How Did These Stanford Students Turn $5 Into $650 In Just 2 Hours? They used the power of first principles, and so do you.

In 2009, Stanford Business School professor Tina Seeling divided the students into 14 teams and gave each team an envelope containing $5 in “seed funding.”

Each team could take as much time as they wanted over the next five days to plan. They were encouraged to "be entrepreneurs by identifying opportunities, challenging assumptions, leveraging the limited resources available to them, and being creative." But once their envelopes were opened, they only had two hours to generate as much money as possible.

Then the following Monday, each team had three minutes to present their project to the whole class.

What would you do? If you're like most people informally interviewed by Seeling, you might buy a lottery ticket. Or use the $5 to place a bet. Or use the $5 to buy supplies for a car wash or lemonade stand.

“[Nice options] for those who want to earn a few extra bucks by spending money in two hours,” Seeling writes. "But most of my students eventually found a way to go way beyond the standard answers. They took the challenge of challenging traditional assumptions seriously, exposing a multitude of possibilities in order to create as much value as possible."

Even so, the results, as always, varied:

A team bought cheap items from a discount store and tried to resell them for a profit. (You can guess how well it worked.) Another team set up a booth in front of the student union and inflated bicycle tires for $1. To their surprise, the convenience resulted in many takers. In fact, customers were so happy to use the service that the team went from flat pricing to asking for “donations,” and the revenue generated skyrocketed. “The iterative process,” Seeling writes, “where small changes are made in response to customer feedback, allowed them to optimize their strategy on the fly.” Another team booked reservations at popular restaurants and then resold their seats online to people wanting to avoid the wait. They also iterated quickly. The male members of the team ran around town to make reservations while the women did the "sale" when the team noticed that people were more comfortable being approached by women than by men. They also realized that it was more cost-effective to focus on restaurants that provided buzzing pagers: physically swapping one pager with a longer wait time for one with a shorter wait time gave people the felt like they were getting something tangible – and giving students another booking they could sell. .

The last two projects generated several hundred dollars in revenue. That's an impressive two-hour payback on $5 in seed capital.

Yet another team took a very different approach.

Instead of thinking about turning $5 into more money (buying and reselling products) or making the most of the two hours they were given (inflating tires or selling reservations), they made it all the way back, and decided that the most valuable asset they had was the three-minute presentation time in front of the whole class.

So they sold their pitch time for $650 to a local business in hopes of recruiting students into the class, generating a return on investment of over 12,000%.

“They recognized,” Seeling writes, “that they had a fabulously valuable asset that others hadn't even noticed, just waiting to be exploited.”

First principles

Aristotle was arguably the first to popularize the concept of the first principle: a basic proposition or assumption that cannot be deduced from any other proposition or assumption.

In simple terms, first principles mean establishing a fundamental fact or conclusion that you know to be true, deconstructing it down to its basic elements...