The sobering truth about the impact of your business ideas

https://www.oreilly.com/radar/the-sobering-truth-about-the-impact-of-your-business-ideas/

But, science-based organizations are rigorously quantifying this impact and have learned some sobering lessons:

1. The vast majority of business ideas fail to generate a positive impact.
2. Most companies are unaware of this.
3. It is unlikely that companies will increase the success rate for their business ideas.

For the very first time in many business domains, experimentation reveals the causal impact of our business ideas. The results are humbling. They indicate that the vast majority of our business ideas fail to generate positive results. It’s not uncommon for 70-90% of ideas to either have no impact at all or actually move the metrics in the opposite direction of what was intended. Here are some statistics from a few notable companies that have disclosed their success rates publicly:

• Microsoft declared that roughly one-third of their ideas yield negative results, one-third yield no results, and one-third yield positive results (Kohavi and Thomke, 2017).
• Streaming service Netflix believes that 90% of its ideas are wrong (Moran, 2007).
• Google reported that as much as 96.1% of their ideas fail to generate positive results (Thomke, 2020).
• Travel site Booking.com shared that 9 out of 10 of their ideas fail to improve metrics (Thomke, 2020).

A final force that is actively working against efforts to discern good ideas from bad is your business maturing.

To use a more analytic framework, imagine a hill which represents a company’s objective function5 like profit, revenue, or retention. The company’s goal is to climb to the peak, where it’s objective is maximized. However, the company can’t see very far in this landscape. It doesn’t know where the peak is. It can only assess (if it’s careful and uses experimentation) whether it’s going up or downhill by taking small steps in different directions—perhaps by tweaking it’s pricing strategy and measuring if revenue goes up.

When a company (or basketball player) is young, its position on this objective function (profit, etc.) landscape is low. It can step in many directions and go uphill. Through this process, a company can grow (walk up Mount Revenue). However, as it climbs the mountain, a smaller proportion of the possible directions to step will lead uphill. At the summit a step in any direction will take you downhill.

Recognize that it’s going to get harder to find successful ideas, so try more things, and get more skeptical. As your company matures, it may get harder to find ways to improve it. We see three ways to address this challenge. First, try more ideas. It will be hard to increase the success rate of your ideas, so try more ideas. Consider building a leverageable and reusable experimentation platform to increase your bandwidth. Follow the lead of the venture world: fund a lot of ideas to get a few big wins.7