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Most Business Ideas Fail

Eric Colson, et al, have a humbling thought for us:

The introduction of data science into the business world has contributed far more than recommendation algorithms; it has also taught us a lot about the efficacy with which we manage our businesses. Specifically, data science has introduced rigorous methods for measuring the outcomes of business ideas. These are the strategic ideas that we implement in order to achieve our business goals. For example, “We’ll lower prices to increase demand by 10%” and “we’ll implement a loyalty program to improve retention by 5%.” Many companies simply execute on their business ideas without measuring if they delivered the impact that was expected. But, science-based organizations are rigorously quantifying this impact and have learned some sobering lessons:

1. The vast majority of business ideas fail to generate a positive impact.

2. Most companies are unaware of this.

3. It is unlikely that companies will increase the success rate for their business ideas.

Read the whole thing. It gives a lot of perspective to a difficult problem: there aren’t as many “free wins” in a business as you might expect. To paraphrase Adam Smith, there is a lot of ruin in a company…but that doesn’t mean you know what exactly it is or how exactly to fix it. Coming in with appropriate humility and a flexible mind (by which I mean a willingness to see reality even when it doesn’t comport to the mental model you’ve built over time) can help improve those odds.