Build Equity with Experiments
Experiments are not demonstrations.
Demonstrations convince. One shows a demo to a client or prospect to gain trust on the way to making a sale. "See, it works!"
Sales professionals should be in charge of demonstrations. Since the job is to drive the viewer down a particular thought path, they are necessarily manipulative. "Wizard of Oz" can be a valid method when the goal is to give the prospective customer a view of how the experience should work without requiring the underlying investment. A little pizazz can help more than engineering the meat of the product.
Experiments, on the other hand, are a vital part of the scientific method. Experiments, downstream of falsifiable hypotheses born of observation, create knowledge. However, they must follow the hypothesis. One does not stumble into experimental knowledge. The famous story about old bread leading to penicillin is a story about observation. From that accidental data, Fleming formed a hypothesis. The work after that was the experimentation to discover the repeatable process.
Here's the thing: experiments are repeatedly wrong. Options traders should love experiments because they repeatedly fail small until they are right big. The old advice is to be in a position to get lucky. The scientific method puts us in place to do just that with decent economics.
The trick is that the trials need to be small and build toward knowledge. Discovery requires patience. One does not have a well after a single dig of a spade.
The problem is when we confuse demonstration and experimentation. Sometimes we see something happen, and we are full of wonder. But that is just observation - we have not followed through with the work that follows. And we might have just seen a sales demonstration - how much there is there?
Further, when looking at R&D, we are more impressed with the late-stage almost-demonstrations than the experiments still building up. We might even celebrate the efforts that would be demo-able if this particular swing connects with the ball.
Scientific managers should manage the research process to keep the integrity and consistency of the process. The former guarantees the value of the experiments. The latter makes sure the wheel of value creation keeps turning. The perfect is the enemy of the progressive good.
The push from sales is very naturally going to be for demonstrations that one can use to raise customer or investor interest.
To manage this organizational challenge, scientific managers need to be finance experts. Their job is to build the equity value of their company. Understanding the connection between the research efforts and equity value is not always easy, but it is fundamental to the value of the enterprise. They are the people who drive wealth rather than income. It is from this perch that they can push back on more current concerns. They are making everyone wealthier through the knowledge accruing to the business.
What about when one is the salesperson and the scientist? What of the indie-hacking entrepreneur? The temptation to eat the seed corn will be ever-present.
And frankly, many of the successful indie hackers I have met did just that - they put it straight into sales and focus on monetizing their assets. One can use demonstrations and ex-ante knowledge to reach sufficient income. If one wants to build a small business, this is often the easiest path. It leads to enough income to form a job bubble around one, allowing full-time focus for a liveable wage.
However, I see all this as a trap. If one does not experiment and build knowledge, one will not have a durable asset.
My theory is that for an indie-ish startup, the "engineering" job of the founder is scientific experimentation. Make observations, hypotheses, and experiments. And it is acceptable to cut corners that would not fly in an academic setting. The ceremony is not the point. We are not publishing in Nature. Rather than worrying about the judgment from others when getting it wrong, we celebrate the messiness as we work toward getting it right.
The knowledge is both technical and market. I've discussed elsewhere the importance of market data. This scientific lens is how one makes sure it generates equity value.
One fun dynamic will be using a demonstration of technical knowledge in an experiment to gain market knowledge. The demonstration becomes the tool that bends the two arms of discovery toward each other to form more of a flywheel. That wheel drives the value of the enterprise.
Many of us will face a challenge to find something that works and turn to monetize that. How do we keep the equity wheel spinning at the same time? I think it is worth looking at it in two stages.
First, going from zero to one is part of the experimental process. One gets to a minor level of success in the course of a "fail small" experimental regime.
However, the growth business very likely does not look like a mere continuation of the initial startup. If the startup was an experimental approach to answer a question (paging Steve Blank!), the growth business is the monetization of the answer. One now needs a different skill set. The business experimenter should look for a partner who is an expert in that monetization process so the experimenter can get back to what they do best.
The growth business is all about demonstration - they do it well! And there is no confusion with experimentation because they are not about finding the right direction - they are about going fast. The opportunity is to let the partner take the lion's share of those gains in return for their capital and risk. A much larger growth pie wedge will swamp the value of owning the whole personal-sized pizza. And the difference in skill sets makes the trade plus-sum.
There exist private equity and acquisition vehicles with this kind of operating regime. They look like great deals to me as a route to creating real wealth. You experiment, they demonstrate - and both create extraordinary wealth.
Photo by Louis Reed on Unsplash