Stanford's Fresh Entrepreneurship Factory - Forbes

If you could get people who love the values of design thinking — such as the push to turn ideas into prototypes that customers can use — to apply its principles to new business building, you’d produce more winning entrepreneurs.

That’s the premise of the Stanford Design School’s Launchpad program — a 10 week course consisting of 20 assignments to which students from all over Stanford can apply. On May 25, I interviewed Launchpad’s co-founders Michael Dearing — a former eBay (EBAY) executive who earned his MBA with distinction from Harvard Business School  — and Perry Klebahn, formerly chief operating officer at Patagonia with a master’s degree in mechanical engineering from Stanford who invented a market-leading snowshoe.

Launchpad’s key principle is that so-called design thinking can be applied not just to product design but also to competitive strategy, organization design, finance, sales, marketing, and even analyzing why a start-up failed.

Design thinking is a process that shoves potential entrepreneurs off the cliff of analysis and into the bracingly turbulent waters of taking action. On May 30, Dan Knelman, founder of a personal finance site, Juntos Finanzas, told me that Dearing gave him a week to build a Web site for Juntos – suggesting that Knelman consider paying $600 to hire a programmer to get it done.

Design thinking consists of four key steps, as illustrated by Pulse, a newsreading App builder started by a pair of Launchpad grads:

• Observation. A Launchpad team might observe that the technology for consuming online news could be much easier to use. For example, Pulse noticed that a typical online news site forces users to navigate to the bottom of a hierarchy of stories to read the one they want and then click their way back to the top to get to the next story. This raised a basic question: “Is there a way to make it easier for people to consume news online?”
• Point of view. Design thinking next pushes the team to develop a point of view, or hypothesis, on those questions. For example, Pulse tried to depict news stories as square images with captions.
• Prototyping. Design thinking next pushes teams to build a rough version fast and watch what users do with it. Pulse developed a prototype and sold a $4 iPad version on Apple’s (AAPL) App store.
• Endless iteration. The final process — it’s not really a step because design thinking pushes teams to loop through it repeatedly — is going out to people, getting their feedback on the prototype and adapting the prototype in response to the feedback. For Pulse, this meant it quickly got 35,000 users, a figure that spiked to 250,000 after Steve Jobs praised Pulse at a developer’s conference. It later used feedback to decide to give the product away in order to boost its user base — that quickly soared to 3 million users.

Here’s how design thinking changes the way entrepreneurs act when it comes to other elements of their start-ups:

• Pricing. Instead of conducting a detailed analysis of competitor pricing and your costs before figuring out a pricing strategy, design thinking urges start-ups to develop a hypothesis for pricing — such as charging one third of potential customers $1 for the product, another third $2, and give away the product for free to the other third.  The start-up tries out that strategy, watches how customers respond, and adapts the strategy to the problems and insights that reaction generates.
• Organization Design. Design thinking pushes start-ups not to hire people like the founders but to analyze the strengths and weaknesses of those founders, analyze the future skills that the business will need in order to excel, find the gaps between the founders’ strengths and the future needs of the business, and hire people who can close the capability gaps. Design thinking urges start-up founders to develop profiles of the kinds of people they need, send them out to people they know to suggest individuals that might fit the bill, and even pick out such people via their LinkedIn (LNKD) profiles.
• Finance.  Instead of getting a list of big name venture capital firms and delivering elaborate business plan presentations, design thinking drives teams to think about how much capital they need and what kinds of mentoring would help boost their odds for success. At an early stage, this might mean that a Launchpad start-up raises $300,000 from a small group of Angel investors with experience in sales and business development
• Analyzing Failure. Some Stanford students enter school with the idea that people are either failures or successes. Design thinking busts that myth — helping them see that successful people try and fail and that there is value that can be extracted from analyzing the failure. Dearing calls this analysis composting. For example, a venture wanted to produce fuzzy slippers from animal fur. Its founders thought the fur producers were farming the fur and then found out the producers were killing the animals instead of shaving them. When the venture’s founders learned this, they shuttered the business. Composting helps them learn from the failure and use that learning in a future venture.

The emotional aspect of design thinking, where Klebahn takes the lead, vies in significance with its cerebral component — Dearing’s primary bailiwick. It’s not easy getting into Stanford and those who do tend to excel at taking tests. 

Forcing Stanford students to take action before they have the “right answer” goes against their grain. But Dearing and Klebahn have developed ways to push them into the water. While Dearing focuses on showing them that the worst outcome of a failed prototype is not that bad, Klebahn gives them emotional reinforcement for taking action.

And if that bias for action can make people who like design do’s and don’ts to get comfy with business building, Launchpad will ultimately turn more of them into entrepreneurs.