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Entrepreneurship Education: Bootstrapping At B-Schools?

Posted on Monday, Feb 15th 2010

I know I have a number of readers at various universities … can anyone comment on a business school (or just any old college or university program) where bootstrapping is taught as part of the entrepreneurship curriculum?

Of course, I am a HUGE proponent of bootstrapping, having written the recent book, Bootstrapping: Weapon Of Mass Reconstruction, as part of the Entrepreneur Journeys (EJ) series. The EJ Methodology is heavily rooted in using bootstrapping to get an idea validated, and raising money only after it has moved from being an idea to a business. I also regularly teach entrepreneurs to bootstrap their ventures at my weekly online strategy roundtables.

It is my observation that not bootstrapping and not validating their ideas with customers before going out to raise financing is one of the most common causes of the Infant Entrepreneur Mortality (IEM) disease. And b-schools seem to be spreading the IEM virus by encouraging entrepreneurs to raise VC money as an essential success factor. This led me to write the recent Forbes column, Why B-Schools Set Up Entrepreneurs To Fail?

This segment is a part in the series : Entrepreneurship Education

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Sramana, I am member of 1M/1M, I believe in this program and I am sure over a period of time with evolution it will bring upon desired results. However, for a moment I also think sometimes that outside capital is also important. One the biggest reasons for this is the entry barrier of information access is too low and because of this, even if one entrepreneur has a great idea and he is able to do well lets say in one city, it is easy for someone with capital to copy them and build a competition. We see this happening everyday at the global giants level so there is not way to assume this will not happen at a small entrepreneurial level. I still believe that 1M/1M would have to come out with more strategies to help and identify those 1M entre if you would really like to see these ent. grow beyond first few years.

Navneet Monday, March 1, 2010 at 5:42 PM PT

I am not averse to outside financing. But as you will see in the way I will build 1M/1M, it will be a pragmatic approach, maximizing the entrepreneurs’ chances of success, as opposed to encouraging them to go bounce around against walls trying to raise money without validating ideas.

Sramana Mitra Monday, March 1, 2010 at 5:45 PM PT

An angel just sent me a link to this discussion. Having just started my 5th startup, I’ve done bootstrapping and the traditional VC route. Before you can even think about doing a startup, you really have to do your own due diligence on the company you wish to start. I’ve been teaching seminars at the University of New Mexico / STC on this very topic. So far we’ve covered doing a cheap bastard startup and finding the cute baby. The bottom line on this approach is to focus on the first two key milestones: 1 – getting a paying customer and 2 – getting to cash flow break even.

Idea slide decks are wasted on investors. Instead use them for customers. Get them to say “Yes, I would pilot this product and if it works I will buy it.” Then raise as little money as possible to get to that point from wherever you can get it. Deliver the bare minimum to get a happy paying customer. Then go back and raise just enough money to get to cash flow break even. That’s difficult discipline.

I discourage anyone from starting a company until they have that first customer lined up and ready to buy. It’s that simple and it’s that hard.

The other thing that b-schools don’t teach is embracing failure. You will fail. Every time. I encourage people to plan for failure. Fail early, fail fast, move on. Always have milestones and alternative paths. Know when to push on, and know when it is over.

And IMHO the best source of financing is institutional investment. Call it pre paid royalties if it makes you feel better. But that way you have no obligations to pay it back and you give up no equity. A winning combination.

bruce fryer Monday, March 1, 2010 at 6:54 PM PT

I did a minor in Entrepreneurship (and thus some relevant coursework) while in school at UF. I have to admit that most of the things I remember focused on getting funding and building a proper business plan to that same end.

Perhaps we should have been taught more about surviving the first couple of years in a startup, but most relevant to this discussion, bootstrapping was usually named first when it came to funding sources.

Julio Franco Tuesday, March 2, 2010 at 1:17 AM PT

I think the overarching issue here isn’t that b-schools aren’t teaching enough about bootstrapping vs venture capital but they’re not effectively teaching the real world of company building. Too many schools are stuck on the business plan (beauty contest, as my friend Norris says)as the ‘holy grail’ rather than understanding that the plan is really step 1, and a flimsy and degradable step at that. I’ve interacted with many bus plan winners, and others graduating with entrepreneurship MBAs, who have no real knowledge on how to proceed with launching and/or growing a business, bootstrapped or equity funded. I’m currently pursuing innovative ways that bootstrapped and equity-funded entrepreneurs can be guided through a high quality, real-world master’s level entrepreneurship education that gets to the reality of venture building. As another poster mentioned, this also requires taking corporate clients out of the financial driver’s seat and focusing totally on entrepreneurs. Great hearing from some of the leaders of the field. Sramana, I’m out in Palo Alto in a few weeks and would like to delve into this further. Trish Costello —

Trish Costello Tuesday, March 2, 2010 at 9:08 AM PT

Interesting article…I’m a 2nd year at Wharton getting my MBA and I agree that the majority of the curriculum is geared toward landing angel or VC money. There are, however, certain classes and a hands on entrepreneurial community of students here that helps support student start-ups.

In particular, a class I am taking now called Legal Aspects of Entrepreneurship is COMPLETELY AGAINST taking VC or Angel money and the professors repeatedly emphasize the importance of bootstrapping.

That doesn’t mean that students arent chasing VC money, but there are schools and small pockets of entrepreneurs like myself (I run that have been bootstrapping since Day 1 and don’t plan on raising capital (even if we could) any time soon. There is still some students that see VC as a stamp of legitimacy, but there are also others that see it as selling their freedom.

….so to say that B Schools are setting us up to fail is a bit melodramatic. The students that think the world is a fairy tale and that VCs will be chasing them for their idea are probably not the ones willing to put in the work to actually capture value from their idea.

Patrick Curtis Tuesday, March 2, 2010 at 12:52 PM PT

Trish, You should take a look at the Entrepreneur Journeys series of books and the methodology that I have been teaching at my roundtables.

Sramana Mitra Tuesday, March 2, 2010 at 1:22 PM PT


Interestingly, you just reminded me of the worst entrepreneurship course I ever took at MIT’s Sloan school in 1995 [I was not a Sloan student; I was in EECS]. It was taught by a lawyer who, in hindsight, understood absolutely nothing about entrepreneurship. Oh well!

Sramana Mitra Tuesday, March 2, 2010 at 1:24 PM PT

Yes, bootstrapping is important but a poorly planned business that does not address real market needs and does not consider how all the elements of the infrastructure interact to facilitate delivery and profit is going to fail regardless of how it was financed.

I’ve had students who bootstrapped and have had students who got angel capital in 000,000s and frankly, whether the business succeeded had virtually nothing to do with how the business was financed.

What seemed to matter was the thoroughness of the planning (which did not always include a Bplan), the adaptive attitude of the lead E or team to changes in the industry and marketplace, and careful cash management during the ‘cash crunch’ of the second and third years.

I think B-schools fail Es as well as SBOs if we don’t teach these fundamentals. The focus on financing is the tail wagging the dog.

That being said — what is so wrong with an educational process that suggests students aspire to having businesses large enough to be VC backed? What a waste of time, money and effort if we don’t provide aspiration as well as reality.

PS: I’m not just an academic but an E as well.

Connie Marie Gaglio Tuesday, March 2, 2010 at 2:08 PM PT

I don’t think anyone said that b-schools should NOT teach financing, venture capital, and other tools of entrepreneurship. The discussion is about the singular focus on fund-raising, which is leading entrepreneurs into IEM territory because they cannot get their ventures off the ground without external financing.

IEM = Infant Entrepreneur Mortality

Sramana Mitra Tuesday, March 2, 2010 at 2:23 PM PT

There are several reasons why these b-school entrepreneurship programs fail. First, these classes are often taught by people who don’t have the breadth of business background to provide insights into all aspects of business. Strong business generalists are a rarity in a world that places great value on specialization. Second, these programs don’t recognize the evolutionary nature of business. Entrepreneurship classes should extend over several years. The first year or two should be devoted to revenue generation, identifying the business’ ideal customers and pricing. As the business grows programs on leadership, productivity, productivity tools and finance should be added. Each additional year’s education should contain the element of relevance for that stage of growth of the business. For example, once a business has experienced success in generating revenues from its ideal customers, there should be a program that helps them avoid the trap of trying to gain “market share” by pursuing customers who have only a moderate interest in what they offer. The pursuit of market share in this manner requires discounting and growth in infrastructure costs. This one-two punch can be and often is devastating to previously successful businesses. By staging the entrepreneurship programs to meet the evolving needs of growing businesses, the b-schools and their students will both enjoy greater success.

Dale Furtwengler Wednesday, March 3, 2010 at 5:25 AM PT

Sramana, all;

A compelling thread, thank you !!

As an entrepreneur who has successfully bootstrapped a company to $100M in annual revenue, and a long time student of entrepreneurship may I offer the following:

First, businesses that cannot generate revenue, and profitability are not businesses, and their owners are kidding themselves. Too many entrepreneurs loosely, and incorrectly call the businesses and people using their offer “customers”, when in fact there is no monetary transaction that takes place. Being paid is the true test of value.

Second, it seems to me that there is some context missing from this thread relative to growth funding, and it should not be overlooked that a company that cannot produce revenue with a clear path to profit is not worth “funding”. Period. No matter what market space they aspire to play in. Too many entrepreneurs spend too much time dreaming about becoming the next, next big thing, and too little time tending to business fundamentals. The venture market has long complained of to few “quality” deals, and continues to respond accordingly.

Third, I don’t think enough entrepreneurs do the simple calculations that relate to the cost of capital. Venture funding exceeds, BY FAR, the “cost” of any other form of capital.

Fourth, somewhere, I think, we have gotten the incorrect idea, as a society, that an entrepreneur has to be a technologist. The predominate segment of U.S. GDP comes from small to medium business, and those same businesses have and continue to build wealth for the top 1% of the population. Entrepreneurship can exist in any business, and is fundamentally about making a more compelling offer than that of your competitors. That takes skill, which can be acquired, and is not a birthright.

Finally, and in closing, in the entrepreneurial landscape; there seems to be too much focus on business “planning”, and not enough focus on business “doing”. Due to technology and globalization the world is moving than ever before. Sramana is right on the money with her; quest, approach, and offer. Those that can hear her, and follow will clearly benefit in much more than simply building a successful business !!!…

David Bookout Wednesday, March 3, 2010 at 8:29 AM PT

I’ve been co-founder or team member of several startups, both bootstrapped and VC-funded. After my third startup, I went back for my MBA, where they exclusively taught the VC-funded model of starting a business. It was striking to me because none of the businesses I’d been involved with (all successful) had used VC.

I’ve long pondered why the business schools are wedded to a model of entrepreneurship that is so far removed from how most successful businesses get started (VCs fund a vanishingly small percentage of the businesses that actually get started and succeed). There are a couple of reasons I suspect:

* Entrepreneurship in b-schools often evolved from the finance department, which uses ROI-based corporate evaluation methods to look at opportunity. The only part of entrepreneurship amenable to this approach is raising VC funding (VCs are largely finance folks), so that’s been where the focus is.

* Many professors, at least at HBS and MIT, have close ties to VC firms themselves. They may be biased towards VC because that’s their business. Or it may simply be selection bias. Since all they see is people coming for VC funding, they forget there are other models out there.

Stever Robbins Wednesday, March 3, 2010 at 9:05 AM PT

I recently participated in a panel discussion for an audience of entrepreneurs who were competing in a business plan competition. Listening to the questions from the audience and the responses from my fellow panelists I sensed that the conversation was still tinged with the mantra of the past 10-15 years “You must get funded!”
It’s taken me over a year to break from that mindset myself. That’s a precious year of time when I could have been working on the bootstrapping and alternate funding strategies that I am working on feverishly as my personal resources dwindle.

Rob Mathewson Wednesday, March 3, 2010 at 9:23 AM PT

I just posted on my blog a list of issues at b-schools and how the global initiative 1M1M that Sramana just launched addresses each issues, one by one:

I am proud to be one of the volunteers for 1M1M.

I talk about my state of Florida, but it applies to most b-schools.

Irina Patterson Thursday, March 4, 2010 at 11:35 AM PT

The debate with Sramana continues on my blog in this post…
but it is starting to look like the differences of opinion are not so great. Make sure to read the comments.

Robert Hacker Monday, March 8, 2010 at 12:26 PM PT

According to Babson College Prof. Candy Brush, chair of Babson’s Entrepreneurship Division, “The VC model is broken so we don’t emphasize it so much at Babson. More of our classes are about owner-managed businesses – starting and buying businesses, and how you grow them — rather than private equity.”

Michael Chmura Tuesday, March 16, 2010 at 5:16 AM PT

This may be a bit delayed, but hopefully you’ll come across this in the near future… Regarding IDEA and Northeastern, I’d love to get in touch with you to hear more about your opinion on our program as well as what you have been doing since graduation. Please feel free to shoot me an email – Hope to hear from you soon!

-IDEA Management

NU IDEA Tuesday, March 16, 2010 at 4:45 PM PT

The actual entrepreneurs are not being set up to fail, they are failing and successful outside of school while learning the language, connecting and often questioning everything including their investment. The majority will seek IB, consulting anyway, or teach.

David Sandusky Tuesday, December 27, 2011 at 10:12 AM PT