leave a final thought to students who are thinking about dropping out to start a company, I would say that your childhood is valuable. Incentives are misaligned between venture firms and childhoods. Students are particularly cheap investments from the standpoint of a pre-seed investment. They generally aren’t trying to support a family of four and they generally haven’t experienced the compensation bands of large tech companies, and therefore they can be easily tempted with a $500k check. A venture firm has a lot of incentive to write these checks because their cost per bet is 1/10th that of an experienced professional, and the venture firm is not the one giving up their youth.

When making important decisions, it is important to consider how irreversible or permanent a decision is. I believe that the most valuable thing one gains from college is their friends and that this experience is fundamental to our lives. The cost is significantly higher than walking away from Google because you cannot replace it later in life. You simply aren’t going to make friends the same way as a 24 year-old student. The experience requires you to be 18-ish years-old riding the wave with everyone else. Decisions that close doors should be made with careful consideration. (In this sense, having kids is significantly more critical of a decision than getting married as one cannot just file paperwork and make kids disappear.)

So, should you drop out of school to start a company? My response is that if you do, it better really be worth it. And not only does it have to be worth it, you have to recognize that it needs to be worth more, not less, than the same consideration for an experienced professional and you’ll need to evaluate the worth of the opportunity objectively and independently of venture investors who can (and will) profit off of your childhood.