Why Small Risks May Yield Bigger Returns for Startups
Think about the way business goals have been pursued since the birth of the modern company.
- Vet an idea
- Get buy-in from company leaders
- Invest in the idea (money, time, resources)
- Launch it
- Market it
- Do everything possible to ensure it doesn’t fail
With overhead at a premium, the stakes can quickly get high. Traditional companies have seen this as a “go big, or go home” kind of play, and if there’s little assurance of success, it’s probably not worth the investment.
But along came the Internet, and with it, the exponential reduction of up-front business costs. Big ideas may be hard to execute for a cash-strapped startup, but smaller ones — an app, a blog, a social network — require relatively minimal investment. If they fail (as most do), so what? If they succeed — well, perhaps you’ve heard of this thing called Twitter.
Author Peter Sims believes this shift from slow, calculated execution to rapid, low-risk iteration has fundamentally remade business in the connected age. His new book, Little Bets: How Breakthrough Ideas Emerge from Small Discoveries, explores how creatives and companies are hitting the right ideas without the burdens of perfectionism, risk-aversion and excessive planning.
We had the opportunity to speak with Sims about the concept, and what it implies for the world of tech startups.
Q&A With Peter Sims, Author of Little Bets
Which tech companies have mastered the little bet?
Google, with its 20% time, has historically embraced little bets, while Amazon and Pixar are exemplars. When exploring new possibilities, [Amazon CEO Jeff] Bezos regularly asks, “why not?” and “what if?” Then Amazon’s team uses little bets to rigorously test and develop their assumptions. That discovery mentality permeates the company’s culture.
Meanwhile, Pixar started as a computer hardware company that got into animated films by making little bets on short films in order to learn the technology and how to tell stories. Today, each Pixar film emerges from literally thousands of little bets.
Can you give an example of a low-risk experiment that paid off big for a tech startup?
Sure. Twitter began as a little bet side project made inside Odeo, a podcasting company that was going nowhere. After asking employees for suggestions about what the company should do, Odeo founder Evan Williams gave Jack Dorsey, then an engineer, two weeks to develop a prototype for his short messaging idea, then an additional six months. Before long, Twitter got spun-off from Odeo and became a big bet.
If you look at the history of successful tech startups — Google, Groupon, Facebook, HP, and so on — you will be hard pressed to find one that didn’t start, or gain real traction, other than with little bets. The truth is, most successful entrepreneurs launch their companies without a brilliant idea and proceed to discover one. Or if they do start with what they think is a great idea, they realize that it’s flawed and then rapidly adapt.
Why do you think work and creativity have shifted from large-scale project planning to incremental steps in the 21st century? Is web culture (bite-sized content, democratization of media and information, lower barrier of entry for entrepreneurs) the sole catalyst, or have you discovered other factors? In other words, does the web make it affordable for business ideas to fail?
There is no doubt that the web is reshaping the way we work and create. Anyone can put up a website or use AdWords to test and develop new ideas and projects, while the plummeting costs of infrastructure via cloud computing make it possible to start and develop a business at very low cost. Gathering feedback is immediate and cheap, and ideas can be evolved quickly. Also, expectations have changed: People understand that life starts in beta, and are willing to provide feedback to help shape the project or idea. Cofounder Ed Catmull describes Pixar’s creative process as going from “suck to non-suck,” and that’s what increasingly happens for companies and projects now.
The “little bets” discussion echoes some modern sociological and cognitive science research indicating that genius is not born, but developed incrementally. Is the new business world of agile companies, job hopping and rapid iteration more closely aligned with how humans are naturally wired to work and think?
My research team and I did extensive research on this question and we found that instantaneous ideas are extremely rare. Mozart was an unusual exception — a prodigy. What is far more common, and far more important to understand, is how an experimental mindset leads to breakthroughs, much like the way Beethoven worked. He made a lot of mistakes, and had to toil through draft after draft.
Each small bet gets us a little bit smarter, a little bit better, and a little bit closer. Genius is over-rated. We’re born to think and work in this way, but have to unlearn a host of mindsets and habits, such as to avoid mistakes or failure. There’s a host of psychology and neuroscience research that can help us shift those mindsets.
What advice would you give to startups that are striving to develop the “next big thing?”
Well, I’ve heard thousands of entrepreneurial stories, some extremely successful, most mediocre or not successful. Finding the next big thing starts with finding the next big problem or need. Steve Jobs has a knack for identifying needs that we don’t even know we have. But for the rest of us mortals, success stems from lots of small steps. Once Chris Rock finds a joke idea that takes off in front of a small audience, he takes that to the big stage. So, little bets are affordable, low-risk, and achievable ways to learn about problems and opportunities, while big bets are for capitalizing upon them. That’s how savvy entrepreneurs make big leaps.
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