How to Help New Businesses
Learn how universities can help more new businesses be successful.
The odds for new businesses aren’t good. Entrepreneurs face massive challenges launching, let alone sustaining, their ventures. According to the Small Business Association, nearly three out of four never celebrate their second anniversary.
For the majority of these businesses, the entrepreneurs aren’t cashing out with a major payday. They’re failing.
And they’re failing for three key reasons. Sometimes it’s because they launch with something that not enough of us want. Before the model and products can be adjusted, the entrepreneur has burned through his resources. Other times they fail because the entrepreneurs have no business experience. Take a chef who has the ambitious goal of starting a sustainable restaurant concept, or an app developer whose background is only in the technology. They need partners to guide the business decisions.
And sometimes, new businesses grow too big, too fast. Jay Myers, the founder and CEO of Interactive Solutions Inc. and author of Hitting the Curve Balls, talks about how he started his company without a real business plan. The problem wasn’t that he couldn’t get funding to get his business off the ground; it was that he started doing really well and didn’t have a plan to support the growth.
So how do we help more new businesses be successful?
The lean startup model has done a lot to improve new venture concepts earlier in the development cycle, which has helped improve the likelihood of customer success. But companies with compelling business models still have a failure rate that is too high. In many cases, this happens when companies move from incubation or early stage to the growth phase or maturing business.
These types of failures are frustrating because there are ways to minimize this with traditional business planning and management techniques. In the enthusiasm for teaching lean startup skills, we have reduced the amount of basic business planning education that is necessary to sustain and grow a business.
I’d like to see us focus on educating students so they can succeed and add value to new ventures, not just raise money and start new businesses. In other words, they can help new businesses succeed.
This doesn’t mean giving up lean startup. It also doesn’t mean focusing primarily on traditional business planning. The alternative approach to entrepreneurship education is to shift the focus to make sustainability as important as identifying customers and raising money.
Students who’ve been educated in traditional planning, which is really a cross-disciplinary endeavor, can do a market segmentation study one week, work on an operations plan another week, and then build a financial pro forma and break-even analysis.
Rather than pointing our students down the risky path of starting their own ventures, let’s get them into emerging businesses, where they can learn to build a business with an entrepreneurial team. We need to show them that there are multiple ways to be an entrepreneur. Only when we seriously use both approaches will we be able to improve the outcomes of new businesses.
The MBA program at St. Edward’s University in Austin, Texas, builds highly sought-after skills in entrepreneurial thinking, social enterprise, innovation, global collaboration and business analytics — the areas business leaders (and entrepreneurs) need in today’s business world.
David Altounian is an assistant professor of Entrepreneurship at The Bill Munday School of Business at St. Edward’s University in Austin, Texas. He is also a partner in Capital Factory, an Austin incubator for startups, and the founder and former co-chairman and CEO of Motion Computing, a leading provider of mobile computing products for vertical markets.
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