I had the chance to catch up with Professor Wry on Wednesday to discuss a common interest of ours: microfinance. Over the last few years, I have built a microfinance portfolio on Kiva.org, making $25 loans to entrepreneurs across a variety of industries in emerging markets. It’s always empowering to see how far my $25 goes towards helping these businesspeople achieve their dreams – but I always remember that my investment is only a small fraction of the large pool of crowd-funded capital received by each entrepreneur. For this reason, I was rather shocked when Professor Wry gave each team $20 in convertible debt at the beginning of the Entprentice exercise. I wondered: “How could we possibly expect to turn this measly startup capital into thriving retained earnings?” My skepticism soon disappeared, once I realized how much our team could truly achieve by applying several rigorous analytical frameworks to ideate and implement our venture.
I would be remiss not to acknowledge my team members before diving into the major aspects of the Entprentice. I had previously worked with Sean Murphy for Management 100 in our freshman year, so I knew a lot about him from both a personal and professional standpoint. And it didn’t take long for me to get close with TJ and Quincy, as they are both incredibly personable, witty and intelligent people. We had the misfortune of losing one of our team members, Larry, shortly before the end of the drop period. While this was slightly demoralizing for the team, we came together and pitched in to fill the gap left by Larry. Altogether, our team was incredibly diverse, and this provided a unique set of perspectives as well as a wide range of on-campus networks to use when implementing our project.
Idea Generation: Strategy, Challenges and Reflection
Given our team’s dynamic personalities, we approached idea generation with great enthusiasm. However, we soon found ourselves stuck in the ideation trap: wanting to create the next Venmo, but only coming up with ideas for grocery stores. It was a good idea to utilize various frameworks from the course readings in order to broaden our thinking. In particular, Nalebuff and Ayres’ “What Would Croesus Do?” theory allowed us to recognize the global trend of students become a) more health-conscious and b) more stressed about their time-constrained lives. Our strategy became centered on addressing the need of students to fuel their constantly moving (and often unsustainable) lifestyles. Thus, Recover-All was born, and our team launched the venture with boundless optimism for where it might take us.
In retrospect, however, it seems that our approach to idea generation restricted us and almost ensured that we would not end the Entprentice with the highest retained earnings. Using the “Croesus” theory – an approach that encourages idea generation without monetary constraints – led us to choose a business idea that involved significant costs compared to the other ventures. Looking back at the Entprentice, we can see that the highest-performing teams excelled because they had little to no costs. A prime example is the “Penn Portraits” team, which consisted of a skilled photographer and did not need to invest in a camera nor pay for the use of prime locations on campus. Even Selfie Straws, which had to produce physical goods, was able to manage its costs effectively by gauging customer demand before placing any manufacturing orders. By comparison, we lacked this ability to determine demand for Recover-All prior to purchasing the raw materials. As a result, we were frequently left with leftover inventory and sunk costs – often times of perishable goods, such as bananas – when sales did not match our expectations.
If we were to complete this exercise a second time, I think that we should have approached idea generation with a different mindset. Prior to using the “Croesus” framework to come up with the idea for Recover-All, we had focused on coming up with a business idea that did not necessarily address an existing problem but, if properly executed, would create a need for itself. Ironically, this “Solutions in Search of Problems” or ignorance management approach led us to an idea very similar to Penn Portraits: we wanted to use TJ’s photography skills to help Wharton students take professional LinkedIn-style photos. Recognizing that people inherently love to be photographed, we hoped to create a market where people would see us on Locust Walk every few days and want to “renew” their photo for LinkedIn or any other social media platform. However, we readily discarded this idea because we felt it lacked originality, and we feared that there would be too much competition for similar services. This is an important lesson about entrepreneurship: you are not required to have the most revolutionary business model. While venture originality definitely provides a distinct competitive advantage, there are numerous other ways to differentiate yourself in what appears to be a mature market – for instance, by being “faster, better, and cheaper” than the competition. We approached the Entprentice wanting to create a “high potential” business similar to our individual ventures, but it was unfeasible to roll out a brand new product and turn a large profit in such a short amount of time. The most successful Entprentice ventures used existing products and services, and by taking advantage of low cost barriers to entry, accessed new markets of customer demand. Perhaps if we had entertained the simpler photography venture idea, we would have saved significantly on costs and turned a much higher profit.
Venture Implementation: Strategy, Challenges and Reflection
Although Recover-All was a relatively successful product (with final retained earnings of $157.00), we faced several challenges in implementing our venture. In general, our response to these problems was appropriate, but did not align with our overall strategy of being “faster, better, and cheaper” than our competition. A prime example is the initial dissatisfaction expressed by our customers towards several items in Recover-All. In our survey for Challenge 1, many respondents suggested that we remove the water bottles from the package, citing environmental concerns along with the readily available water fountains on campus. In addition, many students felt that adding a bottle of Gatorade or other energy drink would raise the package’s intrinsic value. However, we had invested a lot of our startup capital into water, and thus we didn’t have the cash to buy Gatorade in bulk until Challenge 3. Meanwhile, we still had a surplus of water bottles, which we were forced to continue selling as part of the package. This was detrimental to our brand image, because customers didn’t feel as if we were adapting to their preferences quickly enough.
If we were to complete this exercise a second time, I think that we would need to better manage our inventory. As discussed in Idea Generation, above, the best Entprentice ventures were able to estimate demand prior to incurring any production costs. This was hard to achieve with Recover-All because we needed to show our customers a tangible product in order to convince them to buy it. However, we could have created a minimum viable product using items from our personal pantries (it’s not too hard to find a water bottle, a pack of Oreos, and a granola bar lying around). Then we could have showcased this MVP for one or two days at the start of the project, and directed potential customers to a landing page where they could express their interest in buying Recover-All, as well as any comments they may have. Based on these “pre-orders,” we would buy just the right amount of each product, minimizing both initial costs and inventory surplus. In addition, this MVP could have helped us test the core “must-have” features of our product, and we could have used the money saved to dynamically adapt to the customer’s preferences. This is something that could also be achieved by simply creating our venture’s Facebook page at the very beginning of the project, instead of during Challenge 2 – after all, being millennials, we didn’t have to wait until the “Marketing” class to know that the most basic advertising medium is Facebook. Thus, determining customer demand and forecasting our inventory needs earlier on in the project would have given us more flexibility in the start-up phase.
Addressing our marketing strategy in particular, I believe that my idea for the “dual station flyering” tactic (discussed in Challenge 2) provided additional value to the venture. However, this tactic, although unique, did not raise sufficient awareness about our venture – indeed, we only received 5 flyers in exchange for a $1 discount at the actual sales station. Although we distributed 120 flyers, we were unable to make a widespread impact because students tend to disregard and throw away flyers shortly after receiving them on Locust Walk (something I know from personal experience). Instead, we should have dedicated our resources to mass marketing, as this would have reached a wider audience and driven greater sales without the discounted price. The same goes for a sales tactic used by one of my teammates, Quincy, who regularly discounted the unit price by $1 “just to make the sale.” Although these tactics certainly drove additional sales, they were ineffective at raising sufficient awareness of our venture to justify the discounts offered.
The discounts offered as part of our marketing strategy highlight yet another challenge to our venture: keeping track of the financials. As with all retail businesses, it is incredibly important to keep track of sales as they are made. However, since each of us played the role of individual salesperson, it was difficult to tally up the sales unless we were all in one place at one time. Considering myself quite skilled with Excel, I created a spreadsheet to record the sales, and shared this with the team through GoogleDocs. However, it was difficult to ensure that people actively updated this spreadsheet as sales were made. When it came down to calculating retained earnings at the end of each period, it became a nightmare for me to reconcile the cash that Quincy had been collecting with the number of sales recorded – in part due to the fact that certain sales were also made at a discount. In the end, we had $5 in unrealized gains because recorded sales exceeded cash by one unit. This problem could have been easily avoided with a bit of task management – by putting one person in charge of holding the cash and recording sales.
Finally, there was a legal problem that we overlooked, and which a customer kindly brought to our attention during the final challenge: several of the items included in Recover-All were ineligible for re-sale, since we had bought them in bulk. For example, the packets of Oreos we bought at Walmart were originally contained in a large box marked “Not For Resale” (although we only bought individual packets, not the whole box). If we were to continue with our venture, we would either need to a) attain explicit permission from the manufacturers of these products or b) become a channel partner for these manufacturers. In the latter case, becoming a licensed distributor would most likely require us to share profits with the manufacturers, depleting our margin even further. This is a central reason for why we are closing down our venture after the Entprentice exercise.
Key Takeaways and Lessons on Entrepreneurship
The Entprentice has been a great exercise for me to learn about myself as an entrepreneur. As someone who has taken on many leadership roles in several extracurricular activities, this project really opened my eyes to the various types of entrepreneurial management. In comparison to established organizations, which already have a defined vision and merely require the execution of activities and events, startup ventures must both craft a vision and innovate on it to create a meaningful product or service. From a leadership perspective, this involves working effectively with a high skilled management team to apply ‘design thinking’ and drive core success factors.
I explored my own entrepreneurial leadership style while working with Sean, TJ and Quincy in the Entprentice. In terms of ideation, one of my core strengths as an entrepreneur is having a risk-taking attitude. When we were coming up with our venture, I offered several ideas that had a high potential for growth but also required us to spend our entire startup capital at once, with the risk of losing it all if the venture failed. I was willing to pursue these ideas, but my teammates expressed their desire to undertake a more predictable project with at least some guaranteed cash flows. I adapted to this attitude and demonstrated my ability to be cautious of risks by suggesting we keep some of our funds aside as “working capital” for any possible contingencies (although I didn’t speculate as to what these contingencies might be). After seeing how this working capital was insufficient to allow a product switch from water to Gatorade, I learned the importance of building flexibility into the venture’s business model. By tempering my entrepreneurial drive with careful financial planning, I will one day be able to run a startup that pursues its high-level vision while still remaining prepared for any pivots in its business model. Although I may have a high “tolerance for stress and discomfort” (Bhide 9), I should always remember that certain members of my team may not share this temperament and accordingly, my vision may need to reflect this balance of risk tolerances.
I am a results-driven entrepreneur: I like to see tangible actions being performed that lead to profitability and measurable product awareness and virality. While this “powerful bias for action” (Bhide 12) is certainly a positive trait to have as an entrepreneur, I have the opportunity to grow by thinking about the bigger picture. There’s more to success than having an extremely profitable and well-known enterprise, and it is important for an entrepreneur to think about the “goals, strategies, and capabilities” (Bhide 12) of his venture in order to drive its long-term growth. Entrepreneurs must constantly ask themselves about the direction they want for their venture, and whether their business decisions align with, or compromise, their vision. Where profitability is not the main motive – as with many social enterprises – there are a whole host of other concepts to consider when building a startup, many of which can ultimately lead to profitability. By asking myself tough questions about my vision and goals as an entrepreneur, I will hopefully one day create a highly successful venture.
After participating in the Entprentice, I have a much greater appreciation for the men and women whom I’ve been funding on Kiva.org. Many of these entrepreneurs wish to start businesses in mature industries, such as clothing retail or entertainment – but I have learned that this is perfectly acceptable and equally deserving of funding as high-potential ventures. At the end of the day, what truly matters to a venture’s success is the entrepreneur’s vision: where they want the business to go, and how they want to get there. A strong, codified vision with testable hypotheses and tangible goals allows a venture to maintain a distinct competitive advantage. I also have gained a deep appreciation for the value of the team in entrepreneurial ventures. Many microfinance loans go to small groups of entrepreneurs who operate in the same space and collaborate to develop their businesses and ultimately repay their startup capital to the original lender. A quote from New Venture Creation really stuck out to me:
“The lone-wolf entrepreneur may make a living, but the team builder creates an organization and a company – a company where substantial value, and harvest opportunities, are created.” (New Venture Creation, p.277)
At its heart, entrepreneurship is all about the individuals that come together to ideate, innovate and potentially revolutionize the world.