A tech hackathon is typically a half-day to two-day event where teams get together and build a product in a very short period of time. They’re always fun and interesting, often organized around specific platforms (like Foursquare), and a great way to meet new people, get into a community and test your chops. At Year One Labs we’ve also found hackathons to be fairly instructive in terms of finding quality entrepreneurs: the hackathon is a microcosm of what it takes to build a startup.

In my recent post on lessons learned launching a lean startup accelerator I made reference to another kind of hackathon — the Business Model Hackathon — as a tool we’ve used to vet entrepreneurs, find interesting people and learn. A few people asked me for more information on what we did, so I’m sharing that with you now.

We did a handful of business model hackathons at Year One Labs, and each one ended up being a bit different. We didn’t follow a strict process, because a lot of what’s involved is fairly free form brainstorming. But I’ve tried to organize the process into a reasonable structure that can be replicated.

1. Start with an idea. You need a starting point, so start with your existing idea. Pitch it to the people in the room as if you’re pitching it to investors (or partners or customers). Two things to focus on: (1) the target market (because it’s a potential point for pivoting), and (2) what’s been learned so far (assuming you’ve done some amount of work on the idea already.) Think of this as the baseline from which you’re going to “hack.” This should take ~15 minutes.
2. Brainstorm shifts in the target market / customer segment. Now take that idea and imagine it working in other markets. Some might be tangential, but some could be completely different. Can you switch from B2C to B2B? Can you change the industry completely? See where that brainstorming goes. Make sure you write all of this down. This should take ~30-45 minutes.
3. Freely brainstorm new ideas. Go beyond shifting the target market or one aspect of the idea and brainstorm completely new ideas. This is a free form discussion that has to take place to get everyone comfortable speaking out, tossing around ideas and chatting actively. The process has to be completely open. This should take ~30-60 minutes.

The Year One Labs group would go through the above steps with teams. It usually took between 1.5-2 hours. It’s a lot of fun once you get rolling, although initially founders can be hesitant, because the process involves tearing their ideas apart. The goal is to rebuild those ideas in different ways, but initially it can be challenging for people to go through the process.

Once these steps are done, we asked the entrepreneurs to work on their own:

4. Pick a few of the ideas to hack on further. Now take a few of the ideas you’ve brainstormed (2-3) and start building the case for each one. This isn’t about finding one “perfect” idea, it’s about going through the exercise of hacking ideas to their conclusion. It’s about being creative and exercising your brain. This is where the Lean Canvas or something similar can help a great deal. You’re going to want to address most of the aspects of the idea: problem, solution, unique value proposition, customer segments, revenue, channels, etc. The ideas you’re tackling could all be wildly different, or quite similar to each other. This should take ~2 hours.

Then we all got back together for the final stage:

5. Present the ideas. Now it’s time to present the ideas. The format isn’t critical, but again the Lean Canvas or a similar structure makes sense. You should have things written down though, and use whiteboards or some other means of expressing your ideas clearly (that’s a big part of the process.) Each idea is presented and brainstormed separately. The goal is to probe the process more than the ideas themselves. We spent most of this time asking questions. The simplest question is “why?” Why do you think that’s a problem? Why do you think that market is accessible? Why do you think that makes sense? It’s about understanding the thought processes and seeing how people react to the process. This should take ~1 hour.
6. Discuss next steps. At the end of the process it’s important to discuss next steps. Which idea do you like the most? Why? How would you go out and validate any of the ideas? You should circle back on the original idea, where everything started, and compare it to the new ideas, and what was learned through the hackathon. This should take ~30 minutes.

In total the process is around 6 hours. It can be done in less time too. But be fairly rigorous about going through the steps.

Note that there’s no discussion about competition. Competition may become a discussion point but it’s not really a significant issue right now. There isn’t a focus on financials either (i.e. raising capital, or how capital is being spent), but business model and revenue generation are part of the discussion.

Although I went through this process to evaluate entrepreneurs, it can be done internally as well. People can pitch each other, or bring in trusted advisors to help out. The key is to be extremely openminded at the outset and ready to tear things apart, then focus on being rigorous, extremely inquisitive and honest with yourself (and the team) after.

As investors (with Year One Labs) we used business model hackathons to evaluate entrepreneurs. The dynamics of a team are very apparent in this kind of situation. You’ve forced the entrepreneurs into a situation that they’re not necessarily used to, asked them to get out of their comfort zone, and the results (good or bad) are usually quite obvious. The entrepreneurs that are invigorated by the process stand out in a big way – they’re excited and eager to keep going. They’re starting to really understand the value of a Lean methodology, and you can see the DNA setting in. But take investors out of the mix and it’s still an absolutely valid and important exercise to go through. For a startup it may lead to a critical pivot or help with big decisions that are inevitable in a startup. Think of the process as forcing honesty and openness, two things that entrepreneurs tend to put aside to “focus” (often incorrectly and wastefully) on their startup.