How I teach Startup part 2

Last year when teaching in Asia, I met several students who wanted to start their company. They showed me their beautiful websites, interesting mobile apps, and business plans with detailed on how they can make millions of dollars in the next few years. What they need was someone to invest money in their company then everyone will get rich. After reviewed their products and business plans, I asked: “Who are your customers? How many customers do you think you will have?” They were surprised because they did not expect that question. One person asked: “Why do you ask us about customers; we have not started the company yet. We only want your opinion about our products. ” Another added: “Since you are teaching entrepreneurship, you should know some investors and we want to ask you to introduce us to them.” One person stated: “We had taken “startup training” so we know how to build products and develop business plans. What we need is investors to give us money so we can start our company. We believed that we could make millions of dollars in the next few years because of we are determined to make it happens.”

I could feel their excitement about creating startups and making money. I knew that they had taken “startup” training that gave them hopes and they believe that they can make their dream come true. However, I wanted to tell them that they are living in an illusion of being the next “Bill Gates” or “Steve Jobs.” They paid someone who sells them a “dream, ” but they had no idea on how difficult to start a technology company. If they spend the money to buy a lottery ticket, they may have a better chance to make a million dollars. However, I did not want to say anything that discouraged them. I knew these students had read some “fabricated stories” about how Bill Gates and Steve Jobs became billionaires. They believe that with technical skills to create websites or mobile apps they can get investors to give them money so they can make their dream come true. No one tells them the truth that startup requires much more than just technical skills.

My friend, Satyam K. a startup investor told me that he received hundreds of business plans every month from entrepreneurs all over the world. He only invested in less than ten startups per year because most ideas and business plans were useless. He said: “Investors are business people, they do not invest in anything unless it has a real product with customers and good revenue. The notion that entrepreneurs have a good idea develop a business plan to convince someone to give them money so they can build a company is completely false. No investor would throw money away like that.”

I always teach students: “Without customers, there is no startup. The dilemma is you may have a good idea but need money to develop it into a product, but no one will give you anything until you have a product with customers and already make some money. That is the reality. Starting a technology company is not something simple that you can learn from a book. There is no successful formula for a startup, but you must practice and learn from your mistakes then practice and learn again until you succeed. A good entrepreneur always analyzes the market to identify problems that they can solve before they even develop the product. Many entrepreneurs make a mistake by begin with the product, without knowing the needs of the customers. They believe that if they can build something, people will buy and they will get rich. I have seen “startup” training that taught: “If you can make it, people will buy it.” These people often cited Steve Jobs or Mark Zuckerberg who never asked customers about their needs but still succeed. Last year, a student asked me about it, so I explained: “How do you know that Steve Jobs never ask customers? Maybe he was lucky but can you count just on luck to start a company? If you think that you are lucky why don’t you buy a lottery ticket? It is easier than starting a company.”

I teach my students: “The only way to make money is to deliver a product that the customers are willing to pay for it.” However, in a highly competitive market, there are many products already in the market. It takes efforts to come up with a new product that is in high demand and customers will pay a good price for it.” In my class, students must interview at least ten potential customers per week to understand the market needs. If they can sell customers on their idea, maybe they may buy the product. Many customers may not know what they want, but they always know what they do not need. By having students asking them, I want to make sure that there is a “real market” for my students’ products before they even build anything. The characteristic of a startup is its iterative nature. You have an idea, you ask customers, if you know their needs then you make a preliminary product, test it, identify problems and fix them before selling the product.

I teach my student to start one step at a time by building a simple product, ask customers for feedback then improve the basic functionalities but do not start with the completed product yet. In the beginning, they need to pay attention to revenue and be careful about spending as they have limited amount of money. Even most of my students are technical; they must learn about business and how to sell their product. They must be able to persuade people to buy their product by convincing them that they are offering something of value for them. As an entrepreneur, my students must always focus on selling, marketing, and learning. Even the product is sold, they still need to improve the product to meet the needs of more customers. They keep doing it until they reach a large number of customers so they can grow the company bigger and more stable. Besides the technical skills, they need to manage their operation and make sure that they have enough money to survive until they are profitable. Only when they begin to be profitable, they will attract investors to come in and help them to grow faster, better and bigger. Even with money from investors to grow, they need business skills to deal with these investors and not allow them to take over the company. That is why the startup is not a simple thing as many people think.

I always teach my students to prepare for the unexpected. A startup often takes longer than they think. There will always be some unhappy customers or some financial problems. In a startup business, most entrepreneurs will fail many times before they achieve their goals. By learning from each failure, they will get wiser and avoid bigger mistakes in the future. I told them: “Startup is difficult, but each failure is a good lesson, as long as you learn from it, you will get closer to your goals. If you give up and quit, then you will never be a real entrepreneur. If you are determined to be an entrepreneur, you must be willing to learn from mistakes because you will make many mistakes until you succeed. In a startup business, most people will give up; many people fail because they think it is easy. Many fail because they live in a dream, but a real entrepreneur always learns and willing to start again and again until they reach their goals.

Sources

  • Blogs of Prof. John Vu, Carnegie Mellon University

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