Insight, entrepreneurial mindset and principle of affordable loss

Separating insights from non-insights: Let’s say your organization has this tool where employees, customers, partners log ideas. And you are part of this committee that selects ideas from this pool of ideas to be taken to the next stage. Now, you have read somewhere (perhaps in Innovation trigger: idea vs insight) that ideas with insights are better candidates for selection than ideas without insights. So you ask the question: How do I know which of these ideas came with insights from the authors? Let’s see if understanding of a species called “entrepreneurs” known for its commitment to one or more insights helps us here.

Entrepreneurial mindset: Let’s say our friend Seema realizes one day that it would be great if there is someone who home delivers simple meal on a need basis in the evening in her neighborhood. There may be enough number of working women who might use such a service. Seema might take any of the following approaches:

• Approach-1: Analyze the market (go around in the neighborhood with a questionnaire), do the cost benefit analysis for various demand points (50 meals a day, 100 meals a day etc), rent from the place where she needs to operate, employment cost etc. And eventually see what all she needs to start the business. Seema might say I need at least Rs. 5 Lakh to start this business considering all the rainy day scenarios.

• Approach-2: Talk to a few friends and see if any of them would use such a service. A couple of friends actually show interest and Seema starts supplying them the evening meals. She operates from home. After a couple of months the number grows to 10 meals a day. Her menu slowly stabilizes, she gets a hang of negotiating with suppliers etc. After a year and 70 customers Seema rents a small place to operate this business.

Well, according to Prof. Saras Sarasvathy of Darden School of Business, Univ of Virginia, most of the entrepreneurs go with approach-2 (see What makes entrepreneurs entrepreneurial?) and she calls the principle behind this approach as “Principle of affordable loss”. Unlike approach-1, where you ask “What all do I need before I jump into this?”, principle of affordable loss asks, “What can I afford to lose before I get further clarity?” Note that in approach-2 your destination can keep changing. For example, Seema may find out that instead of ready meals, her customers value packets of fresh cut vegetables more and she may focus on that service rather than meals.

How does Principle of affordable loss help? Let’s go back to our original question: How do I separate ideas with insights from those without insights? You say to the idea owners: Well, we don’t have the luxury to allocate separate time for ideas. Only ideas with prototypes qualify for selection. Now, only those people with insights (and deep conviction) are likely to spend time say over the weekend (or afford to lose something) to come up with a prototype. Or if you are a Google, you will say: Take 20% of your time off to show me a prototype but make sure you meet your current project commitments. We know what that means.