Josh Mohrer learned the hard way that the dream of starting a company out of your dorm room can quickly become a nightmare.
In 2002, while he was still an undergraduate at Columbia University, Mohrer co-founded Rational Fashion, an eBay seller of discounted designer clothing. But his co-founder died in an accident in 2003. Soon, the bookkeeping was overwhelming and the company was sued by manufacturers who claimed Mohrer was selling knockoffs. (Mohrer says he had no idea the merchandise wasn’t authentic.) By 2005, the business had failed and Mohrer was $30,000 in debt.
“I really didn’t know what I was doing,” says Mohrer, now 29 and director of business development for Lot18, a startup that connects specialty food and wine buyers with retailers. “I had no accounting background, didn’t know how to keep records, and venture capital wasn’t even on my radar.”
Despite the popular image of brilliant, young entrepreneurs who don’t bother to finish their Ivy League educations before they launch wildly successful startups, experts say Mohrer’s experience is more the rule than the exception. A lack of business experience, a small professional network, and limited access to capital are some of the biggest hurdles facing new grads who think they’re the next Mark Zuckerberg. In fact, only about 2.2 percent of business owners are younger than 25, according to a June report by the U.S. Census Bureau.
Research indicates that the most successful entrepreneurs are older and more experienced. Company founders in general tend to be middle-aged and well-educated, according to a 2009 study by Duke researcher Vivek Wadhwa. The average age of company founder: 40. What’s more, older entrepreneurs tend to be the most successful at launching new companies, he found. That’s because they’ve often spend years getting to know an industry, have lots of contacts and access to financial backers.
Today, more Americans are becoming entrepreneurs than any time in the last 15 years. In the wake of the recession, many people – young and not-so-young — have started own businesses because they couldn’t find full-time work. Slightly more than 20 percent of young entrepreneurs said they launched a business because they were unemployed, according to a recent survey by the Buzz Marketing Group and the Young Entrepreneur Council.
And while young entrepreneurs can bring a fresh perspective and may be more willing than established professionals to take a flyer on an idea, experts say they’re often not prepared to run a company. A Kauffman Foundation study found that 96 percent of entrepreneurs felt previous work experience was important to their success. Brad Feld, managing director of the Foundry Group, a venture capital firm based in Boulder, Colo., says he's not adverse to funding young entrepreneurs but many lack "experience in building and scaling a business and have a more limited network.”
No one wants to step on youthful enthusiasm, and new grads are often passionate about their ideas. But following your dream can lead to disaster, says Carol Roth, author of The Entrepreneurial Equation: Evaluating the Realities, Risks, and Rewards of Having Your Own Business. “If passion was a starting point, then Imelda Marcos would own Zappos,” she says. Roth’s advice to would-be entrepreneurs: Get a job. “I tell graduates to first get their real life MBA,” she says. “Learn on someone else's dime and get paid for it. Go work for a company even if it's in the mailroom. It may not be the best pay check, but it's an experience to really know an industry from the ground up.”
Eden Blair, an assistant professor of entrepreneurship at Bradley University, agrees that the odds are stacked against young entrepreneurs. She often tells students to get five or six years of work experience before setting out on their own. True, younger entrepreneurs are typically unencumbered by debt and family ties, she says, but they often have a hard time getting bank loans. Blair encourages her students to try getting cash from "friends, family and fools.”
Yet Blair still encourages her students to pursue their business goals. She recently had an undergrad who came to her with a plan to start a cruise line. She advised him to think a little smaller and start a charter boat service on Lake Michigan."Fred Smith [the founder of Federal Express] created a business plan and was told it would never work. Who am I to tell them not to follow a dream?"
That’s what Cassie Meyer, 25, is doing. Meyer, who graduated from Bradley's entrepreneurship program in May, co-founded Knotty Outdoors, a company that sells women's hunting and outdoor apparel. The recent graduate grew up in a family that hunted, which for her meant wearing oversized men's clothes. "We're designing something that's functional and also fashionable," she says. "We're very passionate about it… willing to [take a] risk. The whole thing could be a flop, but we can't dwell on that.”
Failing may be part of the game. About 51 percent of any new businesses fail within five years, according to the U.S. Small Business Administration. Jonathan Bednarsh, 37, co-founder of Onboard Informatics, a New York company that provides real estate data , started his first business shortly after graduating from the University of Indiana in 1994. It failed after a year. "I thought I knew everything and was invincible like a lot of headstrong entrepreneurs," he recalls. But in the next seven years he worked for several other businesses, including a real estate data startup, similar to the company he later started. That gave him the edge when going out on his own again. "It doesn't hurt to get experience in the real world." he says.
For more on Small Business from The Fiscal Times:
The 10 Hottest Spots to Start a Small Business
Crowdfunding Promoted to Help Small Businesses
Small Business Recovery is Sluggish
