Young, Fearless, and Smart

More and more young people are looking for startup success across the U.S. They've got their feet on the ground and some great ideas

The success of the entrepreneurs behind Digg, YouTube, and Facebook is undoubtedly inspiring a growing group of young, energetic, and self-reliant hopefuls. Although many of them were in middle school during the dot-com boom, Generation Y'ers are seeing upstart companies worth big bucks for the second time in their lives and are increasingly willing to gamble that their startups will fly.

For motivation, they don't need to look far past Google's (GOOG) recent purchase of YouTube for $1.65 billion or Yahoo's (YHOO) interest in buying Facebook for over $1 billion (see, 9/22/06, "Yahoo Keeps Its Eyes on Facebook").

But it's not just about role models. The idea that entrepreneurship is a viable career path is ingrained in the minds of parents and children alike across the U.S., and the number of resources for startups continues to swell (see, 10/31/05, "The Startup Bug Strikes Earlier").

Younger All the Time

Those factors cause more young entrepreneurs to sprout. In a 2006 poll of 1,474 middle and high school students, youth entrepreneurship organization Junior Achievement found that 70.9% would like to be self-employed at some point in their lives. That's up from 68.6% in 2005 and 64% in 2004. The National Association for the Self-Employed projects its ranks will increase to about 250,000 members by the end of 2006, up from 100,000 in 1988.

While the number of members under 25 has only grown from 0.2% in 2000 to 1.6% in 2004, membership of 25- to 34-year-olds jumped from 3.6% to 12.3% in the same span. Interest in entrepreneurship is developing earlier and earlier, says the NASE's lead small business consultant, Gene Fairbrother. "We started to get more calls from younger people in the last five to seven years. I would not say it is 20% or 30% or 40%, but it is very noticeable."

Another element worth considering when trying to piece together the reasons behind the growth in young entrepreneurs is the domino effect, says Fairbrother. When young people grow up in an entrepreneurial or self-employed household, of which the NASE estimates there are between 19 million and 22 million, they're much more likely to start a business themselves.

When to Pull the Cord

At the same time, some 2,100 colleges and universities are offering courses in entrepreneurship across the U.S. (see, Fall, 2006, "Hitting the Books") That's a major change from the early 1990s, when fewer than 400 schools offered such courses.

"What we give students are analytical tools that mitigate their risk of moving forward. We're not jumping off the bridge and seeing how much fun we have. We're saying: 'Here's a bridge. Do we need a parachute, and when do we need to open that parachute?'" says Heidi Neck, assistant professor of entrepreneurship at Babson, who teaches a first-year class.

More educational programs lead to more business plan contests, more resources, and thus more funding. That means when entrepreneurs get beyond the incubation phase, there's more serious money available. While venture capital deals peaked in 2000, when some 7,800 deals totaled over $104 billion, they're on the rebound, with the number of deals in 2005 up more than 7% from 2003 and about 16% in dollar terms, to about $22.8 billion, according to a study by the National Venture Capital Assn. and Thomson Financial.

Leaving Home Early

In August, kicked off its second annual search for the best young entrepreneurs in the U.S., asking readers to nominate promising candidates age 25 or under.

The results were impressive, with more than 300 people nominating their favorite ventures. We whittled these down to 25 businesses with serious potential. Check out our slide show profiling each of them, then cast your vote on the last page. We'll report the results in November.

There are several trends in this year's batch of entrepreneurs. For one, a number of their companies have turned offshore for inexpensive software development. Mobo, a cell-phone-based restaurant food ordering prepayment service, employs four software developers in South Africa. And Extreme Entrepreneurship Education and MyMPO's Musicane have Web developers and staff in India.

Telecommuting is popular, too. Several of our featured entrepreneurs' businesses have assembled teams of employees that work from home, making office overhead a nonissue. CulturalConnect employs about 30 people who all work remotely, divided between the West Coast and the Midwest, with one in Israel.

Do it Yourself and Save

Traditional advertising also appeared to be a relatively negligible expense for many of the outfits we profiled. CulturalConnect, for example, relies on viral and word-of-mouth marketing, and social networking platforms. Musicane's technology includes the ability to actually share an online music store virally on social networking sites.

It's as easy as copying a line of code. "Today, you don't have to have a multimillion-dollar ad campaign—you can do it online," says Anand Chhatpar, CEO of Brain Reactions, one of last year's five winners (see, 10/31/05, "Entrepreneurs: Cream of the Young Crop").

Web-based "service-as-software" applications were another common innovation. Music Arsenal, for instance, provides communication and database software to record labels, and Comcate performs a similar role for government agencies. These companies add value to cash-strapped operations by providing cheap access to tools that can improve office operations and efficiency.

The defining qualities of this year's fearless young entrepreneurs: They've all got clear revenue models, their ideas fill a gap they found in their own lives, and because of technology, they're operating on a skinnier shoestring than ever before.

Before it's here, it's on the Bloomberg Terminal.