For B-School's Entrepreneurship Program, a 10 Percent Solution
Over the past few years, Clarkson University President Tony Collins and members of the business school faculty had been thinking of ways to strengthen the school's entrepreneurship program. Clarkson's undergraduate business program had a strong focus on entrepreneurship, but the school wanted to attract more top-teen entrepreneurial talent to campus. The problem was finding the students.
The Clarkson team tackled the problem like businessmen, coming up with an unusual concept: exchanging tuition—which can cost close to $150,000 for four years—for an ownership stake in the incoming student's business.
"We think we can take young entrepreneurs and make them better entrepreneurs, but we are a private university and we are not inexpensive," says Timothy Sugrue, the business school dean at Clarkson (Clarkson Undergraduate Business Profile), a private school in Potsdam, N.Y. "If tuition is what is standing between us doing that, then the idea of trading a portion of a student's company for tuition and a little help making it stronger seems like a win-win."
They ran with the idea, establishing a Young Entrepreneur Award program last fall. The program looks for a handful of students each year who have started their own companies and recruits them to the school. Students selected for the award receive enough financial aid to cover tuition and allow the university an equity stake in their business venture. Marc Compeau, director of Clarkson's Center for Entrepreneurship, says the school believes it's the first to develop this type of program.
"We've looked pretty hard, and we can't find any other university engaging in this type of an exchange," he says.
A Web of Websites
The first student the school selected for the program was Matthew Turcotte, 18, of Clayton, N.Y., who started his own Web development company, North Shore Solutions, when he was 16. He started by designing a Web site for his uncle's business and was soon building websites for other small businesses in his town, eventually expanding his client base to businesses all over New York, California, and Canada. His accomplishments attracted the attention of Collins, who saw Turcotte on the local news promoting a book he'd just written titled, From Main Street to Mainstream: The Essential Steps to Launching Your Small Town Business Online.
That fall Collins invited the high school senior to his home for dinner, where he and Compeau presented him with the concept behind the Young Entrepreneur Award program. In exchange for a portion of his company, the school would give him free tuition, free office space, and mentorship from Clarkson business faculty and successful alumni.
For Turcotte, the offer proved to be irresistible. Clarkson was one of his top choices, but he knew it would be a financial challenge to attend a private school without taking out massive student loans, he says. His parents were initially wary of the idea, but he says he convinced them it was the right move for his career.
"It was either I could take this opportunity or end up going to my local community college," Turcotte says. "For me, it was my ticket to go to the university I wanted to go to."
Structuring the Contract
Once Turcotte agreed to enter the program as a full-time student in the fall of 2010, the next challenge was figuring out how to structure the agreement between him and the university. Both sides brought in lawyers as they hammered out the contract, eventually working out a deal that allowed the university to buy about 10 percent of his company, acquiring 1.25 percent each semester that Turcotte attended the school.
The format of Clarkson's Young Entrepreneur program appears to be unique among undergraduate business programs and sends a positive message to students that entrepreneurship is a viable career path, even at a young age, says Patricia Greene, an entrepreneurship professor at Babson College (Babson Undergraduate Business Profile). It is not the first time, however, that universities have taken an ownership stake in early-stage companies using university resources. In the mid-1990s, many of the early university business incubators that proliferated at business schools planned to support themselves by taking a 1 percent ownership stake in the tenant companies that occupied school space and used the school's resources, Greene notes.
The model still exists at some schools today. For example, at the Thunderbird School of Global Management (Thunderbird Full-Time MBA Profile), companies accepted into the school's incubator program must give Thunderbird a 10 percent stake in exchange for space on campus and services provided to the company by the school, says Katherine Hutton, managing director of Thunderbird's Walker Center for Global Entrepreneurship. If the company is virtual and does not take up any campus office space, the school receives a 5 percent stake, she says.
This type of agreement can be a risky model for some schools, especially if the companies do not end up taking off, Greene says. In general, few of the early business school incubators that deployed this ownership model ended up with a significant payoff, she says.
"It will be interesting to see how the financial aspects play out at Clarkson," says Greene.
Clarkson also will have to be careful how it handles its relationship with students in this program, taking steps to ensure a clear separation between a student's academic performance and his business relationship to the school, Greene says.
"It is a slippery slope," she says. "It is a relationship that has to be really carefully managed, because there are potential ethical issues."
Clarkson Dean Sugrue says the agreement the school worked out clearly outlines the expectations the university has for Turcotte and the nature of their relationship. The contract also addresses potentially thorny issues, such as what to do in case one of the parties wants to opt out of the agreement, and it contains a termination clause that takes effect if the student's business fails.
Turcotte says he is comfortable with the deal that he worked out with the school, calling it a "transparent partnership."
"Really, the student has control of the company and decides what is going to be happening on a day-to-day basis," Turcotte says. "Clarkson is funding my education, and when the year is over, they just want their cut of the profit."
In the Hands of Mentors
So far the program appears to be a success for both parties. When Turcotte entered Clarkson last fall, he was given office space in downtown Potsdam and one-on-one time with the school's entpreneurship faculty, who helped him develop a mission and vision statement for his company. He has also been assigned two alumni mentors who are helping him expand his business. One is Martin Roesch, founder and chief technology officer of Sourcefire (FIRE), a maker of security products for computer networks. The other is John Zdanowski, co-founder and chief financial officer of video advertising service PixelFish.
Between classes, Turcotte spends his spare time expanding the company and its offerings, moving into such new areas as logo design, Web hosting, and online marketing and consulting to young startups. He has gotten new business through his connections with the university, working with professors and with small businesses in the towns around Potsdam. North Shore Solution's annual revenue this year is more than $100,000, and Turcotte now oversees 40 contractors who work for him around the country and the world, he says, adding that his goal is to expand the company's presence in the Northeast region in the next few years.
"The program has really allowed me to think bigger," he says. From the school's point of view, it doesn't hurt to have a living, breathing entrepreneur in class fielding questions from students who hope to follow in his footsteps.
The school is hoping to expand the program next year and bring on more budding teen entrepreneurs like Turcotte, says Sugrue. The business school would like to accept 10 more students into the program over the next four years. Any money the school receives from Turcotte's business will be funneled back into the Young Entrepreneurs Program, Sugrue says.
"If he is successful, we'll be able to take in two or three more people just like him," he says. "I hope Matthew more than doubles the revenue of the company before he graduates, and he is well on his way to that. The sky is the limit for him."