The number of students transitioning from academia to entrepreneurship is growing at a record pace. This is very understandable because today’s students are more connected than those in previous generations. Social media and mobile phone apps are able to help bring products to markets faster than ever before through accelerated recognition. These entrepreneurs are not just competing in existing markets, they are creating markets.
According to a recent Kauffman Foundation Study (info graphic to the right):
- 54% of Americans aged 18-34 want to start their own company
- 57% of young men and 44% of young women surveyed want to start their own business
- The biggest barriers to entrepreneurship include a lack of access to credit and an undue amount of risk
- 92% of the respondents wanted greater access to “education and training” so people have the skills and information they need
- In addition to increasing access to capital and training, 81% of the young people surveyed support student loan relief to start companies
Americais dependent on small businesses for net new job gains. Young people want to start businesses that will grow jobs, which will in turn, organically boost the economy. The above facts are very encouraging except for the third and fifth bullet points.
Universities, incubator centers, private organizations like SCORE (SCORE is a resource partner with the U.S. Small Business Administration) and Collegiate Entrepreneur Organizations and entrepreneurial mentors satisfy the need for education and training. Access to credit is limited to most businesses and almost all start ups. That is the way of the economy and business in general.
Underestimating risk is a major factor in business start up failure. Emerging entrepreneurs are so blinded by the opportunity for success, which is usually clearly defined, that they do not see the pratfalls and problems.
They focus on the product side of their launch far more than the “business side” of their business. Too many young entrepreneurs assume too much risk; hence little funding opportunities.
Bootstrapping—using funds from family, friends and credit cards—is the most common form of start up funding. This approach tends to raise the sensitivity of risk. For example, I borrowed a significant amount of money from my father-in-law shortly after my marriage, then lost it in a venture. Telling him I lost his money was very difficult. Years later I was able to repay him through the sale of a successful venture, but I do not ever want to have to experience that moment again. This experience led me to focus on the risk factors as much as potential rewards of starting new businesses.
The fifth bullet touches on student loan relief to start companies. Stalling payments for a pre-determined length of time is certainly understandable, but forgiveness of student loan debt should only occur after a high number of jobs are created for an extended period of time. Student relief would transfer the risk from the entrepreneur and place it on the taxpayer, yet leave the rewards solely with the entrepreneur.