The best entrepreneurs I know fail fast with small experiments in pursuit of market insight. And when they have secrets, they capitalize on them with their time, capital, and reputations.
I wondered for a long time what separates them from other entrepreneurs I know who seem just as bright and energetic. The difference, I found, was patience. The successful founders were willing to fail small and not commit their resources until they had the killer insight. That way, when they had the right course, they could bet bigger than someone who had been frittering away more resources.
The patience looks to the lesser entrepreneur like idleness. But this brilliant speech from Boardwalk Empire, out of the mouth of a fictional Arnold Rothstein, describes the value clearly:
What looks like idleness is an investment. And a hard one because your founder friends will be encouraging you to action. Hustle! Let's Goooooo!
But to a good entrepreneur, this period is never really idle. First, one saves. Keeping the war chest from dwindling is a worthwhile goal! Quitting your job to work on your dream "full-time" means you take on an enormous cost every day. How do you make sure to keep your reserves? Consulting, day jobs - whatever keeps the coffers full.
Second, one listens. Paul Graham says that the two jobs of an early founder are talking to customers and writing code. Start with the former! Make talking to potential customers a habit. Lots of conversations allow one a wide field of understanding. Zoom and Calendly make this logistically much easier than it ever was before. And talking to customers will collect observations. From these observations, one generates testable market hypotheses.
Day jobs and consulting can help the listening process too! Both require one to interact with the market. Even if this is not precisely the work you want to do for the venture, the customer exposure is real - and someone else is paying for it!
And third, one runs experiments. Tests are highly wasteful. Michael Schrage's The Innovator's Hypothesis has some bracing statistics: at Google, 80% of tests return a negative result. At Netflix, 90%. A product development manager at Quicken Loans reported that he correctly predicted which way an experiment will work out no more than a third of the time. That means there are lots of surprises and observations to come out of these tests. That's valuable! But it does not lead directly to action.
These tests will be mostly on your own time and your dime. Keeping them light and relatively rapid will be valuable. Make a budget for a test and stick to it. An unexpected finding from my work is that entrepreneurs are far more willing to spend a lot of time than a small amount of cash. Cash can make experiments run faster and in parallel while you are earning. Have a budget not just to keep a lid on runaway expenses but also to make sure you are allocating relatively cheap cash and not engaging in yak-shaving or bike-shedding with your time.
That indirect relationship between experimentation and production execution requires discipline. Social pressure is a thing. Looking like a laggard to your friends is hard. But maintaining this position lets you build proprietary information.
Finally, this is an excellent position from which to serve in public. Share the findings with the world. Be free with your knowledge, and the world will reward you with a reputation. When your public sharing is high-signal, they will value it. Remember that signal is about being informative. But the data from a given test or conversation might not point toward the business you want to build. Many failed experiments and surprising lessons can add value as content even if they are not contributing to your eventual equity engine.
After keeping your powder dry, listening to a customer each day, and running a swath of unusual, cheap experiments, review your progress on a monthly and quarterly basis. Writing the lessons down using a 1-2-3-4 memo structure helps me a great deal in seeing what I now know. And sometimes, what I learn is that I have let the experiments slide, and I did not learn as quickly as I would like.
Learning faster than the next person is the key to great investing and outstanding entrepreneurship. Learning does not look impressive. It seems like hardly any progress at all. But from this process is the creation of unique knowledge that generates wealth.
Be willing to do nothing. It's the hardest and best work you may ever do.
Photo by Jens Lelie on Unsplash