Peter Thiel and the Cult of the Dropout

Turning business setbacks into comebacks.
May 23 2014 9:43 AM

The Dropout Fallacy

Some of tech’s greatest superstars never finished college. So what?

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By encouraging students to postpone or abandon their studies, Peter Thiel aims to show once and for all that a college education is not the only path to success.

Photo illustration by Slate. Photo by Yuri Gripas/Reuters

In 2007, Bill Gates returned to Harvard more than 30 years after dropping out to deliver the commencement address and collect an honorary degree. “For my part, I’m just glad that the Crimson has called me ‘Harvard’s most successful dropout,’ ” he said, to a smattering of laughs. “I guess that makes me valedictorian of my own special class. I did the best of everyone who failed.”

Fast-forward a few years: Mark Zuckerberg is in serious contention for Gates’ title, and the entire notion of the successful college dropout has become something of a cliché. Michael Dell. Larry Ellison. Steve Jobs. Lady Gaga. Oprah. Google “successful college dropouts” and you’ll find plenty of evidence that people forgoing a bachelor’s degree can turn out “just fine,” be “more successful than you,” and “prove you don’t need a degree.” In 2011, Forbes reported that 63 of the 400 richest people in the world never got further than high school.

Alison Griswold Alison Griswold

Alison Griswold is a Slate staff writer covering business and economics.

 

The classic form of the American Dream stipulates that, with hard work and a good education, people in the U.S. can achieve prosperity regardless of race or socioeconomic standing. But as soaring higher education costs and crippling student loan debt have threatened this ideal, a new, alluring, and college-free version of the narrative has emerged. According to this story, success is not necessarily tied up in education, but rather can be won through innovation and entrepreneurship. And nowhere is this narrative better exemplified than in the annual Thiel Fellowship, a philanthropic creation of billionaire PayPal founder Peter Thiel that grants $100,000 to 20-odd people under age 20 on the condition that they “stop out” of school for two years and pursue a business venture instead.

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The Thiel fellowship launched in 2011 with the mission of “creating a radical re-thinking of what it takes to succeed and improve the world.” By encouraging students to postpone or abandon their studies, the Thiel Fellowship aims to show once and for all that a college education is not the only path to success. “There are big examples in the past—people like Steve Jobs, Gates, and Zuckerberg—who have created great companies without a college degree,” says Mike Gibson, vice president of grants for the Thiel Foundation. “But we were thinking, how can we create more role models that people can follow? How can we add some legitimacy to this path?”

Thiel (Stanford, B.A., J.D.) is famous for his libertarian beliefs and outspoken criticism of the American system of higher education. In a 2011 New Yorker profile, George Packer summed up Thiel’s views:

Thiel believes that education is the next bubble in the U.S. economy. He has compared university administrators to subprime-mortgage brokers, and called debt-saddled graduates the last indentured workers in the developed world, unable to free themselves even through bankruptcy. Nowhere is the blind complacency of the establishment more evident than in its bovine attitude toward academic degrees: as long as my child goes to the right schools, upward mobility will continue. A university education has become a very expensive insurance policy—proof, Thiel argues, that true innovation has stalled. In the midst of economic stagnation, education has become a status game, “purely positional and extremely decoupled” from the question of its benefit to the individual and society.

Thiel believes that elite students’ time, energy, and intellectual capital are better spent launching a tech startup than writing term papers. In its first year of operation, the Thiel fellowship accepted 24 young people from more than 400 applications, and those who made the cut were exceptional: Laura Deming, who joined a biogerontology lab at age 12 and matriculated to MIT at 14; Sujay Tyle, a cheap biofuels innovator and one of the youngest students at Harvard; Andrew Hsu, a fourth-year neuroscience Ph.D. candidate at Stanford by age 19. For the Thiel to carry out its audacious vision of radically rethinking the path to success, these astoundingly accomplished students were the closest thing to a safe bet.

Ironically, it is the very remarkableness of the best-known stopouts and dropouts that tends to get lost in the alternative American Dream narrative. Those who fetishize the dropout are perpetuating a very particular logical fallacy: The path of leaving school is what leads to success, and not the extraordinary abilities of those who chose it. “It’s insane—you drop out and you become successful?” says David Rose, CEO of early stage angel investing platform Gust. “I would posit the people who drop out and become successful do so in spite of it, and not because of it.”

The sad reality is that for every person who drops out and achieves great success, far more do not. Research shows that college dropouts are four times likelier to default on their federal student loans than those who earn degrees, and are far from guaranteed to outearn high school graduates. For every Gates and Zuckerberg, there are thousands of others who quit school and only saw their lives worsen. But those are the people who fade into obscurity, while the stars of dropping out find their way to inspirational Internet lists and the podium at Harvard commencement.

It’s also hard to discount the role Silicon Valley has played in propagating this new version of the American Dream. Technophiles and serial entrepreneurs have taken the common wisdom that most startups fail and worn it as a “badge of honor,” as James Surowiecki writes. “‘Fail fast, fail often,’ is a familiar mantra in Silicon Valley,” he explains. “There’s now a regular FailCon, where people come to hear other entrepreneurs tell about the hard times they endured and about how starting a business and failing actually makes you more likely to succeed in the future.”

On the contrary, a 2009 study of venture-backed firms from researchers at Harvard found that entrepreneurs who have failed before are hardly more likely to succeed in a venture than first-timers. On the other hand, entrepreneurs who had succeeded in the past had significantly higher chances of success at future ventures. “Success bred success,” explains Josh Lerner, a professor of investment banking and entrepreneurship at Harvard and author of the study. “If you’re a winner the first time around, you’re much more likely to be successful the second time.”

Vivek Wadhwa, a fellow at Stanford and expert on entrepreneurship, argues that the failure ethic is an important one in Silicon Valley. “Technology is not business, it’s experimentation,” he says. “You make a hypothesis, you test the hypothesis, you iterate over and over again until you get it right.” Yet at the same time, he admits there is a tendency in the Valley to exaggerate the merits of failure, and build beliefs on the backs of a few successes. “For all the good things to say about Silicon Valley, it also is an echo chamber,” Wadhwa says. “I think Peter Thiel honestly believed that because Zuckerberg and Gates and a bunch of others dropped out of school and succeeded, then if you drop out of school you can succeed.”

When he took the stage at Harvard commencement in 2007, Gates joked to the students that he was a bad influence. “That’s why I was invited to speak at your graduation—if I had spoken at your orientation, fewer of you might be here today,” he said. By dropping out of Harvard and becoming one of the world’s richest men, Gates did set an example. He ushered in a new narrative that Zuckerberg and others have perpetuated, and that Thiel has codified.

The notion that dropping out leads to success might fly in the face of data and logic, but perhaps that’s what makes it so seductive—it’s the modern Horatio Alger tale. The few that pull it off have become modern business icons, with blockbusters like The Social Network to commemorate their feats. Of course you don’t have to drop out of college to work on a startup, but isn’t it sexier to say you did? As David Rose puts it, Peter Thiel “has the sugar, we’ve got the medicine.” But sweet words aren’t always true.

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