Entrepreneurship is taught entirely using clinical methods at the Smeal College of Management. The introduction to the entrepreneurship course requires each student to find an idea that they would like to champion, using the methods outlined earlier in this chapter. Their output is actually an executive summary describing their opportunity and targeted to generate interest in a specific person or group of people that they’ve identified as their most appropriate stakeholders. If the opportunity best matches a venture capital firm, they have to identify not only the one or two firms that are the best fit, but also the actual partners that specialize in the area addressed by the opportunity.

If the opportunity fits a corporate partner’s route to commercialization, the student must define the actual person in that company who will be most likely to be receptive to the opportunity they’re putting forward. If it’s suitable for a group of angel investors, then they have them call them up and get an audience to listen to their pitch of the opportunity. And so, in the introductory course, the students actually feel comfortable that, in fact, there are a hundred or even a thousand ideas that they can identify with and get excited about sufficiently to create the arguments and the resource and financial plans – in outline, not a detailed business plan – so that they can pitch it to somebody who ought to be receptive. I would recommend a similar exercise for anyone contemplating an entrepreneurial career. Finding an idea and engaging with someone to be a champion is a great way to learn.

Next, we do two things that I think are also very interesting from a learning perspective. The students have to write a business plan, and they can either write it around the idea that they conceived in the previous class, or they can take a bad business plan and convert it into a good business plan. But generally, they have to learn how to write a concise business plan. Every entrepreneur must be able to put their ideas into a convincing, well-argued document. There are several excellent templates that can be accessed on the Internet that can help you through this process. Do not underestimate the importance of a good plan and how difficult it is to put one together. Only when you try to put your ideas on paper in a cohesive way, do you uncover the holes that need to be filled.

In parallel with the idea generation and planning exercises, the students are placed on the other side of the table and act out the role as a potential investor in someone else’s opportunity. Now you’re a venture capitalist and you’re looking at business plans to determine where to invest. This is another important way of learning – by challenging another’s plans you can directly experience the areas where significant risks lie, or there is insufficient information to make a decision whether to invest or not. At the University we actually have a venture fund, which the students manage. We find companies that are looking for investment, and they make a presentation to the class, and then the class does all the due diligence and decides whether to make an investment or not.

So it’s interesting to observe the learning process: on the one hand, the students are trying to create arguments to attract money, and, in parallel, they’re looking at somebody else’s arguments and taking them apart to determine whether this would be a good investment or not. By simultaneously playing the role of both promoter and potential investor, the students learn to be more critical of their own ideas and, therefore, able to build them into more robust opportunities.

Although you may not have money to invest in others’ plans, you can learn to critique plans by either going to presentations made to your local entrepreneurs’ club, for example, or getting yourself onto a review group to examine new opportunities within your existing company. This will help you when the time comes to create your own plans and sell them to stakeholders.

After reviewing several plans, you will begin to see certain patterns of weakness. The main area of concern is usually associated with a lack of customer input. An idea has no value unless someone will eventually pay for it. Getting input from potential customers that indicates that they will buy what you plan to offer at the price, which will make you a profit, is the most important checkpoint for investors. Without customers there is no business opportunity. Entrepreneurs often underestimate the need to complement their own management skills. A major cause of failure for new enterprises is the originator not recognizing the need to bring in additional talent. Owning a large percentage of a failure is no compensation for owning a small part of something large and successful. Honest self-examination, with the input of trusted advisors, should be done regularly. The willingness of founders to forgo the leading position is viewed as a positive attribute by investors.

Because bringing in additional managers with complementary skills adds to the chance of success, we teach a basic knowledge of such skills. These include cash management, team building and motivation, and negotiating partnerships, as well as managing and growing a start-up through its various phases. An understanding of the value of these skills makes the entrepreneur more likely to accept that others can bring value to the management team.

Finally, the students learn to practice their learned entrepreneurial skills using a set of different business scenarios where they play the role of CEO. For example, we take a real case biotech start-up company that has taken several wrong steps along the way. The “acting CEO” must create a new innovative strategy to extract the lost value.

In another scenario, we take a major company that is threatened by an aggressive start-up and must therefore re-examine its business model – perhaps to shift from a product to a service model. The “acting division manager” has to present the rationale and plans for what might be a radical change to the “board” of the company.

In another case, the students are presented with a series of rather disparate press clipping, product literature, market research reports and recently issued patents from around the world. They are issued with the following challenge: “Somewhere in here is an opportunity. Go figure out who’s going to make the move or where the business opportunity is.” For example, one case uses the idea of so-called “intelligent appliances” in the home that are connected to the Internet and what this might do to the detergent market. Will a company such as GE get into the detergent market? Will the consumer lease washing machines with a supply of detergent delivered by UPS to match their pattern of usage? Will the major supermarket chains be shut out of the detergent market – a major part of their revenue? I want to make them look at a very complex situation and figure out where the real opportunities might be and to use their learned skills in making the arguments to various stakeholder groups.

Others contend, and arguably so, that the most important consideration is personnel. I understand their contention. Entrepreneurs must be willing to identify and hire individuals that, at least in their judgment, are brighter, by some set of specific indicators, than they are. And, more importantly, the entrepreneur should not be threatened by the possibility. In general, and I offer this consideration based upon a half century in the business sector and in higher education management, there exists a general tendency for individuals to not make hires or appointments once they sense that a prospective employee has skill sets, competencies, or a level of literacy that is greater than their own. However, as an entrepreneur you should calculate the competency sets required by the firm and determine how these skills complement those already existent within your business. In the final analysis, it’s all about the quality of individuals that you hire—individuals who understand where and how they fit within the organization, what needs to accomplished now, in time period T+1, T+n, etc.

With regard to the “ideal” business model, I tend to introduce the Jack Stack Model. Jack is the CEO of the SRC Holding Company of Springfield, Missouri. In his book, The Great Game of Business, he presents the “open-book management” model. In this model, all employees are engaged in the business’s decision making – whether its marketing, finance, operations, new business development – in a very orderly manner. The concept is underpinned by profit sharing. Profit sharing is the driver. Employees have access to the company’s books, i.e., the company’s finances, in great detail. Openness generates employee trust, empowerment, and creativity that fuels interesting innovation and invention. The latter has led to the conceptualization and development of nearly three-dozen new enterprises in which employees have equity share.

A sometimes overlooked phenomenon of this model is the value of the literacy that is residual, often latent, in the firm’s employees (he may prefer to call them associates). Reciprocally, the respect generated in individuals is expressed through their commitment to the firm, in their willingness to bring forward product enhancement ideas, new product possibilities, and to incur risk-with its associated success or failure. In a word, the model identifies and nourishes the entrepreneurial traits of a firm’s most critical resource – it’s human capital. Overall, SRC is an exemplary illustration of how an entrepreneurial venture can lead to the continued creation and growth of new ventures and, by example, of how an injection of entrepreneurship into a business’s modus operandi can contribute to the success of the company. I see the valuation of competencies as an example of how best to advance both the interests of the organization and its personnel. The great game of business model is an exemplary example. It’s required reading for every entrepreneur.

The third concept that I advocate is that as an entrepreneur you should “walk, not stalk.” Understandably, the entrepreneur has a great deal at stake. However, as the CEO, the leader, the president, the visionary, you must embrace the collaborative model. If you can develop a personalized collaborative model you will be successful, without expecting it, in developing employees that literally “walk through fire” for the firm and for you. The key is to view employees as more than just persons on your payroll and more as individuals who will join the 24/7 club. They will embrace your vision because they see themselves as individuals who seek to fulfill the same purposes as the firm’s founder.

Two other concepts merit consideration and serious contemplation. The two concepts are profit maximization and loss minimization. In the United States, we tend to emphasize profit maximization. I stress that there are occasions, particularly with regard to new start-ups, when the other side of the coin should be considered and questions should be asked: “When is it time to exit? When does the entrepreneur, however painful, walk from the business? When do you sell, even if there is loss involved? Who do you merge with? When do you seek to expand the business through merger or partnership? And, under dire conditions, close it?” There is a certain kind of marketplace efficiency that dictates that if there is no compelling need for this particular venture, at this point in time or in this geographical area, the business should close. This is when the concept of loss minimization becomes crucial; in other words, do not continue to resuscitate a business and give it a life beyond what the marketplace intends. I underscore that you should not ignore the signals of the marketplace – it has a very interesting way of market self-correction.

All of these concepts and considerations should be incorporated into your business plan. The business plan for those not acquainted with the term is the roadmap for your enterprise—from conceptualization to implementation to modification. In preparing the business plan, a variety of questions must be addressed. How do you know if you have a product or service or product/service? How do you conduct appropriate market research to determine whether or not you can confirm that the market is expressing a need for the proposed product or service? Or, are you trying to create a need in the market? If there is a demonstrable need in the market, how will you calculate your share of the market? How do you know if you have properly priced the product or service? Have you built a dynamic financial model using market and price information that will provide answers to all of the “what-if” questions?

To me, the business plan is always a work in progress and never a finished product. At best, the business plan is a snapshot of a business at a specific point in time. So how can the entrepreneur move forward at the margin to measure the vitality of the business? What are the milestones? How do you measure whether or not you are realizing planned goals and whether or not your organization can truly move to the next stage and beyond?