The Fog of Innovation — that moment when you realize that the data you need to make a critical decision about an innovative idea just aren’t clear. Unfortunately, the data rarely are.
For most large companies that find themselves lost in the fog, the default answer is to keep studying. After all, a risk that doesn’t pan out tends to have more negative repercussions than risks not taken. But remember: data only become crystal clear when it is too late to take action on that data. And time spent waiting for perfect clarity creates room for disruptive upstarts and hungry competitors.
Notably, there is a group that don’t get stuck in the fog: Venture capital-backed startups. (The do, however, have other issues.) How does a startup do it without all of the analytical horsepower of a large company? It works best when three components come together:
1. Active stakeholders with grounded intuition. Venture capitalists have significant pattern recognition skills related to both startup companies and specific markets. Good ones attract board members and other advisers with complementary skills. Ample experience and a diverse skill set helps stakeholders makes sense of what might not be obvious to others. Decision-makers assessing a market about which they know nothing not surprisingly demand significant proof before making a decision.
2. Quick decision making. At most startups, decision-making matches the pace of discovery rather than being held hostage by the complexities of calendar juggling. I remember distinctly a large company that proudly told me about how it got all of its most important executives to sit on an all-powerful innovation board that met every 90 days. “What if,” I asked, “the day after a meeting, the team discovered its strategy needed a wholesale revision?” Silence.
3. A scarcity mentality. Nothing focuses the mind like a dwindling bank account. Venture capitalists almost always stage investment in companies. Investment capital isn’t tied to an annual budget cycle; it is tied to estimates of what it will take to address key assumptions.
The military too faces the need to make decisions when information isn’t clear. (In fact, the idea for this blog post came while watching the Academy Award winning documentary on former Secretary of State Robert McNamara called The Fog of War.) One doctrine taught to Marines is the so-called 70 percent rule. The goal is to get enough data so that you are 70 percent confident in your decision, and then trust your instincts. If you have less data, you are making a close to random decision. If you wait until the data is perfect, the opportunity to make a decision that has impact probably passed you by.
Scott D. Anthony is managing partner of Innosight.