U.S. Department of Energy
PROVO — Fewer than 1 in 10 businesses last longer than five years, according to BYU's Rollins Center for Entrepreneurship and Technology, but the school's latest crop of student entrepreneurs hopes to beat the odds.
BYU students have raised funds for their fledgling businesses in record amounts this year — together, they have raked in more than half a million dollars, and that only accounts for contest winnings. In years past, anything more than $150,000 marked an exceptional year, Rollins Center associate director John Richards said.
Richards attributed this year's success to a new lean startup curriculum, which the Rollins Center adopted three years ago — business schools across the nation have adopted similar changes as well. The lean startup model facilitates early success for entrepreneurs, as demonstrated by BYU students' competitive success, Richards said, but it won't exempt these companies from many of the obstacles faced by older generations of BYU businesses, such as Property Solutions and KT Tape.
Go lean, fail fast
Conventional thinking once suggested that entrepreneurs should take an idea and run with it, conducting surface-level market research and getting the envisioned product to market quickly so that it could begin making money. Under the right circumstances, this led businesses to rapid growth and early profits. But it also led to vast numbers of disastrous failures.
The new curriculum takes a more cautious approach by encouraging students to survey potential customers about the likelihood that they would buy a proposed product. These interviews, as well as feedback from mentors, allow young entrepreneurs to vet their ideas before the business takes shape. The gradual process helps students find the real market for their ideas, and it results in far greater chances of success, Richards said.
Take FiberFix, for example. This student-led company, which developed a specialized tape that cures and hardens to become nearly as strong as steel, started interviewing potential customers in January. By March, the company had placed product in 140 retail stores and had sold 7,000 units, for more than $70,000 in revenue, Richards said. Few companies expect to ship product so soon.
Inviroment, a student initiative looking to break into the waste industry, likewise benefited from the validation approach. Originally, three BYU roommates envisioned a company that sold packets of plastic-eating bacteria that consumers could place in the trash to biodegrade plastic, co-founder Nathan Parkin said.
After the trio met with industry experts, they realized a product that could be applied at the landfill would be far more effective. When the company officially launched in January, it branded itself as a business-to-business operation peddling a chemical spray capable of degrading plastics to landfills.
Like FiberFix, Inviroment is off to a running start — winnings from competitions sponsored by the U.S. Department of Energy and others have provided the company with more than $100,000 to fund the startup. But starting is only half the battle. For these new companies, the war has just begun.
Barriers to entry
"Every company has challenges," Richards said. Even the best companies should expect opposition of some kind, especially during the early years.
Inviroment, despite its success with fundraising, is no exception. The entire company hinges on a new, unproven technology that itself is a risk — there is always a chance it won't work as planned. Customers' reluctance to take that risk alongside Inviroment has already posed a problem for the company, Inviroment co-founder Devan Bennion said. He's hoping positive results from product tests this summer will encourage additional customers to sign contracts.
"That's going to remove as much doubt as we possibly can," Bennion said.
Property Solutions, a 10-year-old real estate software company that could be considered a sort of BYU alumnus, is no stranger to the technology obstacles Inviroment will face. Months into the business, CEO Dave Bateman discovered the first and largest hurdle standing between his new company and its potential for success — neither he, nor any of his partners, had any idea how to build software.
After crash courses in creativity, division of labor and cost management, Bateman found himself a year in and unable to make payroll.
"I never wanted to miss payroll once. That was my commitment to employees," he said. But that month, the company came up short on funds, and Bateman found himself unable to pay 20 percent of his employees. "It was the most stressful thing in my life."
While the company struggled, Bateman fleetingly considered pursuing other opportunities but ultimately decided he could not go back on the promises he had made to investors. To solve the problem, he taught himself to code software. It was a long process that required 14- to 16-hour workdays, but Bateman said it helped him understand why efforts to build the program he envisioned had stalled.
"It's really hard to run a technology company if you're not a technologist. So I became one," Bateman said. "I was able to get rid of those blinders by getting involved."
Today, with more than 800 employees, Property Solutions is one of the fastest-growing companies in Utah.
If there were a secret to his success, Bateman said, it would be offshore software development. As a small, unproven business, Property Solutions had trouble attracting scarce domestic talent. Bateman said he ultimately felt he had no choice but to outsource product development.
Even those startups that do not need software engineers will face talent shortages and trouble recruiting key employees, Richards said.
"Utah County is known to have more startups per population than many places, but the shortage of senior management is widely known to be a problem in Utah," he said. "If they hire the wrong person — the best friend, the old mission companion — that's when these companies begin to flounder."
Companies located elsewhere in the nation tend to have less trouble finding sales leadership, Richards said. "To find capital and talent, some of them will have to leave."
Their own worst enemy
As challenging as recruiting and sales may seem, the greatest obstacle college startups often face is their own inexperienced leadership, Richards said. Student entrepreneurs who may have years of school ahead of them will need to learn advanced management skills before funding runs dry.
Sometimes, even rapid growth and high demand can conspire against entrepreneurs.
"I was 27 years old when I first learned that the worst thing in business is not having any customers, and that the second-worst thing is having too many too fast," Richards said.
FiberFix is the most likely to run into insatiable demand, Richards said. Suppose a mass retailer, such as Wal-Mart, were to come to the company before it were capable of producing enough units for the proposed deal. Wal-Mart does not pay up front, which would leave the company without the funding to expand. But turning down such an offer could prove fatal.
KT Tape, a remarkably similar alumnus of BYU's entrepreneurship program, found itself in a similar situation in 2008, founder Jim Jensen said. He and his partners realized the retail potential for athletic tape while watching the Beijing Olympics, during which the tape became the second-most searched-for term on Google, after Michael Phelps.
Jensen and his partners created their retail product, launched a company and found their way into stores within four months.
KT Tape originally planned to take its product directly to mass retailers, but Wal-Mart wasn't buying. Representatives from mass-retail companies suggested they start elsewhere.
"They really loved it, but at the end of the day, those mass markets are not where you see new products," Jensen said. Instead, the company found a foothold in sports retail. "It was a little bit of a twist, but we really came to feel that they were right, that there was wisdom in going that route."
KT Tape found its way into mass retail a year or so ago. Though other companies were better positioned to take athletic tape mainstream, Jensen said the lack of competition in the retail market provided an avenue for rapid growth.
While riding out setbacks, rapid growth, high stress and all the inevitable mistakes that come with inexperience, William Lam, a founding partner in electronics startup Dark Energy, said the greatest challenge of all for startups may be sustaining their own confidence.
"Without any experience, it took a lot of faith," Lam said, "not only in ourselves and in each other, but in the process and the product itself."
Dark Energy, like Inviroment and FiberFix, is a promising start. Lam and his partner, Garret Aida, first pitched their idea for a portable USB charger on Kickstarter and reached their $18,000 goal in just two days. They have since raised more funds than any of this year's BYU startups — a total near $200,000.
"It's exciting," Aida said. "As we do things like this first product, we realize that we can do anything. We can make any positive change in the world, if we want it and are willing to work for it."
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