02 Sep 2021 20:03 IST

What the $5 challenge can teach us

The challenge offers students the gift of crisis. The gift to find out what matters most.

In 2009, Stanford Professor Tina Seelig gave her class a special challenge. The 14 teams of the class each received an envelope which held $5 of ‘seed funding.’ They could take as much time as possible to plan, but once they opened the envelopes, they had 2 hours to generate as much money as possible.

At the end of the assignment, they had to submit a single slide outlining what they had done, and then each team had to give a 3-minute presentation on how they met the $5 challenge. It’s a challenge worth trying out in our MBA classes and even amongst our teams at work. What would you do to multiply resources given the constraints of just $5 dollars and 2 hours?

What’s there?

What can you buy with $5? What can you make with $5? A lemonade stand comes to mind — fairly cheap ingredients and the demand of thirsty students on campus. Sounds like a winner. But the lemonade stand teams didn’t win. Some teams could perhaps think about making and selling arts and crafts. Again inexpensive materials, but then you would run up against the constraint of the 2 hours in which sourcing, manufacturing, and selling would need to happen. Very often in both business and life we are distracted by what’s thrust in our face — by what’s there.

That’s why if Henry Ford had sought to answer the transportation problem by asking ‘what’s there’ he would have built a better horse cart. The stories of some of our Olympic heroes shows how they did not let the ‘what’s there’ question come in their way. For some of them, who came from a background of poverty and poor facilities, asking the ‘what’s there’ question would have led to mediocre or poor results. Instead, they refused to be trapped by that question.

Look at the comparative market cap of some of the retail sectors’ biggest global names within the 10 years from 2006 and 2016.

Sears: $27.8 billion (2006); $1.1 billion (2016) — a fall of 96 per cent,

JC Penney: $18.1 billion (2006); $2.6 billion (2016) — a fall of 86 per cent,

Macy’s: $24.2 billion (2006); $11.0 billion,

Target: $51.3 billion (2006); $40.6 billion (2016) — a drop of 21 per cent,

and then there’s Amazon: $17.5 billion (2006) ; $355.9 billion (2016) – a gain of 1,934 per cent !!!

In the technology space, Sony had a market cap of $63 billion in 2000 and was only at $72 billion by 2019. In the same period Apple went from $5 billion to > $1,000 billion! In India, we can think of a former top-of-mind name like Videocon that is now in the dumps. Most of these companies with declining fortunes chose to focus on what was right there in front of them. Their growth was defined by the size of their view, by the way they chose to define their constraints and opportunities.

This problem plagues leaders both personally and professionally. Some responses to the $5 challenge have been ‘go to Las Vegas’ — again the gambler’s mindset comes from focusing on what’s there. Several leaders choose that path too — they celebrate too early when beginners luck casts some early wins, but soon their luck runs out.

What’s not there?

The winning teams saw the $5 for what it was — a distraction. They realized that the 5 dollars was really a proxy for ‘nothing.’ They asked themselves “What would we do if we had no money?” The very asking of that question opened up a whole set of new avenues, unlocked their creativity, and helped them look at unconventional ways to generate money. One of the top teams focused on a problem many students on campus faced — long waiting lines at restaurants nearby.

They made reservations at the most in-demand restaurants and closer to the time, sold those reservations for up to $20 to customers who were thrilled they could beat the queues and head straight to their meal. Another team offered free checks of bicycle tyre pressure to students and if their air was low — they charged a dollar for a fill-up. Later in the day, feeling bad that they might be taking advantage of their fellow students they changed from charging a payment to requesting a donation and their earnings actually went up.

Zomato’s recent IPO success story in some way was built on asking this question — there were restaurants and there were customers, but Zomato, and companies like theirs, focused on time and convenience and realised that customers were willing to pay for that.

What else is there?

The team that pulled in the most money did not look at the $5 at all. They realised that their most precious resource was not the $5 or the 2 hours but the 3-minute presentation to the class. They decided to sell those 3 minutes to a company that was looking to recruit students from their class. They made a commercial for the company and played that during their presentation slot. Brilliant! A solution only possible by asking ‘What else is there? What could be there?’

Robinhood created a mini revolution in stock trading by charging no fees on trades. When others followed, they moved to other innovations like allowing trading in fractional shares. Their business model repeatedly pushed away the ‘what’s there’ question and focused on “what else is there’ and ‘what could be there’. They tapped into the aspiration of customers with limited funds or starting their journey, to own marquee names. They focused on building volumes and have figured monetisation streams by driving the volumes through institutions willing to pay for the benefit of that throughput.

The Stanford class solved the $5 challenge in different ways. Some came up with poor results, some came up with good results, and the winning teams came up with great results. They made over $600 and the average return on the $5 investment was 400 per cent. The teams that didn’t use the five dollars at all — well their returns were infinite. And those variations only came about through the kind of questions they asked, by the way they chose to define the problem, by the way they chose to look at what to call problems and what to call opportunities. Lessons for us to carry into our leadership roles and lives.