Hothouse Inc.

The economy is down, people are being laid off, new jobs are scarce. A group of young Duke alumni share living space and entrepreneurial insights in order to survive—and thrive.

A few days into his new position testing a cholesterol drug for a San Francisco biotech company, Alex Andon '06 realized that the job stank. It required him to liquefy cholesterol-laced human feces and parcel out the mix from beneath a hood that never seemed to keep out the smell. One day, a pipette he was using recoiled and hurtled a brown glob onto his jacket, inches from his mouth. "Almost the entire time, I wanted to get out of there," he says. Two years later, Andon was almost grateful when he was laid off in the midst of the recession—at least until he spent a month looking for new work: "The jobs I was finding were even worse."

Andon's parents had saved enough money to put him through business school, but he pitched them a squishier plan. A double major in biology and environmental sciences, he had been enthralled by a jellyfish exhibit he'd seen at the New York Aquarium and surprised that the ethereal creatures weren't available at pet stores. "The first thing that came to my mind was that these were like living lava lamps," Andon says. Believing they could become a wildly popular decorative trend (and pet) if someone could figure out an easy way to keep them in captivity, Andon gave up his job search in May 2008 and used his grad-school funds to form Jellyfish Art, one of the world's first jellyfish aquarium companies. Making the decision "was a huge relief," he says. "This is by far the best opportunity that I had."

A typical roommate might have objected to the leaky aquariums, inflatable boat, and heaps of pipes and filters that began clogging Andon's San Francisco apartment, but to roomie Andrew Kitchell '06, they were inspiring. Kitchell had backpacked through Asia before chafing against a rote paralegal job at a San Francisco law firm; Andon inspired him to quit and use his foreign travel experience to found 30 Words, a business that produces pocket-sized language guides containing only a few carefully chosen words and laid out in a way that makes basic conversation easy. "When you see somebody starting their own company," Kitchell says, "it gives you the idea that you can do it yourself, too."

Kitchell raised the seed money for 30 Words by selling his car to his sister, Erin Kitchell '03. She'd just taken a buyout from her investment-banking job at Wachovia Securities where she'd packaged risky mortgages into collaterized debt obligations—one of the sparks that had set off the financial crisis. "I think I probably would have been fired if I hadn't said, 'Let me go,' " she observes. In August 2008, she moved to San Francisco and soon decided that her best job opportunity was helping her brother launch 30 Words.

Unable to find work, increasing numbers of the unemployed are creating it for themselves. A July report from the Small Business Administration found that the ranks of the self-employed jumped more than 8 percent last year—four times the typical growth rate. Administrators notice the same trend at Duke. "Setting up an entrepreneurial firm can be an option that a student or young alum chooses because they are very interested in becoming an entrepreneur or as a learning or survival method," says Bill Wright-Swadel, executive director of the Duke Career Center. "And we are seeing them thinking about entrepreneurship in all of those ways. Frankly, more than we have seen before."

Indeed, many seasoned entrepreneurs say that a slow economy can be a great time to start a business. It may be no accident that Google and Microsoft began in the midst of market downturns: Scarce funding means fewer firms chasing the same idea and more companies looking for products that can save them money. "Every business in the country is looking for ways to do more with less," says Reid Lewis '84, CEO of the software company Group Logic. "And usually that is what entrepreneurs do."

As the recession forges more young business entrepreneurs, Duke is launching a raft of new initiatives aimed at supporting and encouraging them. Howie Rhee, managing director of the four-year-old Center for Entrepreneurship and Innovation (CEI) at the Fuqua School of Business, hopes the efforts will seed the campus with the kind of contagious entrepreneurial spirit that Andon and his housemates have created in San Francisco. "That's what happens at MIT and Stanford that is missing at Duke," he says. "It's that ingredient that I'm trying to get to."

The entrepreneurial spirit at Andon's and Kitchell's apartment is contagious. In May, eight months after Breck Yunits '07 and his friend Ben Zulauf, a graduate of Georgetown University, moved in, Yunits quit his online advertising job, and Zulauf gave up a position with Google's DoubleClick division to cofound, a website that allows contract workers such as lawyers and Web developers to sell their services online. The pair began with $15,000 in seed money from Y-Combinator, a Silicon Valley business incubator that has introduced them to people like Twitter cofounder Jack Dorsey and executives at the leading venture-capital fund Sequoia Capital.

With four of five roommates in the apartment now self-employed (the fifth, Tom Price '06, is auctioning off his services as French tutor on Jobpic as he applies for tech jobs), friends dub the flat the "Entrepreneur House." But the catchy name belies the harsh realities of starting a business just out of college. The housemates live in cramped rooms with stained carpets and salvaged couches and subsist on burritos and bruised discount produce from the nearby corner mart. "We've had people hold down traditional jobs here," Kitchell notes, "but I don't know if a banker would want to live here."

Nor would most bankers put up with so much work under such stressful conditions. In late 2008, Andon was logging 120-hour weeks after he received his first order for a jellyfish tank, a $25,000 behemoth commissioned by a new Vietnamese restaurant being built in Seattle. Under intense pressure to finish the tank before the restaurant opened, he drove twenty-three hours through a blizzard to the construction site and spent five days installing it, sleeping only a few hours each night atop the tank's foam packing. "I've never worked that hard in my life," he says.

Like many recent Duke graduates, Andon and friends take it almost on faith that the recession will weed out poorly run businesses and ultimately reward them for their hard work. "It's Warren Buffett who says, 'When the tide goes out, you can see who's swimming naked,' " Andon observes, "and I think about that a lot. I like the extra challenge of trying to start a business in a recession."

Eat, plan, lounge: Kitchell and Andon occupy sofa space while talking with Yunits and Zulauf.
Eat, plan, lounge: Kitchell and Andon occupy sofa space while talking with Yunits and Zulauf. Peter DaSilva

Eat, plan, lounge: Kitchell and Andon occupy sofa space while talking with Yunits and Zulauf. Peter DaSilva

In 2007, Tom Perkins, cofounder of the famed Silicon Valley venture-capital firm Kleiner Perkins Caufield & Byers, spoke at Duke at the invitation of the computer-science department. Afterward, someone in the crowd asked Perkins what he saw as the main difference between Research Triangle Park and Silicon Valley. The most important difference, Perkins replied, wasn't money or resources but psychology: People in Silicon Valley were more often willing to quit well-paying jobs in the risky pursuit of a dream.

Given enough time, Rhee of Fuqua's CEI believed he could change that. Two months later, his center joined with Duke's similarly named Center for Entrepreneurship and Research Commercialization (CERC) to host Entrepreneurship Week, a series of talks by prominent alumni from the business world. In 2008, the two centers expanded on the idea to create the Entrepreneurship Education Series, a three-month-long string of lectures, competitions and how-to courses like the One Day Startup, a Saturday cram session in entrepreneurship that was attended by seventy students. "We recognize that things haven't been great" for entrepreneurship on campus, Rhee concedes. But he adds, "I think we have made a lot of progress in a short amount of time."

Much of the new entrepreneurial focus comes from students. The Duke Entrepreneur, a club created in 2006 for undergraduates interested in start-ups, included Yunits, before he moved into the San Francisco Entrepreneur House. Several club members now run their own businesses. Former member Nick Alexander '09 lived with Yuntis and Andon at the Entrepreneur House for two weeks before moving south to Silicon Valley to run, a website that allows users to upload and access their music library through the Internet. The club, and later the house, provided him with valuable support, he says. "It's positive reinforcement to see somebody actually doing really well."

Old-fashioned advertising: Zulauf, left, and Yunits post Jobpic flyers at San Francisco shops to publicize
Old-fashioned advertising: Zulauf, left, and Yunits post Jobpic flyers at San Francisco shops to publicize their online company. Peter DaSilva

Old-fashioned advertising: Zulauf, left, and Yunits post Jobpic flyers at San Francisco shops to publicize their online company. Peter DaSilva

The new campus efforts are spurring more undergraduate interest in the eleven-year-old Duke Start-Up Challenge, an annual competition among student business plans for prize money. "It's a great setting to learn more about what it takes to start a business," says Larry Boyd, managing director of CERC. Yunits entered the challenge as a senior with his, a popular campus-based home page that automatically displays a student's most-visited websites; it went online two years before Google Chrome offered a similar option.

Duke increasingly recognizes that starting a business on campus can be an intrinsically valuable educational experience. In the fall of 2008, Fuqua began offering a three-semester course that allows graduates and undergraduates to earn credit for creating and running a start-up while receiving theoretical and nuts-and-bolts advice. One business that came out of the class and later won the Start-Up Challenge, Entogenetics, uses genetically engineered silkworms to produce spider silk that it believes will be strong and light enough to replace Kevlar in bulletproof vests; as of this fall, Entogenetics had raised $300,000, mostly from private investors.

Of course, commercial success isn't always the point. "Most entrepreneurs' first ventures fail," says CERC director Barry Myers, "and so what we try to do is let that first venture happen while you are on campus. In which case, if it's in a class and you learn a lot, you may still get an A+ doing it."

You also may get free office space. Last winter, Duke converted a portion of the Teer Engineering Building into DUHatch, a "hatchery" that houses five student ventures. They currently include Cerene Biomedics, which is developing a medical implant to prevent epileptic seizures, and the Green Cooling Group, which has invented a refrigeration technology that it says is 120 times more efficient than conventional methods. Businesses in the hatchery can qualify for stipends, mentoring, and help landing venture capital.  "It finally gives us a place to pull everything together," says Boyd, who manages the facility. "You're probably seeing the same sort of vibe coming out of the group in San Francisco."

By last spring, the Entrepreneur House was improbably becoming an inspiration for a whole new generation of Dukies. In March, its companies were prominently featured in a New York Times article on how "recession has become the mother of invention." Two months later, Duke President Richard H. Brodhead made Andon the centerpiece of his 2009 baccalaureate address, "Advancing in a Recession," arguing that the economy will only recover in the long run if it's reanimated by the innovative spirit of start-ups such as Jellyfish Art. "It's not the nature of opportunities to just sit there waiting to be seized," Brodhead told the Class of 2009. "Opportunities exist only to the extent that they are created: They come into being when someone visualizes an opening in the status quo and sparks an idea of how to fill it.

On a warm Sunday afternoon in June, along one of the grungier blocks in San Francisco's gentrifying Mission District, the roommates of the Entrepreneur House sat in their living room listening to the outside sounds of Norteño music and the occasional burst of firecrackers—the familiar workings of an impromptu sidewalk fiesta. Despite the noise and the exposed stuffing in the den's couches, a young traveler was paying them $40 for the privilege of sleeping there that night. They'd found him through Air B&B, a start-up founded by friends that connects would-be couch surfers with would-be crash pads. It was a handy way to help pay the bills. "We are as close to being a hostel as you can possibly be," Zulauf says. Erin Kitchell adds: "On most weekends, every one of these couches is taken."

DUHatch: campus incubator for innovation.
DUHatch: campus incubator for innovation. Les Todd

DUHatch: campus incubator for innovation. Les Todd

Housing complete strangers isn't the only way the members of the Entrepreneur House like to gamble. Before Yunits launched Jobpic and Alexander launched Bluetunes, the pair and another Duke graduate spent three months running, a website that documented them scratching off $30,000 worth of lottery tickets. They hoped advertising on the site would more than make up for what they didn't win. "It was a really fun failed start-up," Yunits says. In another case, a classmate and friend of Yunits, Dylan Smith '08, used his dorm-room poker winnings to finance, a file-sharing website that now employs forty-seven people in Palo Alto and has raised $13 million from respected investors such as Mark Cuban and the venture-capital firm Draper Fisher Jurvetson.

On the evening a reporter visits the house, Kitchell serves a dinner of "drunken chicken" and slightly charred potatoes as the housemates, who often cook and eat together to save money, casually bat around new start-up ideas. They range from tofu smoothies ("Nice and creamy") to an airline that would allow you to sell your right to use the armrest ("If eight hours of misery can save me $400, to me that's fine"). They are only kidding—perhaps. An incoming freshman at the University of California at Berkeley named James Russell, was there to help with a similarly wacky start-up idea that Andon was actually pursuing: an algae farm atop the house's roof that would supply feed to pet stores. Before moving to Berkeley, Russell had run a similar business in Michigan, where his clients also included health-food nuts who drank the stuff. "I say, 'Not for human consumption' " on the packaging, he says. "They drink it anyway."

Endless iterations:
Endless iterations: Andrew and Erin Kitchell work on newest version of pocket guides, checking translations and tweaking layouts. Peter DaSilva

Endless iterations: Andrew and Erin Kitchell work on newest version of pocket guides, checking translations and tweaking layouts. Peter DaSilva

Of course, starting a new business is often tougher than just identifying a quirky niche. That June, jellyfish were repeatedly getting stuck in the filter of the $25,000 tank that Andon had installed in Seattle.'s latest iteration, an auction site for contract work, was failing to catch on. And 30 Words had recently printed 8,600 Spanish language guides but the Kitchells hadn't completely figured out how it would sell them; a loan from their dad would fund just one more print run.

Though many great companies will be started during the capital-scarce recession, an unusually large number will also fail, says Rhee of CEI. "If you're working on something with a couple of buddies of yours for months, but you're just scraping by, eating ramen noodles all the time," he says, "at some point you are going to run out of momentum—unless you get the capital you need to start feeling like it's paying off."

Help sustaining that momentum is a major benefit of living together, the housemates say. In addition to acting as sounding boards for each others' ideas and sharing what they've learned about boosting marketing and Web traffic, the young entrepreneurs reassure each other that they aren't crazy. "When I first started, I was the only one running a business here. And I'd be home alone, and it was horribly depressing," Andon says. "But now there's like five of us here every day. We go out to lunch together. It's a lot better."

Duke professors and alumni want to replicate some of the Entrepreneur House's synergies. In 2008, Reid of Group Logic and start-up consultant Michael Cann Jr. '95 created the Duke Global Entrepreneurship Network (DukeGEN), a networking and support group that has grown to 1,200 alumni. Last summer, the group held happy hours in eight cities. And Rhee and Larry Moneta, Duke's vice president for Student Affairs, have talked about creating a similar "Start-Up House" on the Duke campus. "In my own experience, starting a company can be very, very isolating," Rhee says. "It just makes sense to me that the Entrepreneur House would help."

By early July, the Seattle restaurant's jellyfish tank was still sucking the creatures into its filter. Andon decided to drive there. Unable to tinker with it during dining hours, he worked from 9 p.m. on a Thursday straight through to 11 a.m. Friday, and another six hours late Sunday. He finally solved the problem by installing a new mesh deflection screen. "Alex is really good at responding and making sure his product is well taken care of," says restaurant owner Tam Nguyen, who believes the tank was easily worth the price. "Kids to adults, they all love the jellyfish."

As the summer wore on, prospects for the young entrepreneurs seemed increasingly positive. Fourteen book stores and a major online retailer, Travelsmith, had begun carrying 30 Words' waterproof, tear-proof language guides. In early August, Global Citizen Year, a study abroad program, purchased guides for use in Latin America and Wolof-speaking Senegal. "While we provide intensive language training," Global Citizen consultant Deborah Agrin told me, "we see these guides as quick and accessible ways for them to cover the basics."

In September, Yunits and Zulauf got rid of Jobpic's auction function, which hadn't attracted many reasonable bids, and retooled the site. Now, contractors can post ads for their services, and buyers can hire and pay them online. Jobpic ensures that the money isn't released until the work is completed. "We want to make ordering services as simple as ordering goods on," Yunits says, adding that about ten venture capitalists and angel investors are considering funding the concept.

Late in the summer, Andon is working through a shipment of 100 live jellyfish from Japan. He opens a box and pulls out a clear bag holding three Blue Jellies, pulsing orbs of light blue and deep purple with mottled, brain-like tentacles. They are small enough to live in a popular new desktop aquarium that Andon had begun selling for $250.

His business, he says, has finally turned a profit; he's received more than a dozen orders for the tanks and jellyfish and is working long hours to keep the rest of his stock alive. "It's pretty stressful working this much," he says "but there's so much opportunity, and things are going so well that I just can't help myself."

Mother Jones

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