On January 7 2015, EEF met for the second session of our webinar series. In this session, we first wrapped up the last webinar’s discussion on ideation by bringing in Professor Bernie Roth, co-founder and academic director of Stanford’s d.School, then shifted our focus to the second central topic in the stage of venture “Nucleation” – team building.
The d.School is known to foster innovation through teaching a “design thinking” process drawing from both engineering and design. Bernie walked us through the design thinking process, which says that the key to identifying real problems is the ability to observe with empathy, which results in truly innovative, human-centered ideas.
One example he provided involved a student team that went to Myanmar to help farmers solve a water supply problem. As they “did their empathy work” and talked with farmers in their huts to understand the problem more deeply, they discovered a much more pressing problem – lighting. Farmers used kerosene lamps and candles to light their homes, which is both unsafe and costly. The team changed direction entirely, developing d.light, a solar-powered LED light system that has since been installed in developing countries around the world.
“Empathize” is followed by “define,” where students create a clear, actionable problem statement (often called a Point of View or POV) which includes a definition of the intended user, a verb describing the need, and insight specifying what the solution needs to accomplish. Only then can students effectively “brainstorm” interesting and valid potential solutions, and begin prototyping. But rather than follow a linear approach, students often go back and forth between these stages as they refine their thinking.
Bernie’s presentation demonstrated how creating the right environment (both in terms of the physical space and the pedagogic style and atmosphere), combined with a diverse student body and an emphasis on core values and mindsets empowers students to explore and develop innovative ideas while keeping a clear focus on the people they are trying to serve and their real, not perceived, needs. Core d.School mindsets include a bias toward action (expecting students to quickly start doing, rather than get bogged down in planning), radical collaboration (interdisciplinary teams), a culture of prototyping and a “show don’t tell” teaching policy. Students are expected to become experts on their topic right away, and work with an equally diverse teaching team that collaborates in guiding all projects.
Ideas and teams tend to develop in parallel in the nucleation stage of an entrepreneurial venture, so our webinar appropriately switched to discussing team formation. Bill Aulet, managing director of the Martin Trust Center for MIT Entrepreneurship, explained how he promotes team building in his entrepreneurship course, a process he has refined over time and continues to experiment with.
The current methodology Bill uses begins with “setting the tone, setting the goals and setting expectations” for team work. He starts by discussing with his students the advantages of working in a team versus working alone, and encouraging them to step out of their comfort zones. He emphasizes research that founding teams do better than sole founders (“entrepreneurship is a team sport”) and that team heterogeneity is important (the so-called “hacker, hustler, hipster” model). He also notes that while functional diversity is important, teams need to have shared goals and core values and be able to discuss them openly. Such a team has increased “antifragility,” or an ability to increase resilience when things go wrong, as things inevitably do for every startup.
In terms of expectations, Bill’s message to students is very clear: “if you meet one person in this course of 100 that you want to work with later, that’s a big success!” The odds are clearly very low since “good enough” is not a strong-enough relationship with which to create a company.
At the beginning of the course, Bill presents a “no Winklevii rule” – meaning that business plans and other project deliverables are considered academic only and belong to the team, not any one individual. If a team member leaves the team, they will have no claim to rights in any work done in the classroom. Making this clear from the outset and allowing students to choose whether they stay or leave eliminates legal issues later on.
After presenting these core principles, Bill discussed the process he uses to develop ideation and team building in parallel during the first four class sessions. During the first three classes, students are continually divided into different teams to work on various ideation exercises, allowing them to get to know as many of their classmates as possible while generating ideas for new ventures. This culminates in a “speed-dating” exercise during the fourth class that Bill attributes to Professor Steve Eppinger of MIT Sloan and Katie Rae of TechStars. During the speed-dating exercise, students first identify the best project ideas to form teams around, and then, students with the highest-scoring ideas pitch to their classmates to attract team members.
Professor Noam Wasserman of Harvard Business School joined us next to discuss how early decisions by founding teams can cause later problems and team “blow-ups.” Research by Professor Bill Sahlman of Harvard found that 65 percent of VC-backed startups failed due to “people issues” – both internally between founders and externally between founders and other stakeholders. That number inspired Wasserman’s research, which resulted in his course and book, “The Founder’s Dilemmas”.
Early on, Noam explains, founders are missing two important roadmaps:
Without a roadmap – founders often follow their hearts, relying on gut, rule of thumb and anecdotes told by veteran entrepreneurs to make decisions. And it is this tendency, in fact, that increases the chances of failure. Noam empowers students to prevent this by “injecting the head in”, to counter the heart.
Noam’s course is built in modules around each of the critical stages in the venture roadmap – deciding to found, founding, building the team, hiring, accelerating and exiting – with an emphasis on experiential learning. Students practice negotiating equity splits, crafting founders’ agreements, and role-playing the difficult discussions that founders often avoid.
Noam also discussed the effectivity of different attitudes to “recovering from founder mistakes”, and “three realms of greatest peril” for founders – relationships, roles, and rewards – that heighten the chance of failure if founders don’t think clearly about them and make the right decisions at the outset.
Relationships include who to found a company with; research shows that most founders co-found with family members or friends, and that counter to common expectations, such founding teams are actually the most instable. Roles have to do with homophily, the natural inclination to look to the people similar to you; homophily in function and in race/gender are shown to negatively affect a venture’s chances of success. Noam clarified, in response to a question, that founders do need to have similar motivations, goals, and values – “they should be different in the right things and the same in the right things.”
Rewards include equity splits, and Noam puts students through an equity split negotiation exercise to demonstrate why splitting equity equally between co-founders, a natural inclination among first-time founders, can sometimes create problems later on. The philosophy is that the “fail fast” approach should work with teams, as with products. Teams should find out early if they are able to discuss uncomfortable issues and reach agreements that they are all content with. If they are – it is a positive indication regarding the strength of the team.
A key thread in the presentations by Bernie, Bill, and Noam was that first-hand experience is the most powerful way to learn about the issues facing new venture founders, as it helps to shape the founders’ future behavior, and may ultimately make the difference between failure and success.here.
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