Dirk Riehle's Industry and Research Publications

Student startup passion vs. market potential

As part of being a professor, I’m trying to motivate student startups. Here, I want to talk about student startups coming out of a Master’s program. These are different from startups coming out of my research lab, which are based on work with my Ph.D. students. Master student startups are typically smaller, not based on significant intellectual property, and my working relationship with the team has been much shorter than with my Ph.D. students.

What are the three most important factors that make a startup successful? As the old saying goes: Team, team, and team. There is plenty of advice on the web on finding and building teams. I have a bit to add to this as well, but will do so in a different post. Here, I would like to focus on the next two most important success factors, which are product and passion. Without a good product there is no money to be made, and without passion, the startup will fall apart too quickly.

Sadly, being a student, having a good product idea, and having passion for it are factors that are hard to align. The following figure helps illustrate the problem.

The figure has two dimensions, student passion and market potential for resp. of the product idea. A product idea has either low or high market potential (and hence low or high likelihood of receiving venture capital funding) and it inspires either low or high student passion (and hence low or high staying power of the team). Obviously, low or high are simplifications of what should be a continuum. Also, things aren’t necessarily static: Passion can develop and market situations can change. Finally, I’m talking about venture-capital-funded startups, not life-style companies (i.e. the founders want to attack a large market for which they’ll need to raise funds to compete and grow).

If market potential and student passion are low, you have a dud. Move on.

If market potential is low but student passion is high, you have a problem, because the students may ignore economic rationality for the purpose of following their passion. This quadrant is populated with failed startups ideas, for example, social media apps that nobody needed or software that turned out to be a feature rather than a product. Students easily have passion for ideas that follow from their still young life experience; sadly this is often not where the money is.

One might think then that the real winner is the confluence of passion for a great idea, quadrant I in the figure above. A prominent example is Facebook: A student idea with passion behind it. Here, the student life experience is beneficial: The Facebook founders could see beyond where more mature people could see and hence were on to something. This is not to say they invented it all; they could copy from Friendster and Myspace, for example. However, in addition to the vision, they executed well.

Venture capitalists love student teams with passion and an idea from their life because that’s where a lot of the outsized-return home-runs are. I’d love to have a student team approach me with such an idea, but I would also have to tell them that the chances are stacked against them and that in the Nuremberg region, where I work, they may not find the necessary ecosystem to grow their company. Trying to fly under the radar is a risky proposition and I’d offer to help them get established in Berlin where they’ll find the necessary support.

Which leaves me with quadrant IV, a product idea with high market potential but initially low student passion. This is also what I have access to by way of our industry partnerships and their innovation labs: Great product ideas that our partner companies don’t want to take on themselves but are happy to give to students. In the latest iteration of my Startupinformatik initiative, I have used my courses to let students work on these projects. That is, the project came first, and the students could only choose from the available options. My hope is that passion will develop as students see the good their product could do for others.

I’m trying to improve on this now and bring project ideas closer to student passion to begin with. However, I’m not sure how to do it. I would obviously have to select projects such that they are more likely to inspire passion in students. For this, I’d need to know about student passions upfront and I would have to broaden access to the innovation labs. And all of this needs to be crammed into the two-year process of getting a Masters degree. Maybe my university should administer a student-entry survey on what they care about most? I certainly would like to know so that I can work with it.


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