Entrepreneurship: The Core Of A Flourishing Economy
Given choices, most of today’s young college graduates choose careers in professional services. If we take a look at some of the topmost university graduates from elite colleges in the US, we find that they prefer to steer in the direction of law firms, banking and finance jobs and consultancies.
Smart People Should Build Things by Andrew Yang discusses the how’s and why’s of this trend, how it is detrimental to the economy, why young graduates should opt for entrepreneurship, what budding entrepreneurs can do during their first foray into business, and how anyone can succeed holding the reins of entrepreneurship.
Career Choices Today, Are Predictable
All young students, at the end of their education, ask themselves, ‘What should my first job be?’ and ‘Where should I start?’
Most students are left looking in the direction of professional services. Especially students from Ivy League universities, choices veer towards prestigious professional service companies in the legal, finance or management firms and consultancies.
The statistics paint a clear picture. On average, about 40% of graduates from Princeton opt for consulting or finance, while about 13% continue studies in law. Similarly, in 2011, 29% of graduating Harvard students chose finance or consulting, with 19% choosing law.
The reasons for these choices are simple – prospects of high remunerations and a far more challenging work environment. Additionally, the formal and extremely tough and competitive application processes at these firms are well suited for students from elite universities. Being quite similar to the application processes the students have to go through to get into the elite universities themselves, they are prepared to endure a highly selective process.
Moreover, it is common for students to influence their peers. Young students, when confused about career choices seek advice and follow friends, thus following each other, year-on-year, into the same careers.
As a student rightly put it, “When everyone around is appearing for banking interviews, it starts affective you after some time too.”
How Professional Firms Attract
The interest professional service firms have in recruiting the top of the class is an important factor that shapes students’ choices too. They invest heavily into top recruitments and compete with a fervour akin to a talent arms race. Goldman Sachs, for example, has its own room in the Columbia University careers office! They spend a whopping $50000 per recruit. Considering the number of universities recruiting with similar expenses, it amounts to billions of dollars spent per annum.
The reason for such high expenditure is that firms have to fight to sift through the limited talent available
Another attractive factor for students in the professional and personal growth that prestigious firms offer. Their marketing strategies are often more than direct – work with us for two years, and you will learn everything you need for any job!
Many firms even claim that working with them, as management consultants will help new recruits develop skills that are necessary to pursue careers as lobbyists or investment bankers later on.
Developing these ‘necessary skills’ whether it is creating sophisticated presentations or impeccable reports and models, and which can be applied to any role are attractive propositions for young students who are insecure about their career and need a starting point. Thus the claim by blue-chip companies that they train new recruits for ‘high-quality work’ appears veritable for young talent.
A Great Opportunity, Or Golden Handcuffs?
The attrition rate at the top-consulting firms can exceed 30%. This high rate of attrition can be attributed to a few reasons. Firstly, not everyone makes a good fit for the position they are chosen for. Secondly, the work pressure becomes difficult for most new entrants to cope with. Many have to work hard, work for incredulous hours, travel extensively, and work in intense corporate environments.
Watching friends, peers and colleagues come and go can take a toll on the well-being of new entrants and cause stress and burnout.
Leaving a high-flying job with a prestigious firm isn’t as easy as one may think. If an employee might manage to find a lucrative job with a smaller company, they end up encountering Golden Handcuffs.
For example, leaving their jobs usually translates into accepting a decreased salary. More often than not, this entails making lifestyle adjustments such as vacations, cars, and even relationships at times. Additionally, one faces the perceived risks of changing career paths that become tougher as one spends more time at their consultancy jobs.
Smaller and medium-sized companies tend to look for a completely different skill-set than top professional services companies. The analytical and theoretical approach that professional service companies prefer is not as valued by smaller companies as much as they value action-oriented approaches.
The other issue with smaller and medium-sized companies is that, often, they do not require consultants, until the company reaches a certain size.
Considering start-ups, they often prefer to hire from known personal networks, or from other start-ups, where the recruit has hands-on experience with a similar set-up.
Thus once a person is in, it becomes harder to shake off the golden handcuffs of a high-profile professional services company.
Start-ups And The US Economy
The discussion so far has centred on an individual perspective on professional service companies. But how do these companies and consultancies affect the economy?
Evidence has indicated that a healthy economy depends on more than just a large number of highly specialized consultancies. It is actually start-ups that are imperative to accelerating national growth. A study conducted by the Kauffman Foundation has shown that new firms have accounted for all net job growths in the US between 1997 and 2005. Additionally, firms with lesser than 500 employees have accounted for 13 times more patents per employee in the US, than larger firms have.
On the other hand, the benefits of large firms on the economy, like those in the financial sector are not as clear. For example, trading accounted for 63% of the revenue of Goldman Sachs in 2010. However, share trading doesn’t necessarily add economic value considering that one person’s win is another’s loss. It implies that the revenue earned was at the expense of other areas in the economy.
Innovations prove to be far more beneficial to the economy. In 1982, half of all US companies were made up of businesses that were around for lesser than 5 years. This number came down to just over one-third in 2011. Additionally, in 2008, a majority of the working class in the US was employed in companies with more than 500 employees.
This trend has resulted in the sidelining of the most productive areas of the economy. According to Bloomberg Businessweek, 2020 had about 176,000 underemployed or unemployed law school graduates.
This proves that the role of smaller companies and innovation is far more important than imagined.
Preparation and Perseverance
How does one, therefore, get into action and start one’s own business to drive innovation?
The first requirement to start a company is preparation. One has to be prepared for a load of frustration, ruined sleep patterns and months of thankless work. In addition, one has to follow 3 steps before one decides to quit their full-time job.
- Research – Firstly, one has to have thorough research conducted including knowing the market size, gain insights from potential customers and get information about competitors.
- Website – Build a website and create company mailing accounts.
- Recruit – At the onset, one has to recruit colleagues, friends, and family to believe in the idea. This can help secure staff, advisors, investors, and even co-founders.
After the groundwork is laid, the next big barrier that first-time entrepreneurs encounter is getting the funding to get started. It is often the case that the processes of product development take double the time and money than planned. Recruiting for partners and employees is another time consuming and unpredictable effort.
One has to be prepared to fail, time and again, until they hit jackpot. Here is where perseverance comes in. One has to persevere through disappointments and inevitable frustrations and trudge ahead.
Rovio’s Angry Birds, when released was an instant success. However, the company had to endure lay-offs and wait for about 6 years before the game skyrocketed to success.
Starting a new business is nothing less than a rollercoaster ride.
Networking and Location
Entrepreneurship isn’t a ‘lone-wolf game. Without a team, one cannot get very far. Even Apple started out with Steve Jobs and Steve Wozniak working as a team.
While starting a business, networks perhaps play the most important role. Networking is intrinsic to finding valuable employees and even raising funds for the business. The author’s non-profit organization, Venture for America, aimed at helping young talent to gain start-up experience, also started with a lot of help from friends.
The author had received a pass to an Economist conference from a friend who couldn’t attend it. At the conference, he met the CEO of LinkedIn Jeff Weiner and the CEO of Zappos, Tony Hsieh, whole in the future become integral to the success of VFA. While Weiner became a valuable advisor, Hseih spent $1 million on the venture.
In addition to finding the right supporting people, start-ups also need the right location. For example, General Nano, the Cincinnati-based manufacturer of carbon nanotube material that makes aeroplanes more resistant to lightning strikes, chose Cincinnati as their base due to its proximity to military connections in the city and find potential buyers.
Every location has its own focus and finding one that matches is essential.
Affordability is another factor that influences location. For example, office space in New York is far more expensive than a non-traditional location like New Orleans. For example, Zappos.com works out of Las Vegas, and the affordability of the company only adds to its success.
Start At A Lower Level
Consider a possibility where it is difficult to start one’s own business. Joining a young, promising start-up is then the next best option one can choose. Joining a young company can enable a person to get a good responsible position, where personal contributions are noticed. Moreover, if the young start-up takes off and succeeds, the success is attributed to all employees, and the possibility of making it rich is higher.
For example, no one might remember the sixth/seventh person who joined Google in its early days. However, it is sure that the person gained a lot of valuable experience and has made a considerable amount of money.
It is, therefore, better to be a part of a start-up that is about to be a household name, and be within the first few employees who have struggled and contributed to its success, rather than joining the bandwagon of an already successful and established start-up.
The yoghurt company Chobani has grown from purchasing a defunct yoghurt company in 2005 to a $1 billion revenue and more than 1000 employees. However, it is still the early few who get the credits for the success story.
Joining a start-up also instils the resilience one needs to bounce back from a fall. The habits of building things and creating things are more easily acquired in a start-up than in a professional services company. Moreover, it is these habits that will help a person overcome and deal with the difficulties of entrepreneurship.
During the collapse of the tech industry in 2001, one of the author’s friends had lost his company. However, rather than quit, he started another one that was acquired by Zynga later on, enabling him to recover losses.
Understanding The Value Of Entrepreneurship
It is unfortunate but true that many students with great potential and talent get trapped in careers. However, as the saying goes, it’s never too late to get them interested in the prospects of entrepreneurship.
The question is, how to get them interested in it?
It all begins with providing students with good role models. These models, or builders, need to be actively promoted by universities, public figures and media companies, where they are encouraged to share their stories of success with the younger generations.
The University of Michigan holds an “entrepreneurial hour” where experienced and established entrepreneurs come and share their stories about their careers with students.
Next, these ‘builders’ can be enlisted as mentors. Universities, law schools, and business schools can create lists of alumni entrepreneurs who can not only mentor young minds but also offer internships or paid apprentices. The Yale Entrepreneurial Institute is an example where such a program is offered by a successful university.
In addition to this, entrepreneurship education needs to be improved as well as invested in. The aim should be to make it more real-world driven and action-oriented, producing real functioning contributors, and businesses.
If the US has to maintain its position as an economic powerhouse, it has to ensure that a strong entrepreneurial spirit is fostered among students. In an environment where innovation drives the economy, entrepreneurial mentorship and education is the need of the hour.