As Originally Published in Inc. Magazine
A look at why, faced with poor job prospects, university students today are starting companies in record numbers.
From: Inc., Aug 1996 | By: Hal Plotkin
Faced with poor job prospects, today’s university students are starting companies in record numbers
When Elaine Salazar, 37, decided to return to school to pursue her goal of becoming an entrepreneur, she turned the tables on the university gatekeepers. “I had a list of questions for them,” she recalls, “but mostly it boiled down to ‘What are you prepared to do to help me become a successful entrepreneur?’
“I interviewed them all — Harvard, Stanford, all of them,” says Salazar, a former director of training for National Public Radio. In the end, it was the University of Texas’s entrepreneurship program, as well as the Austin Technology Incubator in the same town, that earned her approval. “It was clear,” Salazar says, “that they were interested in helping me succeed. Not on some big philosophical level, you understand, but me as a person.”
After spending the first year at UT studying basic subjects like finance and marketing, Salazar and three other students received assistance in preparing the business plan for an art-supply company called Ampersand, which went on to win business-plan competitions sponsored by UT and the University of San Diego. The prizes: one year of free office space in the Austin Technology Incubator, a small cash award, and sustained help in building the company. Salazar eventually went solo with Ampersand and set up shop in East Austin, Tex., in 1993.
“What really makes UT’s program work is the second year,” Salazar explains. During that year the curriculum is tailored to the students’ business plans. “If we need some marketing assistance, boom, they bring in the world’s foremost marketing expert to work with us. If we need accounting help, boom, they bring in the world’s top accountants. We ask,” Salazar says, “and they deliver.”
While Salazar’s experience may not be typical (yet), she does represent a new breed of student in her expectations: she wanted the education that would give her the biggest boost in starting her own company. Similarly, UT’s program represents a fresh response to the growing number of students like Salazar.
Students’ holding down jobs while going to school is not news. Because of financial pressures, college students have always worked — and have even created their own businesses on campus. What’s different today are the forces both on campus and off that are leading even more students to set up shop. One of those forces is downsizing. Students see their parents and their parents’ friends worried about holding on to a job. That makes the idea of starting a company more attractive. Another effect of downsizing is a reduction in the number of corporate recruiters pitching jobs on campuses. More students feel they are going to have to invent their own careers.
While uncertainty may be one side of the new economy, the other side is an abundance of opportunities. Technology in particular is a boon to campus entrepreneurship. Not only does technology allow small companies to compete effectively against large ones, but the new generation of students are every bit as comfortable with computers as their parents were with television sets.
Finally, many more colleges than ever before have formal entrepreneurship programs. That means more faculty advisers for young company builders, more fellow students helping with market research and the like, more ties to the world of venture capital, and more role models as teachers straddle the line between teaching and running their own companies.
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What we are seeing is much more than a period of economic transition,” says George Kozmetsky, 78, the founder of IC2 Institute, a research center in entrepreneurship at the University of Texas. “It is a transformation, a great big change.”
Kozmetsky is in a position to recognize such trends. His tenure in the field of business education dates back to the creation of the school of industrial administration at Carnegie Mellon University in 1951, and before that a stint teaching at Harvard Business School. He also cofounded Teledyne Inc. and serves on the boards of several companies, including Dell Computers. The entrepreneurial transformation, according to Kozmetsky, is a reflection of changes in the global economy. “For the last 20 years,” he says, “American companies have concentrated on shareholder value while Asian companies have focused on market share.” Although that has meant shrinking job opportunities at many large U.S. corporations, “global economic warfare,” says Kozmetsky, has created “an economy that is wide open. No markets are safe or secure anymore. Everything is up for grabs. No matter what field you are talking about — electronics, education, entertainment, or anything else — it opens up more opportunities than I’ve seen in my entire lifetime. Very few generations in history, perhaps not since the Renaissance, have been accorded the opportunities this period provides. It’s a profoundly different world.”
That transformation has not been lost on students. Not only is everything up for grabs, not only does opportunity abound, but the traditional routes into the marketplace also have changed dramatically. “The days when students would find 10 corporate recruiters fighting over them are long gone,” says UT graduate business student Mike Hanratty, 33, an IC2 alum who, along with partner and fellow student Irene Bond, 40, recently launched True Dimensions to commercialize a “relaxation chair” based on Skylab research and the work of an industrial designer under contract to NASA. “So I think many students have become more entrepreneurial.”
The drop in campus recruiting is nationwide. Officials at the University of California at Berkeley’s Haas School of Business say they have an increasingly tough time luring corporate recruiters to campus, particularly from major but distant East Coast corporations. “Many large companies don’t have budgets for those visits anymore,” notes the Haas School’s public-affairs director, David Irons. As a result, Irons says, more and more students are finding ways to create their own opportunities. At the Haas School fully one-third of the graduate students now seek entrepreneurial internships each year.
Staggering tuition costs also play a role in the burgeoning of campus businesses. College tuition costs increased an average of about 40% between 1990 and 1995. And for students in need of income, high-tech start-ups are not the only option. Columbia University American-urban-and-ethnic-history graduate student Seth Kamil, 29, and fellow student Ed O’Donnell, 31, for instance, made a business out of walking tours of New York City in 1991. The idea came from one of Kamil’s professors, urban historian Jim Shenton, who occasionally led city tours but left it to his student to turn the concept into a business. “The costs of going to school had everything to do with creating this company,” Kamil says. “I had no choice.” Big Onion Walking Tours employs about 10 other grad students and conducted more than 700 walking tours of New York City last year, up 25% from the previous year.
The tours, which draw as many as 500 participants a day, are what Kamil calls his “ticket to independence.” On a recent tour, Kamil points out Potter’s Field on the laminated map he put together for one of his classes. “This is where many slaves from Africa are buried,” he lectures, drawing examples and anecdotes from his thesis notes. Just two semesters away from finishing his graduate degree, Kamil, the son of a college professor, is now pondering whether he should pursue his original goal of following in his father’s footsteps or stick with his now-burgeoning business as dean of his own brigade of street professors. (His former partner, O’Donnell, opted to accept a teaching job at New York’s Hunter College.) “We had no idea this would take off as it has,” Kamil says over cappuccino at his favorite coffee shop, near Little Italy. “I don’t know if I can walk away from this now. We’re growing so fast, and I’m just not sure I can find another opportunity as exciting as this one.”
U.S. colleges and universities are “an ideal setting for new business ideas,” says Larry Mohr, a venture capitalist with Mohr Davidow Ventures, who teaches a class on entrepreneurship at the Stanford Graduate School of Business. “There is something about a college campus,” Mohr offers. “People there seem more free to experiment with new ideas, with new approaches, with new ways of doing things.”
Another advantage for campus start-ups is the number of students trained to help out. The formal study of entrepreneurship has blossomed recently, growing from just a handful of academic programs 15 years ago to more than 500 formal academic entrepreneurial programs today. Many campus entrepreneurs are fueling their enterprises with the help of other students, who increasingly must complete real-world business studies or internships as part of their academic course work.
Marty Sikes, like the Big Onion’s Kamil, needed money for tuition. Working 60 hours a week at a local one-hour-photo shop to put himself through the University of Central Arkansas, Sikes, the son of an artist mother and a shoe- designer father, echoes a familiar college-student refrain: no matter how hard he worked, he still could not make enough money to cover his monthly bills. So he quit his job. “I figured I could be broke on my own,” he drawls.
Drawing encouragement from his undergraduate entrepreneurship class, Sikes started taking his camera to community events in his small college town of Conway, Ark., located about 25 miles northwest of Little Rock. After snapping crowd shots at local picnics and ball games, Sikes would rush back to his college’s darkroom and develop the pictures, then offer them for sale at the next community gathering. By graduation day Sikes had saved enough money to open a small photographic studio specializing in children’s portraits. “I did 23 ball teams Saturday morning,” the ebullient Sikes reports while sitting after hours in his now well-equipped studio amid the din of an incessantly ringing telephone.
When Sikes recently considered opening another studio, in a nearby town, he went back to college to talk the idea over with his old entrepreneurship professor, Don Bradley, who quickly dispatched a student team — like one Sikes had been on years earlier — to conduct a market study.
Similarly, when Wilton E. Blake II, 28, returned home to Cincinnati after earning his law degree at Howard University, he immediately went to visit his old entrepreneurship professor, Charles Matthews, at the University of Cincinnati, where Blake, the son of an African Methodist Episcopal minister, had earned his undergraduate degree. Despite having landed a job at one of Cincinnati’s most prestigious law firms, the young lawyer, who’d served as editor of his law school’s student newspaper, The Barrister, wasn’t satisfied. “I wanted to create something of my own,” he explained over breakfast in a downtown Cincinnati diner.
When Blake’s friend, lawyer Eric Kearney, 32, approached him with the idea of taking over and reviving NIP, or News, Information, and Pictures, a venerable but struggling news and features magazine targeted toward African American readers in Ohio, Kentucky, and Indiana, Blake took the idea to Matthews, who agreed to put several student teams to work hammering out the business strategy.
“The students who help us have contributed a great deal,” says Kearney, now NIP’ s publisher. “They bring fresh approaches and new ideas.” The student teams recruited by NIP have worked on such key marketing issues as determining who reads the magazine and what editorial features are the most appealing. “I’m often surprised by what they teach us,” Blake notes. He was startled, for example, to discover that the homespun recipes included in each issue mainly as an afterthought were actually one of the most popular parts of their product. “I never would have guessed that,” he says. Armed with the marketing data, NIP’ s owners and editors have beefed up their food section and recruited advertisers interested in those readers. Since Kearney and Blake took over the publication, last year, paid circulation has tripled, to more than 10,000, allowing the magazine to hire some full-time staffers.
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If there is a mother lode for student entrepreneurs, it is the burgeoning market for Internet-related products. Noting the odd generational reversal of fortune taking place on the Internet, Williams College economics professor Dick Sabot smiles when he says, “If you have a Web venture and you don’t have young people prominently involved, most investors will likely figure you don’t know what you’re talking about.”
An extreme recent example is Yahoo!, the popular Internet directory started by two graduate students at Stanford and currently located in Sunnyvale, Calif. Both Jerry Yang, now 27, and David Filo, 30, ironically credit procrastination as the most critical factor in their success. The students figured that one good way to burn time and avoid studying would be to compile a computerized list of their favorite on-line destinations, which they later shared with fellow students. Although they didn’t advertise the list, the number of digital visitors accessing their engineering-department student workstation doubled in the first month and kept right on doubling every month thereafter. Finally, Stanford administrators had seen enough. “They told us we were crashing their system and that we’d have to move the thing off campus,” Yang recalls. Not surprisingly, the partners soon found a venture capitalist who sensed a commercial value in an on-line enterprise that was already attracting a million visitors each week. The students dropped out of school, accepted an initial $1-million investment, spurned lucrative takeover offers from the likes of America Online and Netscape Communications, and set their sights on becoming titans of the new media. The heady success of Filo and Yang does leave them perched on the far end of the student entrepreneurial bell curve — at the initial public offering price of $13 on April 12, 1996, the Yahoo! founders’ shares were valued at $132 million each.
Like Yahoo!’s backers, a number of leading venture capitalists are mining campus populations — the so-called push-button generation — for ideas to appeal to the mass market of individuals who feel comfortable buying products and services on-line. Take Tripod, founded in 1992 by Williams College students Bo Peabody, 25, and Brett Hershey, 24, along with professor Sabot. The company began with a student survey Peabody conducted for Sabot’s class. “I got to thinking about what Professor Sabot was telling us about low savings rates among Americans and the problems that creates,” Peabody recalls. When Peabody’s survey results were tallied, he was astonished. “Eighty-five percent of the students said that college is not preparing them for the future,” Peabody reports, noting that student ignorance about personal finance and investing was particularly glaring. As a result, Peabody, whose father teaches high school and whose mother is a computer-company executive, prevailed on Sabot to help him locate investors, including Pete Willmott, the chairman of the board of trustees at Williams College and former chief financial officer of Federal Express, to jump-start Tripod.
The company’s main product is an Internet site that offers 18-to-34-year-olds a complete rÃ‰sumÃ‰ and job-hunting service, as well as the tools to create and a free place to house their own individual home pages. There are also travel and purchasing discounts, contests, E-mailed reminders of important dates and deadlines, and information from financial-service providers interested in forming relationships with young people. Working with a network of Tripod representatives recruited on more than a hundred college campuses, the company has already registered more than 50,000 members and has even more users. “What we are doing is building a global community of students,” Peabody explains while sitting in Tripod’s office, in a sagging mid-19th-century white-clapboard Greek Revival house nestled a stone’s throw from the Williams campus in Williamstown, Mass. Young people will constitute the first consumer mass market on the Internet, he says: “Hardwired dorms are spreading like wildfire. Thirty percent of the people accessing the Web are at educational institutions. Seniors spend 20% of their free time on the Web, but freshmen report spending 80% of their free time on the Web. When that group graduates, there will be a huge cohort of people wanting high-speed Internet connections.”
That reasoning appears to make sense to New Enterprise Associates (NEA), the venture-capital firm that recently purchased a minority interest in Tripod for several million dollars. NEA has also pumped money into several other thriving Web ventures, including UUNet and TravelNet. Tripod posted its first sizable revenues this past summer: about $200,000 in ad sales generated by the debut of Tools for Life, a 32-page magazine designed to help drive students to the Tripod on-line site. Tools for Life is being poly-bagged with more than 1 million of the textbooks that publisher Prentice Hall sells to college students every year.
Hard data on the extent and impact of campus entrepreneurial ventures are difficult to come by. “Measuring the economic impact of entrepreneurial firms spawned by colleges and universities is elusive at best,” says economist Doug Henton, who served in both the Ford and Carter administrations and who now runs Collaborative Economics, a business based in Palo Alto, Calif., that analyzes economic clusters. Despite the importance of job creation to the economy, Henton notes that the dynamics of campus entrepreneurship — unlike, say, the number of family farms in Iowa — are entirely overlooked by the nation’s formal economic and commercial research and data-collection activities. “What we do know, though, is that entrepreneurship is a contact sport,” Henton says. “The more interaction between the campus and the world of business, the more likely there will be tangible economic results.”
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Hal Plotkin is a freelance writer based in Palo Alto, Calif. He can be reached at email@example.com
COLLEGIATE HALL OF FAME
Cisco Systems: With sales of some $3.2 billion in the last four quarters and about 6,100 employees worldwide, Cisco Systems is one of the most conspicuous networking superstars; $10,000 invested in the company’s February 1990 initial public offering has appreciated to more than $900,000 today. The company was founded by husband-and-wife team Leonard Bosack and Sandy Lerner, academics at Stanford University who supervised computer networks for the school’s computer-science department and business school, respectively. The couple figured out how to get their networks to communicate with each other through a device Bosack developed, called a router. Bosack and Lerner quit their jobs, mortgaged their house for seed capital, borrowed against their credit cards, and converted their living room into Cisco’s first research-and-development center. One key to Cisco’s success: its “customer-advocacy department,” which Lerner created. The couple retained 35% of Cisco’s shares at the IPO; Cisco’s market capitalization now stands at nearly $31 billion, give or take a few hundred million dollars.
Microsoft: It was a magazine article — Popular Electronics’ report on the MITS Altair 8800 minicomputer kit — that helped persuade Microsoft founder Bill Gates to drop out of Harvard in 1974. Together with his childhood friend Paul Allen, who was getting bored at Washington State University, he created a programming language for the new “hobbyist” computer, which they persuaded MITS to sell a few months later. When MITS offered Allen a job in Albuquerque, he and Gates set up shop in a small office in a strip mall alongside a vacuum-cleaner dealer and a massage parlor. The partners credit the Mother’s Club at their high school for funding the first computer terminal installed at their school, in 1968, which helped generate their early fascination with software development. They developed their first product, Traf-o-Data, while in high school. It was designed to automate traffic analysis and was a flop, but their later products, which include MS-DOS, Microsoft Word, and Windows, have done reasonably well; net revenues for 1995 totaled nearly $6 billion, and Microsoft employs 20,000 people worldwide.
Apple Computer: The legendary Homebrew Computer Club, whose members included Apple founders Steve Jobs and Steve Wozniak, shared characteristics as well as personnel with an earlier project called the Midpeninsula Free University (MFU), a “radical alternative education” experiment in the Palo Alto, Calif., area. The freewheeling format of Homebrew’s weekly meetings, modeled after similar MFU gatherings, led to numerous innovations and partnerships. It may have been the excruciating experience of producing MFU’s course catalog on equipment not much better than a typewriter that drove Larry Tesler, now Apple’s vice-president for Internet platforms and chief scientist, to develop bit-mapped graphics, the desktop-publishing breakthrough that was to become a centerpiece of Apple’s Macintosh computer. Apple now has roughly 15,500 employees; sales exceeded $11 billion in 1995.
Kinko’s: With 23,000 employees and 800-plus locations in the United States, 10 in Canada, 5 in Japan, 2 in the Netherlands, and one in South Korea, Kinko’s is the world’s largest chain of copy centers. The company was founded in 1970 by University of Southern California student Paul Orfalea, who obtained a $5,000 loan from the Bank of America and opened his first shop in a former hamburger stand in Isla Vista, near the University of California at Santa Barbara. The first store, named for Orfalea’s trademark curly hair, was so small that Orfalea had to wheel the copy machine out to the sidewalk to make copies. Ten years later Kinko’s operated more than 80 stores, located primarily near colleges and universities, where the company — which also pioneered round-the-clock hours in its industry — specialized in publishing custom materials for the academic market. Today Kinko’s calls its stores, which now average 7,000 square feet, “the new way to office” and offers such services as digital color copying, hourly personal-computer rentals, and videoconferencing.
THE COMING B-SCHOOL SHAKEOUT
Does the growing demand for entrepreneurial education spell trouble for the big-name business schools — and opportunity for programs trying to overtake them?
Our business is no different from any other,” says Joseph Morone, dean of the Lally School of Management and Technology at Rensselaer Polytechnic Institute, in Troy, N.Y. “You’ve got entrenched players, and once the environment starts to change, that creates opportunities for other players. There’s a big opportunity out there right now. We’re at the front end of a major period of shakeout. Some business schools, as in any industry shakeout, are changing faster than others.”
And as in any industry shakeout, change may be toughest at the top. Despite widespread shifts in the economy, the elite schools still see their reputations as being tied to the traditional goal of turning out graduates who go on to Wall Street, nationally known consultancies, and large corporations at which they are paid high beginning salaries. Many of the better-known rankings of business schools reinforce those old values. The median starting salaries of graduates, for instance, weigh in strongly on some rankings, as do the opinions of recruiters from large corporations — hardly measures of any relevance to the increasing number of students looking to start companies, not careers.
While many deans and faculty members quibble with the details of the methodology used in the rankings, few deny their eagerness to have their schools be among the chosen. Even the most prestigious schools are not immune. “Over the last five years there’s been a great deal of anguish and ferment at Harvard because of its declining ranking,” says Jeffry A. Timmons, who formerly held a joint appointment at the Harvard Business School and Babson College, in Wellesley, Mass. (Timmons left Harvard in 1994 and is currently the Franklin W. Olin Distinguished Professor of Entrepreneurship at Babson.) “The bottom line,” says Timmons, “is that the marketplace does pay attention [to the rankings].” Unfortunately, that means schools may give entrepreneurial education — and the goal of sending grads into businesses of their own — short shrift.
That’s not to say that the brand-name business schools have ignored the growing interest in entrepreneurship — it’s just that there are established institutional forces stacked against serving it well. Though you’d be hard-pressed, for instance, to find a major school that hasn’t started an entrepreneurship program of one sort or another, the programs and their champions are treated like second-class citizens. “The response to student demand has been to staff entrepreneurship programs with seasoned practitioners — individuals who generally are not given academic recognition and certainly do not have substantial influence on defining a broader curriculum in response to student needs,” says Robert S. Sullivan, who left the deanship at Carnegie Mellon University’s Graduate School of Industrial Administration in May 1995 to take over the helm of the much smaller IC2 Institute at the University of Texas. “Existing curricula,” Sullivan says, “represent the interests of tenure-track faculty.”
Morone agrees, citing “the tyranny of disciplines.” He explains: “The way you get ahead in academia is by establishing yourself in a network of professionals in your discipline. When a field or a problem area comes along that cuts across disciplines, as entrepreneurship does, there’s no natural home for it in the university. It runs against the grain of the very well entrenched disciplinary reward structures.”
With the elite business schools tied to tradition, the slack is being taken up by schools that don’t have the high rank or Wall Street feeder system that a dramatically new educational approach might jeopardize. They see an opportunity to focus scholarship on the real-world problems of new businesses. “That requires stepping out of the box,” says Sullivan, “admitting what we don’t know, and creating new learning methodologies for understanding start-ups.”