Succeeding in Business on the First Try (or how to predict the future)

Mar 21, 2016

IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by Jeff Chen:

Succeeding in Business on the First Try (or how to predict the future)

As business owners, it’s probably fair to say that we generally have a higher tolerance for risk than others in the general population. Investing our own money into an idea that might generate revenue at some point in the future requires quite a bit more courage than showing up to work on someone else’s terms and getting a consistent paycheck every other week. But, perhaps a way to think about succeeding in business is risk management rather than risk taking.

Taking educated bets to succeed faster
Running a business is two parts perspiration & at least one part inspiration. The opportunities that we envision to grow our businesses are generally ones that require some effort and capital to realize. Not everyone has the foresight, fortitude, or resources to be able to explore lucrative opportunities. But the other part of success is the ability to accurately assess risk of unknowns and likelihood of success. We want to invest in ideas that are “winners” and be able to see “losers” quickly before we’ve invested too much time or energy.
We’ve all heard the mantra, “Fail fast”, but what “Fail” means has evolved especially since the Great Recession when funding for new business ventures has become tighter and the need to predict success has become more important. “First to market” was a commonly held philosophy for 1990’s and 2000’s start-ups. The philosophy was that we know we have the right idea, everyone going to want it, and if we can just get it to the market first, we’ll make millions. But, how well do we know what our customers want. How well do our solutions fit both their needs and their unstated desires?
Take the Segway as an example. In the mind of Dean Kamen, the Segway’s inventor, it would revolutionize the way cities are laid out and how people get around them. Venture capitalist John Doerr himself predicted that Segway sales would reach $1 billion faster than any other company in history and that it could be bigger than the Internet. Kamen expected to sell 500,000 Segways by the end of 2002, but he only actually sold 30,000 units in the next six years. What happened? The vision and hopes that many of us have for our businesses and ideas for new products and services often are not perceived in the same way by our intended customers. That’s what I believe happened in this case.
Contrary to popular belief of entrepreneurs and small business owners being mavericks and risk junkies, I believe the best way to take risks when it is your own money on the line is to first understand what strengths and weaknesses you bring to the table. One of the best analogies I’ve heard to running your own business with your OWN money on the line is playing competitive poker. Those of you that play poker know that the game is not about taking all risks presented to you. Rather, it is about taking the risks that are most likely to pay off. You figure out if your hand is worthy of further investment (higher bets) by studying your hand and, more importantly, the perceived strength of your hand versus those of your opponents. An Ace and a King in the hole is likely to be worth going “All In”. A ‘5’ and a ‘7’ likely is not.
You can do this with your business as well by being clear about what assumptions underpin your expectations of return and testing those assumptions in realistic conditions before committing capital. In Dean Kamen’s case, his expectation that millions of people in diverse environments would change their engrained behaviors of using cars and, perhaps, bicycles to ride an upright, two-wheeled motorized device proved to be far from a sure bet. In another example, one of the assumptions proven false when I worked on developing the PC desktop app used to drive reservation of Windows 10 for Microsoft was that just promoting an upgrade to Window 10 as being free would cause a large proportion of PC users to want to upgrade. Based on these results, we found that we needed to apply many principles from behavioral economics to generate desire among PC users to upgrade and convince them to follow through with installing Windows 10.
Even for new ideas that generally fit with what consumers need and desire, there are generally at least some unseen pitfalls in either concept execution or marketing communication that hinders market acceptance. This is the value of understanding what ideas are destined to succeed or fail before going “all in” and committing valuable capital.

Predicting outcomes before committing capital
Two methods are key in helping us predict the customer acceptance of new businesses, products or services. Using current terminology, these methods are:
1. Lean UX (User Experience) which is iterative development and implementation of new ideas
2. Design Research (also known as UX research or User research) which is starting with customer or user needs in designing new business models, products or services

Lean UX is a process of taking building only what is necessary to test the viability of new ideas (named the Minimum Viable Product or ‘MVP’), getting customer feedback on these ideas, doing iterative improvement to the ideas and then repeating the build-test-iterate cycle until the execution of the idea is ready for production. Definitions of each stage of the Design Research process laid out in Figure 2 above is:
Build: Building a Minimum Viable Product (‘MVP’) that can be used to test assumptions underpinning expected success of a new business or product idea.
Measure: Using the MVP to collect feedback from target customer groups
Learn: Use collected feedback to determine how a new business or product idea can be improved to better fit the needs of targeted customers
An MVP consists of only what is necessary to test assumptions behind expected success of a new idea and often is not even a functional product. For instance, one of the best-known MVPs was developed by Dropbox to test their assumption that file sync across multiple devices would be a valuable differentiating feature in the already crowded Cloud storage space. Despite rejection of their idea that file sync would be a valuable differentiation by dozens of venture capitalists, the founders of Dropbox decided to validate their assumption that file sync would have value to their target customers. Their MVP was a video with their envisioned process of file syncing across multiple computing devices mocked up with images rather than an actual workable prototype. They gained validation of their idea when they got 75,000 people signing up to receive email about their proposed product after viewing the video. As a result, they had the confidence to move forward with their concept for Dropbox
Other MVPs might include creating clickable prototypes to show the experience of using a concept for new software or storyboards to show a new retail experience. The types of MVPs that can provide effective feedback is endless. The only commonality is that a good MVP allows gaining feedback from potential customers with minimal investment to be able to make a Go/No Go decision before committing capital.

Design Research is a process of starting with an understanding of customer needs and then taking technical feasibility and business objectives into account to build new product concepts or business strategies. These new ideas are then brought to reality in prototype format and tested with customer feedback. Definitions of each stage of the Design Research process laid out in Figure 2 above is:
Empathize: Observe, engage & listen to people
Define: Make sense of gathered data (qualitative & quantitative)
Ideate: Use insights to find solutions
Prototype: Transform concepts into tangible form (Minimum Viable Product or ‘MVP’ for short)
Test: Share MVP with target customers & collect feedback
Using a Design Research process when coming up with new business or product ideas helps speed the process of finding fit with customer needs. Rather than coming up with a technology-driven “innovation” or marketing plan driven by business objective and then forcing a fit to market needs, the design research process starts by seeking overlap between customer needs, business objectives and technological feasibility.

Some of you will express doubt that consumer feedback can be of any help to innovating especially in the area of new technology. These doubts are often expressed along the lines that consumers can’t talk meaningfully about products that are not yet in existence. My view, however, is that new business and product ideas need to fit with existing consumer needs and behavior patterns. Having insight into these provides insight into what new ideas will and will not work. The oft-repeated quote that was not actually spoken by Henry Ford is an example of how I approach finding opportunity. The quote generally runs along the lines of: “If I had asked people what they wanted, they would have said faster horses.” Some claim this is why the consumer can’t tell you WHAT to build and I agree. But, even taking this quote literally, the consumer is providing invaluable guidance on what appeals to them. The value of the design research process is in understanding WHY. The consumer’s ‘faster horse’ is only a concrete symbol of their desire to get there faster. The innovation question becomes ‘How might we be able to meet the consumers’ desire to get there faster’ rather than how do we build a ‘faster horse’. Understanding what ‘faster’ means to a consumer might mean the solution might either be a form of transportation or something else altogether such as video conferencing? Which solution best fits the WHY driving the consumer’s desire to get there faster? Solutions that don’t satisfy these needs can be quickly discarded for more relevant solutions.

Using Customer Feedback for both Idea Creation and Refinement

Both Lean UX and Design Research share the process of using customer feedback to validate and refine new product and business ideas. However, the Design Research process has the advantage of using customer input even at the idea conception stage. Doing so makes the process of refinement to find product-market fit much faster. However, these two processes are not mutually exclusive. This diagram shows how Design Research can be applied at the front end of innovation to create new concepts and combined with Lean UX in the validation stage:

Getting Customer Feedback for Idea Generation, Idea Refinement and Idea Validation
A wide range of methodologies can be applied in the three parts of the Innovation process which include:
1. Idea Generation
2. Idea Refinement, and
3. Idea Validation
Typically, the research done at the earlier Idea Generation (uncovering and exploring opportunities) & Idea Refinement (refining the definition of opportunities) stages tends to be conducted in person with structured discussions of preferences and observations of behavior. Some examples of exploratory methods that can be used in early stages of business concept development or new product development are interviews, focus group preferably done in context of usage situations anticipated by the new product or business model. At later stages when product or business concepts have been refined, quantitative research methods are desirable to validate the level of appeal of ideas among a target market and help build forecasts for revenue and profitability.

Contact Us for a Free Consultation
Are you interested in accelerating the process of finding success for your business? Contact Jeff Chen at or at 510-578-8594 for a free 30 minute consultation on how Lean UX and Design Research can help your business find success faster.