December 10, 2011
These days, students are paralyzed by rising tuition rates and astronomical amounts of debt. The prospect of becoming a young entrepreneur is mind-numbing, if not absurd.
However, entrepreneurs have an out unlike their peers. According to the Kauffman Foundation, the entrepreneurship index was highest among the least-educated Americans, moving from 0.49 percent in 2009 to 0.59 percent in 2010, suggesting an increased number of people pursuing entrepreneurship out of necessity.
This achievement-gap has a titanic effect on the economy. According to a 2009 study by McKinsey & Co., if the [academic] performance of low-income students had been raised to those of their peers, annual GDP would have increased by as much as $670 billion, or 5%.
In today’s system, academic achievement is no longer a sufficient proxy for ability – especially for entrepreneurs. The definition of achievement should stretch beyond “academics” and into “ideas.” The result shifts the focus of the commentary to the entrepreneur and reads: If the performance of uninformed entrepreneurs were as favorable as the informed, mentored and connected, returns would increase by billions of dollars, or a gazillion percent.
Queue the rise of angels, VCs, incubators and accelerators looking to fill their funnels. People like Peter Thiel pay kids to “stop out” of school, hack their education, and start innovating right away. If young entrepreneurs don’t take Thiel’s bait, some consider dropping out to join programs like Y Combinator, which have emerged as legitimate post-secondary alternatives. The economic value created is undeniable. According to the NVCA, venture-backed companies employed 11% of the total U.S. private sector workforce and generated revenue equal to 21% of U.S. GDP in 2010.
One thing preventing further acceleration of job and wealth creation caused by entrepreneurs is the misaligned incentives of the education system. Continued economic uncertainty and an inflating tuition bubble amount to a principal-agent problem. The education system’s lean counterparts, however, have emerged with a disruptive solution. Prioritize outcome over income.
Y Combinator, TechStars, and the rest of the burgeoning incubator scene are giving academic institutions a run for their money with a pay-for-performance type model. The programs are a semester long with admission rates akin to top tier universities. Payment for the program is tied to the performance of the company. The program takes X% of the business and work with entrepreneurs to make their (100-X)% worth something. As a result, entrepreneurs don’t just leave the program with paper certificate, but with a pronounced ability to earn real paper. The green kind.
Tying payment with the performance of entrepreneurs is working. In a recent infographic published by Gist, entrepreneur failure rates for TechStars (6.5%) and YC alumni (22.2%) pale in comparison to “home-schooled” entrepreneurs (40%).
Early in an entrepreneur’s career, ideas are typically overcooked and strategies are raw. For that reason, the same infographic highlights that VCs appear to favor founders that rely less on degrees and more on experience. Adil Wali observes, “VCs are in the student loan business. They are paying entrepreneurs to learn and make mistakes.”
“Learn” being the key word. An entrepreneur’s pursuit can be described in one variant of the word’s definition: “to gain knowledge or understanding of or skill in by study, instruction, or experience” – all 3 of which are pillars of the above discussed incubators and accelerators.
The alternative definition more accurately describes the university’s interpretation of “learn” which is simply, “to commit to memory.” The problem is, machines can also commit routines to memory.
“The growth of the conceptual component of output has brought with it accelerating demands for workers who are equipped not simply with technical know-how, but with the ability to create, analyze, and transform information and to interact effectively with others.”
In Race Against the Machine, Erik Brynjolfsson and Andrew McAfee discuss why.
“The root of our problems is not that we’re in a Great Recession, or a Great Stagnation, but rather that we are in the early throes of a Great Restructuring.”
In A Whole New Mind, Daniel Pink describes this restructuring as the onset of the Conceptual Age.
“We’ve progressed from a society of farmers (AGRICULTURAL AGE) to a society of factory workers (INDUSTRIAL AGE) to a society of knowledge workers (INFORMATION AGE). And now we’re progressing yet again (CONCEPTUAL AGE). The future belongs to a very different kind of person with a very different kind of mind – creators and empathizers, pattern recognizers and meaning makers. These people…will now reap society’s richest rewards and share its greatest joys.”
So where do creators and meaning makers hang out? In his TED talk, Steven Brown discusses where good ideas come from. He highlights coffee shops in particular, as a conjugal bed where people from different backgrounds and fields of expertise come together and share. “It’s a space where ideas have sex.” Other settings (under) serving a similar cup-of-community are campuses.
Universities are perfectly positioned to “pimp” ideas. Campuses are carefully curated environments of people from all corners of the worlds studying Science, Technology, Engineering and Math (STEM). But the only thing preventing ideas from brewing are the ideas themselves and the incentives to have them.
Universities need to network disciplines together around an axis of ideas. No discipline is mutually exclusive. Students should be encouraged to see the science behind art, the math behind technology, the music behind the assembly line. Blurring disciplines can clear vision and precipitate ideas that create gobs of economic value.
Ideas and entrepreneurship are company-size and industry agnostic. Whether an entrepreneur starts a company, or joins an organization of entrepreneurs, having ideas and being able to execute on them is a coveted quality for forward thinking organizations. Dating as far back at the 1970’s, companies like 3m give their employees 15-percent time to work on projects and ideas unrelated to their day-to-day. Google gives employees 20-percent time, and that percentage is trending upwards. More and more companies need employees to be entrepreneurs.
But rich rewards and great joys are only in our future if the education system creates and coaches entrepreneurs. Rather than have students slave over syllabi, the system should focus on affecting achievement on the periphery by inserting “idea” into the core curriculum. The lack of “idea” has stymied the American Dream perpetuating the blasé American Routine. It’s a deep seeded institutional problem that is clotting progress and needs to change.
Raji Bedi is the founder of doingtonight – an application that allows you to make and broadcast plans for tonight. Follow Raji on twitter @rajibedi and read more of his blog posts on tumblr. This post was originally published on his own blog.
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