Babak Bagheri

E. F. Schumacher

The business bootstrapping process should be a series of small steps. Each step should test one or more hypotheses about the market and produce enough interest and/or cash to lead to the next step. An important question to answer at each step is: how small should the step be? As always, there is no one answer for all circumstances. There is, most likely, no formula for determining the step size either. But the general guideline is: each step should be as small as possible. In general, credit for realizing this principle goes to E. F. Schumacher who wrote about it in his “Small is Beautiful” book; although, the context he was considering was different.

The main point Schumacher makes is that large “boil-the-ocean” solutions often do more harm than good. And the harm is often big enough that a correction is difficult or impossible. The same point is true about the business bootstrapping process. Each step should be so small that if it doesn’t pan out, then the next step can be a small correctional one. Like all principles of this kind, this one is easier to articulate that to implement.

Do the constraints that markets put on innovation help or hurt? The reigning consensus has been that they help. The constraints help presumably because they force innovators to husband scarce resources properly. Trying to scratch every possible itch in every possible way would be just too expensive. But any set of constraints in a human setting has unintended consequences.

Joseph A. Schumpeter

Let’s look at market constraints related to how money is invested and how results are vetted. To allow enough exploration to go on, investments have to be spread among as many choices as possible. To be fairly sure that experiments aren’t stopped prematurely, the size of the investments need to be adequate. A tiered approach to investment has evolved to address these constraints: invest progressively larger amounts in a large enough sample of attempts. Going from one tier to the next is a gate-keeping event; each gate forces a kind of Schumpeterian destruction. This all sounds well and good, if the destruction is not, well, destructive.

The difficulties, like the devil, are in the details. In a social environment with real people, many human factors come into play at the investment gatekeeping events. These factors include, not surprisingly, those pointed out by Cialdini in his “Influence” book.

Every self-respecting entrepreneur, therefore, knows that influencing and selling to investors is even more important that selling to potential customers. Most entrepreneurs then train their itch-detecting X-Rays on investors. Sometimes this works out, especially when the investors’ view of the market is essentially accurate and they reflect those views faithfully. Often, the entrepreneur ends up with an offering that pleases the investors more than it does customers.

There are, of course, many other devilish details at work here.

Waiting until the congoscenti, and later the crowds, have begun to scratch their itches is a good way to miss the mark. Those who can glimpse itches before they appear have an advantage. So how do we look through to hidden itches, or maybe even cause our own? Not only do we have to spot them, but we have to make sure they’re scratchable.

X-Ray Vision

Here is a way: guess, scratch, look and listen, repeat or replicate. Yes, the best way to do this is good old trial-and-error learning or its more refined cousin The Scientific Method.

The trial and error doesn’t need to be blind. And this is where observations and theories about people and social groups are helpful. What have we seen or do we know about people that give us hints about their itches, or “pain points” as it’s fashionable to call then nowadays.

Looking for pain points that can be used to make profitable products is the way to form the initial guesses in our trial-and-error cycles. Some are better at doing this than others.

The ability to spot relevant pain points is related to empathy and a strong dislike for compromises. We need people who can see things that cause difficulties and refuse to accept that there are no good alternatives.

Omaha Beach June 6 1944

Establishing beachheads is not easy. To do it, we need to win over enough of the opinion leaders with a kind of offering that can attract a wider audience. A few things are must-haves: an offering that “scratches an itch” now, a way to reach the opinion leaders, few opposing distractions, and a way for the word to spread. Offerings that do all this aren’t exactly commonplace. In fact, the major part of an entrepreneur’s job is to find or create offerings of this kind in the right sequence to build a successful business.

So what we need is a Plan; didn’t the allies have one? Nah, just kidding. In fact, plans won’t help us with this at all. But a few things will: deep knowledge of the opinion leaders and their itches, ideas about how to scratch them, ability to be heard above background distractions, and a bit of luck.

To put crowd-psychological conjectures and insights to work, marketers have embraced a number of simple models.

The first model was developed for technology markets and is called the “Technology Adoption Model”. The model is based on the Technology Adoption Curve, a simple bell curve for the distribution of adopters of technology (or innovation in general).

Innovation Adoption Curve

This segmentation of innovation enthusiasts and luddites is presumably the same for all types of new gadgets, services, ideas, etc. Let’s take that for granted.

In his “Crossing the Chasm” book, Geoffrey Moore points out that the lines between the different segments, e.g. Early Adopters and Early Majority, are more like large gaps or even chasms. The upshot is that we need a plan of attack for capturing the attention of each new segment. The basic idea is a familiar military one: establish a beachhead, then expand the conquered territory.

A second famous marketing model or curve is useful in forming each plan of attack. This one is often called the “hype” curve and was introduced by the Gartner group.

Hype Curve

This categorization of attention or visibility across time is also presumably the same for all types of gadgets, services, ideas, etc. Let’s take that for granted.

An interesting question is: can we start or otherwise engineer this curve for each of the adoption segments above?

Note that if the Trough of Disillusionment falls below the horizontal axis, then attention and visibility are zero; one would presumably have to restart from scratch!

The Leonardos of the Cinquecento had their patrons. That patronage system is long gone; we’ve replaced it with popularity contests on a grand scale. What does this mean for entrepreneurs? It means entrepreneurs need to understand “crowd psychology” more than ever.

Gustave Le Bon

The trail of interest in “crowd psychology” goes back to ancient Greece where there was a great deal of worry about the “tyranny of the masses (demos).” This trail of fascination with the madness of crowds has been meandering through the years. The trail reached a prominent point in the late nineteenth and early twentieth centuries. Gustave Le Bon’s “The Crowd: A Study of the Popular Mind” is a good popularization of the attitudes of the period.

We’ve now made it through the twentieth century, stopped worrying about the madness and started loving it. The madness of crowds can make us money.

Leonardo

It is high time that we update the old saying attributed to Andy Warhol: “Everyone will be famous for fifteen minutes.” We have created a world where “Everyone has to be famous for fifteen minutes.”

Why you ask? Because the world we’ve created is a look-at-me world. It’s a world where obscurity guarantees failure. To many who have grown up with MySpace and Facebook and now Twitter, this will actually be more than obvious, it will be a tautology. “How could it be otherwise?” Isn’t popularity what we mean by success? Well, it is now. But it hasn’t alway been this way.

Let’s look at a well-known example: Leonardo da Vinci. He compiled one of the most impressive collections of drawings and ideas. Not only did he not feel compelled to shout “look at my stuff” from the palazzo rooftops, but he went to great lengths to obscure his work. Yes, I know about the need he may have felt to protect himself from the authorities (especially the Church). But that’s not enough to explain his mindset. To a Leonardo, the work itself spelled success, not his ability to shine in public.

What does all this have to do with the title of this article? I’ll leave that as an exercise for the reader for now.