“Life’s too short to build something nobody wants.” So claims Ash Maurya. He’s right – and yet we keep on building. And who can blame us? Entrepreneurship is very much in vogue, with unbridled support coming from all quarters. Yet few, if any, of the cheerleaders remind us of the inherent survivor bias in entrepreneurship. The odds of success are extremely slim, and those held in high entrepreneurial regard are outliers. Later on, we discover that some of these supposed success stories are anything but, and these same entrepreneurs are naked when the tide goes out. Style over substance. Vanity metrics over real commercials.
The entrepreneurship journey is not easy. As US academic and author Steve Blank reminds us, it is about searching for a repeatable and scalable business model, with an emphasis on searching rather than building. More enlightened entrepreneurs read about the Lean Startup approach, taking many lessons on board to good effect. But many others do not heed these lessons, staying ensconced indoors in build mode with little customer contact, and lacking any evidence of demand. Building, rather than searching.
These same entrepreneurs are typically looking to build a solution to a particular problem they have identified and which they hope to monetise. But too often the problem can be a niche one, with minimal impact and little chance of commercial success. Attend most British tech start-up events and you’ll be blown away by the underwhelming scale of ambition. Freemium mobile apps for this and that. Nice-to-haves rather than need-to-haves and apps whose usage tails off dramatically post installation as the early adopter realises the marketing promise falls well short on delivery.
What if there were a means to significantly increase the likelihood of acquiring sustainable customers – to ensure that there was indeed a meaningful problem that needed fixing and to achieve clarity about a viable route to market? Straight away, entrepreneurs would be removing three of the bigger uncertainties that they faced.
Well, this simple but powerful model does exist. It is very much under-utilised, though. In most cases, it takes the form of competitions where prizes are offered to participants who solve particular problems. This simple idea is one with an ancient history, an example of which is brilliantly recounted in Dava Sobel’s 1996 bestseller, Longitude, which details the story of John Harrison’s competition win, in discovering a way to measure longitude:
In 1714, the British government offered a £20,000 prize that led to the invention of the chronometer. In 1837, the French government bought the patent rights to Louis Daguerre’s early photography equipment, and then put the invention in the public domain. More recently, prizes have led to major improvements in human-powered airplanes, energy-efficient refrigerators and suborbital space craft.
Shouldn’t more emphasis be put on encouraging entrepreneurs to focus on bigger issues and on offering them the opportunity to commercialise a win?
It would encourage entrepreneurs to focus on areas with wider social impact. It might also reduce the number of pointless iPhone apps in development. We are very much in gold rush territory today. During that period, it’s often said that the biggest successes were entrepreneurs selling the picks and shovels rather than those prospecting for gold. Perhaps the current crop of entrepreneurs is missing a trick by focusing on the wrong areas.
As American venture capitalist Mark Suster claimed recently: “I have often encouraged entrepreneurs to ‘think bigger’ and take on industries that are not immediately sexy but solve bigger problems. I have noted that we are overweight as an industry in apps for restaurants, bars and music because many young entrepreneurs launch applications in areas they know.”
We should increase the appeal of these competitions such that the rewards are commensurate with the effort, and seek to refocus some of these young entrepreneurs on some bigger social challenges we face. The good news is that the tide seems to be turning.
Take the Bill & Melinda Gates Foundation as an example. They recently ran a competition for participants to build a new toilet in an attempt to alleviate a real global problem where poor sanitation causes suffering and death. Or take the example of the Financial Times collaborating with Sightsavers on an MBA business plan competition designed to come up with creative ways to overcome the stigma attached to wearing glasses in developing countries.
The focus is not just on social entrepreneurship. The Economist has partnered with InnoCentive on an entrepreneurial challenge seeking “short descriptions for business ideas that employ disruptive technologies that could make a big impact on the world”. Are these not great examples of competitions and incentives nudging entrepreneurs in more socially useful directions, but also where their risks are reduced?
There are of course a few problems with this prize-led approach.Many challenges may be biased towards engineers or in contexts unfamiliar to the entrepreneurs, particularly challenges in social entrepreneurship. The transaction costs associated with searching for challenges may be significant – that is, the process of finding an appealing problem to work on could be long and difficult.
There may be insufficient rewards on offer when stacked against free market returns, which can be considerable if market-distorting patents offering monopoly returns can be secured. Like all two sided markets, both sides need to be nurtured to ensure network effects kick in. Finally, sex appeal may be lacking when working on some less glamorous but socially necessary initiatives.
But these limitations are surmountable. Companies such as InnoCentive and Changemakers are already looking to address these deficiencies by supporting companies and by attempting to reduce search costs. Similarly, more and more companies are embracing open innovation approaches, where boundaries between firms and the wider environment are more permeable, and innovation is not limited solely to employees of the firm. And with the internet, we have a platform that can rapidly drive awareness.
More companies must be encouraged to use these platforms, to share some of the problems they have and to set up competitions to solve them. And if these participant companies can offer significantly appealing rewards for real challenges, entrepreneurs will flood in. In many respects this last point is crucial.
Prizes should extend beyond cash. They should include access to VCs, so the entrepreneurs get a look-in when raising finance to bring their idea to market, non-exclusive access to the participant company as the first customer, and fair competition terms – i.e., no claims on any IP or associated licenses. Sealing the commercial side of these deals may be tricky, but an arm’s length agreement should be achievable.
The dominant entrepreneurial model today, of self-directed problem solving, has many inherent problems, not least the sheer volume of failures. Other models should be considered by greater numbers of entrepreneurs, one where challenges are real, routes to market are clear and accessible and customers are easily identifiable. It’s time to start building things that people actually want.