A few weeks ago, at the National Association of Community College Entrepreneurship (NACCE) Conference, I took part in a panel discussion on the subject of preparing our future workforce for entrepreneurial thinking.
As companies increasingly express an interest in creative, innovative employees, one of the hottest questions in entrepreneurship education has become, “How do we prepare graduates to solve real problems and find opportunities for their employer rather than just show up to a job?”
The first question I received on the panel was “how are we doing as a community of entrepreneurship educators in preparing this future workforce?”
I was quiet for a few seconds. Frankly, I was nervous about what would happen if I said the first thing that came to my mind. I prepared myself to get booed off the stage and said, “I think we’re doing a terrible job. In fact, I think that we are actually killing innovative and entrepreneurial thinking through the classes that we teach.”
They didn’t erupt in boos. They let me continue.
In many entrepreneurship classrooms, professors make judgment calls about good ideas and bad ideas. Sometimes students pitch their ideas in business plan competitions to panels of experts that decide the value of a potential company. In the real world, logic and expertise can’t predict customer behavior. Even the top professional startup investors are wrong about predicting which startups will be successful 90% of the time. The only way to create a successful company is to discover what customers actually want through direct interactions, not assumptions. Instead of making judgments, we should push students to interact with potential customers and conduct experiments to see if they can simulate sales. If a student is required to appease an internal source of authority, like a professor, for the sake of their grade, then they won’t learn to respect the true source of authority, the customer.
Creating a successful company is not as simple as checking things off a to-do list. Yet many professors still give students a list of tasks—create a business plan, interview an entrepreneur, read a book—as if there is an easy roadmap to building a million dollar company. Entrepreneurship is an emotional roller coaster. It’s scary and exciting all at the same time, and, above all else, it’s fraught with uncertainty. If teachers aren’t giving students butterflies in their stomachs – making them feel overwhelmed or uncomfortable – then they aren’t preparing students for the challenges of entrepreneurship. And they certainly aren’t teaching them to develop entrepreneurial thinking. Instead, teachers who don’t push students out of their comfort zone are simply reinforcing traditional 9 to 5 employee thinking. There’s nothing wrong with a 9 to 5 employee, but it’s not the mindset companies are currently looking for as they interview business school graduates.
If you want to give your students real butterflies, then give them an objective and ask them to figure out how to achieve it. Better yet, send them out on some real experiential activities, like the activities suggested in this curriculum. There is no doubt that uncertainty in a classroom makes students uncomfortable. They like having tasks that make it easy for them to walk the road to success. But, if we keep teaching students entrepreneurship that only works in a classroom, and not in the real world, we aren’t doing them any favors. In fact, we’re setting them up to fail themselves and their employer.
It is our responsibility to push students to fight through difficulty and uncertainty. If your students are uncomfortable, that’s a good thing. When they enter into the workforce, they will be armed with an entrepreneurial mindset, arguably the most important key to success in business over the next 20 years. The great thing about the attendees of the NACCE conference is that most of them already know these two potential barriers to the cultivation of innovative thinking. Many of the educators there were some of the most forward thinking teachers I have met, focused on continuously improving their game and the value they were delivering to students. But classrooms that reflect that understanding remain a small minority. There are still far too many classes making these two big mistakes. Fortunately, I didn’t get booed off stage. Many of the educators in the room shared with me the awesome activities they do with their students to give them those butterflies. I’d love to hear more of your examples. How do you create uncertainty for your students or your employees to encourage entrepreneurial thinking? How do you give them butterflies in their stomachs and inspire them to solve problems?
The data you choose to measure to test the success of a project is very important. If you measure vanity metrics instead of measuring real value based on the strategic goals of the organization, you could end up with a warehouse full of cupcake supplies.
The metrics you choose to measure the success of any project are very important. If you measure the wrong information, you might end up with a false positive. You might think a project is going well only to figure out later that it was a waste of time, money and effort.
But, if you measure the right metrics and approach Value Metrics like a scientist, you'll be able to weed out wasted effort much faster and more efficiently.
When Quantitative Strategist Brandon Ritzo began working for a home loan company in 2012, each customer was receiving a custom cupcake to remind them to fill out their loan paperwork. For $25 a pop, the cupcakes were made and shipped overnight to their destinations. Brandon was tasked with figuring out if the cupcakes scheme benefitted the company's bottom line.
You have to choose Value Metrics very carefully because if you end up using the wrong ones, you're going to see value where there isn't any. For example, in the cupcake experiment, people responded very positively to the cupcakes on social media by posting pictures and sending virtual thank you notes. Although interacting with customers on social media is a form of engagement, it's also a vanity metric. “Likes” and sales are two very different things.
The real Value Metrics of the cupcake scheme, Brandon thought, should be whether or not the cupcakes resulted in more customers closing loans. After all, closed loans directly added value to his employer's bottom line.
To know if an initiative is working, you have to have a control group. When the cupcake creators thought up their idea, they decided to buy the supplies in bulk and rent a warehouse to store the excess. Brandon put some of the extra cupcake supplies to good use by differentiating the cupcake group from the non-cupcake group. Without a control group, you can't test the results of your efforts.
When Brandon's team started to compare the control group to the cupcake group, they discovered that the cupcakes were resulting in more customers turning in their paperwork! To a less scientific person, this might indicate it's time to throw an office party and rent another cupcake warehouse.
But even though signed paperwork was the Value Metric the group originally set—the cupcakes came with a note reminding people to send in their paperwork—it turned out to be a Vanity Metric, a piece of data that makes you feel really good, but is actually concealing bad results.
Brandon's team found that the cupcakes had no effect on the real Value Metric: closing loans.
Not only were the cupcakes, shipping and warehousing costing the company money, but processing the increased amount of paperwork resulting from the cupcakes was costing the company money without any benefit to the bottom line.
“If we get extra paperwork, but we aren't getting to the final stage, everyone is worse off. We've wasted everyone's time and created more work,” Brandon said. “When you apply that logic, you're not only spending money on cupcakes but you're also costing the company money in overhead.”
After discovering the real cost of the cupcake experiment, Brandon's employer stopped shipping cupcakes. Even if it's hard to admit that an idea may be a bad one, the only other option is to trudge through bad ideas, accept sub-par results, and ultimately have to admit an even bigger failure down the road.
After shutting down the cupcake scheme, Brandon began looking for other projects that weren't going well. The project managers knew something was broken, so Brandon's team would come in, break the process apart entirely and see where they could deliver more value.
For example, the company also provides free credit counseling for people who don't qualify for a home loan. “We were drowning in clients for this service,” Brandon said. People would sign up, but then many would almost immediately stop participating. For this example, the Value Metric was whether or not the customer was able to improve their credit score to the level required by most banks to get a mortgage.
The conventional wisdom was to work with wealthier customers who would have the resources to dig themselves out of the hole, or to work with customers closest to achieving their goals because there was less distance to cover. But Brandon's team was able to isolate a much more influential factor: how well these customers lived below their means. So, they developed some methods to identify these customers and encourage counselors to focus on these customers first.
From there, Brandon and his team streamlined ways to test ideas as quickly as possible. From the initial results, they could slowly scale up successful projects before putting the full weight of the company behind something that might not add value to the organization.
Even if Brandon's team has improved an initiative, they never stop measuring Value Metrics. For example, after the credit counseling experiment, 2 percent of all call volume continued to follow the previous standards. Even improved initiatives aren't perfect. You should still measure the right Value Metrics, have a control group, and keep experimenting and refining to avoid perpetuating errors from the past.
When I walked into a local car dealership in Columbia, Mo. earlier this year, I knew which car I wanted and I had a plan to get it at a great price. Within thirty seconds of walking onto the showroom floor, a sales rep named Chad asked me to step into his cubicle with promises of “any soft drink flavor you can imagine” from the dealership’s extravagant new vending machine. “Just water, Chad.” I replied. I was here for business.
When Chad returned with my cup of water, I handed him a folder containing all my research – everything from invoice pricing to examples of what customers in the local area had paid for the same car in the preceding months. Chad looked a little disappointed, but his face moved into downright despondency a moment later when I proposed what I thought was a fair offer.
Chad, a genuinely nice guy who deserved none of this hassle, briefly rebounded long enough to pivot to a few of the standard replies, but I wasn’t budging on my offer. Dutifully moving on to the next part of the ceremony, he took out in search of his manager and to learn whether it was “even possible to let this car go for so little.”
A few minutes later, Chad came bounding back into the little cubicle like a conquering hero and proudly delivered the news that he had been able to make the deal happen. I almost felt bad when I said, “Sorry, Chad, now I want this deal.” I handed him my phone so that he could see the certificate guaranteeing me a price $800 below what he’d just agreed to.
In the brief time that Chad had been negotiating with his manager on my behalf, I Googled deals for the car I wanted and found a service that pre-negotiated prices for the very car I was buying with the very dealership I was visiting and all I needed to do was show them a certificate on my phone guaranteeing me the lower price. No additional negotiation necessary!
Since the invention of the automobile, sales reps have been heading off to talk to their managers, but never before has that moment extended such an advantage to the customer.
This is only one example of how the 21st century consumer shops. Today’s customer, unlike those of 15 years ago, is in complete control. Here are the three biggest changes that have taken place in that time:
My recent experience buying a car is vastly different than the experience I would have had 15 years ago. Back then, I would have walked into the dealership just expecting to get hosed because the only thing I knew about car prices was what I learned reading the stickers at various dealerships. Today’s customers, however, have nearly unlimited information about products. Online reviews and price comparisons can help a consumer become even more informed than their sales person. This results in the further commoditization of your products. If you don’t find some new way of connecting with your customers and creating value in their lives, they are going to continually narrow your profit margin by forcing you to compete globally.
In 1999, if you wanted to buy a TV you had to go to one of a handful of stores in town and settle for the best option. In today’s world, supply of just about any product significantly outnumbers demand. Thanks to online retailers, a consumer has literally thousands of options each time they make a purchase. At the very least, they have thousands of prices they can expect you to match before they make their decision. This is a never-ending race to the bottom. The only way to make it stop is to stop selling products and start solving migraine problems.
While in the past consumers had to settle for the best product they could find, today’s consumers expect perfection. They no longer have to settle. That means that even if you once had the perfect solution, it might no longer be perfect. Customer needs and wants change and technology allows us to produce so much more for so much less. If you aren’t constantly innovating to create products and services your customers can’t live without, you’re going to follow in the footsteps of numerous others who thought they were doing well and suddenly found themselves out of customers. Think Kodak, Blockbuster, and Borders.
The only way to keep these kinds of customers and even have a chance of accumulating new ones is to stop selling them products and start solving their problems.
To be continued… (make sure you are subscribed to receive the next installment).
