Harvard Business Review
Tuesday, 10 April 2012
We all know how new projects happen in a predictable world: A team is assembled, a market analysed, a forecast created and a business plan written. Resources are then gathered, and the plan is set in motion.
But how do you launch new projects in an unpredictable environment? What’s the best way to do it in an age when the proliferation of data and opinion makes truly decisive analysis impossible; when faraway events have immediate, unexpected impact; and when economic malaise has made companies reluctant to take big bets on unproven ideas?
We have spent years studying serial entrepreneurs and the logic they use to create new products, services and business models in situations where the old methods of analysing, forecasting, modelling, planning and allocating don’t work.
Some of the most surprising research comes from Saras D. Sarasvathy, an associate professor of business administration at the University of Virginia’s Darden School of Business, whose in-depth study of 27 serial entrepreneurs revealed a number of common behaviours. Instead of starting with a predetermined goal, these entrepreneurs allow opportunities to emerge; instead of focusing on optimal returns, they spend more time considering their acceptable loss; and instead of searching for perfect solutions, they look for good-enough ones.
The point is that successful entrepreneurs don’t just “think different.” They translate that thinking into immediate action, often eschewing or ignoring analysis. Rather than predict the future, they try to create it.
This logic shouldn’t be limited to entrepreneurs working outside the bounds of traditional organisations. We believe that any manager can – and should – follow the same process when confronting the unknown, because it is an extremely low-risk way to launch new projects. It also involves only a few simple steps:
ACT: Take a smart step toward a goal.
LEARN: Evaluate the evidence you’ve created.
BUILD: Repeat steps one and two until you accomplish your goal, realise you can’t or opt to change direction on the basis of new information.
We acknowledge that action before analysis, learning instead of predicting, can be, well, unpredictable – and messy. And we concede that it’s antithetical to the way most organisations work. However, in the long term, taking lots of small steps actually reduces risk, which makes such an approach ideal for tackling challenges and getting fledgling initiatives off the ground. And such innovation is critically important not only for companies that want to stay competitive but also for enterprising employees who want to feel fulfilled in their jobs.
Research shows that entrepreneurs forecast, plan and model only when they have to. A 2008 survey of the founders of companies listed in the Inc. 500 showed that only 12% did formal market research before they launched. But these weren’t reckless leaps of faith. These entrepreneurs tend to move in a safe, low-risk way by taking a series of quick, small, inexpensive steps that follow certain rules. Adapted for managers working within organisations, the rules are:
1. Use the means at hand
Successful entrepreneurs, of course, gather resources before embarking on a new venture. For the first few exploratory steps, however, most simply draw on their own skills, education, experience and expertise, along with anything helpful their personal and professional contacts might have to offer, quickly and at no, or very little, cost.
2. Stay within your acceptable loss
The act-learn-build model is inherently low-risk, but that doesn’t mean it’s risk-free. So, with each step, consider how much time and money you can afford to lose should the step result in failure. Also think about the cost of not pursuing other opportunities at work in order to focus on your project, and the resulting impact on your professional reputation and the firm’s image. Make sure that whatever is at risk could be safely lost.
3. Secure only the commitment you need for the next step
Through the process we’re discussing, you’ll run into four types of people: those who want to make your project happen, those who will help it happen, those who will let it happen and those who will keep it from happening. Don’t waste time trying to get buy-in from the last two types. Instead of asking, “How do I get everyone committed to my idea?” ask, “What’s the least amount of commitment I need to act?”
4. Bring along only volunteers
If you’ve decided to move forward, make sure to invest in the “make it happen” and “help it happen” people. The former should be made up of only volunteers – people who share your desire. After identifying these trusted colleagues, make sure they’re committed to the process. “Enrolment” happens when you show your own engagement, act honestly and demonstrate a willingness to collaborate.
5. Link your move to a business imperative, and produce early results
This is essential to creating momentum and winning over those in the “help it happen” category – especially your boss. Show how even your first step could make a difference in the world immediately around you, and build out from there. If your boss is hesitant because your proposed step exceeds his acceptable loss, suggest a less significant move.
6. Manage expectations
Don’t overpromise. Don’t make any big launch announcements. Explain that you’re just taking an exploratory step to generate evidence that will inform the direction of the next one.
When it comes to learning from and building on our actions, serial entrepreneurs do a better job than the rest of us in four ways: First, they move quickly in the face of positive results. If one step works, they immediately execute the next using the rules we’ve laid out.
Second, they embrace even negative results. They are grateful for surprises, obstacles and disappointments because unwelcome news often provides the impetus to make a product, service or business better, or it points to an entirely different opportunity – before too many resources are invested.
Third, they understand when and how to use prediction, even as they’re learning by acting. As your initiative progresses and requires more organisational resources, you’ll need to forecast where you can forecast, plan where you can plan, and model where you can model – but using the evidence you have created (and hopefully are still creating) through your smart action steps. This new way of thinking should augment, not replace, the way you currently solve problems.
Fourth, entrepreneurs know when to cut their losses and walk away. They recognise when their idea is impossible to execute, that they’re incapable of executing it, or that the risks involved in pursuing it exceed their acceptable loss.
The act-learn-build strategy can and should be espoused not only by entrepreneurs but also by employees working within traditional organisations. It takes just one smart step to get started.
How managers can encourage entrepreneurial thinking
Challenge one or two members of your team to quietly try the act-learn-build method on real projects, and then protect them from your organisation’s tendency to shove them back in line.
Share the results of these experiments with other thought leaders in your company, and encourage them to become early adopters, too.
Throughout the process, ensure that the real and opportunity costs never exceed your organisation’s – or your innovators’ – acceptable loss.
Leonard A. Schlesinger is the president of Babson College. Charles F. Kiefer is the president of Innovation Associates. Paul B. Brown is a long-time contributor to The New York Times. They are the authors of Just Start: Take Action, Embrace Uncertainty, Create the Future.
©2012 Harvard Business School Publishing Corp