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Introduction to Product Management

What is a Product?

I recently read the book “Why we sleep” by Matthew Walker. It really scared me, and I decided that better sleep should be a priority in my life. Being an analytical guy, I first wondered how good my sleep is currently, and how I could monitor the quality and quantity of my sleep. After considering and trying several approaches, I eventually adopted the Oura ring and its associated app to address this challenge. In fact I’m wearing it right now.

The Oura ring is a product. More generally, products are solutions for doing a job, delivered by a producer to multiple customers.

Probably some of you are involved with producing physical goods like the Oura ring. The term product is sometimes used narrowly to refer to physical artifacts, but I will use the term to refer not just to tangible goods, but also to software, and to services.

Here are some more examples that fall within my definition of product, all related to health and wellness, just to bring a bit of focus to the examples. Each of these products contains a solution for doing a different job. In fact, as is common in practice, I’ll even sometimes refer to products as “solutions.”

The Strava app supports fitness by measuring and analyzing running, cycling, and other activities.

SoulCycle Studios provide fun and engaging exercise while delivering a community experience.

The pharmaceutical Zocor lowers blood cholesterol levels, thus reducing the risk of heart disease.

The patient medical record system EPIC captures health information for individuals in a way that is secure, durable, and accessible across providers.

The food product Flavanaturals provides a tasty chocolate beverage that delivers flavonoids shown to improve cognitive function.

The Hamilton Medical ventilator is used by hospitals to support breathing in patients suffering from acute respiratory illness.

Many if not most products combine some tangible goods with services or software. The Oura Ring is both an app and a physical device, and physical goods like exercise equipment and medical devices typically contain a huge amount of embedded software, and likely some ancillary services.

For completeness, let’s get some pesky technicalities out of the way. 

Frankly, I could use a burnt stick and a flat rock to record a time series of subjective judgments of my sleep quality. But, that would not be a product. Products are solutions created by producers and delivered to customers.

An artifact that will be created only once, say a war memorial, is probably not best considered a product in and of itself, but the service of designing and constructing monuments could be a product, because the supplier, say an architecture firm or a sculptor, will likely do it repeatedly.

In most settings, a producer delivers a solution to a consumer in a commercial transaction. Most of the time I’ll use the words customer or user to refer to the consumer, but sometimes there are multiple stakeholders and the definition of the consumer is a bit murky.

In the simple case, consumers are individuals who both purchase products and use those products. I decide what shampoo to buy and I use it. But in other cases one party makes the purchasing decision and someone else uses the product. A hotel chain may buy shampoo for its rooms, but the hotel guest uses it. And, in this case, the customer is a business not an individual, and the customer is not identical with the user.

I like the term “doing a job” to indicate what products do, but I’m going to use several words pretty much synonymously: Job to be done, problem, gap, pain point, and even the more clinical term demand, which you probably remember from an economics course. Demand is just jobs to be done that we as consumers can’t do, or don’t want to do for ourselves.

Dozens of other categorizations of products are possible — consumables, durables, consumer packaged goods, fast moving consumer goods, and an alphabet soup of associated acronyms – CPG, FMCG, B2B, B2C. All of these are just further specification of types of solutions used in different settings to do different jobs.

Finally, there’s a special kind of product, called a platform or a two-sided market, in which the job to be done is to bring together buyers and sellers. For example, the web-based product ZocDoc matches individuals with physicians for acute medical needs. In these settings, the platform provider has two very different types of customers, the two sides of the market, the buyers (in this case patients) and the sellers (in this case physicians). 

What is Product Management

Here is the LinkedIn profile of a former student, Effie Wang. Effie served as the head of product for the dating app, Bumble, and she’s been a product manager at Amazon, ZocDoc, and GrubHub. What exactly is product management and what do Effie and those like her actually do?

Put very simply, companies deliver solutions to customers who have a job to do. Product managers stand at the interface between the customer and the resources that create and deliver products.

Product management in the broadest sense is the planning, creation, and improvement of products. These functions exist in all companies that deliver products to customers, so product management must also exist, whether or not the functions are assigned to someone with the job title Product Manager.

Some descriptions of product managers that I like include:

  • Creator or guardian of the product vision.
  • Interpreter and protector of the customer experience.
  • Guide for the technical resources to create or improve the product.
  • Prioritizer of the feature and improvement road map.

My favorite less formal description of product management, coined by my former student and co-founder of Gridium, Adam Stein is, “making sure that not even one hour of an engineer’s time is wasted.”

The role of product management varies quite a bit over the lifecycle of a product. Let me explain. I like to think of the product lifecycle as having four phases: Sense, Solve, Scale, and Sustain – The Four S’s.

Sensing is recognizing an opportunity for a new product, usually the result of some kind of disequilibrium in the market or in the technological landscape.

Solving is creating a product to respond to the opportunity, and typically launching the first version.

Scaling is the improvement of the initial product to deliver an excellent solution tailored to the bulk of the market.

Sustaining is the refinement of the product over its life, advancing both cost and product performance. While the first two phases, sense and solve, typically play out over months or a year or two, and the scaling phase another few years, the sustaining phase can last decades.

I find it useful to think of three types of product managers: innovators, builders, and tuners, which we can map onto the product life cycle. Innovators recognize and develop new opportunities. Builders start with a target and lead developers to create a great product. Tuners optimize the success of the product over its lifecycle. The scaling phase is a less clearly demarcated zone, and product managers in this phase can be thought of as builders or tuners, or a hybrid of the two.

Sensing new product opportunities, the role of innovator, may be performed by someone with the job title of product manager, or by a chief product officer, but that role could also be played by a founder of a start-up, by a business unit manager, or by an advanced development, or strategic planning group.

During the solving and early scaling phases, a dedicated product manager almost always leads the development effort. This is sometimes called “zero to one” product management, creating a new product from a clean slate. In technology-intensive hardware companies, this role may not be called product manager, but rather “heavyweight project manager” or “development team leader” or “program manager” but the role is that of the builder product manager.

In the sustaining phase of the product life cycle, dedicated product managers are typically only found in highly dynamic product environments. Dynamic environments are those for which the product changes a lot, say at least quarterly.

For instance, the fitness app Strava has dedicated product managers, but the Irwin hammer does not.

My Strava app is now version 232.0.1 updated two days ago, and Strava releases a new version (230, 231, 232, etc.) every week. The Strava app is a highly dynamic product – it changes a lot. Why is that? There are two reasons. First, it’s a software product which exhibits a high degree of modularity, so features can be updated easily and even pushed to the user on a regular basis. Second, the app operates in a highly dynamic competitive environment, and in a domain in which the enabling technologies are changing rapidly. 

The Irwin hammer on the other hand has not been updated very recently at all. It’s pretty much the same as the Stanley hammer I worked on as a product designer in 1990 (Stanley and Irwin are brands owned by the same company), and really it’s not that different from this Craftsman hammer my father gave me when I was 15. It’s not that hammers never change. They do, and when they do, the function of product management must be performed. 

For example, If there’s an emerging trend for tools to be produced in bright fluorescent colors to make them easy to find, then a project will likely be kicked off to do a redesign of the hammer. But, that decision and the planning and coordination of the effort, will likely be the result of a cross-functional discussion among the business unit manager, the marketing manager, and the engineering manager. There is not a dedicated product manager for the hammer the way there is for the Strava app.

Some people define the job of product manager as the CEO of the product. Well, that’s not quite right. Rarely does the product manager or PM have responsibility for the profit and loss of the product — that falls to the business unit manager or CEO of the business. Furthermore, while the PM may be responsible for prioritizing features, he or she rarely has direct authority over technical resources, that’s usually the responsibility of an engineering manager.

In describing the role of the PM, it’s probably better to consider specific decisions. I’ll use the RACI (“RACY”) framework to do so. Most of you have probably seen the RACI framework, but to remind you, each stakeholder in a key decision can be thought of having one of four roles:

R is for RESPONSIBLE — The responsible person actually does the work supporting a decision and delivers the outcome. More than one person can be responsible.

A is for ACCOUNTABLE — Only one person can be accountable and that person owns the results. He or she approves decisions, signs off on actions, has veto power, and can make go/no-go decisions.

C is for CONSULTED — Some stakeholders are consulted. They provide information, perspectives, resources, and support as needed.

I is for INFORMED — Finally, some stakeholders are merely informed of decisions. They are kept up to date on progress and results, but not necessarily consulted prior to decisions being made.

Now let’s consider some key decisions and which roles key stakeholders assume. I’ll show typical roles for the product manager, product marketing manager, engineering manager, business manager, UI/UX designers, and Sales manager in the context of a digital product. There are of course many other decisions and several other stakeholders, but these are the most commonly associated with product management in information-technology companies. The roles are not identical for every organization, which is one reason you may benefit from discussing these roles explicitly within your own organization, and gaining a shared understanding of who does what.

I won’t drag you through every cell of the table, but if we focus on the first column, the role of the Product Manager, we see that the decisions for which the PM is responsible and accountable are the product vision, product concept, and product roadmap, but that in this context the PM is consulted on branding, go to market strategy, pricing, growth, and partnerships.

Can Product or Product Management be a Source of Sustained Competitive Advantage?

First, I need to be clear that not all things that are important can be sources of sustained competitive advantage, resources I call alpha assets. For example, an excellent sales process is very important for enterprise software companies. That doesn’t imply that an enterprise software company can rely on its sales process as a significant source of sustained competitive advantage. It’s more that if you fail to do sales well, you are unlikely to be successful in enterprise software. We could say the same thing about operational competence for a restaurant, or accurate and timely finance and accounting processes in a bank. None of these things are likely to be sources of sustained advantage, yet they all need to be done competently to ensure success. In the same way, good products and effective product management are critically important for all companies, even if not alpha assets for all companies.

But, product can be an alpha asset in some settings. These two settings are (a) zero-to-one new products and (b) domains with very strong intellectual property barriers.

Let’s consider the zero-to-one setting. Peter Thiel famously wrote in his book Zero to One “as a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage.” I don’t fully agree with the statement, but I do agree that when there is some disequilibrium in technology or in the market, then an organization has an opportunity to move with speed and agility to take advantage of that disequilibrium and to create a product that is dramatically better than the pre-existing alternatives. At the dawn of the covid pandemic of 2020, the videoconferencing company Zoom was in the market with a product that just worked. It didn’t require registration. It didn’t require a download. It didn’t require any special gear. It just worked. Despite the fact that there were dozens of other solutions in the market at the time, including BlueJeans, Skype for Business, Google Hangouts, and WebEx, Zoom was able to seize the market and gain significant share. This was almost entirely because Zoom had a better product. Better product can be an alpha asset for a finite time period after some type of disequilibrium. This finite period of product superiority is a way of kick starting the other flywheels in an organization. But, the organization must use this precious window wisely in order to oversee the acceleration of the other flywheels for sustained advantage. Indeed, Zoom took advantage of its initial product superiority and prospered. But, predictably Microsoft was quick to follow with an enterprise product, Teams, that was at parity on many features and superior in others. Zoom remains a key player, but its product per se is no longer its primary alpha asset.

Now let’s consider intellectual property barriers. Some domains have very strong legal intellectual property barriers, which allow product itself to be an alpha asset. For example, during the same pandemic period, the companies BioNTech, Pfizer, and Moderna all created mRNA vaccines that enjoy almost impenetrable intellectual property protection. For these companies, the product itself is an alpha asset. It enhances performance and is almost impossible for a rival to acquire. 

Not all intellectual property needs to be protected by laws to be a barrier. For instance, the product of semiconductor company TSMC is a fabrication service it offers to designers of proprietary chips like NVIDIA. While TSMC has a lot of patents, its primary source of intellectual property barriers is the accumulated know-how and trade secrets embedded within its semiconductor fabrication process. Some people believe that what TSMC does is the hardest single task in the world. No one else comes close to being able to do it. In this case, the intellectual property associated with the product itself is an alpha asset.

In some settings, the product itself is only incidentally the alpha asset. In very dynamic markets – those for which some combination of enabling technologies, competitive actions, or customer behavior are changing very quickly – the organizational capability of product management can itself be an alpha asset. For example, consider the fitness app Strava. Strava does weekly product releases, which include incremental improvements and less frequently substantial product changes. Any particular version of the Strava app could likely be easily replicated by a team of developers and so the product per se is not much of an alpha asset. However, the system that Strava employs to engage its users, understand opportunities for improvement, and prioritize the changes in its product roadmap, benefits from data and experience with millions of users and a refined organizational process of product management. This organizational capability is an example of the fifth flywheel and a compelling alpha asset.

Notes

Ulrich, Eppinger, Wang. Product Design and Development. Chapter “Opportunity Identification.” 2020. McGraw-Hill.

Customer-Driven Solutions and the Waterfall Development Process

I’ve been a product designer or member of a product development team for over 50 new products and services. There’s a magic moment, which never gets old for me, when I see one of my products out in the wild being used by someone I don’t know. These days, the most common encounter is on the streets of San Francisco when I see someone commuting to work on a Xootr scooter. It’s a huge thrill to see evidence that I created something that a stranger felt offered enough value that they were willing to give me more money for for the product than it cost me to deliver it.

I did use the word “magic” to describe a moment, but I don’t want to convey the wrong impression about the overall activity of product innovation. One of the key roles in entrepreneurship or product management is leading the creation of new products, often from nothing. This is sometimes called “zero to one” product development. While luck — or exogenous factors — always play a role in determining outcomes, I believe that any dedicated team with the appropriate technical skills and with effective product leadership can reliably create a great product by using the right product development process, and that the outcome does not depend on some magic ingredient.

Why a process? The zero-to-one process is a codification of the collective expertise of thousands of developers, accumulated in government organizations, companies, consulting firms, and universities from about 1960 to the present, more than a half century of experience. A process informs the team what to do and ensures that no critical step is left out. It allows relative novices to benefit from the learning of others. As an innovator within an established enterprise, you benefit from accumulated experience in your organization codified into a process. As an entrepreneur you can reduce the risk of costly mistakes and more reliably find a compelling solution for your customers by adopting the best practices developed by the many product developers who have come before you.

in this chapter, I’m going to give you an overview of a baseline process, found in almost all organizations, called the phase-gate, stage-gate, or waterfall model of product development. This model is a useful starting point and provides an overall structure to the process of creating a new solution. In the next chapter I’m going to circle back and provide a second, simpler model of design called the triple-diamond model.

Why two models? Let me invoke an analogy to give these two models context. I love tools of all kinds. I have a fancy table saw in my shop that I really value. It takes on big jobs. It’s safe and reliable. It’s powerful and precise. It’s also big, noisy, relatively expensive, and must be connected to a dust collection system. Even so, I couldn’t do without it. That’s like a corporate phase-gate process. But, I also have a compact utility knife that I carry in my pocket pretty much all the time. I use it several times a day. It too is a cutting tool and can even be used for some of the same tasks as the table saw, but it’s unobtrusive, comfortable, and instantly deployable. That’s the triple-diamond model.

Both models are intended to be centered on the customer and to pull from customer needs. In fact, both models include engaging with users in order to identify the needs that are most relevant to product success. Furthermore, the triple-diamond model may be applied recursively dozens of times within the context of an overall phase-gate model — say at a very high level of abstraction to create an overall solution concept, or at a very fine-grained level when refining the user interface for a specific feature.

Phase-Gate or Waterfall Product Development Process

The phase-gate or waterfall process is pretty simple conceptually. First, clarify the job to be done, then understand the needs of the customer, then create a great concept for a solution, then specify details with sufficient clarity that the solution can be delivered reliably and repeatedly to customers. That simple flow is comprised of phases (or stages) — a set of development tasks — separated by gates verfiying that the tasks have been completed before moving on to the next phase.Hopefully you can see how this is a process that pulls from the customer needs to create a solution.

Phase-gate processes are also called waterfall processes because information cascades in one direction, generally from the “what” to the “how.”

Most established companies have their own phase-gate process, and they vary across different product domains. Here’s a fairly typical version. It has these steps.

Mission Statement – this phase results in the definition of the target market, an identification of a persona or representative customer in that market, and an articulation of the job to be done. It could also include a competitive analysis and goals for how the new product will be differentiated.

Product Requirements – This phase results in the creation of a product requirements document or PRD. The PRD includes a list of customer needs, and a set of target performance specifications.

Concept Development – This phase results in an articulation of the solution concept, along with documentation of the concept alternatives, the concept selection analysis, and the results of concept testing with potential customers.

System-Level Design – This phase establishes the product architecture, the major chunks of the product and the interfaces among them, and an analysis of which chunks will be custom, and which will be standard chunks provided by suppliers.

Detailed Design – This phase results in component design and specification, prototyping and testing of the chunks, and key sourcing decisions.

Quality Assurance and Testing – This phase comprises both internal and external testing to verify performance, test customer satisfaction, and to identify bugs.

Launch – This phase includes ramping up production and sales, while assuring early customer success.

For hardware products, there will be a significant parallel set of supply chain and production planning activities to ramp up the supply of the physical product. And, for service products, a pilot will often be conducted.

In any specific organization, the phases in the process are often represented as columns in a table with an implied flow of time from left to right, and the tasks, responsibilities, and key deliverables for each function within the organization are shown as rows.

The gates in the process usually involve a document (e.g., a PRD) and one or more meetings associated with a decision (a) to proceed, (b) to return to the preceding phase for additional work, or (c) to pause the effort entirely.

Evoking the waterfall metaphor, the phases are pools along a river in which substantial work occurs, including some swirling around. The gates are vertical drops between pools, marking the transition from one phase to the next. Water does not typically flow back upstream.

Phase-gate or waterfall processes have gotten a bit of a bad rap, with the critique that they do not allow for downstream learning to affect upstream decisions. However, in virtually every situation I’ve encountered, while the flow is generally from the what to the how, there is some iteration, some hiking back upstream in the process when downstream learning requires a revision in plans.

If you work in software, you know that an alternative process, Agile Development, is very common. Agile deserves its own dedicated explanation, but suffice it to say now that in an agile development process, rather than attempt to fully and completely specify the entire software product in a product requirements document and then build the system in its entirety, the team rank orders the desired features of the system and then builds and tests the features a few at a time, organized into short sprints, usually just two weeks long. Then subsequent sprints take on additional features, but only a few at a time. With an agile approach, the team is guaranteed that it always has something working, and the flexible element of the effort is the scope of features that are eventually built, but not the time allocated to complete the product. Agile processes also benefit from continual feedback on early versions of the product, which allow the development process to be responsive to new and emerging information.

Still, even for software and even in an agile environment, the creation of the first version of the product, the first embodiment of the concept, or what is sometimes called the minimum viable product or MVP, usually benefits from application of the more-or-less standard phase-gate waterfall development process, particularly the first few phases. Once a software or service product exists, its refinement and improvement over the lifecycle is highly suitable for an agile process.

Phase-gate development processes are generally logical and efficient ways to organize the effort of teams and to provide oversight and governance to the creation and improvement of products. For products pulled from customer needs, the process proceeds from a mission, to a detailed description of what the user cares about, to an articulation of the basic approach or solution concept, to a description of the details of the solution, whether that solution is software, a physical good, or a service. When thoughtfully applied, a phase-gate process ensures the organization focuses on the customer, that the landscape of possibilities is explored thoroughly, that no critical tasks are forgotten, and that different functional roles are coordinated.

Appendix – Push versus Pull Approaches to Innovation

One of my former students, Lindsay Stewart, started a company called Stringr. Lindsay had been a producer in the television news business. One of the biggest problems she faced at work was sourcing high-quality video of breaking news. So for instance, if there were a fire in the city, she would really want video footage for her story. She would have to contract with a videographer to go get that footage, edit it, and then to put it into production. That process was time-consuming, expensive, and uncertain.

Lindsay recognized the pain associated with this job and thought there must be a better way. In response, she created an app called Stringr. With Stringr, a news producer can enter a request for a particular piece of video footage via a web-based interface, and then freelance videographers can shoot the video and submit the footage using their smartphone. When the video is accepted, they’re automatically paid about 80 USD. 

Is Stringr an innovation? By my definition, unambiguously yes. I define innovation as a new match between a solution and a need. Stringr employs technology to create a marketplace connecting requests for video with the people who can create it, clearly a new match between solution and need. I call this approach to innovation the pull. Stringr was pulled from a pain point Lindsay herself experienced and has proved to be a great solution.

But, innovation can also come about in a completely different way. It can be pushed from the solution. Here’s an example.

The inventor Dean Kamen created a self-balancing wheelchair called the iBot. The big idea was that the device could rise up on two wheels allowing the user to be at eye level with people standing on their feet. The iBot was sold by Johnson & Johnson as a medical device, but once developed, Kamen thought, “Wow we have this amazing technology to balance a wheelchair on two wheels. I wonder if we could find any other application for this solution.” Several of the engineers on the development team said, “You know what? I bet you could stand on a self-balancing platform and ride it around. We could create a personal transportation device for anyone, whether or not they were disabled.” 

That thinking led to the Segway personal transporter. One of the applications that the Segway team eventually found was for Police officers, who could use the Segway to get around in environments in which space was constrained, where they wanted to be able to move slowly, and where they wanted a high degree of maneuverability. The Segway was a push – start with a solution – the two wheel self-balancing mobility technology–  and find a need that the solution can address, in this case police patrols.

The problem was that once Kamen’s company proved that police officers wanted a low-speed mobility device like the Segway, competitors took a pull approach to innovation and discovered alternative solution concepts that could address that need. In fact, once the police and security markets were proven, established competitors did enter with alternative solutions. 

A three-wheeled personal transporter is much less complex than a device that balances on two wheels, and so competitors were able to sell this product at lower prices and with greater performance than the Segway.

While an innovation can be any match between solution and need, and that match can be discovered via a pull or a push approach, three conditions must hold for the innovation to create substantial value.

First, the need must be real. That is, a significant number of customers must have a significant amount of pain, a real job to be done.

Second, the solution has to make the pain go away. It has to actually do the job.

Third, the organization must be able to deliver the solution at a cost significantly lower than the customer’s willingness to pay, and that is, the organization must have sufficient alpha assets to sustain competitive advantage.

Let’s apply these conditions to the Segway example.

First, Segway identified a real need for police officers to get around. The Segway satisfied criterion two as well, the solution concept met the need. But, Segway struggled to be able to offer the product at a price the customer was willing to pay. 

The three-wheeled configuration is a lower-cost solution that addresses that same need for police officers to get around. Ironically, Segway itself later introduced a three-wheeled version of its scooter once that configuration was shown to offer greater value. 

The big risk with the push approach to innovation is that as an innovator you fail to consider all of the possible solutions for the need that you’ve identified, and someone taking the pull approach runs around you with a better solution.

The innovator that pushes starts with an existing solution and often only considers whether or not their solution will meet the need of the target market. That is a necessary but not sufficient condition. 

With the push approach to innovation, an important discipline is to consider how a competitor would approach the identified need, but taking a pull approach. That consideration would probably have led the Segway team to conclude that a three-wheeled solution offers better performance at a lower price, suggesting the team should probably pursue the three-wheeled solution, and abandon the push approach, or else find a different job to be done in which dynamic self-balancing did offer some unique advantage.

While both push and pull approaches can be taken to innovation, In my opinion, the pull approach is much more reliable. The pull approach is at the heart of the zero-to-one product development process I teach, and forms the basis of a reliable and repeatable approach to creating value in product innovation.

Notes

Ulrich, Karl T., Steven D. Eppinger, Maria C. Yang. Product Design and Development. Chapter “Development Processes and Organizations.” Seventh Edition. 2019. McGraw-Hill.

Ulrich, Karl T. Design: Creation of Artifacts in Society. University of Pennsylvania. 2011.

Assignment – Entrepreneurship Journal and Self Assessment

You will keep a journal for the duration of this course. You will make entries in the week following each of the weekends in which we meet. The journal is for you. However, to maximize the learning across students in the course, you will post one reflection from your journal in the weekly discussion forum (for MGMT801 this is set up in Canvas) and then comment on one post of a classmate.

For the journal:

You will probably want to set up a Google drive folder (or equivalent cloud repository) for your work products for this course, including the journal.

The journal can be just free form text (e.g., a Google Doc). The journal is for you. You will submit a PDF of the entire thing at the end of the course just so we can give you credit for the work you are doing for the course. (You may redact any portion of the journal that you don’t want the TA and instructor to see.) You are completely unconstrained as to what is in the journal, but its contents will likely be primarily about you as a person in the context of entrepreneurship: How you feel about the possibility of being an entrepreneur. What roles you might want to assume in a new venture. What problem areas you’re excited about.

For the discussion forum:

Extract one reflection from your journal and post it to the discussion. It probably makes sense to keep these posts to a paragraph or two, say 100-300 words. If you are stuck about a topic to reflect on, just pick the podcast, film, or book you enjoyed most recently and offer some reaction to it.

In addition to posting a reflection of your own, please respond to the post of a classmate. Your response can be to any post from any week.

First Journal Entry – Self Assessment

Create an entry in your Entrepreneurship Journal entitled self assessment and put a date on it. You’ll probably be interested in returning to this entry periodically in the coming months and years.

Here are the prompts for the self assessment. (Note: some of these questions come from an article in the First Round Review about co-founders.) These are not structured as a survey scale or anything, but rather just questions that reveal your feelings about some of the key personal issues associated with being an entrepreneur. You do not need to answer all the questions. You should answer the ones that really force you to think.

What Do You Bring to the Venture?
[Either for the focal venture for this course, or for a hypothetical TBD opportunity]

  • What are your strengths and superpowers?
  • What are your weaknesses? How do you compensate for them?
  • What would you want your role to be before the venture reaches product/market fit? What would you want your role to be after the venture reaches product/market fit? How do you see your role changing as the company starts to scale? 
  • If the CEO/Founder role becomes unavailable entirely (e.g. the board hires a professional CEO or an experienced executive), what would you want your new role to be?

Rate your competence in these areas (both as an individual contributor, and as a leader) on a scale of 1-10. Then rate your passion for each on that same scale.

  • Sales
  • Marketing
  • Product
  • Design (graphic, UI/UX, industrial design)
  • Engineering
  • Operations
  • Fundraising
  • Leadership
  • Company Building (e.g., organizing and scaling functions and systems)
  • Recruiting
  • Legal
  • Domain expertise (e.g., healthcare, data science – please specify)

Vision of Future

  • What are some examples of companies that represent aspirational outcomes for you?
  • What does the exit or end game look like for you? (e.g., “becomes my job and life,” “create value in 3-5 years and sell,” “invest 7-10 years to grow a big company and IPO”)
  • How do you think about the timeframe and pace of success? Are you willing to take the longer path? How long is too long?

Personal Motivation – Purpose, Fun, and Money

  • Why do you want to start a company — in general, and in particular right now? [or if you don’t want to start a company, why not?]
  • What is success to you? What motivates you personally? 
  • What impact do you want to have? Is your startup objective “getting rich” or “changing the world”? 
  • Is control or financial success more important? (i.e. Are you willing to step aside if the company is more likely to have a financially successful outcome or is it important for the founders to stay in control of the company’s destiny?)
  • What would you want your personal financial outcome to be at exit? What’s the number?

Financial Security

  • How anxious are you about the prospect of quitting your job and working full-time on starting a venture, with the prospect of not getting a paycheck for 6-12 months?
  • What is your personal runway? Current burn rate? Would you invest your own money (likely retaining higher equity in return)?
  • What is the minimum monthly salary you need to survive in normal times? To be comfortable? To feel like you’ve “made it?”

Commitment [may not be relevant if you aren’t committed yet.]

  • Will this company be your primary activity? Do you have any other time commitments?
  • What is your expected time commitment right now? How do you see that changing in the next 6 months? 2 years?
  • How many hours/week are you willing to work? For how long? What sounds good? What sounds like hell? Do you have different expectations for different phases of the company’s lifespan (i.e. willing to work harder in the beginning)?
  • Do you feel it is possible for you to build a wildly successful company without burning out or damaging other parts of your life (family, health, etc.)? 

Notes

Gloria Lin. First Round Review. The Process I Used to Find my Co-Founder
https://review.firstround.com/the-founder-dating-playbook-heres-the-process-i-used-to-find-my-co-founder

The Triple-Diamond Model of Design

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I’ve been a product designer my entire adult life. Here is one of the products I created, the Belle-V ice cream scoop. In full disclosure, I had a lot of help from a talented team. When people see the product they impute genius to the designer – wow, that’s amazing. How did you come up with that?

I’m using an example of a physical good for specificity, but I’ve experienced the same kind of reaction to digital products and services.

The reality is that I learned an effective process when I was in my 20s and I’ve applied that process repeatedly, sometimes weekly or even daily for 40 years. When you only observe the outcome, the results seem magical. But, the truth is that a fairly straightforward sequence of process steps can reliably lead you to a great result.

Design is just another word for the pull approach to innovation. All design processes are a sequence of steps that begin with some articulation of the “what” and result in some description of the “how” – the process moves from what to how.

Commercial phase-gate product development processes are just an elaboration of that basic idea, with lots of detail. My textbook on product design and development (Ulrich et al. 2020) is a comprehensive description of that detail. Most of you working in larger organizations probably use some sort of phase-gate process that is specific to your industry.

But, here I’m going to abstract a bit, and focus on the elemental design process – what is design at its very core. While design is the core problem solving approach within the product development process, design can be applied beyond product development. It’s almost a building block of being human – of dealing with life.

My goal is to describe the design process in a way that it can be used in myriad situations, from the creation of a new product from scratch, to the improvement of an existing product, and even for solving internal innovation challenges such as finding new ways to reduce waiting times in emergency departments.

To reiterate, the standard phase-gate product development process is a fully elaborated methodology that typically includes the roles of different functions within the organization. It emphasizes not only what to do in each phase, but the notion of a gate that must be cleared in order to proceed to the next phase. I am now going to boil that basic process down to its essence to give you a tool I call the triple-diamond model that can be used not just in zero-to-one product development, but also in almost any other problem solving situation.

To give credit where credit is due, the triple-diamond model is my extension and elaboration of the Double Diamond Model articulated by the UK-based Design Council, a non-profit organization with the mission of improving design practices.

The three diamonds correspond to three steps. 

  1. Clarify the job to be done in a jobs analysis. 
  2. Understand the needs of the customer or user. 
  3. Create a great solution concept.

In practice, a fourth phase is usually important – implementing that concept in a way that the organization can actually deliver the solution. This involves writing the code, designing the parts, and planning for production.

The three diamonds each represent a cycle of divergent and convergent thinking. For each diamond, the designer explores alternatives, and then focuses.

The first diamond answers the question, “What is the job to be done?” It starts with a target customer and the gap or pain point as you have first sensed it, and it results in a carefully considered reframing of the design problem in terms of a job to be done. In fact, one of the critical elements of an effective design process is not even really problem solving so much as problem definition.

The second diamond begins with a job to be done and develops a comprehensive understanding of the customer needs, which are those aspects of a solution that could result in satisfaction and even delight if satisfied. The convergent portion of the second diamond identifies one or a few insights, which are essentially important customer needs that were previously not known.

The third diamond uses those customer insights to pull many possible solution concepts and then selects one or a few for further refinement and testing.

Let me show you how the three diamonds played out for the Belle-V scoop. I started with a vague sense that ice cream was really hard to scoop. In diamond 1, I focused on the at-home consumer of ice cream and came up with the job to be done “How might we better dispense bulk ice cream into individual portions?” In the second diamond, I observed people scooping ice cream and noticed that the wrist angle was quite awkward, even painful for some people. That insight allowed me to pull several different solution concepts, including the one that eventually was embodied in the product, a more or less conventional scoop, but with the scoop angled relative to the handle.

Of course, really, it’s diamonds all the way down. The triple diamond model focuses on the concept development process, but when the team proceeds to build the product based around a concept, it will almost certainly use additional cycles of divergent and convergent techniques in order to solve downstream problems, say for establishing a product architecture, or implementing specific components of the solution. For example, even after we had converged on the solution concept of an angled scoop, we did a huge amount of exploration to find the final form of the object. Another diamond focused on the detailed design of the shape of the scoop and handle. And for that matter, there was another diamond when we considered the surface finish of the scoop – divergent exploration of alternatives and then convergence on tri-valent chrome plating.

Some of you are thinking that this model seems pretty tidy for a very simple piece of hardware like an ice cream scoop, but may not apply to more complex goods and services, say to enterprise software or to a hotel experience. I have a couple of reactions to those reasonable thoughts. 

First, as an aside, there’s a reason they call it HARD-ware – it’s hard. Even a simple object like an ice cream scoop presents a lot of complexity and challenges when it comes to actually getting it to the marketplace. 

But, more substantively, for new, zero-to-one systems, software, or services, you must still devise an overarching solution concept. For example, consider LinkedIn – the top-level solution is essentially a user-created resume-like profile with the ability to establish a connection between two individuals, and then the ability to search 1st, 2nd, and 3rd order connections in the resulting professional network. Such an overarching concept could be developed with the triple diamond model. 

For established systems, the triple diamond will be unlikely to be applied to the entire product or suite of products, but rather more likely to a feature within that more complex product. For example, once LinkedIn had become a successful product, the triple diamond model could still be applied, but to a new feature, say the creation of the follower feature, which allows individuals to follow another person and get updates that person publishes, but without requiring the individual to become a bi-lateral connection.

Problem Solving, Design, and Design Thinking

I happened to be on a holiday ski trip when I was writing this chapter. (I know, that doesn’t sound like that much of a holiday.) I kept thinking to myself, skiing is fun, but it’s a huge annoyance to actually get on the slopes. For most novice skiers, you have to procure skis, boots, poles, helmet, goggles, and warm clothing. Then, you have to put all that stuff on. Then, while fully dressed in really warm gear you have to walk awkwardly from transportation to a ski lift, sometimes navigating a flight of stairs. Then, you put on the skis. By then you are sweating and your goggles are fogged up. Next you wait in a line. Then you get on a windy and cold ski lift and become quite chilled. When you finally get to the top of the mountain, you stare at a map trying to figure out the best route down. Finally, you get to slide on the snow, which is actually quite fun. I’m an incurable innovator and so I found myself posing the question, “How might we improve the experience of getting skiers onto the slopes?”

If I were a trendy corporate consultant, I would call this a “design thinking” problem. But, I’m actually a bit of a crusty old designer. I’ve taught design for more than 30 years. So, I have to ask “what exactly is design thinking” and how is it any different from plain old design?

Well, first let’s first go back to the definition of innovation and design.

I define innovation as a new match between a solution and a need. Innovation can result from a push – starting with the solution and looking for a need. For example, what might we use the blockchain for? Or, it could start with the need and pull the solution, like I framed the skiing challenge. “How might we improve the skier experience?” Design is innovation anytime you are pulling a solution from a need.

So considering our definition, the short answer to what is design thinking is that it is design. Really. You apply the same process to creating a better ski experience as you do to creating a better ice cream scoop, or a better fitness app. In fact, the word design thinking annoys a lot of designers, because they are usually less interested in thinking about problems than in actually solving them. 

Once I cool off a bit about the weird term “design thinking,” I realize there may be a gem of an idea in there, and that a bit of nuance may in fact be warranted.

A useful definition of design thinking might be that it is design of things we don’t normally think of as designed.

For example, here are some problems for which the design process could be used, resulting in solutions that would not normally be thought of as designed artifacts.

  • How might we improve the patient experience in the emergency department at our hospital?
  • How might we improve the convenience of using a bicycle for transportation?
  • How might we create a delightful food delivery service?

A lot of people talk about needing to apply more design thinking in business. I find myself wondering if the desire for design thinking is really just a reaction to the use of too many spreadsheets and PowerPoint presentations, disconnected from customers and from exploration of solution concepts. This reaction reflects a desire for a different and better culture of innovation.

I do think that good designers exhibit a few desirable elements of culture. Interestingly, most of these elements don’t need to really be confined to design. Here are five:

  1. Designers exhibit a bias for action.
  2. Designers tend to be optimists, exhibiting a culture of yes.
  3. Designers tend to use exploratory prototypes early in the problem solving process.
  4. Designers tend to be skilled at visual expression.
  5. Designers tend to use empathic methods for understanding customers.

Despite my enthusiasm for all things design, I won’t argue it is universally the best approach to problem solving. For example, it would be a mistake to abandon elements of Six Sigma, Total Quality Management, the Toyota Production System, and data-based approaches. It would also be a bad idea to use a design process to find the volume of a geometric shape, a task better suited to an algorithm.

But, for a huge set of challenging problems, design is a great approach. It is fundamentally divergent and open-ended in its perspective on addressing user needs, and that’s useful whether you are designing a bridge, enterprise software, or an insurance claims process.

Notes

Karl T. Ulrich, Steven E. Eppinger, and Maria C. Yang. 2020. Product Design and Development. McGraw-Hill. New York.

Double Diamond Model. UK Design Council.
https://www.designcouncil.org.uk/our-work/skills-learning/tools-frameworks/framework-for-innovation-design-councils-evolved-double-diamond/

Opportunity Identification

I’ve written a lot about opportunity identification in my books Product Design and Development, Innovation Tournaments, and The Innovation Tournament Handbook. The topic is also covered fairly extensively in the course OIDD 614 Innovation Management. Consider this chapter a quick summary of the big ideas in the context of identifying entrepreneurial opportunities.

Often the Opportunity Finds You

On my weekly podcast I have interviewed about 500 founders. For about half of these founders, the opportunity found them; they did not go looking for an opportunity. For example, consider Flava Naturals, founded by Alan Frost. Here is how he describes the origin story.

“I told you we should eat more chocolate!” I looked up from my coffee and there was my wife holding out the New York Times, and looking very happy. She’d just read an article about a Columbia University study that linked chocolate to enhanced memory. (…) But I was a biotech exec accustomed to how the media could exaggerate the importance of findings in small studies. I love chocolate too, but was skeptical, to say the least. So I dug deeper. Sure enough I found dozens of placebo-controlled studies that demonstrated meaningful benefits of cocoa flavanols on brain, heart and skin function. There was a catch though, and a pretty big one. The best results seemed to require consumption of 500-1,000mg of cocoa flavanols a day — that’s 5-10 average dark chocolate bars! (…) So began my quest to develop a decadent chocolate with the naturally preserved flavanols proven so healthy. And a business was born.”

Alan Frost, Founder and CEO Flava Naturals

Another common pattern is that entrepreneurs experience a pain point themselves and then set out to create a solution to address their own needs, and hopefully those of a larger market. Tammy Sun founded Carrot fertility services when she found that her employer did not cover fertility benefits as part of her health insurance, and that there were no enterprise solutions for managing fertility services for employees. She then set out to found a company to meet that need.

A third pattern, probably least common, is that an individual or team seeks out an entrepreneurial opportunity but has no particular problem area in mind. For example, Alan Cook founded, grew, and sold a first business in the pet care space, an opportunity born out of frustration with conventional litter boxes for cats. After a brief sabbatical, he sought to start another company, but this time was agnostic about the specific problem area. With the help of members of his previous team, he generated and considered about one hundred distinct opportunities, from pre-packaged spices to reconfigurable furniture, before focusing on another pet care product, this time for dogs. He pursued that opportunity not because he experienced a need himself — Alan doesn’t even have pets — but rather because he felt his prior experience gave him an unfair advantage, always a good thing for an entrepreneur.

A Personal Innovation Tournament

If you are motivated primarily by purpose, then the opportunity obviously matters a lot — after all you are setting out to do something specific in society. In that case, the entrepreneurial opportunity had better be aligned with that purpose. However if your goal is fun or financial return, does the selection of opportunity even matter very much? Put another way, is there not an opportunity to be financially successful or to have fun in pretty much any area of the economy? Sure, to some extent, you as an entrepreneur can probably find a viable opportunity almost anywhere you look. However, you will likely spend at least five years of your life pursuing a new venture. You might as well be quite deliberate about which opportunity you pursue. In my opinion, a good rule of thumb is that when considering taking the entrepreneurial leap, you should generate and evaluate at least ten different opportunities. 

The process of identifying or generating a large set of opportunities and then selecting one or a few to pursue further is an innovation tournament. This tournament need not involve a large group of people. In fact, you can run that tournament by yourself.

There are two parts to an innovation tournament — (a) generating the initial candidates and (b) selecting the exceptional few. Let’s start with the end in mind and consider selection criteria. Then, I’ll give some guidelines for generating opportunities.

Selection Criteria

The motives and selection criteria for a new venture depend on you and your co-founders, if any. You might want to do something in Brazil or be involved in the skiing industry. Make a list. Be very specific about the desirable attributes of your future business. This list is usually quite personal. For instance, when I started MakerStock, one of my selection criteria for this new business — after having made and sold scooters for 20 years — was that our product would not be intrinsically dangerous, as are wheeled vehicles. In my old age I prefer not to think about customers getting injured with my product. You will have your own set of hopes, fears, and desires.

In addition to any idiosyncratic preferences you may feel, the following questions are always important:

  1. Would you be excited, passionate, and proud to tell others, including your family, what your venture does?
  2. Is there enough TAM that you can create an enterprise of significant value? (See the chapter on market sizing.)
  3. Do you have a credible thesis for how you might offer value relative to existing companies (e.g., superior solution, strong brand, network effect)? (See the chapter on alpha assets and sustainable advantage.)
  4. Are your skills, credentials, and/or prior experience particularly relevant to success?
  5. How much capital will be required to pursue this opportunity? Is this capital requirement aligned with your vision for the type of business you hope to create, say a closely held lifestyle business versus a venture-backed company that goes public?

After considering these questions and your personal preferences, explicitly articulate your selection criteria so you can use them to evaluate the opportunities you are considering.

Here is a template (as a Google sheet) to use in evaluating opportunities.

Guidelines for Generating Opportunities

The process of generating opportunities usually plays out over weeks, months, or even years. Start a list. Accumulate ideas as they arise from whatever source. In addition to passive accumulation of ideas, you’ll benefit from focused, deliberate efforts to generate opportunities. Here are some guidelines, techniques, and heuristics for generating more and better ideas.

Push versus pull. Two distinct approaches to innovation are push and pull. With push, you start with a solution — say blockchain technology — and go looking for a market need. With pull, you start with a pain point experienced by consumers or businesses and you devise a solution. As a general rule you should take the pull approach. Identify a problem that potential customers have and then develop a solution that solves it better than existing options. The push approach can work on occasion, say when you start with a fundamental innovation in materials science that has the potential to be broadly useful. However, the push approach has proven to be much more risky than when you start with a pain point that is clear and obvious.

Second-best ideas. Learn from other entrepreneurs and ask them for ideas. Most successful entrepreneurs have dozens of ideas. They are working on their best idea, but you should ask them what is their second-best idea. Many will happily give you ideas and maybe even help you get started. 

Imitate but better. find successful ventures in a field that interests you and improve on their offerings by adding new features or benefits, reducing costs or risks, targeting new segments or markets or creating a unique brand identity. Hundreds of interestiong new ventures are listed by AngelList, WeFunder, StartEngine. YCombinator. Crunchbase, and other organizations. Existing start-ups are a treasure trove of information on what has been tried, what is working, and what approaches have failed. You will not usually want to go head to head with an exact replica of an existing company for two reasons. First, differentiation is a good thing allowing multiple companies to flourish by serving different segments. Second, there’s no particular reason to believe a start-up a few months ahead of you has taken the best approach.

Scour social media. Use social media platforms like Reddit, Quora, and Twitter to find out what customers are talking about, what problems they have and what solutions they are looking for. Monitor trends, hashtags, influencers and feedback. Journalists, bloggers, and conference organizers are in the business of sensing. While their insights are available to everyone, not everyone is viewing those insights through an entrepreneurial lens.

Careful of gold rushes. On-line forums and media outlets will occasionally exhibit fad-like behavior and herding. For instance, as I write this, these forums are crowded with excitement about large language models, chat bots, and artificial intelligence. Unquestionably opportunities abound. However, you can not typically observe the number of rivals entering a new market, and some markets are gold rushes, with too much competition. You may be better served by a quieter niche.

Import from another geographic region. Innovations are often geographically isolated, particularly if introduced by smaller firms. You can sense opportunities by identifying outstanding products or services in a distant region and then considering how you might adapt them to a different place.Translating the innovation from one geographic region to another can be a source of innovation.  

Consider lead user innovation. identify users who have a high need for your product or service and are ahead of the market in terms of innovation. Observe how they use your product or service and what modifications they make to it. Incorporate their feedback and suggestions into your product development.Firms have ample incentive to innovate. Innovation, after all, can result in new sources of cash. But lead users and independent inventors may have even greater incentives. Lead users are people or firms that have advanced needs for products or services that are not being met by other companies. They must either tolerate their unmet needs or innovate themselves to address them.

Poke around universities. Major research universities are wellsprings of opportunities and have produced such successes as Google (Stanford), Genzyme (MIT) and many others. Some of the opportunities spring from faculty-led research, particularly in the life sciences. Others are created by the legions of bright young students who enroll to chart new directions in their lives and careers.

Learn from Others

Here are several interviews I’ve done with founders that have particularly interesting origin stories. Sample the ones that interest you. Most interviews are about 25 minutes long and the origin story is usually in the first third of the interview.

Coravin (Greg Lambrect) – wine dispensing

Eat Just (Josh Tetrick) – alternative protein

Rebellyous Foods (Christie Legally) – alternative protein

Frutero (Mike Weber and Vedant Saboo) – ice cream

Flava Naturals (Alan Frost) – nutraceuticals

Carrot (Tammy Sun) – fertility services

The Infatuation (Chris Stang and Andrew Steinthal) – restaurant guide

Notes

Ulrich, Eppinger, Yang. Product Design and Development. Chapter “Opportunity Identification.” 2020. McGraw-Hill.

Terwiesch and Ulrich. Innovation Tournaments. Chapter Opportunity Identification. Harvard Business Press. 2009.

Terwiesch and Ulrich. The Innovation Tournament Handbook. 2023. Wharton School Publishing.

Introduction to Entrepreneurship

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It’s more fun to be a pirate than to join the navy.

Steve Jobs

What is Entrepreneurship?

Entrepreneurship is the creation of a new economic entity to do a job in society.

The hallmarks of entrepreneurship include a focus on solving a problem, creative exploration of solutions, experimentation to reduce uncertainty, formation and operation of a new organization, and dynamic planning based on new information. Skills in these areas are valuable not just in starting a new company, but in addressing new problems in existing organizations. Thus, many but not all of the elements of this handbook are relevant to those engaged in innovation within established enterprises.

Founder Motives

Kerr and colleagues (2018) provide a comprehensive review of the academic literature on founder motives. (See “Notes” at the end of each chapter for links to references.) You can read that paper if you want to go deep. But, if not, here’s the TLDR. Founders are usually motivated by multiple factors to start businesses. These motives can be usefully divided into three broad categories: purpose, fun, and money.

Purpose

Uma Valeti, a cardiologist by training, and founder of Upside Foods (formerly Memphis Meats), told me that he started the company because he wanted to detach slaughter from meat production. He recalled a birthday party he attended as a child in India in which there was a party celebrating life in front of the house, while others were killing an animal in back of the house. That event made a deep impression on him. Many years later when he worked on the technologies for growing human heart tissue in a medical context he recognized that his knowledge could be applied to another purpose in which he believed deeply. To pursue that purpose, he founded Upside.

Listen to some founder stories. A significant fraction will include phrases like “I had to do it” or “If I didn’t do it, who would?” or “I felt the world really needed this solution.” These are all expressions of purpose — a motive to create something new in order to provide a solution to a personally important problem to the world.

Fun

Steve Jobs said, “it’s more fun to be a pirate than to join the Navy.” That was certainly true for Jobs, but maybe not for you.

Some distinctive characteristics of the daily experience of being an entrepreneur include:

  • Nearly complete autonomy (as long as you don’t run out of cash).
  • Highly diverse tasks (from shopping for insurance to designing a user interface).
  • Privilege of working with a small tight-knit team, largely of your own choosing.
  • Ability to see immediate results of your work.
  • Creating something from nothing, whether a product or a company culture.
  • Continual opportunities to learn something new.
  • Complete absence of boredom.

For me, these attributes are mostly positive, and my own skills and capabilities are pretty well suited for these aspects of entrepreneurship. Entrepreneurship also comes with some characteristics experienced as negative by some people:

  • The complete absence of boredom may be experienced as unrelenting and intense demands on attention.
  • Significant stress about possibility of running out of cash.
  • May be a solitary effort, especially initially.
  • Requirement to do what needs to be done, sometimes including packing boxes or cleaning the office, without an ability to delegate to competent corporate employees.

On balance, most entrepreneurs seem to find the daily work of entrepreneurship fun, and preferable to working within an established enterprise owned by someone else. For some entrepreneurs, the adrenaline and satisfaction from the daily work of entrepreneurship is the most important motive for their career choice. For me, entrepreneurship has been personally demanding. I am extremely thankful to have been a full-time CEO when I was 39-43 years old. I’ve enjoyed being a part-time co-founder many other times. I’ve also been a business owner with ultimate responsibility for an established business for twenty years, but that has a very different stress profile from starting something from nothing. I do not need to have the experience of full-time founder and CEO again, and can get just the right level of fun without a lot of stress from being an investor and advisor.

Money

The mean financial outcome for a capable and educated entrepreneur is likely a bit higher than for those who work in corporate jobs. However, the mean value masks a huge amount of variation. The modal and median outcome predicts that you will fail to realize significant value and would have been better off financially if you had kept your job instead of becoming a founder. Large financial payoffs are realized by a small fraction of entrepreneurs. In approximate terms, about 25 percent will do better than break even financially relative to staying on a traditional career path. About 5 percent of founders with your skills and capabilities will become reasonably wealthy (say USD 5-10mm after-tax pay out), and 1-2 percent will become downright rich (say USD 20mm+ after-tax pay out). For most people, the only way to have a decent chance at becoming wealthy in life (other than being born into it) is to start a business. But, it’s just a decent chance, say 10 percent or so, depending on your definition of wealthy. The probability distribution is also quite different for different types of ventures (more on that below). On the other hand, for most of you, the down side is not that bad. You had an amazing adventure. Worst case you gave up (a) savings worth a year or so of living expenses and (b) the opportunity cost of not having earned a market-rate salary for the years your business struggled. Then you went back to a regular job and did just fine. (See Botelho and Chang; and Amornsiripanitch et al. for a more comprehensive exploration of the implications for founders of returning to corporate jobs.)

I don’t have a large enough sample for statistical validity, but of the 100 or so Wharton alumni entrepreneurs I have followed closely or invested in, all live comfortable lives, take vacations, and send kids to college. Five-ish are what most would consider rich (e.g., USD 100mm+). Ten-ish are pretty wealthy as a result of entrepreneurship. Twenty-ish did just fine – let’s say better than having taken a corporate job. The other 65 percent would likely have been better off financially if they had devoted the attention they gave to their venture to a corporate job, and many of those are back working at such jobs.

If you really want to dig into the details on financial outcomes, the Angel List data is probably the best. An index of the available data is here:

https://www.angellist.com/blog-categories/data

You can find the data on venture returns here, from which you can impute a probability of a successful financial outcome.

https://www.angellist.com/blog/venture-returns

Angel List has also integrated its experience into a white paper here: https://angel.co/pdf/growth.pdf 

Types of Ventures

Not all ventures assume the same level of risk and uncertainty.

Read this article from Outside Magazine about Steve Despain (or listen to the audio version of the story linked in the article). Steve is the founder of Firebox Stoves, a small business tightly coupled to his personal passions and lifestyle. What motivates Steve? How attractive is the Firebox Stoves business to you? (Here, I’m not necessarily asking you about your passion for the outdoors…but about owning and running a small business aligned with your passions.)

Now consider Blake Scholl (founder of Boom Supersonic). Here is an interview I did with Blake when he had just recently founded his company.

What motivates Blake? What does the financial payoff probability distribution look like for Blake vs. Steve? To make this concrete, what is the probability of a zero outcome for each? What is the probability of USD 100mm outcome for each? Estimate some probabilities in the middle, say USD 1 mm and USD 10 mm.

Rich or King?

A key dilemma most founders make is to be rich or to be king. (See Wasserman for a full elaboration of the dilemma.) The skills and capabilities required to lead a large, successful organization are quite different from those required to kick start a new venture. Some founders, such as Bill Gates, Mark Zuckerberg, and Jeff Bezos, did just fine in making the required transition. More typically, a founder faces a dilemma. Do I prefer to retain full control and manage my own kingdom, even if small, or would I prefer to step aside if necessary to ensure a huge financial outcome for investors, including me. Founders do not have to make this decision on day one, but still benefit from thinking through their preferences in advance. A self assessment of your skills and capabilities, and your relative preference for financial success versus control, should influence the type of venture you start.

Founder Characteristics

Founders are not typically kids. The mean age of founders of the fastest growing 0.1 percent of companies is 45. (See Jones, KIm, and Miranda.)

Founders do not require particular personality traits. No personality trait is predictive of success in entrepreneurship specifically, although the “big five” trait conscientiousness does predict career success more generally. (See Kerr, Kerr, and Xu.)

As long as you are not allergic to risk and uncertainty, your personality profile (e.g., introversion, agreeableness or lack thereof) probably does not disqualify you from entrepreneurship.

How do Founders Spend Their Time?

Every founder and every start-up is unique. Still, looking at the experiences of other founders can be instructive. Here is an unusually detailed analysis of how one founder spent his time in the first two years of his start-up.

Entrepreneurial Narratives

Entrepreneurs often follow the hero’s journey and so their stories can be compelling. Take some time to immerse yourself in some entrepreneurial journeys. Select from the following options.

Books

  • Chip Wars. (This is a fantastic and comprehensive history of Silicon Valley and the semiconductor industry. This book will teach you about entrepreneurship, technological innovation, competitive advantage, and geopolitics.)
  • Shoe Dog. (If you can’t stand to go deep on semiconductors, try running shoes.)
  • Let my People Go Surfing. (Memoir by Yvon Chounaird, founder of Patagonia, and a pioneer in corporate social responsibility.)
  • The Wright Brothers. (Fantastically interesting book, at least to me.)
  • Truck Full of Money. (Entrepreneurs can be quirky. Paul English, founder of Kayak, is the subject of a fascinating book that goes deep on character. If you like this one, then make sure to read Mountains Upon Mountains, Kidder’s biography of Paul Farmer, founder of Partners in Health – a social venture.)

Films

  • General Magic (film) – This is the basis of a case discussion in my course on Product Management (Wharton OIDD654), so you might wait on this one if you plan to take that course.
  • Print the Legend (film) – about the formation and growth phase of Makerbot, the 3D printing company.
  • (Docudrama just for fun.) The Entrepreneur – The story of Ray Croc, who built the modern McDonald’s corporation.

I know these films and books mostly feature white American males. (Chip Wars does feature Morris Chang, a Chinese-American entrepreneur, and includes mention of the remarkable contributions to the semiconductor industry of Lynn Conway, whose personal story as a transgender female is incredible.) If you have some suggestions for more diverse stories, please send them to me.

Notes

Interview of Uma Valeti, founder of Memphis Meats (now Upside Foods). by Karl T. Ulrich. SiriusXM Launchpad. February 28, 2017. https://shows.acast.com/wharton-entrep/episodes/uma-valeti

Mollick, Ethan. The Unicorn’s Shadow: Combating the Dangerous Myths that Hold Back Startups, Founders, and Investors. University of Pennsylvania Press, 2020.

Jones, Kim, and Miranda. https://ssrn.com/abstract=3158929

Wasserman, Noam. The founder’s dilemmas: Anticipating and avoiding the pitfalls that can sink a startup. Princeton University Press, 2012.

Tristan L. Botelho, Melody Chang (2022) The Evaluation of Founder Failure and Success by Hiring Firms: A Field Experiment. Organization Science 34(1):484-508.

Amornsiripanitch, Natee and Gompers, Paul and Hu, George and Levinson, Will and Mukharlyamov, Vladimir, “Failing Just Fine: Assessing Careers of Venture Capital-backed Entrepreneurs Via a Non-Wage Measure,” National Bureau of Economic Research Working Paper, No. 30179, June 2022. (Summarized by Harvard Business Review here https://hbswk.hbs.edu/item/why-a-failed-startup-might-be-good-for-your-career-after-all )

Azoulay, Pierre and Jones, Benjamin F. and Kim, J. Daniel and Miranda, Javier, Age and High-Growth Entrepreneurship (April 2018). NBER Working Paper No. w24489, Available at SSRN: https://ssrn.com/abstract=3158929 

Kerr, Sari Pekkala, William R. Kerr, and Tina Xu. “Personality Traits of Entrepreneurs: A Review of Recent Literature.” Foundations and Trends in Entrepreneurship 14, no. 3 (July 2018): 279–356.

Angel List Power Law paper https://angel.co/pdf/growth.pdf