This week I gave a final exam to 29 undergraduates in my "Foundations of Entrepreneurial Management" class at Babson College.
But a final exam is not the true test of what they need to know. They need to learn how to think and act to find and capture opportunities to make the world a better place.
This may sound overly rosy, but in my experience startups must make the world better in order to survive. To succeed at that, entrepreneurs must consider and do the following six things:
1. Find customers and feel their pain.
A passionate founder is often so determined to realize a vision that he or she can lose sight of other perspectives. Before going too far with plans, an entrepreneur should think about how the outside world would view the new product.
What are the different groups of people it could help or hurt? Which group of potential customers might it make better off?
Which talented people could the vision inspire? Which partners would want to work with the venture? Which investors would want to bet on it?
In a recent interview, Nutanix CEO Dheeraj Pandey tells me that empathy is the one word he invokes in almost all interactions with customers, employees and partners of his San Jose, Calif.-based company that combines the functions of servers, storage and networking.
“By empathizing with our employees, customers and partners we believe we can build a company that will create value for our investors because we solve their problems instead of dictating to them what we think they ought to have the way our competitors do,” he says.
2. Imagine and build a prototype.
Find an inexpensive way to build a model of a product.
Let's say an entrepreneur has the idea to build an app that will make it easier for college friends to arrange an evening out on the town. A prototype might be as simple as a series of drawings of the app's screens. If the drawings are clear, save the time and money of hiring someone to write code until after the next step in the process.
An example of this can be found in Ben Kaplan's development of the Who is Going Out (or WiGo) app. As the former student at Holy Cross College in Worcester, Mass., told me, "I was on campus my freshman year and trying to make social plans -- figure out who else was going out at night, where and what time."
But there were no easy way to do it, he said. "You could text other people or put a post on Facebook but you often wouldn't get an answer."
So he came up with the idea for WiGo and mocked up some screen shots on paper for how the mobile app would work. He found a systems developer who built the app in the fall of 2013 for his new company.
3. Receive feedback to adapt the product.
Next imagine the characteristics of the individuals who might eventually buy the startup's product. Based on that, find individuals who fit that description. Show them the prototype and inquire whether they would buy it. If so, how much would they pay? If not, ask them to say what's wrong with it or missing and what they would they change.
Repeat this process until a majority of potential customers say they are eager to use the product and want to know how long it will be until it's delivered.
WiGo is an example of a product that launched in January got good feedback almost from the start, founder Ben Kaplan asserted, saying, "It became very popular within three weeks. Many of the people using it were friends on sports teams at Holy Cross." Added Kapan, "I started getting emails and Facebook messages from people at other schools like University of Florida and University of Southern California where I had friends who wanted to use it."
If consumers say the product looks interesting but it's not good enough or solves the wrong problem, change the vision or find customers who need the product now -- or give up.
4. Build a team of people.
After receiving a positive reaction from potential customers, think about the skills required to turn a prototype into a product with the benefits expected by customers. What type of sales, engineering, operations and service people are needed to operate the business well?
Figure out values to unite the team and use them to screen candidates and create an interview process and compensation package to hire the best people for these key jobs.
Kaplan, a visionary and salesperson, lacks programming skills. But he was able to use his skills to secure the ones he lacked. For example, he met with Jim Giza, executive in residence at Worcester Polytechnic Institute.
Giza introduced Kaplan to Kayak co-founder Paul English, who was opening the Blade startup incubator in Boston. "I gave him a demo of WiGo and he immediately got it," Kaplan said, adding that he now has three or four employees and three to four Blade employees dedicated to WiGo.
English also led to Kaplan's enlisting programmer and MIT grad Giuliano Giacaglia to be a WiGo co-founder.
5. Raise capital to achieve goals.
To accomplish all the preceding steps, a startup needs money. Give thought to the ways the startup capital could be used and how potential investors will receive a return on the investment. Then find people who will understand the venture and have the capital to invest in it.
The process of raising funds becomes more time-consuming and difficult as capital requirements increase. Bring in investors who will help the company achieve its vision rather than fighting to take control.
WiGo raised capital by bringing in investors who understood its market and could help attract others. The company brought in "about $700,000 from the founders of Kayak, Rue La La, and Tinder, and from professional athletes, including Vince Wilfork of the New England Patriots," The Boston Globe reported.
6. Perceive and adapt to change.
Monitor all the changes to the startup's environment. The entrepreneur must distinguish between signal and noise when it comes to considering new technologies, customer needs and upstart competitors.
The founder must decide how to respond -- whether to alter the existing product line, add new items, change the organization's structure, bring in managers or create more formal systems to manage people and finances.
Adobe Systems is an example of a company that has adapted to change. Since 2011, its CEO has led its transition from selling packaged software (to its 12.8 million users of Photoshop, Illustrator and InDesign) to providing software as a service, whereby customers pay a monthly fee and get the latest version from the cloud.
Adobe decided to sell Creative Cloud, a monthly, cloud-based subscription service. On Dec. 11, Adobe reported far more subscribers to its Creative Cloud than Wall Street expected and its shares gained nearly 10 percent on a day when the Dow plummeted.
Thinking and acting in these six ways can make the difference between startup success and failure.