Add a npm script to make npm run demo-app do what you would expect.

package.json

@@ -7,6 +7,9 @@
     "type": "git",
     "url": "https://github.com/angular/material2.git"
   },
+  "scripts": {
+    "demo-app": "cd src && ng serve"
+  },
   "version": "2.0.0-alpha.0",
   "license": "Apache-2.0",
   "engines": {