Nike founder Phil Knight wrote in his memoir 'to those who urge entrepreneurs to never give up? Charlatans. Sometimes you have to give up. Sometimes knowing when to give up, when to try something else, is genius. Giving up doesn’t mean stopping. Don’t ever stop.'
In a review of over 100 start-ups recently, CB Insights found that the number one cause of start-ups failing was 'no market need'. Almost half of these start-ups spent a huge amount of time and money building a product before they were found to be wrong in their most central assumption: that anyone was interested in that product in the first place. Juicero’s demise last year was probably the highest profile example - so why are so many start-ups making the same mistakes?
Putting the blinkers on – cognitive biases
Entrepreneurs face an obstacle course of difficult decisions on an almost daily basis, but some of the most treacherous pitfalls are the tricks played on them by their own minds.
Cognitive biases allow humans to make quick decisions in situations of danger or stress where the brain needs to make shortcuts to reach conclusions quickly. However, this is largely an evolutionary holdover from our hunter/gatherer days. The reality is that cognitive biases can cause more harm than good, particularly for entrepreneurs.
The most important step in fighting the negative impact of cognitive biases is to be aware of their existence and plan around them. Whilst many biases make up the human psyche, two sets of cognitive glitches play a particularly prominent role for entrepreneurs when starting out.
Cognitive dissonance refers to our inability to hold conflicting beliefs in our head without feeling mental discomfort. Confirmation bias is the mind’s inclination to interpret, favour or look for information that confirms pre-existing ideas.
The impact of cognitive bias
Let’s say you decide to start building a product that allows independent coffee shops to create a mobile app. You’ll typically get together a group of likeminded people who believe in your idea, raise some cash, lock yourselves in a room for 12 months, and try to build a range of features. It’s likely you’ll cut a few that aren’t essential for the first launch, so you’ll be able to launch your 'Minimum Viable Product' as a proof of concept - in nine months rather than 12.
So far so good? Not really. Creating the MVP in this way only pays lip service to the idea of testing the product in the market. You are succumbing to your cognitive biases by making a large number of assumptions about the validity of your product that could prove to be disastrously wrong.
Testing against risk
This is where the Riskiest Assumption Test can prove invaluable. At each stage of your journey you should repeat the following three steps:
Step 1 - Ask yourself 'what is my riskiest assumption?'
Step 2 - Then ask 'what is the most lightweight experiment I can use to test this assumption?
Step 3 - If your experiment means a course correction then go back to Step 1 with your next riskiest assumption.
At the start, the riskiest assumption in our example is probably that the independent coffee shops want to generate their own mobile app in the first place. Therefore, the very first RAT could be a mock-up of the product — maybe just sketch it out on paper and start asking coffee shop owners what they think, do they have a mobile app already? If not, why not? Do they want one? Do they have the resources to maintain one? Find out if there is even a problem to which your product is the solution.
This process can be painful if you discover there simply isn’t enough interest to make your idea a viable business. Your cognitive biases will be working overtime to interpret the feedback in a way that means your great idea still has legs, and maybe it does, but you need to be brutally honest with yourself.
Yes it’s a setback when you realise your idea isn’t as amazing as you first thought, but the good news is that all it cost you was a few hours of conversation instead of months of development. Employing active listening skills during your experiments will prove invaluable in helping you understand whether to course correct or just give up.
If you need encouragement just remember those words of Phil Knight and don’t be afraid to give up when it’s the right thing to do because even the greatest creative human endeavours require a great deal of trial-and-error.
Tariq Khan is director of interactive at TMW Unlimited.
Image credit: Rob Bayer/Shutterstock