Entrepreneurship 101: A Guide for New College Grads Looking to Fly Solo
Some experimented with self-employment while in college. According to the Youth Entrepreneurship Study by the Young Entrepreneur Council and Buzz Marketing Group of more than 1,000 college students and recent grads, more than a third of them (36%) were side-preneurs -- they started businesses while getting their degrees, and about 1 in 5 (21%) started businesses after college because they couldn't find a job.
Many, however, go into it essentially relying on instinct. According to the study, 73% of those surveyed did not take classes in entrepreneurship, and 70% of those who did called their classes "inadequate."
So the educated, but unschooled on matters of building and running a business, venture forth with more moxie than money or wisdom. But that's not to say that they can't still find success.
Here's what every just out of college, would-be entrepreneur needs to know.
Set the Stage
For freshly minted grads, it can be hard to remember that a professional career is a marathon, not a sprint.
"When you are excited about new ideas and opportunities, you may have the equivalent of business lust," says Carol Roth, author of The Entrepreneur Equation. "You are so enamored with the ideas that you can't see the flaws. You let emotion get in the way of practicality. You may want to take that risk, but the most successful entrepreneurs in actuality, are proficient at mitigating risk."
"This means taking your time to prepare and stack the odds of success in your favor before you begin, because timing is everything," she says.
Assess your motivation. "Are you looking to get rich, escape having to 'work for the man,' do more of what you love to do, be your own boss, and work shorter hours with more free time?" asks Roth. "If so, you don't understand what it takes to start and run a business."
On the other hand, if you're focused on solving a customer problem, believe you can do it better than anyone else, think you have a business model that's repeatable (i.e., one that's not dependent on you and your skills), and you're dying to work long hours, wear many hats, and balance responsibilities, you have the right mindset to run a startup, she says. Ask entrepreneurs in your community who you admire for informational interviews to learn more about the day-to-day requirements of "being your own boss."
Go For It
"Entrepreneurship is like a piano keyboard. Whether you play the piano or not, it's important to recognize that every hit song that ever was and every hit song that will ever be is right in front of you," says Dan Martin, CEO of technology company IFX.
So grit your teeth and get on with it.
"Mentally, there may not be a better time than starting right out of college because you haven't experienced the comfort yet of receiving an automatic paycheck every week," says Jeff Platt, 27, CEO of the franchise Sky Zone Indoor Trampoline Park. "So many dream about their own business but fail to make the jump after starting employment with someone else ... start now, and you're way ahead of the game!" One month after graduation, Platt opened the first of his own Sky Zone locations and fully took over the business from his father, who handled the start-up stages of the company.
One you've decided you're sure, you need to take your idea from being something in your head to something that is executable. To get you started, Jim Houtz, author of Growing the American Dream: How to Take Your Business from Start-Up to World-Class, offers three important questions: Who will be your first five customers, or first 100 if it's a retail product? Do you have a business plan that identifies product development costs, potential users, sales strategy, implementation costs and potential revenues and costs for the first 18 months? Will you build, lease, buy or franchise a product?
You won't be able to answer these questions until you do your research. Dig, dig, and then pull out the shovel again. Ask questions of industry experts, your financial gurus and your lawyer, among others. In the end, you want to create a timeline of what has to be done by when.
You may be flying solo, but that doesn't mean you have to go it alone. Find one or two advisors who can help you along the way, primarily as sounding boards. "Don't ask them to do it for free. Instead, give them skin in the game by creating some type of equity currency which gives them a small piece of the pie as an owner," suggests Michael Feuer, co-author of The Benevolent Dictator and co-founder of OfficeMax. Then too, there are all sorts of low-cost or no-cost places to find counsel such as incubators, mentoring organizations, your local Small Business Development Center or SCORE.
Acknowledge the risks
Youthful enthusiasm and energy will only get you so far. A lack of much real-world work experience can present its problems. "You have no business model sample from other companies," says Joe Silverman, CEO of New York Computer Help, a computer repair shop. There's plenty to be said for learning on someone else's dime. Realize that to some extent, you don't know what you don't know, so be willing to play catch up.
Then there's the matter of money. Most college grads leave school saddled with $20,000 in debt or more. The last thing you want is to finance your business with credit card debt.
"Credit card debt can be dangerous because of its high cost," says Platt. "If you have a solid business plan and a winning idea, the money is out there in the form of venture capitalists, banks, and friends and family. Find it. Start with friends and family."
But do be careful getting investment from those closest to you, warns Edward Rogoff, the Lawrence N. Field Professor of Entrepreneurship and Chair of the department of management at Baruch College. "They can be great resources, but know that if things don't work, you don't want them to hate you," he says. "Reveal the risks, and be clear you want to keep your relationship for the long term, even if that is longer than the venture lasts."
Getting Through the Lean Years
Plan on living the frugal life, especially those initial years in business. While you want to watch what you spend, you also want to spend your money where it counts. For example, make sure you have health insurance. "Medical expenses being what they are these days, a single hospitalization can put you straight into bankruptcy if you don't have health insurance. When you make medical coverage a priority you're insuring more than your health – you're also helping to insure your financial future and the fiscal health of your business," says Anthony Lopez, a small business consumer specialist with eHealthInsurance.com.
Set up an LLC for your company. "This provides some personal protection and will minimize your taxes since the bottom line goes directly to your personal return. You do not get taxed twice!" says Glenn Smith, president of Micro Integration Service, a software and computer consulting firm.
You may also need to work part-time for someone else to ease your cash-flow concerns, at least for a time. While you may have low personal overhead, assume that you won't have much in the way of income for several months, so figure that into the equation when you're raising money. "My philosophy is simple: Create a budget and add 50%, that's how much you need," says Platt.
Launch tales from a young entrepreneur
Jeremiah Sullivan, 23, graduated in 2009 from Seton Hall with a degree in public relations and journalism. The job market stank then, and entrepreneurship looked like a more promising path. Now, he's co-owner of Framework Media Strategies, a public relations firm.
"We found early on that financial concerns were the biggest thing to consider before taking that leap," he says. "Coming out of college, student loans and planning the early stages of 'the rest of your life' offer enough challenges on their own, let alone in an unstable economy. We made sure we analyzed the risk and the entrepreneurial investment we would take carefully."
Aside from finances, the next challenge, he says, was to decide what direction the business would go in and what services they would offer. In doing so, they had a period of self-assessment where it was important to identify their combined professional strengths and determine what industry trends they could be related to. "We then had to ask ourselves, do our business's offerings address real concerns?"
With the answer a "yes," they moved on to choosing a name that made sense. "We made sure to focus on our purpose," says Sullivan. "We knew we wanted to be known for building a plan for our clients based upon their needs and lay out the framework of what needed to be done. Then, we took it a step further and knew that media-generating strategies would be a core part of our services."
The firm has six clients and is growing. "There is demand -- we've actually had to ask clients to wait until some projects clear before bringing them on. Also, due to the fact that most of our external marketing and efforts to raise awareness have been conducted through new media tools like social networks, as well as aggressive media relations initiatives, we retain almost all of our profits," says Sullivan.
Entrepreneurship is its own beast. "You don't understand the term hard work until you take that long journey of plucking an idea from your mind, putting pen to paper and plan, and then start building it into a brick-and-mortar form. The amount of hours that are necessary to chip the top of the iceberg and achieve that first taste of success can be daunting but, to see 'the behind the scenes' work play-out in reality brings you an invaluable joy. And that's what keeps the ball rolling," says Sullivan.
He offers this advice to recent college grads with the entrepreneurial itch: "Be smart in taking the time to know yourself. To fully embrace entrepreneurship and 'go it on your own', you need to evaluate yourself and identify you strengths and weaknesses, and then look towards your desired industry's current trends and see if you can find a match. If you find that match then the most important question becomes, can you turn that into a viable service? If yes, then hit the ground running."