Bill Aulet: Lessons Learned in Teaching Entrepreneurs

Bill Aulet is a (successful) serial entrepreneur turned teacher. This talk questions the entrepreneurial support industry, gurus, entrepreneurial education, Donald Trump and the notion that there is a recipe for entrepreneurial success. Don’t watch it to learn how to teach entrepreneurs, watch it to have your own entrepreneurial instincts challenged.

“This is my goal… I want to promote entrepreneurship. For entrepreneurs to be seen as a profession; not some bunch of crazy people”.

“What does ‘Disciplined Entrepreneurship‘ really mean today?

Slides

Transcript

So, look, I’m going to go through. All of you got the book, ‘Disciplined Entreprenurship‘, in your Business of Software Conference delegate bag. I’m going to kind of go highlight that but, what I want to do is have a lot of questions and answers here. So, think of your questions. If you want to tweet them, you can tweet them to me, and I’ll come up here. You don’t have to wait. It’s, @BillAulet.

Feel free to, to have your phone out and tweet during the talk. If I can’t capture your attention, then I’m not doing my job. But, but I would love to hear what you all have to say. It was interesting at lunch, to hear about one company that’s going from 30 employees to 230 employees in less than 18 months. And, that’s a great story! And there are just so many opportunities out there! And they’re not going to be solved by the big companies. They are not going to be solved by the government. They are going to be solved by entrepreneurs.

“This is my goal… I want to promote entrepreneurship. For entrepreneurs to be seen as a profession; not some bunch of crazy people”.

So, I’m an entrepreneur by design. I am an academic by accident. My background is I’m a fake engineer. I got my engineering degree at Harvard; [Laughter] which MIT doesn’t think is accredited to do. [Laughter] Wait! Let me explain the joke before you start laughing about it, alright? [Laughs] MIT doesn’t think they are accredited to do that. So…but then I started doing technical work at IBM and then I got into doing some of the business work. And then, I started a company while I was at MIT, getting my master’s there, and that company is in deep stealth mode; which means it’s out of business. It was a failure. [Laughs/Laughter]And that was an incredible learning experience. That was an incredible learning experience! I tell people that all the time. If you want to be an innovation driven entrepreneur, innovation driven entrepreneurship without failure does not exist. It’s like a chocolate lava cake with no calories. It doesn’t exist! You have to fail, and if you aren’t you are not pushing the envelope.

So, the question isn’t celebrate failure. The question is: do you use failure as an experiment to learn important things, and create, as I call it, wisdom? So I’m going to talk about what wisdom I have gained; wisdom being the scar tissue from all these mistakes. And, my target costumer was me 20 years ago, when I first started to be an entrepreneur. How could I come out of IBM and all this kind of training that I’d gotten, and just smash my head against the wall, for 18 months, making mistake after mistake after mistake? When, you know, I had this great career at IBM and it seemed everything was successful. And, wow, I’m just going to take the entrepreneur world by storm! And it was quite the opposite! I was knocked out! It was like walking into the ring with Mike Tyson! I just got knocked out. And so, what I think about now is: how do I help young entrepreneurs, or should I say new entrepreneur, learn about how to be better entrepreneurs without having to go through the pain and agony.

So let’s… Entrepreneurship is the new cool thing. Literally, four years ago, when I was at MIT and they asked me to run the center. It was just kind of a “this thing over here” that people didn’t care about. Today, you know, as I’m coming over here, I’m getting feedback from the chancellor, and the provost at MIT, and the president are interested in what’ s going on at our center on entrepreneurship. We get inquiries from the White House: “What’s going on about entrepreneurship? How can we get better at entrepreneurship?” Big companies, foreign government, everybody wants to know about entrepreneurship! How did we go from being this crazy group of people over here, to being front and center to everything? Anyone have an answer to that? [Inaudible comment from audience] Facebook! No, that’s not the answer I’m looking for. Yeah, let’s do this. [Writes on board] It’s a four letter word. Alright!

Its ‘JOBS!’

The study showed between 1980 and 2005 there was a stunning study that showed that almost all the net new jobs created in the United States were created by you, by new entrepreneurs, not by the government, not by big companies.

Innovation driven entrepreneurs that’s where the job growth is!

And that’s why people are so interested in it. Almost 100% of the jobs studied by the Kauffman foundation, with Bob White and Dave Stangler… almost 100% of the jobs. If you think about that, that has enormous ramifications! Just in Cairo, they need to create 70 million net new jobs, in the next 15 years, to keep unemployment where it is in the Middle East. Seventy million new jobs! Just to put that in perspective, between 1980 and 2005, the US economy created 40 million and it was through the entrepreneur. So, basically right now everybody wants to know how do we create jobs, because if you don’t it creates all kinds of other problems.

So entrepreneurship is a cool thing, but the first rule of engineering… How many engineers do we have out there? Oh, it’s a beautiful thing, isn’t it? [Laughter] I saw a bumper sticker. I saw it the other day. It said: “I’m an engineer you can trust me” [Laughter] So, entrepreneurship is blowing up! The first rule of entrepreneurship and the first rule of engineering is, define your terms. Before you solve your problems define your terms. Define your terms we throw around terms without defining them and then and then we get into trouble because we didn’t’ define our terms.

Entrepreneurship is a term that you can go and have many definitions. The simplest one without getting academic is they are people who create a new organization where there was no organization before so that means an entrepreneur can be someone who starts a business they start a new organization within a government a newer company.

Now, when people talk about entrepreneurship worldwide, there’s actually two types of entrepreneurship.

The first one is SME entrepreneurship. SME entrepreneurship is small-medium enterprise entrepreneurship these are small companies that will stay small, by enlarge. They serve regional market: your dry cleaners, your nail salons, things like that, IT service that’s just local.

On the other hand, you have another type of entrepreneurship which I call Innovation driven enterprise entrepreneurship, this is IDE entrepreneurship, which goes after super-regional or global markets. There’s some underline innovation that allows you to go out and sell beyond the local market, you are getting beyond this And that is a different type of beast.

So you can say they are both entrepreneurship between these you can say well they are both entrepreneurship. Well, basketball and soccer are both sports, there’s running, there’s jumping in both of them and people keep score. But it’s really different between those two sports and its really different the way you train people for SMEs is different that the way to train people for IDEs alright, we get into this in a paper. But it is important to talk about this. Some of the lessons here are not as relevant for this over here.

By the nature of you all being here you are innovation driven entrepreneurship you want to be like that company that went from 30 to 230 and it is now a leader in the online training of programmers. That’s a great thing to aspire to. By the way, If you don’t you are going to leave yourself vulnerable to people who do that because they are going to come in and eat your lunch. So, so how do you teach entrepreneurship? Can you teach about entrepreneurship? And let me just quickly dismiss this. I didn’t think it was possible to. They showed me data, much like mine, my first company wasn’t very successful; my second company was much more successful which it isn’t hard if the denominator is zero, right? Simple math and then my third company was very, very successful and so in that process nobody came in the middle of the night and re-engineered my IQ . I didn’t’ get an IQ enhancement shot in the middle of the night. It didn’t happen but what happened, and the data is very clear, that people who do entrepreneurship.

So what that is saying is you are not born an entrepreneur and also when you start digging into the data for this, this myth entrepreneurs are born to parents who are entrepreneurs.

There’s no data that backs that up.

My parents were not entrepreneur at all. What turns out is if you are exposed to an entrepreneurial environment at a place like MIT you start to become an entrepreneur more so than someone who might go to Cal Tech. There’s something you can learn about this. The question becomes How do we teach that how do we take what they learn multiple times. Do it in an environment where it is less painful. That is less stressful. Two kids and a mortgage and trying to get a startup off the ground and just making all kinds of mistakes. To put it in perspective right now entrepreneur education has become a multi-million dollar industry, multi-billion dollar industry, there are books there are conferences, and there are videos. Anything you want about entrepreneurship. It’s just off the charts! There are workshops places popping up so the demand is just skyrocketing When I graduated from college I might have been the most entrepreneur person in my class I didn’t even know what the word entrepreneur meant. Now when you go to the same college I graduated from, MIT, they want to be this new profession It’s not being a doctor and , its not being a lawyer , its called being an entrepreneur. That is a cataclysmic change.

Here’s the dirty little secret the supply of quality entrepreneurship is not that scalable right now, so why is that?

First of all, It took off all of a sudden and It was hard to keep up with it.

The second part is one person is doing a medical device company, another person is doing an app for taxis, another person is doing an energy company, another person is doing enterprise software. It’s not like me sitting here and teaching you how to do java, where we can do one and is the same for everybody. It’s contextual. Its experiential you can’t’ do it you can’t just learn it by sitting there by just sitting there.

The third thing is, it’s not a lot of work that has been done out there in entrepreneurship from an academic standpoint. Having spent 7 years in an academic institution, if you want, The ultimate thing in academia is what? Publishing for what point? Tenure, tenure! It’s all about tenure. It’s a cast system If you get tenure you are upstairs. If you don’t get tenure you are not upstairs {laughter] so tenure requires to publish papers and to keep the people upstairs happy. So tenure requires you to publish papers and I would go find data so that I can go away and prove something in a very rigorous way. It would be extremely hard. it would be uncorrelated data I would go to a place like Proctor and Gamble and get their database. Some good work done at Harvard and MIT and that’s been the basis of it but is not that big.

The last thing is more than a little scary.

Entrepreneurship education is easy to fake, it’s easy to fake why I say that is because I did it I use to go in and I was like that annoying friend if you have kids, Who comes over and eats dinner at your house and then wrestles with the kids and its 9 o’clock at night and then they leave. Your kids are bouncing off the walls and you say you they have to go to bed. I would go and give this at entrepreneur classes. They would love it. Be an entrepreneur! Know your competition! Out fox them! Just a bunch of clichéd bull shit right? I would get great ratings. Then I would run out of the classroom and then the instructor had to figure out how they build a program to increase the skill set. So that when they left it they could build the company and this kind of story telling it runs rampant today.

Once I took over the course, I realized how unproductive that was or how limited in value that was. It is a lot of storytelling; it’s not in a structural way. It’s not rigorous. There’s no data analysis behind it. It’s just here are my anecdotes of how to do entrepreneurship.

Let me give you a case study of this.

People don’t believe that was right. Donald Trump set up an entrepreneurship institute. Does anyone know about this? You know about it? How much did it cost to go to that institute? It was thousands of dollars. And what happened when you went to the Donald Trump Entrepreneurship Institute? You heard a bunch of stories. I chose success you should choose success too. [Laughter]

Just went through his 4th bankruptcy but don’t let the facts get in the way of a good story, right? Good story of people who made a lot of money. Is it actionable no, next is step two is we throw you into a shark tank, alright? Not a whole lot of guidance to do this. Guidance is not particularly rigorous. But you get my… The third thing is they throw you into a room afterwards and they try to sell you real estate in this case. They were sued for that, but in many cases they don’t do step 3 and they don’t get suit. They know what to do on Monday morning right afterward they are all fired up send them out into battle. We don’t give them the tools they need to be successful. This is going to cause a brush back and there are no questions about it.

In Spain, someone came out one of the union leaders and they said “Get back to building bridges and roads.” I understand what they are saying. But this is not the solution on how to be effective entrepreneurs. And I don’t want to belittle. About inspiring people to be different and this is what we have to do. We believe in the culture of entrepreneurship. Entrepreneurs have to be willing to be different if all the fish are swimming this way. It has to release some endorphins to try to do something different. It has to release some endorphins in their body to try to do something different. Trick the system some way. At MIT we call this hacking. Hacking! How do you something that is really clever. Effectively do something that is different. So we promote the spirit and we call it Creative irreverence. That’s something that if you are going to be an entrepreneur. You need to not lose as you start your company to be better and bigger.

You are different because you start to become part Navy Seal and Part Pirate

Embrace that creative irreverence.

So the question is: how do we have that inspirational stuff and then produce the skills as well?

It sounds easy, but It is not easy, that’s why the name of the book is called “Disciplined Entrepreneurship”

The publisher said: “We really don’t like the name of your book. “We don’t’ like that word.” Discipline is not a word, it is a forbidden word there are just a few words you just don’t put on the cover a book and discipline is one of them. Okay I get it what do you suggest we put on there, and they said: “ Well, 4 hour work week is doing really well [laughter]

“Why don’t we rename the book, ‘Six pack abs in 3 minutes!’ and we can rename it that and do really well”. They didn’t think that was very funny, but being the author I was sure it was called Disciplined Entrepreneur. That doesn’t make sense that’s an oxymoron to say: “no, no, no, no!” If you think we are not self-disciplined, you are crazy. If you don’t think Steve Jobs was incredibly self-disciplined… He was a pirate, sure, but if you don’t think he wasn’t incredibly self-disciplined.

Do you have incredible self-discipline? If you don’t, you don’t’ make payroll on Friday so… Discipline is a fundamental part of what we do and the question is: how do we teach that? How do we get frameworks to be successful at that so here’s the premise that I believe is essential going forward now.

Entrepreneurship needs a common language. Stop reinventing terms. The big one now is pivoting, what’s that, that’s changing your strategy as someone said: “you have run out of ideas but you haven’t run out of money” We need a common set of languages for what’s a market, what’s a total addressable market. What is cost and acquisition? We need a common language!

If 20% of our population is going to be entrepreneurs we need to be able to share knowledge across it. To be open. The smartest person in the room is not any individual person In this room; it is the collective wisdom of the crowd. And that’s what we need for entrepreneurship education.

When people tell you they are an entrepreneurial guru, be very, very careful!

Get your hand on your wallet very, very quickly, because, it’s about the collective wisdom of the group. We need to take a systems approach there is not a silver bullet here it’s a complicated system that you need balance in. And the last thing is It needs to be practical, but it needs to be rigorous we cannot allow storytelling to take over here but we cannot allow ivory tower to take over. So this kind of translational research thing connecting the theory with the practice. Has been done in the medical field very successfully and that’s what we need to continue to do over here. We cannot have a chasm between the academics and the practical. The best of rigorous analysis and the best of practical and combine them.

So if you think about the book, I mean, when I was putting it together, I was very frustrated in teaching it because I could not find the right book for the class I was teaching and I thought about building a house. If someone said you need a toolbox that’s how you build a house But if someone comes along with a new tool and it’s an adjustable wrench you would look at this and say, “Wow an adjustable wrench that’s a good tool we didn’t have something quite like that before But Mark’s selling me an adjustable wrench he said: “No, no, no Bill! This is the only tool you need the only tool I need?”

I think I need some of these other things I need a hammer…

“Why do you need a hammer?” Because there’s a nail sticking out there I take a hammer and I hit it in. And Mark says: “No, no, no, no Bill this is the only tool you need , put it on its side and it it like this I have three case studies on how to do that. And you say that’s ridiculous. That’s ridiculous But Marks’ incentive is to do that because his day in the sun is coming along and if he can do that it would literally mean millions of dollars to him. Very entrepreneurial, but not particularly good for the field of entrepreneurship. Alright? Don’t take it personally Mark [laugh/laughter]

When I looked at entrepreneurship I found that there was a lot of stuff that was out there that was individually good tools and some of it was repackaging of things that were proven otherwise that really were being brought into the mainstream and that’s good. But they are just a tool in the tool box, and we need to take this toolbox approach and incorporate the best of all these things that has proven out. And that’s what entrepreneur education should be, and it should be validated by, you know, academics who do rigorous social science to find out if that’s true.

So this is the, this is the layout of the book that you have and I was talking I’m going to try and get you a 100 posters over here We have this at a poster that we use that you can put on the wall and We couldn’t ship it with the book because it would have basically double the price of the book and that’s not what I wanted, um, But we give it, to our MIT students for free, Free if they get into MIT and they pay $53,000 a year but, um, if remind me on the way out and I’ll send some of those over.

The interesting thing here is that when you go back, the fundamental , most important thing to start with is… everyone, you know at what point I need to do hypothesis testing.

The first hypothesis you need to test is who is your customer? Who is your customer? Because a single necessary and sufficient condition for a business is what? A paying customer! It’s not a business plan, it’s not raising money. It’s not, you know, a mission statement and all that stuff… but you need paying customers. This is the most important part. This is not something new this is called User driven design, user driven design. Its proven to be very effective. This is well known.

The question is how do you take that and then how do you get it applied in an efficient and effective way for entrepreneurs, in their fast moving environment. And that’s what we’ve done here and we have all these terms defined, all the terms are defined, so when someone says persona you should know what I persona is, you can go back into that, and you can read it, and you can understand exactly what it is. And so, we through this step of what your customer is.

Then the question is, alright, after I know who my costumer is what can you do for your customer? And we go through the use case. So your app is great for the customer? How do they know they have a problem? How do they then find out that there’s solutions out there? How do they then find out about your solution? How do they analyze it, acquire it, bring it in, use it, realize the value, buy more, and tell other people?

Very, very specific detail going through it and again things like you know don’t build the product yet build the brochure because there’s this marvelous thing… You all are bootstrapping companies, I understand it, for the most part. When I started.., you know, going and raising money is not the goal of a business there’s actually a great way to make money we tell our students about. And if you do it right you give up much less equity on the company. You actually position yourself beautifully for the future. It’s a new fundraising technique called sales [laughter]

You go out and you get costumers to pay you for the product and even before you build it. I’ve done this many times and we’ve done it with our students because you build a brochure and you say, “Mark do you like this?” and he goes this is awesome or he says no wait you can do this and that and you say, “Let me think about that”. We talk to developers. Yes we can do that will you pay us 50%. All of a sudden he pays you upfront and we’ll get it done for you and we’ll support you in a very beautiful way.

The next step is super fun.

My students love to do who is your customer. That’s stuff by the way is lots of fun. This is the part they hate. It’s a great product the customers should just buy it that’s not the way the world works they have a decision making process they have a decision making unit and you have to understand that. You address the people in that jury and that you understand how long, the process to sell it that’s not as much fun but that is essential for success because once you understand that. Then you can know can we make money on this because the most pathological problem that entrepreneurs have is, besides the ability to select markets, is dramatically underestimating the cost of costumer acquisition.

I know that. I did it. I think, if you are honest about it, you’ve done it too. It was really easy to sell it to this one customer; all the customers are going to be like that!

You need to get the average customer. You remember the good ones and you forget the bad ones. You forget all those people that told you no to get the cost of customer acquisition. The cost of customer acquisition is going to be real high. Will it be a third or less of the lifetime value of the customer?

We don’t need to build sophisticated financial spreadsheets with cash flow. We just need to know basic units economics. What’s the lifetime value (LTV) and then we can tell you whether this move was good business or not. And we talk about that in the book.

Now we are ready to build it

Now we are ready to build it, we are basically getting out of acquisition mode. In the beginning we are in acquisition mode. Now we are starting a move towards advocacy. Now we are building a product and starting a move towards selling it.

If you go into advocacy level too soon you don’t listen to the costumer and you get into real problem. See Segway “we know what’s best for you” How did that work out? And then how do you scale your system?

We should not be driven by one costumer nor should we be driven by a spreadsheet or some internet. We should be driven a group of homogenous costumers who would buy a similar product and have a similar sale cycle. That’s how you make a really successful company.

Entrepreneurship isn’t about generalities. It’s about specificity. I want to know when my students come in who are the 10 first costumers that you can get going with them. I want to know details about your products.

I saw this quote from Amelia Earhart yesterday:

“The hard part is to decide to move into action, the after part is just perseverance”

You have to start the process and then you have to move towards a solution and this is a system and if you look into it after all the diagrams and cartoons you’ll find that there is an actual knowledge. That will dictate the value proposition. Once you know who’s your persona, what’s their number one priority that that keeps them up at night? That that motivates them more than anything else at night. That that motivates them more than anything else. Relative to that.

You position yourself with their top two priorities. Invest in that over time. So you get better and better and better.

That’s how you make a great business and the whole time as I mentioned we are spiraling we have focus.

But a dog chasing his tail has great focus and is moving fast.

You have to learn, you have to learn in the process, you have to learn in the process. And it’s not about you. If you just read here and read the book. You would be able to talk beautifully at Whiskey Priest whatever it is. Entrepreneurship education is about, is action learning it is not just sitting in the classroom.

Entrepreneurship is theory in practice.

Put it to practice and you’ll understand it.

Steve Jobs said:

“As I’m proud of the things we have done, I am as proud of the things we haven’t done”.

What markets have you deselected? What markets? Hotspot they are about to go public a lot of our other students employing this approach.

This is the book. Disciplined Entrepreneurship.

The slides are online.

“Successful entrepreneurship. It’s about having the spirits that we talk about the spirit of a pirate but having the skills and discipline of a navy SEAL. That’s when you’ve really broken through”.

Thank you. [Applause]

Bill Aulet

Academic and founder Bill Aulet is the managing director of the Martin Trust Center for MIT Entrepreneurship at MIT and also a senior lecturer at the MIT Sloan School of Management.

He teaches at least three different classes per year (introductory to advanced entrepreneurship classes) in addition to his responsibilities of running the center. His work has won numerous awards and most recently, in April 2013, Bill was awarded the Adolf F. Monosson Prize for Entrepreneurial Mentoring at MIT.

During his three year tenure as the head of the Trust Center, he has conceived, designed, and overseen the implementation of many new innovative programs. Prior to joining MIT, Bill had a 25 year track record of success in business himself.

He has directly raised more than $100 million in funding for his companies and more importantly has led to the creation of hundreds of millions of dollars in market value in those companies.

More from Bill.

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