Spyreism no.6 - Running less than five experiments a year is called gambling

Jeff Bezos is quoted to have said that if you know in advance that it's going to work, it's not an experiment and that if you have a 10% chance for 100 times payoff you should take that bet but remember you’re going to be wrong nine times out of ten. Innovation is by definition trying and testing opportunities for significant improvements to our strategic KPIs (Revenues, Profitability, Expenses, etc’) that are outside of the organization’s comfort zone. When properly testing the hypotheses underlying innovative opportunities we are taking on a high risk of failure while placing clear boundaries on the downside. VC’s have long mastered the art and science of gradually culling large cohorts of startups while increasing investment in those that survive the early stages of the funnel. Organizations that wish to be innovative must adopt similar practices when assessing innovative opportunities that are either homegrown or based on external technologies.

A prerequisite of such a funnel is that it must have a large number of opportunities to choose from and test. The logic behind this statement is based on basic probability theory. Let’s say you have a collection of ventures, each with a 20% probability of success, in other words, if we place ten balls in a bag, 8 black and 2 white, it is the odds of blindly pulling out a white ball. Now let’s say we wish to have a portfolio of such ventures that will have the overall probability of 80% for at least one of the ventures to be successful. How many ventures should we have in the portfolio? The answer is seven.

In other words, if you only run 1-2 real experiments i.e. such that have a high probability of failure then what you are actually doing is spending budget and resources on gambling. You are lowering your level of control over the outcome and wishing for the best. Innovation success isn’t about wishful thinking but rather about willful action.?

Successful innovation managers take matters into their own hands by maintaining innovation experiment portfolios of 7-10 items at a time. They also set clear limits on the duration and budget of experiments. This is in order to place a boundary on the downside of a failed experiment and also set clear limits on the overall experiment spending. In addition, it allows to have the outcome of experiments available while the memory of the venture is still fresh in the executive team’s memory.

Make sure to build your innovation program so that it generates this portfolio of experiments that is constantly being culled and replenished with fresh opportunities to experiment on.

If you wish to learn more about how this is done, click below to schedule a complimentary meeting https://www.spyre.group/advisorymeeting .