The advantages of being a student entrepreneur

April 18, 2008

The other day I had the opportunity to have coffee with a student entrepreneur from Virginia Tech. This is the second such meeting in a month and I hope it’s a sign of future trends. Over the past two semesters, I’ve met with three entrepreneurs, all at the end stages of their undergraduate education, and all were pondering this decision – take a “regular” job or start my own business.

In my opinion, the decision is a no-brainer. Follow your passions and start a company. At this point in your career, it will not look bad on your resume if the business fails and you need to go work for someone else. If anything, the experience of starting and running your own company should count for much more experience than the equivalent time in a fresh-out-of-college job. This is generally the case unless the hiring manager is not very good at what they do, but that is an entirely different subject.

The other factors to consider are the opportunity costs and the risks of failure. Starting a business full-time as opposed to taking a job leaves potential salary income on the table. This is the opportunity cost while trying to pursue the entrepreneurial career.

How much do I need the income that a normal job will provide? What are my current living expenses? How long will it take for me to generate enough income in my venture to cover these living expenses? And do I have any savings to cushion this or provide backup? These are the questions to ask yourself.

Graduating students have a unique financial situation for the most part. They have minimal financial responsibilities compared to their older counterparts. No kids, no mortgage, and likely their debt is credit cards and student loans – both of which can be managed with smaller monthly payments. If the business completely fails, the financial ramifications can be much less devastating than if an entire family was supported by the entrepreneur.

I Twittered these thoughts yesterday and received some interesting feedback. One response was that it is expensive to start a company and can be difficult for a young entrepreneur to raise capital even from friends and family. I can’t disagree more with this statement.

The cost of starting a business can be extremely low. It all depends on what you’re trying to accomplish. If the company is going to be in consulting or another type of service business, the costs are minimal. Company formation can be done online inexpensively via services like LegalZoom and many of the basic business management tools are available online from free to low cost.

If it’s a Internet based business, again the costs are low. The same application that would have taken hundreds of thousands of dollars to build a few years ago is now in the tens of thousands (if not less via offshoring). Server and other infrastructure costs have dramatically fallen. And if you’re a technical founder, you’ll be doing much (all?) of the development work yourself, so it’s not that hard to build something and launch it for minimal costs.

Obviously, none of this applies if your business idea is to start a new biotech company or a micro brewery or a semiconductor manufacturer. Yes, these require large amounts of capital to get started. But it’s quite possible, with the right idea, to start small and learn quickly.

It’s easy to get started (especially as a young entrepreneur), but I’m not necessarily implying it’s easy to become successful. That will be the topic of some future posts.

UPDATE: For more discussion of student entrepreneurs, Rob McNealy of Startup Story Radio is currently running a series of podcasts with a successful young entrepreneurs.

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