Start-ups: Can there be too much of a good thing?

I was taken aback recently by a story in the Boston Globe with the provocative headline, "At MIT Event, Group Entices Students to Ditch School." The article discussed a visit to the MIT campus organized by the Thiel Fellowship,  which offers 20 bright students each year $100,000 to drop out of school and come to San Francisco to work on getting a start-up company off the ground. The Thiel Fellowship representative stated in an interview for the article that you don't necessarily have to go through these traditional gatekeepers to change the world. All you need to do is build it. (PayPal co-founder Peter Thiel, who holds degrees in law and philosophy from Stanford, created the foundation.)

One of the most vital features of American society and economy is the strong role of start-ups, which is the envy of the world. New businesses provide a key source of dynamism and innovation. Think of how successive generations of IT have each generated new firms to take technology to its next level – from IBM in mainframes, to DEC in minicomputers, to Apple in microcomputers, to Microsoft for PC software, Netscape for the Internet,  Google, Facebook, and who knows what next.

I think, though, that, just as in every other area of life, at some point more is not necessarily better. There can be too much of a good thing. A few months ago, I wrote a blog post about Kennedy School students losing interest in working for large organizations of any sort (including, but not just, government), in favor of starting their own nonprofit social enterprises (or just regular enterprises). Since that post, I learned from a friend that his son, who just graduated from a top university, had turned down a job at Google because he was concerned the company was too big and bureaucratic. Also, Stanford recently announced that it was going to start investing in start-ups founded by undergraduates there, putting a further seal of approval on start-ups as the cool thing to do. Now this – encouraging smart kids to drop out of school entirely to rush into the start-up world.

Why can there be too much of a good thing? First, I don't think I need to make a case that existing large organizations need to get their share of talented people. They are serving many people, and the quality and cost of what they do is important. Innovation is clearly crucial for a successful economy, but competent production of what we have now – even assuming (incorrectly of course) that no innovation comes from large organizations – is very important as well. This applies to the need for talent in government, and in large private or nonprofit organizations. Second, most start-ups fail, and people are differentially talented at starting new ventures. The more signals young people get from society that what any kid worth his or her salt does is to start a new venture, the more that people not suited for this kind of activity will choose to give it a try anyway. For these new people attracted at the margin to starting something new, it may well be that the social costs of their failed, wasted efforts are greater than the benefits of the few successes they generate.

The Thiel Fellowship effort to encourage talented students to drop out of school is particularly pernicious in my view. A good college is not just a place to learn job-related skills, but to be exposed to elements of civilization that one would otherwise likely ignore – for the future tech or biotech entrepreneur, history or literature for example. And even in the area of job-related skills, good universities have incredibly smart professors in the area where the student is thinking of becoming engaged who just about certainly have relevant knowledge to offer. To think anything else is arrogant, and encourages an unhealthy arrogance among young people. The failed dropout entrepreneur will later either decide to return to school, at a time when he or she is less likely to enjoy the educational experience, or remain excessively ignorant for life, neither of which is a good outcome.

Maybe it's time to put a bit of a break on the start-up hysteria?