Startup Fever: College Students Have It Bad

BusinessWeek

Jobs are scarce, barriers to entry are down, and entrepreneurship is all the rage on college campuses these days

New York University seniors Katie Shea and Susie Levitt were interning at Goldman Sachs Group (NYSE: GS - News) and Citigroup-Smith Barney (NYSE: C - News) when their sore feet inspired them to start a $10,000 dorm-room company selling foldable flat shoes that come in their own tote bag.

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A year later they have imported 70,000 pairs from China that retail for between $10 and $25. Women can don the slipper-like footwear to hike or drive to the office in comfort, then switch back to their high heels when they arrive at work.

Inspired by Mark Zuckerberg, who founded Facebook as a sophomore at Harvard University, in Cambridge, Mass., and stymied by the shortage of jobs in the recession, college students are launching businesses before they graduate. They're entering industries that previously required large investments, thanks to websites that offer help with manufacturing, inventory management, and accounting, says Dane Stangler, a project manager with the Kauffman Foundation, a Kansas City (Mo.) nonprofit organization that promotes entrepreneurship.

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Contagious Enthusiasm

The trend isn't limited to undergraduates. Even MBAs are catching the entrepreneurial bug. Top MBA programs are reporting a surge in interest among students in launching their own businesses, and many schools are ramping up support for budding entrepreneurs.On Friday, Harvard Business School announced the opening of its first innovation and entrepreneurship lab in 2011.

"If you start a company tomorrow, you can be global your first day," Stangler says. "You can have international suppliers, you can have international customers. Just compared with a decade ago, it's unbelievable how fast barriers to entry have fallen to starting a business from your dorm room."

The financial crisis has contributed to growing interest in entrepreneurship on college campuses. At USC's Marshall School of Business, the number of undergraduates enrolled in business-creation classes has increased 30 percent since 2007, to 1,042 this year, says Gene Miller, director of the Lloyd Greif Center for Entrepreneurial Studies at USC.

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Expanding Curricula

Northwestern University, in Evanston, Ill., added six more undergraduate classes in entrepreneurship in the past three years (for a total of eight) in response to student demand, says Michael Marasco, director of Northwestern's Farley Center for Entrepreneurship and Innovation. Forty of the 341 students at MIT's Sloan School of Management, in Cambridge, Mass., say they are starting their own businesses this year, up from just 9 in 2007, says William Aulet, managing director of MIT's Entrepreneurship Center.

"The enthusiasm for entrepreneurship is at an all-time high," Aulet says. "The rock stars here are the entrepreneurs. It's not the people who go to Wall Street."

University of Southern California students Jonathan Shriftman, 22, and Jake Medwell, 21, decided over beers last year that instead of pursuing careers in investment banking, they would become bicycle importers. With less than $25,000, from their families, friends, and a third-place prize of $15,000 in Inc. magazine's entrepreneur competition, they founded Sole Cycle Co. The two students plan to import more than $150,000 worth of bicycles this year that they intend to sell for $260 each online, Medwell says.

Exploiting Technology

During the school year, after creating their business plan, they were able to contact their suppliers, retailers, and shippers using eBay's Skype Internet video-chat phone service. "Skype has been phenomenal," says Medwell. "It made communicating with China like talking to my father. One of my roommates goes to work in a suit and looks miserable. I do work from my bedroom."

Shea and Levitt, both 23, ordered their shoes from a supplier they found on Alibaba.com, a website that lists more than a million international manufacturers of everything from bicycles to backpacks. Suppliers post pictures and descriptions of their goods, their contact information, and often their prices and minimum-order size. The duo visited China for the first time only a few months ago, enabling them to deploy most of the $10,000 they raised from family to cover other startup costs.

The recession also helped the company save money, says Levitt. "It allowed us to negotiate a much better price for our website, for graphic design, and it allowed us to get great interns for the summer."

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At USC, students are realizing they can become importers through Alibaba, globalsources.com, and exportnation.com, says Shriftman. His classmates have asked him how to contact foreign suppliers, and friends have plans to import first-aid kits and snowboards, he says.

Online marketplaces that connect importers and exporters are "really changing the whole game of how products are manufactured," says Shriftman. "Anyone can have anything made right now."

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Scripped.com

Sunil Rajaraman
UCLA Anderson School of Management

On the drive to visit his parents just before beginning at UCLA Anderson in 2006, Sunil Rajaraman was thinking about his friend Zak Freer. An aspiring screenwriter, Freer couldn't figure out how to get his work in front of Hollywood execs. The two of them thought about putting it online. Soon after, Ryan Buckley, an MIT MBA, joined the team, and the idea for Scripped.com was born.

The site is a marketplace for developing, buying, and selling screenplays. The software -- called Scripped Writer -- functions like a word processor that formats and catalogs each screenplay element according to industry standards. Once a script is uploaded, the online community can add suggestions and edits, and producers can purchase the content.

Coming up with the idea as Rajaraman entered UCLA was perfect timing. "Anderson literally provided me with everything I needed to start the business," he says. "From connections to investors, to making introductions, to the class lessons -- never once during my time at Anderson did I hear 'No, I can't help you.'" Two classes in particular were instrumental to Scripped's development: Venture Initiation and Rajaraman's core marketing class. In Venture Initiation, a case-based course, students examine companies and analyze why they failed or succeeded. In that class, Rajaraman began to understand how to raise funds and avoid failure. The marketing class taught him how to target potential customers.

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Scripped.com was launched in January 2008. Each founder contributed $10,000, and they raised another $50,000 from family and friends. In March, Scripped raised $250,000 from two private angel investors and merged with competing site Zhura. Currently, Scripped has five employees and nearly 100,000 users, according to Rajaraman. They make recurring revenue off the software businesses, where users can pay $9.95 for a premium version, and they expect to be profitable on that recurring revenue in six months.

The content is also starting to get some buzz: Spike TV recently announced it would source its next pilot script from the Scripped.com user base.

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Armenta

Emily Armenta
Rice University Jones Graduate School of Business

When Emily Armenta enrolled at Rice University's Jones Graduate School of Business in 2002, her plan was to return to Morgan Stanley after she graduated. Her first sweat equity case in Professor Al Napier's The New Enterprise course changed that.

Napier instructed his class to create a business plan for a fictitious company. Armenta took it a step further and created a line of jewelry. along with a business plan for a fine jewelry manufacturer. The sample line sold out in a local Houston boutique. A few weeks later the buyer wanted to place another order. "I laughed and said the project was over," she says. "But the shop owner said, 'No, your jewelry is selling out. We want more product.'"

That's when Armenta asked school administrators if she could expand her project into all of her classes. The school agreed. "All of the sudden I had all these resources -- students and professors giving me feedback on this growing company," she says.

One of the most important pieces of advice she received was from her Managing Growth professor, Leo Linbeck. Within the first few months of making her handmade, precious-metal necklaces, earrings, and bracelets, retailers such as Neiman Marcus asked to carry her line. Linbeck told her to refuse all offers and instead focus on the company's infrastructure and business model.

Even years later, the jewelry line -- called Armenta -- is carried by nearly 100 independent boutiques and department stores, including Bergdorf Goodman and Saks Fifth Avenue. The company is projecting $4 million in revenue this year. Armenta has 30 employees and is in the process of hiring another eight to 10 employees in the next few months. "I had no idea this is what I'd be doing with my life," Aremnta says. "One entrepreneurship class completely changed everything."

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FashionStake

Daniel Gulati and Vivian Weng
Harvard Business School

Daniel Gulati and Vivian Weng committed to the idea of Fashionstake.com, a "crowdfunded" fashion website, on their third day at Harvard Business School last September. Shortly after they met, they realized that Gulati's experience in launching companies and Weng's history in public relations and production for fashion labels made a good match. So they created a business plan. "It wasn't easy to go to school full-time and start a business," Gulati says. "But it accelerated the process. We could test the idea with our professors and classmates."

From the start, Gulati and Weng met regularly with Tom Eisenmann, an entrepreneurship professor at HBS. He offered feedback on their idea for a website that invites budding designers to share their clothing lines and invite potential customers to invest.

Anyone can pledge $50 in a brand they like, and they're charged only if that brand raises $50,000 in pledges. If the target is hit, the line goes into production, and six to eight weeks later the products are sold on the site. Investors make a return on their investment through clothing credit and exclusive buying opportunities. FashionStake earns revenue by taking a small percentage of the sales. "We're a partner [with] these designers," Gulati says. "If the collection doesn't sell well, we don't earn much either."

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The two invested $5,000, which helped sign designers, develop the website, and gain initial customer feedback. A few months later they decided to raise outside capital and signed with Silicon Valley-based Battery Ventures. They also have angel investors from the fashion industry.

The site was launched on Sept. 1 with 20,000 members, eight employees, and four designers, with plans to add one designer every week. Gulati and Weng are in the process of rolling out a more interactive version of FashionStake, and they'll be able to take advantage of HBS's resources, since they don't graduate until May.

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Cool Palms

Brett Warner
George Washington University School of Business

A few years after Brett Warner graduated from George Washington University in 2004, he and Anna Ercius Warner, now his wife, came up with the idea for an invention that would help athletes keep their bodies cool while running.

Called the BEX (Better Exercise Experience) Runner, the device is a padded bracelet that athletes place in the freezer before use. It slides onto the palm of the hand to help maintain the body's core temperature and extend peak performance during exercise. But in order to take the BEX Runner from the idea stage to a viable business, the Warners turned to Lisa Delpy, Brett's mentor and Sport and Event Marketing professor at GW, for advice.

Delpy invited Brett to speak to her MBA class about his idea and starting a business. Her students have since taken on the challenge of creating a comprehensive marketing plan, including social media and online advertising strategies, for his Austin (Tex.) company, Cool Palms. "Some students have already gone above and beyond the marketing plan and are actually calling meetings with major industry players," Brett says.

Reaching out to Delpy's class is helping the Warners tackle one of their biggest challenges: finding the right market entry point. The company has decided to focus on marketing to runners rather than just athletes. This summer, Cool Palms, which incorporated in August 2009, became a national sponsor for USA Fit marathon training programs.

Cool Palms started with about $90,000 of capital raised from the founders' family and friends, and in the spring of 2010, Denis Calabrese, president and founder of USA Fit, joined as an investor and strategic partner. They're not yet able to predict revenue and have yet to hire employees, but when that time comes, Brett says he'll look to hire from Delpy's class.

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