Enterprise -- Startups: Entrepreneurs
This Generation Is All Business
Young entrepreneurs ride waves of technology, cheap capital, and boundless optimism
To start a wholesale computer business in 1996, Joshua Z. Tabin, then 27, cashed out his IRA and sold the goodies he had bought with commissions earned as a computer salesman: a BMW, a Jeep Cherokee, and five luxury watches. He borrowed on credit cards, from his family, and against his home. Then, when he had the $150,000 he needed, he launched Chicago-based Tabin Technology Inc. "It was all or nothing," says Tabin. "All through my life I've craved freedom."
With $5.6 million in sales last year and $112,000 in profits, Tabin has satisfied his craving for now. But all or nothing at 27? Freedom as an early career goal? Crazy as it sounds to some elders, Tabin isn't even an eccentric. In his generation, he's one of the crowd.
No doubt about it: Entrepreneurship is hot. And why not? Booming new technologies in a nine-year economic expansion have spawned a class of rich, youthful, CEO role models. At the same time, the obstacles to going it alone have shrunk in a dreamy environment of low interest rates and plentiful capital. Personal prosperity is another springboard. "Mom and Dad will back them--it's a graduate course with no degree," says John P. Jaquette, executive director of Cornell University's Entrepreneurship & Personal Enterprise Program.
Who are these whippersnappers? Many, it turns out, got a taste of entrepreneurship as teenagers and grew up cynical about a corporate world that downsized their parents. They're technically savvy, passionate, and keen to make their mark--right now.
"We don't want to look back on our lives and say, `What if?"' says Sean S. Smith, 30, who launched Coalition America Inc. in Atlanta in 1995 with his twin brother Scott--and netted over $1.9 million last year. As college grads in 1991, they knew they wanted to start their own company. The actual business idea--helping corporations select managed-care providers--came later.
Youthful dreams of entrepreneurship seem to be on the rise. Ten years ago, when Gerald E. Hills, Coleman Chair of Entrepreneurship at the University of Illinois at Chicago, first surveyed 1,000 college students on whether they hoped to have their own business, 52% did. By last year, that number had soared to 72%.
The real-world impact is a bit harder to assess; until recently, no one tracked business formations by the founder's age. But there are plenty of indications youthful entrepreneurship is surging. Take the membership of The Executive Committee, an organization of 5,500 CEOs of companies with at least $750,000 in sales. From 1986 to 1998, the number of members under 40 grew by 714%, and those under 30 grew 600%. Total membership increased 500%. Another sign: The Young Entrepreneurs Organization (YEO), whose members must be under 40 with revenues of at least $1 million, has grown to 2,300 since its launch in 1987. In the first phase of a major long-term study, the National Federation of Independent Business found 40% of those who started new businesses in 1997 were under 35, and 23% were under 30. Early data suggest they're succeeding and failing at about the same rate as older and presumably more experienced business owners.TECH-SAVVY. What's driving this trend? More than anything else, it's the video-game generation's ease with technology. Take Gregory Carson, 27. The owner of $8 million Echolink Interactive Inc. started programming computers in the third grade. His big break came as a computer-science student at 21, when he started his Web design and consulting business. He launched the San Diego firm with nothing more than a computer, a borrowed office, and $1,000, but he shares with many of his peers a heady sense of history: "We're revolutionizing the retail business and the distribution of information," says Carson.
The Internet lets less technically oriented people "start a company and make a difference in the world," says Ted R. Dintersmith, general partner at Boston-based Charles River Ventures, which invests in Web companies. What's important is not the bits and bytes, but understanding how to use the Web as a tool to serve a market.
For example, two years ago, Charles River and two other venture capitalists backed 25-year-old Stacey A. Lawson and her partner, whose business offered engineering firms an online database of valves, gears, and other components in three-dimensional view. Lawson developed the concept as an academic exercise at Harvard business school, then realized its value. Recently, she sold the company, InPart Design--in which she held a 10% stake--to Parametric Technology Corp. in Waltham, Mass., for about $45 million. Lawson is still a bit stunned at her rapid-fire success. "If there had been no Internet," she says, "I would have taken a more traditional route in technology or software and climbed the ranks."FACADE. The low cost of technology helps savvy young people grab other, non-Web markets--and create surprising business models. The simple but crucial technology behind Jennifer P. Gilbert's New York-based event-planning business, "save the date," is a PC database with about 800 entries. Gilbert worked for an event-planning firm and started her own business at age 25, matching clients at no cost to appropriate venues and vendors who pay her a commission. Like Carson, she began with a phone, a fax, and a computer, covering expenses by pledging a percentage of future profits to her landlord.
As a side benefit, voice mail, E-mail, and other technologies provide a great facade for a young face. "People don't see that you're 20 years old," says Verne C. Harnish, founder of YEO and owner of a management-training series for entrepreneurs.
Technology isn't the only youthquake out there, of course. There's one on campus, too. Kids want to study entrepreneurship, and 120,000 of them are doing it. More than 1,400 U.S. colleges now offer courses, up from 1,050 in 1991. For some students it's a way to check out this career option; others know what they want from the start, such as Dan R. Frey, 27, who studied entrepreneurship at the J.L. Kellogg Graduate School of Management at Northwestern University. His goal was to say, "I made that happen." Now he has. A 1997 graduate, he just founded the University Alumni Funds LLC, which plans to package investment products for alumni associations and then market them online.
How did he get launched so quickly? Frey's generation is setting sail on a sea of money. For Frey, it started with $250,000, raised from several angel investors he met through personal connections. While the amount of angel capital can't be quantified, venture funds are at an all-time high, with $12.2 billion invested in 1998. Easy bank credit and the growing availability of credit cards help too. And young entrepreneurs are tapping their friends and family, who are flush with unprecedented stock market gains.FULFILLMENT. Plentiful capital aside, there are social reasons for this risk-taking. Delayed child-rearing, for one, has become the norm, leaving more time for budding entrepreneurs to build their dream. And the economic boom has fostered an optimism untouched by memories of war or the Depression. For many of today's young people, the priority is personal fulfillment. "They no longer want to be a cog in a wheel," says Fordham University professor of entrepreneurship Kate A. McKeown.
Yet for all the generational differences, young entrepreneurs show remarkable appreciation for their elders, whom they collect as advisers and corporate officers. "They are savvy enough to understand the value in diversity of thought," says Laurie Moss, national marketing director in Growth Company Services at Deloitte & Touche.
Take A. Marley Majcher, who earned an undergraduate degree in marketing and worked for a food wholesaler before starting Abiento Restaurant & Catering in Pasadena, Calif., five years ago at age 23. In a generational switcheroo, she hired her father, a gastroenterologist and real estate investor, as part-time CFO. As Majcher's sole source of initial capital, he had a vested interest in the company's success.
This generation of entrepreneurs, steeped in the modern culture of self-help, has embraced networking--and it pays off. Such associations as YEO and TEC provide practical tips and psychological support for often isolated entrepreneurs. YEO member Justin Fallon recalls how three years ago, at the tender age of 26, he was "burnt out." At 18, he had started Access Marketing Inc., which sells tickets to major sporting and entertainment events, and he was weary of the day-to-day grind. In a postgrad course and at YEO, he learned how to build a management team. "It renewed my energy," he says.
Burned out at 26? Renewed at 27? Sounds crazy, but it probably means this is one trend with some strong, young legs to run on.By Hilary Rosenberg in New York For more on young entrepreneurs, click Online Extras at enterprise.businessweek.comReturn to top