By John A. Byrne
April 24, 2012

(Poets&Quants) — The idea initially came as something of a joke.

Earlier this year, a team of six Harvard Business School MBA students was brainstorming ideas for a new startup business. They came up with a peculiar takeoff on all the online dating sites: a Facebook application for Jewish mothers to set their children up with potential marriage material.

When the team shared the idea with fellow students, they heard nothing but skepticism. “They said there were a lot of barriers to entry,” recalls Jyll Saskin, 24, one of the team members. “Others said they didn’t think the market would be that big for it.”

The feedback led to some serious rethinking. “We said, ‘What if we expanded the idea to leverage the power of friend networks?’ adds Saskin. “Friends could serve as yentas to recommend dates for their friends.”

With $3,000 of seed capital from Harvard Business School, Yenta was launched last week along with as many as 150 other new startups in what might well be the largest single experiment in entrepreneurship ever undertaken. The so-called “micro-businesses” range from a company called Kinsey that sells “premium undergarments” for men to another called 4n Friend that is creating an online network that matches language tutors with students all over the world.

It’s part of a bold and highly unusual initiative within Harvard’s new MBA curriculum. The ultimate goal isn’t to encourage students to become entrepreneurs. Instead, it’s to allow MBA candidates to apply the knowledge they have learned during their first year of study at Harvard. “It’s kind of like entrepreneurship with training wheels,” says Youngme Moon, a Harvard marketing professor and chair of the MBA program. “The idea is you are going to start something up, we are going to give you support and teaching along the way, but you … will experience everything in this process in an accelerated fashion.”

Of course, many business schools, including Harvard, boast business plan competitions and elective courses that guide MBA students through the creation of a new enterprise. But no school has made the launch of a real business a requirement until now.

The logistics and prep work by Harvard to even attempt the effort have been monumental. Lawyers had to draft legal documents to allow students to create limited liability companies. During the course of the term, the school technically owns the ideas. On the last day of the term, the intellectual property will transfer to student teams if they are in unanimous agreement.

Harvard budgeted $750,000 in seed capital, roughly $5,000 for each team, to help the students fund their businesses. It turns out that more has been needed. The school also arranged for an external company, TopCoder Inc., to do software programming for the students. Harvard also developed a proprietary software platform to allow students to trade in the stocks of the business concepts dreamed up by their fellow students.

A departure from the tried-and-true at Harvard

The startup exercise is part of a new yearlong course for first-year students layered on top of Harvard’s required core of 10 courses. Known as FIELD (Field Immersion Experiences for Leadership Development), the three-part course is designed to cultivate intelligence in leadership, global business, and the integration of business disciplines. The course is a major departure for Harvard, where business has long been taught almost exclusively via case study discussions in class. But the program is not about serving as the launching ground for the next big thing.

“A misperception would be for the world to think that we want the next Facebook to come out of HBS,” says Moon. “In fact, we tell our students that if you are a budding entrepreneur and you have a great idea that you think will be the next Facebook, don’t use it in this. This is a learning exercise that allows you to experiment in a relatively risk free environment.”

The experience kicked off in late January, when Harvard’s roughly 900 first-year MBAs were assigned to six-student teams, given $3,000 in seed capital and told to brainstorm business ideas. The only guidelines set by Harvard were that there could be no companies that created or sold weapons, pornography, alcohol or tobacco, and none offering financial advice.

Honing the art of the pitch

By mid-February, the teams had to pitch their best ideas to a section of 90 students in their class. After those pitches, Harvard opened up a simulated stock market where students, acting as investors, began trading on the startup concepts. For the next 24 hours, each student had $100,000 of virtual money to invest in any of the business concepts they heard.

“By the end of the first 24-hour period, we had some shares trading at close to $300 and some that were essentially penny stocks. The market spoke,” says Moon. “We executed more than 20,000 trades in the 24-hour period. Some had to assess why their ideas weren’t well received. Maybe it was poor communication. Maybe it was a poor idea.”

There also were some unintended consequences. One Harvard student, steeped in high finance, began shorting stocks during the simulation and parlayed his $100,000 in virtual money into $2.4 million.

The teams used the early market reaction to decide whether to move forward with their businesses or to “pivot” and refine their idea to make it more commercially appealing. “If you had a dog stock, your team is pivoting like crazy,” says Moon.

That was initially the case with Yenta. “At that time,” recalls Saskin, “our group hadn’t hammered out all the details. If you asked all the team members what was Yenta, you probably would have gotten six different answers.”

By the time Harvard reopened the stock market a month later in March, each of the teams issued updates via an investor relations website. Yenta did better, trading in the range of $40 or more.

Heading to market, or back to the blackboard

Saskin’s team and all the others aimed to launch an actual business by April 18. Each team had to do another 10-minute presentation before investors began trading yet again. Yenta showed screenshots of its website and a slick marketing video to further explain the concept.

During the two-hour trading session, students made more than 14,000 trades. Yenta stock shot up, rising into the $60 range. But the day’s highest closing price went to IvyKids, a startup that is launching an educational iPad app that bridges the virtual and physical worlds. IvyKids, which closed at nearly $360 a share, has already secured funding from outside Harvard and recruited an advisory board member from Disney.

Not all of these ideas will make it, of course. Those that don’t will enter what Harvard calls a “failed business track,” where the teams will spend the term reflecting on why the ideas didn’t quite work. “It’s impossible to imagine that 150 businesses based on teams that had never worked together would create 150 successes,” says Alan MacCormack, an adjunct professor at Harvard and one of the faculty designers of the experience. “The going-to-market track is about selling and going to customers and proving your idea. And the other is understanding that failure is a very natural outcome in entrepreneurship.”

For one enterprising team, failure became an opportunity: that group is launching a business called “failed business track” that sells t-shirts to the losing teams. As the group explains on its e-commerce website, “A lot of funny things happen to you at business college. We’re here to make those moments of hilarity, joy, and, well, embarrassment, permanent.”

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