A lot of college students have thought about launching a start-up, but many get stuck on the best way to do it — or what risks they'll encounter.
Starting your own business is always going to be a gamble. But if you can identify a need for a product or service, know your customer, have a sense of the demand and your competition, you will be off to a solid start. The great thing about launching a business while you're in college is that you have a built-in focus group with your peers, a ready-made market — and professors and others who can help guide you along the way. The key is to look at starting a business as a new assignment; you just need to do your research and break it down step by step.
Here are a few tips to help get you started:
1. Find a problem that you can solve
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The first step: Define the business. But how do you do that? Be observant in finding a problem, a want or a need and then figure out what product or service you can create to solve that problem or meet demand for that want or need.
Manaav Mehta, an entrepreneur at UCLA, launched an app called Bolo, which is aimed at creating a space for college students in the same classes to communicate with each other. While taking online classes in 2020, many UCLA students were downloading GroupMe, a messaging app, and using it to facilitate conversations during the Covid-19 pandemic between clubs, teams, and students in the same classes
However, after returning back to in-person classes it was difficult to create these group chats so he looked for a way to more easily facilitate these conversations. That's when he created Bolo to address that need.
"You create an account with your school email, so you get thrown into your school's platform database, and from there all you have to do is look up your class and press join," Mehta explained. "That saves the headache of you having to ask to be added, so everybody will be together in one class and it's safe because it's your school."
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Christopher Cherian, CEO and co-founder of Gatherly, also developed his idea during the pandemic. He had arranged a Zoom birthday party as a student at University of Pennsylvania, with about 50 other people, and found the interactions to be awkward in the virtual setting. He realized that "Zoom is great for conference calls, [but] there is a fundamental difference between conference calls and conferences and that's what we need to build a virtual solution for."
Faced with this problem, Cherian and his three co-founders came up with the idea for Gatherly, a platform that makes socializing virtually a much more engaging experience. The idea was "less about coming up with an idea and more about finding a problem worth solving," Cherian said.
Christian Jackson, a student at Loyola Marymount University, is currently studying entrepreneurship and working on his own start-up, Mula. His enterprise aims to help production agencies build out their business infrastructure by assisting with back-end operations, such as managing finances.
He was able to find a more specific problem within a large industry and advise other young entrepreneurs that when looking for potential opportunities, "You can look at a bigger issue and then realize that there are a ton of aspects within that issue that need to be solved." Maybe that's where you fit in — you can be the one to solve that problem or make that component more efficient.
2. Figure out who your customers are and what the demand is
After coming up with an initial idea, it is important to understand what demographic you will be targeting and what these customers would be willing to pay for your product or service.
In fact, one of the top reasons businesses fail is the lack of a market need, according to research from CBInsights.
So, it's especially important to be thorough in researching the market for your product or service in order to determine if there is enough demand — and the presence of competitors.
Kurt Beyer, a professor of entrepreneurship at the University of California, focuses on teaching his students how to best frame opportunities and stresses the importance of developing ideas that are useful to consumers in the real world.
"People make the mistake of coming up with opportunities, not ideas. If these ideas have no viability they are useless because products and services have to be used in the real world."
3. Do your competitive analysis
Next, it's extremely important to research the competition.
Here are the questions you need to ask: What other companies are selling similar products and services to yours? Would your product or service be able to succeed in this market? How would yours stand out in the crowd?
"You have to look at the feasibility of getting into a certain market. I like to tell students that you always should keep in mind the concepts of desirability, feasibility and viability," said Domenick Celentano, a professor of entrepreneurship at Fairleigh Dickinson University.
Celentano says its key to have a strong understanding of the market before moving forward with an idea.
"Students ideate and then come up with some market research data," Celentano explained. "I will double-check that and find that with a simple search you will see that there are half a dozen other products or services in the same area."
4. Look for help from professors and experts
Be sure to take advantage of all the resources your university has to offer. Tap professors, people who run incubators or other experts for input: Is your product a good idea? Are there tweaks that could make it better? What do you need to include in a business plan?
"Your school will have some entrepreneurial center and they will also be very happy to connect you with the right resources or train you until you're ready," Gatherly's Cherian said.
Jasmine Mathai, one of Celentano's students at Fairleigh Dickinson University, is one of the founding members of the student-run snack bar Mansion Munchies, formerly Snax. Celentano helped do the marketing and design for the rebrand under its new name.
Now, Mathai is hoping to eventually open her own marketing firm and found that having access to faculty and peers to look to for advice and support has been an essential part of working toward her goals.
"I'm so grateful that I go to a school where we do have that community and we have those resources available to us whether they be through staff members or my friends here at school that are willing to offer their time and their knowledge to us as students and support us along the way," Mathai said.
"Without an idea of what's expected of you when you decide to take an idea and create it into a business, you're going to face some challenges that sometimes just require a person who will stand there and listen," Mathai said. "[T]here are failures and there are missteps, but that's all part of the learning process."
Celentano helps to facilitate the development of new, innovative ideas in his courses, but also suggests that students should take initiative to find resources outside the classroom. He suggested that students reach out to small business development centers, where counselors advise a whole range of people on how to grow their businesses.
"Those are good resources for students to go into because they counsel a wide range of businesses and they have a whole range of people who are counselors and you can be well served there," Celentano said.
Also, experts say you should be sure to check in with the Small Business Administration, an agency that provides support to entrepreneurs and small businesses. There are many resources available to help you develop your business plan and expand that idea into a going concern.
But it's important to remember that even though this sprung from you — it's your idea — your business will be operating in a larger community, Beyer, the University of California professor, explained. So, it's important to connect with that community and really understand the whole ecosystem you will be operating in and serving.
5. Make a business plan
Now that you have finalized your idea, it is important to determine how much money you will need, how much time it will take to launch, where you will run this business from, etc. For example, if you're selling products, you need a place to store them. How are you getting them to customers? Delivery? Shipping? What will be your main advertising strategies?
Beyer says the pattern of building a company can be learned — and there are best practices to executing those steps.
He stresses the importance of learning from past strategies and understanding the common steps taken. "Just as it is difficult to become a doctor or lawyer because you have to learn so much that came before you and practice it, entrepreneurship is the same way. You have to have the discipline to learn those things as well."
One of the biggest mistakes people make, according to experts, is that they do not fully understand how difficult the process is and fail to take into account the amount of sacrifice that they will have to make and the opportunity cost of building a company.
6. Develop Your MVP (minimal viable product)
When it comes to developing a product, it is important to move fast and put your minimal viable product (MVP) out for feedback as soon as possible. This can be a much more basic version of the product than what most students expect.
Cherian advises young entrepreneurs to tackle this step much differently than they would most projects that they have worked on for classes, because "schools do a really good job of incentivizing you to put together this very beautiful, over-the-top final project, but that's not what entrepreneurship is. You need to put together a very common minimal viable product and put that out there to get feedback on it. So, you need to turn the education model on its head and say I would rather have a workable first version that I can show the community, get feedback on and then iterate on quickly."
7. Do a legal check-in
Before you get too far in the process, you need to address a few key legal questions: Do you need to register your business? Do you need any licenses or permits to do it? Are there regulations on this type of business, product or service?
It's important to speak to a lawyer to make sure you are compliant with all laws and regulations.
Cherian and his co-founders made the mistake of trying to take on the initial legal work on their own, without consulting the necessary experts. Looking back, he said that that was one of his main regrets with Gatherly.
"I wish we got an attorney to help us start our company," Cherian said. "We just did a little on our own — we played Google attorney, and we tried figuring out how to do it ourselves and that ended up biting us in the butt. We ended up having to go back and fix a lot of things that we had filed improperly and that cost us way more than if we hired a lawyer initially."
He acknowledges that many college students do not have access to an attorney so he suggests that they go to their college's law school where they will be able to consult clinics or volunteer programs where law students and professors can help them fill out the necessary paperwork.
8. Know the financial risks
Entrepreneurship is a fascinating concept to many college students, but it's important to know that there are many financial risks associated with starting your own business.
Entrepreneurship requires large investments of time and money and the process of getting started is often more grueling than most students expect.
Nearly half of entrepreneurs say their biggest motivation for starting their own business was the idea of being their own boss, according to a 2022 Guidant Financial survey. However, while they may have more freedom being their own boss, they have a lot more to lose if they are not successful. When it comes to investing your money, it is important to understand what risks you will be taking and what steps you can take to minimize these risks.
Mehta invested $8,000-$10,000 of his and his parents' money during the beginning stages of developing Bolo and most of that went to hiring freelance workers to do the coding. He is now working to make a profit off of this investment as he launches his app and brings in new customers.
Cherian also chose to raise his pre-seed round of funding from his family and friends. However, he outlined the many other ways that students could go about looking for investors at this stage. College is a great time to raise funds and/or look for angel investors, Cherian said.
It may seem amazing that someone would give you money for your vision, but you have to be realistic and make sure you see how the business cash flow would work. Don't hire too many people before you see how much you really have coming in. And don't give yourself or anyone an inflated salary just because there is money flowing.
When Cherian first started Gatherly, he was only making minimum wage. He now earns about $50,000 to $75,000 per year and hopes to pay himself a six-figure salary when Gatherly makes over $1 million in sales.
Both entrepreneurs also advise not to go into this profession for the money but rather for the passion of building new products.
Although some entrepreneurs look to their friends and family for initial investments, or turn to angel investors, there is also the option of looking for venture capital funding. Not every business needs to pursue this route, but some may be looking for larger amounts of capital in exchange for equity in the company. That could be the best option for taking on investors.
Jackson provided insight into this process, asserting that one of the pros of pursuing venture capital funding is that "if you're an early stage company they care a lot about your team. If you're the first founder right now be really privy to the fact that you should probably bring somebody on that is an expert in that area that you're in. Founder-industry fit is a big thing and not a lot of companies have that."
However, he warned that sometimes giving up equity in your business at an early stage can hurt you in the long run. He advised that "if you do raise funding in an early stage be aware of how much you are giving up because sometimes you will get ripped off in terms of how much money you're getting for the percentage of your company that you are giving away." It is important to take these risks into account when looking for early investments and figuring out which strategy is the best for your company.
9. Build your team
Once your business has been established, it is important to build a team of passionate and driven people that will help your business grow.
Beyer recommends working with a team to get started. Many college students have no experience with management and struggle to actually build out their organization unless they're backed by a strong team.
Mehta also echoed these same ideas. He explained that he wishes he had a team to help with the various aspects of his product so that it did not all fall to him.
"Have a team — I'm going at this all alone and I need some more people to help me whether that be sending emails to professors or running social media campaigns," Mehta said. While he knew that it was important to get his app Bolo out quickly, he thinks it is important not to rush into anything.
Cherian started Gatherly with three partners who were all college students at the time and felt that working together helped them succeed and figure out many aspects of their business from recruitment to sales pitches that may have been difficult for him to do all on his own.
While he says there are multiple ways to put together a successful team, he chose to found Gatherly with friends because "there are high levels of trust, and we all know strengths and weaknesses and we can play well around each other — think of it like a sports team."
Jackson had a different approach to building his team and suggests taking your time to find team members that are truly the best fit for your business. "You want to make sure you have a team that compliments one another and you also want a team that loves what you're doing," he said. "Otherwise, you're kind of wasting your time." He is currently happy with keeping his team small at Mula and is waiting to bring on more members until he feels it is the right team and right time.
Whether you start with a team or look to expand later down the line, it is important to keep in mind what you are looking for in your team members and who will best help you address the needs of your business. At the end of the day, only you really know that.
10. Market your product
Now it is time to test how your audience will react to your product by testing out preliminary marketing strategies such as turning to social media. Some businesses may find that social media does not build the amount of traction they were expecting. Mehta utilized Instagram and Facebook for Bolo but discovered that "there were a lot of views on them but not a lot of conversions."
However, according to Jackson, the trick is to choose a social media platform that best aligns with the goals of your business so that you can target certain demographics of consumers that will resonate with your product or service.
Jackson worked at a digital marketing agency during his time at LMU, so he was able to provide insight into this process. "There are different ways to go about it and an interesting thing to think about is the different platforms to go about it. If you know how to use those to your advantage it really doesn't matter whether you are a B2B company or B2C company — social media can be your friend," Jackson said. "It can be pretty expensive but if you do it in a bootstrapped way and you try to find ways to find people who have platforms already you can find ways to keep your costs down."
Celentano echoed the importance of social media: "Influencers and, in particular, micro influencers have become the go-to for not only major brands but for products you have never heard of. I use Instagram because there are always unique products and services that are coming out that are introduced in terms of awareness through Instagram, so social media is probably one of the better ways for startups to create awareness."
How to think like an entrepreneur
Celentano's advice for anyone looking to start their own business is to "put yourself in a situation where you're uncomfortable because you don't know enough about the area that you're in. You need to have enough confidence to know that you can learn more about this. You need to get used to feeling a sense of risk and having the self-confidence to go into something that's very new. If you're too comfortable, you'll never go into that direction." While confidence is an important component of being an entrepreneur it is also important to understand the difficulties that you might face throughout the process.
Beyer tries to help his students understand the risks that they will face and tells potential entrepreneurs: "I don't think that all people realize how difficult entrepreneurship is. The message I hear time and again is the amount of sacrifice that needs to be made and how much opportunity costs there is. It's just a reminder that you need to be an entrepreneur for internal reasons, not external reasons. You need to do it because you care and are passionate and you want to solve a problem in the world."
″College Money 101″ is a guide written by college students to help the class of 2022 learn about big money issues they will face in life — from student loans to budgeting and getting their first apartment — and make smart money decisions. And, even if you're still in school, you can start using this guide right now so you are financially savvy when you graduate and start your adult life on a great financial track. Ananya Mehrotra is a three-term intern, who has been working with MSNBC's program research team since summer 2021, and will be continuing her internship with NBCUniversal into summer 2022. She is currently a junior at the University of California, Berkeley, pursuing a double major in political economy and media studies. The guide is edited by Cindy Perman.
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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.