Last Wednesday and Thursday I was “empaneled” to review 35 end of semester business pitches for classes at Cornell’s Johnson School. It was a long two days, but a privilege to see the energy and enthusiasm of the students showcasing their business concepts and the hard work they put together.
Two trends stood out, not as being new, but in the degree to which they were foundational elements of so many of the business ideas:
The sharing economy continues to resonate with this generation. The most common phrase I heard was “we intend to be the Uber of the X industry” or “we intend to be the AirBNB of the Y industry”. If student interest is any indication, expect to continue to see an explosion of applications that enable sharing and more efficient asset utilization across a wide variety of purposes and industries.
Mobile is king: students want the ability to interact with the world, and have the world interact with them, wherever and whenever they are. This makes me bearish on brick and mortar retail, but I am excited about all the ways that a powerful location-aware device in each pocket will allow a kaleidoscope of individual preferences to be served on the consumer’s terms.
The pitches also made a few key lessons stand out.
Practice makes perfect. It’s not a communications class, but conveying your ideas and your work are a necessary part of being understood. Some teams practiced ahead of time and some didn’t; the difference was profound.
Get some elevation and check your assumptions. By the end of the semester, students are tired and brains are full (I can relate!) This can lead to presentations that include assertions that don’t pass the smell test that wind up not getting addressed until too late. An example – if you think you need to start with five employees, that may make sense. If you project growing to $165m in revenue in seven years, you’ll probably need more than five employees at that point. Another example – unless you are a mining or drug company, chances are slim that you’ll be able to sustain net income margins above 30%. If your projections are showing that, it’s an indication that you are forgetting costs, or forgetting to scale them as you grow.
You don’t need to address a huge market to have an interesting idea. We saw some interesting pitches for niche markets. The key thing with smaller businesses is to make the establishment of them possible. It’s reasonable (if risky) to propose a huge technical development to solve a huge problem that a lot of people have. If you are solving a smaller problem, or one that fewer people have, then you had better have a lower-cost, more achievable path to market. We saw great examples of each – and of some plans that involve moving heaven and earth to solve a small problem, or one held by few people.
Recognize and avoid adverse selection problems. Adverse selection is when your offer attracts people you don’t want. (It’s a concept that earned George Akerlof a Nobel Prize for his seminal paper on lemons in the used car market.) An example is voluntary participation in insurance; if the decision to buy is voluntary, then the riskiest people will be the most likely to want to buy, leading to an excessively risky pool. We saw several business ideas that depended on a large and diverse group of customers, but whose incentives would be most attractive to the least valuable customers. Sometimes adverse selection can be managed with marketing signals or rules, but often it’s best to bark up a different tree.
It was a great pleasure to be able to see the fruits of these student teams’ semester-long projects. I’m looking forward to some of them being launched and becoming viable businesses – and I’m already excited to see what the teams cook up next semester!