Getting TerraPass on the Road

Wharton prof Karl Ulrich talks about how he and his students created -- in the classroom -- a business for trading auto emissions

Karl Ulrich is chairman of the Operations & Information Management department at the Wharton School at the University of Pennsylvania in Philadelphia. Ulrich has also been a member of development teams for over 30 new products or processes, including medical devices, tools, computer peripherals, food products, and sporting goods.

He recently co-founded TerraPass, a service he created with students in a course on problem-solving. TerraPass allows consumers to pay to offset their car's emissions through investment in clean-energy alternatives such as wind and methane capture. Ulrich recently spoke with BusinessWeek Online reporter Jeffrey Gangemi about what it takes to start a successful company in an MBA classroom. Edited excerpts of their conversation follow:

Q: How did the idea for TerraPass evolve?


I teach problem-solving, design, and system improvement. Last summer, I generated a bunch of business ideas that we might do as a class. I stumbled on the idea for TerraPass on one of my long drives in my pickup truck from Philadelphia to Vermont. As an environmentalist, I felt guilty about the pollution I was causing, so I devised TerraPass as a way to fix it. The idea fit well with the concepts covered in the course.

Q: How did you use TerraPass to teach those concepts?


For the naming process alone, we set aside two or three sessions. Together, we generated 6,000 alternatives -- 40 students each came up with 150 names.

This is an important lesson. Students generate 10 and think they can't come up with any more. One of the insights there is that you just need to keep working to make sure you've explored the landscape. It's a real challenge, but worthwhile in the long run.

Choosing the name together helped them discover the ability of groups to make a good decision. I wanted to teach almost all of the lessons with reference to the TerraPass project. All but one class dealt specifically with our project.

Q: How did you assemble a management team within the class?


I arranged the work into 14 buckets and divided the class into that many teams. I assigned responsibility and deliverables to each, and then let it happen. Six students, who met with me twice a week after class, volunteered to serve as coordinators for the whole project.

Q: How do you recognize the leaders within the group?


In a normal class, you don't see it. In this class, the students who really delivered on their objectives were obvious. The range from best to worst salesperson was infinite, because the worst salesperson sold nothing and the best sold 100 units.

Q: How important is the entrepreneurial spirit?


I think that's the most important thing. I was surprised by the variance in work ethic and the ability to get things done, even among such an elite group of students.

There are about three or four students who really stand out. That's a lesson for managerial life. They're all really smart, but some have the ability to deal with an unstructured problem, get things done, be well organized, and work well in teams.

Q: How did you dole out the work?


It was a challenge to delegate work to all 40 people and make sure we were making the best use of everyone. We framed it in terms of two kinds of managerial problems. One kind is like building a ship in a bottle -- having a lot of people won't speed up that process. Another is like painting a building -- the more people you have on that task, the faster you're going to get it done. We had to think carefully about which tasks were which and how to deploy resources appropriately. That was one of the key learning objectives.

Q: How hard was it to raise the startup capital for the project?


I've started a lot of businesses and have never had trouble raising money for a good idea. If you've really done a good job of validating the opportunity, eliminating key risk factors, and can demonstrate some early results, then people are willing to place a bet.

Q: What's the difference between venture capital and angel investment, and which did you use? A: Venture capital is institutional investment, usually in a relatively large chunk -- generally about $2 million or so. It's done institutionally, using other people's money. I've only raised venture capital once, and it wasn't for this project.

We work with angel investment. Angels are anonymous. They're entrepreneurs who have a lot of money. They're usually investing under $100,000. Finding angels is all about connections. Even if you don't know them personally, you need to be connected by about one degree of separation.

Q: Is B-school the time and place to start your own business?


It's not a good reason to go to business school, but it's a good time in life to do something entrepreneurial. There are many courses, competitions, clubs, speakers, and mentoring resources -- just a lot of opportunity. I've seen students be successful in using that time as a way to explore entrepreneurial interests.

Q: When should someone commit to his or her enterprise full-time?


You can call it a learning experience for a year, but after that, you have to decide. It depends on your own personal preferences and appetite for risk. If you have loans, a family, and a mortgage, then you're going to have to take a different road than someone who can stay in graduate school mode, really loves it, and has a little money saved up.

Q: Any further advice for would-be entrepreneurs?


Following your passion is a good way to guarantee career success and happiness. At a big business school like Wharton, it's relatively easy to find a group of about 20 or 30 students who have a similar interest. Find a group that connects with your passion. That's the best way to make the most of your experience.

Before it's here, it's on the Bloomberg Terminal.