Carnegie Mellon University The Science of Growth

Transcription

1 Carnegie Mellon University The Science of Growth Course Number: Meets: 6pm Location: HBH 1002 Office Hours: By Appointment Professor: Sean Ammirati seanammirati@gmail.com TA: Matt Crespi mcrespi@andrew.cmu.edu Overview & Background The lean entrepreneurship movement has captivated Silicon Valley and entrepreneurs across the country. It s provided an agile framework to develop the right product solution for a given target market. Each startup searches through iterative build-measure-learn cycles for that product-market fit. (We define product-market fit as a product that solves a real problem materially better than the competition for a viable customer segment.) We cover the best practices for these in my Lean Entrepreneurship (HC 94840) (T 45805) course. A related and equally important question is: once you ve achieved productmarket fit, how do you scale? This course revolves around providing an experiential learning opportunity covering the best practices that help startups achieve scale. This question is crucially important to me as a venture capitalist, because the risky investments that I make require me to project each one delivering asymmetric returns relative to the low amount of capital invested. In other words, I can lose up to the amount of money invested in a start-up but need to credibly project the successful investments returning more than 10 times the capital invested in the company. I was a serial entrepreneur before turning venture capitalist, and I d argue that this emphasis on scaling successful startups is an even more important topic for 1

2 entrepreneurs than venture capitalists. The most valuable resource any of us have is our time. Once a start-up has that magical moment where their product solves a real problem in a replicable way for a significant group of customers, it is in an entrepreneur s best interest to make sure the company scales to achieve the financial returns and, more importantly, the impact the entrepreneur dreamed of when starting off on his or her adventure. While it s harder to quantify than a dollar invested to 10-plus dollars returned, I argue that understanding these principles gives an entrepreneur the greatest chance of having asymmetric returns on the investment of their time. Also, for many of your classmates and potentially yourself, given student loan obligations and visa challenges, you re more likely to join a startup in growth mode than start a company directly out of school. For you, the question of growth is the one your employer will be most wrestling with when you join the team. Finally, this is not just for entrepreneurs but also intraprenuers, those individuals inside large organizations who are committed to introducing new unproven concepts. Most companies today realize that what got them to the level of success they ve achieved to date will not sustain them going forward. Therefore, growth by entering new markets and introducing new solutions is key to their future. However, similar to an entrepreneur described above, once they achieve product-market fit, scaling the initiative is critical to delivering meaningful impact. 2

3 Disclaimers #1 This semester s syllabus reflects the first major update I ve made to the course design since publishing my book on the topic (St Martin s Press; April 2016). As a result, I will be iterating with you on how to most effectively deliver the material in a classroom format with the book available as a reference your feedback will be proactively sought after (though please feel free to give feedback during the course). #2 Unfortunately, teaching is not my full-time job. My full-time occupation is leading a venture fund. While this provides excellent context for the course, I sometimes am unable to provide extremely quick feedback on assignments. Please know I do my best to turn grades around as quickly as possible, but sometimes am unable to do this. COURSE OBJECTIVES At the end of the class, students will exhibit ability to: Generate growth in high growth startups (and new product introductions within large enterprises) by understanding best practices at each stage of development and when you should focus on each stage. Work on product design and development through a lens of their impact on customer acquisition and growth. Properly think about creating and managing network effects. Use data for their strategic advantage. 3

4 COURSE OUTLINE / SCHEDULE Date Class Topics Reading (to be read before class) Class Overview no reading Identify Founder Prerequisites for Scaling Visions Assignment Due Dissect First Interactions 11-6 Guest Speaker Catalyzing Events 1 Prerequisite Scorecard Find Algorithms and Catalyzing Events 2 Double Triggers Develop Businesses from Platforms Guest Speaker Sustaining Growth 1 Viral Growth Model Guest Speaker Sustaining Growth Matt, Identifying Network Effects Network Effects Marketplace Analysis Final Presentations Final Presentations October 23: Course Introduction October 30: Satisfying Prerequisites for Scaling Just like you can t take advanced calculus courses without the prerequisite basic understanding of algebra, you shouldn t scale a product or company prematurely. We will talk through 4 critical elements of being ready to scale your startup: 1. Founder s Core Vision: In addition to providing leadership, it s important that the problem the founder sets out to solve is one they are passionate about and prepared to address. 2. Scalable Idea: You can t scale a startup that serves a market of only a few people or organizations. 3. Solves a Real Problem: That large market must actually get value from the solution that you have developed. 4

5 4. An Excellent First Interaction: As you start to focus on scaling, you must make sure the world s first interaction with your product is not just good, but excellent. November 6: Catalyzing Events: Part 1 Intro to Catalyzing Events: Each of the catalyzing techniques below attempts to answer the question: How can I increase awareness of those people who would find my solution valuable? Double Triggers: In the evolution of many of our chosen startups, there were events not governed by the company, which accelerated company growth by increasing awareness of its product. People often think of these events later as the company s launch event, even though the company usually released the product publicly months before. Drafting Off Platforms: In other cases the catalyst is not an event in time, but is instead a large, existing platform of engaged individuals who are looking proactively for your solution to augment their experience on a current platform. November 13: Catalyzing Events: Part 2 Gaming Algorithms: Over the last decade, as software (search engines, app stores, and mobile recommendation apps) become a more significant way to discover products and services, an effective way to increase awareness is gaming, or optimizing the rules those systems use to recommend solutions so your startup is at the top of the list. Viral Growth: The last way to dramatically increase the number of potential customers who are aware of your product or service is to get your existing customers to tell their colleagues and friends. While using existing customers as a referral service predates the Internet, current tools and technologies make this channel much easier to optimize. November 20: Sustained Long Term Growth: Part 1 Be Data Informed, Not Data Driven: How to handle data is a crucial question most organizations are asking themselves today. It s easy to become either too reliant on data for answers, or conversely, to ignore data and just rely on your creative instinct and vision. The chosen companies struck a balance by being data-informed, but not data-driven. Finance Growth Appropriately: While it has become less and less expensive to test an idea, it is still very expensive, in most cases, to scale a startup. 5

6 Specifically, it is very difficult to support explosive growth using only the cash provided by organic operations. Therefore, your company needs to determine the right financing strategy if it is to thrive while scaling. November 27th: Sustained Long Term Growth: Part 2 Recruit a High-Performing Team: As you scale, it becomes important that your organization creates a culture to attract and retain high-performing individuals who complement the team and accelerate growth. While this may seem obvious, as no one sets out to recruit a low-performing team, we tried to spend time unpacking how, exactly, the companies we chose succeeded in recruiting these high-performers. Maintain Discipline: If high-performing teams are the most obvious element, this was the least obvious. I expected that the companies that scaled would have a variety of initiatives going on. But instead, as we looked at our chosen companies, it became clear that they were ruthlessly disciplined, prioritizing and focusing only on the activities most important to their strategy. December 4: Sustained Long Term Growth: Part 3 Maximize the Value of Your Network: As the final topic in the course, we talk about strategies to maximize the value of the networks being developed, with a focus on how to identify and create network effects. There may be no term in this course more misused than network effects, but when a company really starts to scale, they often end up creating and/or leveraging actual network effects that wield extraordinary power and influence at scale. December 11: Final Presentations 6

7 REQUIRED READING Each week, you will be required to read below. The in-class conversations will build on these materials / reference them; not re-teach them so please come to class prepared. October 30: Satisfying Prerequisites for Scaling The Science of Growth pages 1-74 November 6: Catalyzing Events Prt 1 The Science of Growth pages November 13: Catalyzing Events Prt 2 The Science of Growth pages November 20: Sustained Long Term Growth: Part 1 The Science of Growth pages November 27: Sustained Long Term Growth: Part 3 The Science of Growth pages Dec 4: Sustained Long Term Growth: Part 3 The Science of Growth pages Plus 10-factors-to-consider-when-evaluating-digital-marketplaces/ 7

8 ASSIGNMENT DUE DATES Assignment Due Date (5:30 before class) Prerequisite Scorecard November 6 Viral Coefficient / Historical Example November 20 Marketplace Analysis December 4 Final Deliverables December 12 In addition to the above assignment deadlines, there will be 3 unscheduled quizzes based on the reading for that week. The quizzes will not be cumulative nor designed to trick you; they are intended to ensure that everyone comes to class having done the reading ready to discuss and participate. 8

9 EVALUATION The semester grade will be based on the following: Attendance & Participation (15%) 3 Unscheduled Quizzes (5% each for 15%) 3 Short Deliverables in Done Pairs: o Prerequisite Scorecard (15%) o Bill Gurley Marketplace Analysis (15%) o Viral Coefficient / Historical Example (15%) FINAL Deliverables: 2 PDFs & Slide Deck (25%) (See Week 1 presentation for descriptions of deliverables below is the rubric for each) Attendance & Participation key elements that you will be evaluated on: Contributing to the discussion (or in-class activities) by raising thoughtful questions, analyzing relevant issues, building on others ideas and/or contributing your own, and listening well (10 out of 15%) Attending class regularly (5 out of 15%) Prerequisites Scorecard and Marketplace Analysis assignments REMINDER: These are to be done in pairs (groups of 2) Clarity & professionalism (3 out of 10%) Quality & thoughtfulness of the analysis (12 out of 15%) Viral Coefficient / Historical Example Write a tutorial to explain the math behind this concept. (7 out of 15% Then use a historical example (not from class or the book) of a product that grew virally. (8 out of 15%) Final Presentation Clarity & professionalism of overall presentation (10 out of 25%) Quality & thoughtfulness of the analysis conducted (10 out of 25%) Lessons learned communicated clearly to the class (5 out of 25%) 3 Unscheduled Quizzes Each quiz will be given at the beginning of the class (unscheduled) and worth 5% of the total grade. If you don t attend class that night and have not be excused in advance, you will get a 0 out of 5% for that grade. For details on the assignment, make sure to review Week 1 slides 9