It's of interest to anybody who's in the early stages of starting a business. That might be somebody with an idea for a new venture, or it might be somebody who's got a new venture just getting underway.
In collaboration with the University of London International Programmes and online education partner Coursera, London Business School is launching its third MOOC, ‘How to Finance and Grow Your Startup – Without VC’. The course instructor is John Mullins, Associate Professor of Management Practice in Marketing and Entrepreneurship at London Business School (pictured below left).
An award-winning teacher and scholar and one of the world’s foremost thought leaders in entrepreneurship, Professor Mullins brings to his teaching and research 20 years of executive experience in high-growth retailing firms, including two ventures he founded and one he took public.
Since becoming an entrepreneurship professor in 1992 he has published five books – including the definitive book on assessing entrepreneurial opportunities, The New Business Road Test – dozens of cases and more than 50 articles in a variety of outlets, including Harvard Business Review, the MIT Sloan Management Review, and The Wall Street Journal.
His research has won national and international awards from the Marketing Science Institute, the American Marketing Association, and the Richard D. Irwin Foundation. He is a frequent and sought-after speaker and educator for audiences in entrepreneurship and venture capital.
Professor Mullins talks to London Connection about solving customers’ problems, funding early stage companies, and how Airbnb came to get its name.
Why do so many entrepreneurs think that raising seed or early stage capital from a venture capitalist is the Holy Grail?
I think this notion of a VC or business angel as a first port of call for an entrepreneur starting a business has come to pass largely because of the incredible history we've seen over the last couple of generations of the ecosystem that does that. We've seen fabulous companies created that way – Google, Facebook, Apple and more – and they make great role models. We've seen incredible returns generated for investors who have invested in those kinds of companies. So the media has jumped all over these stories – and they're terrific stories. As a result, everybody says well, gee, wouldn't I like to be the next Mark Zuckerberg or Steve Jobs. I think that's why it's happened. But the facts are that the vast majority of fast growing companies anywhere in the world – the Fast Track 100 in the UK, or the Inc. 5000 in the US – if you look at those lists and you study the companies and ask did they raise venture capital, the answer is, the vast majority of them did not. So then the question becomes, is there another way?
You mentioned the media. In terms of popular culture, does a TV programme such as Dragon's Den promote the wrong entrepreneurial approach?
I wouldn't argue that it's the wrong entrepreneurial approach. Some of the companies that have been created this way wouldn't have the success they've had without the substantial amount of venture capital that's been poured into them. Think of Airbnb and Uber recently. I think the role models that we have today, such as Richard Branson in the UK, and Bill Gates, Mark Zuckerberg and Michael Dell in the US, and television programmes like Dragons' Den in the UK or Shark Tank in the US and similar programmes in other parts of the world, I think they've played a pretty constructive role in making entrepreneurship a viable and potentially attractive career path for smart, motivated and capable young people. So in many ways that's all been good. I think one of the downsides of that is that everybody says, well, I want to do it that way. And not all businesses are venture capital backable, they aren't suitable for venture capital in most cases.
Michael Dell started Dell computers with a pay-in-advance model. Bill Gates and Paul Allen started Microsoft as a service business and only later flipped it to become a product business.
Who should take this MOOC?
It's of interest to anybody who's in the early stages of starting a business. That might be somebody with an idea for a new venture, or it might be somebody who's got a new venture just getting underway, is beginning to get some traction, and now wants to grow it. So there's a range of entrepreneurs for whom this is appropriate. But it doesn't matter what industry they're in, what country they're in, whether they're an artist trying to build a very small business or a technology entrepreneur hoping to shoot for the moon. The best way to finance their business is with their customers’ funds, and this course provides the toolkit to make it happen.
The MOOC will enable participants to apply one of five customer-funded models to a business or business idea of their own choosing. Do these models represent a new concept?
No. In my book The Customer-Funded Business I argue that this is nothing new. Michael Dell started Dell computers with a pay-in-advance model. Bill Gates and Paul Allen started Microsoft as a service business and only later flipped it to become a product business after they realised that writing one operating system after another for the early PC manufacturers resulted in a series of service deliveries that all looked pretty much the same. They said, well, if they all look alike, why don't we just create a product – we'll call it MS-DOS – that could be downloaded with all the PCs or sold in a shrink wrapped box. So there's nothing new in these models, it's just that they haven't been studied or talked about before.
The MOOC offers a very useful toolkit in terms of getting your own startup off the ground. Could you touch upon one of the practical ideas that you explore?
One of the most fundamental ideas here is that what you want to do is get your customers’ money as early as you possibly can, and you want to pay your suppliers as late as you possibly can. And if you're able to do those two things in tandem, you end up having cash, let's call it float. You have cash in the bank and you can use that cash to grow your business before you have to take some of it and pay your suppliers. That's what Dell did, and that's what Gates and Allen did, too. It's simply a matter of finding a big enough problem to solve for a potential set of customers that is so compelling that those customers will pay you in advance to solve their problem, even though you may not have fully developed your product yet. That's a key takeaway.