The Story of Umar: Changing the Math of Entrepreneurial Risk
This article is a part of the book “Information Architecture and Entrepreneurship: Building Patterns for Successful Startup Ecosystems.”
While most of the formal interviews I conducted were from student entrepreneurs at the University of Michigan, I also had the opportunity to speak with a dozen students at two other universities. The first university was Wayne State University, the second Stony Brook University. Both universities have entrepreneurship ecosystems but struggle to help students to start the kinds of companies that generate global press and in turn, generate large alumni donations. The students I spoke with at all three universities were bright and determined. But in comparison with the student founders at the University of Michigan, there was a clear difference in the scales of entrepreneurship that the students at Wayne State and Stony Brook believed they could achieve.
At Wayne State University I spoke with students who wanted to start entrepreneurial ventures that included: becoming a DJ, opening a bakery, and expanding a family member’s landscaping business. At Stony Brook University some of the businesses encountered were for reselling sneakers, opening a hair salon, and creating healthier chocolate bars to sell online. Almost all of these students saw little distinction between individual entrepreneurial endeavors (becoming a DJ), with small business ownership (expanding a family member’s lawn care business), or scalable start-ups (bringing a new kind of chocolate to market).
Meanwhile, at the University of Michigan there were students who wanted to deliver better emergency room diagnostics across the country, and who wanted to bring big data analysis to create more resilient farms in developing countries. Almost every founder I spoke with at Michigan believed there would be a highly technical component to their company and that their reach could be national or international.
I do not mean to disparage the students at either Stony Brook or Wayne State. I went to Stony Brook for my undergraduate degree and there I created deep friendships, and experienced true academic freedom to develop my passions. However, when I wanted to start a company, there was no support system. Coming back to talk with students five years later, it was clear there was still little infrastructure to help potential founders start and scale their ideas.
The most notable difference between the students was the size of their mental maps in terms of potential achievable action was much smaller for students at Wayne State and Stony Brook than for students at the University of Michigan. By potential achievable action I mean the understanding of what scale an individual believes they can make change with their specific combination of time, expertise, networks, and money. This level of belief impacts whether founders will try to start a neighborhood cafe or a global retail chain. If universities want to promote specifically scalable start-ups on their campus, the first thing they need to do is help students widen their mental maps of potential achievable action.
Umar’s Economic Calculus
At Stony Brook I had the chance to talk with a man named Umar (name changed for privacy). His entrepreneurial journey played out very differently than many at the University of Michigan.
Umar did not have a car, so he was limited to jobs either on campus or accessible by bus. On Wednesday nights he often would crash at a friend’s place on campus because he had early classes Thursday morning and he could not afford to live anywhere but his parents’ apartment, an almost two hour train ride away. While financial aid covered his tuition, he needed to pay for food and any other supplies necessary for school. In the absence of nearby traditional employment opportunities, he needed to create his own. Entrepreneurship for him was not a resume opportunity but a necessity.
Umar noticed his friends had a hard time getting vape supplies. The closest store that sold vapes and cartridges was over a mile walk, and had a small selection with large mark-ups. Umar began casually by helping a friend get access to better vape supplies. He would purchase vape cartridges in bulk, pick them up at his parent’s apartment, and resell them on campus.
His business grew as he started to help an ever wider circle of friends. He became the person for fast access to vape supplies. Umar was now thinking of printing his own labels for the vape cartridges he bought, and mixing his own vape juice to increase his profits.
Umar’s business growth was some of the purest entrepreneurship I had ever seen. No pitch decks, no investors, no five-year business plans. Umar understood his community and their needs, and offered a solution to their problem they would immediately pay for. Yet, the scope of his endeavors never reached outside of the university. He never tried to tackle larger markets, such as student access to off-campus goods more generally. He did not probe at the larger system that created many students who had some financial aid but still struggled to support themselves while in college. His experimentation had a clear limit: he needed to see the returns of his entrepreneurial efforts by the first of every month when his parents’ rent was due.
Entrepreneurship As An Economic Risk Calculation
Every day all of us do innumerable economic calculations in our head across various different scales. Is that vacation worth the cost? Can I afford my rent and my phone bill? Can I add an avocado in with my groceries? When people become entrepreneurs, they are doing this same mental calculus but with more factors and several unknown variables.
One of these factors is simple. It is the number in one’s bank account. The probability of self-employment, specifically as the founder of a company “depends markedly upon whether the individual ever received an inheritance or gift ” (pg. 2, Blanchflower). When you can pay for help in designing, developing, or marketing your product or service, many of the obstacles that come with creating a start-up are easier to achieve. Still certainly not easy, but easier. And those with a larger initial stack have more time to test out their product, learn, and test again until they get product market fit right.
On the other hand of the equation, money also provides a parachute should one’s company be unsuccessful. Brockhaus (pg. I, Brockhaus) and Macko (pg. I, Macko) both found in their research that entrepreneurs actually do not have a higher tolerance for risk. They simply have more familial capital that have created “adjustments in risk perception” (49, Kerr). The cost to develop a Minimum Viable Product (MVP) to test one’s hypothesis of product-market fit ranges from $4,000 to $80,000 (Ashwini), whereas the cost of starting and running a business in its first year averages $40,000 in 2022 (Voidonicolas). To a rich person, forty thousand spent on creating a startup is a missed vacation around Europe. In the middle class, it means having less money in one’s retirement account or losing out on a house downpayment. To someone who is poor it means not having food, shelter, or health insurance that year.
Changing the Equation
While universities should absolutely invest money in their strongest student entrepreneurs, many do not have large endowments or investment teams, making these kinds of trajectory-changing investments infeasible. In the absence of money that allows students to have more time to prototype, test, and learn universities can help their students develop larger maps of potential achieveable action in two pivotal ways.
One is to stretch the potential work students can accomplish with the same amount of effort and time through providing them tools to increase the efficiency of their actions. This idea that there is a direct connection between the tools a founder can access impacts mental energy expenditure and in turn the scale of problems they can tackle will be developed in the chapter “Building a Collaborative Toolbox.”
The second section is focused on how Community Managers can widen the scope of what problems founders feel they can tackle through programming in the section “The Work & Start Model.” The goal of “The Work & Start Model” is to provide an opportunity for students to gain a deeper understanding of how systems work around them by creating alternatives to work study programs that enable students to work and build their start-ups at the same time. To achieve greater equity for student founders, it is essential for students to be paid for this work.