UP STARTS

How GenY Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit from Their SuccessBy DONNA FENN

The McGraw-Hill Companies, Inc.

Copyright © 2010 The McGraw-Hill Companies, Inc.
All right reserved.
ISBN: 978-0-07-160188-7

Contents

Chapter One

Extreme Collaborators

Building Cooperative Tribes to Compete

Welcome to the collaborative economy. Today, an increasingly complex, competitive, and global business environment makes it virtually impossible, not to mention foolish, for any entrepreneur to cultivate a lone-wolf mentality. Even simple business models ultimately require a scope of knowledge rarely contained within the confines of a single cerebral cortex. Great minds still conceive innovative ideas, but those ideas are incubated more successfully by the collective intelligence of a team. Perhaps that’s always been the case. Thomas Edison, for instance, may have a posthumous reputation as a brilliant inventor, but most of his 1,000-plus patents were for ideas generated at his “invention factory” in West Orange, NJ, where he employed teams of chemists, engineers, and machinists who all worked together to get the lights turned on. Today, we’d call it “team-based innovation.”

Working in teams is second nature to members of GenY, and they are changing and refining the very definition of collaborative teamwork. They have, after all, been at it virtually since birth. All those baby play dates, peewee soccer tournaments, and team- base science projects nurtured the notion that working and playing in groups is fun, productive, and, well, expected. Not that they don’t value individual achievement; they just expect their success to come as a result of team effort. “My students don’t respond well to the whole notion of ‘the brand called me,'” says George Gendron, referring to the slogan made popular by management guru Tom Peters. Gendron is director of the Innovation and Entrepreneurship Program at Clark University in Worcester, MA. “They’re very team- oriented. I never worked on a team in college; everything I did was solo. Now, half of what is done in liberal arts education is team-based. The mentality is you have to have partners.”

But what exactly is a team? A subset of people within the same organization assigned to solve a thorny problem or achieve a lofty goal? In Edison’s day, that was an accurate definition of team. Today, it’s far too narrow, and no one knows that better than Upstarts. For them, a team is virtual and flexible, and consists not only of people within their own companies but also of friends, family, professors, experts they find on the Web, and even people halfway around the globe whom they’ve never met. They are relentless and fearless and, yes, shameless about asking for help and advice. From the time the idea is hatched, the entrepreneurial conversation is not a founder’s monologue but a constant dialogue among a diverse and often dispersed group of people assembled for the sole purpose of achieving a specific goal. Upstarts are not just starting companies, they are building tribes.

* The Campus as Incubator

What better place is there to build a tribe than a college campus? There was a time, not so long ago, when starting a business meant that you put just about everything else on hold. Remember the old version of the Game of Life, the popular board game published by Milton Bradley? At the beginning of Life’s winding road, players steered their pink and blue plastic cars down one of two paths: “college” or “business.” The choice pretty much mirrored the options at that time. Now, business and college, even at the undergraduate level, are a powerful combination. The resources available on campus for budding entrepreneurs are almost irresistible: Friends become partners and employees, professors become advisors, and school business plan competitions provide the startup capital. The risks are minimal, there are no families to support and no mortgages to pay, and the dorm room and the meal plan provide the ultimate safety net. College is the new incubator.

Andrew Zacharakis, the John H. Muller, Jr. Chair in Entrepreneurship at Babson College in Wellesley, MA, notes that “out of an incoming freshman class of 400 kids, there are always 20 to 30 who have already done something amazing in the entrepreneurial area before they even enter college, and that wasn’t the case 10 years ago.” Back then, students came to Babson to learn how to be entrepreneurs; today, they’re increasingly likely to be looking for ways to refine their skills and to grow existing companies. “They’re much more worldly than I remember being at age 18,” says Zacharakis. “They know the language of business, and they’re not afraid to approach people for advice.”

Business plan competitions, now ubiquitous on college campus, have become an extraordinarily popular way for young entrepreneurs to test their ideas. Siamak Taghaddos, age 27, won Babson’s competition in 2003 when he and classmate David Hauser, age 26, came up with an idea for a company that would provide virtual phone systems for entrepreneurs and small businesses. Both Taghaddos and Hauser knew from experience how difficult it was for startups to purchase professional-sounding, affordable telecommunications systems. So they developed a software-based tool that, for as little as $10 a month, gives entrepreneurs the ability to set up (via the Web) voice-mail and mailbox systems, to receive voice mail as an MP3 file within an e-mail, and to integrate different phone lines into one voice-mail system and one inbound number. For startups and virtual companies that often employ staff in different geographic locations, it was a communications tool that allowed small companies to look big and professional without spending $10,000 on a phone system. “Both David and I wanted to start a service like this,” recalls Taghaddos. “And when we met at Babson, we decided that given our strengths, we’d be better off as partners than as competitors.”

Both young men had startup experience. Taghaddos had founded an online pager distribution company and worked at an educational consulting startup, and Hauser had cofounded ReturnPath, an e-mail management company, as well as WebAds 360, an ad-serving technology provider. But they hit pay dirt with the company they started together, GotVMail. With help from classmates, Taghaddos wrote a business plan for the company, entered it in Babson’s 2003 Business Plan Competition, and walked away a winner, with $5,000 in cash. But the bigger benefit, says Taghaddos, was “the confirmation from many business leaders that the plan was solid, a great motivation for me to pursue it after class.” So Taghaddos and Hauser officially launched Needham, MA–based GotVMail in 2003, with the former focusing on business development and the latter building out the technology infrastructure.

But winning the competition was just the beginning of the support they got from Babson. Professor Heidi Neck helped the founders understand the business development side of their marketing plan and stressed the importance of segmentation. “A Realtor using GotVMail is different than a consultant is different from a dot-com,” says Taghaddos. That advice helped him to develop a marketing strategy so effective that GotVMail grew to $8.8 million in revenue by 2006, landing it the number 66 spot on the 2007 Inc. 500 list of fastest-growing privately held companies.

Also a key factor in the company’s financial health: involvement from Babson’s Dr. Joel Shulman, who advised the founders on financial modeling. “We used negative cash conversion cycle financing,” says Taghaddos. “We made money; then we spent it and were therefore profitable since month two. Ninety-nine percent of companies do it the other way—they invest, start sales, and then wait to become profitable. Our technology didn’t look too pretty in the first few months, but it allowed us to grow without outside funding. We spent what we had and grew at our own pace. Shulman, being the financial guru that he is, was a tremendous help.”

In May 2009, Taghaddos and Hauser rebranded GotVMail and changed its name to Grasshopper in order to position the company as “a global brand for entrepreneurs,” says Taghaddos. While the company will continue to offer virtual phone systems, the cofounders plan to offer a full suite of services to startups, including Internet-based hiring, recruiting, and time-management tools. Taghaddos is predicting increased demand for those kinds of services; he says that he’s already noticed a significant uptick in business during the recession because “so many people have been laid off, and they’re starting their own companies.” The cofounders won’t reveal the company’s current revenues, except to say that they are “upwards of $10 million.” With 30,000 customers and 50 employees, the company continues to grow organically with no outside venture capital. And Shulman, say the founders, remains a close advisor.

Incubators Everywhere

Grasshopper’s story is a classic and dramatic tale of entrepreneurial success at a college whose primary mission it is to foster and nurture entrepreneurship. But all across the United States, students are starting and growing companies at colleges and universities that, while not widely known for their emphasis on business creation, are nonetheless helping to jump-start their students’ entrepreneurial aspirations.

Josh Kowitt, age 27, and Scott Neuberger, age 28, started College Boxes, a company that handles moving and storage for college students, at an entrepreneurship class at Washington University in St. Louis. “We wouldn’t be as far along as we are if we hadn’t started this in college,” says Neuberger. “We learned how to execute a business.” The company grew to between $3 and $5 million before the founders sold it in January 2008.

Luke Skurman, founder of College Prowler, started developing his college-guide publishing company at Carnegie Mellon University when he was a junior. It was the university’s president, Jared Cohon, who introduced Skurman to the investor who ultimately would play a major role in helping him to grow his company to $900,000 in revenue. And Duke University served as a springboard for Will Pearson and Mangesh Hattikudur, both age 29, whose highly successful trivia magazine and website, $2 million Mental Floss, got its start on campus.

It’s the burgeoning interest in entrepreneurship among college students that’s driving the growth of 27-year-old Michael Simmons’ business, Extreme Entrepreneurship Education Tour in Manhattan. Simmons started his first company, Princeton Web Solutions, when he was 16 and then founded his current company with Sheena Lindahl, now his wife, when the two were juniors at New York University. The idea was to spread the entrepreneurial gospel to students via a nationwide series of college- and university-sponsored half-day programs in entrepreneurship education. The programs include networking, workshops, and inspirational keynote speeches by young and successful entrepreneurs. Since 2006, when Simmons and Lindahl first took their tour on the road, they’ve held over 60 conferences on campuses; the events typically attract at least 200 attendees. “I’ve noticed an increasing interest by campus departments and outside organizations in entrepreneurship,” says Simmons. “For example, economic development organizations are now focusing more and more on building local entrepreneurs rather than attracting large companies. And career services offices on campus are starting to expose students to entrepreneurship rather than just getting a job.”

* Buddy Up

You’ll find that many of the companies featured in this book were started on college campuses; you’ll also notice that more than half of them were founded by one or more partners. That should come as little surprise where campus startups are concerned, considering the increasing number of college entrepreneurship programs combined with the constant presence of peers with common interests, passions, and fields of study. For instance, Brad Weinberg and Rajiv Kumar, Brown University Medical School students, started an innovative online wellness company called Shape Up The Nation (see Chapter 2); John Vechey and Brian Fiete began developing multiplayer video games together at Purdue, and their collaboration ultimately evolved into PopCap Games (see Chapter 8); and the three co-founders of Higher One, Miles Lasater, Mark Volchek, and Sean Glass, who you’ll meet later in this chapter, drew upon their own experiences at Yale when launching their student banking and funds disbursement company.

GenY thrives on group dynamic, and it very often happens that the companies they start are simply the result of groups of friends asking one another questions that start with “what if …” A question is posed, a discussion follows, the entrepreneurial seed is planted and, somewhere down the line, a company begins to emerge. But those conversations clearly don’t end at graduation. Lists like Inc. magazine’s “30-Under-30: America’s Coolest Young Entrepreneurs,” and BusinessWeek‘s “America’s Best Young Entrepreneurs” are dominated by companies started by partners. Often, they’re just trying to earn a little extra money, like brothers Aaron and Evan Steed at Meathead Movers (see Chapter 5) and Omar Soliman and Nick Friedman at College Hunks Hauling Junk (see Chapter 3). Neither pair of founders ever imagined that ventures started so casually would one day be multi-million-dollar, uniquely branded companies. For Rachael Krantz Herrscher and Stephanie Petersen, the “aha” moment came when they were pushing double strollers through a mall and lamenting the lack of local activities guides for moms. So they met that need by starting TodaysMama (see Chapter 7).

Increasingly, those “what if” conversations take place much earlier and much closer to home. As I mentioned in the introduction, GenYers tend to be much closer to their parents than previous generations, so it makes perfect sense that they’d be eager to draw their folks into their entrepreneurial pursuits. Mom may take a stake in the company in exchange for answering the phone and shipping orders; or Dad may agree to wine and dine potential clients if the CEO is too young to order a scotch. These arrangements turn the family business dynamic upside down and can pose their own unique set of challenges, but I believe multigenerational partnerships can be powerful: Combine tech- savvy, innovative youth with their operational-savvy and worldly elders and you’ve got a great recipe for success.

My Parent, My Partner

Sean Belnick would agree with that. Belnick started BizChair.com with his stepfather, Gary Glazer, when he was just 14 years old. “He was an independent sales rep for a furniture company,” recalls Belnick, now 22 and a recent graduate of Emory College in Atlanta. “I was big into computers, and I would see how he placed his orders and end up helping him with his company.” A bright and curious kid, Belnick had designed a website devoted to the Comedy Central series South Park when he was in fifth grade. And when his Pokémon cards lost their allure, he sold them on eBay, earning more than $1,000.

So Belnick’s mom and stepfather were not all that surprised when he locked himself in his bedroom for three days to build a website that combined his technology skills with what he had learned from Glazer about the furniture industry. BizChair.com, one of the first online retailers of office chairs, was born in Belnick’s bedroom in 2001—an endeavor that so impressed Gary Glazer that he used his industry connections to serve as a liaison between young Sean and manufacturers who were skittish about new distributors, particularly Web-based ones. “They didn’t know my age at the time,” concedes Belnick. “When I started BizChairs, I was basically a customer of Gary’s. I would buy the product through him from the manufacturers and drop ship the chairs to customers.” Belnick quickly become one of Glazer’s biggest customers, and Glazer, convinced of the high growth potential of his stepson’s Internet-based business model, eventually folded his own business and joined BizChairs as an equal partner.

Between Glazer’s industry experience and connections and Belnick’s Web savvy, it’s been an ideal partnership. Glazer ran the company on a day-to-day basis while Belnick attended Emory’s Goizueta Business School, where he typically fielded 50 to 100 e-mails a day from the company. Belnick recently stepped into the CEO’s seat at BizChair, which now has over 100 employees, sells 30,000 to 40,000 items, and has a 327,000-square- foot warehouse that stocks products purchased directly from Asia. Those direct ties with factories in Asia helped Belnick and Glazer create their own branded product line called Office Furniture in a Flash. “We’re able to offer our own personal brand with better pricing,” says Belnick. The company’s customer roster now includes Microsoft, Google, and the Pentagon, and it posted a whopping $40 million in sales for 2008. Having expanded into other office furniture, home furniture, and medical equipment, Belnick’s goal is as simple as it is ambitious: “We’d like to be the biggest retailer of office furniture online,” he says.

(Continues…)

Excerpted from UP STARTSby DONNA FENN Copyright © 2010 by The McGraw-Hill Companies, Inc.. Excerpted by permission of The McGraw-Hill Companies, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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