SM: Let’s get your basic concepts together. I saw four key concepts in your book; the concepts of analog, antilog, dashboard, and leaps of faith.
RK: The way I think about the entrepreneurial or innovation process is from a “what’s the problem I am trying to solve” standpoint. In my business, I look for the biggest problem I can because in large part the fidelity with which I can actually attack a problem is quite low. If I have a bigger problem, I have more of a chance of hitting it than if I have a small problem.
The amount of resources, time and money that go into solving a small problem is pretty comparable to the amount of resources that go into solving a big problem. Why not solve a big problem? It all starts with a definition of a problem and somebody’s hypothesis of a solution. That solution can be a product, solution, or any number of things. It needs to have some unique qualities to make it a meaningful venture.
Out of this problem and solution comes a set of questions. They are key to understanding if this solution is truly an opportunity that is worthy of the investment of resources. What I look for in these questions are things we think about every day. Can I make it? Will people buy it? Is it differentiated from my competition? Do I have channels of distribution? How much will people pay for it?
A series of high-level questions cascade into a series of smaller questions. From the beginning, I try to take my problem and solution and cascade out a set of questions that are critical to understanding if this idea is a real opportunity. The first places I look for answers to those questions are proxies in the marketplace. The ones that have succeeded are the analogs. The ones that have failed are the antilog.
Both of them are valid. They tell me something about this venture and its prospects. Let’s look at the iPod as case study. If you were looking for analogs, you would have to look at the Walkman. It solved a critical question that Steve Jobs never had to ask himself; will people listen to music in a public place using earphones? We think of that as a nonsense question today but it is fundamental. When Sony asked the question they did not have the answer. Steve Jobs had it in the analog.
Steve Jobs had to face the fact that while people were willing to download music, they were not willing to pay for it. Napster was an antilog. That antilog had to lead him to address his business in a particular way.
Out of these analogs and antilogs comes a series of unique, unanswered questions. Those are my leaps of faith. Those are leaps of faith that I, as an entrepreneur, am taking if I go through with this business venture. They are going to make or break my business. In the iPod business one of those leaps of faith was that people would pay for music.
Leap-of-faith questions need to be resolved very quickly to figure this thing out. How do you go about dealing with leap-of-faith questions? I try to break leaps of faith down to three at any moment in time. I take my red-hot risks and list them in terms of questions, because that always makes me focus on what I was answering.
I then build a dashboard based on my leap-of-faith questions. My dashboard is in contrast to a business plan. It does not lock and load a set of deliverables. It organizes around a set of leap of faith questions. The dashboard consists of your hypothesis on what the answer is, the metrics you are going to gather quickly and empirically from the marketplace to validate your hypothesis, and your results which are always false positive, because a false hypothesis can be just as valuable as a true one.
My dashboard is a constant, rigorous process of answering questions cheaply and fast, testing my hypothesis, and reacting. This process is an iterative process which allows me to get firsthand knowledge to test my assumptions and build my business.