One of the classes I teach in the engineering school at Stanford is E145: the Fundamentals of Technology Entrepreneurship, an introduction to building a scalable startup. While the class is open to everyone at the University, we want to teach science and engineering undergraduates how they can take a technical idea and turn it into a profitable and scalable company.
The class which was authored by Tom Byers, is offered every quarter and taught by four different professors. But thanks to Tom, we all get to teach it with a slightly emphasis.
I taught the class this semester with Ann Miura-Ko a partner at Maples Investments.
Our goal is to teach students the key concepts of the startup process and help them understand that a startup is a search for a profitable business model. We did this with twice weekly lectures and seven case studies. Most importantly we tied the lectures to a hands-on team project. Students formed 5-person teams, came up with a business idea then got out of the building to validate their business model. (And learn how to pivot their model as reality intrudes.)
Our goal was not to teach the students to write a business plan nor were we trying to teach them how to give a pitch to VC’s.
A Startup is a Search For A Business Model
As I’ve described in previous posts; a startup is an organization formed to search for a repeatable and scalable business model.
A business model describes how your company creates, delivers and captures value. It’s best understood as a diagram that shows all the flows between the different parts of your company. This includes how the product gets distributed to your customers and how money flows back into your company. And it shows your company’s cost structures, how each department interacts with the others and where your company can work with other companies or partners to implement your business.
We want to teach our students to think about how their “idea” for a business translated into a business model and then to see if that business model will survive first contact with customers.
In our class Ann and I offered the students a template of a business model diagram. Their job was to get out of the building and transform the boxes into real data. (I’ll show you some of their examples at the end of this post.)
Our lectures were organized as:
- Where do ideas come from?
- How to decide whether an idea is a scalable business opportunity.
- What is a business model?
- Distribution, Demand Creation and Partnerships
- Customer Discovery
- First Team Presentation – What’s the Idea and How Large is the Opportunity
- Regulation and Intellectual Property
- Building Startup Teams
- Metrics That Matter (Business Model Metrics)
- Accounting Basics and Multi-stage Finance
- Liquidity – the End Game
- Final Team Presentation – What’s the Business Model?
Interspersed among the lectures were seven “case studies”: Chegg, IMVU, WebTV. Nanogene, Wily, Solidworks and Barbara Arenson. Each case study was a real world example of an issue an entrepreneur might encounter as they were building a company.
Final Team Project – What’s the Business Model?
11 student teams of 5 were working outside of class on the Opportunity Assessment Project. Each team had to take an original idea, come up with the positioning and analyze the potential size of the opportunity, propose a Business Model, and analyze and explain each of the parts of their model.
Only 5 out of the 55 students had taken an entrepreneurial class before. None of the students were domain experts in their areas, and each team had to figure out how to contact potential customers and channel partners. Yet every team did figure out how to conduct extensive out of building Customer Discovery. (By design we didn’t give them too much Customer Development theory. The emphasis was on getting out of the building and testing their hypothesis.)
Here are some examples the “out of the building” work the students did.
Presenting the Project
As their final project, each of the 11 teams had 15 minutes to present their conclusions and then later submit a written summary. (We were equally happy if the students discovered this would not be a profitable business as we were if they found a killer idea.) The presentations were graded on:
- Did they quickly summarize their idea?
- Did they articulate the problem?
- Did they size the opportunity of solving the problem?
- Was their solution clear? (for product companies, this should include manufacturing and cost of goods)
- Did they describe demand creation and assign acquisition costs?
- Did they describe lifetime value of a customer?
- Did they describe distribution channel and assign channel costs?
- Did they get out of the building?
- Did they tell us what they learned from going out of the building?
- Did they adequately diagram the business model?
- Did they describe the risks?
Remember the goal was not a fundable pitch deck or a full business plan with pages of spreadsheets. Rather we wanted them to start with an idea and see what it would take to build a real business (and tell us in 15 minutes).
This post and the next will have a few of the final presentations (click on the thumbnails to enlarge.)
And here was another presentation in a very different market.
- Entrepreneurship is an art not a science.
- It is best learned by a combination of theory and practice.
- No business model survives first contact with customers
- You won’t believe this until you hear customers tell you you’re wrong.
- Agility and resiliency are not tested inside the building.
- They’re essential outside.