Webinar: How Does an Idea Become a Startup?

– Hi, I am Jennifer McFadden
the Associate Director of Entrepreneurial Programs here at the School of Management at Yale, and I am delighted today
to have Brad Hargreaves join us as a guest, Brad is the founder and CEO of Common, which is dedicated to
making housing better by providing flexible
community minded shared homes, previously he co-founded General Assembly, a global education
institution with campuses in more than 15 cities worldwide, as part of the General
Assembly founding team, Brad led the growth of the
company’s education business from its launch in 2011, into a global institution
with over a dozen campuses, more recently he was a
venture partner at Maveron, General Assembly’s lead investor, Brad has been named to Vanity Fair’s the next establishment, Inc magazine’s 30 under 30, and Business Insider’s Silicon Alley 100. So what we’re going to talk
about today is a little bit about the program at
entrepreneurship and how we fit into the overall
ecosystem of things that are going on at Yale related to entrepreneurship and innovation, we’re going to take a
quick look at lean start-up methodology which is the
methodology that we use in my class Founder’s Practicum, here at the School of Management, and then dive into some
questions with Brad so he can talk through how
he has applied some of the lean start-up methodology to founding several of his start-ups, and in general just
speak about how you take an idea and bring it into the market. So just to give you a sense of where we fit within University, the program on entrepreneurship
was launched in 2014, we are essentially the curricular side of entrepreneurship on Yale’s campus, we offer the significant
majority of courses that are open to students not just of the School of Management
but across all of Yale, to provide them an opportunity
to get both an introduction to entrepreneurship through courses like Entrepreneurship and New
Ventures all the way through to Founder’s Practicum which
is the course that I run, which is really focused on
school of management students or joint degree students
having an opportunity within the classroom to explore
a venture and work on that while they’re here
at the School of Management. In addition to the
courses are offered here, we have a number of
colleagues from across campus that offer more
specialized courses whether it’s the folks over at CBAE, at the Center for Business
and Environment at Yale, or in the engineering department and at the center for engineering
and innovation design, there are now a number of courses that are specifically there
to either help students get products off the ground, launch new ideas, or really try to bring a venture out into the world while they’re here at Yale, in addition there is obviously
as many of you probably know a new organization
on campus called Tsai City that was launched over the summer that was funded by Joe Tsai, and that organization really
has as its overarching goal to be the place essentially
within the University where students can go and
explore everything from how do you create a new
art project and bring that into the world, to how do you take something
out of one of Yale’s labs and create a high-tech
high-growth venture, so there are a number of
programs that are being run out of Tsai City
this year that are new, there are some that have evolved from the previous iteration
of what was the precursor to Tsai City which was
the Yale Entrepreneurial Institute which both Brad and I were there for the founding days of, a lot of the student
facing programs that are now available at Yale are
focused within that center and include things like
semester long accelerators where students get a thousand dollars, and mentorship over the
course of the semester to work on their venture, to new ideas coming up this semester which are more focused intensives
around podcasting fake news, there’s one around urban art, biomedical engineering and food, and there are eight of those in total and they just give students
an extra opportunity from the extra curricular perspective to take a deeper dive on particular
topics of interest. So before we jump into
really a Q&A between Brad and I about his business, I wanted to give you a
little bit of a framework that we use in the
Founder’s Practicum to help students take their ideas and
bring them into the market, so that class really is
largely framed around the lean start-up methodology, which can be applied both to for-profit and non-profit ventures, and both to high-tech
high-growth ventures, and more traditional
consumer facing products that people might be launching, in that class we do have
a wide range of ventures, both social ventures, nonprofits, high-tech high-growth, we’ve had everything from
semiconductor materials, to a corn-fed pork, so it really does give
students an opportunity to work on whatever project they decide, so the idea around lean
start-up methodology, really is this evolution
from the way things traditionally would have been done, say back in 1998, where if you were going
to lodge a high-tech high-growth venture you would spend months and months and months putting
together a business plan, you come up with your idea, you spent months putting
together a business plan, you go out and try to raise
a great deal of money, you would take that money, and then you would execute and scale, and the issue with that
is that often times what you would see, is that you had founders
who were going out who were raising enormous
amounts of funding, including if you look at Webvan, that’s one of the typical
examples that people use, they raised over 800
million dollars before they actually even talked to a customer to validate whether or not the idea that they were
trying to put out into the world was something that was useful in solving a real problem, so instead of doing that, what you see now is a lot of founders, and clearly there are places where the lean start-up methodology
is not as applicable, pharmaceuticals is one example sometimes, but where you see founders instead of going out and doing that, trying to have an earlier
contact with customers and then integrating that into
their early decision making, so you see this idea
where you have founder who sets this vision, and within that vision it
could be something like for us, I founded a company Skill Crush, and we teach women how to code, so we had a very specific reason for doing what we were doing, and a vision for how we wanted
to bring that into the world, and then you take that
vision and you break it down and you create basically
what are falsifiable hypotheses around very different parts of your business model, so if you think about what a
business model in general is, it’s really defined as
an integrative array of distinctive choices
specifying a new ventures unique customer value
proposition and how that venture will configure all of the
activities that they do, to deliver value and
earn sustainable profits, and so what you really want to
do is come up with this idea, then you come up with a
set of hypotheses around these different elements
of your business model, and then you create what are called tests, or MVP’s, to test those various parts
of your business model, and from those tests
you gather information that will essentially
help you make decisions. So the MVP is a really
small test that validate or invalidate all of these
hypotheses that you have, and really the goal of
lean start-up methodology is essentially to avoid waste, so you want to validate
these hypotheses as quickly as possible and using the
least amount of resources. Some people consider that
lean start-up methodology leans on some other frameworks, and I would certainly agree with that, you are essentially
applying what traditionally had been done as the test and invest within larger corporations, from a product development
perspective to start-ups, the methodology also relies
heavily on frameworks including Steve Blank’s
customer development process, Agile software development, design thinking and
lean manufacturing where you’re focusing on small
batches and rapid prototyping, I think the one key
differentiating factor between those previous methodologies
and what is trying to be accomplished within
the lean start-up methodology is this idea of testing,
learning and iterating is applied not just to the
product development process, but also to other elements
of your business model. So when we help students think through what those other elements are, we tend to rely on business model Canvas, which can seem somewhat
reductionist when you first see it, it’s essentially this grid and
has a number of boxes in it, and within that you
detail all of those things that you assume about your business, so do you think your key partners are, what key activities do
you think you’ll be doing on a daily basis, what do you think your
value proposition is, what problem are you trying
to solve for your customer, what is your specific
product or service that you’re trying to deliver, who are those initial customers, and what is that
relationship look like that you have with those customers, how do you get them, how do you keep them, how do you grow them, what channels do you use
to actually reach out to those customers and
to deliver your goods, how are you generating revenues, and what costs are associated
with those revenue streams, and so what we do initially in the class is really encourage those
students who typically come into the class with an idea, to really start to map that
out within this framework, and then to build out a set
of falsifiable hypotheses, so what exactly do I mean when I say that? I think a good example I can
give is from Rent the Runway, where if you’re not familiar
with the business model, they essentially were renting
high-end dresses to women, and they needed to validate
a set of hypotheses before they decided to make a
lot of large investments in building a platform and trying to find customers et cetera, and so what they did was they went out and they first tested the
hypotheses that women would be willing and interested
in renting high-end apparel to begin with, and so they did this by
doing a pop-up at Harvard, they were with Jenny Fleiss, Jenny Fleiss is a Yale college grad, we were both students
at Harvard at the time, and they essentially posted
a pop-up when they had women come and try on dresses and rent dresses, and so they validated the hypothesis that women would be willing
to rent dresses to begin with, and once they found that, they set a metric that was a goal for them to say alright this is
a no-go, go decision, if X number or percentage of the women who try on dresses rent, then we know that this
hypothesis is validated, and so at the time the first pop-up that they did 34 percent of the
people who came rented dresses, and the second one that
the date 75 percent of women rented dresses, and so that answered
that one key question, which was people’s willingness
to actually rent dresses, and then they still had to really go out and test whether or not people, because the women were
able to at that point try on the dresses, they had to test whether
or not the women would be willing to rent dresses that they did not have the opportunity to try on, so instead of again
spending an enormous amount, millions of dollars at the time, because this is earlier in 2005 or 2006, before they spent all their
money developing a platform and reaching out to key
partners who were designers, they actually just sent out
a simple PDF via email to a number of women and gave
them the opportunity to rent, and out of that email five percent of the thousand people that they reached out to ended up renting dresses, and so that then was
an indication that they had something and that
they should move forward, so it’s essentially kind of the basics, lean start-up methodology. And I want to jump in and ask
Brad a number of questions, just so that we can see how he’s applied that within the context
of his own businesses, so Brad you launched two
companies when you were a student at Yale, and have since gone on to launch General Assembly and Common, what is the common thread
in all of these ventures? – Will first of all thank
you for having me on, it’s great to be here, and I’m real excited about the programs and what you’re doing at Yale, I’m a Yale College grad
myself, Trumbull ’08, so it’s really tough to
talk about the common thread between the furniture
business I started in college, General Assembly which is
an educational business, and now Common which is doing
residential real estate, but if I were to name one
thread it would be that they were all started in
a very iterative fashion, where the initial conception
of the business is with a very simplistic version of what the business eventually became, and that could be intentional, such as I think both General Assembly and Common were that way,
or almost incidental, in my sophomore years I started
a business that actually took antique furniture from
institutions like Yale, we actually started with card catalogs, and found a market for them online, and this was probably in 2005 when Yale was renovating several of its libraries, we would buy card catalogs, desks, chairs, any kind
of antique furniture in bulk and resell it on the Internet, it was a fun little business, it never would get that big, but it definitely got me hooked on entrepreneurship as a concept, and we started not saying
that we are going to do this, we’re going to go help Yale
liquidate its furniture, but actually started
because a friend of mine said hey look at this, Yale is selling these
cool antique card catalogs from Sterling Memorial Library, let’s buy one, and that turned into let’s buy two, let’s keep one in our Common room, and let’s sell one, and they were 50 bucks a pop, and we hope we’d get a couple of hundred, but we put the second one on eBay and I think it ended up selling for 3000, so we were like how many
more of these can we buy? And it turned out quite a few more, so it was very iterative, there was not really any plan behind it, and lo and behold a year and a half later, we, or Yale ran out of furniture, so that was fun and it
definitely got me hooked, something like General Assembly, we knew there was a big
opportunity in education, but we didn’t necessarily
know what that was, so every step along the way, we started with a very
light education product, just an hour, hour and
a half in the evening, learn a little bit of JavaScript, learn a little bit of digital marketing, basically we called it
cocktail party level of knowledge of these skills, but that was an interesting
product in and of itself, so that wallet, the prototype wallet was a kind of early lean version, it wasn’t a bad product at all, it served a specific audience, but let us start building
our pool of instructors, let us get the operations together, and enabled us within four months to roll out evening programs
that taught those skills in a more robust way, say eight weeks, 12 weeks in the evening, two nights a week, learn web development, learn UX design, learn data science, not in a way that you could get a job, but in a way that you could
add a skill set to your CV, that kind of led us to
actually ask the question, okay can we level this up again, and get someone a junior level
role in one of these fields, so about six months after that we released our first full-time three month
program in web development, that actually got people jobs, so that was kind of the third step, even though today that’s what most people know General Assembly for, that was actually the third
step in an iterative process, but each step along the
way we had a product that worked for a specific audience, and when I think about
lean start-up methodology and the right way to apply it, your prototype of a car
is not a steering wheel, it’s a skateboard, it doesn’t serve necessarily
the same purpose, it certainly doesn’t
target the same audience, but it’s a useful
product in its own right, so that evening class, wasn’t the same thing it
didn’t necessarily have the same value proposition, certainly not the same price point, but it was I think in
hindsight the right lean way to prototype an education product, as opposed to building the first day of our front end web development course, which would have just kind
of been not that interesting, we would have built the steering
wheel and not a skateboard, but we started with the skateboard. – Good analogy, I do remember my advertising class which was quite fun in the early days, so can we talk a little bit
about the importance of brand, I would say one of the
threads at least for your last two startups, two threads I think for
three of your start-ups would be community across all of them, go across campus
certainly had a community, but definitely branding as well, so can we talk about
the importance of brand, and can you just walk us
through the process of creating a brand and then leveraging
that brand to find your first 100 customers
at General Assembly, and maybe the same thing with Common. – Yeah I think brand
is immensely important, especially if you’re building
a B2C business these days, even if you don’t invest in a brand, like you still have a reputation, customers are still
going to talk about you, so just thinking about
it and building brand in from day one into part of your strategy is absolutely critical, and when I talk about
lean start-up methodology and making sure your
first product is viable, that is it’s not a bridge to nowhere, but actually an interesting
viable product and of itself, that’s really important
when you’re talking about building brands, because if you built an MVP but it doesn’t make someone happy, it doesn’t actually solve
a need for a customer, you’re actually really
setting yourself back in terms of building a brand, and there is absolutely attention there, between do it right, like build a great product that is going to launch your brand in the right way, versus build a very,
very minimum borderline viable product that may
actually set you back, and I’ve certainly seen
some founders perhaps start with a different brand, whether they’re just
trying to be iterative, or they want to go for
a rebrand eventually, or they just don’t want to be too cautious about what they release, and potentially spoil the waters of the brand they eventually want to create, so Common for instance, when we started we were called Porchlight, we never opened a building
under the Porchlight brand, but it was kind of a working title, and we put up a few landing pages, experimented with different
value propositions, ran some light ad campaigns, just to see kind of
what people got excited, and we didn’t want to put that
up under the Common brand, because one, we had no design resources, so we were trying to be scrappy about it, and two, we didn’t want people
to notice and say Common is launching with this
crazy thing and that turned out not to be the product
we wanted to go with, so it’s really, really tough
balancing brand and lean, sometimes there’s no right answer, sometimes you have to
make hard trade-offs. – Nice, I know that you’re a big fan of KPI’s, how do you use data to drive
decision-making particularly at the earlier stages of the
ventures that you’ve launched? – Yeah I mean, you always have to base your decisions in some sort of quantitative metric, once you get to the place, and kind of look at the early stages, how quickly can we get to a place where we have data to base decisions on? One of the challenging part
for me as an entrepreneur, I come from a science background, I was a molecular biology major at Yale, is that the confidence
threshold that you should have in business is very different than the confidence threshold
you should have in science, and it actually varies based on the type of business you’re in too, so using a 95 percent interval, it’s great if you’re in science, that’s standard, if you’re working at Facebook or Google, and you have immense amounts
of data flowing through, your test, that might make sense, if you’re at an early stage start-up, there’s absolutely no way, so adjusting your level
of confidence at which you’re willing to make
a decision is I think a really important part of
early-stage prototyping, and getting yourself
off to the right start. – [Jennifer] Yeah we
just said in our class that 60 percent is the new 80 percent when you’re trying to start something, so you’ve got to get 60 percent. – If you’re right 60 percent of the time– – [Jennifer] You’re doing well. – If you’re right 60 percent
of the time especially in the early days you’re doing great, you’re doing great. – [Jennifer] So one of
the critical components that’s common obviously
across all successful ventures is a great team, can you speak a little bit about how you found your early co-founders, you find your co-founders for your team, and then your early team members and how you think about recruiting? – Yeah, I mean the way I like to think about it, is where my weak as an entrepreneur given the idea I’m going after, what skill set or what
kind of psychographic, and that’s why sometimes
being in a somewhat more corporate environment
for a while can make sense, because in that environment
you can often know where you’re good and
where you’re lacking, and not just from I don’t have
this skill set perspective, but for me here are my own weaknesses, here is where I’m not
as good as the leader, and you really have to combine those, so going into Common, I knew I was weak on the real estate site, I had done products I had done technology I had done operations, I’d never done real estate, I didn’t know how to
build financial models around real estate products, I didn’t really understand
a lot of the moving pieces, how the financing worked, it was all pretty foreign to me, so my first two hires were
both people with deep finance and real estate experience, and I made the decision
that I wasn’t going to go with the traditional co-founder, I was going to create a big options pool and use that to incentivize
my first 10 or 20 employees, which actually made sense for me in the business I was starting, so I brought in two people, one who had done a lot
of real estate projects, and about five or 10
years of work experience. And then someone else on the
other end of the spectrum who had a deep finance
background including real estate, who was in his early 60s, so it was kind of an interesting team, very non-traditional start-up team, but it worked well for our needs and what we were going after, it’s so situational and
it’s a hell of a lot better if you have the self-awareness
to know yourself. – Yes totally, so both Common and General Assembly are hybrid real estate community plays, how do you think
strategically about creating those communities, what are the risks in getting it wrong, and where have you really seen both across both of those ventures, something that you’ve
done to create magic. – Yeah so I look at this
and I think the communities were very key for both
General Assembly and Common but in some cases outside
observers actually overweight the importance of that to
the success of the venture, or put the cart before
the horse and say I want to create a community first
and the product second, the product has to come first, these people don’t buy into
a community in the abstract, so it’s very, very tough to sell that, I think a lot of people
have tried to go down that route of oh yeah we are a community and then there’s some
product bundled onto it, General Assembly worked
because General Assembly offered great effective
education products, Common works because Common is solving a housing need in urban centers, the community is like
the stickiness, the glue, it’s that thing that’s on top that kind of makes the whole thing, takes it from a very transactional product to a magical experience, but you have to have a great product, there’s no other way to do it, if you just have a
community and no product, then you’re Billy McFarland
running the fire festival, you shouldn’t be in business, so I don’t know what
to say other than start with the product, get the product right
and then create spaces where community can thrive, and you have to be, and this is still something
I struggle with sometimes, is what role should the company, should the organization’s
brand play in the community, I think the best
communities are so organic and don’t feel like the
brand or organization is encouraging them, but simply naturally
happened and the participants in them view them as like, Oh cool, I happen to know these
people as a part of Common, but it’s just so, it’s not because Common is a
great organizer of community, so if you can do that and pull that off, you can create a much stickier product, but the products have to be good. – So this is your fourth venture, how have you evolved as a CEO since that first furniture venture, and then what are the things that you wish you had known when you
launched that first venture, and what are you most proud of most understanding now I suppose, and where do you think you excel now? – Yeah totally, and while it’s true this
is my fourth venture, it’s the fourth venture
that people are aware of, and one thing to keep in mind
if you’re an entrepreneur and you’re thinking about
prototyping at an early stage, there’s a lot of things that I tried that just didn’t work at all, and were just kind of like
either never launched, like those early prototypes
did not come back with good results and
so you don’t hear about, so fourth that’s actually, and not that all four worked, Go Across Campus, my gaming venture, unfortunately went bust in 2009, so it’s not like for work, and certainly there’s more below the surface there that try out, run an experiment or two, whoops that didn’t work, move onto the next one, so there’s a lot of iteration in that, and that’s not necessarily visible. So I do have to note that
for every entrepreneur’s out there trying things prototyping, you’re not going to be
successful even three out of four times of ideas you have, if you have 20 ideas
and three of them work, that’s actually pretty good, that’s really good, so I think if there’s like anything that I could go back and tell my earlier self, 18-year-old Brad selling furniture, it’s like it’s never as good
as it seems, nor is bad, I think the biggest difference between the entrepreneur I was 12, 13,
14, however many years ago, and the entrepreneur I am today, is that I think I’m a lot
more even keeled today, I don’t know if it makes you smarter, but I’m certainly more balanced, I tend to be doubtless, it’s like there’s huge swings, huge swings up, huge swings down, and the more I think as a
CEO you can buffer yourself against those swings, through trying to balance yourself better, so it’s never as good
as it seems not as bad. – Okay so you advise a number of founders, what advice do you typically give during that first meeting with somebody who is interested in launching a new venture? – Sure I mean a lot of
it really gets into, iteration, that first prototype, usually when I sit down with
very early stage entrepreneurs, a lot of it comes down to
what is that first prototype, what is that first iterative
step that you need to do to get some proof points
behind the business to start building an audience, to start making money if that’s an option, and there’s a few tricks that I often use, I’m a big fan of email first businesses. – [Jennifer] Yeah we did that. – I really challenge a lot of, yeah it’s great, I remember that from
early Skill Crush days, it’s a great way to start building, email as much as it’s
been around for 25 years, is still a wonderful way to reach people, and there’s a lot of great
email first businesses out there that were started
via email for a while, how do you brick and
mortar prototype something, actually create events and
in-person interaction which is a lot easier often to prototype than building software products, so a lot of my advice for
companies I advise really comes into are there
ways that you can create, you can get from zero to one, you can build no product, you can just have an email list that has a thousand highly engaged subscribers, and suddenly you’re 10
times more fundable, you’re 10 times more
interesting for an engineer to join your team, like if I’m a software engineer, and I’m thinking about which
of these dozen MBA students do I want to jump on and
build their products, like having a thousand people
engaged on an email list, that’s like the number one
thing I’m going to look for, Oh wow people actually want this, like if I went and spent a long weekend and built this product, and built a prototype, there’s actually users who
would be on this from day one, so that trying just like drive
in and be so, so rigorous about how do you prove it out
with the least possible work. – Great, so I want to jump to some
of the questions from the people who are online, the first question is, and maybe you could apply this to one of the ventures or across a couple, which variables through the
prototypes should you try to hold constant when
you’re testing something, when you’re going through
the testing process? – You know it’s an interesting question, obviously it’s very situation, it depends on what exactly your testing, what are you trying to prove, and frankly most founders
don’t have the luxury of running multiple
tests where you can hold some variables constant and select others, most have like one shot to go at it, and it’s very binary, it either works or it doesn’t, and so it’s kind of like a
question that most founders don’t have the privilege
of actually asking, I would say your own interest, is probably a pretty one to hold constant, because I’ve actually faced
this in a few of my businesses, where you run a few
experiments and the data is pointing you in a
direction that might work, but I really don’t want to spend that much time running that business, it’s not something it’s interesting to me, and certainly if like, if your pre-investment if it’s
just you working on the idea, or a small team and you all
just get together and be like, you know what, maybe this would work if we
build a business doing X, but are we all really
excited about signing up for spending five to 10 years
building a business doing X and no one’s really excited about that, maybe the results of
the test don’t matter. – Yeah totally agree, can you walk us through
the fundraising process, and would you recommend
bootstrapping as long as possible and what’s that right time to start looking for investors? – Yeah once again this is a question where there is no answer, like it’s entirely situational, but the general rule of thumb is bootstrap as long as you can, but a lot of people don’t have the luxury, don’t have the privilege of doing that, so I think it’s sort of
obnoxious to sit up here and say bootstrap, bootstrap, bootstrap, what I will say is like
think about as many alternate ways of financing your
business as possible, so the dichotomy that’s like bootstrapping versus venture capital, is really a false dichotomy, and there’s unfortunately a lot of like, paths to financing a
business from angel investors to small business loans, to grants to frankly
getting a first customer that’s willing to pay upfront, maybe it’s actually you
sign up that first customer, and they’re willing to take
a risk and pay you upfront, you give them a couple of points of warrants in your company, be creative about it, General Assembly, we didn’t raise venture money until we were really off to the races, we had a small angel
investors write a cheque, we got a grant from New York City EDC, Economic Development
Corporation for building out a co-working space, a bunch of members of
that co-working space put in their deposits and paid upfront, we got some sponsors like some law firms and Rack Space wrote us a big cheque, things like Skype donated the TVs, we hustled and unfortunately we didn’t take diluted capital
until pretty far along. – Yes so here’s one more question, does mobile simplify or
complicate the process of starting a lean venture, starting in a lean way? – Generally I think it simplifies, it puts you directly in
contact with your customer, it simplifies design in many ways, but once again very situational, depends on the business
you’re actually starting, I know if we had taken Go Cross Campus, my gaming company that I started in 2008, and if mobile gaming
were a big thing then, I think that would have been
a much simpler business, And would have been much
more likely to succeed had we built on top of the mobile platform, General Assembly on the other hand, I think goes the other direction, we had a simple, simple business, we were teaching people
things in need space, and that would have
been more complicated if we had tried to figure
out how mobile works, so it’s pretty situational, I do like mobile, I think it simplifies some
of the communications. – Okay so what markers do
you use to determine when to either pull the plug on an idea or to move onto the next thing, again this is going to be
a situational question, but worth taking a shot. – Yeah I think it goes back to your interest and motivation, like the business is not dead until the founder gives up on it, and there’s going to be
swings and peaks and valleys, but I frankly I more commonly see founders stick with something too long, that give up on something prematurely, and that’s not the case across the board, but you can keep pounding
your head into the wall for a long, long, long time, and I think in some ways accelerators, not to divert too much, but I think accelerators can actually make this worse not better. – [Jennifer] I would
say venture can as well. – Oh venture certainly can, but I think a lot of people
look at accelerators as like, Oh, I’m going to get to a
proof point sooner or later, sooner as opposed to just
plodding away at something myself, it doesn’t always work that way, I’ve seen several founders
who want to make pivots, decide not to make those pivots because they need to be ready for demo day, so they stick with an
original flawed idea, and I really, really discouraged
founders from doing that. – So I will give you one
of the questions that I got from one of my students, when you first launched did
you have a personal network to help you get your idea off the ground, and if so how did you leverage them, and if not how did you go
about building that network? – So I think for Common at least, it’s a great question, I think for Common at least, I had the worst of all scenarios there, which is I didn’t have a personal network, that meaningfully helped me, other than additional investors which I guess I should acknowledge, that I was totally lucky in being able to have a business that
was already successful, and people that were willing
to jump on board and fund me, but in terms of customers, I was in the worst situation
because I thought I had a personal network that would be useful and it turns out I didn’t, and what do I mean by that? Well I kind of assumed
that my relationships with tech boot camps, with programs that were bringing people here temporarily would actually be a big customer base for Common, turns out that’s totally not the case, that’s not our customer, we want longer term people who are coming here for work opportunities, people from outside the city, so it’s actually a
pretty different audience than what we originally assumed, so that sort of lead is down a false path in terms of our customer base, and frankly we are a supply
constrained business, where this is less dependent on reaching a specific renter pool, and more about building relationships with real estate developers, that can get us the kind of
inventory we are looking for, and if that inventory exists, and it’s quality and
it’s at the right price, you don’t need special
relationships to fill it, so I had to really begin kind
of building relationships with real estate people
from the ground up, which took quite a while and
it’s kind of still in progress, but before I even did that, I had to figure out who
the right people were, because it’s not obvious going into a new industry like real estate, who even are the people
I should be meeting, like real estate developers
so that sort of makes sense, but what size of real estate developer, how does the ecosystem work, what do they care about, so answering all those
questions was really important to building those first few relationships. – How did you go about doing that? – Well you start meeting people, I don’t know the hack around this, there’s no hack, I had a great network
of venture investors, we were really fortunate
that venture investors a lot of their LPs are into real estate, so I actually got introduced to a lot of their limited partners, who were big real estate funds, now those people are not actually not the right first partners for us, because these were huge institutional, either family offices like
big real estate investors, and we wanted to prototype
with a brownstone in Brooklyn, we didn’t want this
huge commercial building in midtown Manhattan which is what a lot of these people dealt with, the kind of real estate people that are limited partners to a venture fund, so then we kind of had
a hop skip and a jump, find somebody who had a friend who was buying brownstone’s in Crown Heights, and we were fortunate to get a deal done, actually another one of our
real estate partners came from a good friend of mine who is like former business partner was now
doing real estate deals, so there’s no shortcut, you’ve just got to pound the pavement. – Do you think that young
entrepreneurs put too much emphasis on the idea
versus the execution? – I mean it’s both, there is no, if you’re Einstein but your
selling hotdogs for a loss, and making up for it at volume, that’s not good, but if you’ve got the best
idea ever and you’ve got no team to execute that’s not good either, so there’s no answer
idea versus execution, what I would say is that
you should start with a thesis and maybe a space
that you want to get into, and you start testing
things within that space, start talking to people in that space, so I think young entrepreneurs may value the idea over the sector or thesis, and those things are different, so I knew that rental real estate, rental apartments in big
cities were something I wanted to innovate, and there was a thesis
there that millennial’s in general were having a terrible time, bad user experience, a lot of money left on the table, I knew there was something
there long before I knew okay this is what Common is this is what we are going to try. – So, curious and I think
this is a controversial question a little bit, because you hear it a lot particularly within high-tech high-growth
VC side of things, VC backed ventures, what is the value of an
MBA foreign entrepreneur, and you probably do not
have the answer to this, so maybe I will go ahead and answer it, you know we do hear
there is a little bit of a stereotype within the
tech industry in general that can be negative against MBAs, and I think there are
very valuable reasons to pursue an MBA instead
of jumping right into it, I think one of the things that you gain, at least I gained personally
from coming to the School of Management is just this
overarching perspective, particularly if you’ve
been working in a sector, that’s maybe the nonprofit sector which is where I came from, and you need a set of
skills that you didn’t currently have to build, and also a network of
people that you wouldn’t have had otherwise, I think many times people
talk about this question, and it is so personal and
situationally dependent, and is related to what do
you want out of your future and whether or not you
think that entrepreneurship is the only path, what I will say is that starting venture is incredibly hard, your probability of success
is really pretty small a lot of the times, and having something else to
fall back on whether it is a job at McKinsey or a job at Google is incredibly beneficial, and I think an MBA opens up those paths, I think also if you look at some of the more successful
investors/entrepreneurs out there, people like Chris Dixon, they have MBAs, and then you have cases worth somebody’s dropped out of college, so it really is just
such a personal decision, and really you need to
figure out what fits well within the context of your own life, so I don’t know Brad if you
want to chime in on that at all? – Yeah I’m actually
very pro-MBA for people who want to be entrepreneurs, and I think the bad rap
that they’ve gotten really comes down to some of the
frameworks and methodologies that are taught in
traditional business school being counter-productive in an early stage
entrepreneurial environment, but when I was at General Assembly, my co-founder Jake is an MBA, and the frameworks that
he knew were incredibly incredibly useful and the way he was able to think really was a great addition as we grew and as we scaled, and so the fallback a lot of people have in terms of the value of an MBA, well it’s not the
classes it’s the network, yeah network is valuable, but actually his ability
to think about things like cost of capital, do those analyses, bring frameworks to the table when we’re introducing chewing
over strategic problems, actually added a huge amount of value, and I don’t think General Assembly would have become what it is had we not. Similarly, my wife and I together
run a few businesses, she really takes the lead on them while I’m day-to-day at Common, and she runs circles around
me on the finance side, on some of the strategic questions, because she did get an MBA, and so I’m actually like
a lot of entrepreneurs that have only experienced
early stage tend to discount the value of it, and I would have too eight years ago, when I had only seen early stage, but now I think my
perspective has changed, since I’ve taken things
a little bit further. – Yeah and I would say that
you mentioned two things, the classes I suggest for
students to take before they leave the MBA program, which are quote fin and
competitive strategy I think provide these
incredible frameworks, and just give you the
opportunity to knock things out in a way that I certainly
would not have been able to do prior to coming to
the School of Management. So last question, we can wrap up on this, and I think this is the
case both for entrepreneurs, and for people who are interested
in starting new ventures, we often have various ideas, how do we decide which
ideas serve a market need even before building a
vision and testing it out, or developing an MVP? – That’s a really tough one, because I would say the
market need is scoped to a specific idea and
thesis your going after, so yeah you can look at the market at a very high level and do an analysis, and just be like who
are the existing players in this market, who are the customers, let’s go talk to some customers, understand what they’re not getting today, and use that to back out an idea, I would say you always have to like once you get to that idea, back test it and say okay well
yeah there’s this big thesis, there’s this big pie, but of this idea in
particular what part of the pie can I reasonably take, have I scoped this so
narrowly that I’ve pretty much cut down my market to nothing, and it still does come
back to emotional fit too, is it an idea, is a
concept that I’m interested in spending 10 years doing, because it’s going to get hard, it’s going to take a lot
longer than you expect, you hear stories about
Instagram getting bought at nine people for a billion dollars, that never happens, that’s so rare, upside even great stories of companies that got bought for big numbers, it’s often a slog, that company went on for
eight, 10 12, 15 years, so even in a successful scenario it often takes longer than you suspect. – Yes totally agree, so when you are starting
to go down that process, just to build on that
question a little bit, of exploring an idea, you’ve had four ventures that are the ones that we know about, and all of those others
that you thought of, what is your process for
exploring initially that idea? – I really try to hone in on that test as quickly as possible, so think about some of the
ones that fell by the wayside, why did they fall by the wayside, it might have been hey I did 20 interviews with customers and found
there wasn’t really a need, or maybe there was a need but there were a lot of complexities to the sales cycle, you know one framework that
I love to introduce is plot on one axis the lifetime
value of the customer, and the other axis the
difficulty of the sale, and you can kind of
draw a line of best fit, where at the upper right you
have Fortune 500 companies, government clients and things like that, and kind of the bottom
left you have consumers, you should be above the line on that, like ideally having a
lot of value per unit of difficulty of sale, and I really tend to hate
ideas that fall below that line where you’re
selling to customers that don’t have a lot of money, where the sale is going
to be really difficult, so through simple research
you can usually figure out how much money the customer has, and what potential
lifetime value there is, I think where often I try to extract, what I’m trying to figure out in those customer interviews and that test, is how difficult is that sale going to be, so can I go out and just
scoop up 20 customers, or is this going to be
six months of approvals and wrangling and RSPs and whatnot, so where am I really on that one. – Yeah, I think that’s why
I encourage our students to try to build, even if it’s a rudimentary model early in their idea stage of their venture, because if your forced to
put numbers down on paper, and say alright well I
think I’m going to be able to sell this product for X, I’m going to sell this number of units, then you can back into
how many people do I need on my team to make sure
that that sale is going on, how long is that sales process, is it pretty quickly, does it occur quickly, or does it occur over
the course of a year, and how much cash would I need in order to get from point A to point B, and I think by actually
putting it down on paper it forces people to think through those things in a way that, just not looking at the numbers
will not allow you to do. So last question and then we are out, we are done for the day, any resources that you
could recommend for people that we could kind of
send off as a takeaway? – Yeah I mean I have a
list of blogs I read, and people I follow, I think you can look at a lot of the prominent venture investors, I think Fred Wilson has
really incredible blogs that goes into a lot of
MBA-like topics and forms a really nice bridge
between the things you might be learning in business
school and the very practical on the ground understanding of a business, one tactic I use kind
of in the early stage of prototyping my ideas, that’s a challenge that I will lay out to the people here who are
thinking about an idea, trying to come to an idea, maybe they have an industry in mind, they have a thesis in mind, but they don’t quite have that idea yet, after I left General Assembly, as I was thinking about what I wanted to do in terms of residential, I challenged myself to build
a 20 slide deck every week, and it was actually really helpful, it doesn’t matter the correctness, it’s like hey here’s a piece of something, get it down on 10 to 20 slides, as if I were presenting it, like does it make sense, let’s think through
every step along the way, maybe the business model
Canvas might be a form of that, but I just tried to do
it as simply as possible, and actually was really helpful, and sometimes I go back, I’ve probably made like 15 slide decks, I’d probably go back and
look at those slide decks every few months or so, and be like hey that’s
actually not a bad idea, let’s think about what I
was thinking about there, so I’ll just really challenge people to push themselves to kind of
create something every week. – That’s great advice, we definitely use a business
model Canvas for that as well, and it is this iterative thing, where it’s not like you’re
documenting that once and then putting it away in a drawer and not looking at it again, it’s your documenting it, you’re going out, you’re testing,
you’re talking to people, you’re going back you’re changing and a lot of it is sequential, and so you have to think
through what are the things that are most important
for me to figure out today that may impact three other things that are on this business model Canvas, I changed my idea in some way or other. So Brad I want to thank you
so much for joining us today, we really appreciate it, and we encourage you
guys who are out there to give it a try, I think we’re in this
environment now where there’s no better time to try to get
something off of the ground, you don’t necessarily have to burn all the boats and go all in, you can try something on the side, just get a small project up and out, there are a ton of
resources available online, one of my favorite books
that’s for customer discovery was written by this guy Giff Constable called Talking to Humans, and it’s just a short quick
look at how you go out and think about structuring
those conversations with your earliest customers and potential partners et cetera, but also great books by Brad Feld, Lean Startup by Eric Ries
is a good introduction to the lead start-up methodology, and I encourage you just
to think deeply about the problem and then go
and try to test as quickly as possible whether or not your solution or potential solution really
solves a need for people, but thank you Brad for joining us, we appreciate it. – Great, thank you Jen and
thanks everyone for joining. – Alright, bye bye. – [Woman] That was really good. – [Jennifer] Was it good?

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