The Entrepreneurial Student’s Dilemma

Stress, studies, lack of time, heavy workload. Should a student start a company?

“Experience is the name every one gives to their mistakes.”
- Oscar Wilde

To be or not to be, that is the question. Is it better for a student to join a medium to multi-national company after graduation or start as an entrepreneur immediately? This question sparked off interesting debates among a few of us, namely a group of academics, investors and entrepreneurs. Each one of us has a different perspective in answering the question. The reason for the diversity of answers is based on personal anecdotes. It’s also human nature to say, “In retrospect, I should have done this instead of doing that.”

To simplify the problem, an entrepreneur goes through a few stages in setting up a company. The first stage is what I called the gathering phase, where the entrepreneur discovers an idea, gathers the team and writes the business plan for the startup. Then the entrepreneur proceeds to the next stage, creation phase by finding the cash to finance the business idea via different routes for example, fundraising through investors or bootstrapping. In this stage, the entrepreneur can also work out who his customers are, and how the product or service can add value to the marketplace. Subsequently, all that is done, he heads into the incorporation phase, where the team formally incorporates his startup. Of course, at this phase, the entrepreneur will have met the lawyer, accountant and banker. The entrepreneur will also assemble a proper management team and consolidate a board of directors or advisory board. Once all this is set and done, the entrepreneur enters into the management phase. Here is the part that the entrepreneur learns how to lead and manage a team. Finally, the startup will grow and mature into a successful enterprise. Subsequently, the only route left is either a trade-sale for the company or IPO. That is what I call the exit phase.

Most entrepreneurs will usually experience at least three of the five phases. That’s not surprising because there are certain characteristics within them that are undesirable of the entrepreneur to go through all five. For example, some are good at starting up new companies and not good at growing the company to the exit level. As a matter of fact, very few entrepreneurs have managed to go through all five. Some entrepreneurs do at least three startups in the first three phases, move on to the business school for a MBA and learn the appropriate knowledge to go for the last two phases.

There are two schools of thought. Let’s start from the school of thought that you should start immediately after graduation. Here are the issues which can work for or against you depending on how you operate.

• Idealism and Passion: Being young has one strong advantage. That is, having the passion and idealism to pursue your dreams. If you are passionate about your startup, you will likely possess the perseverance and tenacity to stick through the hard times. You tend to be creative and less restricted by traditions and exercise what an entrepreneur must do to redefine the way how traditional markets work or innovate a new product or service that will change the world. Of course, the flip side of the coin is that when you are crushed, you can go both ways: either be a cynic or bitter about life.

  For those who are looking for examples, Steve Jobs was booted out of Apple at the age of 30 and made a comeback recently and created a successful company, Pixar before returning to Apple in 1997. Of course, we have the dropouts who started businesses at a young age and made it big, for example Bill Gates, Michael Dell, Larry Ellison, Larry Page.

• Lesser Obligation: When you are young, you have less obligation towards family, girlfriends and relatives. This is not a big problem for my Caucasian friends, because they have to pay for their own education after finishing high school. In western culture, family is not so integral to a person’s life. However, in Asia, the rules are entirely different. As filial son, you need to provide for your parents first and later your wife and children. Such obligations make it very difficult for someone older in Asia to start a company. There are exceptions of people who manage to do that. For example, Steven Fang, a famous biotech entrepreneur in Singapore manage to do that and had the support of his family to go for his venture.
• Lack of Network and Influence in the industry: Depending on your family background, one of the biggest weaknesses is that you don’t have the network and influence within the industry that you are moving into. It can go both ways for you. Being young and brash, you find that it’s easier to assess to people in higher levels, but not in the middle management. However, with experience and credibility built as an executive who used to work for a big company, you know how to wiggle your way back to the big company to solicit business deals.
• Re-Inventing the Wheel can be problematic: If you start off as a young entrepreneur, you have no knowledge of how a corporation works. You may have to end up recreating the wheel on issues like human resources management and growth management of the company. Some young people don’t realize that to hire and fire someone is not such an easy task as they thought it would be. If you have no idea on how to issue a quotation or invoice to a potential customer, you might want to think about whether you should start up a company.
• Experience is important: For a young person, you have no experience in the field. Having no experience is a double-edged sword. If you have the experience, you will know what kind of problems you will face and how to avert them. However, that can work against you if you are faced with an unknown situation. In business, there are times where gut feeling is important. As I have mentioned before, an investor works with logic to do due diligence on the company he investss in, but relies on instinct to throw the money in. Of course, the best entrepreneurs are those who knows how most people fail and figure out the best strategy to make theirs works.

What about the other school of thought you may ask where the entrepreneur goes through the corporate route and then start up his company. These are the issues which he or she need to consider. We have touched on some of the advantages that a corporate person have as compared to a brash young entrepreneur. The key difference lies in the knowledge of the industry, network and also experience. That does not mean that going through the corporate route will be good for an entrepreneur. There are traits which some experienced corporate people exhibit when they enter into the startup.

• Experience is a double-edged sword: It is important to manage risk, spend prudently and also ensure that the cashflow is positive for the company. However, there are times where the entrepreneur needs to take a risk to see whether an idea really works. Being in an industry for too long can be detrimental in deterring making bold, brave and smart decisions in business at times.
• “My ex-company used to do this”: If you used to work for McKinsey, Bain or Goldman Sachs, you might get a culture shock when you work in a startup. Working in a big company means that a lot of things such as human resources, financial management and welfare are taken for granted. In a startup, you won’t get that kind of kind treatment. Most managers have this problem working in a startup when they realized that they have no secretaries helping them to line up their schedules and they need to get their hands dirty.
• Startup Mentality is different from corporations:A good example is to think of the big companies on why some of them are too big and they move too slowly compare to the startups. The same kind of mentality is translated into the brains of the people who work in that. A lot in a startup is about speed and removing bureaucracy. The problem with bringing in an experienced executive is that he might bring in the bureaucracy to the company, and this stifles the growth of the startup. However, he will be able to revamp the human resources, financial management and welfare for the company employees. There are successful executives who made it big in startups, for example, Eric Schmidt (CEO, Google) used to work for a big company (Novell) before joining Google.

At the end of the day, as a student, you need to think about which route you want to go. To be frank, the experienced people you go and seek advice can be just as confused as you are. To me, it really does not matter which route you take. Either way works. If that is the case, where’s the difference? The difference lies in you, and this varies from person to person. The pasture is greener on the other side for most entrepreneurs. While talking to most entrepreneurs about this question, I found three important aspects which actually can be useful advice to those who are thinking of taking which route:

• Knowing when to quit: When I ask the question to an entrepreneur in giving words of wisdom to the younger entrepreneurs, this is the common answer that I get from all of them. In a lot of cases, most entrepreneurs don’t know when to quit and start over again. They let their ego overtake them even when the startup is falling apart. It did not occur to them that it’s time to move on. As I have indicated earlier, most entrepreneurs only go thru three of the five phases. It is alright to move back to a big corporation to learn before starting another company. For that matter, you can be an intrapreneur for a big company.
• Is your idea far too ahead of its time: Is your business idea too ahead of its time? Try imagining that the computer was invented in the 18th century by Charles Babbage in the form of an analytical machine, why did that never caught on to become a computer? Is your technology too ahead of its time that no practical and commercial application is available? If it is ahead of its time, the safer route is to work in a big corporation to develop the technology and subsequently spin it out from the company. Burt Rutan, the inventor of SpaceShipOne, first worked in the military on stealth planes to gain credibility and industry experience before embarking in creating the first commercial spaceflight funded by Paul Allen and Richard Branson. Successful businesses happen not because the product is great, but it happens because the product is there at the right time, place and with the right people driving it.
• Why do you want to do this for? If it is out of ego, forget it. Believe it or not, all entrepreneurs are egotistical, but some entrepreneurs are less egotistic than the others. I know of those days where you want to break free of your tyrannical bosses, when you are being scolded and wants to fight back, and days of injustice where you want revenge. Forget about those days, and trust me, I go through that ninety percent of the time. At the end of the day when you go for a startup, you must understand why you are there. The people who succeed are usually those who think about how to deliver their ideas the fastest and in the best quality presented to the customers. If there are three things you want people to say your business is good, it is not the most lavish website with lots of animations and flash, the office decorations (with Herman-Miller chairs) and where your office is located (unless it is a service industry) that matters. The three things which really matters, are your customers, your product development and your speed to market and brand the product. These are the three things that add value. Hence you must remember why you are into a startup.

It is a dilemma and different people will think about it at different times. However, the advice from me, is that you should ask yourself whether you are there at the right time, place and with the right people before plunging into an adventure which can bring you both joy and despair at the same time.

Acknowledgements: There are a couple of people who I want to thank and have contributed to this discussion. For anonymity reasons, I will not list their names here. These individuals are current CEOs in their startups, academics teaching in respectable business schools and investors who brought up this interesting question when I interview them.

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