San José, Costa Rica, since 1956
Doing Business

Why changing too fast can hurt new businesses

Practice makes perfect, they say, and nothing teaches you this more than good old-fashioned trial and error. In the world of business, especially startups, the fancy words we’ve picked for that are iteration and pivoting.

When you are starting a business, trying new things and adapting is your bread and butter. You have an idea of what you want to do, but you are not sure if people will pay for it or how much, how complicated it will be to produce, or how tough the competition will be. You are figuring out what your business model will be: who to sell to, what to sell to them, how to communicate your value and how to produce it. It is completely normal not to have all the answers. It would actually be weird if you did.

However, while recognizing that we should try things, measure results and adjust course if necessary, we should also be careful not to get lost in the process. Many startups, overly eager to find what works, can fall into the trap of iterating too much or too frequently, causing more harm to their business than if they were to try just one strategy and fail at it.

The problem begins when you turn to iteration as a substitute for strategy. Without getting too technical, strategy is finding where and how your business will compete; it is determining what you will do, but also and more importantly what you will not do. This gives consistency and alignment to the day-to-day operations of your business, allows for synergies, and basically lets you get really good at something specific.

Iterating too much

When you iterate too much you are jumping from one idea to the next, assuming that the results you get, often measured in short periods, will be an indication of what will work in the long run. The logic is not exactly flawed, but the problem is that you start doing things that are not precisely in line with each other, spreading you and your company’s capabilities too thin.

Take, for example, a company that builds sustainable furniture. The initial idea was to sell chairs and tables to restaurants, but this turned out to be challenging. Talking to someone who needed patio floors, the company ventured into making floors and started trying to sell them to the public on demand. A little later, a hotel approached them asking if they could build some benches and pool chairs. Thinking it would be unwise to turn down business when they were tight for cash, the company agreed to all requests, and in less than a year the company was selling six or seven different productsto small business, individual customers and large hotels.

The entrepreneur’s rationale was that he was adjusting to what the market wanted and that it was worth iterating to see what worked. But in business as in life, when you try to chase three or four rabbits at the same time, you might not catch any of them.  The market will always ask for many things, but it is not your job to solve all of its needs.

Iterating too frequently

Startups are nimble and fast-acting. That can be their greatest asset but also their worst downfall. When you iterate too frequently, you are moving from one idea to the next too quickly, not allowing the necessary time for the plan to yield results. The main reason for this impatience is that we are too eager for results, we are short on cash, we feel pressure to show the company works, or all of the above. This leads us to judge the course of action as a failure before it has had a chance to develop itself, and we move to the next short-term strategy.

The other common reason for iterating too frequently is that we don’t know what we should be measuring. “What works” is not always easy to determine or is not easily attributable to one single pull of a lever. Take as an example a software company testing their messages on several landing pages. A/B testing, as it’s known in the industry, is a great practice, providing an inexpensive way to check the responses different pages get online. This, however, can be misleading if you don’t set up the experiment correctly. If one page gets more clicks over a two-week period, does that mean the message is better than the one in the previous two weeks? If you increase the price and you get more leads in the first few days, does that mean you should change your pricing model? Not necessarily. Putting too much faith in iteration can make you drop good ideas, implement bad ones and, overall, jump around too much to actually get good at something.

Using iteration to your advantage

Being able to test things quickly is one of the best advantages of startups, but it should be exercised cautiously. Here are four things you can do to make the most of iteration:

  1. Don’t skip planning: Planning, as boring as it sounds, can produce a coherent roadmap that will align what your company does and make the most of the (often scarce) resources available.}
  2. Give things time: Just because sales don’t seem to be picking up after the latest change doesn’t mean you should change course. Especially if you are short on cash, make sure you don’t become too impatient and reactive, as that can lead you in the wrong direction.
  3. Don’t jump to conclusions: When experimenting with different alternatives, make sure you are crystal clear on what you will measure and whether that metric is a good indicator of success, however you define it. Don’t take shortcuts like leads = sales, or Facebook likes = customers.
  4. Trust your gut feeling: Listening to what customers want is usually advisable, but you shouldn’t become too reactive to that. Sometimes customers might be wrong, or they might not be your You should learn to listen and then act on what makes sense to you and your team. As Henry Ford put it: “If I had asked people what they wanted they would have asked for more horses in front of the carriage.”

Read more “Doing Business columns” here

Randall Trejos works as a business developer, helping startups and medium-sized companies grow. He’s the co-director of the Founder Institute in Costa Rica and a strategy consultant at Grupo Impulso. You can follow his blog La Catapulta or contact him through LinkedIn. Stay tuned for the next edition of “Doing Business,” published twice-monthly.

 

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godutch

Great article Randall. Do you find that many small business people skip the planning part of the business for lack of guidance or lack of funds?

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randalltrejos

Hey GODUTCH!

It’s a somewhat tricky question but here are some thoughts:

The lack of funds is indeed a restraint but I have found that the biggest obstacle is usually the short-term approach to developing the business. We get involved in the day to day and are usually “too busy” to plan or how I like to call it, design our business.

Other times, entrepreneurs don’t even think about planning because they don’t even realize the need for it, which in turn will make it unlikely that they’ll look for guidance.

But provided they do seek the guidance, the challenge is how to find the right kind of help. There are many “experts” out there and opinions are a dime a dozen. As R. Kiyosaki puts it, the most expensive advice is free advice.

Which then takes us to how to get good advice (or pay for it) if you are just starting up? There’s no single straight answer, but I’ve seen many people, myself included, that will support a startup if it’s the right fit with one’s interests or with what you currently do. There are also many mentors that will give away some time to provide the much needed guidance, although here you also have to pick and choose. Finally, you could get someone with more experience than you and try to bring her onboard through sharing the equity of the company.. If she takes it, she’ll be committed to the success of the company just as you, because that’s the payout.

Thanks for the comment!

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