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Why You Shouldn’t Start a Business Right Out of College, and Why You Should

Aug. 18, 2015
Small Business
3 Reasons to Start Your Own Business Right Out of College, and 3 Reasons Not To
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When she graduated from the University of Michigan Ross School of Business in 2007, Jess Lively already had eight years of entrepreneurship under her belt, having started a small business at age 15. Rather than launch a corporate career, Lively decided to run her online jewelry company full time.

Lively is part of a growing group of college graduates who skip job applications in favor of starting a business once they earn their diplomas. From 2010 to 2013, 45% of business school graduates started their own companies — nearly double the percentage between 2000 and 2009 — according to a study by the Ewing Marion Kauffman Foundation.

Of course, the decision isn’t right for everyone. There are many details to consider including business planning, marketing and financing. (NerdWallet’s small-business loans comparison provides info for those starting out.)  

Here are three pros and three cons of starting your own business straight out of college.

CON: No guaranteed paycheck.

A paycheck certainly would have paid the bills, Lively says. But she enjoyed the flexibility of self-employment and worried a traditional job would tempt her into climbing the corporate ladder.

“I didn’t trust myself to not climb the ladder if it was there,” Lively says.

Her jewelry business wasn’t her ultimate career goal; it was a way to support herself while she pursued a passion: building a lifestyle brand. She launched a blog in 2009 and was eventually able to quit her jewelry business to run her lifestyle business full-time. She has a blog, a podcast and an online course called “Life With Intention,” and is working on a book.

PRO: If there’s any time not to have a paycheck, this is it.

Those who start a business in their 20s have a higher capacity to take risks and time to make mistakes. Even if the business fails — half do in five years, according to the U.S. Small Business Administration — the lessons learned can be applied to a next venture. Without the responsibilities of a family and a mortgage, there’s less riding on a business’s failure, says Don Lewis, assistant director of Startup Aggieland, the student accelerator at Texas A&M University in College Station.

“There’s no other time in your life when you have so little to lose,” Lewis says. “The price of failure is cheap.”

CON: It’s lonely.

Those who choose entrepreneurship post-college may feel isolated from friends who are enjoying the comforts of a 9-to-5 job with a steady paycheck. Although there’s a growing number of business school graduates starting companies, 20-something entrepreneurs are still a minority; the “peak age” for starting a company is around 40, according to the Kauffman Foundation.

Jason Dorsey, co-founder of millennial research firm the Center for Generational Kinetics, worked long hours — including Friday nights — as he was launching his entrepreneurial career. It was scary and lonely, he says.

“You’re choosing to do something that many other people only dream about or read about,” Dorsey says.

PRO: You have access to resources from college.

Recent college graduates can leverage their alumni groups and relationships with professors when they start their businesses. But don’t assume people will support your company just because they share your alma mater, Lewis says.

“People are going to buy from you because you have value,” he says. “People want to support you, but not just because you’re an Aggie or a Hoosier.”

CON: Financing can be a challenge.

Getting access to capital is a challenge many small-business owners face, but it can be particularly difficult when you’re saddled with student loans. There are fewer new small businesses in areas of the country where student loan debt is high, according to a July 2015 working paper by the Federal Reserve Bank of Philadelphia.

Dorsey was $50,000 in debt in 1997 when he dropped out of the University of Texas in Austin to write and self-publish his first book, titled — somewhat ironically — “Graduate to Your Perfect Job,” which spawned his career as a millennial researcher and speaker. He didn’t qualify for a bank loan, so he funded the publishing through credit cards, vendor financing and borrowing from family. To save money, he dined on samples at the grocery store and ramen noodles.

Entrepreneurs, even fledgling ones, may be able to find alternative loans that can help launch a business. NerdWallet compares some of the best ones at its best business loans page.

PRO: It’s a good way to learn fast.

Although Dorsey doesn’t have a college degree, he believes he’s learned everything he needs to know by wearing the many hats of an entrepreneur: financier, accountant, marketer, manager.

“Even if your business doesn’t succeed,” Dorsey says, “you have a view of how business works that is a massive asset.”

To get more information about funding options and compare them for your small business, visit NerdWallet’s best business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @teddynykiel

A version of this story originally appeared in USA Today

Image via iStock.