Startups — True Voltage & False Positives

For startup founders, getting to “scale” a major milestone.

Scaling is accelerated growth. It’s amping up the company’s ability to rapidly accumulate more users and market share.

Electrical engineers will testify that you can’t develop this knd of power just by turning up the amperage — you need voltage. But it took a top economist to connect this concept of “voltage” to innovation and entrepreneurship.

John List — is a professor and former Chair of the economics department at the University of Chicago. He was chief economist at Uber and Lyft, where he designed many of the innovative techniques that made those companies scale.

His recent book is The Voltage Effect: How to Make Good Ideas Great and Great Ideas Scale. This future Nobel laureate is known for his “field studies” and experiments. Like entrepreneurs — he is less keen on theory, and more about real-world applications of practical economics.

The Science of Scaling

The Voltage Effect examines the science of scaling, and has important lessons for entrepreneurs. List argues that for an idea to have a widespread impact, it must achieve “high voltage” — the ability to be replicated at scale. If you have “high voltage” then all you need to do is execute (add amperage) for exponential growth.

Of course: Test your assumptions; validate the product-market-fit; get customer validation — do all those “lean startup” steps. All sounds good, except …

Beware the False Positives

One of the most important lessons List offers is:

“Watch out for false positives; don’t mistake your initial audience for who your audience will be at scale;”

False positives lead to extrapolating anecdotal evidence into proof. False positives are a form of confirmation bias that conform to our hopes and ambitions. False positives play to a founder’s naïveté — and sometimes to their arrogance. Founders see the evidence they want, and stop — and they don’t challenge it any further. Being seduced by false positives is a very common trap.

“At the most basic level, a false positive occurs when you interpret some piece of evidence or data as proof that something is true when in fact it isn’t. “

A false positive is a decision to scale — based on what you think is validation of your product, idea or market. And this will lead to a certain pivot. But by that time you’re already in trouble, and may be doomed to failure.

“False positives show up in medicine, the legal system, engineering, computer science — everywhere”

Avoiding the Most Common Mistake in Scaling

In “The Voltage Effect”, John List gives many examples of successful experiments — ideas, products, projects — that failed to scale despite all hopes and evidence. But he also offers some remedies. Countering false positives is pretty straight-forward:

“Make sure your idea has voltage to begin with […] replicate it two or three or four times. And when you replicate two, three or four times, what you find is the truth in the end. A false positive won’t hold up to that kind of scrutiny.”

But in practice it’s not so easy. An entrepreneur who has developed a product is often so emotionally invested in the product, that countering the siren song of a false positive takes more self-awareness and patience than most humans have. It’s hard not to see this positive feedback as solid evidence of product-market-fit, and permission to scale.

Instead:

• Focus on the problem — not the solution.
• Love the problem — not the product.
• Scale to solve — not to sell.

Focusing on the problem and not the product — is a solid way for founders to separate themselves emotionally from false positives.

This way, you can step back and see if your idea truly has high voltage, and if it is ready to amp-up growth, and scale.

CJ Cornell is a serial entrepreneur, investor, advisor, mentor, author, speaker, and educator. As an entrepreneur, CJ Cornell was a founder of more than a dozen successful startup ventures that collectively attracted over $250 million in private funding; created nearly a thousand new jobs; and launched dozens of innovative consumer, media, and communications products — that have exceeded $3 billion in revenues.

He is the author of the bestselling “The Age of Metapreneurship — A Journey into the Future of Entrepreneurship.”

And the upcoming “The Startup Brain Trust — A Guidebook for Startups, Entrepreneurs, and the Mentors that Help them Become Great.”

Follow him @cjcornell or visit: www.cjcornell.com

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Alberto Jaspe (Twin lightnings) — CC Some rights reserved