Healthcare is a Roadblock to Startups

Category : Entrepreneurship
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Note: This is the first in a series of posts about policy changes that make starting a business easier

It was the winter of 2005, and I was sophomore at the University of Wisconsin.  My business, ExchangeHut, was humming along smoothly and I decided that I wanted to focus on building ExchangeHut sites at additional college  campuses.  I figured the best way to do it was to drop some of my classes and become a part time student.  I had it all worked out, until it was time to tell my parents.  Since ExchangeHut was going well, they did not have a problem with me taking fewer classes, but they were very worried about my health insurance.

Most students are covered under their parents’ health plans, as long as they are classified as full time students.  Since I was going to take fewer than the magic 12 credits that spring semester, I was going to be dropped from coverage.  My parents’ biggest objection to me taking fewer classes to work on the business was that I would not have health insurance.  They were worried that something might happen to me and I would be saddled with a huge debt from having to pay medical bills.

I did some research and found out that I since I was a student, I could use University Health services for most of my routine care.  I still needed some form of insurance to protect me in case I got hit by a car, got cancer or fell of my bike.  After a few weeks, I settled on a plan with a $5,000 deductible from WPS.  Since I am young, healthy and willing to have a high deductible, my plan only cost about $40 per month.  Most other student founders of startups that I talked to either went without insurance or paid much higher rates for more comprehensive plans.  Luckily, I did not get sick and have never had to file a claim, but if something were to have happened, it may have crippled my ability to continue to run ExchangeHut effectively.

Health insurance is always a high priority when I talk with other young founders of startups.  Many students that I talked to were reluctant to go below 12 credits because they would lose their health insurance.  Some were not willing to try to start a company because they knew that they needed to maintain full course loads and that they would not have time to be both a student and a business owner.   Other recent grads took jobs rather than start a business partly because of health care worries. Easier, more affordable access to decent health care would make it easier for people (not just students) to make the jump to starting their own companies.  More startups lead to more successful companies, more jobs and more tax revenue.

So, how do we fix this problem?  There are many solutions, ranging from lifting the full time student requirement to national health care.

  1. National Health care – If we had national health care, we would not have to worry about health insurance, but might have to worry about quality of care and other issues.
  2. “Small Business” or “Entrepreneur” Insurance Pools – Allow entrepreneurs to buy into pools that act as buyers, similar to large corporations.
  3. State government funded “Entrepreneur” policies – State governments could allow entrepreneurs to buy state health care policies.
  4. Allow young entrepreneurs to stay on parents health care longer – Allow insurance companies to either allow young people to stay on longer for free, or give young people (and their parents) to charge more.

I personally think that options 2 and 3 are the most promising.  I would think that insurance companies would want young startup owners as customers, as they are less likely to get sick than older people.  I think that insurance companies that offered an “Entrepreneur Plan” would not only make money, but they would also be able to tout their support of business and entrepreneurship.  I think it would be a good way to get customers, too.  They could even sell the introductory policy as a loss leader to get potentially successful people into the company early.  Then, when businesses succeed, entrepreneurs might continue to use the insurance company for their growing insurance needs.  I am working with a few business owners in Madison to try to organize a form of this, but it has been harder than I expected.

I think states would also be wise to create entrepreneur policies as incentives for startups to move to or stay in states.  Wisconsin, along with many other states, have already created incentives for startups and investing, but as far as I know, no state has done anything like this with health care.  Since many startups, especially tech startups, are mobile and can be run from anywhere, incentives like affordable health care would be effective ways to attract and keep startups.  I would also like to see policies like these opened up to young people who are working in non-profits.

These changes would help people who are thinking of starting businesses, but are scared off by health care expenses.  They would also help entrepreneurs who do not have health insurance, are paying for inadequate coverage or paying too much for good coverage.  Health care is only a small part of the solution, but it is an important one.  Do you agree that health care is a problem?  What solutions would you propose?

College is the Best Time to Start a Business

Category : Entrepreneurship
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I was talking with a friend who is in the UW Business School about a discussion in one of his classes about the best time to start a business.  Most of the class believed that the best time to start a business was 5-10 years after college.  They argued that it would be best to start a company after working a job for a few years, building up savings and learning about how the business world works.  Its my feeling that this is the conventional wisdom.  I think both the students and conventional wisdom are dead wrong. 

College is the best time start a company.  In college, you have very few, or no, responsibilities.  You most likely are not married and do not have kids.  You probably do not have a mortgage or a car payment each month.  You are not tied down in a job or a specific city and can live on comparatively small amounts of money.  You have freedom and lots of free time and are surrounded by other smart, like minded students.  These smart students are the perfect place to find partners.  Your only responsibilities are to pay your tuition (which can be tough), go to a few classes and get passing grades (and have fun).  If your company fails, you have plenty of time to either start another or get a job.

Universities also provide many resources to student business owners that graduates would have a much harder time accessing.  For example, I entered ExchangeHut into the Burrill Business Plan Competition during my sophomore year.  This competition was a free way to learn how to write a business plan, present to a panel of judges and make connections in the local startup community.  I also met my lawyer during the competition and made connections in the press that I would not other wise have been able to make if I was not a student.  Not only are there student papers that love to write about student startups, but traditional media love a story about student entrepreneurs, whereas it can be much harder to get press if you are older.  Students also are able to use University Health to cut down the costs of health care and have access to library research materials, free wireless internet and much more.

Additonally, lack of market knowledge can actually help startups.  College students may be more likely to try new, innovative ideas that others would dismiss out of hand.  They have no history to protect and may be more willing to take risks that others might not.

After graduation, most grads look for a job and start to earn a salary.  After a few years of making decent money at a job, they have probably upgraded their lifestyle, making it harder to live on a smaller salary.  Many college grads are married or are in serious relationships 5-10 years after graduation.  Some have kids and many own houses.  It is much harder to quit a decent job and take the big risk of starting your own company when you are used to a paycheck every two weeks.  Its even harder if you have a spouse or kids.  The time commitment required to be run a successful startup can take a toll on family life.  Its also harder to find potential partners, as many people in your network will also be settled in their jobs.  You might dismiss ideas because “in your experience, you know companies don’t work like that.”

Some may say that students cannot start companies while they are in college because they have to pay their way thought school.  I would argue that many students can do better starting a company than working 15 hours a week as a bartender.  Even if they fail, they will have something interesting to talk about during job interviews.  Companies are looking for smart people who have skills and starting a businesses teaches you these very skills.

While it may be more comfortable to start a company with a financial cushion under you, I believe that the benefits of starting early outweigh the benefits of waiting.  College is the best time to start a company: it provides you with access to smart people, university resources, discounted health care and easier press coverage, all during a period when you have limited responsibility and hours of free time.  If you are in college and thinking of starting a business, go for it!  What’s the worst that could happen?  At least you’ll be avoiding the Business School Way of Life!

Innovative Marketing in Baseball

Category : Sports
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During football season I wrote about innovation in the NFL and why the NFL is slow to adopt new in game tactics. Today,  I was reading Al’s Ramblings, my favorite Brewers blog, and found his post on the Cincinnati Reds attempt at making more money and generating more interest for the franchise: a futures game.  Instead of normal futures games like the one during the all star break, where the two teams are made up of minor league prospects, this futures game is the best players from the Reds minor league system against the full major league club.

This is a unique event that will not only generate money for the Reds, but will offer a value add for Reds fans.  Imagine if one of their top prospects hits a home run off of a current major league pitcher.  The fans will have something to look forward to and could have the beginnings of a legend, especially if that player comes up the the majors and stars later in life.

Al argues that the Brewers should implement a game like this before the regular season.  I agree completely, especially if the Brewers sold tickets for $10-20.  They could market it as not only a futures game, but an opening day for true baseball fans, rather than the alcohol soaked event that is the current opening day.  I’d like to see the Brewers and other team continue to innovate on and off the field, as adds to fan interest and team income.

Crowdspring is Fantastic

Category : Entrepreneurship
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I had read about the power of crowd surfing over the last few years, but had never gotten a chance to actually try it out.  My partner from ExchangeHut, Corey Capasso, introduced me to CrowdSpring, a cool new startup that is crowd surfing for graphic design.  Its a simple idea, but it works amazingly well.  Here’s how it works:

You go to crowdspring and fill out a form with what your project’s needs.  Then, you post how much you are willing to pay for the winning design.  After you submit your project, the entire CrowdSpring community is able to work on your project.  You are guaranteed at least 25 entries, or your money back.  The project lasts for a week and you can watch the designs roll in, comment on them and ask for revisions.  After a week, you choose the winning design and get the files from the designer.  Crowdspring takes care of the legal documents to make sure that you own the design that was created for you.

I recently used it for a project of mine and it worked perfectly.  Here is an example of an entry on crowdspring.  I would suggest checking crowdspring out for any of your graphic design needs in the future.  Crowdspring is cheap, easy and provides quality work.