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New Enterprises · Lecture 12 of 12 · 2:34
Lecture 12: What Makes a Business
Study guide
What this lecture covers
This closing lecture answers a foundational question: what actually makes something a business? Aulet argues that founders often over-focus on their technology or business plan while missing the one requirement that defines a real venture.
As the final video in the course, it sets up the shift in focus that follows: starting from the customer and building the business backward from there, rather than starting from the product or technology.
Key ideas
- Single necessary and sufficient condition: a business exists when it has a paying customer, and nothing else substitutes for this.
- What doesn't count: a business plan, a CEO, a mission statement, a product, or market analysis are not, by themselves, a business.
- The lemonade example: Aulet contrasts a student's complex technical pitch with a simple lemonade stand that has a paying customer, to show that having customers matters more than how impressive the technology sounds.
- Technology is not the point: how advanced or efficient a technology is does not make it a business until someone pays for it.
- Starting point for the course: the class will build the venture-creation process starting from the customer rather than the product.
Before you watch
- Watch this after the lecture on choosing an idea or technology, since it reframes that choice around getting a paying customer.
- Useful as a check on any venture idea you're already developing: can you name who will pay for it?
Check your understanding
- What does Aulet identify as the single necessary and sufficient condition for a business?
- Why does the lemonade example make the point more clearly than a technical pitch would?
- Which common substitutes for "a business" does the lecture explicitly reject?
- What does it mean to build a business "back from the customer"?
Vocabulary
- foundational (adjective)
- Forming the basic and most important part of something.
This lecture asks a foundational question about what a business really is. - over-focus (verb)
- To pay too much attention to one thing and not enough to others.
Founders often over-focus on their technology instead of their customers. - necessary and sufficient (phrase)
- Something that is both required and, on its own, enough to make something true.
A paying customer is the necessary and sufficient condition for a business. - condition (noun)
- A requirement that must be true for something else to happen.
Having a paying customer is the one condition that defines a business. - substitute for (verb)
- To take the place of something else and serve the same purpose.
Nothing can substitute for having an actual paying customer. - business plan (noun)
- A written document that explains how a company will operate and make money.
A detailed business plan does not by itself make a company a business. - mission statement (noun)
- A short written statement describing a company's purpose and goals.
A mission statement alone does not create a real business. - contrast (verb)
- To compare two things and show how they are different.
Aulet contrasts a complex pitch with a simple lemonade stand. - pitch (noun)
- A short presentation trying to convince someone to invest or buy.
The student gave a technical pitch about his advanced product. - advanced (adjective)
- Using new, complex, or highly developed methods.
The technology sounded very advanced but had no paying customer. - reframe (verb)
- To look at or describe something in a new, different way.
The course will reframe how you think about starting a business. - back from the customer (phrase)
- Starting the planning process with the customer's needs first, then building the product to match.
The class builds the venture-creation process back from the customer. - starting point (noun)
- The place or idea where a process begins.
The customer is the starting point for the rest of the course. - explicitly (adverb)
- Stated clearly and directly, leaving no doubt.
The lecture explicitly rejects a plan or product as being a business. - closing lecture (noun)
- The final talk in a series that wraps up a course or section.
This is the closing lecture before the course changes direction. - argue (verb)
- To give reasons to support a particular point of view.
Aulet argues that founders focus too much on technology. - over-focus on (phrase)
- To spend too much attention or effort on one thing at the expense of others.
New founders often over-focus on their product instead of customers. - venture (noun)
- A new business, especially one involving risk.
A real venture must have a paying customer. - paying customer (noun)
- A person or company that actually gives money in exchange for a product.
Without a paying customer, there is no real business. - set up (phrasal verb)
- To prepare or arrange something for what comes next.
This lecture sets up the course's next major shift in focus.
From the YouTube description
MIT 15.390 New Enterprises, Fall 2013
View the complete course: http://ocw.mit.edu/15-390F13
Instructor: Bill Aulet
Discussion of what is the single necessary and sufficient condition for a business and why it is so important for aspiring entrepreneurs to focus primarily on this condition.
License: Creative Commons BY-NC-SA
More information at http://ocw.mit.edu/terms
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