I am in a cargo-cult, what do I do if the plane actually lands: Do entrepreneurs really learn?

In a recent paper, Frankish and colleagues reported research showing that entrepreneurs do not really learn, they just claim they do. They analysed data from 6854 firms and found no connection between previous business ownership and likelihood of future success in a new venture. People who have previously owned a business had the same failure rates as people who are just starting out. Frankish et al. attribute this finding to the strong role played by chance in entrepreneurial success (i.e. you can't really learn to play the lottery).

This is the interesting thing about entrepreneurship. You can do all the 'right things' and fail. You can also do all the 'wrong things' and succeed. You can also do all the 'right things' and succeed, but your success will have nothing to do with anything you were doing. If you read books on entrepreneurship and innovation, they are full of advice about what you should do or not do. Grow virally, charge from day one, do not charge from day one, raise money, don't raise money - bootstrap, built something that you find useful and others will to, build something beautiful, et cetera ad nauseum.

Most successful entrepreneurs provide advice based on their own experiences. However, no two entrepreneurship situations are exactly the same. This is why Frankish et al. found that previous entrepreneurial success does not predict future success. So following some entrepreneurship advice is a bit like being in a cargo-cult. You don't really know if the advice you are following is really relevant or useful for your situation. You are just doing the 'right things' because it is the 'right thing' to do...

But this is where it gets interesting. Imagine you are in a cargo-cult. You are doing all the actions you have seen other people do when planes were landing. You do it a few times and one day the plane actually lands! 

Whoa!!

If this ever happened, outsider observers might know that this is just a coincidence. You just happened to be doing your rituals when a distressed plane needed to land and was directed to your island.  However, for members of the cargo cult this will be certain confirmation that their rituals are the 'right thing' to do.

Now, in  real cargo cults there is no real chance of this happening or at least the chances are smaller than the likelihood of someone winning the lottery twenty times in a row in ten different countries. But in the cargo cults of entrepreneurial practice this can certainly happen, and it happens a lot! People's business ideas can succeed because of reasons other than what they are doing (e.g. having a Facebook page). However, people will in engage in illusory correlations and connect their actions to their success. This is a classic case of being fooled by randomness. This is also why some entrepreneurs are often disappointed/confused after they do all the 'right things' and their business fails.

The lean startup approach is powerful  because viewing the startup as an experiment in search of a sustainable business model stops entrepreneurs from going gung-ho on ideas that sound plausible but are not fully tested. And when done right, it also deals with the cargo-cult problem because entrepreneurs are forced to explicitly state hypotheses about what they expect to happen and to develop scientifically sound methods for testing these hypotheses.

Then we will know, with some level of certainty, that in this situation, for this particular startup, these actions really caused 'the plane to land'. We also know that in a different startup, in a different situation, even if it is working on the exact same product, those same actions may not necessarily lead to success.

Passion Plus Effort = Sweet-Spot

Recently, Mark Cuban wrote a post entitled Don't Follow You Passion, Follow Your Effort. In it he argues that people should not follow their passion, but rather follow their effort. He argues that the harder you work, the better you become at something and the more passionate you become about it. Interestingly, Cuban's advice to "Follow Your Effort" is a half-truth. It is a half-truth in the same way that "Follow Your Passion" is a half-truth. As with most things, reality is somewhere in the middle.

• Passion Without Effort is Just a Dream... We all know the guy who never gets off his backside and had the idea for E-Bay before E-bay! Just pursuing your passion/talent without realising the effort it takes to excel is just as likely to lead to failure. 

• Effort Without Passion is Drudgery... We all know some really hard working people who are excellent at their work, and yet at the same time really hate what they do for a living. For some its not by choice, sometimes you've got to do, what you've got to do. But this does not necessarily lead to passion developing. 

Within the Lean Startup framework, vision is equally as important as the everyday effort and tedium of innovation accounting (http://ow.ly/a9snD). Effort is applied in the service of vision. Furthermore, it is not just random effort, it is deliberate effort directed at validated learning. Otherwise people are just "busy doing nothing". Startups are hard work, and the only thing to keep you going when you are in the trough of sorrow, is commitment to your passion/vision, and a validated sense that you are on the right path. People also need to know that just because you are pursuing your passion does not mean that you don't have to work hard. If you think talent is enough, just check out Malcolm Gladwell's 10, 000 hour rule. Not many of us get the opportunity to pursue our passion and make money at the same time. But when we do, and we apply ourselves with deliberate effort, then we have found that sweet-spot! 

Four Reasons why the Business Model Canvas is NOT Too Simplistic

Alex Osterwalder’s business model canvas is a powerful tool. Its power has been demonstrated in a variety of contexts including large organizations and charities working in Africa (e.g. BalloonKenya). The value of business models in general cannot be denied. Business models are important as way of describing how an organization creates, delivers and captures value. However, given what we know about the complexity of business in the real world, is the business model canvas too simplistic?

The answer to that question is a resounding NO. The business model canvas is not TOO simplistic. A better way to describe the canvas is to say that it is NOT unnecessarily complex. There is a difference between those two notions. I outline my reasoning below

1.  Visual Language: We should not underestimate the power of a visual language. A visual language has the ability to cross cultural barriers and allow people from different backgrounds to collaborate successfully. These can be people from different cultures, as demonstrated by BalloonKenya, or people from different departments within the same organization. Once you have a visual lexicon that everyone understands, people can go beyond negotiating meaning, and start creating valuable artefacts.
2.  Ockam’s Razor: The canvas allows people to think about the main aspects of their business model and represent these visually. It is possible to critique the canvas as not being exhaustive in terms of considering all aspects of the business world. This may be true. However, it is also equally true that the aspects of the business model represented on the canvas are perhaps the most critical for success. An attempt to make it more ‘realistic’ by incorporating other factors may make it more complex, without necessarily adding value. In line with Ockam’s Razor it can be argued that “It is vain to do with more what can be done with less”.  
3. Gestalt Psychology: One of the most powerful aspects of the canvas is the ability to visualise all the moving parts of your business model on one chart. In business plans this information is usually spread over several pages. This can make it difficult to get an immediate sense of the entire business model. In contrast, the business model canvas is consistent with the principles of Gestalt Psychology. This is often quoted as; “The whole is greater than the sum of its parts”. In Gestalt Psychology, the parts are equally important as the sum that is generated from combining them. The power of the business model canvas is that it allows people to focus in on each aspect of their business model when necessary and also step out and get a sense of the entire model.   
4. The Process: The power of the business model canvas becomes most apparent when it is combined with Steve Blank’s customer development process. In this context, you start to see that the processes that the canvas enables can be quite complex. All the aspects of a completed business model canvas can be viewed as hypotheses. Each aspect can then be tested by getting out of the building. The use of post-it notes illustrates that each aspect can be changed/modified at any time in response to feedback from the market place. This is a major weakness of the traditional business plan. It does not enable this process of hypothesis testing and iteration. In contrast, the business model canvas can be used to capture the evolution of your business model as you develop and improve it.

As can be seen from the foregoing, the business model canvas is NOT too simplistic. This is not to say that it is a perfect tool. It could become, as Sean Murphy argues, a Procrustean bed, if every organization tries as much as possible to extend or trim their business models to fit the canvas. There should be a realisation that the canvas is not a panacea for all the challenges that people face when designing their business models. It should not be used in a manner that suspends all critical analysis. However, this does not take away from its power as a tool to drive business model innovation. A more interesting discussion could be about situations in which the canvas may not be the appropriate tool to use. Feel free to chime in. 

How Minimal Should Our Minimum Viable Product Be?

Whenever I am involved in discussions about minimum viable products one question that often arises is:

How minimal should my MVP be?

I will quickly try to address this question in this post. A good place to start is to recognise the main goal of building MVPs. We must always remember that our ultimate goal is to build products that people want. So our main job is to figure out what customers want. We need to learn this quickly, before wasting too many resources. Are we solving a problem that customers really have? Is our proposed solution something customer view as valuable? Will they pay the amount we assume for the product? Remember, there are many ideas that sound great on paper but fail because customers will not pay money for them, or even use them for free!

So once we are clear in our mind that the main thing is to learn about our customers, it becomes easy to decide how minimal the MVP should be. It is important to realise that the MVP is merely a tool for learning about our customers. It is not necessarily the final product. So, the decision about what to do with the MVP should be based on the specific hypothesis about customers that we are currently testing. Are we testing a problem hypothesis, are we testing whether customer will respond to our value proposition, are we testing pricing, or are we testing whether to add a new feature? Whatever the case may be, you need to design the minimum ‘product’ that will allow you to learn what you need to know about customers. Anything more is waste, and probably noise that adds confounding factors to your experiment.

What we refer to as MVP, scientists call operationalization. When a scientist develops hypotheses about any phenomenon in the world, the next task is to figure out the experimental design to physically test this hypothesis. These can be as simple as a pen and paper survey and as complex and expensive as the hadron collider. The choice of operationalization is entirely dependent on the research question at hand. So, how minimal should our MVP be?

 The MVP should as simple as is necessary to test specific hypotheses about customers. 

Anything more is waste.