Wharton’s Karl Ulrich On Linking West Coast Innovation With East Coast Basics

P&Q: In a 2016 interview with P&Q, you noted that Wharton has been “focusing on training students to enter the job market ready to step in at established early ventures.” You call it “scale readiness.” Talk to us about this approach. How is your approach different than what an MBA student may experience in a traditional entrepreneurship course?

KU: First, the comment is based on the observation that many students like the energy and excitement of the entrepreneurial environment, but are not themselves starters. They are more joiners. We really want to embrace joiners as part of our entrepreneurial community. If you think about it, the spark of the idea is an essential component of entrepreneurship. It’s not the only success factor. It is just one of the success factors. Many people can contribute to entrepreneurial ventures without necessarily being the ones who come up with the creative spark.

So, of course, we’re going to support our amazing entrepreneurs who want to start their own thing. We have tons of those who come through Wharton. But probably a larger number of students who come to Wharton don’t have an opportunity that they are particularly excited about. But they are very happy to join others. That extends to joining companies that have been operating a little longer. One of the really nice things about joining a company that has raised a Series A financing round is that those companies can pay you a salary. That dramatically mitigates the risk for a student who has a lot of loans or doesn’t have wealth from their family. It opens up entrepreneurship to a lot more students if they can draw a paycheck — and very few early stage entrepreneurs can draw a paycheck.

We want our students to be prepared to add value immediately to companies that are a little further along, say a Series A or Series B startup in the venture vernacular. We think Wharton really prepares our students for those roles. Because Wharton is a school that very much focuses on being able to really solve problems with the best tools, we think our students are pretty well-prepared.

Let me give you an example. Let’s say you’re looking at optimizing customer acquisition in a startup. That’s a very critical challenge in most early growth stage startups. Our students are prepared to model customer acquisition costs; understand the factors that drive that acquisition; and to be able to run experiments in order to be able to optimize customer acquisition. We want our students to be able to step into those roles immediately upon graduation and add value in a very professional way. That professionalism is often very lacking in the earliest stage startups. They don’t necessarily know best practices on how to grow their business and we really want our students to be able to step into those roles and contribute.

P&Q: If you had an underlying goal with Wharton’s entrepreneurship program, what would it be? What do you do to achieve this end and how is it potentially different than what you might see in other MBA programs?

KU: The first thing to say is that I think our peer institutions, particularly Harvard and Stanford, do a nice job in their entrepreneurial programs. The main elements of our programs are quite similar in the sense that we have some curricular activities (which are courses that provide the foundational knowledge) and co-curricular activities (which tend to be more project-based, non credit-bearing, and rely on more direct mentoring of project teams). The top schools all do a pretty good job at that (and we do as well).

What we’re doing in San Francisco that’s really different is trying to create a more seamless connection between the activities of the students in their MBA experience and the outside entrepreneurial ecosystem. That’s best done if we’re on-site, if we’re Immersed in the entrepreneurial environment. One of the things that we’ve done is to try to minimize the distinction between current students and recent alums or even alums who’ve been out a while. Many of our entrepreneurial programs are open to our alumni as well. One of the things that has been so successful about our San Francisco facility is that we’ve been able to take this very active and large alumni community in the entrepreneurial ecosystem and connect it to current students though internships, workshops, and co-working on campus. That tight connection between the experience as a student and our 7,000 alums who are in the Bay Area is quite distinctive to Wharton.

P&Q: In a 2014 piece in the Wall Street Journal, you criticized how “disruptive innovation” is slapped on just about any new business model or concept. Looking at recent startups, what company is an example of true disruptive innovation? Why do they meet the criteria?

KU: I think the strict criterion for disruption would be, first, that a new company enters an industry through an introduction of new technology or a new business model. In the process, they garner a significant share that leads to the demise of the incumbents. If there don’t do that, they really haven’t disrupted an industry. If there aren’t incumbents who have really faltered, then they haven’t disrupted the industry. I think very, very few startups meet that criterion.

If you look, for instance, at the examples that people cite when they talk about disruption, there are only about five. They cite Netflix disrupting Blockbuster, Amazon disrupting Borders, Uber disrupting the taxi industry, and the iPhone disrupting Motorola and Nokia (who were two of the established handset manufacturers). There are almost none others. It is really remarkable how few instances of true disruption there have actually been. When you say, for example, that Tesla disrupted the automotive industry, it’s a totally unfair misrepresentation of the actual reality. Tesla is a tiny auto company that has some great products that maybe cost Mercedes and BMW a little bit at the high end. In the scheme of things, they really have not made much of a difference in the auto industry. When I say they have not made much of a difference, they have definitely stimulated the auto industry to innovate. But if you ask me, “Who will the top auto companies be 10 years from now,” I think they’re going to be Toyota, Ford, Volkswagen…they’re going to be the same companies that they are today. So that’s just not an example of disruption.

I’m not saying that new entrants and entrepreneurs can’t have an amazing impact on society, value creation, consumer satisfaction, and doing great things in the world. They can do all of those things. Those are quite different criteria from the criteria of, “Did you disrupt the existing industry?’

P&Q: You’ve been teaching since 1988. Looking back, how has student perceptions and interest in entrepreneurship evolved? Do you think we’ve seen the peak in student interest in entrepreneurship? Why or why not?

KU: I think there is definitely greater interest in entrepreneurship for current students. I think there are three main effects.

The first is that working for established firms does not offer the security and promise that it once did. I think people, even when they go to work for a very established company like a Google or an Apple, are not expecting to spend their careers there. They’re expecting to spend three or four years there. When you think about it that way, it’s not like you’re really trading off much security when you go to work for a smaller company or when you start your own company because you’re only going to spend a few years at the big company anyway. Of course, some people spend their whole careers in one company, but that’s a very small fraction of current graduates.

The second factor is that the barrier to creating an amazing company has been lowered quite a bit, mostly through the introduction of much better tools and the power of internet and the digital economy.  The tools you need to build, start, and develop a company have all become inexpensive and accessible. That means a new graduate is on the same playing field with big, established companies in many domains.

Third, I think there is a generational shift. We have the emergence of some genuine entrepreneurial role models and heroes such as Steve Jobs, Mark Zuckerberg, and Travis Kalanick (Uber). These are household names for many of our students. There is also a generational sense that they would love to use entrepreneurship to make a difference in the world. That is a relatively new idea, I believe (at least the prevalence of that idea recently).

Put those things together and that makes for a trend that we are increasingly seeing.