The Pros and Cons of Starting a Business in Business School
Posted by Delina Tewolde in MBA
This post was written by our friends at forbes.com
In March 2016, John Mackey, the co-CEO of Whole Foods Market, came to speak to one of our classes at UVA’s Darden School of Business. He asked how many students want to be an entrepreneur and two-thirds of the class, roughly 50 students, raised their hands. When he then asked how many students are currently working on a business, only two hands remained raised. While this number was surprising to us at the time, most of the top business schools report similar percentages of students who choose to be entrepreneurs directly after business school – Stanford (16%), Harvard (9%), Penn (6%), MIT (3%), and Northwestern (<1%). Having spent our first year at Darden launching our business, 1Degree, it is clear to us now why so many people put their hands down.
1) Starting a business is expensive. At Darden, more than half of the student body will graduate with debt averaging $100,000 – numbers that are commensurate with other top MBA programs. This debt adds an additional burden to the already daunting financial uncertainty of starting a business. It is no wonder why the allure of a six figure salary is so hard to resist. When we started 1Degree at the beginning of our first year, we knew we would need to dig deep into our savings. Even if we were able to develop our beta product at zero cost, there are countless other expenses associated with starting a business, such as legal fees, hosting costs, travel expenses, promotional materials, etc. The legal fees alone for incorporating, trademarking, and drafting legal documents (i.e. operating agreements, terms and services, restricted unit agreements, investor term sheets, contracts, and advisory board agreements) start to add up very quickly.
2) MBA recruiting puts enormous stress on students. MBA recruiting starts the minute students set foot on campus. Students spend countless hours attending scores of briefings, office hours, networking events, resume workshops and mock case interviews to differentiate themselves in the hopes of getting a job. Couple the recruiting frenzy with the notoriously rigorous academic core curriculum at Darden and you’re left with little time to brush your teeth, let alone time to start a business. Having come to Darden with different goals, recruiting created different stresses for each of us after we decided to start 1Degree. One of us, who went through the recruiting process before ultimately deciding to focus on the business full-time, was pushed to the absolute breaking point when he decided to also work on 1Degree. The other, who chose to not recruit, was constantly worrying if he had made the wrong decision as recruiting was literally the only thing his peers talked about.
3) Tradeoffs are always present. In business school, there are always a dozen things someone can and should be doing at any given time. Add starting a new venture to the equation and a completely new set of tradeoffs is created. We are constantly trying to find the balance between preparing for class and spending time on 1Degree. We often find ourselves weighing the pro and cons of finishing out the school year versus taking a leave of absence to work on the business full-time. The biggest quandary we have faced, however, is deciding whether to raise money from our friends at business school. On the one hand, it makes sense as our friends have witnessed first-hand the hustle, grit and determination it took to grow 1Degree from a living room conversation to a fully functioning, revenue generating business. On the other hand, it doesn’t seem right to accept money from our classmates while still enrolled at Darden. As a startup, raising capital from our peers would have a positive signaling effect to other investors. Nonetheless, we have to be cognizant of the fact that our fellow students may not have the same ability as a more sophisticated investor to do proper due diligence and understand the risks involved. What if a friends approach us looking to invest? Should we let them? Is it uncouth to approach them? In the end, we decided that we would accept investment from our friends if given the opportunity, but would not spend any of the money until 1) we reached a certain threshold of investment, and 2) we were working on the business full-time. We think it was the right decision, but now we need to stop thinking about it so we can focus on preparing for class.
4) Entrepreneurship is full of uncertainty. We do not know if 1Degree will provide a livable income; we do not know if our product will gain market traction; we do not know if we have the right connections to scale this business. We also cannot be certain that we will make our development deadlines. For example, our product launch was delayed five months for factors beyond our control. For us, the future is unknown. Every night we go to sleep with these uncertainties weighing on our conscious. Yet, every day we grind without hesitation. This lifestyle is not for everyone. There are compelling reasons not to start a business while in business school, but 1Degree would not be where it is today if it were not for business school. For us, the pros of starting a business in business school certainly outweigh the cons, especially at Darden, which is ranked third in the world for entrepreneurship according to the Financial Times.
1) Business school affords freedom and flexibility. Most corporate jobs have long hours and limited vacation time that must be approved in advance. In contrast, our business school schedule is much more flexible, and has allowed us to spend our summer, plus multiple weeks throughout the school year in Los Angeles, the hub of our operations. This is on top of the spur of the moment business trips we were able to take as a result of only having classes four days a week. Our flexible class schedule also allows us to schedule meetings during standard business hours. Additionally, unlike someone who has to be conscious of what they promote outside the scope of their employment, we are able to unabashedly promote our business, which landed us our first client – an old high school acquaintance who saw 1Degree on our social media and reached out to us.
2) The business school network is invaluable. We are surrounded by some of the smartest young professionals in America, with diverse backgrounds, networks and industry experience. To flesh out the 1Degree concept, we routinely leaned on our classmates to read our business plan and tear it to shreds. Additionally, the Darden alumni network has provided countless introductions to industry professionals, potential investors, and mentors. For example, when we targeted the CEO of a prominent app development company to serve on our board of advisors, we reached out to one of our classmates, who then reached out to one of her alumni connections that worked at the company, who in turn reached out to the CEO. On the strength of the introduction, the CEO then introduced us to the CCO (Chief Commercial Officer), a better fit for our business, who now sits on our board of advisors.
3) Business school opens a number of doors. Despite having 1Degree email addresses, we often use our Darden email addresses for outreach because of the credibility it provides. The resources available to us at Darden have provided countless opportunities. First and foremost, the Batten Institute for Entrepreneurship and Innovation allowed us to pilot LaunchPod, the first non-residential program at the i.Lab at UVA incubator. Batten has also provided us stipends to pitch at university-wide and national competitions and asked us to represent the student body at an entrepreneurial summit in San Francisco with prominent alumni from Facebook, Twitter, BlueRun Ventures, Glynn Capital Management and other tech industry leaders. Moreover, our professors are the best at what they do and will leverage their networks for students when appropriate. For example, Saras Sarasvathy, our entrepreneurship professor, is the prominent thought leader on “effectuation,” a renowned entrepreneurial paradigm. When a Shark Tank funded entrepreneur came to our class, Saras put us on the spot and would not start the class until we pitched 1Degree and made our “ask” (her mantra). This led to a connection to the head of Shark Talkers, the ecosystem of Shark Tank companies, many of whom could serve as influencers, investors and/or advisors for 1Degree.
4) Leveraging the curriculum. At times, classroom learning can be ephemeral, abstract and impractical. Students often complain that they will never be able to apply what they are learning in the “real world.” For us, however, much of what we learn is immediately applied. Classes such as “Starting New Ventures,” “Venture Capital”, and “Entrepreneurial Finance” have influenced the day-to-day decisions of 1Degree. After launching 1Degree over the summer, we returned to Darden for our second year planning to launch our first major product line extension, 1Degree Events. We designed the user experience, built our first prototype and conducted user testing on the 1Degree Events website in our “Software Design” class and we will officially launch 1Degree Events as part of Darden’s Brand Challenge.
Two-thirds of our class raised their hands when John Mackey, the co-CEO of Whole Foods Market, asked who wanted to be an entrepreneur. When he then asked who in the class was actively working on a business, only two hands remained raised. While many people do become entrepreneurs later in life, Mackey instructed our class that “now” is always the best time to start a business. Business school or no business school, there are always going to be pros and cons to starting a new business. Talking about it won’t get you there. Stop waiting. Start working on your business today.
November 28, 2016, Delina Tewolde