Matt Abrahams: Hello. I’m Matt Abrahams and welcome to a special “Quick Thinks” episode of Think Fast, Talk Smart: The Podcast. Our recent episode on entrepreneurship received such positive feedback, not just from Think Fast, Talk Smart listeners, but also from listeners from the GSB’s Grit and Growth podcast, that we wanted to share even more from my interview with Stefanos Zenios, who is not only a GSB professor, but also the faculty director for the Center for Entrepreneurial Studies and main architect of the GSB’s Startup Garage Program. Enjoy this “Quick Thinks” episode where Stefanos shares the steps involved in bringing an entrepreneurial venture into being.
Stefanos Zenios: So, we begin with a premise that I explained earlier that a new venture is a set of hypotheses. And every founder and every founding team needs to do two things: formulate those hypotheses, and then test them with real data. It’s only then when you can go to investors and can credibly seek funding. So, we structured the course around two methodologies. One is design thinking. That has been introduced by my colleagues here at the Design School. And the other one is lean start-up. And what we recognized is that you need the design thinking methodology to help you formulate your hypothesis, and then you need the lean start-up methodology to test the hypothesis.
So, first of all, what is a hypothesis for a new venture? A hypothesis for a new venture is who is your customer, what is the pain point you’re going to solve, how are you going to solve it, what is your solution, how are you going to go to the market, and how are you going to make money? So, you need to be able to answer those five questions. So first, you need to come up with a hypothesis of what your answers to those five questions are.
So, we begin by having our students immerse themselves in the environment of who they think their potential customer is going to be. We give them an assignment that lasts for four weeks. Talk to as many future customers as possible. Ask them what their pain points are. And then, at the end of this four-week period, come up with a summary description of who is your customer, and what is the pain point that you want to address?
On a weekly basis, we ask our teams to tell us how many interviews they have done, but more importantly, what have they learned from those interviews? At the end of the four-week period, the students have an answer to the question: Who is the potential customer, and what is the problem they have?
Then, we teach them how to use brainstorming to generate alternative ways of addressing that problem, to develop low-resolution prototypes that they bring back to their customer and get feedback, but also to develop the business model for the venture. How you will make money. What is your go-to-market strategy. For that, we use a widely popular tool called the Business Model Canvas.
We also ask them, at that point, to come up with an estimate of what is the total market size, and to figure out whether the market is big enough to justify the capital necessary [to this] venture. By the end of the fall quarter – this is a two-quarter class – by the end of the fall quarter, the teams are ready to make a presentation in which we ask them to answer the following question: Have you found a need that is worth addressing, and do you see a viable path forward? Do you believe you can build a venture around solving that need?
The teams that decide to continue winter quarter, the winter quarter they end up designing experiments, experiments for their go-to-market strategy, experiments for their unit economics, experiments for product market fit. We ask them to develop minimum viable products and test them with customers and get feedback, and iterate based on that feedback. We also teach them how to evaluate term sheets that they would get from early-stage investors. And then, finally, we prepare them for a pitch presentation that they would give in front of investors.
And we give them some of the nuts and bolts of how you pitch in front of investors. But more importantly, we tell them that what they did fall and winter quarter was gathering the evidence to put together the story that they will share with investors. And that brings them to the end of the quarter, with an investor pitch in front of a group of investors.
Matt Abrahams: Wow. So, everybody, you just heard in a few minutes what takes two academic quarters to launch a new venture. I find it really interesting, and it should resonate with people who listen to this podcast frequently, that a lot of time, a lot of time in your model is spent really understanding the potential customer. And we talk a lot here in communication that it’s critical to really understand who your audience is. And so, it’s nice to see that that’s super important in launching a new venture.
And I liked how you ended, as well, with something that we often talk about, which is you have to be able to tell a good story. It’s not just to have the evidence, but you have to put that evidence into a good story.
Stefanos Zenios: Yeah. Great founders are great storytellers. They have to tell different stories. They have to tell a story to their customer so that they can inspire them to test and use their new product. They have to tell a story to their employees to inspire them to take some risk. And then, they have to tell a story to investors and their board.
And what I found from my experience teaching Start-Up Garage is the closer you can get to your customer, the deeper you can understand your customer, the more authentic as an entrepreneur you are about addressing their need, the more compelling your story is going to be both for customers, investors, and employees.
Matt Abrahams: So, that relevance can really help make it resonate. Thank you.
Thanks for joining us for another episode of Think Fast, Talk Smart: The Podcast. For more information and episodes, visit gsb.stanford.edu.
(As published on the Stanford GSB website.)