A student finance revolution
In today’s volatile markets, many businesses and individuals are experiencing a cash flow problem. For a business owner, it can be difficult to accurately forecast demand and revenue and hence whether or not the business would be able to meet its obligations even if the business itself has no structural issues. In many ways, student debt can have similar problems.
Tess Michaels (MBA ’20) remembers how her entrepreneurial bug led her to try and solve this problem. But before we explore her current venture, I am keen to learn more about how she got started down this path.
Speaking about her first start-up which she launched while completing her undergraduate degree at UPenn, Michaels notes, “I had always been keen on social entrepreneurship and looked at hybrid companies that were mission-driven but still for-profit — such as Toms and Warby Parker. But I felt that, to a large extent, companies were not generating enough social and economic returns from their increasing CSR [Corporate Social Responsibility] budgets.”
So, she set about doing what any curious twenty-something entrepreneur would do: finding the market niche she could grow into. “Interviewing folks in socially driven startups and corporations with large CSR divisions and budgets showed me that there was a huge opportunity amid an increasing customer trend towards social impact and ESG compliance. This led us to launching Soceana.”
Despite the high number of first-time founder failures, Michaels continued undeterred once she had her idea and launched the company which matched employees with the best opportunities and the skill set they had to each CSR project the clients wanted to pursue.
Hiring the right people early has always been a key part of Michaels’ strategy and she brought on a CTO within a few months of launch to help her run the company. The start-up was eventually acquired by Encast for an undisclosed amount in September 2018, shortly before Michaels started at HBS.
Speaking of her decision to sell the company, Michaels stated, “I knew the product was good and we had built a great team, but the opportunity to sell felt right as Encast had the resources to grow Soceana to a higher level.”
With a successful exit under her belt, Michaels went back to her drawing board and though she had been proud of Soceana she knew that she wanted to create something that had a larger business opportunity and that was something she was really passionate about. “If I wanted to go all in, it had to be something game changing — I understand Stride [her current start-up] from the perspective of a student as well as the organization and entrepreneur, which makes it a unique problem for me to solve.”
To kick off her brainstorming, Michaels spent the summer before HBS asking everyone she knew about what the one thing they would want to change about their life or a problem they wanted to see solved. “I quickly generated a list of over 90 ideas and realized that some were good business ideas without a big enough TAM [Total Addressable Market] and some were great business models but had saturated markets. I had to figure out another way of narrowing down the list.”
Student financing stood out as a market with a large TAM. “I knew that it had to be a big enough market, which student financing was, and it was also an area of high growth and high need — student financing alternatives are always on people’s minds,” says Michaels, “Then I just needed to figure out if I was a good fit for the idea. I thought about the core competencies that I could bring. I was from the financial services industry and had built operational know-how from my previous experience, so it made sense to pursue this.”
An in-depth overview on Stride was covered in our February Start-up Corner, but for those who missed it, Stride essentially “offers a more flexible, affordable form of financing via Income Share Agreements (ISAs) for graduate students via a direct-to-consumer approach. With an ISA, students agree to pay a fixed percentage of their income for a specified number of years after graduation instead of having fixed payments and accruing interest.”
Michaels met with investors and refined the idea and, given she knew she was heading to HBS (she was a 2+2 admit), the timing was right for her to start a new venture. “It was a riskless way to test new ideas and get access to a broad range of resources,” says Michaels. “I did consider whether I wanted to focus on the start-up full time, but I didn’t want to look back and wonder whether I should have gone to HBS. Now, in hindsight, coming to HBS was the right decision.”
Being a student and an entrepreneur does come with its challenges, as I’m sure all of us who have been through the RC semesters can attest to, and Michaels is candid about the difficulties. “It has been really tough to manage everything alongside school and running the business. Being an entrepreneur is not a job — you become so immersed in the venture, that you commit all of your time, resources, and energy. Some parts, especially a few make-or-break milestones, were not easy, and you have to be so persistent and really believe in the venture’s potential to see it through.”
Michaels is also wary of those who tend to glamorize entrepreneurship. “Founders need to be passionate as well as resourceful to make things happen and ‘good enough’ is not ‘enough’ unlike some corporate jobs where passion may not necessarily be a prerequisite for career advancement.”
As we close the meeting, I ask Michaels what advice she has for student entrepreneurs or anyone else looking to pursue a business idea.
“Embrace entrepreneurship opportunities early in life — there are genuinely very few environments where you can pursue your passion, learn as many key skills, build meaningful relationships, and truly grow personally and professionally. It’s exhilarating to work alongside like-minded team members, investors, partners, and mentors and to create something meaningful from the scratch. Stay agile, as markets pivot.”
This article first appeared in the April 2020 edition of the Harbus.