This article first appeared in Poets and Quants
Revolutions start by overturning the status quo. By the end of the 20th century, case studies and business plans had reached an evolutionary dead-end for entrepreneurs. Here’s why and what we did about it.
The Rise of Business Schools – Management as an Occupation
The business school was invented in the first decade of the 20th century in response to a massive economic transformation in the U.S. that took place in the last quarter of the 19th century. The country exited the Civil War as a nation of small businesses and ended the century with large national corporations (railroads, steel, oil, food, insurance, etc.). These explosions in company size and scale created a demand for professional managers. In 1908 Harvard Business School filled that need by creating a graduate degree – the Master of Business Administration. Its purpose was to educate management on best practices to run existing companies.
The MBA Curriculum – From Fieldwork to Case Studies
When Harvard started the MBA program there were no graduate-level business textbooks. The school used the “problem-method” which emphasized fieldwork – getting out of the classroom and visiting real companies– as an important part of the curriculum. Students observed how executives worked, interviewed them, and wrote up how real managers solved problems. Students then discussed these problems and solutions in class.
By the early 1920s a new dean changed the curriculum – shifting it from an industry orientation (steel, railroads, etc.) – to a functional one (marketing, factory and employment management (HR), etc.). This focus on a functional curriculum involved a switch to the case method; fieldwork now took second place. The case method assumes that students learn when they participate in a discussion of a theoretical situation they may face when they are a decision-maker rather than a real one they see in the field.
By 1923, 2/3rds of the courses at Harvard were taught with the case method, and the pattern was set for business education for the rest of the 20th century.
Entrepreneurship Becomes a Subject in Business Schools
While MBA programs proliferated during the first half of the 20th century, they focused on teaching management of existing companies. There were no classes on how to start a business. That is until 1947 when Myles Mace taught the first entrepreneurship course “Management of New Enterprises” at Harvard Business School. Soon others were created. In 1953 Peter Drucker offered an Entrepreneurship and Innovation class at New York University, and in 1954 Stanford’s business school offered “Small Business Management” its first small business course.
In 1967 the first contemporary MBA entrepreneurship courses were introduced at Stanford and NYU, and a year later Babson offered the first undergraduate entrepreneurship program. By 1970 sixteen schools were offering entrepreneurship courses, and in 1971 UCLA offered the first MBA in entrepreneurship. Entrepreneurship textbooks such as Small Business Management: Essentials of Entrepreneurship and Entrepreneurship: Playing to Win started to appear. In 1985 the University of Miami held the first national business plan competition. By 1991 there were 57 undergraduate and 22 MBA programs. Textbooks, papers, and journal articles proliferated.
By the end of the 20th century entrepreneurship education fell into two categories: 1) starting small businesses and 2) starting high-growth, high-risk scalable startups. But both types of entrepreneurship courses were taught using case studies and taught students how to write and execute a business plan. The curriculum of both types of courses were simply adaptations of what business schools were using to train managers for the administration and execution of existing organizations.
The case method and business plans are the antithesis of how entrepreneurs create startups
The case method assumes that students learn when they participate in a discussion of a situation they may someday face as a decision-maker. But the case method is the antithesis of how entrepreneurs create a startup. Cases teaches pattern recognition tools for static patterns—and has limited value as a tool for teaching entrepreneurship. Analyzing a case in the classroom, removed from the realities of a new venture, adds little to an entrepreneur’s preparation for the chaos, uncertainty, and conflicting customer responses that all entrepreneurs face.
Business plans presume that building a startup is a series of predictable steps requiring execution of a plan which assumes a series of known facts: known customers, known features, known pricing, known distribution channel. As a serial entrepreneur turned educator, this didn’t make sense to me. In a new venture none of these things are truly known. The reality is that most business plans don’t survive first contact with customers.
Neither cases nor business plans replicate the actual startup experience. Cases and plans are useful for teaching managers of process, not founders. Founders of startups (and new ventures inside existing companies) are searching for product/market fit and a repeatable and scalable business model. Searching, unlike execution, is not a predictable pattern. An entrepreneur must start with the belief that all their assumptions are simply hypotheses that will undoubtedly be challenged by what they learn from customers.
Yet up until 10 years ago, schools were still teaching entrepreneurs how to build startups on the premise that they were simply smaller versions of large companies. Entrepreneurial education was trapped in the 20th century.
21st Century Entrepreneurship curriculums
At the start of the 21st century, after two decades and 8 startups, I retired and had time to think about how VCs directed their startups using business plans. I began formulating the key ideas around what became the Lean Startup – that startups and existing companies were distinctly different – companies execute business models while startups search for them. Consequently the methodologies for launching products in startups were different than for existing companies.
A decade later, I began to teach the foundations of Lean, first at UC Berkeley (Customer Development) and then at Stanford using cases and business plans. After a few years of trial and error in front of a lot of students, I realized that the replacement for the case method was not better cases written for startups and that the replacement for business plans was not how to write better business plans and pitch decks. (I did both!). Instead, we needed a new management stack for company creation.
I posited that teaching “how to write a business plan” might be obsolete.
With Lean LaunchPad, we were going to toss teaching the business plan aside and try to teach students a completely new, hands-on approach to starting companies – one which combines customer development, agile development, business models and pivots.
Let’s Teach Lean Via Experiential Learning
First I searched the academic literature trying to learn what methods would best convey information that entrepreneurship students could understand, retain, and put to practical use. There were five parts to consider:
- What’s the level of ambiguity, realism and complexity of the course content
- How structured are the tasks within the class?
- What were the experiential techniques used to deliver the content?
- What were the pedagogical components of the class?
- How will we deliver feedback to the students?
For each of these parts of the course design we needed to consider where on the spectrum of directedversus experiential each of the five parts of the class would fall.
Direct Guidance Versus Experiential Classes
I concluded that best way to teach entrepreneurs (versus managers) was to create an experiential and inquiry-based class that would develop the mindset, reflexes, agility, and resilience needed to search for a business model certainty in a chaotic world.
Experiential learning (also called “active learning” or “learning by doing”) is designed to have a high degree of complexity and realism. It’s not about read and remember, but rather is about problem exploration, design and inventing and iterating solutions. This differs from a traditional class with directed learning where students are taught to remember facts, understand concepts, and perhaps apply procedures but not to discover these by themselves.
In contrast, experiential classes are designed with the theory that people learn best in an unguided or minimally guided environment, where the students, rather than being presented with all of the essential information, must discover, or construct that information rapidly for themselves.
This seemed to me to be the best way to teach entrepreneurship. Experiential learning is the core of how we teach the Lean LaunchPad/I-Corps/Hacking for X classes. Launched in 2011, the Lean LaunchPad capstone entrepreneurship class was unique in that it was:
- Lean-driven (hypothesis testing/business model/customer development/agile engineering).
The class aimed to mimic the uncertainty all startups face as they search for a business model while imparting an understanding of all the components of a business model, not just how to give a pitch or a demo.
The figure below illustrates the spectrum of teaching techniques and shows where our class fits on the right.
We were going to teach entrepreneurship like you teach artists – combining theory with intensive hands-on practice.
This Lean LaunchPad is built around the business model / customer development / agile development solution stack. Students start by mapping their initial assumptions (their business model). Each week they test these hypotheses with customers and partners outside the classroom (using customer development), then use iterative and incremental development (agile development) to build Minimal Viable Products.
The goal is to get students out of the building to test each of the 9 parts of their business model (or mission model for Hacking for Defense students), understand which of their assumptions were wrong, and figure out what they need to do to find product/market fit and then a validated business model.
” data-medium-file=”https://i0.wp.com/steveblank.com/wp-content/uploads/2010/10/business-model-design-meets-customer-development.jpg?fit=300%2C186&ssl=1″ data-large-file=”https://i0.wp.com/steveblank.com/wp-content/uploads/2010/10/business-model-design-meets-customer-development.jpg?fit=468%2C290&ssl=1″ loading=”lazy” class=”wp-image-7014 aligncenter jetpack-lazy-image” src=”https://i0.wp.com/steveblank.com/wp-content/uploads/2010/10/business-model-design-meets-customer-development.jpg?resize=400%2C248&is-pending-load=1#038;ssl=1″ alt width=”400″ height=”248″ data-recalc-dims=”1″ srcset=”data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7″>
Our objective is to get them using the tools that help startups test their hypotheses and adjust when they learn that their original assumptions are wrong. We want them to experience faulty assumptions not as a crisis, but as a learning event called a pivot —an opportunity to change the model. (More than just for use in startups, these problem-solving skills are increasingly crucial in today’s increasingly complex world.)
Each week every team presents to the teaching team – “Here’s what we thought, here’s what we did, here’s what we learned, here’s what we’re going to do next week.”
Designing the Lean LaunchPad/I-Corps Class – the “Pedagogy”
While the Lean LaunchPad/I-Corps/H4X students are experiencing what appears to them to be a fully hands-on, experiential class, it’s a carefully designed illusion. In fact, it’s highly structured. The syllabus has been designed so that we are offering continual implicit guidance, structure, and repetition. This is a critical distinction between our class and an open-ended experiential class.
Guidance, Direction and Structure
For example, students start the class with their own initial guidance – they believe they have an idea for a product or service (Lean LaunchPad/I-Corps) or have been given a clear real-world problem (Hacking for Defense). Coming into the class, students believe their goal is to validate their commercialization or deployment hypotheses. (The teaching team knows that over the course of the class, students will discover that most of their initial hypotheses are incorrect.)
Next, the business/mission model canvas offers students guidance, explicit direction, and structure. First, the canvas offers a complete, visual roadmap of all the hypotheses they will need to test over the entire class. Second, the canvas helps the students goal-seek, by visualizing what an optimal endpoint would look like – product/market fit / mission success – would look like. Finally, the canvas provides students with a map of they what they learn week-to-week through their customer discovery work.
(I can’t overemphasize the important role of the canvas. Unlike an incubator or accelerator with no frame, the canvas acts as the connective tissue – the frame – that students can fall back on when they got lost or confused. It allows us to teach the theory of how to turn an idea, need, or problem into commercial practice, week by week a piece at a time.)
Third, the tools for customer discovery (videos, sample experiments, etc.) offer guidance and structure for students to work outside the classroom. The explicit goal of 10-15 customer interviews a week along with the requirement for building a continual series of minimal viable products, provides metrics that track the team’s progress. The mandatory office hours with the instructors and support from mentors provide additional guidance and structure.
Working Memory and Reflection
One of the challenges we wanted to avoid is overloading students’ short-term memory. If you give students minimal feedback and provide no structure or guidance, most of what students experience gets forgotten. To counter that, we’ve built three techniques in to reduce the cognitive load: regular summing up, repetition, and reflection. This allows students to transfer their weekly experiences into long-term memory and knowledge.
By design, each week we make students stop, reflect, and summarize their learning (here’s what we thought, here’s what we did, here’s what we found and here’s what we’re going to do next week.) The teams present these reflections, along with required specific deliverables for each week. These weekly presentations also provide reinforcement – students need to remember their learning from each of the prior components in the business/mission model canvas to provide a context for the current week.
In addition to the week-to-week summaries, we give students a reflection week at the end of the class to synthesize, process and integrate those week-to-week learnings. And we teach them how to turn that learning into a compelling story of their learning journey.
Ambiguity, Realism and Complexity
Ambiguity in a class means the subject can have multiple right answers. Or even no right answer. Searching for answers to the business and mission problems i.e. product/market fit has maximum ambiguity – there isn’t always a correct answer, nor will the same path get you to the same answer in different circumstances.
Realism in a class means, how well does the class content match an actual problem in practice? Learning accounting in a classroom is likely similar to doing accounting in an office. However, reading case studies about startup problems in a classroom has little connection to the real world and has low realism.
Complexity refers to the number of things that can change that may affect the outcome of a decision. As the number of things that change goes up the so does the complexity of the learning process.
New ventures are ambiguous, real and complex. Teaching “how to write a business plan” as a method to build a startup assumes low ambiguity, low realism, and low complexity when the opposite is true. So we structured the class to model a startup; extremely ambiguous with multiple possible answers (or at times none,) realism in the pressures, chaos and uncertainty of a startup, and complex in trying to understand all parts of a business model.
The Flipped Classroom
Inside the classroom, we deliberately trade off lecture time for student/teaching team interaction. The class is run using a “flipped classroom.” Instead of lecturing about the basics during class time, we assign the core lectures, recorded as video clips, as homework.
Instructors then supplement the video lectures with their own in-class short lecture about this week’s business model topic. This allows instructors to use the class time for review of the concepts or short lectures customized for specific domains (e.g., hardware, life sciences, etc.).
In an experiential class students must be fully immersed in the experience, not just doing what the syllabus says is required of them. Project-based learning engages and motivates students Having each team present weekly in front of their peers raises the commitment (and heart rate) of the students. No one wants to be shown up by another team.
Speed and Tempo Outside Their Comfort Zones
One of the goals of the class is to talk to 100 customers and partners. That may seem like an absurdly unreasonable goal, yet all teams manage to do so. Most case-based or project classes do not offer time and resource constraints. Our class is purposely designed to offer maximum ambiguity while pushing students to achieve extraordinary results under relentless pressure and time constraints. We stress a relentless speed and tempo because we believe that learning is enhanced when students are given the opportunity to operate outside of their own perceived comfort zones.
Our objective is to have students experience what it’s like to operate in a real-world startup. Outside the classroom walls conditions will change so rapidly that their originally well thought out plans become irrelevant. If they can’t manage chaos and uncertainty, if they can’t bias themselves for action, and if they wait around for someone else to tell them what to do, then their investors and competitors will make their decisions for them and they will run out of money and their company will die.
Therefore, every successful founder needs a decisive mindset that can quickly separate the crucial from the irrelevant, synthesize the output, and use this intelligence to create islands of order in the all-out chaos of a startup. The class is designed to emulate that chaos and teach a bias for action.
The class moves at breakneck speed and is designed to create immediate action in time-, resource-, and cash-constrained environments. The teaching team practices Radical Candor – caring personally while challenging directly. At its core, Radical Candor is guidance and feedback that’s both kind and clear, specific, and sincere, and focused on helping the other person grow.
We give the students public feedback about the quality and quantity of their work in front of their peers weekly. For some, it’s the first time they’ve ever heard “not good enough.”
Class Design – Summary
The design of the class was a balance between ambiguity, complexity and uncertainty with structure and learning strategies.
While this process is extremely effective, it can be painful to watch. Our natural inclination (at least mine) is to offer specific guidance and solutions. (There are a few times in class when the team may need explicit directions such as, “It’s time to pivot” or “Your team needs to restart.” But these should be exceptions.)
The genius of the class design was making the class look like it wasn’t designed.
In the first decade of the Lean LaunchPad class we’ve trained hundreds of other educators around the world to teach the class at their universities. By now 100s of thousands of students have taken some form of the class, and 100’s of companies have been created.
In addition, two government-funded programs have adopted the class at scale. The first was the National Science Foundation I-Corps. Errol Arkilic the then head of commercialization at the National Science adopted the class saying, “You’ve developed the scientific method for startups, using the Business Model Canvas as the laboratory notebook.” I-Corps which is now offered in 100 universities and has trained ~2,500 teams/7,500 scientists in 100 cohorts. The National Institute of Health also teaches a version, I-Corps @ NIH, in the National Cancer Institute.
Today, this Lean LaunchPad/I-Corps syllabus is also the basis for a series of Mission-Driven Entrepreneurship classes– Hacking for Diplomacy, Defense, Oceans, non-profits and cities. Hacking for Defense is now taught in over 55 universities in the U.S., with versions of the course offered in the UK and Australia.
While the Lean LaunchPad/I-Corps curriculum was a revolutionary break with the past, it’s not the end. In the last decade enumerable variants have emerged. The class we teach at Stanford has continued to evolve. Better versions from others will appear. And one day another revolutionary break will take us to the next level.