In an era in which the number of new start-ups is declining, entrepreneurship programs are popping up all over the higher education landscape. The hope of institutions creating such programs is to compete with other institutions, prepare students for the future, and make a positive contribution to society. The good news is that the academy is meeting a need: small businesses — especially those which survive — create jobs, and there is nothing more dignifying to a human being than a meaningful job. The bad news is that the academy is still teaching and measuring student performance the old fashioned way.
Teaching. We have forever been teaching students about things, not how to do things. We study and report on the world from arms length. In short, are educational system is content-based as opposed to skill-based, and our perspective of students is deficit-based as opposed to asset-based.
To elaborate, we start with the presumption that students are ignorant of the world and that we can serve them best by helping them master content knowledge. We believe knowing leads to doing. In fact, liberal arts colleges are now designing “hybrid” courses to incorporate digital technologies to make that mastering of that knowledge more accessible.
However, we are doing this at a time when the knowledge of the world is at our fingertips and when thriving in our global economy requires the ability to leverage our talents in applying knowledge to create value. Yet, when it comes to teaching entrepreneurial skills, we are still asking students to memorize the meaning of concepts and processes. Why? Because they are easier to grade than skill development. One process is the business plan. Here we take learning up a level and grade students on is their ability to write and present internally valid business plans. Though more difficult to evaluate, this exercise is equally irrelevant.
Grading. As the saying goes, “you are what you measure.” For example, if we wish to change the behavior of CEOs, we need to change how we measure their performance. Likewise, if we wish to change the behavior of our college graduates so that they are better prepared for the future, we need to change how we grade them.
There is no escaping measurement. We all want to keep score. The problem is that the more trivial things tend to be the easier things to measure. For example, we need and want to measure the value of faculty members, so we measure how many times they are published in peer-reviewed journals. But is that a relevant measure in terms of preparing student for the future? Only if the students are the lead author because it shows that students can apply existing knowledge to create something of value.
We must consider Peter Drucker’s famous distinction between efficiency and effectiveness: efficiency is dong thing right; effectiveness is doing the right things (Managing for Business Effectiveness, 1963). Thus we may be properly measuring the number of times faculty have been published, but what if the number of times faculty have been published is not the right measure? Likewise, we may be properly measuring our students’ memorization of concept definitions and internally valid business plans, but what if the ability to memorize concepts and writing internally valid business plans are not the right things to measure?
Unfortunately, they are the easier things to measure. But only externally valid business plans will succeed. In other words, a business plan may look good in terms to how it relates to itself but not be sound in terms of whether it is actually implementable. For example, the financial projections may add up and be consistent with the rest of the plan but the underlying financial assumptions may be fictional.
The problem is that business plans have little connection to reality when they are based on faulty assumptions, and they will be based on faulty assumptions when we haven’t taught students how to validate those assumptions. But if we don’t measure students’ performance on testing assumptions we get what we measure: business plans that have little to do with actually launching a business. So while we reward students who have good writing and oral and visual communication skills, we don’t fully prepare students for the future — how to launch more and successful start-ups and create jobs.
Don’t get me wrong, being able to communicate in writing and face-to-face are valuable skills in the life of an entrepreneur. But by themselves they have little correlation to launching a business. Worse, we are rewarding people for telling us what they are going to do, not for doing it, and to pitch something that has little relevance to reality. So our unintended consequence may be to teach the worst of sales practice.
In contrast, building a business plan is like building a house. The foundation of a realistic business plan is a validated hypothesis of a problem experienced by real people, followed by the validated knowledge of how that problem is currently being solved. The next layer in that foundation is validated customer support of the entrepreneur’s proposed solution. Then a real sale and a validated path from suppliers to market, and based on the sale and path from suppliers to market (on a “minimum viable product” basis), actual revenue and product costs (which will be initially higher then when the solution is “scaled”). Then, and only then, with a business model discovered, is a business plan warranted. But instead, we tend to judge the look and sound of business plans without the foundation on which they stand. That is the wrong way to build a house, it’s bad business, and it’s bad science.
In contrast, Ash Maurya (Running Lean) argues that the first objective of an entrepreneur is finding a business model that works. His work reflects Steve Blank’s Four Steps to the Epiphany, in which Customer Discovery (Step #1) and Customer Validation (Step #2) and Customer Creation (Step #3) come before Company Creation (Step #4). Business plan writing is part of Step #4: Company Creation. It occurs after they’ve found a business model that works. Unfortunately, most young entrepreneurs don’t know how to do Steps #1-#3.
Why, then, do we teach business plan writing in our entrepreneurship courses and sponsor business plan competitions? Why don’t we instead focus on Steps #1-#3 and focusing on pitching to customers? Guy Kawasaki says: “Pitch, then plan” (The Art of the Start, 2.0.) Entrepreneurs need customers first.
The bottom line is this: finding a business model that works is the first objective of entrepreneurs. Teaching students how to create that model is the first objective of preparing students for the future. A second objective, and one even less spoken about, is helping students discern whether they have the gifts for entrepreneurship.
We can do better if we seek to meet a need in society and the needs of our students. Teaching students how to create a business model and then through that process helping them discern if they are such model builders will do much to reverse the trend of fewer new business start-ups and decrease the probability of failure.