The Profit-Minded Professor
What ivory tower? Today's entrepreneurship profs are jumping on board student start-ups just as soon as their pupils graduate
Bill Bygrave is on sabbatical, but you'd never know it. Try as he might to focus on the book he's supposed to be writing, the professor of entrepreneurship at Babson College keeps getting interrupted by pleas for help. Alumni, students, parents, and complete strangers E-mail him daily. They corner the poor man in Babson's research archives, where he's desperately attempting to get some work done, and they -- well -- they beg. "Ninety percent of them have Internet-related business plans and are looking for funding," explains Bygrave in his brisk British accent. "I've never seen anything like it. It's the greatest commercial revolution of my lifetime."
He and his colleagues who teach entrepreneurship at the nation's graduate business schools are suddenly finding themselves in a curious position. Rather than being stuck in a traditional academic role, observing and deconstructing the phenomenon of entrepreneurship, they're smack in the center of it.
What's happened is that in academia, entrepreneurship has gone mainstream. The incredible growth in the number of graduate programs focusing on entrepreneurship -- from a handful in the early 1980s to hundreds today -- has exposed large numbers of professors to its lures. Yet only a decade ago, the subject of entrepreneurship was so far under the radar that Babson College professor Jeffry Timmons, an early proponent of the new discipline, called the rise in entrepreneurial companies a "silent revolution."
Consider the traditional academic, whose professional mind-set is geared toward the long haul. A professor gains professional standing slowly, over a number of years, until tenure is won (assuming it is). Now place that person in the catbird seat as entrepreneurship bursts onto the scene, finally exploding in dot-com mania. Even students are making fortunes. The temptation for professors to become players is extreme.
The temptation for professors to become players is extreme. Those who used to simply teach entrepreneurship are looking to make their own fortunes by participating in the general start-up mania.
And so is the wealth of opportunities. Professors trained in the art and science of starting and growing companies are in great demand -- generally not as sources of money, mind you, but as mentors, board members, and investors; critical links between the old economy and the new. Sure, the digital economy has vastly accelerated the entrepreneurial process, but starting a business still requires many of the same skills it always has. Start-up founders traditionally honed those skills through a stint at someone else's company or by plunking down a few thousand dollars of their own and failing a couple of times. But the new playing field demands instant expertise, and if entrepreneurs don't have time to acquire it on their own, then they must have it by association. Enter the professor of entrepreneurial studies.
Of the 400 or so colleges and universities that now offer programs in entrepreneurship, most have grown those programs not just by recruiting ivory-tower academics but by attracting practitioners to the classroom -- men and women with firsthand experience in the start-up trenches.
In the past B-school professors have been tapped as advisers to fledgling businesses started by former students or by entrepreneurs outside the university's community seeking input on their business plans. There might have been a consulting fee or a board seat with stock options; rarely was there the hope that the professor might become fabulously wealthy. Extracurricular consulting was, in fact, sanctioned by university entrepreneurship programs, not only to ensure that professors had real-world experience but also to allow them to augment their less-than-princely incomes. Tainted by their involvement with actual commerce, these individuals were sometimes perceived as less than pure academics and were often the objects of subdued scorn among their colleagues in other programs with less access to outside businesses.
How things have changed! One can only imagine how quickly that disdain turned to envy as entrepreneurship programs began to grow like mad, fueled by the wealth and prestige of newly graduated alumni who contributed generously to endowment coffers. Professors in those programs found themselves at the intersection of what Bygrave describes as three revolutions: digital, Internet, and entrepreneurial. Trained to recognize opportunity and exploit it, they saw the wave coming early -- saw it in the rising caliber of their students and the welcomed participation of entrepreneurs who may never have attended college at all but were willing to support the programs in return for personal validation and a chance to share their stories of struggle and triumph.
"We're in a period of enormous ferment and change, and the opportunities are much greater," says Garth Saloner, codirector of the Center for Electronic Business and Commerce at Stanford University. Stanford's business-school faculty, he says, are besieged with requests from start-ups looking for help; the incentives that are dangled in front of them can be downright irresistible. "Five years ago a typical faculty member would have taken the vast majority of outside income in consulting fees," he explains. "Now the pendulum has completely shifted, and you take very little in cash and the vast majority in investment options."
Such was the case for Saloner last year, when he became involved in the launch of a new Web-based trading and auction company. "It was a chance to roll up my sleeves and chart the future. It was enormously exciting," he gushes. "You start with a glimmer of an idea; then six months later you've got 20,000 square feet, 50 people, and a Web site launched."
Curiously, it isn't Saloner's technical skills that are so much in demand. Though based on technology, the E-commerce revolution isn't necessarily technology driven. What gives the dot-coms their competitive advantage isn't so much mastery of Web tools as it is a clear understanding of marketplace and opportunity. "That's strategy and economics," Saloner explains. "And that's why business-school faculty are finding themselves much more attractive to these start-ups."
Jeff Bracker, professor of entrepreneurship at the University of Louisville, will easily admit that dot-com technology "is beyond my skills base -- it's so new that I'm reading constantly to catch up." Not a problem. What M.B.A. candidates seek is his help in developing their leadership skills and in creating a sustained competitive advantage for their companies.
"They need to answer four questions," Bracker says, quoting a former colleague. "What do you do? How well do you do it? Is there evidence? What is the quality of the evidence?" The industries may have changed, he says, but the questions have remained the same. And there is new demand for the people who can help draw out the answers.
Their understanding of markets and opportunities makes business-school professors very attractive to start-ups looking for help.
Of course, it's not just sage advice that students are after. Through business-plan competitions, former colleagues, and alumni, entrepreneurship programs can often provide entrÉe to an elite circle of VCs and angel investors. (Some programs, such as the one at the University of Texas at Austin, have even hired VCs as adjunct professors.) Mountains of money seem to tumble freely these days, but the right introduction can be even more valuable, leading to sources of mind-blowing capital and connections. "One of the things that is really astounding is the magnitude of money that these young companies are going for with their initial business plans," says Alex De Noble, professor of entrepreneurship at San Diego State University (SDSU). "A venture-capital investment of $1 million to $2 million used to be a lot. Now it's standard practice."
Yet as the numbers inflate, so do expectations. "I know angel investors who won't put money in unless a company can ramp up to $100 million in a few years," says De Noble. And while professors don't claim to possess the crystal ball that reveals who the next Amazon.com will be, they are mightily positioned to favor the best prospects with coveted introductions. And the right introduction can make all the difference.
That's what Richard Lee, founder of Dental X Change Inc., thought when he needed help accessing the VC community 18 months ago. Lee wanted to expand his then-three-year-old business, which provides dentistry resources on the Web. He hired De Noble and his SDSU colleague Sanford Ehrlich as consultants because "they see hundreds of business plans and could give us guidance in terms of structuring our plan."
De Noble and Ehrlich also offered "really good ideas on how to present to the venture capitalists, and they got us in front of some interested parties," Lee says. When Lee landed his first $5 million, De Noble helped evaluate the term sheet. Now the professor and Ehrlich will guide Lee's company in its efforts to land another $15 million to $20 million, but the terms have changed. "Initially, we quoted them a consulting fee, but as we got more involved in understanding their business model, we started forfeiting our fees in lieu of equity," says De Noble. He and Ehrlich now own 1% of the company.
"It's a trend that professors are beginning to take equity," De Noble says. He's involved with a number of other early-stage companies, including a wireless-communications company, and plans to take a small ownership stake in them as well. "We definitely see a lot of upside potential," he adds.
For just about anyone with any leverage there's now more temptation than ever to jump on the start-up bandwagon. But entrepreneurship professors insist it isn't merely the lure of riches that draws them into the marketplace. The adrenaline rush, then? Sure, but even that doesn't fully account for the stampede. Look, instead, to the students. M.B.A. candidates now rely on their professors' business know-how to help them get the competitive edge they need to start their companies.
The war cry of academia used to be "Publish or perish." Now it's "Develop or die." "I'm teaching a new course on E-commerce, and I think it would be impossible for me to do that effectively without knowing what works and what doesn't," says Saloner. "And I don't think I would have a credible feel for those things if I weren't involved myself."
De Noble says that his students look to him to illuminate the problems and challenges of starting a company. The truest path to enlightenment, he says, is the boardroom.
"There's nothing like sitting in on extended strategic-planning meetings, looking at business models and revenue streams," he says. "You don't get that unless you're intimately involved in helping develop the business. It's forcing me to rethink how we teach entrepreneurship." And if teaching entrepreneurship ultimately leads to tremendous financial gain, so much the better. "I didn't take a vow of poverty when I went into academics," quips De Noble.
But aren't there ethics to consider? Most professors, like Bracker, regard it as unethical to invest or take equity in companies founded by their current students. Many, however, are quick to become involved with companies being started by students who are not in their classes -- or with recent graduates, which leaves open the possibility that the professors could become involved informally long before they cross the ethical line in the sand.
"I'm having more fun than I ever thought I would have 38 years into a career," Jon Goodman says of her start-up investing.
Regional and national business-plan competitions, which feature teams from rival business schools and their sponsoring professors, provide more opportunity for professors to favor some students. (The best-known of such events is the Moot Corp. competition, at the University of Texas at Austin, which draws teams and their professor-sponsors from all over the world.) For the students there are cash prizes and possibly VC funding to be won. For the professors there's the prestige, still valued coin in academia. "The amount of time a professor spends outside of class with some of the new student ventures is enormous," Bracker says. "It's like a coach and a football team preparing for the bowl game."
Bracker is currently working with a student team whose business plan for a dot-com called Freight Jungle made the semifinals in the SDSU business-plan competition. "My main focus with them, for their presentation, is working on their ability to bring out the real passion they have for the business. I don't want them to sound practiced. I want them to sound like it's all right off the top of their heads and as right as the day is long. I want to hear Norman Vincent Peale," Bracker says.
Like a coach, he watches videotapes of the students' presentation, admonishing them against saying um, you know, and OK. Words that imply doubt or lack of preparation are taboo, he tells them. Don't use note cards; don't read from your slides; stay away from cute watercooler phrases. Bracker insists on 30 minutes of preparation for every minute of presentation, because preparation builds confidence, and confidence, he coaches, is more important than competence. "Competence can be bought. Confidence, never," he says.
That's true now more than ever, when passion and poise are probably more likely to elicit an enthusiastic response from VCs than a rock-solid business plan will.
Getting the judges' attention is the real brass ring at business-plan competitions. The judges who rank the student-team business plans are mostly angels and VCs themselves. They're never far from their checkbooks, and strong teams with the promise of becoming the next eBay often cut deals with them out in the hallway. When that happens, professors like Bracker can see their teaching turning students into players. It's not uncommon for the teacher to go along for the ride as well. "Once they're out of my class," says Bracker, "I see nothing wrong in making an investment in them."
Jon Goodman felt the same way when one of her former students at the University of Southern California called her last summer with an idea for a start-up called ValuSteel, a company that plans to sell and reprocess secondary steel. "We worked through a lot of the concepts, and I helped him negotiate an angel seed round," she says, adding that she herself invested "a serious amount of money."
Goodman had left USC's graduate entrepreneurship program five years ago to run EC2, the Walter Annenbergfunded USC incubator for fledgling technology companies. She was, she says, enticed away from the academic world by the promise and excitement of the digital economy. But the contacts she had built up during her years in academia have since served her well. She's now an investor in five seed-capital rounds -- all in companies that sought her out. "This is the brave new world," she says. "And I'm having more fun than I ever thought I'd have 38 years into a career."
Donna Fenn is a contributing editor at Inc.
As a group professors of entrepreneurship see more student ventures than their colleagues do. There's a lot of temptation to get involved.
In March, The Wall Street Journal Interactive Edition reported that 30% of the faculty in Oregon State University's electrical- and computer-engineering department had quit their teaching jobs to join tech companies. At Cornell, applied-science professors were taking leaves to, well, apply their science to the real world of start-ups. Sabbaticals were popular also among Stanford's electrical-engineering faculty, who were leaving to, as the Journal put it, "work on high-tech ventures." But that's all right, according to a quote from department head Bruce Wooley, because some of the professors had become "independently wealthy" and had since returned to the classroom.
That trend is even more powerful in entrepreneurship programs, where professors see more student ventures than any of their graduate-school colleagues do. They're approached often about joining start-ups. They also may be tempted to start companies of their own. Few do so, however, maybe because a teaching career is so radically different from entrepreneurship. "You work hard to build a reputation in the academic community, you earn your tenure and credentials, and you become ingrained in this culture," says San Diego State University (SDSU) entrepreneurship professor Alex De Noble. "Even though you teach entrepreneurship, you're reluctant to leave this field, because it's so secure."
De Noble and his colleagues often sit ringside as students start companies of their own. "From my perspective," De Noble says, "it gives me a great base to interact with great entrepreneurs. I get to play a role and lend my expertise to many great companies instead of jumping into one venture."
But there are times when professors like De Noble want to run out onto the court and join the game. "I just ran a panel in my class with some world-class people, including Harry Gruber, the CEO of a company called Intervu," he says. "When I heard him talking in class, it pierced my heart. Here's someone who made the leap and made billions, and I'm just sitting there, exposed to all of this. Could I make the leap tomorrow? It's just not in the cards."
As for Gruber, he believes that no one is more prepared for entrepreneurship than a business professor. "Academic people are the ultimate entrepreneurs, in the sense that they will give up everything to pursue their ideas," he says. "They're writing grants every day and trying to get funding for their ideas. That's entrepreneurship."
But that doesn't mean they're ready to start a company. Although De Noble takes pride in the way he and his SDSU colleagues have used entrepreneurial skills to build up their own department, he has stopped short of leaping into the life of a start-up founder. "I'm in my midforties. I have three kids and a wife and a mortgage," says De Noble. "That makes it much harder to take the leap. I wish I knew when I was single and in my thirties what I know now. I am so turned on by interacting with these entrepreneurs, I just wish I could be like them."
If De Noble is typical of his profession, that may explain why many professors join the game by becoming involved with student businesses. But such involvement presents a moral dilemma. Stephen Spinelli, director of the Arthur M. Blank Center for Entrepreneurship at Babson College and a cofounder of Jiffy Lube, turned to teaching only after a successful entrepreneurial career. He explains that deal making is ethically at odds with the traditional teacher-student contract. "When you're a professor, the purity of your relationship to a student needs to be maintained. Society and the institution place you in a position of authority -- you come to my class, I give you a grade. There is also an undercurrent that the professor is a font of wisdom -- however untrue," he says. "If you were to strike a deal with a student starting a business, you'd have an unfair advantage because of that."
Still, it's hard to resist. Professors feel incredible temptation to get involved with promising student ventures "because the rewards can be so great," Spinelli says. So he and many others won't invest in a student's business until after the student has graduated.
It's not a perfect solution. It may be tough for a professor to refrain from giving special treatment to a student whose business he or she wants to be involved in someday. And waiting too long can exact a sacrifice. No one wants to miss the first round of investment and the potential rewards of being in on the ground floor of a good thing. "You have to draw a line in the sand," Spinelli says. "I've waited and been too late, and the rate of return gets dramatically reduced."
Yet, Spinelli has no regrets. If one deal doesn't work out, there are plenty more on the way. And getting in late on a student venture is better than not getting in at all. "Frankly, there's still plenty of money to be made," he says. "That's what I told one kid. He said by the time he graduates, it will be too late. They'll be doing a second round. And I said, 'That's all right, there'll always be the next deal.' And I still want him to succeed, so he can go out and yell that it was Babson that helped him do it. It's a long-term benefit, but that's OK. I've got time." --Michael Warshaw
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