All startup enterprises are essentially experiments. As a startup, the enterprise has not existed before and exactly how it will be accepted by the marketplace and how successful it will be cannot be predicted with complete certainty. They can only be assessed after the fact. The failure rate of startups is high. According to the Statistic Brain website 25% of small businesses fail in the first year, 50% fail within four years and 71% fail within 10 years.
It is likely that the failure rate is so high because startups are often treated more like projects than experiments. The project approach focuses on up-front analysis, prediction, planning and rigorous execution. Whereas the experimental approach focuses on developing and testing ideas and options, and on continuous learning and adjustment.
The following are three examples of using an experimental approach for the development of a startup. The first two are drawn from The Lean Startup book by Eric Ries and are examples of explicit experimentation. In the third example, the startup story of Apple Computer, experimentation is more implicit but is still clearly evident.
Zappos
Instead, he started by running an experiment. His hypothesis was that customers were ready and willing to buy shoes online. To test it, he began by asking local shoe stores if he could take pictures of their inventory. In exchange for permission to take the pictures, he would post the pictures online and come back to buy the shoes at full price if a customer bought them online. Zappos began with a tiny, simple product. It was designed to answer one question above all: is there already sufficient demand for a superior online shopping experience for shoes? However, a well-designed startup experiment like the one Zappos began with does more than test a single aspect of a business plan. In the course of testing this first assumption, many other assumptions were tested as well. To sell the shoes, Zappos had to interact with customers: taking payment, handling returns, and dealing with customer support.
Village Laundry Service
VLS began a series of experiments to test its business assumptions.
For their first experiment, VLS mounted a consumer-grade laundry machine on the back of a pickup truck parked on a street corner in Bangalore. The experiment cost less than $ 8,000 and had the simple goal of proving that people would hand over their laundry and pay to have it cleaned. The entrepreneurs did not clean the laundry on the truck, which was more for marketing and show, but took it off-site to be cleaned and brought it back to their customers by the end of the day. The VLS team continued the experiment for a week, parking the truck on different street corners, digging deeper to discover all they could about their potential customers. They wanted to know how they could encourage people to come to the truck. Did cleaning speed matter? Was cleanliness a concern? What were people asking for when they left their laundry with them? They discovered that customers were happy to give them their laundry to clean. However, those customers were suspicious of the washing machine mounted on the back of the truck, concerned that VLS would take their laundry and run. To address that concern, VLS created a slightly more substantial mobile cart that looked more like a kiosk. VLS also experimented with parking the carts in front of a local minimarket chain.
Further iterations helped VLS figure out which services people were most interested in and what price they were willing to pay. They discovered that customers often wanted their clothes ironed and were willing to pay double the price to get their laundry back in four hours rather than twenty-four hours. As a result of those early experiments, VLS created an end product that was a three-foot by four-foot mobile kiosk that included an energy-efficient, consumer-grade washing machine, a dryer, and an extra-long extension cord.
Apple Computers
Jobs had the idea to sell the Apple I as a fully assembled printed circuit board. Wozniak, at first skeptical, was later convinced by Jobs that even if they were not successful they could at least say to their grandkids they had had their own company. Together they sold some of their possessions (such as Wozniak’s HP scientific calculator and Jobs’ Volkswagen van), raised $1,300, and assembled the first boards in Jobs’ bedroom and later (when there was no space left) in Jobs’ garage. Wozniak’s apartment in San Jose was filled with monitors, electronic devices, and some computer games Wozniak had developed.
On April 1, 1976, Jobs and Wozniak formed Apple Computer. Wozniak resigned from his job at Hewlett-Packard and became the vice president in charge of research and development at Apple. Wozniak’s Apple I was similar to the Altair 8800, the first commercially available microcomputer, except the Apple I had no provision for internal expansion cards. With expansion cards the Altair could attach to a computer terminal and be programmed in BASIC. In contrast, the Apple I was a hobbyist machine. Wozniak’s design included a $25 microprocessor (MOS 6502) on a single circuit board with 256 bytes of ROM, 4K or 8K bytes of RAM, and a 40-character by 24-row display controller. Apple’s first computer lacked a case, power supply, keyboard, and display, components the user had to provide.
The Apple I sold for $666.66. (Wozniak later said he had no idea about the relation between the number and the mark of the beast, and “I came up with [it] because I like repeating digits.”) Jobs and Wozniak sold their first 50 system boards to Paul Terrell, who was starting a new computer shop, called the Byte Shop, in Mountain View, California.
After the success of the Apple I, Wozniak designed the Apple II, the first personal computer that had the ability to display color graphics, and BASIC programming language built-in. During the design stage, Steve Jobs argued that the Apple II should have two expansion slots, while Wozniak wanted six. After a heated argument, during which Wozniak had threatened for Jobs to ‘go get himself another computer’, they decided to go with eight slots. The Apple II became one of the first highly successful mass-produced personal computers.
(Wikipedia: Steve Wozniak)
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