The Babson College definition of entrepreneurship is: “A way of thinking and acting that is opportunity obsessed, holistic in approach, and leadership balanced.” In honor of the Urban Entrepreneurship Summit being held at Rutgers Business School in Newark today, I wanted to present my thoughts on what the younger generation needs to know about entrepreneurship.
The quotation above from Babson, the top entrepreneurship college in the country, gives a springboard to my essential thought: Every individual should learn how to start, finance, and manage a small business. This will give millions of people the skills necessary to make a livelihood, in case they have to leave a job or are unable to find one. It will also enable them to take advantage of a market insight and turn it into a business opportunity. Also, they will become better employees through understanding how business functions.
After 30 years of teaching entrepreneurship as a way to encourage at-risk students to learn how to be economically independent and to stay in school, I am confident that this experiential approach works will help struggling youth to stay in school and learn basic skills. One of the major causes of poverty is business failure, often due to a lack of expertise. Learning the basics of entrepreneurship and business ownership will, I believe, significantly lower the rates of global poverty.
I have met thousands of young people who have the drive to make their families proud, build good communities, go to college and exit poverty via entrepreneurship. Learning how to start a business should be part of every school’s curriculum.
Below I have listed the 24 concepts every young person should learn before graduating high school:
1. The Importance of Mental and Physical Health This means eating right, getting enough sleep, exercise, building strong ties with friends, family, and community, and, as much as possible, to minimize stress! The most important relationship you will have in your life is with yourself, so treat yourself well to make life worth living.
2. The Joy of Business Business is fun. Entrepreneurs coordinate resources — land, labor, capital, and ideas — and through the craft of entrepreneurship organize them in such a way as to provide a product or service to the public at a profit. If being in business is not enjoyable, this is the wrong profession for you.
3. Opportunity Recognition There are two ways to find opportunities: the external method, where you see opportunities where others see obstacles and problems, and the internal method. To tap into this, make a list of your hobbies, interests, and skills in one column, and business opportunities they could generate in another. Whenever you encounter a problem, think of how it could be solved.
4. The Economics of One Unit This is the cornerstone of a business plan. Many young people dream of how they will make millions. Instead, think of how you will develop and sell one product or one hour of service and make a profit; everything will build from that An economics of one unit will have three numbers: the price of one unit, the cost of goods sold (which is subtracted from the price, leaving the “contribution margin” — or gross profit). This number is key, as it will be added to the fixed costs per unit. The resulting number will be your profit (before taxes).
5. The Laws of Supply and Demand The law of supply and demand is the most important economic concept of all! Discovered by Alfred Marshall, a Cambridge University don, in 1890, the internal method: make a list of your hobbies interest and skills in one column, and in the other list all the business opportunities that come from the list. The laws of supply and demand interact to determine prices, which communicate information to entrepreneurs and consumers about the best way to allocate resources.
6. Vision, Mission, Strategy, and Tactics Find a vision of the world you want to create. Develop a clear mission for your business. Get your economics of one unit accurate and simple.Write down your strategic goals making them measurable with numbers and a timeline. Your strategy can be presenting a product at a lower cost than your competitor, having a better focus on the consumer market, or differentiating it in the marketplace. Your tactics will use your resources to achieve your strategic goals.
7. Don’t Compete, Create a Competitive Advantage How will you compete? What will be your business edge? How can you create a winning business model with an advantage? Like the Grateful Dead, the secret is to find a niche where you can be not necessarily the best but the only. Find out what everyone else is doing and then do something different. Your competitive advantage can be based on a unique skill, intellectual advantage, or by selling at an unusual time or location. The alternative to uniqueness is to be ordinary, and sell the same product at the same price as everyone else, making minimal profits if any at all.
8. Wealth Creation, Risk, and Uncertainty Most wealth is created through a business opportunity combined with ownership. In an entrepreneurial endeavor, wealth is created by building a business that has a profit and can be sold for a multiple of earnings. Both mental and monetary wealth is the end result of a successful entrepreneurial career. Being an entrepreneur without ownership can be a nightmare-other people make the profit on your insights. The sooner an individual understands the difference between salary and profit, the better. Ownership of future profits can be sold for a multiple of earnings. Salaries and wages are compensation for work in the present, and hence are worth less than profits — which are projected into the future. All investments take place in uncertain world with risk. The investment of resources to create a business needs to be wisely balanced against the risk involved.
9. Marketing. Putting Yourself in the Customer’s Shoes If you listen to your customers and ask honest questions, they will tell you they need and want. People are fascinating, and you can learn so much about their problems if you put yourself into their shoes by asking the right questions and then engage in “active listening.” Out of this will come business insights that can help you find your market niche. Be sure to name your business simply and accurately. Always be building your brand through excellent products, customer service, and good communications. Marketing is the process of creating a product or service that meets the needs of consumer profitably.
10. Time Management The most important resource of all is time. Time is precious. Once spent, you can never get it back. Do not waste it. By planning how you will spend your time for the coming day, week, month, and year, you will be much more likely to achieve your goals and live a productive and positive life.
11. Leadership and giving back Every great business leader is aware of the community around them and looks to satisfy a community need. Philanthropy is good business, and if you are known as someone who cares about your community, more people will want to do business with you. Winston Churchill said: “We make a living by what we get; we make a life by what we give.” It is likely that everyone will have some problem to solve that is not answerable from a purely financial profit point of view. Solving this kind of problem creates a great deal of pleasure, and “psychic” income helps build communities. Ethical and philanthropic behavior will always end up helping one’s career and business.
12. Financial Literacy: Financial Statements, ROI, and Breakeven Financial literacy is a subset of entrepreneurship education. It’s important to understand that giving time, energy, and money to your business is an investment that will help you to meet your goals. Utilizing the tools of compound interest and the time value of money are indispensable to create wealth. It is imperative that every young person learn basic record keeping, and how to read income statements, balance sheets, and cash flow statements. Return on investment (ROI) is calculated by dividing the profit from a venture by the amount of the investment. What the ROI will be should guide you on your investments. And “breakeven” is important because it tells you whether or not you can afford your marketing plan. Understanding how to save and invest your money is vital to create and sustain wealth.
13. Ownership From a very early age, everyone should be exposed to the idea of owning assets. The best way to teach this is to discuss the concept openly. The responsibilities of ownership as a good citizen should be discussed as well. Without understanding and appreciating the concept of ownership, you will be less likely to understand who has financial power in the community, and you will be less likely to own the output of what you produce. This is what has been missed by so many leaders who discuss the importance of math, reading, and writing skills-who owns the output from people’s skills is as important as the skills themselves. The most successful entrepreneurs, like Madonna and Russell Simmons, own their own economics of one unit.
14. Lengthening Time Preference Perhaps the most important characteristic of success for a young person is the ability to wait for gratification — to save money and plan ahead in order to control future time. Aside from goal setting, this can be taught best by a standard wholesale-to-retail lesson. Before you go to the wholesaler, draw a chart and think about how this event will take place. Much of success in life is thinking about what to do now to make your goals come true in the future. Entrepreneurship, and all of business, is about investing ideas, money, and time in the present to get benefits in the future. I would argue that working on lengthening time preference is one of the most important skills you could develop.
15. The Basic Sales Call Preparing appropriate sales material is as vital as learning to be an active listener. What problems does your product solve? Who is your audience? Answering these questions is important. View selling as both learning and teaching. By identifying the consumer need, you can educate the customer on the benefits of your product or service. A sales call a day can help develop a skill that can be used anywhere in the world at anytime. Practice your sales call, so you are communicating clearly the benefits of your product. Good sales-call procedure will give you feedback on your product and help continue to improve it.
16. Goal Setting Goal setting is something every young person should practice every week. Having long-term goals (ten years), intermediate-term (five years), and short-term (one year), and immediate (the next month) is absolutely crucial for success. Make sure to make them visual, so you see them. Always set goals that are numerical and measurable-for example: I want to have five new customers by next month or I will lose ten pounds by April.
17. Public Relations, Media, and Communications Communications strategy is a key asset for a young entrepreneur to understand. Learning to communicate to other people by being covered by the media is valuable. The key concept here is to learn the craft of story development. A story is helpful if people can understand it and it motivates them to buy your product or service. A good story would show how your product had a positive effect on someone. Remember, though, it must be 100% accurate.
18. Teamwork Ultimately, all success is based on teamwork. Learning to pick people that you can work with successfully, training them, and providing them with incentives is absolutely essential for success. Playing sports or engaging in any other activity that involves teamwork will help build these skills.
19. Think Globally The world is much smaller now, and even young entrepreneurs need to think globally, taking into account markets and suppliers worldwide. Being respectful and educated on different cultures will be critical to success. Travel for young people is also important, to develop an international perspective and knowledge of foreign markets.
20. Technology Wealth is created through the inter-connectivity of the Internet and progressive use of technology. Stay up-to-date with technology to keep your business vibrant and growing. The ultimate technology rests on the intellectual skills of entrepreneurship and ownership.
21. Study Economic Theory and History Learn basic macro-economics, particularly trade-cycle theory. Starting a business during a recession can be a huge advantage because the cost of land, materials, and labor are cheaper. Many business failures are blamed on entrepreneurs but, in reality, they are the result of companies being founded or expanded during the boom portion of the trade cycle. It is better to start a business when resources and prices are lower. Save money during a booming economy to survive and be ready to take best advantage of the opportunities available when others go out of business. There are three main theories of trade cycles: Monetarist, Austrian, and Keynesian — study them all.
22. Be Prepared for Failure and Success Many business ventures do not work out, often through no fault of the entrepreneurs. Your business success or failure will not be a reflection of your self-worth. Be prepared for setbacks in any venture you undertake. Be mentally strong and positive at all times. Plan for the possibility of closing the business and learning from the setback. Get experience in a field before starting a business in it. Uncontrolled growth can also lead to mistakes and business failure.
23. How to Write a Business Plan There is an adage that goes, “Failing to plan is planning to fail.” A lot of young people have visions and dreams. By putting your vision and goals in writing, your chances of success will improve. The format NFTE has developed is good for youth and can be found in our books, Entrepreneurship: Owning Your Future (Steve Mariotti and Tony Towle) and Entrepreneurship (Steve Mariotti and Caroline Glackin). Go to www.nfte.com for more info.
24. The Golden Rule Treating others as you would have them treat you will help you achieve success in life, both personal and financially.