Jan. 31–Apple started in a garage.
Google, in a dorm room.
When the students in Cal State Fullerton’s New Venture Creation and Funding class created startups during fall semester, they had mentors and a professor to give them advice, templates to create their business plans, a panel of investors to hear their pitches and the resources of Mihaylo College of Business and Economics behind them.
They hadn’t yet had to max out their credit cards or ask parents and friends for money to realize their dreams. In fact, they hadn’t even graduated yet.
The class, part of Mihaylo’s Entrepreneurship program, attracts students who don’t aspire to work for Amazon or Bank of America, said John Bradley Jackson, director of the Center for Entrepreneurship, but who want to do their own thing.
“Entrepreneurship is a way of thinking from our perspective,” said Jackson, who teaches the class. “An entrepreneurship student tends to be a little different. They’re kind of outliers.”
The program has about 200 majors.
The entrepreneurship students “leave tracks,” Jackson said. “They have a history of selling things on Craigslist and eBay and Amazon and trying things. We want to encourage them to try, to have the courage to challenge existing processes and methods and products to see if we can’t make things better.”
The program taps the philosophy of the “lean startup,” which seeks out market input early in the process to develop a bare-bones product that is subsequently improved upon.
The student teams in Jackson’s class each came up with a “business model canvas,” which lays out infrastructure, offerings, customers and financing. They incorporated surveys and interviews with prospective customers into their research, constantly tweaking their ideas before presenting them to a panel of investors, who pointed out problems no one saw and suggestions to make the idea better.
“This is how new ventures are created,” Jackson said. “People come up with ideas and then they pitch them and then they get feedback. That feedback could be construed as criticism or negative. But by golly, that’s the method to make things better.”
Investors on the panel, similar to the model on the “Shark Tank” TV show, sometimes are so won over that they commit to funding on the spot.
“We’ve had people say, ‘I’ll invest $50,000 right now,’ ” Jackson told one team.
Many ideas die as soon as the presentation is over. But some grow into real revenue-producing concerns. In the process, concepts shift, company names change and business models get tweaked.
Successful business launches from previous entrepreneurship students include Bootlegger’s Brewery, a craft beer maker in Fullerton; Wecademi, which connects struggling students with tutors who have taken the same class; and Piano with Jonny, which offers online piano lessons.
“Particularly at the undergrad level, they’re incredibly creative,” Jackson said of the students. They might not have a lot of job experience, but they’re good at out-of-the-box thinking. “They also don’t know what they don’t know.”
The 30 or so students in the new venture class began the semester by each pitching an idea for a new business. Those were winnowed to six ideas, each backed by a team of students: Guided Pursuit, a social media app for outdoor adventurists; SoupStation, a customize-your-own-soup restaurant; SecureMe, an app to share location and route information for personal safety; Gojo, a coffee service; Bookstack, a textbook swapping app; and SnapNow Logistics, profiled below.
“I love this idea. It fits the times,” Jackson said of SoupStation. “I can see this idea scaling across the U.S.”
In addition, the entrepreneurs behind two existing businesses tapped the class’s expertise to launch spinoffs.
Here’s a look at three teams as they progressed from idea to potential launch.
Ricardo Altamirano isn’t a typical undergrad. He worked in the trucking business for about 20 years before coming to Cal State Fullerton for a business degree and had noticed that drivers weren’t happy with the money they were making.
He envisioned an Uber-type app that would act as a virtual dispatcher, allowing drivers to use their own vehicles with cargo capacity, such as pickups and box trucks, for flat-rate, same-day pickup and delivery of freight between small businesses in Orange County. Delivery of freight, between 10 and 10,000 pounds, is a less saturated market than parcel packages, the team determined.
“I’m at the front lines,” Altamirano said. “I talk to independent truck drivers all the time. I ask them, ‘Hey what would be best for you in terms of work?’ … I’m absorbing all that information. I also talk to shipping managers.”
With Altamirano as team leader, Alfredo Lares, Henry Igboke Jr. and Wiley Randolph took on the tasks of figuring out operations, marketing and technology, respectively, and fleshed out the idea. The men had to work through how many pallets the trucks should carry and what government licensing and regulations covered various sizes of truck, for example. They proposed reaching potential drivers through the California Trucking Association, which Altamirano is an allied member of, as well as radio.
Mentor Nicole Washington helped the team move from a “very aggressive, expensive solution” to a leaner one, based on the “lean startup” concept of “minimum viable product,” in which only enough features are included to satisfy early users and more is added after they provide feedback.
“You could see the evolution of the financials as they went from tens of thousands to right around $12,000 to start out,” said Washington, an engineer who worked in management consulting and is now an angel investor. The team had to figure out its revenue model, how many customers it would need over five years, how much cash flow it would generate as it grew to need office space and paid employees, and what form of investment it should seek and how much of a stake in the company it should give up.
She encouraged the team to conduct a test run with a real client and a route mapped out.
Igboke meanwhile was plotting ways to attract drivers, while Randolph created an online form for clients to fill out and ran down the costs of creating a mobile app integrated with a company website.
“It became more hands-on for them” after weeks of writing their proposal, Washington said.
Finally, she worked with the team on its presentation to the investor panel, held Dec. 1.
“I want to prepare them for when they get in front of the investors panel to speak,” she said. “The more you do, the more engaged you are in your project, the easier it is to talk about it.”
She wanted to make sure each team member could answer questions about his field and not rely on the team leader.
“Investors like to know the team can work together,” said Washington, who judged the presentations last year. “The chemistry of the team is important. It’s a good idea to know everyone is proficient in what they say they can do.”
Altamirano said about 90 percent of the panel recommended continuing the venture but none expressed interest in investing in it. He plans to keep pursuing it and has brought on a chief financial officer who works with tech startups.
“I want to give drivers the sense that this company is looking out for you. I want them to be excited about working for my company,” Altamirano said.
While most of the class’s proposed startups were web- or app-based, one team had the chance to work with an actual product.
Robert Baird of Balboa Island brought the class an idea for a product he wants to spin off from the document-shredding company he co-owns, Saddleback Shredding Inc. Baird envisioned taking the shredded paper byproduct, combining it with sawdust and compressing it into a brick that could be used as fuel for grilling, camping, bonfires or disaster relief.
Baird had spent about $1,000 developing a prototype, which he dubbed HippieLog to emphasize it is a natural product with no glue or additives, thus leaving no residue or taste on food. He was partly motivated by his daughter, then 5.
“I want to leave her something so she knows we left the world better than we found it,” Baird said.
That all-natural aspect could be a selling point, agreed the students, an emotional component that could be conveyed through the packaging. But there were a lot of more pedestrian decisions that had to be made before the paper cube ever saw a match.
Curtis Chan, a serial entrepreneur and angel investor who served as mentor to the team, was often the voice of reason.
“If you took this to ‘Shark Tank,’ they would turn it down,” he said about the investor-funding reality show.
“You just put your finger on my biggest fear,” Baird responded. “My wife says, ‘You’ll spend all our money chasing this.’ “
Cristina Szewczyk, Megan Trent, Nicholas Kao, all MBA students, and Daniel Cazares knew early on that the nascent company needed a new name. They came up with SimpleBurn to convey the product’s function and its distinguishing feature.
They also knew they needed to reduce the cost of making the product and figure out a price that covered a steep shipping expense without driving shoppers to the many competitors already on store shelves. Bring the price down too much though, and the profit margin gets too thin.
Ideas such as leasing the machinery instead of buying and using labor from Goodwill brought down the cost.
The students calculated that Baird could make a 18-piece pack for $4.93 and sell it for $15 and make a 36-piece pack for about $9 and sell it for $25. Shipping costs $15 to $25, however, which makes online sales more problematic.
“I don’t think we should ever have them pay more than $6-$8 for shipping,” said Trent, who championed a temporary free-shipping promotion so customers try the product. Some of the shipping cost would have to be eaten by the company, however, at least until the manufacturing costs come down after a couple of years.
“They pay $6, we pay $6 to get it in their hands,” said Szewczyk.
There were more numbers to crunch. The team had to project sales for the company’s first five years — a timeframe investors like to see — to determine how much of an investment to seek. That meant putting together a capitalization table, for which there was a template on Titanium, the university’s learning-management system. At first, the team aimed low, wanting to respect Baird’s desire to bootstrap as much as possible. But Jackson and Chan introduced them to the reality of investors.
“When you present to the panel, it’s going to be too little of an idea,” Jackson told them. “They’ll actually throw rocks at you for not thinking bigger.”
Bump up the revenue projections and “now we’re getting grins,” said Chan, founder and CEO of two Fullerton-based high-tech brand marketing and public relations companies, Chan & Associates and Cognitive Impact, and a member of the investor panel. “This seems like something we really want to go play with. Anything below that is not worth the time.”
Chan also helped the team weigh various ways to structure the company’s financing — debt financing such as loans vs. equity financing such as trading an ownership stake for seed capital.
“It’s the equity partners who are going to have the contacts in the industry to take you where you need to be,” he told the students. “It’s kind of like having Mr. Wonderful on ‘Shark Tank’ introduce you to Home Depot,” a reference to show judge Kevin O’Leary.
Chan was impressed the students came up with the idea for a fire starter version of the main product, which creates an additional revenue stream.
“The students received a learn-by-doing approach to developing a realistic roadmap of what it takes to start and sustain a company,” he said. “This involved a deep learning process of research to validate the product and market, a go-to-market plan with realistic expectations and understanding the nuances of a sound financial plan.”
Baird said several judges on the Dec. 1 investor panel told him SimpleBurn has a real shot at success. His plan is to finalize the packaging and produce several hundred cases of inventory. He’s received an offer from a CSUF connection to list the product on a camping-recreating-outdoor lifestyle website.
The student team provided feedback he didn’t get from friends, family and customers, who tended to tell him what he wanted to hear, he said.
“Upon joining JJ’s class, I obtained honest, brutally honest feedback and suggestions from my team. My team did not care if they hurt my feelings or told me something contrary to my thinking at that particular point.”
The students helped shape the name of the product, quantity offered and price, he said.
“Most importantly,” Baird said, “they mapped out a go-to-market strategy that best represented my vision for the company as well as plotting a path that was consistent with my recycling and eco-friendly mindset.” Baird sold some packs of SimpleBurn last weekend at the Mariners Church farmers market in Irvine. After selling for a while directly to consumers, Baird will call on buyers at natural-foods markets.
A second “guest venture” teamed students with Ron Saetermoe, CEO of Santa Ana-based Automotive Associates, which provides marketing, consulting and training to the automotive industry. Saetermoe wanted to spin off an online platform, which he named iWiise, a one-stop shop for used car buyers.
Like Yelp, recent car buyers could review cars, and like Kayak, prospective used car buyers could access listings aggregated from the top car-buying websites. In a third phase, the site would match car to buyer — like Match.com. Ads would generate some revenue. But the real customer would be car dealerships, which would pay for sales leads generated when users offer information on who they are and what kind of car they’re looking for.
Saetermoe had invested about $20,000 in the startup, had a management team in place and was looking to the CSUF team to take his idea to the next level with a solid business plan. Part of his competitive advantage comes from leveraging professional relationships from his 27 years in the business to secure partnerships with dealers.
The team members — Vanessa Ganaden, Rachel Herzog, Donny Ritcharoen and Cristian Sanchez, all undergrads — were tasked with attracting potential car buyers to the site and getting them to stay there for a while and return multiple times.
They researched the many other existing car sites, which include AutoTempest, AutoTrader and Edmunds, to set iWiise apart.
Ritcharoen evaluated the used car industry, Sanchez focused on operations, Ganaden scoped out marketing and Herzog focused on finance.
After some brainstorming, the team hit the Orange County Auto Show with questionnaires and also surveyed car dealers and recent car buyers.
Team mentor Chad Armstrong compiled the responses into what customers were looking for, what sites they used, and their “pains” and “gains.” Respondents came up with lots of feedback and ideas for the team, such as partnering with a company that would offer warranties on used cars.
But the students wrestled with how to attract users back to the website once they bought a car. They discussed pivoting to a different concept, but were hamstrung by the original goal of generating leads. They asked their professor, who suggested “gamifying” the site with games, contests and points. Rewarding them for leaving information will create more qualified leads, which is what car dealerships want.
“Make it social,” suggested Jackson, such as a place where Mustang owners could talk with other Mustang owners. The students ran with that.
“The only way to do this is if there’s a community aspect to it,” agreed Ganaden. “Like Reddit. It’s so sticky, you keep coming back.”
Ritcharoen was wary that used car reviews would be as appealing.
“Have a forum,” Ganaden responded. “If I was curious about how a Dodge Charger would drive, I could post in a forum and people would answer.”
Herzog threw out a suggestion that users get points if another user clicked that response as the best — “like Yahoo Answers.”
“Once we incorporate gamification, then lead generation will make more sense, because you’ll have more people coming to the site,” Ritcharoen said.
There should be a scale for how strong each lead is, Herzog said. “The closer they are to buying, they’ll be more expensive. How that’s determined, I don’t know.”
By the Dec. 1 investor pitch, the team had decided to seek an equity investment of $2 million and aim to be acquired eventually by a large company in the automotive sales business. The investors were impressed with the managers behind the business. Some suggested partnering with other sites, so users would be bounced out of iWiise into a financing site, for example. And they pushed for a name change for the site that would have an intuitive connection to its function.
Said one: “It sounds old, especially if you’re targeting millennials.”
The iWiise website is up and running and is soliciting car reviews from users.
Armstrong, founder of Brain Bucket Marketing in Jurupa Valley, praised the insights the students provided, especially through the interviews with potential site users.
“Those kinds of resources would be out of reach for a small startup project like iWiise outside of the university ecosystem,” he said.
Herzog did a masterful job leading the team, Armstrong said. Sanchez brought insights from his experience selling cars. Ritcharoen did a great job developing the business model and path to acquisition. “I had a lot of fun with him figuring out what the key numbers needed to look like for us to raise venture capital money.”
Ganaden’s work on available markets, branding and user experience was very helpful, he said. “But on a personal level, she changed the way I think about marketing. I remember covering brand archetyping very briefly when I was school. The way Vanessa used it and explained it opened my eyes. It has informed the way I approach marketing ever since.”
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