October 01, 2003
Motivating Students to Start a Business
Dear Michael,
I am a small business consultant. I do believe in the power of the young mind to do outstanding things, and in that respect I am working to formulate a program geared towards students who would like to start their own operation but may not be sure. I am facing a sizeable stumbling block that I want to run by you, see if you can help me make the formula one for success.
I want to lend a groups of full-time students (individually or in groups) an amount of money at the beginning of next summer. It would be equivalent of what they would make at a summer job. The only stipulation would be that they start their own operation and run it in one summer. At the end of the season I want them to pay the money back. Loan recipients would be high-school and college students selected by a panel according to the merit of their business plan.
The problem that I have is that while I do want them to get a feeling of how exciting and fulfilling running a business is like, I do think that it is risky. Most of our students come back in the summer to get one or two jobs, work hard, and take the money to pay for the yearly expenses at school (often including tuition and fees). It would be quite risky on their part to come to my program, borrow the money, lose it, and have to deal with not having enough money to go back to school with.
Thus I am looking to make this a win-win formula where the advantages of successfully running your own business as a student outweigh the fears of failing.
- Anonymous
Dear reader,
First, congratulations on an innovative program idea. However, if your main goal is to get students to try out entrepreneurship, I would have to advise against offering them loans for the following reasons;
- Students will have a limited time to pay off the loan. As a result, they are limited to choosing an idea with a quick pay back.
- Most first-time businesses fail. I think this is fine because running a business regardless of its success is a great learning opportunity. However, students may be hesitant to participate with the possibility of not getting any money over the summer and having to pay back a loan.
While loans may lower the barriers to students launching a business, I don't think that a loan is a good way to motivate most students to start a business. I was lucky enough to have great first experiences in entrepreneurship. As a result, I stuck with it. However, I fear that students may not be able to pay back the loan and consider their first entrepreneurship experience a failure.
Two other methods you may want to consider for motivating students to start businesses are;
- Offer incubator resources (office, copier, meeting room, computer, printer, fax, supplies, etc. The National Foundation for Teaching Entrepreneurship offers this service to New York City Alumni. I've personally found this service to be very helpful with my business. In addition, the resource has been a great way to network with network with and be motivated by other students in the same boat as me.
- Teach a curriculum and then have a business plan competition and offer grants and mentoring to the winners. Perhaps a stipulation of the prize is that they have to record how they use their grant and have follow up meetings with your organization.
Feel free to ask follow up questions.
Posted at October 1, 2003 10:44 PM
Hi Michael,
Thanks for your response. I agree with you on most points you made, in that it may be restrictive for students to have to think about paying back loans, and at the same time making enough money to support them for the upcoming school year. Yet, I do not want them to think that being an entrepreneur is easy, especially the financing part. It is the reality of most business owners that financing is hard to come by, and that regular loan payments are part and parcel of their cash flow. Only we will not be charging interest.
About other entrepreneurship realities, especially failure rates. This is not something I am oblivious to. On the contrary my goal is to let students know that starting up your own business is challenging, requires a lot of planning and hard work, but you can do it, and the rewards are tremendous. Thus:
1. We will launch the program well in advance of the summer so that we receive candidates’ business plans, meet with them personally, and select only those plans which appear viable. In that preliminary phase, we will start training sessions in order to work on such things as financial statements, cash flow, and receivables management.
2. Students will be able to use my premises as an incubator, the same way you mentioned for the duration of the program.
3. We will establish a mentoring network for them, including real-life successful entrepreneurs from our community. That way students will be able to interact with them, learn from them, and discuss their issues/concerns with someone “who has been there.”
4. We will schedule weekly meetings between students and my team, where they will have to prepare financial statements and use their business plan as a reference and yardstick to compare to their current situation.
Dear anonymous,
How one should market the level of difficulty of starting a business is an interesting issue. For various reasons, I've always had a lot of confidence that I could become a millionaire with a business in a short amount of time. While this may not have been "realistic" according to statistics, what matters is that I believed it was. As result of this belief, I chose to start a business and have been passionately working on it for many years.
I believe that one of the most important characteristics of an entrepreneur is their ability to create and consistently sell themselves on a vision. I'm intrigued how entrepreneurs imagined a world of cars when there were no roads, a PC on every desktop when a very small percent of people used computers, or a round world when everybody believed it was flat. What's interesting to me is that youth naturally seem to create these magnicifent visions. As a youth entrepreneur support organization, it seems crucial to marry realism and idealism by helping students plan for the worst, but expect the best.
Last week, I spoke with somebody who had experience using the Grameen Bank Model to distribute micro-loans to startup business owners in developing countries. The Grameen Bank (<a href="http://www.sandoy.kommune.no/bedrifter/tausalyftet/grameen.htm)">http://www.sandoy.kommune.no/bedrifter/tausalyftet/grameen.htm)</a> and the Trickle Up (<a href="http://www.trickleup.org/)">http://www.trickleup.org/)</a> models appear to be very effective so maybe they could work very well with youth if implemented in the right way. Please email me if you would like this person's contact info.
Hi Michael
I am using every resource I can lay my hands on in order to make my project workable for the summer of 2004. I'd be delighted to link up with your contact.
Thanks so much.
More Motivation for Students to Start a Business. <a href="http://mybiz.free-host.com">http://mybiz.free-host.com</a>
Hi Michael and Anonymous,
I just stumbled across this site of yours while I was looking at one of my friend's site www.voyageweb.org.
Interestingly, what opted me to post a message here is when you mentioned the Grameen Bank model. I'm a senior at Centre College, Economics and Physics major, and I have done a little research on the Grameen Bank model and how it fits perfectly to a society like that of Bangladesh (where I'm from). One of the prime reasons why it worked it because of the whole setting that it was implemented in. In a developing country where most of the population resides in the rural areas and normally adopting agricultural means of production, the model was used on women. Women in villages were provided with small loans to acquire either a certain skill (such as sewing, the garments industry was booming at that time) or to open a small business, probably some kind of a farm. Statistics tells us that almost 98% of the women who were given loans paid back within a few months. Microloans were also given to men, but the loan return rate was not that high.
Coming to the issue that Anonymous had about lending money to college students in the amount equal to what one would earn in the course of three months. It seems to me that if one was to give out small loans to college women and keep a regular tab on their activities (like a bank would do when it gives out loans to private individuals), then we can see how well the model applies in a society like the US.
Nonetheless, lots of good luck to anonymous on this mission.
