Go To College … Or Start a Business?

One of the founders of PayPal, Peter Thiel, does not want you to go to college.

Instead, if you’re smart enough (as in, “started college in third grade” smart enough), he’ll give you $100,000 in seed money to start your own business.  Thiel is jumping headfirst into a major debate over the necessity of college, putting $2.4 million of his own money on the line to prove that college is overrated.

Of course, he’s got plenty more millions where that came from.

Of course, he’s choosing some of the most ridiculously smart teenagers he can find.  One hundred thousand dollars in seed money isn’t just going to magically appear.  But it does beg the question…does it make more sense to start your own business, or to go to college?

The answer?  Both!

Costs

Compared to the cost of a college education, starting your own business seems fairly cheap: a typical small business is started with about $10,000 up front.  Compare this to your average college graduate, who walks out the door, degree in hand, and $20,000 in private student loans to pay off.

But there’s more to the picture than the numbers, as appealing as they might seem.  First of all, it’s a lot easier to get a student loan than it is to get a small business loan.  A student loan is predicated on your getting into a college: the loan provider treats that as a sort of background check, proof that you’ll borrow the money and do the needed work to pay it back with ease.

Small business loans are a much different beast.  There’s no guarantee your business is going to succeed, especially since it’s possibly being founded by somebody who can’t legally drink yet.  To get a small business loan, you’ll have to demonstrate that you understand the industry you want to work in and have a credible market that is not currently being supported by other businesses (or demonstrate that you can serve that market better). In short, the bank wants some guarantee that they won’t have to take you to court to get their money back.

Equally as important, you need to be able to go without much of a paycheck for a while: it can take small businesses five years or more to become profitable.  You might be working one job to pay the bills and spend the rest of your time dedicated to your business; it’s more common than you might think.

Time Commitment

College is, the joke goes, the best seven years of your life.  But, most people manage to fit it into four.  Then it’s off to the outside world, with its jobs, victories, jobs, disappointments, and jobs.

Small businesses, not so much.

One of the virtues of college that’s rarely discussed, but often useful, is the fact that you have lots of time.  Sure, you’ve got a workload, and a lot of stuff to do, but at the same time, you also have time for a social life, hobbies and other pursuits (like drinking).

You just don’t have time to do this in the real world.

Small businesses don’t really give you a lot of time — at least if they’re your sole method of support.  Business, as all Business Administration majors know, is about the hustle.  You will constantly be looking for leads, new clients, partnerships, or ways to improve your product.  Why?  It’s your job.  It’s what you have to depend on in order to make money.  Eighty-hour weeks aren’t uncommon to small business owners.

In other words, one way or the other, you’re going to be working pretty hard eventually – whether you go to college first, or not.  The only difference is that one offers you a social life beyond Chamber of Commerce mixers, and dinners with clients.

Failure Rate

The numbers are pretty stark for college students: of their freshman class, only 56% will get a degree.  This is for any number of reasons: difficulty with the work, family troubles, substance abuse problems, emotional problems, difficulty adjusting to college life, and so on.  College is a great thing, but it can also be tough to finish — and once you leave, tough to get back into.

So, how about small businesses?  The numbers are a little fuzzier with small businesses simply because not all of them report to one body, not all of them are on the books, and not all of them really go off the rails, but as a rule one-third of businesses make a profit, one third of businesses break even, and one-third of businesses fail.

It sounds good at first, but remember … only one third of small businesses are making a profit.  The rest are struggling, to one degree or another.

So Why Do Both?

If college is hard, and running a small business is hard, then why do we recommend doing both?  Simple: one benefit of a small business is that you’re the boss.  You control your hours, and you control what you do.  There’s no reason you can’t run a small business part-time, out of your house, and use it to pay for school.

Probably the most extreme example is Michael Dell, who fixed computers part time from his dorm room. Dell was a crafty customer: he outbid his competitors because, unlike them, he wasn’t paying for a storefront, so he could fix the computers at a much lower rate.  Not every college business makes a billionaire out of its founder, but it’s much easier than it looks.

And once you get that rich, you don’t have to listen to anyone you don’t want to.

“Small business” can mean lots of things: wedding photographer, children’s entertainer, babysitter, tutor, and so on.  Starting a small business from your dorm room is fairly cheap, depending on what you like to do and what you want to do.

Building a business while you’re still in college is a good idea for a slew of reasons: it allows you to build your business on your own time, at your own pace, without worrying about it being your sole source of income.  You don’t have to take out a loan because you won’t be running a storefront or renting out offices: you’ve already paid for your office.  You don’t have to hit a profit total, either.  You can focus on your studies when necessary, and your business the rest of the time.

And it definitely beats this kind of college job.

Most importantly, when you graduate, you’ll be leaving school with solid business experience.  Whether you choose to shut down your business after college and work for someone else, or continue to pursue it, you’ll have built a network of contacts, collected plenty of references, and, most importantly, have something on your resume that demonstrates you’re a hard worker.  That’s valuable no matter what you end up doing.