Bank of America expands the Bank of America Institute for Women’s Entrepreneurship at Cornell

CHARLOTTE, N.C.–(BUSINESS WIRE)–As part of Bank of America’s $1 billion, four-year commitment to advance racial equality and economic opportunity, today – Women’s Entrepreneurship Day – the company announced a further expansion of the Bank of America Institute for Women’s Entrepreneurship at Cornell. Due to the program’s success, Bank of America will add 30,000 seats – bringing the total enrollment of small business owners to 50,000 – and will work with Cornell to develop a Spanish language curriculum and hire Spanish-speaking teaching assistants to more effectively support Hispanic-Latino entrepreneurs.

The Bank of America Institute for Women’s Entrepreneurship at Cornell is the only Ivy League program offering a certificate in women’s entrepreneurship, and at no cost. Since its launch in 2018, the institute has enrolled more than 20,000 individuals, primarily women, of whom 86% identify as women of color. Registration is open to anyone worldwide, regardless of gender, educational background or business stage.

As part of the program expansion, Bank of America will partner with several nonprofits, including the National Urban League, U.S. Hispanic Chamber of Commerce, the National Association for Latino Community Asset Builders and Prospera, to create more enrollment opportunities for Black and Hispanic-Latino entrepreneurs.

The challenges that women entrepreneurs face have multiplied over recent months. According to a recent McKinsey study, while women made up 46% of U.S. employment pre-coronavirus, they account for 54% of overall job losses year to date – with women of color the hardest hit.

“With women bearing much of the economic brunt of the pandemic – and particularly women of color – our further investment in the Bank of America Institute for Women’s Entrepreneurship at Cornell has never felt more important,” said Anne Finucane, vice chairman at Bank of America. “Amid the unforeseen challenges and events this year, we must continue to invest in women entrepreneurs to drive economic growth, because when women-owned businesses thrive, our communities flourish.”

“We at Cornell are extremely proud of the impact the Bank of America Institute for Women’s Entrepreneurship is having on aspiring entrepreneurs,” said Martha E. Pollack, president of Cornell University. “The institute builds on Cornell’s commitment to the public good and on the strength of our faculty in providing practical, focused, accessible education.”

Through coursework that draws on curricula from across Cornell’s schools, the instructor-led classes and limited class size provide women the opportunity to learn new skills, connect with a vibrant network of entrepreneurs and social innovators, and access the resources they need to manage and scale a successful business. These courses include Creating Your Venture; Laying the Legal Building Blocks; Assessing and Obtaining Financial Resources; Growth Leadership for Women Entrepreneurs; Product Development and Digital Marketing; and Communication, Negotiation and Persuasiveness.

Investing in women

Bank of America’s investment in women as they make meaningful contributions within the company and in communities around the world includes a focus on being a great place to work for its female employees, improving the financial lives of female clients, and advancing women’s economic empowerment worldwide. The company has several long-standing partnerships, through which it has helped more than 30,000 women from 85 countries grow their businesses, including:

  • Tory Burch Foundation Capital Program: Since 2014, Bank of America has committed $100 million in capital to the Tory Burch Foundation Capital Program, helping women business owners gain access to affordable loans. To date, more than 3,400 women have received nearly $57 million in loans through community development financial institutions (CDFIs) to help them grow their businesses.
  • Global Ambassadors Program: A partnership between Bank of America and Vital Voices, the Global Ambassadors Program pairs women entrepreneurs with senior women executives for a week of one-on-one mentorship and workshops designed to build business acumen. To date, the program has impacted more than 400 women from 85 countries – helping mentees grow their businesses and organizations through more than 8,000 hours of training and mentorship.
  • Cherie Blair Foundation: Since 2013, Bank of America has partnered with the Cherie Blair Foundation on its Mentoring Women in Business program, which has matched more than 2,700 women in developing and emerging countries to online mentors, including more than 500 mentors from Bank of America.
  • Kiva: Through a partnership with Kiva, Bank of America has committed more than $2 million in funds to women business owners, assisting more than 17,200 women entrepreneurs from 45 countries.

Recent Bank of America announcements focused on racial equality, diversity and inclusion, and economic opportunity include:

Bank of America Environmental, Social and Governance
At Bank of America, we’re guided by a common purpose to help make financial lives better, through the power of every connection. We’re delivering on this through responsible growth with a focus on our environmental, social and governance (ESG) leadership. ESG is embedded across our eight lines of business and reflects how we help fuel the global economy, build trust and credibility, and represent a company that people want to work for, invest in and do business with. It’s demonstrated in the inclusive and supportive workplace we create for our employees, the responsible products and services we offer our clients, and the impact we make around the world in helping local economies thrive. An important part of this work is forming strong partnerships with nonprofits and advocacy groups, such as community, consumer and environmental organizations, to bring together our collective networks and expertise to achieve greater impact. Learn more at about.bankofamerica.com, and connect with us on Twitter (@BofA_News).

For more Bank of America news, including dividend announcements and other important information, visit the Bank of America newsroom and register for news email alerts.

www.bankofamerica.com

Contacts
Eliza Murphy, Bank of America
Phone: 1.347.603.6845
eliza.murphy@bofa.com

eCornell gives high school students an analytic edge

A collaboration between eCornell and the nonprofit National Education Equity Lab is giving high school students in underserved communities the opportunity to develop skills in business analytics while also gaining the confidence to recognize they can excel in college, even in the Ivy League.

The partnership has resulted in eCornell’s first certificate course aimed at high school students. Pre-college Analytics and Spreadsheet Modeling is a four-week pilot course that launched June 24 with a class of 132 students, who are learning how to organize and analyze data in Excel and use that information as a decision-making tool.

This course follows a “buy one, give one” model, whereby 60 students recruited by eCornell each pay $150 to enroll, which helps offset the costs of 72 students selected from Equity Lab’s network of partnering underserved high schools across the country. All of these schools receive Title 1 federal funding because of their high concentrations of poverty and families in need.

“Highly talented, motivated students in our lowest income communities – who tend to be largely students of color and first-generation students – are often unable to demonstrate that they’ve got what it takes to be a successful college student,” said Leslie Cornfeld, founder and CEO of Equity Lab. “Research shows that current college admissions metrics can mask talent, particularly for low-income students. Education, we know, is the number one lever for social and economic mobility, and the future success of our country.”

Equity Lab works to advance educational and life opportunities for highly talented, low-income students and students of color by collaborating with philanthropic, nonprofit and academic institutions such as the Common Application, the Carnegie Corporation of New York and Harvard University. Equity Lab and eCornell were brought together by Steven Carvell, vice provost for external education strategy, at a crucial time. COVID-19 has created an enormous surge in the need for innovative online education models, especially in communities that the Equity Lab targets, which have been hit hardest by the pandemic.

“These are the families that are on the front lines in our country right now. They are not only the essential workers. They are suffering the highest levels of unemployment, food and housing insecurity, and illness,” Cornfeld said. “And in the midst of this crisis, these students leaped at the opportunity to take this course.”

While some teenagers might blanch at the idea of spending a month of their summer vacation learning about spreadsheets, most of the slots Cornell made available to the Equity Lab students were filled within 24 hours of posting.

“These students don’t get opportunities like this very often, and they are determined to take full advantage of it,” said Cornfeld, a former federal civil rights prosecutor who served as an adviser on education equity issues for former President Barack Obama’s administration.

Knowledge of data analytics is essential for anyone hoping to join the 21st-century workforce, and it’s also a practical tool for managing personal finances, according to Donna Haeger, professor of practice in the Charles H. Dyson School of Applied Economics and Management, who created and teaches the course.

“I always tell students that understanding how to make decisions with data is becoming just as important as reading and math,” said Haeger. “Businesses are really challenged right now to find qualified individuals who know how to model and make decisions using data. It doesn’t matter what industry you choose to enter. Data is everywhere.”

Haeger previously created a professional development certificate course in business analytics for eCornell. She modified those materials for a high school audience by simplifying the terminology and using age-appropriate examples. Rather than investing in a diversified portfolio, students solve problems like organizing a bake sale or buying clothing for a sports team. Haeger worked with eCornell to develop explanatory videos that are incorporated into the modules. And she added a weekly hourlong synchronous group session, so students can ask her questions directly and feel more connected.

“This course is a great equalizer. Everybody is able to jump in and try it for the first time. And it’s low risk for them,” Haeger said. “I think people are really intimidated by terms like ‘big data’ and ‘business analytics.’ I try to demystify all of that and make sure the students have a really positive experience. They realize, ‘Wow, I can do this.’”

The Equity Lab team has also been meeting with the students in weekly sessions to track their progress. Their feedback has been overwhelmingly positive, Cornfeld said. While the material is difficult, it has given them a chance to prove to themselves, and to higher education institutions, that they are able to meet the challenge.

For Donovan Blount, a rising senior at Rockaway Collegiate High School in Queens, New York, the certificate course is potentially life-changing.

“Opportunities like this are important for students like me because most students who grow up in low to average income neighborhoods cannot afford prestigious classes,” he said. “So a free, informative class like this can open up doors of opportunity that we did not know were even possible.”

Cornell launches online entrepreneurship program

To bring a startup business to market, an entrepreneur needs to assess the viability of their concept, develop a strategic framework and navigate the due diligence required to finance it.

On Nov. 19, National Entrepreneurs Day, Cornell launched a new Entrepreneurship certificate program, designed to develop the necessary knowledge and skills to take a new idea from theory to realization.

“Ideas are easy to come by, but the real challenge comes in getting them off the ground,” said Tom Schryver, program author, visiting lecturer in the Samuel Curtis Johnson Graduate School of Management, and executive director of the Center for Regional Economic Advancement. “This program will help students understand how startups raise capital to execute on their plans, both from the perspective of an entrepreneur seeking to raise money as well as from the point of view of an investor looking to make an investment in a startup.”

The program will enable participants to structure a business model to protect their interests, assign fair valuation to an opportunity and secure funding. Participants will also explore many types of funders, from equity and angel investors to venture capitalists, crowdfunders and grant programs. Courses in this program include:

  • Assessing Startup Viability and Funding Options
  • Pitching Your Business Opportunity
  • Protecting Your Interests
  • Financial Planning, Valuation and Dilution
  • Company Structure and Due Diligence
  • Post-Investment Best Practices

After completing the six courses, participants will receive an Entrepreneurship certificate and 60 professional development hours. Visit the eCornell website to learn more about this program.

Bailey Karfelt

How to Successfully Pivot Your Startup

The fundraising and engagement platform GiveGab made waves in January 2018 by purchasing one of its biggest national competitors. With the acquisition of Kimbia, GiveGab is one step closer to becoming the biggest charitable software program out there.

But that success would not have happened if the company hadn’t decided to completely change direction from its original vision of being a social network connecting volunteers and nonprofits. In 2015, GiveGab pivoted to focusing on helping nonprofits attract and maintain donors rather than volunteers.

The company’s CEO and co-founder, Charlie Mulligan, spoke with eCornell’s Chris Wofford about his “painful” yet highly successful pivot decision and to share tips on how to decide when it’s the right time to change strategic direction. What follows is an abridged version of Mulligan’s presentation, delivered as part of eCornell’s Entrepreneurship webinar series.

Mulligan: I’ve met thousands of entrepreneurs at this point. I think almost all of them would describe themselves as having a vision of what they want to happen and being very persistent. While I agree that these are really important traits, they can also impact the challenges of pivoting. If you really pride yourself on what you are doing, it can be very hard to have to admit that your vision was wrong. When reality hits, it’s sometimes like you suddenly realize you’re climbing the wrong mountain. It’s not a matter of changing little tactics. You have to change your entire strategy. That’s what a pivot is to me.

When you are starting out, there is really no way to predict the future. Yeah, some people get lucky but for a lot of startups you’ll find that the reality is different than what you envisioned so you’ll have to decide what to do. You can quit or you can be flexible and make a different choice.

Wofford: How do you know when it’s the right time to change direction?

Mulligan: It could come at any stage. When you’re starting out, you have this idea of what the customer wants. Well, you better talk to as many customers as you can and you need to realize that oftentimes you will hear what you want to hear so you have to be very careful and make sure that you start to listen before you get too far down the road. You might have to pivot very early once you’ve assessed the demand and done the research.

The key thing about a startup is a lot of times you’re trying to create something new or completely different, but when you’re doing research, the research is about old products or old ways of thinking. So you won’t really know for sure whether your new way is going to be right.

Wofford I’m sure the audience would love to hear the details of your decision to switch tactics at GiveGab.

Mulligan GiveGab set out to be the social network for volunteers, which meant that we were a connection portal to help volunteers and nonprofits find each other. We interacted with a lot of nonprofits and they were really happy to talk about this. They loved the idea and then as we built our product they thought it was great. We had a free product so we had thousands of nonprofits and hundreds of universities sign on. We passed 100,000, things were growing and moving fast and we were getting great press and great feedback.

But it didn’t take us long to realize that there was really low engagement. Nonprofits would sign up but then only come back like every six months to do something. It was really challenging to get them to actually post volunteer opportunities.

When I first started I thought it was going to be really easy to get nonprofits to post volunteer opportunities because they were consistently telling us that they need more volunteers. But we couldn’t get nonprofits to actually sign in and create volunteer opportunities. That meant that we were having a hard time matching the volunteers who had signed up with opportunities in their area. You know, a volunteer in Montana and a nonprofit in Minnesota don’t really match up.

That’s why we decided to go after universities to help build an ecosystem because a lot of times they have volunteers and nonprofit partnerships. The problem we found there was that it was a super long sale because we were talking to low level employees. We should’ve noticed this problem earlier but if you want to know what a nonprofit really cares about, you need to go see what the executive directors are doing. What the directors are doing is looking for donors, not volunteers.

Raising money is really what mattered the most and we weren’t listening to that. So we decided to go down a new path. We sat down and really looked at what the nonprofits were using their volunteers for. Almost always, the volunteers were being used as a direct or indirect way to get donors. It’s really about money for nonprofits and volunteers are a way to get donors more engaged. One of the things we kept hearing all of the time – and the research backs this up – is that only 19 percent of first-time donors ever come back. Nonprofits spend all of this time getting donors and then four out of five of them are gone and never come back. We were skirting around the edges with volunteering but the core problem was how to get more donors and keep them coming back. So that’s now the problem that we decided to solve.

Wofford How big was your organization when you decided to make this pivot?

Mulligan We had 90 employees and we had a lot of funding. We had dozens of investors and so I had to go back to all of them and admit I was wrong. Then we had to let about half our company go. These were really good employees so that was a very painful day.

For a lot of people, ‘pivot’ is just a word, just a strategic choice. For me, it’s a painful memory. It was necessary and I’m really glad we did it, but it was painful.

We had to totally re-brand. We were the social network for volunteers so we were highlighting happy volunteers and like things like that, which makes no sense for a fundraising platform. So conceptually we had to change everything. Then we had to build it and go back to our development team and say, “Ok, we’re starting from scratch, let’s learn how to do this.”

There are also laws around fundraising so there was a lot of work in just making sure we were doing things the right way.

Wofford That sounds really challenging.

Mulligan It was, but one of the great things about pivoting is that if you’ve built a great team, as we had, then you’ve already figured out how to work well together. In our case, the employees we were left with were great, so we got a second shot at something and the second product looked a million times better than the first product because we really knew what we were doing by that point and we had a system in place.

There’s also a certain amount of incentive in a pivot situation because maybe you’ve run out of money, so you know that this could be your last lifeline. So you better make progress and you better make it quick. There is nothing like the gallows to give people focus.

As an entrepreneur, it can be very challenging because you have told a lot of people about your vision and you’ve been very persistent and then you have to go and tell them, “OK my vision sucks but now I have a new one.” You’re asking people to buy into this new idea even though your first was wrong.

Wofford That must take a certain humility.

Mulligan Sure, and you also have to make some super painful choices. Like I said, we had to let employees go. We had to go back and talk to investors and let them know that all of their investments just went backwards. Nothing about it is fun but you have to just face it head on, so I just owned it. I think that approach was super helpful.

You have to pick your new course of action and then you have to forget the past. Pick your new vision and just sell that like that was the only one you ever believed in. And of course you’ve got to somehow get everyone to buy into this one as much as they we’re into the first one. These are all way harder things than I think people realize.

Wofford It certainly sounds hard. Was it a challenge to keep morale up?

Mulligan Well, when you’ve just let half your workforce go, keeping morale up was already a challenge. People’s workloads had doubled and then it was like, “Now let’s do it over.” I think what helped us is that we spent a lot of time making sure that our new course of action was picked by everyone, not just me.

Wofford Everyone needs to be on board to make a pivot work.

Mulligan Right. We had conversations with the people that we were going to keep and said, “Look, if your heart’s not 100 percent in this, you need to let us know because there are people we are letting go whose hearts are 100 percent in this.” That wasn’t a threat, it was just the reality. I think people really appreciated the openness and transparency. When we let people go, we really supported them but we also sat everyone down and said, “OK guys, we’ve got to forget about it. There is a lot of pain here, but we need to just move forward.”

When we did our pivot in January 2015, we had five nonprofits raising money on GiveGab.
At the end of the year, we had 700. All paying customers, so we were making money off all of them. We are currently on pace to potentially have well over 20,000 nonprofits by this year. We also have 10 states using us as their statewide giving day platform later this year. So the pivot worked.

Wofford Wow, it’s very impressive. Congratulations.

Mulligan We’re really excited and of course relieved. We saw the bottom and that makes you appreciate it more when things are really working.

So much of the startup ethos is ‘vision and persistence’. I think you need vision and flexibility. You can also think about it in terms of the difference between persistence and resilience. Persistence is putting your head down and running into the wall. Resilience is putting your head down but looking around a little and realizing there’s a door over there and you can walk right through it.

Wofford Charlie, thank you so much for sharing your experience and giving such great advice about changing strategic direction.

Mulligan Thank you, Chris. I enjoyed being with you.

Want to hear more? This interview is based on Charlie Mulligan’s live eCornell WebSeries event,The Startup Pivot: Changing Strategic Direction. Subscribe now to gain access to a recording of this event and other Entrepreneurship topics.

How to Make the Business Model Canvas Work For You

Neil Tarallo has more than two decades of entrepreneurial experience under his belt and is a senior lecturer at Cornell’s Hotel School as well as the director of the Cornell Entrepreneurship Bootcamp for Veterans with Disabilities.

But that doesn’t mean that he can simply come up with an idea and magically turn it into a successful startup. When Tarallo brainstorms ideas, he leans heavily on the Business Model Canvas. Created by Alexander Osterwalder, it is arguably the most important innovation in entrepreneurship and strategy in quite some time.

Tarallo joined eCornell’s Chris Wofford to discuss the Business Model Canvas as part of the Entrepreneurship webinar series. An abridged version of their conversation follows.

Tarallo: Entrepreneurs are problem solvers. We solve problems in a marketplace, and in doing so we create businesses. For us as entrepreneurs, it’s important to understand exactly who is feeling the pain, so to speak, that has been created by that problem. One of the nice things about the Business Model Canvas is it really helps us focus on that.

When I talk to entrepreneurs around the world about their businesses, one of the things they tend to miss is the value that their solution creates for their customers, and exactly what those customers think about that value.

People get a little upset with me sometimes when I say these things but products and services don’t create markets. Solving problems in markets, and creating value, allow us to create new markets. But in order to have a sustainable business, you have to solve real problems for real people and understand what that solution means to them.

It’s really not about your products or your cool technology or how great your food tastes. It’s always about how you create and capture value for your customers. So that’s what we want to focus on and I think one of the great things about the Business Model Canvas is it really helps us focus on that important element of our business.

There’s no shortage of new products. It’s not even cool anymore just to have a new product or new technology. There’s so many of them out there, but very few of them really bubble up to the top. That’s because the manufacturers misinterpret what it is that they’re trying to do. There’s that old adage: Build it and they will come. Whenever I hear that, I run as fast as I can and you should too because you need to do more than just build it. You need to make that connection and that’s really what the Business Model is about. It’s all about how a business captures and delivers value to the customers.

Wofford: Before we go much further, perhaps we better get into what the Business Model Canvas actually is and how it works.

Tarallo: OK. The Business Model was created by a guy named Alexander Osterwalder. He was doing his Ph.D. and his interest was in business models. What he discovered as he was doing his research is that when he would ask people about business models, no two people could define it the same way.

I give him a lot of credit for seeing that. I think it’s something that all of us who teach and talk about entrepreneurship over the last 15 or 20 years have encountered but we just never identified it.

Osterwalder wrote his dissertation, ‘The Business Model Ontology – a proposition in a design science approach’, about how we build and generate business models. His premise was that we need to have a common understanding of what a business model is and that we need sort of a shared language around it.

So he created this tool called the Business Model Canvas and that was followed shortly thereafter by another canvas called the Value Proposition Canvas. We won’t spend as much time on the Value Proposition Canvas today but it has also become a fundamental tool in innovation.

The Business Model Canvas has nine building blocks and we’re going to quickly go through each of those building blocks. In the very center of the canvas is the Value Proposition. This is where we articulate the problem that we’re solving as well as how we are solving it for our customers. It is the first building block and is at the dead center of the canvas because it is central to everything that we do.

All the way over to the right is Customer Segments. We need to understand, as specifically as we can, who the customers are. Who will be interested in our solution and what value do they see in what we propose for them? Continuing on, building block number three is Channels, and that’s how customers actually get and access our Value Proposition. It could be online, it could be in our store – there are a whole bunch of variations on how we do that.

Next, Customer Relationships, which is primarily the marketing component of what we do. Moving to the left on the canvas, we have Key Resources, what we need in order to deliver our value proposition. Above that is Key Activities, where you identify what activities your business engages in on a daily basis that deliver the Value Proposition.

All the way on the left is Key Partners and those are other organizations or people that we can work with to help us deliver our Value Proposition. An example there might be, if I sell coffee, coffee growers may be a key partner for me because I have to bring them on board.

The bottom of the campus is all about the financial aspects of our business. To the right, we see Revenue Streams, and that’s those unique products or services that generate revenue for our business. To left is Cost Structure, or what it costs us to deliver our Value Proposition.

Notice that when I talk about each of these building blocks, I’m always referencing the Value Proposition. The activities that happen within these building blocks are central to that. Everything I talk about on the Business Model Canvas focuses on that Value Proposition.

Wofford: Yes, I did notice that you were really driving that home.

Tarallo: Now, if you look at the layout of the canvas, what you really see on the right side is what we call front stage operations or what we call front of house in the hospitality industry. These are the forward-facing activities that customers see and feel and touch. On the left side of the canvas are what we call backstage or back of house operations and those are the things we do behind-the-scenes that customers don’t necessarily see that support the delivery of our value proposition.

My work with companies and with entrepreneurs tends to focus on that left side because it’s a much more difficult thing to do. I call the front stage operations low-hanging fruit: we get to talk to our customers, we get to do some research, we see what they value and what they don’t value. That’s all pretty easy to do. The interesting thing about backstage operations is that if we can figure out how to deliver value through our operations, we tend to create a competitive advantage that’s very difficult for our competitors to break into.

An example I always use for that is Disney World. It’s one of my favorite places to go because I learn so much about operations there. Disney really delivers value through their operations. They entertain you while you’re going through lines, they have a series of tunnels underneath the entire facility, so that they can get anywhere in the park in six minutes or less. Other parks can’t do that so they’re creating value through operations that really gives them a big advantage over their competitors.

Wofford: It’s fascinating, and for our viewers who are interested, just Google ‘Disney World front stage operations and backstage operations’. There’s so much stuff out there written about it.

Tarallo: Now, the lower part of the Business Model Canvas is what I call the economic model.
It’s how different elements of the cost and revenue structure of our business come into play and work together. So that’s the way I think about the model: right, left and lower side, with value being in the center of everything.

Wofford: So how does the canvas work?

Tarallo: As we build our Business Model Canvas, we really hypothesize and we’re guessing what we think is going to happen or could happen in each of these building blocks. Then our job is to go into the marketplace and test our hypotheses. We learn from those tests and we go back and we repeat this over and over again until we get it right.

Wofford: So following this model allows you to test your assumptions, right? That’s where you validate whether or not you do have unique value, whether you’ve got a competitive advantage and so on?

Tarallo: Exactly. You need to be objective. One of the big challenges for me in disseminating information about the canvas both to my students and entrepreneurs is that they’re very emotionally invested in their solution to the problem. For me, one of the measures that I use to determine whether I think somebody is in fact going to be successful as an entrepreneur is how flexible they’re willing to be in that solution.

Wofford: How do you know when you’ve got it right?

Tarallo: To be very candid with you, as much as we work on this and as much as we test, it will not be accurate. The day that we open our business is when we really find out whether it’s accurate or not. None of this is an absolute, but the canvas gets me on the right page. It gets me as close as I can so that when I have to make adjustment when I open my business, or as I’m running my business, I don’t have to take big leaps. I’m trying to mitigate risk and I think one of my favorite things about the Business Model Canvas is it lets me do that.

Entrepreneurs don’t like risk, contrary to what a lot of people believe. We understand risk. We understand it’s part of our lives and we work hard to mitigate that risk, but we don’t love risks.

Wofford: So you’re not rushing off to Vegas every chance you get?

Tarallo: Haha, no. When it comes to testing ideas we’re really trying to set up a series of controlled experiments that you can fail without jeopardizing your business. I always say that entrepreneurship is nothing more than a series of small failures. I’m very careful about how I say this though, because I think there is this belief out there that it’s good for entrepreneurs to fail big and fail fast. I’m not a fan of that. Failure is never a good thing. I want to try to control my failures so that I’m mitigating risk and I learn from my market in a way that’s not going to damage my brand or what I’m trying to accomplish.

It’s important to me to stress that in my opinion, the Business Model Canvas is not a replacement for a business plan. It’s not a replacement for a marketing plan or a strategic plan. It is an effective tool for understanding who your customers are, what they value and how you can create a solution for their problem.

One of the things that Steve Jobs was really good at with Apple was not even thinking about a product necessarily but going into the market and interfacing with the market and seeing what it is that they were struggling with. The iPod is a great example of that. He saw a problem that was happening in the marketplace and he really found it through observation and getting people to tell stories about how they get music and how they listen to music.

I contend that Apple’s business model as a whole is that they’re problem solvers. They find problems in the market that they can solve with their core competencies, which are design and technology. That’s how they come up with these really great innovative products.

I shouldn’t say this because you’re recording, but I think Apple is going to be out of the phone business before too long.

Wofford: Really? Why do you say that?

Tarallo: Because the problem is solved. It’s no longer compelling for them and for the first time ever we saw iPhone sales drop last year. If you think about the iPod, you can’t buy one of those on a store shelf anymore. Why not? Because the problem has been solved, so Apple no longer makes them. Our phones are now substitutes for iPods and I think you’ll see the same thing happen with the iPhone, perhaps sooner than a lot of people think.

Wofford: Well, if you’re right you’ll be glad we were recording this so you can pull up the video and say “told ya so”. Neil, this has been very interesting. Thank you for sharing your insights into the Business Model Canvas.

Tarallo: Thanks, Chris. I enjoyed it.

Want to hear more? This interview is based on Neil Tarallo’s live eCornell WebSeries event,Business Model Canvas: A Tool for Entrepreneurs and Managers. Subscribe now gain access to a recording of this event and other Entrepreneurship topics.

How to Manage Risk, Uncertainty and Opportunity (The Smart Way)

Having spent many years as a business consultant, Stephanie Thomas says she has “a long history with risk.” But although many people view risk as a negative thing, Thomas says that risk is more like the flip side of opportunity.

Now an economics lecturer at Cornell University’s ILR School, Thomas joined Chris Wofford to discuss the relationship between risk, uncertainty and opportunity as part of eCornell’s WebSeries.

An abridged version of her presentation follows.

Thomas: It’s important for people to realize that, risk isn’t necessarily a negative thing. Without risk, there’s no opportunity. If we never take a risk, we can’t really ever move forward to build, grow, develop and expand. So we have to take calculated risks but not stupid risks.

Wofford: To make sure we’re all on the same page, how do you define risk?

Thomas: Risk can take a variety of forms. There are four kinds of risks within the business setting: hazard risks, financial risks, operational risks and strategic risks.

The first, hazard risks, are usually the kinds of things that we think of when we hear the word ‘risk.’ This is the risk of something bad happening – natural disasters, floods, car accidents, those kinds of things.

Wofford: The risk there is not having prepared for them, right?

Thomas: Yes, and it’s really difficult to prepare for them because oftentimes they’re unanticipated. But when they do happen, they’re going to impact the business. Hazard risks are things that happen to the organization from the outside. Insurance, contingency planning and emergency preparedness plans can really mitigate hazard risks. So even though hazard risks are unanticipated, we usually have some pretty good mechanisms in place to deal with them.

Most organizations will also have protocols and policies in place to manage financial risks. These are things like fluctuations in interest rates, debt, asset losses or shrinkage if you’re in a retail environment. We all face these kinds of financial risks, but they’re typically well controlled and well understood as a part of routine discussion.

Then we can talk about the operational risks like supply chain issues and cost overruns. These are things that you might not plan for or take insurance out to mitigate against, but they’re still risks that are pretty well understood. If you have supply chain issues and can’t finish your product because something has happened to the person that you’re relying on – their truck broke down or they’re behind in production – this can really blow everything up.

But again, these kinds of risks are usually able to be managed pretty well. As an organization, you’re going to have a sense of what could go wrong and what you’re going to do to mitigate that situation.

Wofford: So that leaves the big category.

Thomas: Yes, the fun one. Strategic risks. Here we’re talking about things like customer retention. We’re talking about R&D projects. We’re talking about industry or sectorial issues and broader macroeconomic fluctuations. You’ve forecasted demand and it turned out that your forecasts were wrong and you have all this excess inventory. What are you going to do with it? Or you manufacture a toy and all of a sudden it becomes the “it” toy for the holidays and everybody is buying them and you haven’t produced enough to satisfy demand. What now?

These are examples of strategic risks and you really need to think about how they can potentially impinge on your strategy and what you’re going to do.

Wofford: So do you get everybody in the same room and sort of talk through these different possible scenarios and your responses to them?

Thomas: Absolutely. I’d like to turn to some real-life risk examples. When Apple did their R&D to create the iPhone, they didn’t really know for sure if it was going to be a success. It was a touch screen; it looked nothing like the flip phones or the clam shells of the day. It was a huge risk. But what was the upside? Well, it was enormous. The iPhone is now on its seventh generation and everybody has one.

To give another example, do you like to cook?

Wofford: Yes, a lot.

Thomas: Okay, let’s say that you’re making a new recipe for the first time. If it doesn’t turn out the way that you hope it does, what’s the downside?

Wofford: Well, I’d certainly be disappointed myself, and I could have unhappy guests. Worst case, someone gets ill.

Thomas: Let’s not even get into the getting ill part. Let’s just say it doesn’t look the way it’s supposed to look or it doesn’t taste the way it’s supposed to taste. The downside is, well, you can’t eat it and you have to order take-out. This is relatively minor in the grand scheme of life. But the upside is you prepare something wonderful for your family, you’ve learned a new skill and you’ve added to your credentials as a chef.

Wofford: Right, it’s not a huge downside if we have to order pizza because I messed up dinner.

Thomas: It’s not catastrophic. But in some cases, the downside of strategic risk can be catastrophic. If we look at Exxon Valdez, if we look at Deepwater Horizon, those things have huge potential downsides in terms of not just money and resources but in terms of human life. So how we balance these risk-versus-reward situations depends on what’s at stake. Context is super important when we talk about managing these risks.

Wofford: When we think of risks, we sort of associate them with trying new things. But can you think of any examples in which it is better to stick to what you were doing? I ask because I’m from Rochester, New York, the home of Kodak. And that’s a company that willfully decided to neglect the burgeoning digital market to their peril.

Thomas: Again, I think it depends on the situation. In the case of Kodak, it was a strategic choice that they were the leader in what they do and wanted to focus on that core capacity. I certainly can’t speculate on the decision-making process, but if I had to guess, I would say that they felt that even with this new digital marketplace coming, there was still going to be a need for the old analog film. And there are still photographers and artists that use film even though the market has gone overwhelmingly digital.

Wofford: I know it depends on the situation, but typically, how do companies typically deal with risk, uncertainty and opportunity?

Thomas: I think that you need to take a holistic approach. There’s not necessarily one single correct answer but we can assign likelihoods to things. To go back to the cooking example: if you’re trying a new recipe, what is your level of cooking ability? Can you read a recipe? Do you know how to measure ingredients? If you’ve never cooked anything before, the downside for you is a lot more likely than if you’re an experienced cook. You need to really think about what those potential upsides and downsides are and how likely they are to happen.

The classic expression is “nothing risked, nothing gained.” If Apple had not taken the risk to move forward on their R&D project, they would have lost a lot. The iPhone really helped make Apple one of the world’s leading consumer brands.

There are a few common approaches that are used to address risk. The first one is to be like an ostrich and put your head in the sand and ignore it. Not a good idea. Ignoring everything around you is a catastrophe waiting to happen.

A second approach is to say, “Okay, so we know last quarter this happened. And the quarter before that, this happened. And two years ago this happened, so we’re going to predict what we’re going to do in the future based on historical information.” That often works, especially if you’re in a stable environment and producing a product or service that hasn’t changed in the last 10 to 15 years. In that situation, looking at history is going to help you predict the future.

But if you’re in the tech world, you certainly don’t want to look at what’s happened in the last five years to try to predict what’s going to happen in the next five. Things change too rapidly.
To tie it back to your Kodak example, they had been a leader for a number of years so they might have thought that what worked in the past was going to continue to work in the future.
It didn’t. Projecting the past into the future is like driving on the highway looking only in your rear view mirror. You’ve got some information — you know where you’ve been — but you’re still missing what’s in front of you.

Wofford: Let’s talk about the distinction between risk and uncertainty.

Thomas: The way I think about risk is that it is something that can be known. If I cross the street, there are certain inherent risks. With uncertainty, on the other hand, we have no way to quantify it. It’s the realm of unknown unknowns.

If it’s risk, we can manage it. We can manage hazard risk through insurance policies. We can manage financial risk through standard operating procedures and audit controls and generally accepted accounting principles and so on. But if it is truly uncertain, there’s really not much you can do. Uncertainty in my mind is a lot scarier than risk. If it’s true uncertainty, you’re not able to even articulate the array of possible outcomes.

Wofford: So we’ve made that distinction and we’ve talked about a couple of risk case studies. Do you have any advice for putting risk assessment into practice?

Thomas: I think that when coping with risk, particularly strategic risk, you really need to understand what it is that you do and what your customers expect. What is it about you that distinguishes you from your competitors? What is your strategy? You need to have a firm grip on these things in order to think about what is likely to happen in the future.

Do we want to go from making widgets to digital switches? Are we going to transition into that new area to cope with the new business environment or are we going to stay on track and continue to do what we’ve always done? Again, depending on the scenario and the environment that you operate in, both could be viable alternatives. But when you choose one path, you should be able to articulate a set of reasons as to why you made that decision. You need to understand the opportunities as well as the risks and make a calculated decision.

Wofford: Stephanie, thanks for that practical advice and thank you so much for joining me today.

Thomas: Thanks, Chris.

Want to hear more? This interview is based on Stephanie Thomas’ live eCornell WebSeries event,How to manage Risk, Uncertainty and OpportunitySubscribe now gain access to a recording of this event and other Entrepreneurship topics.

Have a Great Startup Idea? Beware These Seven Pitfalls.

As a follow-up to his recent presentation on what makes a great startup idea, Cornell entrepreneurship expert Bradley Treat has returned to eCornell to discuss some of the common pitfalls that often keep great business ideas from succeeding. Below is an abridged version of his discussion.

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People often go down the entrepreneurial path only to discover that their idea actually won’t work before they’ve made it very far. What I want to discuss today is how to spot potential pitfalls in your business idea and address them early on.

Most of this presentation comes from a class I teach at the Johnson School called “The Business Idea Factory”, which helps students work through a business plan or business pitch.

YOU DON’T ALWAYS HAVE TO GO BIG

Most times, when we are looking for great business ideas, we look for really big markets. We’re thinking of being as big as Walmart, which basically sells everything to everybody.

But there’s always a counterpoint. The counterpoint to Walmart is a company called Fox 40, which makes whistles. The founder of Fox 40 was a hockey referee. As he was refereeing a hockey game, he went to blow his whistle – it was one of those metal ones with a little bounce-around cork thingy – and it didn’t blow. Maybe it was cold, covered with sweat or whatever, but it didn’t work. Some of the players saw him raise his hand to indicate a penalty but some did not and, as a result, a player got hurt.

He said, “Okay, I need a whistle that always works in all situations.” And so he developed a whistle that is loud and works whether it’s wet, cold, high-altitude, you name it.

When he said, “I’m going to make a whistle that always works,” was that a huge market? Of course not. But is it a great company? Yes. The whistles have become very popular with the military, the police and lifeguards.

My point here is that you can go big, or you can play small, and still find success.

HIGH MARGIN ISN’T THE ONLY MODEL

Another thing we tend to think about when starting a new business is high margins. We like businesses with high margins, but there is again a counterpoint to be made.

For example, Harley Davidson has extremely high margins on their motorcycles. And people who buy Harleys are not buying them just to get from point A to point B. It’s a state of mind, it’s who you are. You can go to a tattoo shop and choose multiple options for Harley Davidson tattoos. Harley is a brand for life and they tend to keep people. The motorcycle aficionados out there would probably say that if they made a list of bikes with the highest-performing, cutting-edge technology, Harley Davidson might not be at the top. But it’s that brand identity that gives the company such an extremely high margin.

Now look at Costco. I guarantee you will not find a Costco tattoo on anybody. But they do extremely high volume with extremely low margins. They just move a lot of product. Their number one product is toilet paper. So they’re a great counterpoint example of how a low margin/high volume model can work.

EXECUTION TRUMPS ALL

Let’s take Planet Hollywood. This company was started by A-list celebrities – Arnold Schwarzenegger, Bruce Willis, Demi Moore – but it went bankrupt twice. With that kind of marquee value, you might ask, how that is even possible? Or you could look at Dive!, a restaurant that was opened by Steven Spielberg, arguably the greatest movie director of our generation. But the thing bombed. He lost like $20 million on it.

What these examples have in common is that they prove that the success or failure of restaurants and bars is not the concept. It’s the execution.

Great restaurateurs make it look easy. They’re like professional basketball players draining three pointers. But if you want to be successful, particularly in the hospitality or service industry, it’s not about having a great idea. It’s about having the right experience. The truth of the matter is that there are very thin margins in the industry.

I mean, one of the most successful restaurants in the world is McDonalds. Their concept is not that special. It’s hamburgers and french fries. But just think about the volume of food they move. It’s almost unbelievable they can sell their food for as cheap as they do on the margin, but they’re very successful operators.

DON’T MISS THE REST OF THE ECOSYSTEM

Another thing to consider is the ecosystem. Most college students would agree that their textbooks are really expensive. But the textbook ecosystem isn’t just buyer and seller. There is the teacher, there is the institution, the publisher. It’s a very complex ecosystem.

So is the taxi business. It’s much more than just the driver and the rider. There’s a whole ecosystem of dispatchers and cab owners. There are also all the government regulations, and different rules for different places, such as airports.

At first glance, it might look like just two players, but in fact there are often many more. Understanding that ecosystem is very important. And it’s not only about understanding the rules and the players, but also the individual people involved that could impact your business.

NOT ALL ADVICE IS CREATED EQUAL

When you’re starting a business, you should be out talking to a lot of people. What you’ll quickly find is that you’re going to get a lot of conflicting advice. Some people will tell you that your best idea is A, others will say it’s B. What are you going to do about it? Whose advice should you care about?

Try the mosaic method. A mosaic, when you look at it up close, is just a bunch of broken ceramics. But when you step back, you start to see a picture. So you need to have a lot of conversations in order to see that big picture emerge.

The other thing is to make sure you understand the context in which people are giving you advice. A mistake many people make is to put too much stock in the advice they get from investors at the detriment of advice from potential customers. When an angel investor comes in and says, “Here’s what you should do with your business,” people tend to go, “Oh, well, they can write a big check so I should listen to them.”

I would actually discourage you from doing that unless you’re selling to venture capitalists. You should heavily weigh the advice of the people who are most relevant to your business, and if you’re already up and running, those who are actually using it.

ONLINE AD REVENUE – IT’S A TOUGH GAME

When people tell me their plans to do this and that in their app and I ask them how they are going to make money, they almost always say “ads.”

Well, the challenge with ads is the numbers just aren’t there anymore. The way that a lot of online businesses make money through advertising is described in terms of cost per thousand, cost per click, cost per action and so on.

The problem is, these prices have gone into freefall. The cost of ads has dropped precipitously. To make $3, you have to show a video a thousand times. To make $3 million, you’ve got to have a video that is seen 100 million times. Just do the math. You need just insane volume to make money off this.

When somebody tells you their big plans for an app and they say they are going to make money through ads, it means they haven’t thought about the business very well.

YOUR MOM ISN’T YOUR BEST CUSTOMER

The last pitfall I want to touch on quickly is confirmation bias. I see this a lot. Basically, when people are convinced that they have a great idea, they pay attention to all the data that confirms that their idea is great and ignore all of the data that says it’s a bad idea.

I guarantee if you talk to your mom about your business idea she’ll think it’s the best idea ever.
Instead of only listening to those whose inclination is to support you, you really need to go out there and talk to people who don’t know you. The best ones to talk to are your potential customers.

 

Want to hear more? This article is based on Bradley Treat’s live eCornell WebSeries event, What Makes a Great Startup Business Idea? Subscribe now to gain access to a recording of this event and other Entrepreneurship topics. 

What Makes a Great Startup Idea

Bradley Treat is the type of guy that carries several business cards. He teaches entrepreneurship at the Johnson School at Cornell and at Ithaca College. He’s involved in the startup incubator Rev: Ithaca Startup Works. And he was also the CEO of the video and voice communications company SightSpeed before it was bought up by Logitech.

So the self-described serial entrepreneur was a natural fit to join eCornell’s Chris Wofford for a WebSeries event on what makes a great startup business idea. What follows is an abridged version of their conversation.

Treat: What I’m going to talk about today is actually an excerpt from a class I teach at the Johnson School called “The Business Idea Factory.” As people begin the entrepreneurial journey, they need to make sure they have some great ideas to start with. We’ll focus on giving you the tools to generate a lot of ideas and then help you filter out the best one and decide where to go from there.

To start the process, ask yourself: “What is a business?”

A business solves a problem that people care about. Someone has to be willing to pay for the solution. To break that down a little bit, the first thing we have to ask is, not what does your business do, but what problem does it solve?

Wofford: So this is really thinking about your potential customer in terms of what problems they might face and what kinds of solutions to that problem they’d pay for?

Treat: Right. Why do they care about solving this problem? Why should they be willing to pay you?

What I want to do next is give you some examples of businesses that solve problems. The first problem we’ll look at is the need to save money.

There’s a company called Forward Air, which is an air freight company that doesn’t own planes and a trucking company that doesn’t own trucks. What Forward Air does is to drive trucks between airports in the middle of the night.

You might say, “But Brad, why would somebody want to drive trucks to airports in the middle of the night?”

Well, what they figured out was a lot of air freight doesn’t have to go on planes. If you were to send an air package from Syracuse to Boston, you’d have to send it by 7pm. It’s not going to leave the FedEx depot in Boston until 7am the next day, so that’s a 12-hour period. They realized Syracuse to Boston is a one hour plane flight or a five-hour truck ride. So why not put that envelope on a truck and drive it to Boston? It’s much cheaper to drive mail than it is to fly mail. Forward Air figured out that they could handle a lot of airmail for the overnight carriers and save them significant money.

I also mentioned that this is a trucking company that doesn’t own trucks. One of the things Forward Air identified was the fact that many trucks sit idle in the middle of the night. So they went to truck owners and said, “Hey, your truck is just sitting there overnight. Let us use it. We’ll drive it, fill it back up with gas and get it back to you in the morning. You’ll make a little money instead of it just sitting in your driveway.” They identified a problem and solved it in a very unique and practical way.

Another example of a company solving the “Save Money” problem is a company called Kettleshell. This company invented a way to turn dumbbells into kettlebells. As you might know from the gym, a kettlebell sort of looks like a Civil War cannonball with a handle on it and there are a lot of workouts you can do with them.

Kettleshell converts a dumbbell into a kettlebell through a handle that bolts right on. If you’ve already got a set of dumbbells, you can now bolt this handle on and do kettlebell exercises using your existing dumbbells.

It’s a tremendous idea but interestingly, the founder originally thought he was going to save people money on not having to go out and buy a bunch of new kettlebells but it turned out that people in urban areas, particularly urban gym owners or urban apartment dwellers, were actually less concerned about the cost than the space. They didn’t have anywhere to put a bunch of kettlebells. So this product ended up solving two problems.

Wofford: It sounds like one of those products where you think, “Why hadn’t anyone thought of this before?” What about addressing problems that aren’t money-related?

Treat: Another area where businesses find success is in making something more convenient.
A good example is Sean Neville, the founder of Simply Audiobooks. Audiobooks are still something that people listen to on a physical medium because so many people listen to them in a car. So Sean developed a subscription service similar to the early days of Netflix, in which subscribers get mailed the audiobook CDs. Part of their innovation was coming up with a packaging sleeve that allowed the company to mail multiple audio discs at once. Unlike Netflix, which would send one disc at a time, Simply Audiobooks would send all of the discs required for a book, which sometimes could be as many as 12.

At the time Sean sold the company to a Toronto private equity firm, they had 25,000 customers and were North America’s number one audiobook rental company. Each one of those customers was paying an average of $25 to $35 per month.

To understand how valuable the convenience they provided is, you need to remember that their number one competitor wasn’t charging anything. Their top competitor was the local public library, where users could get an audiobook for free. But the convenience of having the audiobooks come to your home and being able to send it back and forth was worth $25-$35 a month to over 25,000 people. Convenience is truly valuable even if you’re competing against free.

Another good example is a Cornell company called Rosie. Rosie is an app to do grocery delivery. Now, people typically view grocery delivery as a luxury item for rich people. But what Rosie discovered was that rich people actually like to go to the grocery store. They like to walk the aisles at Wegmans. They like to pick out their own apples.

It turns out that the people who really need something like this are folks for whom getting to the grocery store is actually quite inconvenient. This is primarily people without cars. It could be students, it could be people who can’t afford a car, it could be people who choose not to have a car because they use public transportation for most things. But going to the grocery store is wildly inconvenient if you have to take a bus. You have to fit all of your grocery bags on the bus or you have to pay for a taxi, and that’s both inconvenient and expensive.

So what Rosie discovered is that although they thought they would be selling to rich people, their audience was really those who found the value in paying a very low delivery fee that was cheaper than a cab and more convenient than a bus ride.

Wofford: I know someone who has a modest income with three children under the age of two. With the inconvenience of trying to take the kids to the grocery store, this sounds like a no-brainer.

Treat: That’s a perfect example of who Rosie reaches. The company polled college students and asked why they needed a car and the number one reason given was for going grocery shopping. With Rosie, you don’t need a car anymore. I can also tell you that university administrations don’t like having to deal with a lot of cars and parking and all the permits. They’d prefer that students do not have cars. I also know that here in Ithaca, our mayor is very excited about it because he’s trying to figure out how to get people out of their cars from an environmental standpoint.

Wofford: So this company is actually addressing numerous problems at once.

Treat: Exactly. When you’re thinking about problems, think broadly. It’s not just about saving money or saving time. There are always creative ways of solving a problem for someone out there if you can deliver on it in a meaningful way.

One thing I really like to point out to people is that you do not have to come up with a business that nobody else has ever come up with. It’s a popular myth that a good idea is one that nobody else has ever had. But think of Google. There were all kinds of web search engines that existed before Google but Google came in and said, “Hey, we can do this better, we can do it differently, and we will be able to compete with all of these.” And of course, they didn’t just compete, they completely took over the market.

The way we see it is that if there are no competitors doing it, that’s a problem. It means nobody cares and you don’t want to try to solve a problem that nobody cares about. Having competitors is good — you just need to know your competitors and understand how you’re different and unique from them. If you can be slightly different or slightly better or target a different, underserved market, that’s a tremendous opportunity for you. Don’t get discouraged and just say, “Gosh, somebody already came up with that idea.” Revisit the idea and say, “How can I do it better? How can I do it different? How can I find a new market that is being underserved?”

Wofford: I think that’s great advice. It certainly seems easier to improve upon something that already exists than to invent something out of whole cloth.

Treat: It is. If you can understand how big a problem is for people or how you are better than the competitors at addressing it, you’ll have an edge. Focus on the problem you solve and then you can build an organization around that.

So, where do you find the ideas? You need to put on your entrepreneur glasses and look at the world in terms of problems that you could solve. If they’re big problems, people will pay to solve them. The bigger the problem, the more they’ll pay. Find somebody who has their hair on fire and they will pay you a lot to put it out.

Once you change your lenses and look at the world through different ways, you can actually start coming up with lots of ideas. I would encourage you to put everything on the list.

Wofford: Let’s say you have a list of 100 ideas. How do you know which ones are worth acting on?

Treat: There are certain criteria that we can use to define what makes a good business idea. You have to make sure it’s a good business idea for the customer. We want you to say, “I want to make what customers want to buy.” That should be the focus rather than trying to sell something that you want to make. Understand the customer and build an organization accordingly.

Wofford: I’d like to now turn to the audience and take some questions. We had a good one come through from Lawrence in the chat window while you were speaking: “How should a successful startup value its equity prior to seeking angel funding?”

Treat: I would actually encourage him to not value it. I know that sounds like a dodge, but valuing early-stage companies is extremely difficult to do. It becomes a sort of a thumb in the wind.

Still, there are techniques we can use, the most notable of which is something called convertible debt. What this says is that any money that comes in will be valued at some future date and there is a whole mechanism for doing it. You can actually find a lot of these templates online but basically what it says is you put the money in now, that money will earn interest, and then at some future date it will convert into equity once we have a better way of determining valuation.

Wofford: Here’s another great one: Once you’ve got a good idea for a new or improved product, what’s the best way to go about getting it out there?

Treat: Let’s go back to the Kettleshell example. He made the handle that goes on the dumbbells and he thought he should go out and build a prototype out of steel, aluminum, rubber handles — the whole thing. I said, “Don’t do that. Just make a mock-up.” So he went over to the art supply store, got some styrofoam, some duct tape, and some spray paint. That was enough to make a mock-up that he could put into gym owners’ hands. They were then able to give him feedback and suggest some changes. That styrofoam version turned out to be way more valuable than had he made the real thing. He was able to get pre-orders based on a CAD drawing, essentially. The more you can talk to customers, the better.

Wofford: We’ve got another audience question here, this one from Rohit in India. “I have a great product idea, but building it requires funding. I’ve done my research and believe this product will be the first of its kind. Where and how do I begin?”

Treat: Well, as I said earlier, it is rare that I find something that’s truly one of a kind. So I would challenge Rohit by asking how people are currently solving the problem that his product addresses. You may be solving it in a unique and different way, but how are others currently solving it? If you can go out there and talk to customers and find out what their needs are, then they’ll help you build the products.

I would challenge you, Rohit, to think very creatively about how you can get a minimally-viable product. If the guys from Kettleshell can do it with Styrofoam, then you should be able to creatively come up with some way to demonstrate your product.

Wofford: We have a question from Lance, who asks if you can recommend any other resources for generating ideas.

Treat: The best way to come up with a lot of ideas is to talk to a lot of people. Ask them open-ended questions about what problems they face. The more open-ended, the better. What’s your top expense? What check do you hate writing each month? What is one thing that you do in your job that you wish would just go away?

If you’ve currently got a job, look at the company you are at right now and ask yourself “What’s something that my company does now but shouldn’t be doing because it’s not our core business?” That could help you spin it out into a whole new business.

Wofford: Those are all great ideas. We’ve unfortunately run out of time, so I want to thank Brad for joining us and thanks to all of you in the audience for posing such good questions.

Treat: Thanks Chris, this has been fun.

 

Want to hear more? This interview is based on Bradley Treat’s live eCornell WebSeries event, What Makes a Great Startup Business Idea? Subscribe now to gain access to a recording of this event and other Entrepreneurship topics. 

Here’s How to Make Innovation Real

There’s a wealth of information on innovation out there, but how can you turn all the theories into action?

Professor Neil Tarallo, a senior lecturer at Cornell’s Hotel School, focuses on how to foster innovation within the workplace in his most recent discussion with eCornell’s Chris Wofford.

Wofford: Neil, it’s great to have you back here with us. What do your students and our webinar viewers need to know about innovation?

Tarallo: My favorite definition of innovation—and believe me, there are many of them out there—was articulated by Peter Drucker, a great researcher out of Harvard who really had a great take on how and where innovation and entrepreneurship come together.

Drucker said, “Innovation is change that creates a new dimension of performance.” I really like that concept of a new dimension. It provides us with opportunities to apply things in a very different way than they’ve ever been applied before.

Innovation really comes in two different levels. One is incremental, or what some people call “sustainable innovation.” And then there is disruptive innovation.

Wofford: Can you walk us through what you mean by those?

Tarallo: Well, an incremental innovation is really a small improvement or upgrade to an existing concept. It can be technology, a product or service. Think of software upgrades that fix minor things or add new features. In the physical world, think of Gillette. They started with a single razor. Over time, Gillette has innovated and created a lot of different things. They went to disposable razors, they have multi-angle blades, they have lubrication bars. So Gillette is an interesting example of how incremental innovation has allowed a company to sustain market leadership for a very long time.

When it comes to disruptive innovation, we’re talking about innovation that changes the way people think about things. Clay Christensen coined the term to describe a process by which a product or service takes root initially in a very small and unnoticed way but gathers momentum as it goes to the market and then people start to really grab onto it.

One of the interesting things about disruptive innovations is that we don’t know if disruption is happening before it actually starts to happen. An example of this, to stay within the shaving realm, is Dollar Shave Club, which has taken us away from the expensive replacement blades by saying they’ll just send you new blades every month for just a couple of dollars.

Wofford: Right, for them it is a subscription-based product and a recurring revenue model for the company. That’s kind of how they get you.

Tarallo: Exactly, and that disrupts the old business model that Gillette created, which was to give you the razor handle and then sell the blades at very high prices.

The important thing to remember is that both incremental and disruptive innovations are necessary for organizations. In my opinion, you need to have a plan for both the incremental improvements that you’ll be doing as well as constantly searching for that disruption that’s going to completely change things.

These two innovations generally focus around three areas: technical innovation, product innovation, and service innovation. A great example of service innovation is how Netflix changed the movie rental business.

But in order for innovation to be successful, you have to create an opportunity within the organization for entrepreneurial behavior to really manifest itself and to take hold. You need an organizational architecture that fosters and supports entrepreneurial behaviors so that you can be chasing after these innovations as you go along.

Wofford: How does a business go about establishing that?

Tarallo: There are two components that I think of when I try to action innovation within an organization. One is what I like to think of as “opportunity discovery” and the second is value proposition design.

When it comes to opportunity discovery, there is a clear methodology that applies. It starts with observation of the market and of potential customers, getting them to talk about their experiences—doing interviews with them to gather information, applying surveys and focus groups and the science behind those. It’s observing people and how they behave as they go throughout their days.

This process is actually called ethnography, which is sort of a fancy word, but it’s really a simple process of just watching people and taking note of what they’re doing and what they’re experiencing as they go through their daily lives. We’re looking for things that are missing for them as they try to accomplish tasks. We’re looking at problems that they encounter that need to be overcome and we’re also looking for pain that they’re experiencing along the way.

In those observations, I’m thinking about three specific behaviors: the functionality of what it is that they’re trying to apply, the social implications of what they’re doing, and also any emotional implications.

Wofford: We have some open-ended questions here that I think it would be good to get the audience to think about. When was the last time that you spoke with your customers regarding their experience with your product, service, or technology? If you would put your answers in the chat window please.

Tarallo: Look at that, someone wrote “just yesterday.” I like that, that’s great. Someone else replied “every single day.” That’s a lot of work so I would be curious how that actually works. Is that through a survey, and what do you do with that information when you get it? That’s really the big thing.

Wofford: That brings me to the natural follow-up question. What do you do with this feedback?

Tarallo: For me, every time a student comes into my office to talk to me about anything, I get information from them for some research that I’m doing about entrepreneurship and how we teach entrepreneurship. I’ll ask a very simple open-ended question, which is “What has it been like for you registering and taking entrepreneurship classes here at Cornell?” And when that student leaves, I have a little red book on my desk and I’ll open it up, put the date and their name and take notes on what they told me. So it’s good to pose these really open-ended questions to get your respondents to tell you stories.

Storytelling is really one of the most powerful tools in this process. When you can get people talking you through their experience, you really learn things you wouldn’t have anticipated.

Obviously an important part of that is to listen carefully, but you also need to look for those nonverbal cues as well as you go along. From there, you can start to generate a hypothesis about what is going on in the marketplace or what is happening within the context of your interest.

Wofford: And what’s the best way to get people to share their stories with you?

Tarallo: It can be through singular and/or multiple engagements, meaning I can sit down with you for an extended period of time and have a longer interview, or we can do multiple engagements where I’m talking to you for 10 to 15 minutes over a long period of time. Both of those are powerful applications of the interview process.

Surveys are another step. Here we start to move away from the qualitative aspects of our research and we start moving more into the quantitative. Surveys primarily help validate hypotheses by reaching a very large sample size. You can also use surveys at the very beginning of your process simply to identify the people that you want to be speaking with to make sure that you have a diverse population in your sample size. You’ll be looking for demographic information like race, geographic location, household income, age, and so on to ensure that you get the right population to ask. Otherwise, your validation is not going to be accurate and you’ll have problems going forward.

Focus groups are another popular thing but I personally stay away from them because there is a real science to focus groups. To run a focus group well, I think you need to be trained in it or you need to hire people to do it for you. And they’re expensive, so when I’m in startup mode, focus groups are generally not something I’ll incorporate.

Wofford: Whichever method you choose, you need to then do something with the information you gather. What do you do?

Tarallo: When we analyze the data, there are a handful of things we do: code the information that we have, look for patterns or anomalies in the information, and then start to generalize and create a narrative around it.

We want to track our assumptions and any biases that we think were brought in and then we want to validate it in the market through a series of controlled experiments and prototyping. We know that these experiments are often designed to fail, but they’ll teach us something that will help us move forward again and take that next step.

I’m a big fan of controlled experiments that are likely to fail, but when they fail, they’re not going to impact our market or people’s perception of our company. I’m not a proponent of the philosophy these days of going out and failing big and failing fast. Failure is just not a good thing, I’m sorry. Controlling it makes a lot more sense, as I can learn more when I do that.

This, in my opinion, is particularly true in the service industries. Service-based businesses are much harder to innovate in and much harder to build business models around. It’s relatively easy to hand somebody a tangible product or put a technology in front of them and have them tell you what’s wrong with it and then you can do an update or a new iteration. But if you’re trying something new out in your restaurant and it results in bad service, most of the affected customers won’t come back to your restaurant a second time. So we want to be very careful. It’s about testing. It’s about failing in a controlled way. It’s about repeating that process until we have what we need as we go forward.

Wofford: Can you tie all of this together for us?

Tarallo: As I’m going through the innovation process, I’m thinking about and utilizing all of the information that I got through the ethnographic research that I’ve done. Through that process of observation, storytelling, interviewing, surveying, and validation, I’m bringing those components in and placing them on the value proposition canvas, which is a powerful tool that presents a graphic illustration of what I’m experiencing and what I’m seeing in the marketplace. I use Post-it notes so that I can take them down and move them as things change, so it’s a very dynamic tool and really lets us get to where we want to go.

My advice to folks is always that if you find yourself sitting at a computer doing research, you’re doing it wrong. It’s all about really interfacing with the marketplace. All your hypotheses need to be validated in the market. We need to be doing those small controlled experiments that help us validate things without damaging our relationship with our customers.

Wofford: Neil, thank you so much for joining us once again.

Tarallo: Thank you, Chris. And just remember, it’s all about getting out there and trying it. You probably won’t succeed the first time you do it, but don’t be dissuaded. Get out and practice. It’s the application of it that you get better and better at.

 

Want to hear more? This interview is based on Neil Tarallo’s live eCornell WebSeries event, A Fresh Look at Innovation. Subscribe now to gain access to a recording of this event and other Entrepreneurship topics. 

The Triple Bottom Line In an Entrepreneurship Enterprise

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