Master Class
Launching and Leading Startups
Budding entrepreneurs can become so caught up in finding the next great idea that they don’t think through what comes next. What is it like in the “hot seat” as a startup founder in a company’s first year? How do you take an idea from concept to launch to scale? And — crucially — is the demanding world of launching and leading startups really for you?
Kellogg students get the chance to grapple with these questions in Launching and Leading Start-Ups, a course taught by Carter Cast '92, a clinical professor of entrepreneurship. The course, which Cast co-developed with Kellogg alumnus and entrepreneur Brad Morehead, trains students to think through some common (and sometimes debilitating) challenges that entrepreneurs confront in their first year. “Some students use the lessons to start their own ventures, while others apply them to being innovative inside established companies,” Cast says
He highlights four critical questions that aspiring entrepreneurs need to ask themselves on the road from great idea to successful venture, and offers advice for how to answer them.
Do you really have product-market fit for your idea?
The first step is to determine if you have product-market fit — a differentiated product or service that solves a real need in an attractive market. Research shows that over 40 percent of startups fail because the entrepreneur built a product that didn’t address a real need. We dig into three questions around this critical topic: First, are you crystal clear on your most important first customers and their unfulfilled needs? Second, is there a big enough addressable market, and have you found an entry point that the competition hasn’t discovered? And third, does your value proposition really address that target market’s greatest needs? If you can answer "yes” to these three questions, you’re cooking with gas.
One case we look at is a company called Tovala that makes smart ovens and prepared meals. Students conduct field research to help the chief marketing officer determine Tovala’s most attractive target market options. There isn’t an obvious answer. There are benefits and detriments to targeting on-the-go solo diners or working couples who have kids. Then we have a conversation around the challenges of trying to appeal to both groups simultaneously, from the cost ramifications to the challenges of developing clear brand positioning.
The takeaway: Entrepreneurs are so resource-constrained that they must examine their trade-offs and make choices. They must stay focused early in the game. In this case that means determining your tip-of-the-spear target audience and building your offer accordingly.
Can you efficiently get your product into the hands of your customer?
The next question is, are you able to acquire customers in a way that doesn’t bankrupt you? A second big reason new ventures fail is because entrepreneurs can’t find the right selling channels and marketing vehicles to get their product in the end users' hands in an economical and scalable way. So we dig into several cases that highlight tough go-to-market issues: which selling channels to utilize, which marketing vehicles to use and which partnerships to pursue.
We examine a delightfully convoluted case about a startup that developed a credit card for extremely large-ticket transactions, like automobiles and college tuition payments. Students have to determine the best selling channels to pursue: Should they try to sell directly to retailers, or try to sell through established distributors, or through both? In this case, the actual startup tried to sell through distributors and directly to the end market simultaneously. The company nearly went bankrupt and had to scramble to change its sales and channel strategy.
The case helps students realize the importance of taking a disciplined approach to tough go-to-market decisions. Eventually the entrepreneur has to pick a selling channel. Straddling both options can put the entire business at risk.
Can you execute your strategy as a leader?
Once you know that you have product-market fit, and that you can scale up, the question is: Can you can execute on the opportunity? Can you hire well, organize effectively and align your team to get the right things done?
We use several cases to illustrate just how challenging this is. We look at the day-by-day journal of an entrepreneur who bought a window-washing company. There are all kinds of problems the new CEO faces, from potential OSHA violations to poor employee morale. Essentially, the entrepreneur has to figure out how to spend their time. Students are asked to rank the company’s most important priorities and justify their answers. They also get in front of the class and show how they would lead an all-hands meeting. Then, after the company gets acquired, what and how would they communicate to their new team?
To paraphrase Mike Tyson, everybody has a plan until they get punched in the face. Once they’re in the hot seat as the entrepreneurial CEO, students realize that their game plan is hard to implement, given the burning events that each day brings. The ability to remain focused yet flexible is difficult, but it’s a key requirement to being a successful entrepreneurial CEO. That’s a big aha moment for quite a few students, especially those that come from big, established companies.
Is entrepreneurship right for you?
In my nine years teaching at Kellogg, I’ve come to realize that it's important to help students understand what sort of environment is right for them culturally. A creative, green field environment that’s high in creativity and low in structure? Or perhaps a hair-on-fire scaling startup that needs someone with a gift for ordering chaos? A low-key collegial environment high in self-expression, or a competitive, performance-oriented culture that emphasizes achievement? I carved out a special class toward the end of the course aimed at answering these hard questions. I hit the pause button and said, “Okay, let’s talk about personal direction.”
Understanding if entrepreneurship is for you is very important, because entrepreneurship is hard. At the end of two different cases, I kill the projector and say, “Okay, would you buy and run this company? Why or why not?” Some students say, “An opportunity to be a CEO and general manager right out of business school? Sign me up!” Others say, 'Are you out of your mind? I would never want to do these sorts of tasks all day long. Yuck!” It's very interesting to watch them come to the realization that a lot of the stuff the CEO has to do is either hard — like firing people and dealing with investors — or mundane — like compliance management and budgeting.
At the end of the final class, students often approach me as I’m packing up. Some say, “Now that I've taken this course, I really want to get into a smaller company that is more dynamic.” And others say, “You know what? I don't want to be an entrepreneur. I want more structure.” And I say, “Well, that's a great thing to learn, isn't it?”