Entrepreneurship is booming among young adults: A report by Business Insider found that 36% of recent college graduates started businesses while getting their degrees and 21% started businesses after college because they couldn't find a job. But in a market where eight out of 10 businesses fail within the first five years, is it really a good idea to start a business before you have any real-world work experience?
Business strategist Carol Roth's new book, "The Entrepreneur Equation: Evaluating the Realities, Risks, and Rewards of Having Your Own Business" (BenBella Books, 2011), discusses how to tell whether you're ready to jump into entrepreneurship. She spoke with BNET about the realities of starting a business as a recent college graduate.
BNET: What sort of preparation should young people do before launching a business?
Roth: I always say if you've failed to prepare, prepare to fail. It's critical to accumulate experience before starting a business. A lot of students undertake entrepreneurial ventures in college like selling beer to fraternities or homemade baked goods to students in their dorm. But this type of experience alone won't cut it. For one thing, in college, you've got a ready-made, close-at-hand market for your product -- that's not true in the real world.
Often, it's a good idea for entrepreneurial-minded college grads to spend some time working at a company similar to the one they want to start. Not so much for the career opportunity, but for a chance to learn about the industry from the ground up. It's like getting an MBA on someone else's dime. You won't get a degree, but it's a great way to network, gain valuable experience and earn some money while you're at it.
BNET: How should recent college graduates go about financing their business?
Roth: The solution to financing is different for everyone. But in general if you're not an established entrepreneur with a track record, a trust fund baby, or a techie with a $50 million dollar idea, two things are true: You won't have access to very much money for at least a couple years, and you'll need to have some skin in the game to attract any outside investors at all.
For college grads who are low on funds and want to start their own company, I recommend finding a "jobbie." A jobbie is a cross between a job and hobby: anything from photography to selling cupcakes to local stores. It can be a low-risk way to earn extra money on the side and develop entrepreneurial chops -- and perhaps the kernel of a business -- while holding down a day job that pays the bills.
Also, if possible, new business owners should find buyers for their product before they make it, and manufacture only enough to meet demand. To avoid disaster, start small and take it slow.
If you need to raise a small amount of money in a hurry, try using a crowd-funding service like Kickstarter.
BNET: How do you know if your business is working?
It takes most business a couple of years to start making money. At each step, if things aren't working the business owner must ask if the problem is with the way he or she is running the business -- if it's the pricing strategy, the customer base, or a problem with the product -- or if the underlying idea is flawed. If that's the case, then it's best to get out quick, otherwise it might be worth it to hang in there and fix the problem.
Struggling or new business owners should never be afraid to ask for help from colleagues in their industry with more experience. There are also lots of resources out there for new business owners, like the mentoring site score.com. Use them.