Testing Business Ideas: A Field Guide for Rapid Experimentation with Alex Osterwalder
Stay, hungry stay, foolish. Seven. Out of ten new products fail to deliver on expectations, our. Guests, book aims, to reverse that statistic, in the. Tradition, of his global bestseller business, model generation this. Practical. Guide contains. A library, of hands-on, techniques, for rapidly testing, new business ideas how. Systematically. Testing business ideas, dramatically. Reduces, the risk and increases. The likelihood of success, of any new venture or business. Project, it. Builds on the internationally. Popular bestseller. Business. Model canvas and value proposition, canvas by integrating, assumptions, mapping and other powerful, Lean Startup style, experiments, testing. Business ideas, shows leaders how to encourage, an experimentation. Mindset, and make, experimentation. A continuous. Repeatable. Process, we, welcome author of testing, business ideas, a field, guide for rapid experimentation. Alex, Osterwalder, welcome. To the show pleasure, to be here thanks for having me before we launch into the book this is your latest of a series of book Alex let's share some of the underlying concepts, of your work for, example managing. Or exploiting, the existing, business while, exploring the, new one these two modes require very. Different mindsets. Different, methodologies. And different. Skill sets absolutely. So the challenge, is you know as soon as you are beyond. The startup mode and you have a business you start making money you're scaling it and. You're successful well, you have to think about reinvention, already, because, things, are changing very fast and it's very hard to stay ahead and the. Bigger you get the more successful, you are let's, say you're an established company, like Nestle, Bayer. You know just a big company then. You, actually forget a little bit how to reinvent yourself doesn't mean you're gonna forget how to do innovation but it's usually more. Efficiency, type of innovation and I, like to say that companies, get really good at getting better at what they do with, efficiency, innovation but. All that will happen, that they more efficiently, died with the dying business model, so, companies. Have to learn how to reinvent, themselves while, they, are managing. The existing business it's not either-or right it's exploitation. Management. Execution. While. You're, already inventing, the next thing and you. Know there are very few companies that do that extremely well the, usual suspect, is is, Amazon. But, I have a new, favorite example. Which is ping on a Chinese company, because. In seven years they, transformed, themselves from, a banking. And insurance company, into, a real tech player that built the biggest health platform in the world so imagine. That right that company, coming. From banking, and insurance we'd say well how did that work well because they really, create this exploit, Explorer culture, and they experiment, a lot and they do a lot of testing.
Of Ideas a lot of them fail but. Then they have some big breakthrough, so good doctors one of their health, platforms, the biggest health platform, on the planet, 170. Million users, and remember. That used to be a simple. You. Know em banking, and insurance conglomerate. So it's possible, even for banks and insurances, so it should be possible for everybody you, mentioned there Nestle, and I love the example of Nestle you've used it before and. Nespresso. Is a great example of a new business model moving. Beyond products, to services and, even. After exploring. Creating, Nespresso. And exploiting, it they, forgot to reinvent, and their patents expired it's a trade a lot of you shared a little bit about this, yeah. So you, know if you take an established, company like, Nestle, a biggest food company, in the world you, know they're world-class at, doing, what they're doing and, they're very good at improving. That so that's why they've been around for 150 years but. Their big breakthrough, innovations, like Nespresso, that was almost 40, years ago right at least three decades ago they, haven't been able to create, the same kind of breakthrough kind. Of innovation, and that's, because, at their core they. Don't have this exploit, Explorer, and you know that the new CEO Marku. Schneider now is very good again at managing, an existing, portfolio made, some very, our acquisitions, they. Acquired the rights of Starbucks. To to. Commercialize. Starbucks, products, around the world I'm. Outside of the Starbucks, coffee store so very brilliant, stuff to improve. What they have but. Not, so not, so good at reinventing. Themselves and, Nespresso is a good example of an extremely, successful brand. A new, business model which, is very different, from what Nestle, had at its core but. They weren't really preoccupied. With growing. And. Kind. Of forgot in in quotes in it too to reinvent themselves so, it's not easy right again the, more successful you are the, more risk, adverse you get the, harder, it gets to reinvent, yourself so that's the challenge how do i you. Know recreate. An innovation. Culture and exploration. Culture, while, I'm, managing. The Corp because again it's not either/or you can't abandon, the core but. The challenge is that many many. Business models in many industries are expiring, banking, pharmaceuticals. Food the, business models are radically, changing, and a lot of disruptors, out there so if, you don't change you're really at risk of getting disrupted, yeah and I love what you say business, models, aren't expiring, as quickly as yogurts, in the fridge the difference is with the yogurt you know the expiry, date with business malls you don't so you better stay ahead so there, is no innovation. Is not an event, it's, a continuous, thing that needs to be in your DNA, so it's. Not making one or two big bets that's the innovation myth, I just need to find the right idea, no, it's about creating, an innovation engine. Creating. A growth funnel, and that's, where where, companies, are I would say not as good as they could be today a, couple, of good examples that, we can talk about where companies started, and they have good results, but. Very few so far that, I would say you, know reach the level of what we call the invincible, company and it's interesting because you mentioned. In espresso and. Nespresso. Had this technology, sitting. There for quite some time and it wasn't until there. Was a burning platform where they were in trouble done it was dusted off the shelf and brought out I thought this is really interesting for business to realize because if it was in their DNA. They'd be constantly. Uncovering. And searching these new, product innovations instead. Of having to do it because the, Titanic. Is sinking we. Can put into can't be, your context, right so most, companies, even startups, but in particular also establish, companies when they innovate, they. Think technology. They think product, they think services, and that's. You, know in particular technology.
Is Kind of a subset of innovation. It's a small field my, favorite, example is still the Nintendo, Wii my and my all-time favorite. Innovation, example, maybe because. When Nintendo, launched, the Wii the Nintendo. Wii it was, actually from a technology, point of view an inferior. Gaming, console. To the competitors, because they used off-the-shelf. Technology. Now, what did they do right they figured, out a different, business model for. That, platform, they. Targeted, casual, gamers, as an underserved, market with. Very fun and simple games that, you control, through motion control so that was the Nintendo, Wii the, graphics, are not so good at processing, power is terrible, but, casual, gamers don't care about that they care about simple, games so, what happens, is you know if you look at the business model, inferior. Technology. In the, in the console, but. Reaching a larger, market casual, gamers with the cheap console, so they would start earning money on the consoles, and the royalties, from game developers, so, inferior. Technology. Superior. Growth and profits, who thinks of innovation, that way right so the, big lesson here is, innovation. Is much larger, than just new products, technologies, and services it's. Great value propositions. Embedded, in great business, models, that's, where the opportunity, is so it's about creating value for customers, and capturing. Value with the right business model so, it sounds kind of trivial the way I'm saying it but if we look at the innovation processes. And companies, they, focus, on products, and technologies, again that's a small subset. Of the innovation. Potential, out there so, what I like to say often is you. Know if you just take 10%, of, the research, and development budget of most, Panisse which, are huge you know huge budgets. A billion, billion dollar budgets, they just took 10%, of those invested. It in exploring, value propositions, and business models I bet, many of the companies, could easily double, their profits easily. It's, just that there's no tradition. Of doing. Business Rd, so testing. Business models, and value propositions, is what I call business R&D. And there's no tradition, of that yet more, and more companies are starting, to do that but. It really is you know a whole, new field so. Companies. Need to to, look at that in a quite different way and do, some things quite drastically, differently. If they, want to succeed with that but it's not a money problem the money is there you just need to allocate it correctly, I'm investing. When you're. In paradise when you're in times of wealth, is really really important because an. Example, you give of a, business that is not the sexiest, business in the world is, Hilty power tools I love this one because everybody. Can see how even, a power tool company can. Reinvent, themselves and, produce new revenue streams and a, new whole face of the business absolutely, and, what they did well is you. Know very fundamental. Shift from. Products. To services and, we call those business model. Shifts, so, what happened at Hilty is that they, started, you, know they continued, and producing. Machine tools for builders very. Good brand very powerful, tools very. Reliable. But, the problem was they were under pressure from, from competitors, and low-cost competitors, around the world so they asked themselves what, are customers really, struggling, with and it, turns out it's really about. Having the right tools in the right place at the right time so. The construction, sites don't shut down so. They said well with, new tools we're not going to solve you, know those challenges. That our customers, have the construction companies, we, need to offer them a service where. They can rent, a fleet of tools and we guarantee the, right tool right place right time so, we take away one of their biggest headaches, so, they shifted towards. Services. At the center, and, customers. You know would less and less buy tools and they were so excited, about that they would even the customers would even want healty to manage their, competitors, tools so very, powerful shift, you, know that's one of many shifts that are possible, if you take the iPhone everybody. Sees the technology.
Innovation When Steve, Jobs launched, the iPhone but. What really made the iPhone, and iOS such. A dominant. Player over, time, practically. It, non-disruptive, all, is when. They added the app store and hundreds. Of thousands, of developers and millions of applications, that is. Impossible. To copy or replicate, overnight, that, business, small aspect, so moving from, selling. Stuff phones, towards. Becoming a platform. For. Applications for, phones that's, what made them virtually, non disruptive so, these kinds, of shifts, are extremely. I would say under explored, so senior. Leaders need to deeply, understand, business models. In, order to, do a better job I think this is such, an easy. Win to think about these things obviously. To implement, them different, question right you need to experiment, not everything's, gonna work but, there's such, a huge potential, there that, you know in many industries the, first mover. Will, have a huge advantage because, so, few companies, really. Think about you. Know how they could transform. Their business model let's dive into the book a little bit more now so let's share the, latest of your series from the strategize, your series but you start the book by saying it's, written for corporate innovators, startup. Entrepreneurs, and solopreneurs. I think this is really important because oftentimes a solopreneur, will. See that and think oh that's not for me that's for big corporate innovation but this book appeals to everyone even when. I was reading about the experiments, even for somebody working in marketing, there's so much value in this book and I'd love if you'd start with a definition, of those three what a corporate, invader is in your eyes what's, a startup entrepreneur and what's the solopreneur, absolutely. You know for all three, segments. If you want they have a very similar job to be done they. Need, to go from idea, to. Validated. Idea or even idea. To value proposition. Business model, validate. That and then scale that it's actually the very same thing for. A solo, print entrepreneur, somebody, who has a day job it might beside that start. To explore potential, new business or, just you knows it's. Explore. A small idea same. Thing for an innovation, team in the company or you. Know the entire innovation funnel, it's about, testing, ideas to, reduce the risk and uncertainty in, order to invest in something that could really work so the, challenge is very very.
Similar From the solopreneur. Who don't has funding, does this as, a side job this, the funded, venture. Capital, backed entrepreneur. With a small team or the. Innovation team within a company, that. Wants to scale this practice, they all have the same challenge, and the reason why we, wrote testing, business ideas, the, book that already came out is because. We believed, you know first we always ask why, does the world need another book right is another book there are millions, of businesses out there the, world doesn't need another book except. If you really believe you have something to add and, what we've seen is, great. Adoption, of the. Ideology, if you want of the lean startup, so, Steve Blank who launched. This whole movement with customer, development has done a phenomenal job, spreading, this around the world then Eric Ries his, student, made that popular, with the Lean Startup book, but. We saw that there's still some. Space for improvement, in how, teams do this to help them get more professional. In how they test so. We, wrote this book with. An entire testing, library, so, we would help, people go beyond just talking to customers doing interviews, to, do more, sophisticated. Experiments. And ultimately. Learn, how, to systematically, D, risk their ideas because innovation is not risky. If you do it right you, make calculated. Bets because. You're experimenting and testing it's. Not about the idea, it's not about a crazy idea it's about, changing. The idea or adapting. The idea based on what you learn in the field so many of us jump straight into, action and into doing and, you tell us too many entrepreneurs, innovators and, solopreneurs, execute, ideas prematurely, because their ideas look great in presentations. That, make sense and spreadsheets, and the business, plan seems to work and the task for many may, sound counterintuitive, to an innovator especially. But it is ultimately, to reduce risk and uncertainty my, favorite, example is still a company, called better place so better. Place wanted. To make electric, vehicles, popular, around the world and they, asked well what's the biggest pain of electric, vehicles, well you got to charge them right so that takes time so. They said what if we built a battery. Swapping. Infrastructure. So battery swapping stations, where you can drive in you. Can swap your batteries, and drive out that would take away the pain immediately so. They started. By making a business plan wonderful, projections, unbelievable. Vision because you know it's great to make have, this vision of making electric. Vehicles popular, throughout the world and then, they started to raise money they had a very. Experienced, executive shy Agassiz who was gonna become CEO of sa P he took over um and, he raised quite a bit of money and then they, started building with the money that they raised the infrastructure, well turns out they, went belly-up, because. They didn't test the most fundamental. Assumptions. Underlying. That, beautiful. Business plan the spreadsheets, looked amazing, and they were able to raise money but, venture, capital, money is not a revenue stream ultimately, you need to make money right so, they. Lost, or burned you could say eight, hundred, and fifty million dollars. Because. They had an amazing business plan, great, vision, and a beautiful, kind, of Excel spreadsheet, and slide deck but, that's not enough it's not about the idea the idea was amazing, the, problem, is they didn't test the, underlying, assumptions, and they didn't adapt, the. Value. Proposition, in business small they could have succeeded I believe if they. Had adapted the assumptions, because, if. You look at Tesla today they're, quite some similarities, it's not that they wanted to build a battery swapping, infrastructure. But you have Tesla, charging, stations, throughout the. World today that costs, a lot of money but, Tesla had a very different approach in. Their DNA they. Started. Testing, their first model. The roadster, from the start so, testing. Their, assumptions. Would people want a powerful. Electric, vehicle, what kind of vehicle. Should this be they tested, and tested and adapted, and adapted, and that's, why they were successful in better place wasn't so we, need to learn how to stress.
Test Our ideas, and adapt. Them into, value propositions, that customers, want and business models that can scale because, ultimately ideas. They're free they're everywhere, you can make them look good but. It's not about raising money and, last, thing maybe I. Start rambling maybe right because I get excited about this stuff you, know to Khosla, the very well-known investor. At a Silicon Valley co-founder. Of Sun Microsystems. Systems. He likes to say if you. Give a team too much money if you raise too much money you actually, decrease. The probability. Of success and why, is that because. Teams, when they have too much money they start, building stuff they start executing. Prematurely. So, it's actually good, at the early, stages, to. Have small. Amounts, of money to continuously. Test and continuously. Adapt, your, initial, idea your initial. Slide. Deck or pitch deck if you want or business, model canvas, or value proposition, canvas in the best case and constantly. Adapt that and that's. A tradition, that needs to develop even further thinks, more, and more ingrained. In the startup culture we need to bring this into large companies, and the lean startup kind, of way, of framing it build measure learn is, not ideal because guess what if you say build measure learn a lot of teams are gonna start to build something when they share a lot more before they build anything that's what I love about your, work and indeed, Eric Ries and we've had Steve Blank on the show only a few weeks ago it's, really paint-by-numbers. And you'd really, do work, extremely, hard to simplify, these concepts, there's, no excuse, anymore, this work, should be taught, in business schools it, should be then integrated. Into business especially those, more crystallized, older businesses. Let's share the iterative process you mentioned build measure learn there but, more, particularly what, makes good business concept. Design, as you say we try to simplify, it down so we kind. Of looked at this process again and said okay let's let's let's, look at the essential. Parts, of going. From idea to real business there, are two main. Things, you need to focus on one, is business, design, your, value proposition and business model you shape that and the, other one is testing, and I deliberately, don't say product, or service, or so because that's just one component so I say business design shaping. Your value proposition and business model that's one aspect testing. It is the other and each, one has three steps, and you go through those continuously. All the time business. Design is basically, very simple, you id8, around, what could the value proposition, in business model be around. A market opportunity, around. A. Technology. Whatever, once. You've done, that kind, of brainstorming. You shape it into a business prototype. A business, small canvas and or a value proposition chemist, and you go very fast you don't write a 40 page business. Plan you don't need that at this stage you, just make a business small canvas a value proposition canvas, if you don't know what that is you can google it you'll find find. That online after. That you assess your business, design you ask okay am i happy with this is the market big enough that I'm addressing is my, business small good enough in terms of recurring revenues, and do the numbers look good can I make more money than I spent but this is all a fantasy, still right so, within an hour maybe, half a day depending on you know where you are you. Can you, can map this out then, you ask okay am i happy and when you're happy you should immediately, go. To the testing, phase and the testing, phase to use Steve blanks words is as simple. As getting. Out of the building and sometimes, that's metaphorical. Sometimes that's literal. So, three. Sets three steps in the testing phase three, simple steps and it. Definitely not build as the first one the, first step, is you. Need to ask the question to. Hypothesize, what. Are the most.
Fundamental. Things, that need to be true for your idea to work what. Are the things that need to be true for your idea to work that, gives you your hypothesis. Your assumptions, so. For example that, this, customer, segment is big enough for example. That this customer, segment has that particular challenge, for example, that this customer, segment even. Has a budget, for the type of solution that you're providing, that this customer, segment is willing. To pay X dollars or, you, can take it from the technology, side which is usually, not what you start with but that's also assumptions, that you, can make the technology, work that, you can get the patents. Or intellectual, property that you need to scale it etc, etc so once, you have those, hypothesis. You need to ask which one is the most fundamental, one the most important, I'll, give you a silly example let's. Say you're gonna make a new iPad. App to. Help people achieve their goals well. Maybe. You want to first test. The assumption, that the people you're targeting actually, have an iPad app so it sounds silly right but you need evidence for that otherwise you're gonna start developing, something without, having tested, the most fundamental. Assumption, that the, people you're targeting have that device so, I'm just taking a silly example to, show you a fundamental. Assumption you need evidence for that right once. You know which, two, three assumptions you should test first and it's. Usually, not, right. Away some kind of the solution. Assumption, it's often. Around the customer, segment you know jobs pains gains then. You go and design your experiment, which, could be as simple as an interview, which, could be something that we call a card sort you put a couple of features or problems. In front of a customer and they start selecting, those that matter and, prioritize, etc, you. You conduct, an experiment you design an experiment then you conduct an experiment from. Your experiment, you learn and whatever. You learn will. Lead you to a decision, and that's the most important, point that's where the. Business design, and the testing, intersect, you, make decisions, based, on what you just learned in the in the field do I need to go back to business design, reshape.
My Business smaller value propositions, or do, I continuous. Testing, and address the next assumption because, guess what those, teams that do this really well they run 10 15. 20. Experiments. Not, just you know oh I did two interview, series and then they're happy no they do 20. Different types, of experiments, landing. Pages pre-sales. Google. Searches they look at search data they look at CRM data etc, etc so this is now more like a profession. Than. What we used to have 5-10, years ago where it was a little bit more just than ideology this. Is now something where we can even measure the, reduction. Of risk and uncertainty so, it's almost getting. Boring because now we can almost call it innovation, accounting. And whether you use the word accounting. We're probably not in the Wild West anymore, we're getting towards the boring territory, but that shows that this is becoming, a profession, if, you do it right and also, you're getting by and then from the finance team for example because one of the biggest difficulties is bringing, the. Old business who's protecting, revenues, as they are today or they were yesterday into. A new world on reducing, that risk and showing that you're doing this work to reduce the risk is probably, a huge, first step and you. Tell us to consider three, types of risk which I'd love if your chair the, first is desirability, risk the second feasibility, risk and the last is, viability, risk, and I, would add a fourth one which we put in in, our upcoming book the invincible, company which is adaptability, risk so the, way you want to look at it is you have an idea you shape it with your value proposition canvas. And business small canvas and then you need to ask what, needs to be true and that will give you all of the different assumptions, and you can kind of classify, them into four types of risks the, first one is and, this doesn't come from us a lot of people have talked about the types of risks before what. What we did differently is we we. Show how it relates, to the business model and how you can systematically, test this so first type of risk desirability. Do. Customers, even want what, we have to offer can. We you, know and manage. The right channels, to even reach them can we acquire them that's all desirability. Risk and then. You have feasibility, risk can we build it you know can we manage the key resources can we manage the activities can, we get the partners, on or that we need those, are all, feasibility. Risks and then, you have viability, risks, which is at the end of the day can, we make more money from, this than we spend so it's not just about figuring, out revenue, streams and, pricing. The risks related to making. Money but also costs, you, know can we figure out do. We have some evidence that we know how much it's gonna cost us and then, when I say adaptability, risk, it's it's about timing is this the right idea to the right moment to launch this idea is the, infrastructure.
Out There in, the field etc etc is it macro economically. The right moment so, desirability. Feasibility. Viability. And adaptability, are all the different types of risks and you need, to, find evidence for all four, of these categories to, show this. Idea could really work and often. You, start with desirability, risk but, if you look at companies today they, actually test. Feasibility. Risk first can we build it but can we build it it's not the first thing you want to do is, imagine you invested, a half, a million a million or more showing. That you can build it and then you learn that nobody wants it that sounds, really stupid like why would anybody build something, nobody wants if. You look at the statistics, seven. Out of ten product, and service launches, don't. Deliver on expectations because. People, first, test, if they, can build it and then they launch it and then, they, don't meet expectations. So, this research comes, from a Simon. Kutcher the pricing, firm and they, clearly show there is a problem there now the problem, is not because, people are too stupid and they, they build something nobody wants it's because their processes. Actually, condemned. Them to first test. If they can build it so, small. Funny anecdote. You know I always ask in my master. Classes, and talks when, I have a room full of people I asked. Them who, of you is working on a product, or service that nobody wants and. You always have people putting, hands up so, are these people stupid. Like why would they work on that no it's, because there's. Another thing that you, know in established. Companies we have we. Really bad at killing. Projects. So, projects, that should be killed are going. On so, we need a better way to manage, these different, types of risks and kill. Them based. On evidence. Or not evidence not based on oh this is a great idea somebody's. Opinion, some, manager, thinks this is a great idea the CEO thinks this is a great idea opinions. Don't matter in, innovation. We should make much more evidence-based. Investments. Of course we need vision and exploration. But, we need to make evidence-based, decisions. Yeah. And I can see why so many people fall. In love with their idea and they, resist this stage, of.
Hypothesizing. And finding, evidence to see if it's working or not because I'm sure this is very difficult stage for people because, they're intensely, interrogating. The idea before it even gets to the experiment, phase at all there's. Lots of biases, that get in the way we, developed, a tool exactly. For that so we created a scorecard. With it's called the innovation project. Scorecard, and basically. On that scorecard. You have questions, related to desirability. Feasibility. Viability, and adaptability. And we, don't ask you know do you think this is a desirable, we ask what's. Your evidence and then you have to score and, do, we have a lot of evidence from a lot of experiments, that customers, want this or do, we have no evidence is just belief, and what. You see is when teams have, to score, their projects. It's, like a mirror, in their face which it still, could be a good idea but when you have no add evidence, it's just an idea the, more evidence you have the. More likely it is to become, a successful business, one, of my colleagues at strategize, err tender Vicky also, a well-known author he wrote a book that was successful, called the corporate startup, he. Does this with teams you know sometimes, when, he manages, a group, of people with different innovation, projects, he. Gets the senior. Leaders to, get all of the teams to score, their, projects. In terms of evidence desirability. Feasibility. Viability and adaptability, and the, scores from zero to ten and what, often happens, is all of these teams score, themselves somewhere between zero, to three, in terms, of the evidence, they have that, this is actually, a good idea not just on paper good idea but evidence, and what, that means is, immediately. The teams get. Get them you know have a mirror in their face that shows it's very risky we don't know if we should invest in these ideas we better test more so, that's why we developed this scorecard, so. Every team can immediately, score. How much evidence they have how much they D risk the idea and we also give it to senior leaders so. When they look. At an idea they don't look at it the idea from do I like it or do I not like it but, they look at it from the perspective does. This team have evidence, that this is actually, a good idea to, invest in so, we have to train senior, leaders to look. At projects, in a different way because again in innovation. You invest differently. Than, in execution, if you're, building a new warehouse the, experience, of somebody who's done it two three times matters. A lot and you can make opinion, based decisions. In, innovation. Actually, opinion. From the past your experience, from the past can. Prevent, you from seeing the future so you need to make evidence-based. Investments. Not opinion, based investments, and oftentimes we can make metrics. And analysis. And data tell. The story we wanted to and when. It comes to insights you emphasize there is a difference, between looking, at something, and looking, for something yeah, we really get teams to start. To tell their story, you know from this is our vision but then okay. How, many different, experiments, did we do to. Prove, for. Example that people have a budget for a certain solution. And, when. You, have different data sets then. You know it's, not just about twisting, the data but you have different experiments, that, all you, know show the same kind of pattern so it really becomes more reality than just opinion, because you can make data say anything. You want if it's just one data set but when you start to have data from three four different experiments, make, it concrete first. One is a series of interviews, second. One is something, you did with a call to action on a landing, page people had to sign up with her email third, one is free sales fourth one is simulated. Sales maybe in a store where. You put a product in the shelves, that, is not mass-market, yet then, you have, patterns. You can discover from, three four different experiments. For the same assumption, that people actually want this product this, is now becoming a profession, it's, not one, interview. Series or so that can prove if this is a good idea or not it's. 10 15 or 20 different types of experiments, that you need to run to, de-risk, and then. People say yeah but this is gonna be costly, it's gonna take time no, because you go very fast you. Go very fast and you don't hire a an agency, to do it for you you do it yourself you have to roll, up your sleeves and that's sometimes hard for senior.
Leaders To swallow because. They haven't been leaving, the building for a long time you know designing. Experiments, talking, to customers and, doing this or that this. Is a complete. Change in attitude, it's, different from management this is entrepreneurship, and, one of the things you, talked, about is the. Speed of change for, example if, I'm, a larger, organization in particular and I say this because these are the types of organization, who have the budget to create. An insight, based decision, so they may hire a company, to go and do some research, that will feed a decision, and you. Say that these decisions, based on insights must be made really quickly because. Their value expires, really quickly and that speed. Is increasing, yeah. And I would take, Steve blanks point of view he's very clear, there he says you can't outsource, customer. Development he can't outsource, Lean Startup you can't outsource, testing, why, is that when, you, hire an. Agency. And outside agency, and big companies do this all the time right for market testing in execution. When, they do marketing, campaigns that they're it's okay use a different ballgame when you explore, you. Say okay this is our assumption we. Need to test it we need to do an interview series if you hire, an outside, agency. To do the interview, series, for you, they, will go and execute maybe, 100 interviews but maybe after 10, or 15, or 20 you've, already learned so much that, you need to take a completely, different direction and, if. After hundred, you know you hear, very clear. Signal the. Agency, can never tell. You in the same way that clear signal, then if you had talked to customers in the field so, you can't outsource, this. Kind of stuff, imagine, if, your VC, and you. Invest in a start-up and they say first thing oh yeah, we're gonna hire Bain. You know to do this kind of work for us but, you would run as an investor, right yeah yeah for sure you can't outsource. Innovation. Exploration. What, you can do it when if you if you want to outsource it you invest in a start-up that's the only way you can actually outsource, this but, you can't use agencies. For this that's why we also believe, when. We write these books the, methods, are the, most important, and when we accompany, large. Companies, like Bayer we. Do it as coaches, but they need to do the heavy lifting you, can't take this away from them you can't hire consultants. To do the testing for you the, outside, parties, can coach you but. You need to put that you know make that time available, and that's the thing that that, people don't always do so in establish, companies, getting. Time from, people is more. Difficult than getting money so while there's big innovation, budgets sometimes what, we don't have is time budgets. People, need to invest the time to.
Experiment, Not, to run workshops but to get out of the building into tests that's, the biggest challenge and. I'm sure anybody who's listening it can confirm, it's often, easier, to hire outside, consultants. To, do work rather. Than getting a full-time employee on a, project, and that is a huge issue that is a huge, issue because. You can't outsource. Innovation. And exploration, it's, such a cultural. Thing as well to allow people the time I often, think about this even in leadership that if, you help a colleague or you lead a colleague, or you train them in some way. That's intangible, and often. The organization, is so fixed. On measurement. Of tangible, things that, it doesn't give people the time to experiment, even to think so. Everybody, has a bias towards action because, that's, what they're measured on is what have you produced rather than what, have you not produced and saved as a fortune because you've. Minimized the risk it's, even worse than that because you're, measured, on what you produce for, the execution. Engine so. Now let's, take the organizations. That do this well let's look at the positive, side you, take a company like Amazon there. Are a lot of things they could do better we can agree on that but they're really world-class, at innovation, probably, among the top you know one two three four companies, when it comes to innovation it's in their DNA one. Of the reasons is that their CEO, and founder Jeff Bezos says. To. The shareholders. A very strong, and loud signal, we, are the best place in the world to. Fail and, the. Next, thing he would say is that innovation. Invention, and, failure. Are inseparable, twins. You can't. Win. At an innovation, if you don't explore. And actually, fail a lot because that's. Where, the learning comes from you have to adapt and change until. The, winners emerge you can't pick the winners the winners emerge, from experiments, so, what. They did really well at Amazon, is create, this space where. You're not measured, on execution. Alone but you're also, measured. In terms of exploration. They, had a lot of big failures right just. Think about the Kindle Fire phone, like. You huge, failure in most. Companies teams, that fail that big would get fired at Amazon. You don't get fired for that kind, of experimentation. And failure because they know it's part of the innovation process, you, get allocated to a different team if you, fail in building a new warehouse of course not so good because that's an execution challenge. No failure allowed but. They experiment. A lot so we need to give people the time and the space and. One. Thing I'd say you know if anybody, out there wants. To have work in, innovation, or is working innovation, and asks well how do I know if my company, will innovate or not there's. A very simple measure I take from reading, McGrath the friend. In Columbia Scholar she. Just came out with a book called looking, around corners, if, you. Want to understand, if a company can innovate you need to look at the CEOs, time. Use agenda, if the, CEO doesn't. Invest, 40. At least 40, to 50 percent of his or her time on innovation. Innovation. Will not happen at that company because it's a very symbolic, value, where, the CEO, invests. His or her time as CEO. Who doesn't, invest time in innovation. Every. Single, week will, communicate. Symbolically. To the company, innovation, does not matter in our company, and if. It's not the CEO it should be a Co Co so if you take ping on as another model example, Peter.
MA The founder, is not, the person who's doing the innovation. It's Jessica Tan Co CEO who. Really makes sure that top, management, attention is spent on innovation, so what's missing in innovation, is power and time, allocation, at, the senior leadership level just. At the beginning of this week I was in Paris with the CEOs of a top French company, and I said the same thing as look them in the eye and said you guys have to invest, 40. Percent of your time knowing. That that's not easy right the stock market, doesn't usually value, that very, much we'd say innovation is about inventing, the future well the stock market cares about dividends, for the next year, they don't really care about the future that much you mentioned riether mcgrath had Amy Edmondson on the show recently we were talking about psychological, safety she's, the mother of this concept, and I. Was, thinking about what you said about outsourcing. To a consultancy, firm like, Bain for example or some research. Company, to get your insights and she had a beautiful way of putting this she said you, need to create the environment where. The DNA of the company is such that, everybody. Working in the company is a sensor, they, are all picking up information from the environment from, the market, and they're feeding that back and they have the environment, in which they can feed that information back I thought it was a lovely, way to. Consider. An environment. Put tease me up for the next part because even. Though you, walk, us through all these different tests you, say, how important, the team is and how important designing. The team is you said there's five million things you need to consider the. Cross-functional. Skill set access. To missing skill sets testing, tools entrepreneurial. Experience. And diversity. And I loved what you said about diversity, in particular, because for. Many organizations, diversity. Is a tick box exercise based. On race, or, sex. Or background. But, it's diversity, of thinking, that's so important, and the way you phrase, it is a. Lack of diverse, experiences. And perspectives on, a team will result in baking. Your biases, right, into the business and that's the fear, absolutely. You know when. You have teams. Who've been you know in the core business and they're very homogenous, and they've never looked outside, of the core business you know think I don't, know pharmaceutical. Or banking it's very hard for them to think, outside of the box and to imagine new things if you don't design, diversity. Into those teams you're. Not going to get breakthrough. Business, smalls or value propositions, the, aspect, that I would put really at the very top is one, we underestimate. A lot it's experience. Doing. Innovation. And entrepreneurship, the. Sense that this is so different from, managing, a business your, best managers, are not necessarily, the best Explorer it's actually very rare and your best explorers. Will rarely be the best managers, so, we kind of know that like oh that's common sense yeah, but if we look at the processes. What. Happens, in many companies, is they. Create an accelerator, and then, they take people from, the execution engine from the core business they, put them into the accelerator, for a week or so and then, you know they do project, for it for a, project. Of maybe three months or so and then they do several phases but, these people come and go from, the execution, engine well. That, means you're eternally, working, with amateurs, it's, as if you'd say yeah. And we're gonna create the best surgeons, by just taking a couple who've. Done you know three months of surgery, sleeping. On I don't know dead bodies are so you're, gonna become world-class, surgeons, no you. Better at this overtime.
Nobody. Has become a world-class, entrepreneur. Overnight, so guess what nobody's gonna become a world-class innovator. Overnight, first-time, innovators, first-time, entrepreneurs, are terrible, they're gonna make all the mistakes, possible. That's why medical students, have to deeply, study anatomy. And physiology first. Snip. It around on dead bodies before they ever get close to living bodies, so, the same attitude needs to be in innovation. Do. The same in accounting, so why, should this be different the. Attitude, we today, have towards, innovation is not a professional, one we say oh it's just business no, it's not it's very different processes. Very different mindset different, tools different metrics, so, we need to take this more seriously, and even, if you look at the statistics. The. Most successful, entrepreneurs we, all think oh there must be young right Silicon, Valley well, turns out it's, 40, upwards, the average, of this successful, entrepreneur. Out, there is 40. Years upwards, so while, the press puts, young people, you know 30 under 30 on, the cover of magazines that's, great but, it's actually the accept the exception, in terms of innovation success, why. Is it that older. People, might be very successful at entrepreneurship, it's not because they're old per se but they have more experience and, they probably have more experience with, several, ventures, so, same in innovation, we, need to have some core people who've done this five times 10 times and they, can be surrounded, by a diverse, team of people who come from the execution, engine from, the supply chain from marketing, etc but. We need some professional innovators. And I, like to say that there's a huge opportunity for corporations. To. Create the. Salaried. Entrepreneur. Which, is a very different profile. From the crazy entrepreneur, who does it outside, with VC money because that's high, risk profile, is crazy, he's you put your whole savings, and everything on, the line I believe. You can have a similar, kind of drive with a slightly, different risk profile, people, who say I don't want, to go that, crazy route, I'm, driven by entrepreneurship. I'm an explorer, but. I want to have something a little safer or. Entrepreneurs. Who've done it once twice three times four times and they, want to work in a different environment with, more resources when, I say resource not just money it's, maybe access, to the brand and customers, and supply chain of an, established, company because. I believe, if large. Corporations. Figure this out, they, have all the assets that they need to crush. Startups. Today's, startups, are only winning, because. Large, corporations, are slow and they don't use their assets and in terms of funding today's startups are probably, better funded, than corporate. Innovation teams, because there's so much venture. Capital, money out there but as soon as established, companies, get their act together, example. Amazon, example, ping gun soon, as they get their act together it's extremely. Hard to compete. Against them and startups, need big corporations, sometimes, as well because they have markets, existing, they have assets. They're logistics, and supply, chains all these things in place that. The partnership can be a beautiful partnership and then the large, organization. Can learn from the startup and integrate, that DNA, someway absolutely. So a beautiful, example is that is one that we should all be concerned about which is climate change so. There are a lot of very, interesting startups. In the field of climate change but. They, can't succeed as a small, entity, it's too difficult for them to scale, to a level world they, were have a big impact and they, often get crushed, by competitors. Who. Don't want them to succeed so, they have to partner, with. Companies. Who are willing to go into a partnership so. They can scale a lot faster, so in that particular, domain a lot, of partnerships, are emerging, between very, innovative startups. And very. Established, corporations, so I do believe, there's. A lot, corporations. Can get out of startups, it's, one instrument right so I like this whole idea of using. All the instruments, mergers and acquisitions.
Homegrown. Partnerships. And investment. In startups so, I think established. Companies, and leadership teams need, to learn, how. To use, the full at. Said, to manage the portfolio, beyond. The typical big mergers and acquisitions, which is a tool that I don't think is bad per se was, just one tool investing. In startups is it different what partnerships, is a different, one so senior. Leadership teams, need to get a lot better at, managing. Their portfolios. Using, all of the actions possible in, particular. In the innovation, field I knew, even in this book give us a framework, around not, only how. To select, the ideal team for, this new DNA but. Also how. To even run meetings so I'd love to touch on this in particularly the section on ceremonies, because they're so important, within organizations. Let's. Share that and also your thoughts on, co-located. Versus distributed, teams because. We're. In a time where we're in a global market, it's an employee's, market, so they may go okay well I'll work for you but I'm gonna work from home so, that causes, a new way of a new mode of thinking for many many organizations, that they have to get used to it love to hear your thoughts so when. We wrote, this book together with David bland, who. Has. Long experience, in this work with Eric Ries for a long time and has worked with so many companies, you know in Silicon, Valley and Beyond we. Looked at the process, also it wasn't one what goal was to create a testing, library different experiments, but the other goal was to help teams with. Some of the fundamentals. You know how many meetings do I have you. Know once, a day the huddle once a week with the team the learning and insight and decision meeting do we need to change our value, proposition or business model then with the growth, board like all those. Ceremonies. You need to put in place to do this systematically, we. Have so much experience with, this that we didn't want people to have to figure out on their, own and kind of reinvent the wheel so we clearly.
Described The different types of ceremonies and meetings you want to have and what you want to discuss, that is the, one aspect the, other aspect, is really you. Know how do you invest in these teams also from the leadership perspective because. You invest, into innovation. Teams in a different way well, number one you invest in evidence, we already covered that one but, you also or. Maybe three months of, sprint you will also stop. Investing, in 50, to 70% of those teams and you will only do follow-up, investments, in 30% of those teams that's, very important, that's the role of the growth courts where, you also have a ceremony and you never need to as leadership, make, clear to those who don't get following up investments. That, this is not a failure it's normal, that only, 30% get, follow up investment, and you encourage, those who didn't, get follow up investments, to, come back in the, next cohort. With their next idea so this is an ongoing thing, where. Sometimes, you succeed, because your timing was right because, the project, was right the market was good the pricing, is right you got the technology you got the differentiation. And very, many times you will be wrong and that's okay but, the whole organization. Needs to put in place different, types of ceremonies, from, execution. And management, that is ephraim managing, the core business so that's important, to understand, that these ceremonies, and innovation, and, exploration. Are fundamentally. Different from those, in, execution. I thought a great, thing to do would be talk. About how to select, your very first experiment, and here. You share some very basic, rules of thumb yeah. So it's, very simple that when you start, out. Uncertainty. And risk is, at its maximum right because you're just starting with an idea you might have some evidence that this is a market opportunity but you don't really know if it's gonna work you don't know and and every, idea has a different risk profile, but let's assume you don't know if the, customer segment is interested, you don't know if the value proposition, is gonna fly you don't know if you can make the business model work in terms of channels. Revenue, streams activities, etc so risk, is very high and when, risk is very high your. Experiments, should be very cheap, and fast and you should quickly. Quick and dirty you should get some first insights, if there is even anything there, where. You had a vision because Steve Blank likes to say you've gotta be careful that your vision is not a hallucination, and the. Way you check that is, with, very quick and dirty experiments. So typically. You, know interviews. Is very good but even for interviews, you could get more sophisticated, give. You an example once you kind. Of know what your customers. Pains are you. Can do a simple exercise, called, speed boat comes from innovation games from a guy called Luke omen you put, up a visual, kind of on the wall at a boat and you ask your, your interviewees.
To, Put anchors, for everything, that's holding, them back from doing a job well for all the big paints and the bigger the pain the, lower down they should draw the anchor, put a sticky note on the wall and what, you immediately get is something you can't get from a verbal, interview. Is that you, start, to see visually, what, are their biggest paints, in relationship, to each other and when the, interviewee, sees, that while they're doing this they, will also have a completely, different kind of reaction they'll put some things really far down and say this is the biggest biggest paint this needs to be all the way at the bottom so, that those, are things that give you pretty, quick insights at the beginning so you start quick and dirty now, here's the thing you. Start learning if you're right or wrong the more you learn the. More you can do sophisticated. Experiments. That means you've decreased the risk and the, more you decrease the risk the more you can afford to, do an expensive. Experiment. For, example to build something, and. It might take you more time because. You, already know you're, probably on the right path you're gonna let waste less time because, if you start with building something you, know even when you do an MVP, it quick-and-dirty. It still takes time it's, still probably gonna take more time than talking to people so you want to start quick and dirty and the, more, you know the less risk, and uncertainty there, is the, more you can spend time on sophisticated. Experiments, that's definitely, rule, of thumb another. Rule of thumb is, that you, want to test the same. Hypothesis. With, several, experiments, let's, say let's think willingness, to pay so. First, you, could do an interview, you start talking, to people but we all know what people say and what they do different. Kind of thing you, could do you know the usual suspect, if you're in consumer, you could do a landing, page so. You can start, to, ask them to on a Buy button for a certain price that's, already a little bit stronger evidence or. For. The same hypothesis. Start. To simulate a sales and just before this, typically, in b2b, you. Could put a brochure of a non-existing. Product, in front of potential customers, start. To have a conversation there's. A price tag on it and you already start to feel are they interested, or not and they will say yeah but I need a discount, or this is too expensive and you, don't even tell them that this is not an existing product so you can start, to have very. Good feeling of, willingness. To pay with, very different experiments, so rule, of thumb is same, hypothesis. You test it with different types of experiments and the.
More You want to be confident, about you, know is this gonna, work or not this, stronger, the evidence should be the more experiments, you should have so those are a couple of rules of thumbs that you want to follow and again. Something. Like 15 to 20 experiments. Is what professional. Innovators. And entrepreneurs do, it's, not just you know doing a series of interviews that's going to validate an idea, I still, see this in the field because this is not yet in a profession. So people should get a lot better at this this, is why it needs to be baked into the DNA and you give even a sequence, how do you sequence these different, experiments. And what do you do for each different industry, even for example highly regulated industries. Like Pharma, and banking, that they can experiment, as well we won't have time to go into that today Alex. There's a story that comes from Napoleon Hills Think and Grow Rich about, a guy called oryu Darby and what. Napoleon Hill tells is this guy Darby, wanted. To capitalize on the, gold, rush so he bought a lot of equipment. Had. Access to some land spent. Months. And weeks mining, this land for gold and at once a she decided, it. Was hopeless so he sold all his equipment to a junkman, the. Junk man believed, perhaps, that were still gold, in the, land so, he decided to dig a little further, three. Feet later he, discovers, gold one of the biggest strikes, there was in this territory, Derry had given up. When, he was three feet from gold and, for. Many of our. Listeners they're entrepreneurs, they, work in startups perhaps. They're corporate entrepreneurs. The. Question, often comes to people's mind when. Do I give up the ghost or in, your world when, the why pivot, when, do I persevere, and when do I kill yeah, I think there's a there's a false. Assumption, there is that you can pivot yourself, to success right and that you, know if you just pivot enough you're gonna find gold and, if we look at the reality in particular, in corporations, there's. Actually, two little, killing of ideas, and that. Prevents. The winners to emerge so what you want to do is you want to understand, you, can't pick, the winner you're not going to find, that spot, where. Gold, is you. Need a different approach you. Actually need to spread your bets you need to make many small, bets at the beginning, many many small bets, and then. After. You, know three months you, reduce, those, small. Bets you made at the beginning you go from ten maybe to five or three right and then again you do the same thing you go from three to one that's, how the winners emerge now the. Question, is how. Many small. Bets do I need to make let's say if I'm a corporation, you, know how many teams do I need to invest a hundred thousand, dollars each to. Create one outlier, one big success, like five hundred million dollar success, or a billion dollar revenue success, how many teams the. Data from early-stage venture, capital, shows you you'd, have to invest in two, hundred and fifty, teams of, which, 168. Will outright, fail and, then, a small portion of that will know some success, only one out of 250. Will, be the outlier, so. Rather than saying I'm, gonna you know keep on digging with that one team you actually, need to have 250. Gold diggers and then, from those 250. Only. One will strike gold only one will find gold that's the way, venture.
Capital, Works that's, the way innovation. Investment, in corporations. Should work you can't pivot yourself, success. What you can do is create an innovation funnel. Where. You will fail enough, for the winners to emerge so when, the corporate leaders say Alex. Which team do, I invest in which idea, do I invest in I say you don't you. Invest, in a portfolio and. If, you have that kind of funnel with phases where you're constantly weed. Out the. Losers based. On lack of evidence and you invest, in the winner who have most evidence, most traction not the most beautiful slide deck then. Two. Things will happen you. Will weed out the bad ideas and the winning ideas will come out on top and you will weed out the teams that are not entrepreneurial. And the, winning teams will come out on top and this, is not to say you know those teams that didn't succeed were silly, or stupid there. Was just nothing there they couldn't find gold when there was no gold so, that's how you pick the winner and that, is how venture, capital, worked and that's what we need to get into corporations. Besides. The typical corporate. Finance, to run the business we. Need to create a mini venture. Capital, firm within and this is different from corporate, venture capital, we're investing, in our own teams internally, it needs to be in the DNA corporate. Venture capital, never made it into the DNA of company so don't, get me wrong this is a different, thing that's, how you pick the winners not, by thinking, you can pick but. By investing, in a portfolio, so you will have not, return, on investment, of a team you will have return on investment, of a portfolio that's. How we diversify. Risk in in finance, that's exactly, how you diversify, risk, in innovation, as well alex for people who want to find out more about your work strategies or the books etc or work and they find you we, give a lot away on, strategize, or comm, so you can go there there's the blog there's tons of resources to download we, always give a quarter, of each book away, for free so people can get a teaser they're very visual, books so, you can shape your opinion if you like it they're youtube videos, so just google also, strategize. Or Alex, Osterwalder. And you'll find a ton of free, resources but, also online courses and so that you can get if you want to go a bit deeper author, of, testing, business ideas of field guide for rapid experimentation, alex. Osterwalder, thank, you for joining us thanks, for having me this was fun.