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.

Think like an owner.

The first job I had out of college I worked for an entrepreneur. I worked for him for 11 years. It wasn’t until I had been there 7 years that he finally felt comfortable allowing me to run a part of the business. I vividly remember that day. We had just sat down to review the monthly financials which usually turned into an intense exercise or interrogation. I recall the session went really well and I left his office feeling pretty pleased with myself. Later that night when he was leaving for the day he stopped by my office. He said that he felt very comfortable with me and that he trusted me with running the department but it wasn’t because I had answered all of his questions successfully earlier in the day. He said, “Matt I trust you because you are finally starting to think like me about the business.” From that point forward in my career I challenged people to, “Think like the owner.” Thinking like the owner is different than thinking like an employee. The ability to be able to see the entire interconnected organization vs. just the individual parts where you play a role. Once you begin to see the organization as a system then your whole mindset will begin to change as you see it from an entirely different vantage point.

In order for people to think like owners we have to create the right environment. Here are some characteristics of those environments: 1) Empowerment+Autonomy+Trust. In order for people to act and think like the owner they have to be empowered. What does that truly mean? It means that as the owner and leaders within the company, we need to give people projects which expose them to all areas of the organization in order to gain new and different skills, experience, and knowledge. In my own experience, I worked in the professional services group and was able to work on joint projects with marketing, sales, finance, and HR. It is also the responsibility of the organization to empower people in the “right way” and then give them the autonomy to execute individually or as a team. Also, a part of thinking and acting like the owner requires us to understand when something doesn’t go as planned and we fail. It is imperative that we have created a culture in which team members understand how we deal with failure both individually and organizationally. We need to have created a culture that emphasizes and makes them feel confident that they will be supported. If team members feel safe to make mistakes and fail at certain projects we can create a sense of trust. The trust that is created as a part of that process also motivates team members to want to do better. Team accountability can be more powerful.

2) Accountability and Servant Leadership. Several years before I joined the business the owner had to file bankruptcy and faced potentially having to shut down the business. During the bankruptcy, the owner promised the entire team that he would not miss payroll. He never did. As the owner and someone that wants to act like the owner, you have to be accountable to yourself and of equal importance be accountable to your team. This means that you are accountable to all of your team members even those that may be outside of your group, division, or department. The owner is accountable for everyone from the boardroom to the bathroom and so should you. If you look up “Servant leadership” this approach puts the needs of the organization, employees, and community above themselves. Servant leaders create a culture of trust, have an unselfish mindset, and promote others into leadership roles. What is the connection between “Servant leadership” and thinking like an owner? I believe that the Servant leader often has the same mindset as a person who thinks like the owner. The majority of the entrepreneurs that I have worked with built organizations that understood the critical nature of trust, autonomy, and empowerment.

3) Incentivize and celebrate. In order to increase this behavior organizations need to determine ways to incentivize and reward people who demonstrate the think like an owner attitude and mentality. Some companies actually formalize this through equity or ESOP programs. In other companies, they incentivize this through bonus programs or salary reviews. In one example, as a leader, I created a cross-functional team in order to review ways for us to reduce companywide expenses. Utilizing a systems thinking framework we outlined the outcomes, criteria for success, and gaps where we need more data and created a plan. I assigned two leads to manage the project and after 3 months they had created a set of recommendations that would have reduced our monthly expenses by 20%. We ended up implementing a portion of their recommendations and each member of the team was recognized at the company quarterly meeting, received a quarterly bonus and a few of the members were eventually promoted. A few of the members asked that we forego a bonus and wanted us to pay for some leadership and professional development.

In the end, the organizations that incorporated the“think like the owner approach or who are able to get their team members to “take ownership of the work” or had “high levels of engagement” all had the following things in common:

• Hired smart people and empowered them to do good work.

• Paid them really well and provided great benefits.

• Created and maintained an environment with a high degree of trust, autonomy, and accountability.

• Provided the systems, structures, frameworks, and tools in order to help their team be successful for the customer.

• Incentivized, rewarded, and celebrated successful accomplishments and learned from their failures, and improved.

• Invested in people’s personal and professional development.

• Built a great product or provided a great service that the customer loved.

Why do we change organizations?

In 1997 I was at the Kansas City Airport, I was getting ready to board a plane for a business trip and I needed something for the trip to read. I picked up the April/May issue of Fast Company magazine. On the front cover in big bold letters was the word, “Change.” I quickly identified with the content because I had just been promoted to manager and the company was experiencing explosive growth.

I can recall reading the entire magazine from cover to cover before I ever landed in Florida. There was a specific article called, “The 10 laws of Change” that seemed to describe what I was feeling about the changes personally and also what the company seemed to be experiencing. Also, in 1996 John Kotter published his book called “Leading Change” where he looked at several companies' efforts to transform their organizations. John concluded that there were eight steps to transform your organization:

1. Establish a sense of urgency

2. Forming a powerful guiding coalition

3. Creating a vision

4. Communicating the vision

5. Empowering others to act on the vision

6. Planning for and creating short-term wins

7. Consolidating improvements and producing still more change

8. Institutionalizing new approach

The question is not only how the transformation will work but a more basic question that I had was understanding why we needed to change the organization. If you look at what changes in our daily, monthly, and yearly lives and business you can look at these factors:

• Social-Demographics (People/Society)

• Competition/Substitutes

• Economics/Ecology

• Political/Regulatory

• Technology

• Industry/Suppliers

• Customers/Consumers

In Systems Thinking there is a concept called, “The Iceberg of Change" or "Theory of Change."

This concept explains that when you are going to change any system there are four elements that come into play. 0.1 Content. The content of the change; the change-related tasks and goals. 0.2 Processes. The process of change; is how we carry out tasks and meet our goals. 0.3 Structures. The structures or frameworks within the content and process operate; the arrangements we must set up to manage change. 0.4 Culture/Commitment. These are the values, assumptions, or beliefs that we have.

In most organizational change efforts we focus on the things that we can see which are those that are listed above the water line in the diagram below. The reality of what we should be focused on when changing organizations is that 87-90% of those factors/issues that are below the iceberg. The reality is that as organizations change and grow we should be focused on also building the appropriate amount of processes and structures necessary in order to make these changes. Additionally, we need to be listening to the organization to understand how these changes are impacting our beliefs, norms, and behaviors which make up our culture.

In the original Fast Company issue they talk about people being “Change Agents.” Over my career, I have never really viewed myself as a change agent but in the latter half of my career, I have found that most Entrepreneurs, Founders, and CEOs have hired me for that exact reason. They want my experience and expertise because they had a goal or mission to change their organization in some meaningful way. The change may come in the form of high performance, scaling the business, or using new technologies to create some optimization.

We naturally want to avoid change - we prefer the status quo, with its comfort and familiarity, and stability, rather than pursue change with its awkwardness, uncertainty, and ambiguity. However, we can increase our chances of transforming the organization if we have: (a) a clear understanding of why we need to change (b) a clear structure for change and (c) a framework that helps us manage the change