Evidence-Based Entrepreneurship—the tie that binds in the Entrepreneurship Minor at Wake Forest University

In Blog by Paul Pauca

A paradigm shift has occurred in the discipline of entrepreneurship that has replaced the “build it and they will come” mentality that preceded the current approach known as evidence-based entrepreneurship (also known as lean startup or lean launch pad). The outmoded approach looked something like this: create a novel idea, sell the vision to venture capitalists (or angel investors or other investors) to raise capital necessary to build the product and the brand of the company before ultimately offering it to customers. Only one fault with this approach, called the “startup loop of despair” by Diana Kander, author of All in Startup, and that fault was that everything was invested prior to offering the product or service to a paying customer. How big of a fault one might wonder? Webvan, for example, raised $800,000,000 from a cadre of well- respected investors and was in process of building 26 distribution centers across the US when it went bankrupt. How did such a well-financed company go bankrupt? Well, they seemed to be missing one small part of the equation: paying customers. They were constructing 26 large scale distributions centers without any evidence that paying customers wanted online grocery delivery in mass. Isolated example? Not really. Another spectacular failure that followed this approach was the Segway—a motorized replacement for walking that raised $90 million in venture capital, built thousands of units, expended millions on branding only to find out that customers did not WANT a replacement for walking!
A new approach to entrepreneurship was sorely needed and Steve Blank and Eric Ries were the early leaders in evidence-based entrepreneurship. This new paradigm shift also began with an idea—typically the identification of a problem that people would pay to solve and the creation of the simplest model or mock-up of a solution designed to elicit learning and, ultimately, buy-in from the customer that they would be willing to make a financial commitment to the fledgling organization (the startup) in exchange for solving the aforementioned problem. Only then, with enough evidence of paying customers, would the startup invest in building the product to any sort of scale and begin to build the brand of the company. Prior to this market validation, such major investments do nothing more than bring unnecessary risk into the equation for entrepreneurs.

In our entrepreneurship minor at Wake Forest, we embrace evidence-based entrepreneurship for three reasons: 1. it is the cutting edge best practice and represents the latest thinking in the field. 2. This approach is accessible to anyone with a good idea and the passion and grit necessary to pursue it. Very few people have the connections and experience necessary to raise venture capital (less than 1% of startups do so) or angel investment, so that approach vastly limits the learning opportunities that evidence based entrepreneurship affords. And 3. This approach gives nascent entrepreneurs a real shot at launching a venture. This last part is a real key to our pedagogical philosophy at Wake Forest, because research indicates that the entrepreneurial mindset is best developed through the practice of entrepreneurship. Waiting around and trying to raise capital in order to test an idea severely limits the practice of entrepreneurship. Rather, we want our students to solve a problem that customers will pay to solve and to find the target market customers that feel the pain of that problem most severely. If a startup cannot get traction with the customers that feel the most pain, then that startup will likely fail fast with minimum wasted resource. Then they can try again with another idea. Evidence-based entrepreneurship allows entrepreneurs to develop an idea, test it with customers, before they build the product to any sort of scale or invest in building a brand. Those important activities happen later—with sufficient evidence gathered along the way. This thinking allows our students to develop their entrepreneurial mindset by practicing entrepreneurship and gain knowledge via experiential learning.