Down to Business

Google's founders were just 25 when they launched the company that turned them into billionaires. That dream is alive among young adults fresh out of school, who have enthusiasm and creativity to spare. In fact, 25- to 34-year-olds start businesses more frequently than any other age group, according to the Global Entrepreneurship Monitor.

Ryan Comfort, 22, found the inspiration for his business halfway 'round the world. Comfort, who graduated in 2005 from the University of Pennsylvania's Wharton School, was touring Asia before his senior year began when an oil painting in a Thai market caught his eye. Comfort learned that the artist painted oil copies of photographs, and he was so impressed with the quality that he decided to start a business selling paintings by Asian artists to U.S. customers via the Internet.

Comfort arranged his schedule to graduate a semester early and took a part-time job while he developed his Web site and set up a distribution network and a marketing plan. He invested $15,000 of his own savings and borrowed $3,000 from his parents, which he has since repaid with interest.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

After graduation, he moved to New York City to work full-time on Comfort2020.com. At first he scraped by on $1,200 a month (including rent) by mining Craigslist.org for an apartment, furniture and odd jobs. "The business was my life," says Comfort.

He eventually restored some balance to his life -- and some income -- by taking on a regular part-time job while he continued to build his company. Business has been growing steadily, and Comfort has added a frame store in Philadelphia and a children's hair salon in New York to his distribution network. "Through the business I've developed all these skills that are practical in the real world," he says.

Reality check. Most entrepreneurs face hurdles, such as long hours and no pay. But young adults must also make up for lack of experience, limited savings and a short credit history, which can make it difficult to borrow capital. "Young people's strengths -- and weaknesses -- are their naiveteacute; and overconfidence," says Stever Robbins, a business consultant and start-up veteran.

The biggest mistake an entrepreneur can make is losing focus, says H. Irving Grousbeck, co-director of the Center for Entrepreneurial Studies at Stanford Business School. Stay on track with a business plan that, among other things, spells out your company's marketing plan, profit potential and goals.

As his inventive ad company, Aarrow Advertising, expands into new cities, Max Durovic regularly refines the plan he wrote two years ago. Durovic got the idea for Aarrow while he was in high school and working as a sign-carrying street advertiser in San Diego. To draw attention, he and his friends began spinning and flipping their signs and performing skateboard-style tricks. At age 18 he started his business with an initial investment of $500. Durovic got his big break when the Healthy Back Store, a retail chain, hired his company to advertise for a year in both San Diego and Washington, D.C., where Durovic was a college student at Georgetown University.

Aarrow now has 200 employees in five cities, all of whom are paid hourly and receive a 10-cent raise for each trick they master. Durovic says revenues are growing at an average of 10% a month, mostly from big clients such as homebuilders. Putting his business plan on paper allows his employees "to see where we're taking the company," says Durovic, 22, who hopes to turn sign-spinning into a competitive sport.

Raising cash. Launching a business while living with your parents or working a day job can reduce the financial strain. A detailed business plan can help attract outside investors, although Robbins and others discourage giving investors an equity stake unless they're contributing business expertise.

Aim to raise more than your estimated start-up capital. You'll be tempted to use credit to cover unexpected expenses, but credit-card debt is the most expensive. A bank may be willing to give you more-favorable terms, especially if you need less than $50,000 and have an excellent credit history, with a FICO score of 680 or higher, says Irwin Rudick, vice-president of the San Diego chapter of Score, a nationwide network of retired entrepreneurs. Try to avoid personally guaranteeing loans.

If banks aren't interested, borrowing from friends and family may be your best bet. But set up the loan as a business transaction that states repayment terms explicitly. That way the person who advances you money will avoid paying gift tax on an amount greater than $12,000. And you can deduct the interest as a business expense.

Good advice. Mary Beth Metrey, 24, had always dreamed of opening a fashion boutique, but her master's education in Spanish literature didn't provide the practical details for running a business. Heather White, Metrey's hometown friend from Wyckoff, N.J., had studied fashion design and merchandising. So Metrey asked White, 23, to be her partner when she opened her shop, Valise, in Washington, D.C.'s Georgetown neighborhood this spring.

Metrey's father made a six-figure investment in the store. Metrey also hired an accountant with experience in retail start-ups, who will keep her and White in the loop. Unless you understand the numbers, Grousbeck warns, "you'll miss an opportunity to take the pulse of your business."Another source of advice: Ladies Who Launch, with chapters nationwide.