Integrated

Venture
Engineering
Program at
Cornell
Whitepaper 1812

Rethinking the
Startup Paradigm
Engineering Reliably Profitable Ventures
Under High Uncertainty
About the authors
Erik Simanis, PhD Erika Palmer, PhD
Cornell University Cornell University
Co-Director, Integrated Venture Engineering Senior Lecturer, Systems Engineering
Program
IVE Systems
Chief Methodology Officer

Jeroen Bergmann, PhD

University of Oxford
Associate Professor of Engineering Science,
Tom Manuel Director of Oxford Healthtech Labs

Cornell University
Co-Director, Integrated Venture Engineering
Program
IVE Systems Elsa Wakeman
Head of Venture Engineering
Calmly
General Manager

Mark Khater, PhD

University of Cambridge
Head of the Centre for Strategy and
Performance
In 1962, United States President John F. Kennedy pledged to land a man on the moon
and bring him back safely. The goal presented the National Aeronautics and Space
Administration (NASA), the U.S. agency responsible for the space program, with
staggering uncertainty.i

At the time, NASA didn’t know if the moon’s surface was solid enough to land on. The
moon was a quarter of a million miles up in space—the highest an aircraft had
ascended was 100 miles. They didn’t know if communication systems would work on
the moon. They didn’t know how to project orbits to the moon. No one had worked
outside a spacecraft. Re-entering Earth’s atmosphere would generate heat and
stress magnitudes greater than what existing materials had experienced.
Startups trying to solve big problems and commercialize breakthrough technologies
are in much the same position as NASA in 1962. Startups face uncertainty about
whether customers will want a new functionality, what features they would value,
and how much they would pay. There’s uncertainty about operations: What’s the best
way to market? How should it be sold and priced? What should be made in-house
versus outsourced? And how can everything be done profitably?

Despite having the same starting point, the success rates of engineers compared with
entrepreneurs remain worlds apart.

As we know, NASA’s Apollo 11 fulfilled President Kennedy’s pledge. While a

remarkable accomplishment, it wasn’t an outlier. Engineers routinely innovate new,
complex systems under conditions of high uncertainty with a high level of reliability.
Missions to Mars—a planet lying 140 million miles from Earth—have a 40% success
rate.
Today, a startup’s probability of achieving enduring profitability—a business’s
measure of success—remains slim. Startup Genome calculates that 90% of startups
fail completely, and 1.5% produce a successful exit of $50 million or more. ii A
successful exit, however, doesn’t mean the company is profitable. Based on IPOs
from the last decade, less than 20% will become profitable. The likelihood of
success, in other words, is lower than 1%.

The problem isn’t confined to deep tech, like Google’s failed attempts at rural
internet via high-altitude balloons, and using smart contact lenses to measure
glucose levels. Startups trying to commercialize novel services are also failing, even
after experimenting for over a decade. The list includes ventures in a range of new,
but still unprofitable, industries, from meal subscription kits, buy-now-pay-later
consumer financing, and app-based food delivery, to peer-to-peer car sharing and
online fashion resale and rental.

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Something is off. Yes, engineers have laws of physics to guide them; but business has
a century of research by economists, psychologists, sociologists, and strategists that
have revealed basic truths about consumers and markets. Figuring out how to
profitably help people put dinner on the table or buy things they can’t afford shouldn’t
present hundreds of times the risk of reaching Mars.

Based on two decades researching and building startups, we believe the source of
the discrepancy is the different way engineers solve for high uncertainty and
complexity compared with today’s entrepreneurs.

Engineers invest time researching, modeling, and simulating to first solve for the
high-level concept—the basic shape of the solution best able to meet all of a system’s
core requirements. The same process is used to turn the high-level concept into a
robust, detailed design—one that has a wide margin of safety to absorb uncertainty.
Nothing is built until it works on paper. They then prototype and test starting with
individual parts, before connecting parts up and testing them together. A live test of
the whole system happens at the end when there’s high confidence that the system
works.

The science about systems is clear: this way of innovating—which engineers call the
V-model method, because the approach traces the shape of the letter V—creates
solutions that are more robust, reliable, and economical, and gets there faster and
cheaper.

You see it in the way many engineers-turned-entrepreneurs operate: it was the basis
for how the late Steve Jobs built Apple, and Elon Musk’s “algorithm.” iii iv Renowned
architect Frank Gehry ushered in a revolution in architecture by adapting aerospace
engineering software based on the V-model to innovating physics-bending buildings.
It’s key to his ability to deliver projects on-time and on-budget.v vi

Compare that with today’s accepted way of innovating ventures—the lean startup
method. Lean startup narrows the focus at the start to one core requirement: coming
up with a basic product solution that addresses customers’ needs. As the thinking
goes, if customers don’t want the product, solving for profitability and competitive
advantage is a moot point. Next, a basic business model to support the product is
sketched out, and a company is launched with the understanding that it’s a starting
point from which to begin experimenting and searching for a sustainable business
model.

Lean startup goes against the basic science of innovating new systems. It’s strapping
a spacecraft onto a rocket, blasting off, and trying to figure out how to safely reach
and land on the moon while en route. It’s why startup success remains rare today.

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Losing millions of dollars for years on end trying to discover a profitable business
model isn’t the nature of entrepreneurship—it’s the nature of today’s method.

It’s a worthy reminder that Apple, Microsoft, and Adobe generated net profits within
two years of their founding and were profitable at the time of their IPOs. Electronics
manufacturer 3Com did it in under four years. Nike generated profits throughout a
seven-year rapid growth phase leading up to its IPO in 1981 at sales of $450 million.

Lean startup persists because venture capital funds profit even though their portfolio
companies are unprofitable. First Round Capital, for example, converted its $1.5
million seed investment in Uber into a $2.5 billion exit even though Uber had $10
billion of accumulated losses and was losing $1 billion annually at the time of Uber’s
IPO. Corporate venture teams and self-funded entrepreneurs have faced the TINA
problem: there has been no alternative.

Having realized the power of engineering’s V-model method, we set out over a
decade ago to translate it into a startup context. In this article, we explain why
engineering’s V-model is so effective. We then introduce a methodology called
“integrated venture engineering” (IVE). IVE is a V-model for startups. We’ve
validated core processes and tools through more than a dozen corporate and
entrepreneur-driven ventures across a range of industries. We believe it has the
capability to transform startups’ success rates.

Engineering’s V-Model Method

While the V-model varies across engineering applications, they share a common core.
The process starts at the top left, works down the left-hand side of the V, and then
moves up the right-hand side. The left side innovates, tests, and validates on paper
the best possible solution. The right side builds, tests, and validates the design in the
quickest, least costly way. The method captures engineering’s mantra, “build the
right thing, and build the thing right.”

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 Concept Preliminary Critical Integration & Release or
Phase Design Phase Design Phase Test Phase Production Phase

Core System Acceptance

Requirements Tests

High-Level System
Concept Integration & Testing

Subsystem Sub-system
Design Integration & Testing

Component
Component
Prototyping &
Design
Testing

Adapted from Kim R. Fowler, Chapter 1 – Introduction to Good Development, Editor(s): Kim R.
Fowler, Craig L. Silver, Developing and Managing Embedded Systems and Products, Newnes,
2015, Pages 1-38.

Build the Right Thing

Engineers design new systems “top-down.” After defining the systems’ core
requirements, they first come up with a high-level concept. It defines how a system
works at its most elemental level. They then work down, eventually reaching the
design of individual components. They do so because it leads to designs that are
elegant and simple. By design, they don’t mean its aesthetics, but how the thing
fundamentally works.

Elegant, simple designs are more reliable, because there are fewer things to fail and
go wrong. They also cost less, as there’s less that goes into making it, and less to
manage, repair, and replace once operational. It’s why “simple design” was Steve
Job’s famous obsession.
The keys to coming up with an elegant design are in the first two steps.

First, it requires precisely defining core system requirements—the most

fundamental things the system has to do. It’s about being as clear as possible about
the questions to be answered. It’s why step one of Elon Musk’s algorithm is
“questioning every requirement” using first principles thinking. The goal is to probe
the underlying physics of what the system has to do so that you get to the crux of
the problems.

Second, it requires solving holistically for the high-level concept—coming up with a

design taking all of the core system requirements into consideration. The goal is to
arrive at an integrated design, not individual solutions to each, or “kludges,” as

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Space X launch director John Muratore calls them.vii This holistic way of solving for
the high-level concept creates big design synergies that “delete lots of parts”—step
two of Musk’s algorithm.

The Apollo engineers took 14 months to come up with the high-level concept that
most elegantly got the astronauts out of the earth’s gravitational pull, into the moon’s
orbit, onto the moon’s surface, and back to Earth within the 7-year time constraint.
The concept was called “Lunar Orbit Rendezvous” (LOR). It married existing rocket
capability with two separate craft—one to land on the moon, and a mother ship that
circled the moon and returned home.viii
The LOR concept created huge synergies. Landing a small rover on the moon’s
uncertain surface simplified the challenge, while slashing the amount of fuel
necessary. The payload savings reduced the size and weight of the tanks, which
reduced the size of the engines, which eliminated the need to innovate new, more
powerful rockets. The rover also acted as a life support back-up for the mother ship.

There’s an additional benefit of starting with the high-level concept: it establishes

performance parameters that cascade down to components. That allows
components to be optimally designed for the system. It’s step three of Musk’s
algorithm.
Models and simulations are used continuously to stress test the system’s
performance under a range of assumptions. The end goal is a detailed design that
credibly works across that range, and has a margin of safety for surprises.

Build the Thing Right

Building and testing the design is done “bottom-up”: it starts with individual
components (e.g., the heat shield on Apollo’s command module), moves to groups of
components (e.g., Apollo’s command module), and ultimately the whole system
(e.g., the Apollo LOR spacecraft). It’s done this way because the interdependence of
a system’s components creates two problems.
First, it’s difficult to determine why a system isn’t working once operational. When
India’s Augmented Satellite Launch Vehicle crashed on its first voyage in the
1980’s, a Failure Analysis Committee explored 37 potential explanations but never
pinpointed the cause.

Anyone who’s run a startup can relate. Is customer conversion low because
marketing is bad, the sales force ineffective, or the product too cumbersome or
expensive? The result is that it takes more time and money isolating the problem.

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Second, fixing one problem part creates ripple effects that require changing other
parts, making it more costly. In a software development study, the cost of fixing a
problem once the software was operating was 50 times higher than fixing it at the
design stage.ix The magnitude of increase is likely higher with hardware.

In NASA’s case, while the Apollo 11 spacecraft consisted of three main sections, they
contained six million parts. It took years of testing at the level of parts and
subassemblies before a staged series of unmanned and then manned test flights
were conducted, each one taking a step closer to approximating a moon landing.

By the time Apollo 11 launched from Cape Kennedy on July 16, 1969, an enormous
amount of risk had been eliminated.

Applying the V-model to Startups

We discovered the power of engineering’s V-model in 2013. Beginning with a core
framework, we’ve worked closely with corporate incubators in Barclays, Pearson,
BMW, Mars, and others to design more than a dozen ventures across five continents.

We call the methodology, integrated venture engineering (IVE). While detailed, we

continue learning with every application. To further its development and train
founders, corporations, and investors, we’ve established a technical working group
at the International Council on Systems Engineering (INCOSE), a global professional
society, and a learning lab at Cornell.
Here, we’ll focus on IVE’s key principles, concepts, and steps.

Key Principles
IVE inverts two closely-held, but problematic, principles of lean startup: that the best
way to tackle uncertainty is to use lean and agile processes that rapidly explore lots
of potential directions, and that the only way to really learn is to build things and
experiment.

Inversion 1: Robust Solutions First, Lean and Agile Processes Second

There’s little value to being lean and agile if a startup’s core business concept doesn’t
have a path to profitability, and when there’s little clarity about performance
parameters. In that case, moving fast—or even slow—is simply breaking things. It’s
neither an effective nor cheap way of addressing uncertainty.
The core logic of IVE is that you don’t need to eliminate uncertainty—you need to
withstand it. The way to do that is by designing a startup so that it’s profitable under
pessimistic operational assumptions, and has an added margin of safety to absorb

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unanticipated costs. It’s how the late Charlie Munger famously thought about
investing.

For example, in the design stage of a London-based legal tech startup founded by the
second author, the savings generated for customers meant a price point as high as
£750 was credible, but could cause purchase hesitancy, while a price of £400 would
be an easy sale. Simulations of unit costs using best-case/worst-case ranges for key
operational variables and an annual return on equity of 25% yielded a required mean
price of £270, with a best case required price of £160 and worst-case of £415. It was
a robust starting point.
When robustness is the objective, the real work of venture building changes radically.
It requires developing a rigorous, first-principles understanding of what makes a
business tick. It also requires thinking in confidence intervals, and using simulations
to understand how the parts fit together. Once this type of plan is in place,
entrepreneurs can use lean and agile processes effectively to prototype and test
things out.

Inversion 2: Build and Experiment to Optimize a Business Model, Not to Discover One
Trying to discover a profitable business model by building and testing different
product features, customer acquisition strategies, and price points feels like
progress. The fact is, it’s a costly illusion.
Building and testing stuff is generally an expensive and time-consuming way to learn,
even for digital products. Software engineers don’t come cheap.

What makes it particularly bad in lean startup’s case is that, when you don’t know
how all the parts in a business model have to work together, you’re left with vague
performance parameters to test—e.g., “customers will respond to video advertising
showcasing the product.” There’s no way to know if a solution is under-engineered
or over-engineered, or when it’s time to change directions entirely.

A global food company who adhered to lean startup principles came to us frustrated
and at a loss of what to try next, having spent 3-years and $12 million testing various
product versions, price points, sales channels, and marketing messages for a novel
fortified food product, and still falling short of profitability.

Building and testing has an important place in IVE. But it’s used sparingly and only
when the learning objective is to choose among options capable of performing at the
level needed for profitability—not to figure out if something simply works.

For example, the mock-ups below represented alternative designs for one of the
legal-tech venture’s products called the Recommended Settlement Report. Both met

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design requirements specified by the core business concept. Tests with target
customers revealed Option 1 better persuaded customers to make a settlement
offer.

Option 1 Option 2

Building and testing in this way is predicated, though, on having clear performance
and design parameters for components and key activities. Which brings us to the core
business concept.

Key Concepts

No concept is more critical to understanding IVE than that of the “core business
concept,” or CBC. There’s nothing like it in management science today. It can make
a founder’s life easy or very hard.

To understand what a CBC is, picture an established market, like the mass market
home computer.

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Every competitor today in the home computer market—from Apple, HP, Lenovo,
Asus, and others—has a different business model. They have different computer
designs and features. They position their brands differently. They use different
suppliers and locate assembly plants in different parts of the world. They use
different marketing strategies and mediums. Some have financing arms. They retail
through different channels.

Despite these differences, they share a core pattern: let’s call it, “out-of-the-box-
ready computing device for all members of the family made of standardized
components that runs software applications with graphical user interfaces
supported by an open operating system.” While difficult to parse out financials for
home computers, given that manufacturers today sell a range of other devices, the
average gross margins and operating margins of computer hardware manufacturers
over a five-year period hover around 38% and 16% respectively.

This shared “product/operational model/cost structure” is the CBC pioneered by

Steve Wozniak, Steve Jobs, and others from the Homebrew Computer Club of the
1970s. It’s the integrated solution that established basic commercial viability for
the computing functionality. Every home computer company since then has used it.

It's worth Functionality

emphasizing: the CBC
does its work on a
functionality, not a Core Business
product idea. It defines Industry Concept
the high-level shape of Level
the product and Determines Basic
Commercial Potential
operational model, and
bounds their
performance
potential—it sets a
Core Business Core Business
floor on the cost Core Business
Firm Model Model Model
structure and a ceiling Level Determines Firm’s Determines Firm’s
Determines Firm’s
on customer value . Profitability Profitability Profitability

You can’t launch a CBC—there’s enough detail. That’s what the core business model
provides. It’s each company’s strategy for deploying the CBC so as to outcompete
others. It details out the product and operational model, and determines each
company’s profitability within the boundaries set by the CBC.

Done well, the CBC shapes the customer solution in such a way that it also
eliminates the biggest roadblocks to performing essential business functions, like

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driving customer adoption, blocking competition from entering, and controlling
costs. In so doing, it lowers the burden on the core business model, eliminating
otherwise costly components.
Take the case of the home computer core business concept. The CBC eliminated
the otherwise intense marketing challenge of convincing everyday people to learn a
computer language and solder together components, as hobbyist computers at the
time required. Its open architecture, which allowed partners to develop
applications from arcade-style games to mortgage cost calculators, eliminated the
enormous amount of working capital that would have been required to build a
critical mass of applications for all family members.
The CBC also eliminated customer service and technical support, as it could get
family members comfortable with the technology to help other members. That
same peer dynamic could be leveraged to drive customer acquisition, the way
breakfast cereal companies harness the nagging child to encourage parents to buy,
and to keep competitors from stealing customers, as switching to a different brand
computer required convincing several family members. The use of standardized
components eliminated scaling barriers, including inventory carrying costs and
sourcing complexity.

Conversely, if the CBC is badly designed, even the most optimized business model
may not be profitable. It’s the likely cause behind the new, but still unprofitable,
industries teeming with startups generating hundreds of millions of dollars in sales
and experimenting relentlessly for more than a decade that can’t land on a
sustainable business model.
Consider Blue Apron—a pioneer of the meal-kit subscription company that launched
in 2012 and went public in 2017.

To attract customers, they’ve expanded to 50 meal options; partnered with well-

known chefs; launched ready-to eat low-cost options; created Weight Watchers
approved meal plans; and formed sales and marketing partnerships with Blue Cross
Blue Shield, Planet Fitness, Jet.com, Walmart Marketplace and Amazon. To cut costs,
they opened an automated distribution center, launched an order management
system across its warehouses; sourced ingredients directly from farmers and
ranchers.
The company, however, remained unprofitable, suffering a net loss of $80 million in
2022. Accumulated losses approached $700 million. In June 2023, Blue Apron sold
its operational assets to packaged meal provider, FreshRealm.

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This isn’t a Blue Apron problem. Aside from a temporary Covid lockdown blip, every
subscription meal kit company has struggled with sustained profitability, including
Hello Fresh, the far-and-away market leader with global sales of $7 billion and 60%
market share in the US.

Since a well-designed CBC works by eliminating things from the business model,
the likelihood of ending up with a robust CBC by filling in components on a business
model canvas is extremely low. To give the business model the best chance of
success, the CBC needs to be solved for directly. Which takes us to IVE’s V-model.

Key Steps:
IVE’s V-model works the same basic way as engineering’s V-model. The left-hand
side flows top-down to solve for the CBC on paper, such that the solution is robust
and has a margin of safety. The right-hand side flows bottom-up. After defining the
optimal design of components, they are prototyped and tested in isolation. They’re
then brought together and tested in a functional group, like customer acquisition. It
culminates with a pilot test of a single business unit.

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Build the Right Startup
The left-hand side typically takes six months to complete. It starts off with the
functionality of interest, and research is done to determine the prime use case—the
broad use case with the greatest potential. In our experience, most founders quickly
jump to a basic product concept or technology application. In those case, the idea
is first stripped-back to its essential functionality.

For example, in the case of a tech startup we advised whose technology was a high-
altitude kite that generated electricity, we defined the core functionality as “70
kilowatts of energy generated through a truck-sized airborne kite flown at high
altitude.” The prime use case was found to be “organizations conducting temporary
operations in supply-chain constrained areas”—like natural resource extraction,
military operations, and aid work.

The CBC is designed in three stages, its commercial potential expanding with each.
Each stage focuses on a sequence of roadblocks to core business requirements
applicable to every startup, regardless of industry. They are first principles of
startup performance.

We’ve put them into a tool called the Core Business Concept Guide. In addition to
sequencing the 13 roadblocks, the guide also contains key research inputs needed
to define and evaluate an elimination strategy. Summaries are shown below.
Stage one is about basic commercial viability. It focuses on the six most
fundamental roadblocks to getting customers to pay a price for a solution that’s
higher than what it costs the company to deliver—what we call creating, exchanging,
and retaining surplus value. Eliminating these six roadblocks blazes the initial path
to profitability and establishes the essential CBC.

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 Stage 1: Essential Core Business Concept
Core Elimination Core
Roadblock Business
Requirement Strategy Concept

Make a solution The default business model for the core The strategy for eliminating the need
Cost functionality contains an activity that drives Workaround
that generates 1. for the activity that creates the cost
Bottleneck up the cost of making and selling a solution. Strategy
Create equal to or greater bottleneck in the business model.
value for
Surplus customers than the
The strategy for eliminating a
Value whole cost of the
Value
People have alternative solutions for getting
Efficacy meaningful amount of pain and
solution, including 2. a job done that already work and create
Bottleneck value for them. Strategy suffering from customers’ current
return on capital.
routines for getting a job done.

Customer People have ingrained thinking and The strategy for eliminating the knee-
Convince behavior patterns that cause them to reject Adoption
3. Perception jerk reaction that causes customers to
customers to pay a Strategy
Exchange price for the Bottleneck a new solution that otherwise creates value. doubt the value of the solution.

Surplus solution that is

equal to or greater The strategy for eliminating disruption
Value than the product’s
Customer People experience distress changing their
Alignment to customers current routines and
4. Journey existing routines and patterns for getting
whole cost. Strategy patterns for accessing information and
Bottleneck information about and accessing solutions.
solutions.

People can be readily induced or The strategy for eliminating customers’

Hold onto a Customer incentivized to leave for competitor
Lock-In
5. ease of switching to a competitor
portion of what Flight Strategy
Retain customers pay that
offerings of similar value. offering.

Surplus is equal to or
greater than the
Value whole cost of the Competitor
Competitors can readily launch competing
Lock-Out
The strategy for eliminating
Essential
6. products of the same quality and price. competitors’ ease of providing a
solution. Entry Strategy CBC
solution of equal or greater value.

For example, Ant Financial Services, the financial arm of Chinese e-commerce
platform Alibaba, eliminated the cost bottleneck roadblock that made it impossible
for banks to cost-effectively lend to small and medium enterprises lacking formal
financial reporting. By applying machine learning to the transaction data generated
by businesses on the platform, Ant could quickly tell how well a business was doing,
and extend relatively small credit sums at the right interest rate.x
Elon Musk’s Space X is trying to crack these fundamental roadblocks now, as the cost
of today’s single-use rocket boosters makes it impossible to make space travel
affordable for the average person. Space X is pursuing multiple strategies, including
re-using rocket boosters and harnessing the spacecraft to generate additional
revenue by deploying Starlink communications satellites.

Stage two eliminates four roadblocks that would otherwise hamper selling the
essential CBC. They arise from the unique adoption challenge that new-to-world
solutions pose—i.e., the routines aren’t already part of or “normalized” in people’s
everyday lives, nor is it already “monetized” and part of their budgets.

Fintech company eToro, for example, is built around a social investing strategy that
lets clients view and copy other clients’ trading portfolios. It eliminated the
systematic and idiosyncratic product risk roadblocks that caused people
intimidated by numbers and financial matter to shy away from investing products.

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 Stage 2: Enhanced Core Business Concept
Core Elimination Core
Roadblock Business
Requirement Strategy Concept

Get customers to The strategy for eliminating target

Eliminate People presented with a new product fear
integrate the new Modeling customers’ doubt that the solution
core product
7. Systematic that there is something unknown about how
Strategy works for people whose life
Normalize routines with their
Product Risk the product works that would make it hard to
circumstance is similar to theirs.
use.
Customer current life
routines such that The strategy for eliminating target
Value value experienced
Eliminate People exposed to others using a new product
Enactment customers’ doubt that the solution
8. Idiosyncratic will defensively rationalize that the product
isn’t undermined Strategy works for their idiosyncratic life
Product Risk doesn’t work for their unique life context.
by any change. context.

Eliminate People exposed to a new product aren’t The strategy for eliminating customers’
Pricing
Get customers to 9. Value conditioned to automatically seeing the value confusion about how the product’s use
it generates. Strategy
Monetize integrate payment Perception Gap generates value.
for a new product
Customer into their already
Value fully-allocated Eliminate People buying a new product will, in the short
Payment
The strategy for eliminating customers’ Enhanced
budgets. 10. Value Timing run, have to reallocate money for other having to reshuffle their budgets to CBC
expenditures to make room in their budgets. Strategy buy the solution.
Gap

Solar energy providers have made significant inroads into the residential home
energy market through a “pay-as-you-save” pricing and payment strategy initially
pioneered by entrepreneur Jigar Shah. It eliminated the value perception gap and
timing gap roadblocks by having customers pay for the energy they consume via the
monthly bill from their local energy provider, rather than buying solar panels.

Eliminating these roadblocks results in an enhanced CBC. It widens the path to

profitability by lowering the burden ultimately placed on branding and marketing to
acquire customers.
Stage three eliminates three final roadblocks that would otherwise hamper the
enhanced CBC’s ability to scale. The focus here is on identifying and eliminating
business operations that would become complex, costly, and hard to manage as the
company grows.

Stage 3: Maximum Viable Core Business Concept

Core Elimination Core
Roadblock Business
Requirement Strategy Concept

Eliminate Complex, high-frequency activities associated Product The strategy for consolidating the
11. Product Activity with making, selling, and delivering a product Leverage product-related activity that
Make, sell, retard growth. Strategy generates the most work and cost.
Bottleneck
deliver, and get
paid for a
Scale solution in a way Eliminate Complex, high-frequency activities associated Information The strategy for consolidating the
that the whole with moving marketing and production
Business cost of a unit of
12. Information Activity
information retard growth.
Leverage information-related activity that
Bottleneck Strategy generates the most work and cost.
Value product
decreases as
units sold
increase. Eliminate Complex, high-frequency activities associated Money The strategy for consolidating the Maximum
13. Money Activity with moving money from customers retard Leverage money-related activity that Viable
Bottleneck growth. Strategy generates the most work and cost. CBC

A&W Rootbeer, the very first fast-food restaurant founded in 1924, propelled the
industry by pioneering the use of franchising as a strategy for eliminating the

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capital-intensive activity of setting up a new restaurant—a product activity
bottleneck. GiffGaff, a UK-based mobile virtual network operator aimed at
millennials that is shaking up the industry, eliminated the information-activity
bottleneck of technical support through a community of customers who receive
rewards for addressing queries on its online customer service forum.

To identify these bottleneck activities, the enhanced CBC is mapped. The map
traces the flows of product, information, and money down to and back from the
customer. Based on the assumptions in the CBC, the activities, people, and
resources needed to support each of the flows are modelled, and simulations are
run to surface high-volume, high-impact activities.
The 13 elimination strategies and CBC undergo a number of iterations using the
simulation to maximize synergies and the margin of safety. At this point it becomes
an MVC—a maximum viable core business concept.

Build the Startup Right

The right-hand side turns the MVC into a detailed core business model, and then
prototypes, tests, and optimizes it working up from components. It culminates with
a pilot test where customers are acquired and product sold. Depending on the
nature of the product, this takes between 12 to 24 months. The output is a
maximally viable business unit.
What makes this a different exercise from how prototyping and testing are done
today originates in the step at the bottom of the V-model in between the two sides—
decomposing the MVC.

Decomposition breaks the MVC into three main sections—acquiring customers,

making and distributing the product, and getting paid for the product—and then
breaks each of those down into their main assemblies, and ultimately down to the
lowest-level component, like product features, marketing ads, sales pitches, and
customer service call scripts.
The value of decomposition is that it connects the bottom-most components back
to the elimination strategies and performance parameters generated by the
simulation. It’s clear how each component needs to work, how well it has to work,
and which ones disproportionately impact profitability. With that information, a
team knows where to focus, and can research and experiment to determine the
optimal component design.

For example, below we’ve exploded out one complete chain in the decomposition for
the legal tech venture. There’s a lot here, even in this one chain. The takeaway is that

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it shows how the design parameters of one operational component—law students
writing a message to a customer— flow down through the decomposition.

The power of this approach is captured in the words of Ryan Lock, co-founder of a
leading digital design firm in London called Planes and partner to the legal tech
venture: “We’ve built 15+ ventures over the past 10 years – but the clarity that IVE
gave our team of designers and developers was unparalleled. We could move
extremely quickly and with confidence given the parameters provided to us.”

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Prototypes of components are then built and tested. The goal is to optimize them
further. For example, when the winning version of the Recommended Settlement
Report for the legal tech venture was prototyped and tested, the design was
modified to improve the law student’s efficiency in report writing by providing
access to a repository of previous cases.

This test-to-optimize logic extends throughout the right side. By the time the pilot is
launched, there should be confidence that all core business functions can meet key
performance parameters. The pilot test itself continues testing and optimizing the
core business model, this time under conditions that reflect market conditions as
closely as possible and where unknown unknowns can be revealed.

The pilot is considered a success when it’s demonstrated that the core business
model can reliably hit key performance parameters, like customer conversion rates,
on which profitability depend. The venture is ready to scale.
To be clear, the prospect of startup failure can never be eliminated. For example, in
an educational venture we were taking through IVE’s V-model that aimed to teach
Chinese children to converse in English, the government made it illegal for private-
sector tutors to teach subjects taught in school, like English. By following IVE’s V-
model, the risk of going down a dead-end path is greatly reduced, as are the time and
cost entailed.

Conclusion
When startup ventures fail, more is lost than the prospect of life-enhancing products.
Failure means lay-offs, tax-payer and investor money diverted from other needs, and
wasted environmental resources. We owe it to society to invest in creating a startup
methodology with the greatest potential for success.

We acknowledge that IVE has yet to fully prove itself. But we’re confident in the new
direction, as we have decades of proof that engineering’s V-model approach works
extraordinarily well—and, conversely, that experimenting with parts in the hopes of
landing on a new, high-performing system as does lean startup, leads to high-cost,
low reliability systems.

With that in mind, we hope IVE can serve as a launch pad for an invigorated
entrepreneurship practice that delivers the reliably profitable markets of tomorrow.

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i Varol, Ozan. (2020). Think Like a Rocket Scientist. Public Affairs. New York.
ii “The State of the Global Startup Community.” Startup Genome. Accessed at:
https://startupgenome.com/article/the-state-of-the-global-startup-economy
iii Segall, Ken. (2012). Insanely Simple: The Obsession that Drives Apples Success. Penguin Group. New York.
iv Isaacson, Walter. (2023). Elon Musk. Simon & Shuster. New York.
vBent Flyvberg and Dan Gardner, “How Frank Gehry Delivers on Time and on Budget,” Harvard Business
Review, January-February 2023.
vi
Appelbaum, Alec. “Frank Gehry’s Software Keeps Buildings on Budget.” New York Times. Feb. 10, 2009.
Accessed at: https://www.nytimes.com/2009/02/11/business/11gehry.html
vii
Muratore, John F. “The Art of Systems Engineering.” Lecture, University of Tennessee Space Institute,
October 16, 2008. Accessed at: https://dokumen.tips/documents/4-the-art-of-systems-engineering-rev-1-
john-muratore.html
viii
NASA Langley Research Center Office of Public Affairs. “The Rendezvous That Was Almost Missed: Lunar
Orbit Rendezvous and the Apollo Program [Fact Sheet].” December, 1992. Accessed at:
https://www.nasa.gov/centers/langley/news/factsheets/Rendezvous.html
ixLyon, D. (2012). Systems Engineering: Required for Cost-Effective Development of Secure Products. Global
Information Assurance Certification Paper, The SANS Institute.
x Zeng, Ming. “Alibaba and the Future of Business,” Harvard Business Review, September-October 2018.

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Innovating new, profitable ventures that can help solve pressing environmental and social challenges comes with
enormous complexity and uncertainty. Today, less than 1% of ventures are likely to achieve profitability and survive.

The Integrated Venture Engineering Program (IVEP) at Cornell, a partnership between Cornell's Center for Global
Sustainable Enterprise, The International Council on Systems Engineering (INCOSE) and IVE Systems was created
to advance a novel, engineering-based venture innovation methodology called Integrated Venture Engineering (IVE)
which we believe has the capability of transforming startups’ success rates.

For more information please contact the co-directors at ivep@cornell.edu