Does the ‘little bets’ idea ignore barriers to entry?

For the last few years software development has seen great results from the use of iterative and incremental development. Agile and Design Thinking has driven a set of creative methods that help solve problems and generate ideas that is based on building up solutions, rather than starting with the answer.

Little bets

Peter Sims encourages this in his book Little Bets, a way of exploring and developing new possibilities. Specifically, a little bet is a low-risk action taken to discover, develop and test an idea. As a result, the Agile community has adopted this, along with other approaches like lean start-up, and encouraged organisations down a path of experimentation and feedback.

There is a lot most business can learn from such approaches. In fact, in just a few weeks time, VFQ will be launching its new education product at Agile 2012. Is it finished? No. Will it change as a result of feedback? Yes. In many ways, it tries to benefit from the same things these books encourage. I hope for those coming to the conference that you will help support us.

As much as I am a fan of everything above – for example I was talking about Design Thinking almost before anyone in the Agile community as a result of my love of Marty Neumeier and Tim Brown – I still believe businesses need to take occasional big bets.

Big bets

There is a lot we can do in little bets and through the use of feedback to minimise the risk of big bets, but I believe that in most industries, there comes a point when a big bet is the only choice to move forward. It’s either that or withdraw.

Should businesses be taking less of these big bets? Yes. Should we be using smaller bets more often? Yes. Of this there is no doubt. However, can a company avoid big bets? Of this I am less sure.

Quite rightly, I have been challenged on these views and it has forced me to discover why my instinct and experiences suggest such a scenario. Fast mergers and acquisitions were my first example, since they are often time bound. But with the amount of value destruction they create, they are often a case for not making big bets.

Peter Sims interviewed a host of companies. Amazon, Pixar, Proctor & Gamble, Google, 3M, General Motors and Hewlett Packard. He explains some wonderful examples of little bets in action. I completely agree with his viewpoint that companies that are succeeding are making lots of little bets. I agree with the proposition that we live in uncertain times, and little bets provide a solution. But here’s my issue:

Little bets work best in places that have lower barriers to entry. Disruptive markets where the barrier to entry will be attacked, incremental improvements where the barrier to entry has already been paid, industries with naturally low barriers to market, new industries where no barrier to market exists at all.

For many companies, removing the barrier to entry is not an option though. This was previously well defined as a cost of producing which must be borne by a firm which seeks to enter an industry but is not borne by firms already in the industry. The bigger the barrier to entry, the higher the price of the first bet. What is interesting is that all of the companies described above, that are placing little bets, they are also building barriers to entry stopping others from placing little bets against them.

For me, business should be made of few big bets and many little bets, but I still can’t see how we avoid big bets. Happy to discuss.

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