As a professor of entrepreneurship at a university, I benefit from efforts by foundations and governments to support entrepreneurship programs. While I’d like to see this support continue, I wish that the support would be provided for the right reasons.
To me, the right reason to support entrepreneurship programs at universities is because educating students about this topic is valuable to them in the same way that teaching them physics or art history benefits them. The wrong reason to support university entrepreneurship programs is the belief that these programs will enhance economic growth in a region.
There is little evidence to suggest that either the quality or quantity of university entrepreneurship programs in an area does much to affect high growth start-up activity.
First, the distribution of venture-capital backed companies across the United States looks nothing like the distribution of university entrepreneurship programs. The National Venture Capital Association reports that 65 percent of all companies that received venture capital in 2007 were located in just five states: California, Massachusetts, Texas, Washington, and New York. These five states have nowhere close to two thirds of all the entrepreneurship programs in this country. So it seems unlikely that there is a relationship between the number, or quality, of entrepreneurship programs in a state and its level of venture capital activity.
Second, recent college graduates account for few start-ups. Data from the Census Bureau’s Survey of Business Owners shows that over two-thirds of the entrepreneurs whose businesses had received an external equity investment and were less than six years old in 2002 were between the ages of 35 and 54 years at the time their businesses received that investment, and only 0.05 percent were less than 25 years old. Therefore, university entrepreneurship programs don’t generate many people who are likely to start businesses in the near future.
Third, few college graduates remain in the place where they went to school. In contrast, most people start businesses where they are currently working. Therefore, efforts to stimulate the amount of entrepreneurial activity in a region through college education will suffer from much greater leakage than efforts to stimulate the amount of entrepreneurial activity through efforts to help the entrepreneurs currently starting businesses in the region.
Fourth, entrepreneurial activity involves a large amount of learning-by-doing. The research evidence suggests that many entrepreneurship skills are learned on the job, working for companies that are successful at this activity. For this reason, entrepreneurship students are a poor source of assistance to help build entrepreneurship in a region. Most students have little of the relevant work experience necessary to help entrepreneurs to start successful companies.
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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of eight books, including Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.
Interesting overview of the topic and I have to agree with your thoughts here. There are some interesting statistics here as well and you have enlightened me regarding them.
I really agree with your fourth point. To truly understand entrepreneurship, you must have some experience. Not everything can be learned in a classroom, some things you have to try and fail at first.
“Therefore, university entrepreneurship programs don’t generate many people who are likely to start businesses in the near future.”
“entrepreneurial activity involves a large amount of learning-by-doing. The research evidence suggests that many entrepreneurship skills are learned on the job,”
These 2 points may win the battle, but they are making you lose the war.
If entrepreneurial education doesn’t inspire and equip 20 somethings to start a business NOW, as opposed to when they’re 30-40 when most are saddled with family, debt, and other responsibilities – then maybe the current incarnation of entrepreneurial education needs to be re-imagined.
I’d like to provide a different perspective on the topic and since it is one that is on the opposite end of the spectrum, let me fully qualify my background.
I am not a researcher on the topic of entrepreneurship, however I work in an business incubator focused on technology startups. I work primarily with early-stage, pre-revenue entrepreneurs helping them to crystallize their vision, develop their plan and, if necessary, pursue funding.
Therefore my data is purely anecdotal in nature, but my observations are, on all four points, quite the opposite of your position.
#1 – The venture money isn’t where the university entrepreneurship programs are. That may be the case, but most startups are well down the post-revenue road before they need venture money. In fact, the venture companies we work with wouldn’t be interested in talking to an early stage entrepreneur. Therefore, I don’t agree that the educational program cannot be a success without local VC money as VC money is not usually a component of starting up.
#2 – Again, I’m not sure the data point you use in support of your claim is the most relevant. You are defining a start-up as an entity that received external equity investment. Similar to my thoughts on #1, there are many ways to start a business besides equity investment. We regularly coach entrepreneurs to pursue bootstrapping, friends & family and angel networks before approaching the venture or capital markets. Also, many university students today look to start software-related companies, whether it be online social networks, online services and pure software development. Start-ups of this nature are notoriously cheap to start, requiring many times simply a computer, an internet connection and your brain.
#3 – I think people start business where they think they can be successful and appreciate the local standard of living. I would also argue that if a student is attending a university, then there is a good change they ARE also working in the area. By exposing students to what it means to be an entrepreneur, the support systems in the region that exist for entrepreneurs, and teaching the entrepreneurial spirit, I believe we are creating a climate where those students will start businesses in the area they are attending school and will not “leak” back to their hometowns. I’ve talked to several success stories locally where students started their business in their dorm rooms while attending school. What a great way to keep students in the area – help them start business while they are attending shool!
#4 – I wholeheartedly disagree on this one. It’s one thing to say that building a $XXM company from the ground up takes skills a student probably doesn’t have, but I would rebut that even those entrepreneurs started somewhere. I’m not sure it takes “work experience” to be a successful entrepreneur so much as it takes the right mix of entrepreneurial “qualities”, a good idea and a regional support structure. With more and more entrepreneurial educations programs combining real-world elements like business plan competitions, I believe we ARE providing students with what it takes to be a successful entrepreneur. Again – simple non-research observations here, but all things being equal, I’ll take a start-entrepreneur with the right qualities over the one with the right work experience any day.
I suppose it would be fair to respond to my comment saying that you were really talking about scabale, venture-backed start-ups that can have a huge positive impact on not only communities, but regions, and that’s a fair comment. However, we all know the start-up game is one of odds. Those home runs are few and far between, something even the VC guys will tell you. The other side of that equation is also true in that just because the start-up is a business created by a student in their dorm room, doesn’t mean it will be small. The software and Internet industries have huge potentials with many times little investment. Wasn’t Facebook created by a college kid while in college? Wasn’t Microsoft founded by a college dropout? Wasn’t the roots of Apple two geeks playing around in their garage?
I respect your research Scott, and there is a lot to think about there. As someone on the front lines working with these kids day in and day out, I think it’s overly pessimistic.
This is one very stimulating topic and the views presented by other commenter are really great. Well, I don’t have that much qualifications to oppose or agree to this write-up, however, I could share to you my point of views as an aspiring IT entrepreneur. I graduated as an IT student and we’re not given much focus on entrepreneurial programs. But with the advent of technology, I as a fresh IT grad could not help but think of starting up my business. In this case, I would like to agree on some of Dave’s points. Someone has to have that qualities and interest that will eventually drive determination in starting up their business. But of course, being exposed to entrepreneurial programs would really be a big help. Without those programs, someone could still learn by initiating themselves to join seminars and read a lot of articles over the Internet. Just as right now, what I am doing.
Thanks really to smallbiztrends, the author’s point of views are really helpful for us-business starters! 🙂
I agree to your fourth point – “Fourth, entrepreneurial activity involves a large amount of learning-by-doing. ”
Nothing beats experience!
I participated in an add-on education for one year after high school called “small business education”. We learned theory and practiced the ideas by starting a company with other classmates and then running the business during the semester. It gave me kick to start my own company later on in life.
Scott: What is the reason that only five states (California, Massachusetts, Texas, Washington, and New York) is receiving the big chunk of the venture capital? Tax situation, concentration of start-up companies, a hub of incubators, or what?
I respectful offer a different take on this post at my blog The Entrepreneurial Mind:
Yes, I agree with you Rose — learning by doing and experience matter greatly.
I’ve looked at hiring student interns, but I’ve found they often are more needy than able to offer assistance to my business.
Interns seem to work well when hiring for technical positions, but not for more-nuanced skills. For instance, I have talked with CEOs of other tech businesses, and some report good experiences with hiring software developers starting as student interns and then bringing them on post-graduation. But the kind of help that I and many startups need is sales and marketing, and it’s hard to get a big contribution in sales from an intern.
I meant to add this point to my comment above: I don’t want to sound totally negative on interns — and regrettably it may have come across that way.
So let me clarify: I think interns are great for larger established companies, especially those with extensive orientation and training programs for new hires. My comments were strictly from the perspective of startups hiring students, in relation to Scott’s point #4.
I think there is a big difference between hiring a student intern and educating students to be successful entrepreneurs.
If I am hiring a student intern to fill a specific functional role then I think it is obvious that student probably won’t have much experience in the role. After all, that is why they are an intern.
However, if we educate students on entrepreneurial concepts, expose them to regional support networks, get them to participate in business plan competitions then they will self-select the start-up businesses they have not only the passion but the skills to successfully grow. I think this is why you currently see students predominantly starting technology and service businesses.
I also agree with the point Jeff Cornwall left in his post about homeruns versus singles and doubles. It is a point I made in my original comment and I”m glad to see someone else agreeing. Home runs are few and far between. They are nice when they happen, but you simply can’t build sound regional economic development policies around them. You can build around lots of small and medium sized businesses. And who knows – if we focused a bit more on those businesses maybe we could make them even bigger.
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Is this why Cleveland can’t keep up with the entrepreneurial heat wave? Entrepreneurs come in all shapes and sizes and experiences and ages. Sorry, but you are behind the times, man. How much innovation have you prevented with this mindset?
Agreed that there’s a big difference between hiring a student intern and educating students to be entrepreneurs.
I interpreted Scott’s point #4 as being narrow and referring to students as a source of labor for other people’s startups:
“… Most students have little of the relevant work experience necessary to help entrepreneurs to start successful companies.”
I was not suggesting that students should be discouraged from starting their own businesses. I’m all for startups. 🙂
On the contrary, I was answering this point only: “Who can afford to take on the risk of the students’ learning curve?”
Better that students develop work experience on their own startups where they can learn by making mistakes on their own dime. Or have them work in large corporations that can afford to train them in a variety of roles.
But from a startup owner’s standpoint in hiring labor, he or she will have limited money to spend on staffing. They need employees who can hit the ground running, who will take up little training time from the rest of the limited staff, and can deliver as much or more than the salary they are receiving.
PS, I also agree with you and Jeff Cornwall about going for singles and doubles, and not home runs always. I’ve written about that many times before.
Thanks for the reply. I obviously missed what you were saying, and it’s a valid point. I think using students in an internship position as an entrepreneur is great in theory, just hard to pull off in practice. So yes, if you are early-stage and swimming fast, then the last thing you probably need to take on is someone who needs a bunch of training and supervision to add value.