The set of decisions that take place over which programs and projects to pursue is the highest leverage point for the senior team of any organization. In this series, we explore the intersection between the latest work on making high-quality decisions and establishing innovation portfolios.
This is the second post (if you’d like to start at the beginning, the first post is here) in a four-post series on innovation decision making using the schema described in Chip and Dan Heath’s book, Decisive.
3 Steps to Effective Reality Testing
One of the more powerful concepts to come out of the business model canvas and lean startup communities has been the concept of reality testing a business on paper as much as possible before committing to establishing a new endeavor.
Step #1: Find the Fiction
This book does a great job of making the case for “licensing” skepticism, or in other words, making constructive criticism of the approach acceptable. It also rightly points out that this type of discussion can quickly turn very political, owing to the fact that at early points in the business model, mostly what is being debated is opinion.
It’s then that Dan and Chip offer one of the more powerful viewpoint-shifting questions I have run across in some time:
What would have to be true for this (option) to be the right answer?
The wisdom in this question is that it gets both skeptics and optimists on the same side of the table to have a robust discussion around the key items that ‘must’ be true for it to be a success. This is a very powerful union that allows work to be done on the fictional portions of the model without risking anyone’s career on a Hail Mary internal start up that is flawed from the outset.
In my work developing innovation paths for organizations, we build the base case business model maps and then very specifically lay out the proposed new business and understand the changes in each portion of the model in detail. I then ask to talk with the individuals in the firm who are known for their skepticism, for the express purpose of finding all the ‘fiction’ in the new business. In my background, I have personal experience with establishing the business unit ahead of the business case, and de-risking this business case before making the commitment. Throughout this process, I have found that there is much less emotional whipsawing when the fiction is extracted first.
Step #2: Ask the Experts
The second part of this section points us to the wise use of expert resources, and how to carefully remove our own bias and comfort zones in assessing information and decisions.
I have had some great personal experiences in this regard, as I am always willing to go into the “lions den” and ask the technical fellow for his guidance before committing to a course of action. In establishing a new strategy for a complex vehicular communications business, for example, I received sage advice about stakeholder behavior and just how long the ramp up time would be. This allowed us to stay small and pivot to a better business model.
Two key principles of enormous value are brought forward:
- Use deeply experienced experts for base case assumptions and average performance for insights on how your unique situation may play out (and specifically don’t push them into answering the question about your specific situation – the statistics on individual predictions don’t hold up).
- If your situation is unique and you cannot find base rate information, then get as close as possible to ground zero in your specific situation. For instance, if you need to make decisions on hotel analytics, go spend a day behind the desk or make some beds.
Step #3: Take a Test Drive
The final point in this section is to learn to “ooch”. Coined by Chip and Dan, this term refers to finding (if possible) a way to test drive a small beta of the decision before trying. One key piece of research by Professor Saras D. Sarasvarthy of the University of Virginia Darden School of Business is that the key difference between entrepreneurs and corporate executives is that corporate types spend significant time and effort on prediction, where entrepreneurs overwhelmingly choose active testing.
Similarly, author and professor Steve Blank has been moving the thesis forward that we would be much better served if we found ways to test in corporate environments. Intuit founder Scott Cook has also echoed this sentiment; he has often been quoted as saying that the growth of his firm accelerated greatly when they stopped trying to have all the answers. Key to this is the understanding that starting a new business model is very different from improving an existing one.
I am currently coaching founding owners through the development of new market entries based on carefully structured progressive engagement. This allows them to traverse the bridge from their current businesses to serving new customers in a cash positive, risk-contained way.
As an example of using the above concepts in a larger corporate context, I was involved pre-EU in developing a new telecom product for the UK that was based on its US-based platform. First, to establish the product timeline, we engaged UK based experts in the certification process, and found that we were off by a factor of two on our original timelines for introduction. Secondly, rather than simply meeting the basic rack space needs, we invested in a one week on-the-ground round robin trip to put “eyes on” the actual locations of radio sites in the UK. In doing so, we became acutely aware of thermal constraints, cabling and product density requirements that would have been missed without the on-the-ground work.
I would love to hear about your experiences of reality testing your assumptions in the real world. Please drop me a line or leave a comment below.
