Important Lessons for Young Entrepreneurs
Crucial lessons from young entrepreneurs on the front lines
A good idea does not automatically translate into a successful business. Unfortunately, about half of startups fail within the first five years of operation, according to the Small Business Administration. One of the main reasons companies fail is the founder’s lack of experience – there is a reason why a study funded by the Kauffman Foundation found that successful entrepreneurs have an average age of 40. We talked with experienced entrepreneurs, mentors and business coaches and discovered the top five lessons that young entrepreneurs should take to heart before they embark upon starting their own business journey.
1. Choose your team carefully
First, it’s extremely important to find a cofounder. Second, it’s important to make sure that cofounder is the right one for your business. Especially as a young and relatively inexperienced entrepreneur, it’s critical to find someone who will share the immense workload you’ll have – and investors tend to be averse to single-founder companies. According to a study of 101 recent startup failures by CB Insights, 23 percent of startup founders cited not having the right team as the top reason their companies failed. When you start a business, you will run into myriad issues, some of which you personally may not have the capabilities to solve. If you have a diverse team, you’ll be much better equipped to handle whatever pops up. Quinntin Ruiz, cofounder of Cartpool, a delivery service based in the Claremont Colleges, and president of Pomona Ventures, a student-run venture organization at Pomona College in Claremont, Calif., stresses the importance of finding a cofounder who complements your skill set, like he did. “If you’re really good at the business side of things or things big scale,” he says, “get someone who’s going to get into the nitty-gritty, or who is better with tech or better with computers. If you don’t find someone who complements you, you’re [both] going to be doing the same work and you’re not going to be able to get as far.” That logic certainly seems to be working for Ruiz: Cartpool has averaged 15 percent month-over-month growth since its inception in September 2015.
2. Make sure equity distribution is clear and decided early on
Along with finding the right partner or partners, it’s important to make sure that equity splits are decided upon as early as possible. Talking about money is never an easy discussion to have, but, as Ruiz points out, “If you can’t have a conversation about that, then you’re not going to have a good team going forward.” Plus, if you can’t agree on equity distributions, then that effectively is the end of your business. Simon Yu, founder of the staffing company Hired On, which has doubled its revenue every six months since its inception in 2014, and alumni mentor at The University of Southern California’s Marshall School of Business Incubator, experienced this first hand at his previous startup, GlycoGum, a chewing gum for diabetics that changes colors based on the amount of glucose in a patient’s saliva. After Yu and his cofounder won second place at USC’s Marshall School of Business’ 2014 New Venture Seed Competition, they wanted to sit down with the inventors of GlycoGum and sign the paperwork, incorporate and seriously consider starting a real company. “We had an idea of what the equity split for each party would be, in terms of myself as CEO,” he says. “The inventors were projected to come on board as VP[s] of product management and would receive a small equity for the patent.” At the last minute, however, Yu says the inventors wanted to drastically increase their share of the company, and because all of the parties couldn’t agree on an equity split, the company ultimately disbanded.
3. Embrace the thought: “Money buys time”
You will make sacrifices when you start your business, and probably even when you’re further down the line. Yu states that one of the worst assumptions young entrepreneurs frequently make is the belief that capital is easy to raise. If your company does get to the point where it’s ready to raise funds, chances are it’s going to be years down the line, Yu says, and in order to keep your company running, budgeting discipline will be imperative. “One thing I learned, and it was a very valuable lesson when I started [Hired On], was that money buys time,” Yu says. “You start thinking, ‘If I go out and buy some clothes or go to Vegas with my friends, then that means my business [will operate] one less week. Or that’s one month I can’t pay my employee or turn on the lights.’ Until the time comes that your company is raising millions of dollars in funding, budgeting is your best friend.”
4. Ask if your company actually fulfills any real-world needs
Does your product – whether it’s an app, a gadget or a food item, provide a solution to the wants and needs of the public? It may seem obvious but, according to the CB Insights survey, 42 percent of startups fail because there is no market demand for their product. “Typically, the first piece of advice I give to any [entrepreneur] who has limited experience,” Ruiz says, “is don’t necessarily go for the passion, but go for something that’s going to solve a real-world problem.” These days, you frequently hear rhetoric that so-and-so’s company is like “Uber for dogs,” or “a cross between Yelp and Instagram,” or something along those lines. Everyone wants the next trendy tech startup, but obviously there is a limited need for those. A successful startup does not necessarily have to be the next Uber. “It could be a staffing company; it could be something else,” says Yu. “A gym, restaurant, whatever – and you can be equally, if not more, successful.”
5. Use all of your connections and resources
The easiest way to network is through your alma mater. Schools like USC and Pomona College offer a variety of options in the form of organizations, services and programs for budding entrepreneurs. Along with helping members sharpen their ideas and products, organizations like Pomona Ventures and USC Incubator also connect them with successful alumni who can help them with their businesses. Pomona Ventures also offers Pomona College students similar support, and every year the organization puts on an event called “Sage Tank,” where students can pitch their ideas to a panel of venture capitalists, connect with the alumni who attend and potentially win a cash prize. “We’ve actually had connections where alumni reached out to us,” Ruiz says. “[They’ve] given our students feedback, given them internships and even offered funding.” Whether you are seeking advice, experience or funding, organizations like these provide strong support that can help boost your business.
Original article: www.eastwestbank.com
Written by: Angela Bao