Written by Damien Downes, Curriculum Lead on our Digital Business Managers & Marketers Stream on the BSc (Honours) Degree in Digital Technology, Design and Innovation and Digital Business Stream on the BSc Degree in Digital Technology and Design.
Last month (May 2016) the digital global business news publication qz.com posted an interesting and at the same time disturbing article titled, ‘Why do start-ups fail?’. I am a big fan of entrepreneurs, they are my rock stars, people who are willing to put it all on the line to ‘scratch the itch’.
The often quoted statistic of ‘90% of start-ups fail’ frustrates me – being a business model evangelist, I fully believe that an understanding of your business model (my PhD research area) will provide any entrepreneur or indeed established business owner with a solid foundation for growth and innovation.
The interesting thing for me is that the qz.com article seemed to validate this assumption – a pair of researchers looked at over 193 blog posts from founders who wrote about the demise of their business – the number one & two reasons cited: Business Model not viable and Ran out of cash.
As you will see from the article whether a start-up bootstrapped their existence, took in less than $1 million in external funding, between $1 – 10 million of funding or $10 million and above, a non- viable business model was either number one or two in each category. This got me thinking about the design and evolution of Entrepreneurship education.
Once upon a time, in a land far away it was believed that a start-up was just a smaller version of a large business in that straight away when you have your light bulb ‘aha’ moment you needed a sales team, a finance team, a marketing team etc. It was all about executing on a plan quicker than your competition.
If you are familiar with the Business Model Canvas developed by Alexander Osterwalder & Yves Pigneur and the Customer Development methodology from Steve Blank you know a start-up is looking to validate a series of assumptions developed around the nine building blocks of the canvas through interviews/surveys and user testing with their customer segment. Once you have validation, then and only then should you start to execute otherwise you are wasting your time, energy and in a lot of cases someone else’s money.
Stage One (Pre & including the last dot.com bubble, 1997 – 2000): the focus was on old business practices as mentioned above but the words ‘business model’ started to float around. We found ourselves in a situation where entrepreneurs would pitch Venture Capitalist’s saying they had a great business model that would leverage the internet as a disruptive technology and they duly received their money and were told to go and play. I’m simplifying the issue but we all know what happened.
Stage Two (Post last dot.com bubble 2001 – now): in true entrepreneurial fashion certain individuals some mentioned above - those of us you are lucky enough to teach entrepreneurship stand on their shoulders – assessed the landscape, observed a problem and decided to scratch that itch, including another important individual Eric Ries and the Lean Start-up methodology.
Others who survived the bust developed the idea of the accelerator/education programme for start-ups e.g. Paul Graham & Y-Combinator probably being the most famous. The emphasis was on proof of concept and helping entrepreneurs pitch to the venture capital community.
I am in no way suggesting a correlation but we now find ourselves in the realm of the Unicorn (a start-up company with a valuation of over $1 billion) where turnover, increased sales at all costs is the new norm and certain entrepreneurship educators e.g. Steve Blank are called VC’s out on this topic.
Stage Three (my hypothesis – sometime in the not too distant future): the focus will be on the merger or cross pollination of the new entrepreneurship education and traditional business education. A start-up will have to develop a business model, validate their set of assumptions but also turn a profit. It’s always worth remembering, ‘Turnover is vanity, profit is sanity and cash is king’. I am stating the obvious but this should have always been the case and is my approach to entrepreneurship education.
The idea and execution will be important but the establishment of efficient and effective operational processes that help to generate revenue through the delivery of a quality product/service while at the same time controlling costs without jeopardising quality will be key.
Either way education and especially entrepreneurship education is vital as recent research from Knowledge @ Wharton has shown. Education over experience was shown to have a more positive impact on start-up success based on access to a database from the highly respected Kauffman Foundation collected over 7 years covering 3000 companies.
The crux of the issue is that we should learn from the ‘right’ people who are looking to create and deliver real long-term value to the marketplace for the continued success of entrepreneurs as they are the life blood & rock stars of every economy.