This is Hidden Brain, I'm Shankar Vedanta.
What do you want to be when you grow up?
Nearly all of us are asked this question very early in our lives.
In the mid-1920s, a young man who went by the name of Fred had a clear answer.
He wanted to be a writer.
He hoped to live among other writers and artists in Paris or Greenwich Village.
So Fred went to college to study literature.
He read voraciously and began writing short stories.
But like so many writers before him and after him, Fred found literary success elusive.
In November 1927, he read an article by H.G. Wells in the New York Times Sunday magazine.
The article asked the reader to consider who had made a bigger contribution to civilization.
The playwright George Bernard Shaw or the Russian neurologist and physiologist Ivan Pavlov.
Fred thought about it and decided the answer was clear.
It was the Russian scientist.
He set aside his writing aspirations to enter a PhD program at Harvard where he trained
as a psychologist.
He spent the next 40 years studying human behavior instead of writing stories about it.
In that time, Burris Frederick Skinner, better known as BF Skinner, became one of the most
influential psychologists in the world.
His work has greatly shaped our modern understanding of human behavior.
Not all of us become groundbreaking scientists, but nearly all of us have had the experience
of traveling down one road only to realize it is not the road for us.
Today we kick off a new series we're calling Innovation 2.0.
We'll explore the science of creativity and how organizations and individuals can learn
to build great things.
How to set goals, launch ideas and find your sense of direction.
This week on Hidden Brain.
When it comes to pursuing our goals, the path seems straightforward.
Think about where you want to go, map out the steps and get going.
But this approach often fails as we proceed to what our goals unexpected difficulties often
arise and surprises a bound.
With the University of Virginia, Saras Sarasphathy studies how we plan and prepare for the future
using the lens of entrepreneurship.
She's interested in how we pursue goals, launch ideas and make decisions.
Saras Sarasphathy, welcome to Hidden Brain.
Lovely to be here Shankar.
Saras you started out as an entrepreneur, not a researcher.
In the 1980s you were living in India in Bombay or Mumbai as it's known today, you launched
a business involving food preparation.
What was this business?
This was basically a dream about starting a restaurant but not having any resources for
example to find a location or a chef or anything.
So the idea here was to just work with what I already had, which is I knew how to cook.
The business became a lunch service business where basically I would cook and bring food
for people downtown.
I see.
And how did this work?
You actually would make the food in the morning and then catch a train or something and
go downtown to people's offices and deliver meals to their to their to their desk basically?
Yeah, initially it started that way and then found a commercial kitchen very, very cheap
through a friend who happened to have like at one of those tiny restaurant like places
and then just to cook a beaten down car to go deliver.
And what were these interactions like when you would drop off lunch for people?
You were doing this in person at the time.
What kind of interactions did you have with people when you dropped off their lunch?
So delivery is not just delivery.
Like all entrepreneurs, right?
You have to become a pinch hitter.
You have to do everything in the business to start with.
But the most important thing is sales.
So I would go in and I would be always trying to get more people to sign up.
So with the customers who already ordered, I mean, these were people who knew me to begin
with.
I would just bring in and talk about the day and explain about the food.
And I would of course ask them, how was it?
You know, as they taste, I would actually wait for a couple of minutes.
And then I would always have a follow on ask of some kind.
Like can you introduce me to the people in the next floor?
And then it became the next building.
And I would always bring extra so that I could give it to other people.
So in the early stages, it was a mixture of just keeping the current customers engaged
but always pushing for a few more orders.
This strategy worked and the business prospered.
Sarah eventually had enough orders to keep her busy in the kitchen.
So she hired a delivery driver.
She expected profits to soar.
But that is not what happened.
Not at all.
In fact, the business started going down and you actually think, when I say business,
I mean literally the number of orders, the number of people ordering.
Everything was took a downward turn.
And so you start wondering what's going on.
Sarah's wanted to get to the bottom of it.
So she went back into the offices where her customers worked and asked them point blank,
what gives?
So it turned out that, you know, and it was not the easiest thing and I'm still even
today.
A little I blush when I talk about this.
It turned out that people actually were not thinking that the food is awesome.
Even though some of them would say the food is awesome, it turns out that there was something
about my personality and these conversations that we had that people missed and they were
ordering it partly to see me come delivered.
And to this day, I don't know exactly what but I do know that the initial success of
the business was not the food per se.
It was the food and delivery combo to put it mildly.
And so when you change the combo and you had somebody else deliver the food, they were
still getting their lunch but they didn't have the interaction, the effervescent interaction
that they would have with you.
Yeah, I wasn't thinking effervescent interaction.
I was actually crushed that they didn't like my cooking.
So at this point, you dipped your toe into the world of entrepreneurship.
You're starting to get a pretty good idea of what it takes to be successful.
You eventually start another business.
It's related to drinking water issues in Mumbai.
Start by giving me the context.
What were these water issues?
Yes.
So there are thousands of these apartment complexes in Mumbai, three to five stories, sometimes
$1.00 and the way water distribution works in Mumbai is basically water comes from the
municipality and it fills a tank at the street level or at the bottom floor of the building.
And then the apartment complexes have on their own, they have to pump up this water to
the top floor or to the terrace when there is a top tank.
And from that top tank, water comes into the apartment.
And so somebody has to go in and turn the water pump on so that the water can be pumped
up from the bottom to the top time.
So this was a security guard maybe who worked at the apartment, whose job it was to turn
on the pump and get the water to be pumped up to the roof?
Yes.
And every apartment complex usually has at least one, we used to call them watchman.
And because water doesn't flow 24 hours, that's the other issue you have to think about.
This water comes in only at certain times of the day.
So the problem is the watchmen are not really always there, right?
And some of them, they're expected to be awake all night.
You know, they've not woken up or they're off somewhere having a smoke or something.
And you know, they are not turning the pump on at exactly the time that you would need
early in the morning, especially when people are getting ready to send their children to
school or go to work or something.
So a lot of apartment complexes would have to chase down these watchmen to make sure the
pumps are started at the correct time.
And on top of that, there was also unpredictability when the water arrived.
At the time, Saras was desperate for a new business idea.
Like many entrepreneurs, she knew this meant starting with a problem.
And the problem that needs fixing and then invent a solution that would be profitable.
So the solution was, why do we need the watchman?
We actually can automate this thing.
And this is a very simple thing, right?
You need a gadget and an electronic gadget that will just take a look at the level of
water in the lower tank, right?
And then the level has reached a particular height in the tank.
It can start pumping it up.
So all we need to do is to design a contraption that does that.
Along with the business partner, Saras came up with the idea for a water pump controller.
She recruited electrical engineers to help design the circuitry and even spend some time
assembling the circuit boards.
It was a simple solution to an important problem.
And so having come up with this thing, you have to find apartment complexes that are
willing to install it and just started with the apartment where we lived.
We told people, just let's try this out, pilot it.
The watchman will still stand around it.
We are here while we test it.
And at least for the first couple of weeks, we made sure we were there.
The watchman was there.
And it worked beautifully.
And so you have a proof of concept.
It's worked successfully in your building, you're an entrepreneur.
I'm assuming the next step is, how do I get other people to use my product?
How do I generate sales?
Yeah, absolutely.
How do you get other people?
And of course, you tend to go to people you know.
So you can just go to the next apartment complex and the next one.
And it's not quite like that in the sense that you go talk to people and most people are
like, we don't even have time to think about this.
And you know, who are you?
It's not the easiest thing in the world.
But we knew enough number of people, both on a personal front, but also through the business.
So we kept on talking to enough number of people.
And I think I remember maybe a half a dozen of these signed up.
And in each case, we really worked hard to make sure it worked properly.
And every single time it worked beautifully.
I understand sales took off pretty quickly.
Yeah, as you go from one to six, you're really excited.
And so you start building 60.
It seemed like a simple solution to a very, very important problem, as I said.
So we went a little bit crazy.
We thought we could go from six to 60 within a month.
And then we were thinking 60,000 already.
And so we began to talk to investors.
I mean, classic, you know, getting into the hockey stick mode here.
Saras had done everything right.
Find a problem and manufacture a solution.
Check.
Get investors on board.
Check.
Find customers.
Get them to buy.
Then find more customers.
Check.
Check.
And check.
Saras's controllers were selling like hotcakes.
And the future looked bright.
But very early one morning, as Saras had just gotten out of bed,
the phone rang.
And basically the person on the other end begins to scream at me.
What kind of business people are you?
You have caused such a big problem for us.
I don't know what to do.
You come over here immediately.
And for a minute, I don't know who this person is.
Right?
So I have to ask who is speaking.
So and that person loses it when I ask his name.
He says, how many people have you screwed over?
Eventually, Saras figured out who the man was,
the secretary of a local Homeowners Association,
who had purchased one of our automatic electric pump
controllers.
Saras left her house and rushed across town
to meet him at his building.
But he wasn't alone.
People are already at the entrance to the building.
There are people already standing around because they're
waiting for me.
And they're already shouting at this guy who had called me.
And there were half a dozen families
who had no water that morning.
And so they had come to him and they
were screaming at him.
So he was stressed out because there were people.
There was like a mini mob there.
The Homeowners took one look at Saras,
who at this time was in her early 20s.
This was the person to whom the apartment manager had
entrusted the well-being of their building.
They lost it.
Everybody was really mad.
And not only that, seeing me infuriated people even further,
because they thought the guy, the secretary
of the association, was just nuts to even do business with me,
let alone allow me to sell him something.
So it thinks God worse.
After making her way through the angry mob,
the secretary walked Saras to the pump room
to check out the problem.
She noticed it right away.
A coil in the pump had burned out.
Normally, when the security guard started the pump,
he would fill a little cup with water to prevent overheating.
The water controller Saras had installed did not do this.
And without that water, the pump burns out.
I see.
It cannot start on its own.
And we did not even know that.
And we had not considered that.
Because none of us were big engineers.
We had just worked with engineers to develop the thing.
And especially none of us were hydroelectric engineers
or plumbers or anything like that.
It was a failure.
The solution into which Saras had invested so much time
and energy wasn't a solution at all.
In fact, it made a big problem even worse.
I was just heartbroken, completely panicked,
sort of shaking.
But I was like, me, Al-Qaulpa, me, a maxima, Al-Qaulpa.
Tell me what I need to do.
I will do anything.
I will stay with you.
I will bring buckets of water from the tank.
I'll pay for people to bring the water into your house today.
And I'll pay, of course, for a new pump and everything like that.
So it could be, of course, that this was an isolated incident.
Was this the end of the story?
Was this the only problem you encountered
with your water controllers?
No, this was the beginning of a Shakespearean tragedy.
So during this encounter, I was just there.
I was just trying to solve the problem.
And it's only later in the day after we had worked out
what I needed to do to make it right,
that the panic hit me, that we have been installing,
several dozens of these.
And so immediately started thinking,
we need to go and inspect every one of them.
And it turned out by the next day, I started getting more calls.
By the time we went out to people, people started
realizing that this was burning.
They had made a mistake.
So by the time I got to our three more calls the next day,
we were already going out to every single installation
and looking for the pumps that needed the priming
and telling people you cannot use this controller anymore.
And so at this point, now you know that Gizmo
that you built has a problem.
You know that there's an even bigger problem
because it's actually caused damage in many of these buildings
that you're going to have to fix that damage.
It's sort of a public relations disaster.
What happens at this point?
You were in your early 20s.
You thought you were on the start of a hockey stick.
I guess it wasn't.
It wasn't and remember, this is why I said it like a tragedy
because you have the customers who actually suffered the problem
and they're not happy.
And remember we've been talking with a couple of investors
in the meanwhile, let me tell you, they were not happy.
It was just one call after another.
It's like doing some kind of firefighting.
So at all stakeholder, my family was like really pissed off
at me, right?
Because they had been trying to save for a while.
Don't go into business and we are not
from a business community.
Right?
We are lower middle class.
You are so smart.
You're getting all these job offers.
Just take a job.
Why are you throwing your life away?
I mean, so every minute of the day was just this confrontation
and then end the day as a puddle.
All of us, even those of us who are not entrepreneurs,
make plans for the future.
But as Saras discovered with her two ventures,
once you make a plan, this stuff you don't know about.
You can learn new things to address this problem.
But there is also stuff you don't know that you don't know.
And it's very hard to prepare for this.
When we come back, where Saras went wrong
and what research shows is the most effective way
to pursue our ambitions.
You're listening to Hidden Brain.
I'm Shankar Vedantam.
This is Hidden Brain.
I'm Shankar Vedantam.
Even if you don't consider yourself an entrepreneur,
chances are you have ideas you'd like to see come to life.
Maybe it's launching a creative project
or starting a side hustle.
Maybe you'd like to start an organization
in your community.
Maybe your goals are personal.
You want to get in shape or you want
to have successful relationships.
At the University of Virginia's Darden School of Business,
Saras, Saras with these says there are some common mistakes
we make when it comes to getting our plans off the ground.
Saras, as you were launching your water pump controller
business, you noticed there was a problem.
Many apartment buildings in Mumbai
were running out of water because the pump was not working
properly or the security guard had not
turned on the pump.
I feel you were doing exactly what young entrepreneurs
are often taught to do, find the problem in the world,
and then device a profitable solution.
Can you talk about how common this advice is
and why the advice might not be right?
That's a great and interesting question.
When I went through my business, people were telling us things
like here's the story of an entrepreneur
and the way you do it is you have to solve the big problem.
But also in a profitable way.
The first problem is you can see the problem
and you can solve the problem like with my pump controller.
But then it's not clear that it is going
to be profitable as a business.
The unit of the product may be profitable.
And then you go into this fantasy.
OK, if I can go from 6 to 60 to 6,000
and then you start thinking how many buildings are there.
And so you go into that and then you
don't realize that profitability does not work that way.
That's one issue with it.
And the second issue with it is, and this one
I had to learn the hard way, which
is a lot of businesses that get started
are not necessarily solving a problem out there.
And it's really much more about things like competence.
What is it that you know how to do?
And then how can you create more value with that?
But yes, in the beginning, I was totally
bought into this idea that every business begins with a problem.
It's also the case that at some level,
you know that there's a problem because the water pumps
are not pumping the water up.
And so you say, OK, there's a solution to that.
But you didn't know about the priming cap
that was necessary to prevent the pumps from burning out.
So there was in fact a deeper problem
that was hidden behind the first problem.
You didn't even know it existed until it blew up in your face.
Yeah, absolutely.
And not only did I not know that, look
at why I did not know that, right?
It's because my competence is not
in building pumps or improving pumps
or innovating on pumps or even in electronics.
So this is exactly what an entrepreneur does,
finds a problem and then figures out a way to solve it
irrespective of whether you have the resources
or you have the knowledge or whatever.
When you were manufacturing these water pump controllers,
you hired an electrician who came in as a consultant.
But you told me that you also took it upon yourself
to learn how to build these electronic circuit boards.
And on the surface, this seems like the right thing to do.
It seems almost noble that you wanted
to learn how to build these things yourself.
But in hindsight, you were getting in well over your head,
Sarah.
Oh, absolutely.
And plus there was nothing like noble about it, right?
It's a cost issue, Shankar.
And also the reality of a lot of very small ventures
or startup companies, right?
And when you learn it yourself, it's easier
to have employees and people to actually do it for you
because you have to supervise them.
And they have even less knowledge than you have.
And you actually have very little knowledge
compared to the expert.
So that's just common in many, many ventures.
I, again, experienced it in the School of Harmlocks.
So another mistake we make is that we fail to notice
signals of problems that are coming in
at a much larger scale.
This also affects big companies.
I'm thinking about the experience of Blockbuster
as streaming television was starting to arise.
Can you tell me the story of what happened
with Blockbuster and the rise of Netflix, Sarah?
That is a lovely question.
And it is also something that we have looked at in research.
So you think, once you have solved a problem,
you think that you're writing a wave,
and that wave is going to go on for a long, long time.
Then along comes several other things that are also going on.
But because your business is going so well, right?
You look at ideas and you start thinking about this will not work.
That's a stupid idea.
That is too small a thing.
And that's what happened with Netflix, right?
So with Blockbuster, you are doing so well.
They had like 9,000 stores or something like this.
If I remember around the time that they started noticing,
a, there were other businesses that started the Red Box,
for example, started saying, there's no need to pay this up front fee
that you heard to pay with Blockbusters, right?
And Netflix started doing the same thing.
So they just thought these are just kind of young Turk people
who are trying to compete because we have such a great business
and such a great market.
They're just trying to kind of knit around our heels, right?
That's the attitude.
And you think that that's going nowhere.
And that is the kind of thing because you're projecting
this wave is going to last for a very long time.
But also Blockbuster was levered up too much, right?
They had debt on their books.
They were accumulating debt in their fast growth.
It's this perfect storm that gets created
and you start projecting to the future,
but they also start placing big bets on that projection.
Because of course, if things are unpredictable
and you're placing big bets on what's going to happen,
when one of the things in the future
that you think is going to happen doesn't happen,
then you might be up the creek without a paddle, as they say.
It's not only that your projections are wrong,
but when you're riding the wave, right,
you do not see that the projection can be wrong
at all.
It's also sort of like health and life, right?
In your 30s, you think you're immortal.
In your 40s and 50s, you are in such denial
that you do everything to prove that you're immortal,
right, fitness, whatever.
And then one day something happens
and you're confronted with mortality.
When all of us do this all the time,
and then in organizations that are doing very well
and making a lot of money, there's also this group think
that sets in red.
Everybody wants to believe it.
Everybody sort of reinforces each other's denial
of these things.
And so you just take things for granted.
We can see from the blogbuster story
that another pitfall even the smartest entrepreneurs fall into
is not knowing when to change course.
So where do they go wrong?
You have to think about it.
The first step you have to do is to think about the decisions
that you're making, even if you're Coca-Cola,
and you know exactly how many you're going to sell
and you're probably your predictions are 100% correct.
You still have to think about all the positive opportunities
out there that you might miss by not investing in something new.
So that is as fancy that your own,
whatever you think you're doing well is going to continue.
But it's also missing out on other things
that could be happening that you could be a part of.
So one of the ways you think about this problem
is to think about the decisions that you're making,
all the positive opportunities out there
that you might miss by not investing in something new.
This is why, again, when you go to blogbuster,
it's not just that you get it wrong.
You can all get it wrong, especially in a world of fast change.
But are there other ways of building this future
without having to lever up,
without having to ignore competition?
Is that a way, for example, that I can partner with competition?
Maybe I can even invest in what will become my competition
in the future?
There are many, many, many other techniques
and strategies that we could consider
but the idea that you can always be wrong,
that is really the thing that we want to be emphasizing here.
I understand you once ran a study
that looked at novice versus expert entrepreneurs
and how they make decisions about the future.
What did you find that novice entrepreneurs typically do
when it comes to looking for data, Sarah?
The study was really interesting
in separating out novices and experts.
So novices either consist of people
who have never started a company
but are thinking of starting one
or people who have started their very first company
but they're in their very early stages,
first couple of years or things like that.
So most novice entrepreneurs are all over the place.
The first thing that we find in the thing
is they are just looking for information.
So if they come into like an MBA program
or a business school program or they take some courses,
people teach them some things, right?
But then they over-learn from it, right?
So they really start believing
that if you go out and ask, say survey a hundred people
and 75 people loved your product
or they filled out a survey saying they loved it,
that means that 75% of all the people in that demographic
or in that segment is going to buy your product
or something like that, right?
So they think that the data actually tells you
what will happen in the future.
So in general novices will sort of follow all these weird things
or they'll have a favorite entrepreneur
and they will say, Elon Musk does it this way.
So I will do the same thing or something like that.
And then they go out and talk to a bunch of people
and then they over-generalize from their data
that they have collected.
Now when you look at the expert entrepreneurs,
a lot of them will look at the data
and really not take the data at face value.
Inside one expert entrepreneur I studied,
it's an beautifully said, you know what?
Data about the past is fine, right?
When somebody starts giving me data about what they will do
in the future, I just ignored it
because I don't believe in predicting the future.
And so their attitudes towards data are very, very different.
When we come back, what successful entrepreneurs do
as they make decisions?
You're listening to Hidden Brain, I'm Shankar Vedantan.
This is Hidden Brain, I'm Shankar Vedantan.
In the late 1990s, Saras Saraswathi was a PhD student
at Carnegie Mellon University in Pittsburgh.
She was working with Herb Simon, the economist
who won a Nobel Prize in 1978 for his work
on decision making and problem solving
to answer the question, how do the world's
most successful entrepreneurs go about solving problems
and pursuing their goals?
Saras in 1997, you took a road trip
to find an interview successful entrepreneurs.
Can you describe this trip for me?
Where did you go?
Who did you meet?
So the study was about expert entrepreneurs.
We were looking for people who had 10, 15 years,
immersive full-time experience,
started in running multiple ventures,
including successes and failures.
And then taken at least one company public,
but the main thing was these are people
who have been through every experience
that entrepreneurship can offer,
including successes and failures.
The road trip was informed by research
that Herb Simon and his colleagues had done some years earlier.
They were trying to build a computer program
capable of mimicking human problem solving.
To do this, they recruited a handful
of expert problem solvers, chess grandmasters.
And the method they invented was called
the Think-Aloud verbal protocol.
The idea is you go to an expert in the field,
like a chess grandmaster, and you ask them to play chess.
So you observe them while they are playing chess,
but you do one additional thing.
You tell them you have to talk continuously
as you are thinking about your next move.
So you cannot just make a move.
So they would put two players in separate rooms,
so they don't know what the other person is thinking,
but each player had to think aloud continuously
in deciding which move to make.
So that's how they could write the computer programs.
So they were looking at which moves are they considering
and rejecting and which moves,
and then how do they actually come
to the final decision of which move to make?
And they got that data.
And I used that method to study expert entrepreneurs.
The common wisdom at the time was
that the chess grandmasters could simply see further ahead
than beginners.
If novices were able to see two moves ahead,
the grandmasters could see 10 moves ahead or 20.
And it turned out that what really good chess players
are very good at is they have a much bigger data bank
inside their heads because they've played thousands of games,
especially if they played professionally.
So their brain becomes very good at looking at a chess board.
When you and I look at a chess board,
if we are asked to recreate a chess board
after looking at it for like 30 seconds,
people will not be able to get even seven of the pieces
right, right?
But whereas the really good chess players can recreate it
perfectly because they have names for entire combinations
or positions on a board.
Its pattern recognition taken to the nth degree
when you are an expert in something.
And notice that this is not only experience, right?
Just playing chess for 40 years is not
going to make you a grandmaster.
You have to play, but you also have to think and learn.
And you have this thing called deliberate practice.
You have to push yourself to the next level.
So it's a particularly learn from your experience
in a particular way.
And that's how you become an expert chess player
or an expert at anything.
Saras wondered, do expert entrepreneurs work the same way?
Using Herb Simon's method, Saras asked
the entrepreneurs in her study to solve a problem out loud.
These weren't chess moves, but business-related problems
that she asked them to work through.
As they talk through their solutions,
Saras noticed that they were five concrete habits
that distinguished how these experts approach problems
differently from novice entrepreneurs.
The first is something Saras calls bird in hand.
So normally we think we have to start
with a goal of some kind, right?
Or an effect that we want to create in the world.
So the goal could be to solve a problem.
The goal could be, I want to make a lot of money.
Like in my case, I want to build a restaurant
and it would be nice to have a location and a chef
and enormous amounts of money to do decor and music,
but they don't have anything, right?
So I am faced with two possibilities.
One is I can go and come up with a plan.
I can write down my visualization of my restaurant
and I can go and try to convince somebody
to give me the money, right?
So I go investment route.
I start with an effect I want to create, a goal.
And now I'm beginning to think,
what are all the means, all the resources that I need
and I start chasing the resources?
The expert entrepreneurs did the opposite.
They did not start with a goal.
They did not start with some big opportunity
or some problem or something.
They literally said,
what do I have within my control?
Who am I?
What do I know?
Who do I know?
So even if I want to start a retail business,
you know, even if I have some kind of general goal
or I want to make a lot of money,
it's not a very clear goal, right?
Even if I have a goal, so whether I have a goal or not,
I'm actually starting with beats.
I'm not starting with the goal.
I'm literally asking myself,
who am I, what do I know, who do I know?
That is my burden hand.
I understand that you teach this idea in your classes
pointing to Airbnb as an example.
Airbnb of course allows people to offer their homes
to others for short term rentals.
How do these business come about in the first place, Sarah?
So today, if you took a course in entrepreneurship,
people would tell you you have to come up
with a great idea for a business, right?
Or solve a problem of some kind.
Now let's go look at what Brian Chesky and Jo Gebi are,
the co-founders of Airbnb.
What was the idea they came up with?
And how and why did they come up with it?
When you ask that question,
you find that these are young people,
they are in San Francisco, they have this apartment,
and they're thinking about how do we pay rent
because it's becoming increasingly difficult
to meet their rent obligations.
And it turns out that the apartment had an extra bedroom
that they were not using,
and they had an air mattress in that bedroom.
And in trying to think,
how can we make a little bit of money
so they can sustain ourselves and pay rent in San Francisco?
They just look at this air mattress and say,
maybe you know what somebody would pay
to come and use our spare bedroom
and the air mattress.
And why don't we just put up a website
and see if anybody shows up?
And that's how they get the idea.
Not they're not thinking at that time
that there's going to be this multi-billion dollar business
or anything like that.
They were trying to sort their own problem in some ways.
And they did what they knew how to do.
And it turns out to be a business idea.
They do know how to take it to the next level,
just the next step of making a professional website.
And that's what they had kind of day one
in the Airbnb story.
And you can see it's all like burdened hand.
They're in San Francisco.
They already have the apartment.
They have this spare bedroom.
They have the air mattress.
And they have the problem, right?
Which is how do I pay my own rent?
So there's a second habit that you found
amongst successful entrepreneurship
and it's something you call the principle
of affordable losses.
What does this mean, Sarah?
So when you start shanker with the burden hand, right?
You immediately have to also think about,
are you going to do with things
that are already within their control?
You're burdened, burdened hand?
Or are you going to go out and raise some money
or raise some resources on things that you don't have?
The moment you run out to try and raise some resources,
people ask you for projections, right?
For if you have to get somebody to invest, you start.
You have to make some financial projections
and tell them how much money they will make
and things like that.
And people start predicting future cash flows
and what the risks may be.
And they start calculating how much money people can make.
They start focusing on expected return.
When you look at the expert entrepreneurs, again,
they do the inverse of this.
They just simply ask, what can I do for affordable loss?
So in the case of Airbnb, for example,
it causes them nothing
because they already have the extra bedroom
and the air mattress, right?
So when you combine burden hand with affordable loss,
it also gives you control over the downside.
Because if the thing fails,
you're going to lose nothing more than you can afford to lose.
When the founders of Airbnb,
Brian Chesky and Joe Gebbia,
realized they had a great business idea on their hands.
They did something else that was interesting.
They recruited a friend to help them
with the technological side of the business.
Sarah says this is another example
of what expert entrepreneurs do.
They find the right people to help them level up.
She calls this the crazy quilt principle.
So the crazy quilt principle is the idea
that you are going to work with
whoever wants to work with you,
but only if they put skin in the game.
So if you go back to the affordable loss principle,
one way to say is I need
an amount of dollars to do X, Y and Z.
But when you break down the things
that you're going to spend that investment on,
80% 90% of all of those will be going to pay other people.
You want to hire somebody to do your sales,
you want hire a CTO or you are going to pay somebody
to design your brand or whatever it may be.
And so the way to do it is to go out and talk to people
and convince them to come do this with you
and not charge you any money up front.
But that commitment can be affordable loss for them.
And a kick-as example of that is actually Richard Branson.
At that time, he was not so rich at Branson.
He was not this hugely successful entrepreneur.
But he was young.
He had started virgin records and virgin records
had been successful.
And suddenly he travels a lot and he thinks,
I have a better idea, a cooler idea for a better airline.
And how do I start this?
He could have gone and raised money.
Everybody tells him this is a high investment,
investment intensive kind of business.
He basically calls a Boeing.
And he says, hey, you must have some planes hanging
or not making money for you.
Can you let me have them for a year or two?
Because I have this cool idea for an airline.
And if it doesn't work out, I bring the planes back
to you in the best possible condition I can.
If it works out, let's talk a deal.
So for Boeing, though, if you think about it,
to try something new and innovative,
invest in it early on, it's not that expensive
to lease a few planes, it's not that expensive.
And it makes it completely affordable loss for rich at Branson's
to go off and build an airline.
So it's affordable loss on both sides.
There's example of, for example, for example, of this kind.
There are lots of people in manufacturing, for example.
You come up with a new idea for a nutrition bar.
You can go to a co-packer and you can work with them.
And for them, it doesn't cost much so long
as you allow them to run the production during their downtime
or something like that.
So it becomes affordable loss for them.
They make you a minimum amount of quantity
that you can get on the shelves of different stores
and try it out.
So you don't have to do a prototype of a nutrition bar.
You can do a full production run for pretty close to nothing.
Being a successful entrepreneur doesn't mean you'll never fail.
But Sarah says, the when expert entrepreneurs fail,
they are better at turning lemons into lemonade.
So the lemonade principle is the idea
that when you build ventures, effectually,
without predicting the future, always doing things
within your control, the fact is there are lots of things
outside your control.
And some of them just hit you.
So the world outside hits you with lemons.
And so the idea is you have to also get very good
at dealing with unexpected surprises
and then turn even negative surprises into opportunities.
The iconic case is 3M, and they're always creating new products.
And they end up, one of the streams of new products
that are invested in is Adhesives.
And they end up inventing an Adhesive
that doesn't stick very well.
So they usually, it would just go into the trash can
as an attempt that failed.
And Spencer Silver was involved in developing the product
is not very happy that it turned out to be a failure.
Until another colleague, Art Fry, is in a church choir.
And he realizes that it would be nice to have something
that he can put on his music sheets to mark them,
but be able to take them off afterwards.
So he thinks that something like a glue
that doesn't stick very well would find use in that.
The failure that 3M inventors spent Silver experienced,
we know it today as the Post-it note.
So the lemonade principle is the idea
that before you throw stuff away, in fact, most of the time
you can make a lot of good businesses out of trash.
And then it could become like a very successful product.
There is a final principle Sarah's talks about.
Pilots in the plane.
Expert entrepreneurs don't merely react to their environment.
They actively shape it.
They make their own luck, if you will.
Take a look at Netflix.
In the early 2000s, the company's DVD rental
by mail model was in danger of becoming obsolete.
Netflix pivoted to become a streaming service.
The company wasn't just trying to win a share
of an existing market.
They were creating a new market.
In so doing, they changed the way
we all consume entertainment.
They invented their own future.
As Sarah's talk to these entrepreneurs,
she found that there was a presiding mindset
over all of these principles.
Sarah's calls this mindset, effectuation.
So effectual thinking is a way to minimize
predictive information while making decisions
under great uncertainty.
And the way you minimize predictive information
is you're always dividing the world into things
within your control and things outside your control.
You ignore things outside your control
and continuously use things within your control
to shape and co-create the future.
That's what effectual thinking is.
And so you end up creating new effects in the world,
even effects that you did not begin with.
I mean, in some ways, one of the lessons here
is that the really successful entrepreneurs
have the humility to know that the future is not controllable.
And in some ways, once you accept that,
then you realize it doesn't make a ton of sense
to try and figure out where you're going,
try and figure out the destination,
try and figure out the big picture strategy.
All of that in some ways is unknowable.
Absolutely.
You don't have to think about all of these other things
that people worry about.
And then the beauty of it is you actually end up
achieving some of those big things precisely
because you are not really focusing all your time
and attention on it.
Sarah Saraswati teaches entrepreneurship
at the University of Virginia's Darden School of Business.
She's the author of Effectuation,
Elements of Entrepreneurial Expertise.
When we set goals, many of us try to meticulously plan
for the future we want, then hope and pray our plan works out.
Sometimes it does.
Sometimes it doesn't.
Sarah's research raises an interesting question.
What if we took a different approach?
Rather than ask what we want from the future,
what might happen if we instead asked,
what do I have to offer that might change the future?
Next week, we continue our Innovation 2.0 series
with a look at talent.
We explore why we're so drawn to people
who seem to be naturally gifted
and how our assumptions about talent and hard work
can be a barrier to success for both people and organizations.
Hidden Brain is produced by Hidden Brain Media.
Our audio production team includes Annie Murphy-Paul,
Christian Wong, Laura Quarelle, Ryan Katz,
Autumn Barnes, Andrew Chadwick, and Nick Woodbury.
Tara Boyle is our executive producer.
I'm Hidden Brain's executive editor.
If you enjoyed today's episode,
or know a budding entrepreneur who might find it useful,
please share it with them.
Your word of mouth recommendations
are one of the most powerful ways
for us to connect new listeners
to the ideas we explore on Hidden Brain.
I'm Shankar Vedantam.
See you soon.
