Young entrepreneurs create their own jobs, to mixed results

Jeremy Smith's first vision - a gourmet crabcake sauce - didn't pan out, so as a more seasoned entrepreneur he's now pinning his hopes on Hunter's Recipe, which is specifically concocted to enhance wild game.

"I love business and entrepreneurship and I love food," said Smith, 30, of West Chester. "My goal basically is to combine those and create a product that will serve the market well."

Smith, who had been a casino chef and a restaurant manager, is among the legions of young people inspired to start businesses but struggling to succeed.

Millennials - those between the ages of 18 and 34 - bear the brunt of America's changed economy. Their path to prosperity has been imperiled, making them the first generation that experts say is facing the prospect of not doing better financially than its parents.

In the last year, two top research groups have noted an uptick in entrepreneurial activity among the young - up to age 34. Some are inspired to build something new, while others see self-employment as a practical way out of joblessness.

But as many young people are finding out, entrepreneurship is risky business.

About 16 percent of all young people ages 18 to 24 intend to start a business. But only 2.4 percent of the people in that age group actually succeed in carrying it out, according to a report from Babson College in Wellesley, Mass.

Once begun, half of all new businesses fail within five years and businesses started by the young are not immune.

The self-employed are more likely to be people in their 40s, 50s, and 60s, the U.S. Labor Department says.

The Babson report explains why: "Older individuals have experience, access to resources, and networks they can leverage."

Indeed, despite the 2011 uptick in entrepreneurial activity among the young, their share of the new business pie has eroded since 1996, according to a study by University of California economist Robert Fairlie for the Ewing Marion Kauffman Foundation in California.

His statistics are buttressed by similar ones from the U.S. Small Business Administration.

Ask Jeremy Smith about the pitfalls of stepping off the well-worn path and following the road less taken.

Smith's passion for cooking led him to a culinary-arts degree in 2003 and experimenting with seasonings. After working as a chef for several years, he opted for a business degree from Rowan University in 2008. He was balancing work at Wawa with his studies when he won the business-plan competition and $5,000 - enough so he could quit his job to work on the crabcake sauce. In the end, a potential financing deal failed and Smith was exactly nowhere.

Looking for a new idea, a mentor urged him to market the rubs and seasonings he had created for his own game. He called it Hunter's Recipe and in 2010 launched a website, www.huntersrecipe.com, from which he sells up to 20 orders a week. He also works at Trader Joe's and struggles to balance having the time to build up the business with having enough money to make ends meet.

To get Hunter's Recipe started, he sold his bicycle and other possessions. To keep it going, "I just self-finance," he said.

"I think the hardest thing has been being a one-man show," said Smith who markets to trade shows and stars in his site's how-to videos. He hopes to sell his products in area small stores.

He has faith that his business will take off. "It's something I've always wanted to do, to own my own business."

Despite the odds, the allure of entrepreneurism is unmistakable, driven by hope and inspiration on one hand and necessity and joblessness on the other.

Anxious elders, worried about the economy, yearn for some solution that will brighten the future for the young. The best and brightest, they hope, can start companies that will create jobs for the rest.

While the national unemployment rate is 7.7 percent, young people are doing worse, with 20.3 percent unemployed among those 18 and 19 and 12.7 percent among those 20 to 24. That's double the rate of their parents, 45 and older.

And, even if they have a job, half of all young college graduates are employed below their educational level, according to analysis by Drexel University labor economist Paul Harrington.

"If they can't get a job," said Jaine Lucas, executive director of Temple University's Innovation and Enterprise Institute, "they don't have a choice. They have to start their own businesses or they are going to have to work at one of those dead-end jobs."

The notion of becoming an entrepreneur has been getting a rich ride in the mass media, from Shark Tank on television to The Social Network Facebook movie.

Success stories like the one of Yasmine Mustafa, of Philadelphia, are being told on campuses and even high schools across the country.

These days, Mustafa has enough money to go to restaurants. Sushi, it turns out, is fabulous. Much better than her previous ramen noodle diet.

She owns more sweaters, T-shirts, and slacks. Used to be that she could wash all her clothes in one load.

She lives in her own place in Center City - no more bunking with her mother in Royersford, Montgomery County. "I was the standing joke of my friends, that I lived at home," she said. "I think I have the final laugh."

That's because this year, Mustafa, 30, is earning a six-figure salary as an employee of her own company, 123LinkIt, the online advertising business she scraped every penny to start and nurture before selling it last year. Part of the condition of the sale was that she stay on.

Mustafa's journey has been a quest for the American Dream.

Her business idea came when, as an intern, she was writing a blog for a nonprofit and found linking the blog with potential advertisers cumbersome.

Her business, 123LinkIt, funded with student loans, a loan from her mother and a family friend, and by maxing out her credit cards, aimed to streamline the process.

"I worked hard, scratch that, EXTREMELY hard, to get to where I've ended up," Mustafa wrote in her blog, describing her path to citizenship in April.

"I've hustled relentlessly for years . . . and even that is an understatement. I know what it's like to be treated like a lower-class citizen, to be told I'll 'never amount to anything,' to have to swallow my pride, to stretch every dollar . . . to go out with friends and order a glass of water instead of a drink," she wrote.

Mustafa was only a child when her middle-class family fled Kuwait during the Desert Storm war. The family first opened a 7-Eleven but was left struggling and with shaky immigration status when the father moved to Jordan.

Over time, Mustafa applied for permanent residence status, but the college scholarships that might have come to a citizen weren't available to her. Working many jobs, saving nearly every cent, she landed at Temple University, where she became enamored of entrepreneurism.

"It's all about 'This is America and the roads are paved with gold' and people love the story of wealth creation," said Michael Krupit, 49, an entrepreneur who has shepherded companies in regional incubators.

"I think the sexy part is it can be attainable . . . if you become an entrepreneur, and if you work hard."

What worries Krupit about all the entrepreneurism hype is what happens when a young person's business fails.

"Whether it's the media, whether it's the economy, maybe it's the schools," he said, "but more and more [young] people are trying entrepreneurship. But, unfortunately, more and more aren't succeeding."

When that occurs, it can leave the young entrepreneur in an even tougher spot - looking for a first job at 30, he said.

Luckily, maybe, many young people don't realize the odds against them. Young people, particularly young men, have ideas and confidence, and aren't battle-scarred enough to fear a new enterprise.

"Younger people . . . are less weighed down by such obligations as mortgages and kids in colleges," according to the Babson College report.

On campus, educators are responding with increased attention to entrepreneurial training.

And, some big money is supporting it.

Stephen A. Schwarzman, the cofounder of the Blackstone Group, a publicly traded investment firm that manages $205 billion in assets, recently announced that the Blackstone Charitable Foundation would spend $50 million to foster entrepreneurship, $3 million of it at Temple and Philadelphia University.

"We decided the best contribution we could make would be to help people create jobs by creating businesses," Schwarzman said. "That way, they can take care of themselves."

While their elders may see it that way, the 16 young entrepreneurs interviewed for this story say they are inspired to create something new.

"We're driven by doing what we love," said Patrick Leahy, 21, one of three University of Pennsylvania students who are partners in several tech companies.

All struggled with financing - most relied on their families for help, either for loans or for free rent. Some tapped student loans. Most ran up their credit cards. A couple won grants from college start-up competitions.

All learned bitter lessons, especially hard breakups with partners. While many put every cent into their businesses, some made the classic mistake of drawing out too much money too soon.

Shawn Bullard, 31, a North Philadelphia real estate developer hit that point on New Year's Eve 2007. When the rental properties he owned around Temple started to generate money, he splurged on a sports car and moved into a loft apartment.

Expenses exceeded his income. He owed his mother, his credit cards, even some guys from the street.

"I had to evict myself from my apartment," he said. He and his girlfriend had a fight. His car had broken down, and he was living in a semifinished apartment in one of his North Philadelphia homes.

"I remember I was so cold. I had a sweat suit, a robe, and my blanket, and I had no money. I couldn't go out. No money to fix up my car. No girlfriend. I remember the ball was dropping and everyone was having fun but me."

He stuck with it and found some partners who helped him get new financing.

"I looked at it as a learning lesson," he said. "This is where resiliency comes in - not backing down from a fight."

Bullard, who operates as Watchmen Property Management and Konkrete Investments, imagines a growing portfolio of rental properties in North Philadelphia.

He buys and renovates houses, converting them to apartments to rent to Temple students. He owns about a dozen buildings and is seeking financing to build an apartment building on Broad Street, north of Temple. And, he's now living in a Northern Liberties loft.

It's a path that he designed for himself while a football player at Temple. "Even though I was in college, I knew I couldn't work for anybody else," Bullard said. "I said, 'I'm either going to make the NFL, or I'm going to be an entrepreneur.' I didn't even know what the word meant."

He got a boost in 2009 when he won $50,000 in cash and prizes (like software and legal help) from Temple's Be Your Own Boss business bowl, available to alumni.

The win gave him the attention and credibility that he needed to be taken seriously by bankers and others.

While Bullard is motivated by vision, others among the self-employed are just trying to pay the bills.

Those not building "high-growth businesses are just doing what they need to bring in some cash," said labor economist Lonnie Golden at Penn State Abington. "They are doing home repairs, odd jobs here and there, some lawn work."

Others "are kids who are going to try to mix full-time work with self-employment," said Drexel's Harrington.

Because young people move easily between earning cash and launching a business, training in becoming an entrepreneur is crucial, said Temple's Lucas, who will manage Temple's $1 million share of the Blackstone LaunchPad grant.

One of her goals, she said, is to move that training, now focused in the business school, to all parts of the university, so that engineers, artists, liberal arts majors, and educators can learn to see an opportunity and pursue it.

"Great ideas will come from everywhere," Lucas said.

Even if the vast majority of students never start their own businesses, entrepreneurship skills will make them more valuable to employers, she said.

"They have leadership skills, the ability to team-build, the ability to incent people to be their best, the ability to survive at all costs," she said.

Millennials consultant Daniel Schawbel of Boston agreed. "Almost a third of employers are looking for entrepreneurship experience when hiring millennials," he said.

Another motivator for young entrepreneurs?

Their unhappy parents.

"They have seen their parents not be happy with their careers. They have seen their parents' companies not taking care of the older workers," said Krupit, who is nurturing his latest business, Real Food Works, a healthy-meal delivery system in Conshohocken.

"There is a lot of disenchantment out there," he said. "Why would [they] want to join the troops of the disenchanted?"

While it takes money to expand a business in the burgeoning high-tech sector, "one of the major trends is that you don't need a lot of money to start software companies," Schwarzman said. "Consumers are growing in that area. Huge upsides when you win. That's a very enticing model."

Daniel Shipper, a junior at the University of Pennsylvania, and already a serial entrepreneur at the age of 21, agrees.

"Programming is the only way you can build a scalable business at the age of 10," Shipper said.

His father bought him a computer and a programming book when he was in fifth grade. Shipper told his parents he was trying to build a product to compete with Microsoft. He named it Megasoft.

During high school, he designed enough BlackBerry and iPhone applications to earn him $10,000. "That's how I paid for gas and food in high school.

"All my businesses have been free to start," he said. "You just have to have a laptop and an Internet connection."

Shipper's latest ventures, with fellow Penn partners Leahy, who also started programming in fifth grade, and Justin Meltzer, 21, who was writing in Java by ninth grade, have attracted the attention of well-known venture capitalist Josh Kopelman.

Kopelman allows the team to meet at the hip West Philadelphia quarters of his First Round Capital fund, which also houses offices and hangout space for tech companies and start-ups.

The Penn partners have two tech businesses - Firefly and Airtime for Email, both in the development phase.

Firefly, which just won a $20,000 grant from the new Dorm Room Fund, a venture capital fund backed by First Round, helps companies improve customer service.

When a customer calls for help in navigating a website, the Firefly software allows the service representative, with the customer's permission, to see what is on the caller's screen.

Airtime for Email is a program that lets companies attach marketing messages to their employees' outgoing e-mail.

To develop these products, they chipped in $1,000 each, holed themselves up in an apartment in West Philadelphia last summer, and coded nearly nonstop.

While tech businesses capture headlines, the largest number of start-ups are in construction, according to U.S. Department of Labor statistics.

Ed Smith's story is typical. He studied masonry at North Montgomery County Technical Career Center near Lansdale. After he graduated, he worked where he interned.

"I worked for them a couple of years and then I started my own business," said Smith, 32, of Collegeville. "I just wanted more. More money, and I didn't want to be held back by a 9-to-5 job."

He had taken on side jobs, working nights and weekends for private clients. When the number of personal clients hit a critical mass in 2002, "I knew I could turn it into something else," he said.

Before he quit, he bought a truck, opened supplier accounts, and got a bank loan for tools. "The hardest thing is getting paid. You are always chasing money around. Other than that, I enjoy it."

Some entrepreneurs are motivated by something other than making money.

Brian Linton, founder of United by Blue, an apparel company based in an old factory on Callowhill Street, probably earns less than the eight people who work for him.

For every T-shirt, bag, or hoodie customers purchase, Linton vows to remove one pound of trash from a beach or waterway.

Making a donation wasn't good enough, Linton said.

"The brand I created was based on ocean conservation," he said. "It had to have a tangible impact."

In November, 150 United by Blue volunteers worked to clean up Ocean City beaches after Hurricane Sandy. In October, volunteers picked up 230 pounds of trash from the banks of the Schuylkill at Bartram's Garden.

"Our cleanups drive the marketing side of our company," said Linton, 26. "We don't do much external marketing beyond our cleanups, but the by-product is that we have increased exposure for our brand and increased sales as a result."

Not every business, however interesting or delightful, succeeds.

In September, Kyle Pauly was writing optimistic e-mails from Miami. He had competed in Temple's Be Your Own Boss bowl in 2010 with the idea of starting a craft brewery.

"Since graduation, I have in fact raised the funds and launched a beer company in Miami," he wrote, identifying himself as the founder and brewer of the Magic City Beer Co.

By late October, the business had crashed and Pauly was hauling north on I-95 in the middle of Hurricane Sandy, en route to a job in a Rhode Island brewery.

"I think my story has a lot to say about the Dickensian aspect of a young entrepreneur trying to make it in this economy, meanwhile being hampered by student loan debt and no personal savings," he wrote in a recent e-mail.

"Indeed, my entrepreneurial story has ended prematurely," he wrote.

"I'm now going to reenter the craft beer industry as an employee, build my savings, and attempt this business later with a bank loan and no partners."

Despite the excitement over entrepreneurism, these fledgling businesses don't generate enough jobs for the 4.6 million people between the ages of 20 and 34 who are unemployed.

And less than 14 percent of new ventures started by one person hire anyone, according to Labor Department data.

"Entrepreneurship is not for everybody," said Bullard, the real estate developer. "It's not about making money. It's about building better products to create more money to make better products and then maybe you can live generously."

Shipper, the entrepreneur at Penn, expressed it another way:

"The goal is to build something that sustains us and that our customers love," he said.

"If we have 500 employees, that would be great. We want to build up something that is sustainable, that has a product that really helps people and that employs people," he said.

"Building that from zero is what we are after."