Stanford University has earned its reputation as a great place to be if you want to become an entrepreneur.
It is the alma mater of Sergey Brin and Larry Page, who founded Google; of Jerry Yang and David Filo, who started Yahoo; of Phil Knight who launched Nike; and of William Hewlett and David Packard, who built Hewlett-Packard, just to name a few. If you took the nearly 40,000 companies around the globe that have Stanford ties and collectively formed an independent nation, its estimated economy would be the 10th largest in the world, according to “Impact: Stanford University’s Economic Impact via Innovation and Entrepreneurship,” a 104-page report published in October 2012.
It’s safe to say that Stanford’s legacy of greatness when it comes to launching successful businesses is secure.
But as the school entered the 21st century, there was room for improvement, says Yossi Feinberg, faculty director for Stanford Ignite.
He recalls a meeting that Stanford President John L. Hennessy had with Robert L. Joss, then the dean of the Stanford Graduate School of Business.
“President Hennessy said he sees all these extremely talented people from around the university with great, new and innovative technologies,” Feinberg says. “But when it comes to actually executing a startup and building a business, they seem to fail. The MBAs seem to be much more successful, even when they only bring management skills and not necessarily new technologies.”
The bottom line was there was no shortage of ideas, nor was there a lack of men and women who dreamed of building their own business. What was missing was a strong educational system that could teach these prospective entrepreneurs what it takes to go from a concept to a profitable business.
“We’re looking for individual founders who have the potential to create a lot of impact,” says Cameron Teitelman, founder and CEO of StartX. “They need to care a lot about what they are working on. Can they actually build what they want to build? Is this a meaningful problem that they are working on?”
Stanford Ignite and StartX are separate entities. Ignite is designed to teach innovators how to formulate, develop and commercialize their ideas and is intended for students who do not yet have graduate-level degrees.
StartX is a Stanford-affiliated nonprofit in Silicon Valley that runs one of the world’s top startup accelerator programs. It works with founders who believe they are ready to take the next step and create their own business.
These two programs have played a key role in enabling Stanford to provide a more comprehensive education to the leaders of tomorrow.
“There are people who come to Silicon Valley just seeking adventure, fame and fortune,” Teitelman says. “But the people who are successful are the ones who understand there are problems in the world and they want to find ways to solve those problems through technology.”
Stanford Ignite
The Ignite program started on the Palo Alto campus and quickly experienced success in helping students gain a clearer understanding of just what it takes to build and lead a business.
“The program is constructed from a collection of very short, concise components which cover the basics of business and management,” Feinberg says. “So it’s marketing, accounting, finance and also the more practical side such as team dynamics, pitching, negotiations.”
These skills are taught over a period of 20 days.
“After those 20 days, people really have everything they need in terms of education to start a new business,” Feinberg says.
Teams are formed around ideas and then participants learn by walking through the process of building a business around that idea.
“A lot of people who come through the program go on and become entrepreneurs or part of an early-stage team,” Feinberg says. “But in many cases, they don’t take the project from the program. They look at what they have analyzed and say, ‘OK, my first idea or passion is not something I want to spend most of my life doing.’ That’s what we’re trying to save them from doing. I like to say we incubate people and not ventures.”
Selection for the program is based more on individual talent than the relative merits of their idea. The goal isn’t to crank out new businesses just to make the Ignite program look good, it’s to identify talent and help match that talent with the right idea.
“It’s really about are these people outstanding?” Feinberg says. “Are they really good at what they are doing? Obviously they are passionate about innovation. But when they come in, even if they come with a lousy idea or a lousy project, if they have the talent, they will learn more by working on a project in this way than if they were just out there pushing a business another step forward on their own.
“The ideology behind the educational experience is that through a real project, we teach them a process that they can then take and apply to any project in the future. It’s that process, not only thinking about what will be needed, but that ability to execute in very different settings that is so important.”
Entrepreneurs who have the natural ability to turn an idea into a business and build an organization around it are fortunate. But the majority of them need some level of training and education about what goes into running a company and why it’s so important to find a business model that matches their skills and talents.
“When you get thousands of talented people who just follow the first great idea they have and fall in love with it instead of being passionate about creating an impact and finding where they can create the most impactful venture, then it becomes a social waste,” Feinberg says.
As for judging the long-term success of Ignite, or projecting the future, Feinberg says it’s not easy to do.
“Money tends to cause trends and attract talent,” Feinberg says. “But the return on innovation dollars is very hard to figure out. Everybody thinks big data is the next big thing, so we might get a lot of talent that is not necessarily specialized in following that trend. The result could be that we lose out on another innovation.”
StartX
It wasn’t long into Teitelman’s journey at Stanford that he learned a valuable lesson directly from the university president himself.
“He got up on stage in front of the freshman class and said, ‘Most of you have never failed before and that’s why you got here,’” Teitelman says. “‘Now you’re going to fail a lot and you’re not going to succeed at a lot of things.’”
It was a blunt message that could have sent a more insecure freshman into a downward spiral. Fortunately for Teitelman, he got the message Hennessy wanted to deliver.
“Stanford breeds respect of other peoples’ excellence and creates this sense of humility,” he says.
“There are a lot of people who have already been successful entrepreneurs who are willing to help for free,” he says. “They are willing to lean in and provide support and they don’t ask for anything in return. They just get personal reward out of it. That makes other people feel like, ‘OK, if this amazing person is helping for free, maybe I could also look at this as a rising tide raises all boats vs. a zero sum game.”
The philosophy of not being afraid of failure and focusing on the individual rather than the idea is central to how StartX operates.
“A lot of accelerators are hypercompetitive,” Teitelman says. “Because they are structured as funds, they are trying to find the winner. They’re trying to create a competitive environment, so they compete and find who the best is and invest in them. That is fundamentally different from what we do. We try to create a very trusting environment where people can see the value in others, share their problems and get help from other entrepreneurs.”
StartX runs three sessions each year for prospective founders. There is no charge and StartX does not take equity in the business.
“We have companies at a lot of different stages and in different industries,” says Suzanne Fletcher, fund manager for StartX. “In terms of different stages, some companies are at the seed stage. They might be out raising a seed stage round of $1 million from well-known angel investors and small seed funds. We would come in and do $100,000 in that $1 million round.
“Some companies might be raising an $8 million Series A led by one of the Sand Hill Road VCs that you would have heard of and we would be doing $800,000 in that round. We’re always trying to take 10 percent of the first round that we participate in to avoid any type of signaling to the market.”
The process to figure out which founders to support is a rigorous one. StartX will do 160 interviews in a four-day period. There are three rounds of interviews and each interview is about eight minutes long.
“The first round we have VCs and experts and do our first filter and then our second filter is on community,” Teitelman says. “Are they going to be good community members? Are they going to add value? Then the third round of interviews, which is run alongside the second, is tactical vetting. We want to make sure they can build the product.”
But similar to the approach that Ignite takes in its program, the process does not come down to “Your idea is great, we’ll invest in you. Your idea is terrible, go away.”
“You look at their degree and that kind of thing, but you also want to see how they think through problems,” Teitelman says. “We’re trying to bet on people.”
Embracing failure, chasing success
Neda Blocho, the vice president of programs at StartX, has watched as other parts of the country try to replicate Silicon Valley. She references Silicon Alley in New York and Silicon Beach in Los Angeles. She says the missing variable for these locales, as well as others around the world, is the ability to accept failure.
“The culture is spread throughout the valley that it’s OK to take risks and fail,” Blocho says. “That’s really hard to replicate in other places like Asia and Europe. Failure to them is worse than death. So a lot of people don’t want to take the risk. Here, it’s just part of the everyday.”
In many ways, it’s easier than ever to start a business today, but that’s not necessarily a good thing, says Joanne Yuan, a Stanford graduate and associate partner at Cowboy Ventures.
“In the past, it would require a lot more capital to get a business off the ground,” Yuan says. “The cost to start a business has been lowered, but that has also made it harder for founders to stand out. If you look at the app stores, there are thousands of new apps showing up on a daily and weekly basis. It’s very noisy because everybody can potentially start something. It’s hard once you have something small out there to really grow it. That’s where there is an opportunity for seed stage investors to help companies figure out how to turn it into a business.”
Obviously, finding financial support to back up your business is a critical step. Yuan says VC firms are unique and each one takes a slightly different approach to how it works with potential entrepreneurs.
“We try to be that collaborative partner in crime with our founders,” Yuan says. “We like to be involved and communicate with them all the time and be very accessible. There are definitely firms that take the opposite approach, and yet are still very successful. There are entrepreneurs who like the style we have versus the ones who want their investors to just be a source of money. It’s important as an entrepreneur to pick one that suits the style that you want to engage in with your investor.”
At the end of the day, firms like Cowboy Ventures and organizations like StartX and Ignite are about developing talented people into skilled leaders who can lead successful businesses. But they are also trying to make a difference in the world.
“There are two levels of impact,” Teitelman says. “One is how much impact the companies we’ve helped create are creating. And more importantly for us is the impact we are making on individual innovators and impact creators.
“We have a learning goal system at StartX and we track what we’re teaching them, what they are learning and how that impacts the company. For us, it’s going to be what type of impact does this individual that we’ve given resources to and helped grow and will continue to help throughout their career, what positive impact did they make on the world?”
The early returns are undeniably positive, says Teitelman. In its most recent report, StartX declared an 88.5 percent survival rates for companies it backed.
“We’ve had a couple years and we haven’t had a big drop-off in the percentage of companies that survive,” he says. “We’ve realized the special sauce that makes Stanford so effective, the environment where people of very different disciplines are forced together to solve a problem together even though they come from different perspectives. It creates that innovation.” ●
