What can entrepreneurs learn from startups and scientists?

In the last decade, I've had the privilege of working with seven different entrepreneurs, each with a unique approach to building and growing their businesses. Some looked to the startup community for inspiration and ideas, hoping to discover new strategies to expand their revenues. But, what if there was a more systematic approach to business growth?

In 2018, Bocconi University researchers in Milan, Italy conducted a study to compare the effectiveness of two approaches used by 116 start-up companies. The first approach was a heuristic one, relying on intuition, past experiences, trial and error, pattern recognition, and analogy. The second was a scientific approach, relying on empirical data, experiments, hypotheses, and systematic observation to make decisions.

After an eight-week training program, the researchers collected data on the actions and performance of all 116 start-ups over the following year. 59 of them were encouraged to use the scientific approach. Here are the key findings:

• 24 of the start-ups using the scientific approach dropped out, compared to 20 of those using the heuristic approach.

• The start-ups using the scientific approach pivoted 26 times, while those using the heuristic approach only pivoted 12 times, indicating that the scientific approach may lead to more frequent pivots and greater adaptability.

• Start-ups utilizing the scientific approach earned higher average revenue, which the researchers attributed to the precision that helped them perform better and avoid bad decisions.
  

Earlier in 2011 Eric Ries wrote, “The Lean Startup,” which proposed the following process:

1. Develop a hypothesis: Identify a problem or opportunity and formulate a hypothesis about how to address it. This could involve creating a new product, service, or business model.

2. Build a minimum viable product (MVP): Create a basic version of the product or service that allows you to test your hypothesis with real customers. The MVP should be simple and cost-effective to produce.

3. Test the MVP: Launch the MVP and collect feedback from early adopters. Use this feedback to make improvements to the product or service.

4. Measure progress: Set metrics to measure the success of the MVP and track progress over time. This could include metrics like user engagement, conversion rates, or revenue.

5. Iterate and pivot: Use the feedback and metrics to make data-driven decisions about how to improve the product or service. If the hypothesis is not validated, consider pivoting to a new idea.

6. Scale: Once the hypothesis is validated and the product or service is successful, scale the business by investing in marketing, hiring, and expanding the product or service offerings.

Since its publication, several companies have cited the Lean Startup process as key to its success, such as Dropbox, Airbnb, and Instagram.

So what can existing businesses learn from these startup companies and their approach?

1. Agility: Startups are often able to move quickly and make decisions faster than larger, more established companies. Existing businesses can learn from this by embracing a culture of experimentation and innovation, and by being willing to pivot or change direction if needed.

2. Customer focus: Startups are typically very focused on understanding and meeting the needs of their customers. Existing businesses can learn from this by investing in customer research and feedback, and by making customer needs a top priority.

3. Lean approach: Startups often operate with limited resources and budgets, which forces them to be creative and resourceful. Existing businesses can learn from this by adopting a lean approach to their operations, streamlining processes, and reducing waste.

4. Entrepreneurial mindset: Startups are often driven by a strong entrepreneurial spirit and a willingness to take risks. Existing businesses can learn from this by fostering a culture of innovation and encouraging employees to take risks and explore new ideas.

5. Technology adoption: Startups are often early adopters of new technologies and tools. Existing businesses can learn from this by staying up-to-date with the latest technology trends and investing in new tools and systems that can help them work more efficiently and effectively.

Another interesting connection is the approach startups use in relation to the scientific method. In the 16th and 17th centuries, scientists such as Francis Bacon, Galileo Galilei, and Issac Newton were just a few who were responsible for the creation of the scientific method. They created this process:

1. Observation: The scientific process begins with observation, which involves using our senses to gather data about a natural phenomenon.

2. Question: Based on the observations, a question is formulated that seeks to understand the underlying cause or mechanism of the phenomenon.

3. Hypothesis: A hypothesis is a proposed explanation or prediction for the observed phenomenon that can be tested through further experimentation.

4. Experimentation: Experiments are designed to test the hypothesis by manipulating one or more variables and observing the effects on the phenomenon of interest.

5. Analysis: Data is collected and analyzed using statistical methods and other techniques to determine if the results support or refute the hypothesis.

6. Conclusion: Based on the analysis, a conclusion is drawn about the validity of the hypothesis, and the results are reported in a scientific paper or presentation.

7. Peer review: The scientific process involves peer review, where the results are reviewed and critiqued by other experts in the field to ensure that the study is conducted in a rigorous and unbiased manner.

8. Replication: The scientific process also involves replication, where other researchers attempt to replicate the results of the study to confirm its validity and reliability.
   

This then made me start wondering about - What can entrepreneurs learn from thinking more like scientists?

1. Hypothesis-driven problem solving: Scientists use the scientific method to identify and test hypotheses. Entrepreneurs who think like scientists can use this same approach to identify and test business hypotheses, such as the potential market for a new product or service.

2. Data-driven decision-making: Scientists rely on data to make decisions and entrepreneurs who think like scientists can do the same. By gathering and analyzing data, entrepreneurs can make informed decisions that are based on facts rather than speculation.

3. Experimentation: Scientists conduct experiments to test their hypotheses and entrepreneurs who think like scientists can do the same. By testing different approaches and strategies, entrepreneurs can learn what works and what doesn't, and adjust their business accordingly.

4. Risk mitigation: Scientists carefully design experiments to minimize risk, and entrepreneurs who think like scientists can do the same. By testing and validating their ideas before investing significant time and resources, entrepreneurs can reduce the risk of failure.

5. Innovation: Scientists are often at the forefront of innovation, and entrepreneurs who think like scientists can leverage this same approach to drive innovation in their businesses. By constantly testing and experimenting with new ideas, entrepreneurs can stay ahead of the competition and develop new products and services that meet the needs of their customers.

Overall, entrepreneurs who think like scientists are more likely to make data-driven decisions, minimize risk, and drive innovation in their businesses.

The Entrepreneurial Mindset.

"The entrepreneurial mindset is characterized by a willingness to fail, learn, and adapt, while others may be content with the status quo."

- Anonymous

I recently spoke at the University of Missouri-Kansas City about the "entrepreneurial mindset." Before I gave the talk, I reached out to some entrepreneurs I've worked with in the past to get their take on the topic.

First, I spoke with my mentor, who has been running his own business for over 19 years. I asked him if he considers himself an entrepreneur, and he surprised me by saying, "Not really. I just have a unique set of skills and perspectives that I use to solve problems for companies."

"The world’s biggest problems are the world’s biggest business opportunities." - Peter Diamandis

Next, I talked to a friend I worked with for five years who had a similar response. He said, "Back in the 1990s during the Dot-com bubble, it became fashionable to call oneself an entrepreneur, especially in tech. But most entrepreneurs I know just see themselves as problem-solvers and builders. In my case, I identified a gap in the marketplace, created a product to fill that gap, and built a business around it. Even after 20 years, we're still solving the same problem - the people, organization, and technology have changed, but the problem remains." During my talk with the students, I asked the audience some questions to gauge their own mindset: Do you like uncertainty? How do you respond to the unknown? Where do you fall on the risk continuum? How do you handle setbacks and failure? When I didn't get much of a response, I tried a different approach: Do you enjoy finding new opportunities? Do you like using creativity to solve complex problems? Do you aspire to be seen as a visionary or innovator? Do you want to be known for solving complex problems?

"Entrepreneurship is not about avoiding failure, it's about embracing risk." - Gary Vaynerchuk

These questions and the associated answers are what make up the entrepreneurial mindset, but many people who embody this mindset don't necessarily see themselves as entrepreneurs. The answers also describe what it's like to work in small, growth-oriented businesses, which is where I've been fortunate to spend most of my career. I feel privileged to work with these talented individuals as they pursue their dreams. Celebrating their successes and working together through tough times has earned my deep respect for entrepreneurs as builders and problem-solvers.

The Ignorance of Arrogance.

"Ignorance more frequently begets confidence than does knowledge." - Charles Darwin

I have worked with leaders and managers who exhibited both ignorance and arrogance. While I find both traits to be incompatible with my own leadership style, I believe that the combination of the two can be extremely detrimental to the organization. This is especially true when the founder of the company is also the leader who is plagued by these weaknesses. In such cases, the overconfidence and reluctance to adapt to changing market demands can pose a significant threat to the company's success and even its survival.

Throughout my career, I have had the privilege of working for seven Founder-led CEOs. These were privately held companies that offered a wide range of professional services and technology solutions to clients across various industries. From global law firms and Fortune 500 in-house counsel, healthcare systems, innovation teams, technology companies, physicians, attorneys, researchers, and computer and data science engineers, these companies catered to a diverse clientele. They ranged in size, with revenues varying from $1 million to $20 million and teams ranging from 20 to 250 members.

Although I have worked with these entrepreneurs, I have never founded a company or been a CEO. Therefore, I cannot fully comprehend what it takes to transition from a founder's mindset to a CEO's mindset. Nevertheless, over the years, I have witnessed some of the challenges, frustrations, and crises that arise when founders undergo this transition.

"In technology, failure is often a precondition to future successes, while prosperity can be the beginning of the end." - Jacquie McNish, author of Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of BlackBerry.

Take the case of Mike Lazaridis, the Co-founder, Electrical Engineer, and CEO of Blackberry. Despite being a highly respected figure in the industry (even today, lawyers reminisce about their Blackberries), Blackberry ultimately failed due to a variety of reasons, one of which was Mike's inability to acknowledge his own limitations. As the company's founder, it was natural for him to feel a sense of ownership and expertise over every aspect of the business. However, when consumers began demanding new features like touchscreens and internet browsers, Mike's inability to listen to his team and reluctance to acknowledge his own knowledge gaps prevented Blackberry from keeping up with the competition. This is in stark contrast to someone like Steve Jobs, who actively sought out new ideas and input from his team while building the first iPhone. *(See note below) Ultimately, Mike's lack of humility and adaptability would be his downfall. During my time working with founder-led CEOs this is what I have learned:

1. Vision: Since they are the ones who founded the company, they may have a strong attachment to their original vision and may struggle to pivot or adjust as the market changes.
   

2. Delegating: Founders may have a hard time letting go of certain responsibilities and delegating tasks to others, which can lead to burnout and a lack of scalability.
   

3. Change: Founders may resist change or new ideas, as they have a deep attachment to the company's original culture and values.
   

4. Experience: Many founders are not experienced in managing teams, scaling businesses, or handling complex financial matters, which can lead to challenges in these areas.
   

5. Networking: Founders may have a limited network of contacts or industry connections, which can make it more difficult to secure partnerships, funding, or other resources.
   

6. Emotional attachment: As the company is often seen as an extension of him or her, founders may struggle to separate their emotions from business decisions, which can lead to poor choices.
   

7. Succession planning: Founders may struggle with planning for their eventual departure from the company, as they may feel that no one can replace them or continue their vision. This can lead to challenges in grooming and retaining talent for leadership roles.

The majority of CEOs who have hired me in the past to run their companies have recognized the need for help in these seven areas, along with some coaching, counseling, and advising. The successful ones understand the importance of acknowledging what they don't know and seeking out the skills, expertise, and experience they lack in order to grow their business. By recognizing their limitations and actively seeking support, these CEOs demonstrate a commitment to their company's success and a willingness to learn and grow as leaders. *Note: In 2004 Apple team members pitched the idea of turning the iPod into a phone to which Jobs responded with, "Why the f@*& would we do that? That is the dumbest idea I've ever heard."

"The only thing more dangerous than ignorance is arrogance." - Albert Einstein