The Starting Point : The Science of New Venture Creation 

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(Photo: State Library of Victoria)

The way that we think about new venture creation in our class at the Kellogg School of Management is a lot like basic science.

In chemistry for instance, researchers begin with a series of hypotheses (educated guesses) about what they believe to be scientific truths (Chemical A will react with Chemical B in the following way and will result in the best drug for male pattern baldness ever!).  Our scientist then designs and runs a series of experiments to discover if his/her hypotheses are in fact…well…”fact”.  Based on the outcome of the experiment, the researcher will either proceed down the originally-planned development path to hair-growth-glory, or create revised hypotheses informed by the learnings from the last round of experiments. This cycle then repeats itself until either the researcher discovers a desirable, evidence-based answer (maybe the one they are looking for, but sometimes not*), or decides to throw in the towel and try again down the road.

Our belief is that effective new venture discovery (the fuzzy front–end of creating a new business) is very much the same process as scientific discovery.

Startups often begin as a bunch of hypotheses about what an entrepreneur believes to be a “commercial truth”. – a hypothesis about a certain customer problem, an idea for a solution, a belief about how money will be made, how users will be reached etc.  The issue is that few first-time entrepreneurs recognize that the things they believe to be truths are nothing more than guesses or assumptions, often laden with biases from a founder’s own personal experiences, but not necessarily indicative of the market at large.  As a result – much like in science, the best way to validate the core hypotheses behind a new venture is to systematically design and execute a series of experiments to help learn the real commercial truths around a venture.  And just like in the case of our chemist, depending on the outcome of our experiments, the entrepreneur will either revise the venture’s underlying hypothesis to reflect what has been learned as a result of the testing (and repeat the cycle again…and again) or, with singed eyebrow, decide that the safest place might be away from the Bunsen burner.

What’s that you say?  “What types of experiments can an entrepreneur run to discover commercial truths early on in the process of creating a new venture?”  Glad you asked!  Future posts on BNT will cover this topic in detail – so stay tuned!

– David + Carter

 * This is a key point – particularly in venturing.  Often, it’s unexpected discoveries in building a new business model that generate the most valuable insights for a startup.  Examples include lots of billion-dollar companies we know today: Groupon, Google, Facebook – even blockbuster drugs like Propecia (coming fill circle on the pattern baldness reference) began their life as ventures focused on different problems then what they evolved into.  It was the process of experimentation, iteration and discovery that let these companies to their eventual “Eureka!” moments where problem, solution and business model all gelled together.

For more on this topic check out the blogs of some of these luminaries of Customer Development and Lean Startup.

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