The science of start-ups

Two Dubai-based entrepreneurs, Dr. Petar Stojanov and Tarig El-Sheikh, have teamed up to hack the traditional learning process and improve the effects of entrepreneurship education on start-up success
The science of start-ups
By Petar Stojanov and Tarig El-Sheikh
Mon 13 Jun 2016 01:58 PM

Around 90 percent of start-ups fail within the first three years.

For anyone thinking of becoming an entrepreneur, the above figure is a bitter pill to swallow.

The reasons for start-up success and failure are even more bewildering. One analysis found that 42 percent of start-ups succeeded by virtue of being launched at the right time in the market, whilst another revealed that a lack of product-market fit was the reason for 36 percent of start-up failures.

The figures beg an obvious question – is there a formula for start-up success? El-Sheikh and Stojanov would argue that we are asking the wrong question.

Dr. Stojanov proposes an alternative. “Given how much of business success is simply a matter of luck, an important insight can be derived from creating a situation where we learn quickly by making failures fast, cheap and most importantly instructive, all in search of a business model that will inevitably lead to success,” he says. “Using this approach, we can iterate through dozens of business models by running a start-up like a science experiment, through a process of constant iteration and improvement.”

Channeling his experience as an investment banker with Lehman Brothers, El-Sheikh adds: “It is basic economics. Failures are frequent, successes are seldom. We need to maximise the reward for success and make it far outweigh all the small losses in failures.

“If 90 percent of start-ups fail, rather than asking why the 10 percent of start-ups succeed, isn’t it far more informative to try and understand why the other 90 percent fail?

“When we know this, we ‘game’ the system and make failure work to our advantage. The two business failures I have had, whilst difficult to stomach at the time, have turned out to be blessings in disguise because I used everything I learned to go on and launch three successful start-ups.”

Why big companies fail?

Samuel Pierpont Langley was a highly educated man who convinced the US Department of Defense to commit $50,000 to the development of a person-carrying flying machine. With access to funding, the best technology and the brightest minds in the US government, it was left to two bicycle repair mechanics – the brothers sharing the surname Wright – along with a cleverly designed aircraft named Kitty Hawk costing just $1,000, to define the course of human powered flight. So where did Langley go wrong?

Langley fell victim to the belief that the monumental challenge of manned flight would require an equally monumental solution. However, history is full of examples where the opposite is true. In fact, the vast majority of humanity’s greatest innovations and discoveries came as the result of tinkering and experimentation; small improvements driven by learnings from small failures.

Thomas Edison and his team had thousands of examples of failed light bulbs, but the one that worked changed the world. Forgetting these important lessons has brought the downfall of some of the world’s largest conglomerates, and it is the key to success both for large companies and start-ups.

As large companies reach their peak of success, the most counter-intuitive course of action would be to upend your business model and start over at the height of success, but that is exactly what the pair propose.

“In business, change is the only guarantee we have, and given how quickly technology is disrupting long-established business models, the choice is to keep up or pack up,” Dr. Stojanov says. “If you wait long enough, the choice will no longer be yours to make, it will be made for you by the market.”

The way we think about start-ups is wrong

El-Sheikh and Dr. Stojanov believe that the way we think about start-ups is completely wrong. Start-ups are not simply smaller versions of large companies and share almost nothing with established businesses, they explain. Instead, a start-up is an experiment in search of a business model with two important features – repeatability and scalability. For this reason, the pair believe that start-ups have far more in common with the science lab than they do with the corporate boardroom, and traditional business education simply is not equipped to empower would-be entrepreneurs with the skills necessary to create successful start-ups.

The pair think the challenge is not the ‘what’, but the ‘who’.

Traditionally, most students are taught business theory by professors with no practical knowledge of the subject matter. It is one thing to be taught algebra by a math professor, but how would a group of medical students react if they were told they would be taught medical surgery by a professor who had never practised surgery himself? Or taking driving lessons from an instructor who had never driven a car in his life?

They believe that teaching entrepreneurship requires a totally different approach – practical lessons taught by entrepreneurs, for entrepreneurs.

El-Sheikh and Dr. Stojanov extend their unconventional approach not simply to what they teach, but also to how they teach it. “All of us have had that one professor with the monotone voice at the front of the lecture theatre, whose words would go into one ear and come out of the other,” Dr. Stojanov says. “When Tarig and I decided to do this, the first thing we agreed on was ‘no boring lectures!’.”

A unique aspect of the pair’s approach is the fact that humans learn in multiple ways. The problem is that conventional linear education – a remnant of the industrial age - concentrates on only one type of intelligence (IQ), and only in an extremely narrow range. We learn something, we do a test, we learn some more, we do another test. The teaching process is flawed, because humans do not learn linearly, but instead, they learn transformationally.

The pair claim that by exploiting other capacities in which humans can learn, they have ‘hacked’ the traditional learning process. Since participants take their workshops to change their career trajectory and not simply to pass a test, their levels of engagement are very high.

“In our workshops, nobody takes notes during the class, yet our participants remember almost all the information weeks after the workshops end,” Dr. Stojanov says. “The secret sauce is the way we structure and deliver the content.

“As a university lecturer, tutor and demonstrator for almost a decade, I have refined a method of transformational learning which I have been secretly testing on my students back in Australia, and which Tarig and I have applied within this workshop series. Together, we have combined a unique method of delivery and wrapped important insights inside stories from our own experiences as start-up founders.”

El-Sheikh adds: “We have targeted the most challenging issues start-up entrepreneurs are facing, such as how to create compelling customer value propositions, how to validate business models, start-up financing and market sizing, sales and negotiation strategies, and finally, pitching their ideas from an investor’s perspective. We bring in real VCs and give participants a ‘behind the scenes’ view of how investors think.”

The modules are structured to be taken in any order. Each is a self-contained toolkit of key knowledge, skills and insights, combined with examples from the pair’s collective experience as entrepreneurs.

“That’s why we believe the workshops have proved to be so compelling; they are taught by practitioners, people who have actually been in the start-up trenches, who have stumbled and failed along their own journeys and have emerged successfully,” El-Sheikh says. “What we are really doing is teaching from our own experience, so we are not simply imparting knowledge, we are imparting wisdom.”

What do start-up founders need to learn first?

The biggest challenge for founders is falling in love with their own products. “Giving them honest feedback is like telling them their newborn child is ugly,” says El-Sheikh. “They take it as a personal affront, an insult to their own being. It is important to have a deep understanding of the product, but a product without a market is a business with no customers. That is not a business, it is a hobby”.

A lesson the pair credit for their business success is when they really started listening to their customers, who as it turns out are willing to reveal their biggest pains and pay handsomely for a solution. These insights are then used to quickly and cheaply iterate business models, in order to arrive at what is called a ‘product-market fit’; a product or service that fits all of the requirements of a specific customer segment.

El-Sheikh’s most recent start-up, HR platform Beneple, went through over 60 revisions in its business model until he hit on a successful model. “We listened to what our customers wanted, quickly realising that our initial offerings were way off the mark in solving their biggest business pains,” he explains.

In his advisory role at ZoweeQ, a social classifieds platform that connects buyers and sellers, Dr Stojanov reveals a similar story. “We thought about so many different ways to monetise the platform, but our customers were very open about sharing their own requirements, revealing a compelling pain which we could solve for them,” he says. “This led us into a very different – and much more lucrative – business model than the one we started with.”

Making a reference to the work of Steve Blank and the Lean Launch Pad movement based out of Stanford University, they make the point that the process of customer validation to create product-market fit simply covers the very beginning of a start-up’s journey and only a small part of the process of moving from an idea to a viable start-up.

Instead, what the pair hope to build is a complete, end-to-end process, a bespoke formula – grounded in the scientific method – to move from idea all the way to funding. Instead of a generic platform, they aim to create a solution that is super-localised for start-ups in the GCC.

“Imagine a situation where every single one of the 13,000 Emirati university students graduating every year in the UAE is armed with the technical skills they have gained in their respective disciplines, along with a set of practical entrepreneurial skills and the wisdom to take what they have learned to create their own businesses from scratch,” Dr. Stojanov says. “That is one of our goals.”

A recent Bayt survey claimed that 64 percent of employees would rather start their own business than work for an employer That is the duo’s second goal - to empower more employees to start their own businesses.

For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.