While this is the last lecture, the teams still have one more week to work on their companies, and then they have their final presentations – for 30% of their grade. All the teams have crossed the Rubicon.
Week 8 of the class.
Last week the teams tested their Revenue Models hypotheses: what are customers willing to pay for? This week they were testing their hypotheses about Partners. Partners are the external companies whose product or service combines with your Value Proposition to create a complete customer solution or “whole product” to satisfy customers. For example, Apple needed music from their record label partners to make the original iPod and iTunes experience complete. (The concept of Partners, took some explanation as some teams confused partners with the Distribution Channel.)
The Nine Teams Present
PersonalLibraries was now an on-line “social shopping system.” After a week of hectic customer discovery, the team further refined their new business model. Their minimum viable product would be “Trusted Advice on products tailored to your needs by people and groups relevant to you.” Their initial customer segment were upwardly mobile professionals with $2-10K discretionary purchases/year (excluding travel), and their revenue model was affiliate program fees.
With the clock ticking down to the end of the class the team appeared to give up sleep for the remainder of the quarter. They contacted a dozen admissions consulting firms, ran three Usertesting.com video interviews on a social shopping tool, surveyed 40 Stanford students on their on-line shopping habits, and then did another survey of 700 Stanford MBA students (!) to find out what books they’d recommend for prospective students. They used that data as their first “trusted advice” for the new website they built in a week. https://insidely.com/books/
Within the week they were #6 in Google search results for “Stanford Admission Books.”
Amazingly it looked like the PersonalLibraries team had restarted the company and found a segment where customers wanted their product. They had another week to go until their final presentations. This looks like a race to the wire.
Autonomow, the robotic farm weeder, spent part of the week investigating Partners that could help them build a more complete offering for farmers. The team talked to an agricultural sensor expert at U.C. Davis, a German applied Laser research group, a California organic farmer who wanted to be an Earlyvangelist, four service partners and three weed/pest management consultants.
On the technology front, last week they tested whether their Carrotbot (their research platform they built to gather data for machine vision/machine learning) could tell the difference between a carrot and a weed in a farm field versus the lab. This week the team started investigating whether the spectral reflectance curves of healthy green plants are different from weeds, and if so could an infrared Hyperspectral imagingcamera be better suited than their current visible light camera for weed/plant recognition.
But what got our attention was when they told us they were investigating what it takes to kill a weed in the field. Their answer? With a laser.
Way cool.
They spent the week sorting through some basic laser technical questions. How much energy does it take to kill a weed? Answer: About 5 Joules of energy. Next question: How much energy will the laser require? Answer: If the robotic weeder is traveling at 1.5 mph, the laser needs to kill the weed in about 10 milliseconds; therefore the laser needs to put out no more than 500 watts of energy. What wavelength of laser? Answer: The most cost effective wavelength is 800-900nm ~ $20/watt. But water (the main ingredient in a weed) best absorbs light at higher frequencies – think microwaves. Final question: Is the improved absorption efficiency worth the extra cost? Testing for all of these is required.
The next team was D.C. Veritas, building a low-cost wind turbine for cities. Last week the team did mass interviews of city officials across the United States to understand the project approval process inside a city. This week they broadened the discussion with interviews with the city planner in Mariposa, Texas and the city engineer from Rapid City, South Dakota.
They worked on understanding their partners. D.C. Veritas needs three types of partners: installers (to reduce their overhead), certification authorities (who would provide credibility) and government and research labs (for testing facilities).
Of real interest was their evolving view of their revenue model. Instead of selling a city the wind turbine hardware, their revenue model moved to a Wind Power Purchase Agreement, a long term contract with a city to buy the electricity generated by the D.C. Veritas turbines.
The Agora Cloud Services team was now making a tool set for managing Amazon Web Services cloud compute usage. They believed their tools could save customers 30% of their Amazon bill. Their value proposition was to provide service matching, capacity planning and usage monitoring & control. They had another 3 interviews, this time with potential partners and integrators.
To see the slides, click here.The Week 8 Lecture: Q&A and Summing Up
Our lecture covered Key Resources and Cost Structure. The textbooks for this class were Alexander Osterwalder’s Business Model Generation (along with the Four Steps to the Epiphany). So who better to have as a surprise guest lecturer for our last class than Alexander Osterwalder himself.
His lecture covered: What resources do you need to build your business? How many people? What kind? Any hardware or software you need to buy? Any IP you need to license? How much money do you need to raise? When? Why? Importance of cash flows? When do you get paid vs. when do you pay others?
Our assignment for the teams during their final week: What’s your expense model? What are the key financials metrics for costs in your business model? Costs vs. ramp vs. product iteration? Access to resources. Where is the best place for your business? Where is your cash flow break-even point? Assemble a resources assumptions spreadsheet. Include people, hardware, software, prototypes, financing, etc. When will you need these resources? Roll up all the costs from partners, resources and activities in a spreadsheet by time.
The last part of their assignment is their final presentation – a “Lessons Learned” summary of their work over the entire quarter – which will count for 30% of their grade. To help them get ready for their final, one of our mentors plans to hold a mandatory “story-telling” workshop, to assist them in assembling their final presentation.
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Over the last few weeks as our students presented, we had a growing feeling that we were seeing something extraordinary. Our teaching objective was to take engineers (with a smattering of MBA’s) and give them an immersive hands-on experience of how an idea becomes a profitable business. We taught them theory, methodology, and practice using Customer Development and business model design.
Watching them we realized that we had found a way to increase the information density a student team could acquire in eight short weeks. But what was truly awe-inspiring was the breathtaking speed and tempo of the teams’ Pivots.
All teams had all accomplished something remarkable, but it won’t be clear what a singular achievement this was until we see their final presentations.
Stay tuned for the last post – the Final Presentations and Lessons Learned.
