By Michael Bastedo and Molly Ott
Recently it has become very fashionable to glorify college dropouts. The late Steve Jobs, perhaps the best business leader of our era, dropped out of Reed College. Bill Gates, Paul Allen, Michael Dell, and Larry Ellison? All dropouts. And as we all saw in The Social Network, pretty much the entire founding cohort of Facebook left Harvard.
There's a real issue here. In a time of economic uncertainty, America's imagination has been captured by companies largely founded by college dropouts. Our school curricula certainly don't emphasize applied business skills. High schools don't teach finance, colleges don't teach sales. Conformity seems prized over risk-taking. It's an easy argument to make.
But what is the evidence?
One of us, Molly Ott, analyzed the educational backgrounds of 3,625 top managers at Fortune 500 companies in 2010. What did she find? A full 97 percent of America's major CEOs have a four-year college degree. Most of them have MBAs, and many have other advanced degrees, even doctorates.
OK, so maybe CEOs aren't college dropouts. What about regular people founding start-up businesses? Recently, University of North Carolina researchers randomly selected 439 "nascent entrepreneurs" who started a new business from 1998 to 2000. Their findings were remarkable: One of the strongest predictors of starting a new company was the founder's college degree. It was a stronger predictor than prior work experience, even prior managerial experience.
How does a college education contribute to entrepreneurial development? Education develops the analytical skills that help people recognize and exploit business opportunities. College-educated people also seem to develop stronger inclinations to found businesses in the first place, and those businesses are rated more innovative.
Let's look more closely at these famous dropouts. In Ott's sample, 6 of 252 CEOs were college dropouts. Half of these -- Jobs, Dell, and Ellison -- founded technology firms. Are tech firm founders more likely to be college dropouts?
To find the answer, The Kauffman Foundation conducted a survey of American tech founders in 2005, and 92 percent of them held at least a bachelor's degree. All of the start-up companies were successful, having at least $1 million in annual sales each. But those founded by entrepreneurs with high school degrees had less than half of the average revenues and number of employees as start-ups established by Ivy League graduates.
Note something remarkable that these technology-firm college dropouts have in common: They all applied to elite colleges. Bill Gates and The Facebook crowd? Harvard. Michael Dell? UT-Austin. Larry Ellison? University of Chicago. The incoming class at Reed College, Steve Jobs' alma mater, has an average 3.9 GPA and SAT score of 2071.
If they all ultimately dropped out, why does this matter? Because just applying to elite colleges demonstrates incredible accomplishment and motivation to achieve, and is itself a good predictor of future financial success.
In a famous study, the economists Stacy Berg Dale and Alan Krueger examined students who applied to elite colleges as well as those that enrolled. Those who applied to elite colleges - but were rejected -- earned just as much money in later life as students who actually enrolled. They argue that the primary factor behind future earnings isn't just the education you get at top colleges, but also the motivation of students to apply and succeed.
So these weren't your average, run-of-the-mill college dropouts. These were highly intelligent, highly motivated young people who sought out the best education they could obtain. They came primarily from upper-middle-class families. To borrow from Occupy Wall Street: These are not the 99%. In motivation and intelligence and resources, these are likely the top tenth of 1%.
What is the damage in celebrating college dropouts? Every year, thousands upon thousands of students leave higher education without a degree. The National Center for Education Statistics estimates that around 20 percent of students who start at a four-year college or university will drop out within six years. Low-income students are the most likely to depart, leaving higher education with potentially large debts, no degree, no job, and few family resources. The idea that these students are well positioned to found tech start-up companies is a cruel joke.
We doubt that dropping out is a good idea for almost anyone. This is a case in which we all know the winners but the losers are completely invisible. What of the students who dropped out, struggled to found a start-up business, and ultimately failed? Less than 10 percent of all start-up companies can even pay back their initial investors. Nobody argues that all college football players should drop out and try out for the NFL.
Despite their lack of formal degrees, at least a few of these tech successes understand the value of higher education. The Bill and Melinda Gates Foundation focuses a substantial portion of its resources on improving college access and completion. And as Walter Isaacson reveals, even after dropping out, Steve Jobs continued to audit courses at Reed College on his own terms. One of his favorite places was Stanford University -- which has fueled the development of Google, Yahoo, and dozens of other companies. The memorial service for Jobs, one of the most prominent college dropouts ever, was held on the campus of that prestigious university.
Michael Bastedo is an associate professor at the University of Michigan. Molly Ott is a lecturer at the University of Miami.