Risky Business: The Downside of Starting Young
BY Angus Loten
Many young entrepreneurs like cutting corners and hate playing by the rules -- and that's often why they're successful. But experts warn that those same qualities can also doom a fledgling business.
While preparing to pitch his social networking site to a group of venture capitalists, 27-year-old Geoff Cook accidentally knocked over a full glass of water on the boardroom table, soaking himself and his presentation materials.
"It's hard enough being taken seriously at these meetings when you're a little younger," says Cook, a co-founder of myYearbook.com, a New Hope, Pa.-based social networking site for teens. "Luckily, I was able to dry off before we got going."
Getting bankers, investors, and others to take them seriously is just one of many challenges younger entrepreneurs face that their older counterparts are often spared. Yet, most of these can be overcome by following a few simple rules, business coaches and mentors say.
Consider that most would-be teenage business owners can't even enter into contracts or take out loans without their parents or an agent co-signing the agreement, says Hank Kopcial, executive director of the National Federation of Independent Business's Young Entrepreneur Foundation. "They're simply not of legal age," he says. "It's an extra step older entrepreneurs don't have to take."
Other typical problems include weak or no credit history, few peer-to-peer mentors, and even fewer corporate connections. And don't forget time-management issues. (Should I analyze market research or study for tomorrow's history test?)
Making matters worse, younger entrepreneurs are far more likely to cut corners in the mad rush to get their businesses off the ground.
"Young entrepreneurs don't always think things through," says Bob Sheppard, a district director for SCORE, a national small-business advisory group.
For starters, both Kopcial and Shephard stress the need for younger entrepreneurs to slow down and create a thorough business plan.
"You're foolish at any age if you don't put together some semblance of a business plan," Kopcial says. "You're going to need it to borrow money, but also to get things in place to succeed. It's amazing a few young people don't this."
Bo Menkiti, a Harvard Business School graduate who launched a Washington-based real estate agency in his early 20s, says he put together what he considered a pretty solid business plan. Then the company started to grow.
"We grew very fast in the beginning without a lot of systems in place," Menkiti says. "It's really important to set up a base operating model for day-to-day operations as early on as possible." Indeed, in just three years, his agency grew by 465 percent, with revenue projected to break the $1 million mark this year. His advice to other prospective young business owners: "Expect to grow!"
Younger entrepreneurs also tend to scrimp on marketing plans, according to Shephard. "They're so caught up with the business idea or product that they forget to check out their competition," he says. "It's important to know how you're going to fit into the market from the start."
Alexis Demko, founder of Lil Bogies, a San Diego-based wholesaler of golf apparel for kids, says she now often wishes she had started in retail. "At a store, you get a much better understanding of what people are looking for," says Demko, 27.
When it comes to early-stage financing, most young entrepreneurs turn to family and friends. It's crucial for them to keep in mind that not all businesses succeed, Kopcial says. Unlike banks and investors, they're going to see these people again.
"Are they prepared to go back to Aunt Mabel and say we've lost all your money?" Kopcial asks. "They need to know that this is a real business in the real world."
Likewise, many aren't afraid to max out a credit card. "They haven't learned to be fearful of credit yet, and that's not necessarily a bad thing for entrepreneurs," Shepard says, while cautioning that young business owners ultimately need to learn to manage their credit in a responsible way.
The same goes for recruiting. Young employers risk both their friendships and their businesses by filing jobs with high school and college buddies. But Cook, who founded myYearbook.com with his teenage brother and sister, says the partners and investors you choose to work with from the beginning are crucial and the decision shouldn't be taken lightly. "You have to able to have a conversation with them at least once a week and not always dread that conversation," he says.
Yet, given all this advice, Shepherd says above all, younger entrepreneurs need to know they're the ones in charge and shouldn't feel intimidated by bankers, investors, clients or anyone else.
"They're the decision makers," Shephard says. "They're the ones in charge -- and they need to remember that."