Teaching Finance in Entrepreneurship

April 29, 2019 Federico Mammano Comments 0 Comment

“When the P&L’s come out, students check out.” – Doan Winkel

We all face this problem when teaching the financial aspect of entrepreneurship. Students aren’t comfortable with the unknown, and often struggle with understanding the application of math or financial topics. This is a huge problem because financial modeling is such a crucial part of identifying and validating the business models students are working on.

So how do we balance creating a robust financial projection for a business model without overwhelming students?

Introducing the first version of ExEC’s Financial Projection Simulator (imagine fireworks going off in the background with AC/DC playing bagpipes and shooting flaming confetti!!!)

Incorporating feedback as we develop engaging lesson plans, we’ve added a fun way for students to experiment with their financial model to our comprehensive curriculum.

The Financial Projection Simulator leads students through an experimentation process so they can find a financially sustainable business model. Along the way, they discover the most important elements of a rigorous financial projection:

Customer Lifetime Value
Cost of Customer Acquisition
Cost of employee salaries (including benefits & taxes)
Initial capital investments
Unit costs
Legal fees
Etc.

Here is a quick overview of the simulator in action:

With a combination of default values in drop down menus and instructions for researching more detailed estimates, pilot students have reported this is a more approachable way to experiment with assumptions in their financial models. The simulator, “feels more like a game than a spreadsheet”, where they can quickly see the impact of their assumptions on the success of their business.

At each step along the way, we provide short, easy-to-understand tutorial videos so students understand what to input.

The format invites them to more deeply engage in learning about financial models.

No TAM-Based Estimates

ExEC’s financial simulator is also unique because it takes a strictly bottom-up approach to financial projections. Instead of largely inaccurate top-down/TAM estimates (e.g. “This industry is X billions of dollars and if we get Y% of it we’ll be rich”), which don’t take into account real-world difficulties and costs of customer acquisition, ExEC’s financial modeling is purely bottom-up (e.g. “Which channels will you use to acquire customers, what do you hypothesize your conversion rates will be, and how much will that cost?”) to give students a reality check on how viable their business model is.

Here’s more detail on how we approach this, and other areas of financial projections.

Revenue

As mentioned above, instead of wildly inaccurate revenue numbers based on a TAM / SAM approach, ExEC students estimate revenue based on the product price and how many times per year a customer will purchase that product. This leads to much more accurate evaluation of a business model, and an approachable way for students to get started. As we heard from a pilot student:

“Even though it’s difficult to make our business profitable, this tool gave us ideas of concrete changes we could make in order to make it possible.” – UC Berkeley Student

Expenses

We offer an extensive set of expenses for students to consider, all of which have suggested default values, as well as instructions on how to calculate more detailed estimates to tailor those values to their business model. We’ve found this combination of default values, with pointers for more information, to make financial modeling much more approachable – allowing students to ease their way in and experiment with different combinations, without overwhelming them.

We’ve tried to make the simulator as comprehensive as possible without becoming anxiety-producing, so your students can feel confident their projections are sound.

Cost of Customer Acquisition

Students are often unsure the best channels to acquire customers, and how costly those channels are. They will want to default to social media channels, but they often do not understand the investment it requires to effectively leverage these platforms. We provide significant guidance so they understand what CAC is and the costs of various channels.

We have done extensive research to offer accurate estimates for CAC from the most likely channels students will choose. These drop-down menus offer students two benefits:

They don’t get overwhelmed having to calculate complicated customer acquisition costs
They work with realistic estimates so the conclusions about viability are more realistic

Of course students can also calculate and enter their own Cost of Customer acquisition estimates into the tool to get a more accurate sense of their marketing expenses.

Employee Salaries

Here we offer an expandable menu that includes accurate salary estimates for a wide variety of the most necessary jobs for a startup.

The tool also automatically calculates benefits and tax information, which are two very important aspects students often forget that have tremendous impact on a financial model.

Real Estate Costs

As with every section, the simulator provides considerable guidance students can use to research particular markets and categories. Our goal is for students to understand the variety of financial inputs but also to understand where those estimates come from.

In every section of the simulator, we provide suggestions for ballpark costs, and also expandable menus with more detailed information and links to resources in case students want to dive deeper into a particular area.

The ExEC financial simulator gives students additional information in a variety of expandable menus, so they learn as they input their assumptions. One student mentioned:

“It makes it extremely easy to calculate various things. Helps you remember things that you may have forgotten.” – Northeastern Student

The power of this simulator is in the simplicity with which students interact with it, and the simplicity of the results. The ExEC Financial Simulator assesses the viability of a student’s business model as either red, yellow, or green. Students can very quickly see where they need to focus! In the example below, the simulator tells us the business model is not viable.

After working hard to provide what they think are accurate assumptions, most students will see red the first time they use this. Literally!

Students will feel disappointed that their business model is not viable.

How to WOW! Your Students

Bring a student up to the front of the class. Pull up his/her simulator on the projected screen. Walk through this example, live, in a couple minutes to turn a non-viable business model into a viable business model. Show your students in real-time how they can turn their business model from from red to green!

Students can quickly experiment by changing inputs to figure out how to achieve a viable business model. This leads to a powerful discussion in class about why they changed certain assumptions, and whether the assumptions are accurate.

Within minutes students understand how a variety of factors impact their financial, and therefore business, model! And it is fun!

This simulation lets students experiment with different revenue models very easily. This is important because it allows them to quickly iterate and identify a potentially viable revenue model in a rigorous way that doesn’t overwhelm them.

If you would like to play with the financial projection simulator, request a preview of our Experiential Entrepreneurship Curriculum (ExEC) today!

You Told Us You Want More Student Engagement

We’ve been listening!

Join us for our “4 Ways to Increase Student Engagement” webinar, where you will learn tips and techniques to engage all your students in a rich learning environment that excites and inspires them.

Register now for this webinar on 4 tips to double student engagement in your class next fall!

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Customer Interviewing Prep Card Game

March 4, 2019 Federico Mammano Comments 1 comment

Every business model validation instructor knows two things about customer interviews:

Interviews are a critical entrepreneurial skill, and…
Students, by and large, hate doing them 🙂

Customer interviews are intimidating, in large part, because students don’t know what to ask. With that in mind, we’ve been iterating ways to teach interviewing skills, and have found that students are loving:

A competitive game.

Our updated method of teaching customer interviews use’s ExEC Customer Interviewing Playing Cards with an online collaborative quiz game to show students:

What their problem interviewing goals should and should not be, and
What questions they should and should not ask

Fully Engaged Class

When you run this exercise, your students will be fully immersed in the lesson as they hurriedly sort cards into different piles and compete with one another using their phones to see who can correctly answer the most questions, the fastest.

Here’s what it looked like when we presented it at USASBE:

And here’s what one of the professors who tested this lesson part of our Experiential Entrepreneurship Curriculum (ExEC) reported back:

Big hit tonight! Lots of competition!

Really got through on true purpose of problem discovery and what questions to ask / not ask. They are in much better shape going into interviews than my prior students.

– Jen Daniels, Georgia State University

Give the Customer Interview Cards lesson plan a shot. It’ll add a boost of energy to your course and your students will love it.

Step 1: Prep Work

To set students up for success, they need to do a little prework. Have your students watch this video on what to ask during customer interviews.

You need to do a little prework yourself:

Print and cut one set of Customer Discovery Interview Cards for every two students.
Get familiar with Kahoot; watch this Kahoot demo video, and review the Kahoot questions here.
Review the answers to the Interview and the Objective cards here and print a copy for your reference.
Print out one copy of the final interviewing script for each student.

Step 2: The Setup

Prior to this class session, familiarize your students with the purpose and the value of customer interviewing.

Pair students up, give each pair a set of the gray “Problem Interviews Objective” cards and give them a few minutes to find the six objectives they should achieve during customer discovery interviews from the 12 objective cards.

You also need to set up Kahoot and project that on the screen. Turn all the game options off except for the following, which should be turned on:

Enable Answer Streak Bonus
Podium
Display Game PIN throughout

Find detailed instructions for setting up Kahoot in the full lesson plan.

Step 3: Play the Warm-Up Game

Project Kahoot on the screen and read the first objective question aloud. Students use their phones to indicate if it’s a good or bad objective for a customer discovery interview based on how they categorized their cards.

After all students record their answers, you have an opportunity to discuss why a particular objective is good or bad for a customer discovery interview. Students will generally have different opinions for each of the 12 objectives.

This warm-up game is an opportunity for rich dialogue to help students deeply understand the purpose of customer interviews.

Progress through all 12 objectives, discussing each one as you go. Kahoot displays a live scoreboard – congratulate the winner after going through 12 objectives, but let everyone know this was just a warm-up game. The real game is next – to determine what are good and bad interviewing questions.

Step 4: Play the Real Game

Students now know what their customer interviewing objectives should be. Hand out the 24 Customer Interviewing Question cards, and students should identify which 9 questions are ideal to ask.

Now start the Questions Kahoot game and have students join. Lead students through the same process you did with the Objectives Kahoot.

Students record their answer in Kahoot about what are good and bad Problem Interview questions. This is another powerful opportunity to discuss why a particular question is good or bad for a customer discovery interview. Here after an example: “How often would you use a product like [describe your solution]?“, is that a good or bad question to ask during customer discovery interview?

Kahoot displays a live scoreboard – congratulate the winner after going through all the questions.

Crown the Customer Interviewing Champions! Reward them with some prize. Make a big deal of this to let students know how important customer interviewing is to entrepreneurs.

Step 5: The Interview Template

Your students now have a strong understanding of customer problem interviewing objectives and good questions to ask. It is time to give them an interview template they can use to connects all of the dots.

If you use this exercise as a part of the Experiential Entrepreneurship Curriculum (ExEC), we provide an interview template for your students to use. Otherwise, you can create your own.

After playing the warm-up and the real game, students understand why they should ask the “good” questions.

Students also understand why they should not ask many of the questions they would intuitively think to ask.

Review each question to ensure they understand:

How to ask the question, and
Why they should ask the question

Now is your chance to answer any questions or fears your students have before sending them out into the field to interview actual customers! But have no fear, your students are well-prepared with solid questions that will help guide their ideation.

If you want to help your students deeply understand why and how to interview customers, get the full lesson plan by clicking below!

Get the “Customer Interviewing Cards” Lesson Plan

We’ve created a detailed “Customer Interviewing Cards” lesson plan. This exercise walks you, and your students, through the process, step-by-step.

It’s free for any/all entrepreneurship teachers, so you’re welcome to share it.

What’s Next?

In an upcoming post, we will share a companion exercise to the “60 Minute MVP” exercise. This will help students understand why it is critical to engage customers prior to launching!

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Teaching Entrepreneurship

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Author: Federico Mammano