How you lose by trying to win

Sounds a little crazy, perhaps, but did you know you can lose most of the time and still win?

There is a secret though. And it goes against how most organisations like to operate.

Here it is.

You need to stop trying to be perfect.

Most organisations can't cope with an idea not working out. So the amount of time and effort...and therefore cost...that goes into every idea to make sure it's thoroughly researched and road-tested before it gets released into the world, means most organisations can only afford to try out a small number of new ideas each year.

In turn, that means pretty much every idea has to be a home run so that overall there's some positive RoI on the massive up-front expense.

Although, just by the law of averages, some of these ideas are so terrible they wipe out many times more than the value generated by the few projects which succeed, and that plunges the whole business into negative RoI territory.

Beyond a threshold, more research doesn't mean an idea is more likely to work. It just increases the amount of the write-off for those projects which aren't home runs.

The risk/reward ratio

That's why so much of what's called innovation today is just a rehash of something that's already been done. While home runs are less likely, the costs are lower and, of course, you've probably also nudged the odds of success in your favour a little.

So overall you probably add something to the bottom line.

As a result, bland, re-hashed, me-too ideas take on a life of their own.

If you don't believe me, take a look at the confectionary section in your local supermarket.

Not so long ago, there was only Cadburys Dairy Milk, and the only choice was whether you bought a big bar or a little bar. (I'm kidding - given the choice, who buys the little bar?)

Now, a stroll along the same aisle gives you about a dozen different products with various foodstuffs mixed in with Dairy Milk chocolate. And the products which used to come only in bars, now all come in bags of various sizes with individual bite-sizes pieces of all the most popular lines of confectionery.

From two or three base products, Cadbury's have built several dozen variants of "things mixed into Dairy Milk".

I'm sure Cadbury's tried one or two ideas that didn't work. But let's face it, the chances of someone who enjoys Dairy Milk not enjoying Dairy Milk with some popping candy mixed into it probably isn't very high.

Even if a few plain Dairy Milk die-hards don't like the idea, there are probably enough fans of popping candy to make up the numbers. They might be tempted to try Dairy Milk for the first time after noticing some of their favourite sweet treats had been mixed into a bar of Dairy Milk.

I get how the economics of this works, even if it leads to some very bland choices of new products to green-light.

(Fast and Furious 27 anybody?)

A lesson from a legend

There is another way to think about how to implement new ideas in your organisation. But we need to go back in time 100 years or so first.

During the late 1800s and early 1900s a legendary Wall Street investor called Bernard Baruch made his fortune by doing things differently from the way most modern-day corporations make decisions.

He would typically make a small bet on a stock he thought would do well, but cut his losses quickly if the markets didn't move the way he expected.

However, if the market moved the way he was expecting, he would invest more and more as the price went up, and his initial hunch was proved correct. (I say "hunch" - Baruch was famous for his detailed research too.)

So he invested more in proven winners, and cut the losses on trades which meandered or went completely the wrong way.

His experiences led him to opine, in the gendered language of the time: "...even being right three or four times out of ten should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong."

And here's the maths to prove it

This can be a hard concept to get your head around because it's a different way to think about the world.

So, without turning this into a maths lesson, here's a simple example of how the principle works.

Imagine you make 10 ￡1,000 investments. You cut your losses rigorously, so only lose 5% on three investments, break even on another four, and the price goes up 10x on the remaining three.

In total, you would lose ￡150 on the first three investments, come out even on the next four, and make a combined ￡27,000 on the last three.

Overall, your return is ￡26,850 from that initial ￡10k investment pot. (The ￡27k less the ￡150 in losses, being 5% of each of the three investments where you lost money.)

Now, Bernard Baruch was a stock market investor where this sort of strategy is admittedly easier to make work. But the principles translate to your business too.

If, because of the costs that go into setting up a new project (doing all the research, the endless "strategy sessions", the planning, the spreadsheets, and goodness knows what else), you can only launch 3 projects a year, there's a 70% chance, using the figures above, that you'll break even or lose money.

There is, of course, also a chance, albeit a tiny one, that you stumble across the three 10x return projects. But don't bank on hitting home runs like that terribly often.

Even if all the effort, research, spreadsheets, and whatever else gives you slightly better odds - maybe you get 4-in-10 winners, and cut out one of the breakeven or loss-making options in the process - you are still more likely than not (60:40) to have a breakeven or loss-making project on your hands.

Until you launch to the public it's all up for grabs anyway.

To adapt the old military saying, "no plan ever survives contact with the customer".

Try this instead

So don't seek perfection. Try out low-risk, low-cost ideas quickly and cheaply.

Try as many as you can.

But be ruthless about cutting out the ones that don't work. Quickly.

And where you have an idea that gets traction, invest more and more into that project as it increasingly proves itself a reliable way to get the results you want.

The way to make this work is not to start off trying to launch the full, finished product.

Rather, think about the sequence of events which would need to be true for you to have a success on your hands.

Let's say that to sell your product, you would first need to get people to register on your website.

Your first job should be trying to see if you can get people to register on your website for your new idea. It shouldn't be building out a full retail version of the product before you try selling it.

Once you get the website registrations, by all means move on to whatever the next step in your process is - outbound calls, sales visits, email marketing sequences or whatever else you choose. Then try to prove that works too.

Get that right, and you need to spend very little money developing your new product until you're pretty sure you have a winner on your hands. That keeps down the upfront costs and dramatically increases the likelihood of this new idea being successful.

You might even get some useful feedback from customers during this stage before you even have a finished product to sell. Feedback you probably wouldn't have had if you had built the product first and then tried to sell it.

Don't forget to cut the losers

However, if you can't get people to register on your website for your new product that's a fair indication that people don't want to buy it.

Either the product is misjudged. Or the marketing is. Or both.

But if your selling process depends on people signing up on your website, and not enough people do that during your testing phase, then you definitely need to think again.

So can this project and work on something else instead.

It might have cost a few ￡100s to get a sign-up form on your website, but most organisations can cope with writing that off.

Wait until you've invested ￡100k to build the all-singing, all-dancing version before you try to sell it, and that's a lot to write off if it doesn't work.

The metaphor of stock-market investing is an imperfect one, but it gives an insight into a philosophy that isn't as common in most organisations as it might be.

We should be celebrating low-cost, low-risk failure, because it means we canned a project that probably wasn't going to work anyway at the point where we'd burned through just a few ￡100s, rather than after we'd spent ￡100k.

If you're serious about building your bottom line, I know which strategy is more likely to deliver positive bottom line results over time.

Remember the Thomas Edison quote about all the times he tried to invent the electric lightbulb before finding a workable solution: "I have not failed 10,000 times - I have successfully found 10,000 ways that will not work."

Provided those projects were approached in a low-cost, low-risk way, we should be celebrating those 10,000 failures, not firing people because they couldn't beat the 70:30 odds against them, and hit a home run.

Otherwise you're just putting all your money on a single spin of the roulette wheel and that's not likely to be a winning strategy in the long run.