The Art And Science Of Placing Little Bets: A Conversation With Peter Sims

Note: This article was published in The Economic Times on June 14, 2014

Image from PeterSims.com

This week, I spent some time shooting the breeze with PeterSims, Venture Capitalist and serious believer in “Little Bets”. In his recently published book “Little Bets: How Breakthrough Ideas Emerge from Small Discoveries”, Peter examined what Apple CEO Steve Jobs, comedian Chris Rock, and other greats have in common. In essence, he posits that all of them have achieved remarkable results using a surprisingly similar approach: methodically taking small, experimental steps. Rather than believing they have to start with a big idea or plan a whole project out in advance, trying to foresee the final outcome, they make a methodical series of little bets about what might be a good direction, learning critical information from lots of little failures and from small but significant wins that allow them to find unexpected avenues and arrive at extraordinary outcomes.

In the past, I’ve exhorted young Indians to open their minds up to the entrepreneurial opportunities around then. Peter, similar, talks about the emerging generation of entrepreneurs around the world – and he’d like to see them take little bets along the way. He should know, given his past success in funding start ups in California and Europe.

Image from PeterSims.com

Sims, who was a speaker at the World of Business Ideas (WOBI) conference in New York, spoke to me about the emerging generation of entrepreneurs around the world - and why he'd like to see them take little bets along the way. He should know, given his past success in funding start-ups in the US and Europe. Here are his five mantras for entrepreneurs: 

• Entrepreneurial leadership: Companies that have founders or co-founders still at the helm tend to have an advantage, in that these entrepreneurs naturally have an instinctive understanding of their customers and their needs…or have learned to keep the customer in focus. They tend to retain their ability to evolve their companies to deliver value to the customer.
• Maintaining a discovery mindset: Peters believes that companies need to maintain the people with a strong product instinct - companies lose out when all key decision-making is left to marketers and MBAs. These analytic folks sometimes are constrained and cannot make the intuitive product leaps and testable experiments that result in innovative offerings. When lawyers take on leadership roles, they are motivated by metrics and measurable impact, and less by a true instinct for what the market wants and needs.
• Immersion and observation: In Peter’s mind, this allows for the continued evolution and testing of an idea. This is what entrepreneurs naturally, they are constantly testing and refining their ideas and offerings. Peter’s experience on the GE Innovation Advisory board showed him how often there is a tendency to have solutions before knowing whether there really is a need. As Peter says, this is not about the elegantly constructed spreadsheet – rather than falling down an analytic trap, if you spend 90% of your effort immersed with the customer and understanding their needs, and then 10% on rough prototyping…then back to testing the prototype with customers to continue refinement – that’s when a superior product comes into existence. Unfortunately, we are taught to be deductive, making inferences that are linear, rather than more intuitive, making connections to develop whole new constructs. “The best innovators can do original observation and experiments to create data for their business case, not just mapping existing data.”
• Design thinking approach: I have written about the importance of a design mindset in this column before (link for online version.) In essence, retaining the vision of the value and customer experience as the product or service is designed will help drive to a truly effective offering
• A learning mindset: The best entrepreneurs and companies maintain a learning mindset. They never assume they have all the answers, they ask questions and watch for new insights all the time.

As we chatted, Peter talked about some of the companies he’d highlight for their exemplary practices. In many cases, he found the key differentiator to be leadership and culture, not any specific process. Large companies have become so oriented to operationalizing and using their left brain, that it’s left to the skunk works to innovate.  Which is fine if the culture allows them to demonstrate smaller wins, then then build momentum. Finally, he hasn’t seem many companies that incent people to make mistakes – for example, what if you had a field in your review form that asked you to identify mistakes you made and what you learned in the process? One company does do this – Amazon.

At Amazon, Bezos meets with his S team to identify whether the ideas coming through the system have the potential to become a $10 million revenue business. The team and he need to trust their assumptions and hunches, and if that’s the case, they put their best people on the job to develop the ideas and product, testing and iterating as the data comes together about the product construct and value. This is what has helped drive ideas like Amazon Prime, a blockbuster for the company. 

It’s not all about new companies, though. 3M continues to be an innovation powerhouse, mostly because there is a strong culture of innovation. Additionally, it’s a decentralized business where the smaller divisions are able to make small experiments happen, and where a small experiment can deliver value to the business even if it’s not a mega-hit. In essence, innovation happens because they have been shown to help each units revenue goals. Once proven, these products then were launched in new markets or used to evolve existing products, expanding their potential.

Google has been my personal favorite on innovation, with Larry Paige’s return continuing to strengthen their focus. However, Peters observes that while the company has grown on advertising around it’s core business, senior Googlers have made the argument that the culture itself has become less experimental. It’s not clear what impact the 10% rule or Google X products have had on the company’s revenue, even as they continue to push the industries they touch. Google X is the skunk works that has worked on such projects as the driverless car, and the  previous 10% policy allowed all Googlers to invest 10% of their time on personal ideas and projects.

Open innovation is another feature that companies can adopt as they learn to experiment. When GE set out to revolutionize imaging technology and practices, they were able to use their brand, scale and platforms to build an ecosystem of technical innovators, doctors, capital providers and partners to create a series of local experiments which they scaled as the evidence came together about their possibilities.

Finally, it’s important to retain your talented mavericks as they experiment. P&G goes as far as to establish a career path and title for these “black sheep” who have earned the right to experiment by showing past results, but are not constrained by the company’s larger organizational and operational priorities.

We ended on the insight that as we forge into a global economy, with almost unlimited access to opportunities and information, Indians can truly leverage their capabilities without borders. As I mentioned in my review of trends, young Indians can be found in all the key platforms, be it Linkedin or People Per Hour. As companies and entrepreneurs become much more comfortable with sourcing capabilities globally, it’s time for young Indian to embrace the idea of constant experimentation and growth.