Category Archives: Business Models

The purpose of this blog

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The focus of this blog is the process students use in my course to develop business plans. Approximately 300 complete plans are available for viewing and downloading on this blog.

Go here to download one of the 300 business plans from a Onedrive account. Go here if you want to download one of the 300 business plans from my google drive. The google drive is not as nice to view, but it works without a google account.

The best way to understand my view of the world and the planning process is to read the free book Developing New Products and Services: Learning, Differentiation, and Innovation.

The free book is available here. A  paper version is available from Amazon.

The primary activity in the course involves the completion of a set of templates.  These templates are part of the Super Lean Innovation Process (SLIP). The process is not too lean, but it effectively leads students down the right path. Go to this link for the SLIP template.

G. Lawrence Sanders

Disintermediation, Lock-In, and Blockchain Technology

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Lawrence Sanders & Sean P. Sanders

The internet changed the world forever through disintermediation. The internet improved supply chain efficiency through disintermediation.  So did open source software, Wi-Fi, cell phones, 3d printing, ubersation, DVRs, Napster and MP3 compression, GPS applications, and of course microprocessors. Now the internet of things (IoT), driverless cars, artificial intelligence and blockchain distributed ledger applications will carry on that tradition.

Disintermediation is the reduction of intermediaries (such as wholesalers and middleman) between producers and consumers.  Disintermediation allows consumers to buy stocks without consulting a broker and buy directly from the manufacturer and to avoid wholesalers and brick and mortar stores. Too many consumers and businesses, the internet was emancipatory. Wholesalers, supply chain entities, and financial institutions were perceived as being detrimental to business objectives, profitability, and lower prices. And yes, productivity did indeed increase, with the greatest gains in productivity climaxing in the late 1990s (R.J. Gordon 2012)

Consumers do not have to buy at a local store or use a travel agent. They go directly to Amazon, to Expedia, and Apple to purchase products directly, without intermediaries. These new-age companies are ruthless in their commitment to owning the supply chain ( Amit Bhalya). Amazon is the poster-child company epitomizing disintermediation. But, not for long; if the emerging blockchain and cryptocurrency intermediaries have their way

The blockchain and cryptocurrency entrepreneurs want to eliminate Amazon, Google, and Apple. They also want to eliminate super-sized intermediaries such as credit card companies, financial institutions, and government agencies.

“We’re all ideologically aligned to crush Amazon and other centralized services”  Blockchain Entrepreneurs Target Apple and Google at Token Summit

Yes, and replace them with themselves. The new-new-age intermediaries will be the cryptocurrency and blockchain companies. They want to emancipate consumers and businesses from the clutches of the dotcom elites. There is a proposed blockchain application for virtually every existing legacy applications, and there is probably an initial coin offering to pay for it (www.icoalert.com ).

Lock-In

Lock-in occurs when there are switching costs involved in switching from one product to another product (Shapiro and Varian 1999).  There are switching costs when you move to new operating systems, tax software, mobile carrier, or loyalty program. Sometimes the switching costs are contractual. For example, cable television broadband providers and wireless phone providers have penalties for customers who terminate a contract early. Switching costs can involve time and psychological effort (Sanders and Huefner 2011). When you switch cable providers or get a new router, there is a learning curve related to using the new station guide, digital video-recording and setting up the router and connecting the devices to the router.

The goal of producers is to lock-in their customers and lock-out the competition using switching costs.  High switching costs make it difficult for customers to go elsewhere. Figure 1 illustrates the degree of lock-in related to various technologies and businesses.

People shop at Amazon because the interface is easy to use, Amazon has competitive prices for millions of products, they store a ton of personal information on family and friends, and fulfillment is a snap. People buy from Expedia for the same reasons. The same goes for tax software.

There are many downsides to being locked-in, but one particularly problematic area is that businesses that lock-in customers sometimes abandon innovation. The outcome is that companies eschew innovation and let their products and service languish in mediocrity.

Fig 2

Figure 1: Levels of Lock-In for Businesses and Technologies

How Lock-In Relates to Blockchain Applications

A block in a blockchain is a decentralized ledger where transactions, such as cryptocurrency transactions, are added as they occur (see Figure 2).  Because the ledger is immutable, transactions cannot be changed.  The blockchain software will not permit transaction updates. Once a transaction is posted, it is there forever.

The net result of this immutability is that blockchain-based applications lock-in the data forever.  Immutability is the strength and the Achilles heel of blockchain applications. The process of forking is the only way to correct major problems with the blockchain infrastructure. A fork spits the blockchain into two separate chains.

Simple problems with invalid transactions, you sent your private key to yourself and someone stole it,  or mistakes,  you sent 10,000 coins to the wrong person, are difficult if not impossible to fix. So if there is a high-school picture of you in a blockchain-based photo repository, it will be there for generations to view. You are locked-in forever.

FIg 1

Figure 2: Mining Process

Lock-In is not Agile Friendly

Immutable systems go against the grain of the agile manifesto and agile software development. It is contrary to the spirit of agile innovation.  Agile software development is an iterative and incremental development approach where requirements evolve, and the focus is on the customer. The interfaces evolve, the data structures evolve, and the solution evolves. You can use agile techniques in the initial design for a block-chain based application, but once the launch takes place, the evolution and innovation stops. Patching major holes in the system after launching is difficult. If a fork or major change in the blockchain is required, then there is a battle royal.

The founders, the developers, the miners, and even the manufactures of the miner hardware are the new intermediaries and the owners. The founders and developers receive a substantial portion (20-30%) of the pool of tokens and coins. Satoshi has about 1 million coins, worth over $10 billion at $10,000 per Bitcoin, and we do not even know who he or she is. Even non-profits hold tokens for employees and future projects. See, for example, the Root Project.

Recommendations for Blockchain

Blockchain technology, like all promising technologies, has desirable features and deficiencies. Theoretically, blockchain technologies and distributed ledgers should improve the integrity, tracking, security, and longevity of transactions for digital content, personal information, organizational assets, and the “real world.”  Here are some suggestions for individuals and companies considering investing in blockchain and distributed ledger technologies.

Large Companies

Large companies should begin testbed applications of blockchain technology by developing prototypes of blockchain applications.  Employees from various organizational functions should attend conferences, watch videos, talk to vendors, search for additional information on the technology and develop a brief report on the market potential for the industry. If blockchain technology looks promising,  then start building an application that complements the business.

Don’t’ be worried about first-mover-advantage. That train has already left, and you are better drawing on the work of successful and unsuccessful investors in the technology.

Small Companies

Small companies should also monitor blockchain technology and have someone report on an ongoing basis on the emergence of viable platforms for adopting the technology. The best strategy is to wait until an Amazon for blockchain arrives (ABS). It may even be Amazon. Amazon has purportedly registered amazonthereum.com, amazoncryptocurreny.com, and amazoncryptocurrencies.com.

Individuals

Individuals should just read about the technology and keep up to date. You might buy a small amount of amount of cryptocurrency and try to purchase something with it.  Don’t spend more than 1% of your annual income.  This is a great way to learn about the technology and watch how a digital currency transaction unfolds. It is a great learning tool.

Stay away from launching your own ICO or initial coin offering. Many of the ICOs will fail, some of ICOs are scams, and in some instances they have the undesirable potential to compromise your credibility. You can’t believe much you read about the industry, but here is a study that claims 81% of ICOs are scams, 6% failed, 5% dead, and 8% went on to trade.

Finally, resist buying a Bitmain Antminer S9 and start digital currency mining.  You will not make enough money to cover electricity costs. Above all, don’t connect a long extension cord to your next door neighbor’s outdoor outlet to run a mining rig.

If you want a simple and insightful overview of cryptocurrencies and blockchain check out John Oliver video produced by HBO. Be warned, some of the language used is explicit, NSFW and not for kids.

Additional References

 

 

 

43North competition is a must-see event

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The 2016 rendition of the 43North competition for $5 million dollars was outstanding.  I attended the Thursday round-of-ten and am glad I did. The competitors were prepared, the businesses were interesting, the judges were polite as well as diligent, and the stage was audience friendly.

There were a couple of glitches in last year’s competition.

Last year’s cadre of combatants had several immature businesses, not bad ideas, just immature.  However, there here were more than a few that deserved the money and the attention. ACV Auctions was the crown jewel of last year’s competition. I had earlier reported that one of the judges was permitted to invest in ACV Auctions before the finals. I was not able to verify that assertion. Dan Magnuszewski told me that they now have 40 employees at ACV. These hires are good news for 43North and the Western New York economy.

The layout of the stage last year was an issue. The audience could only see what was going on by viewing the large screens. It was very disengaging. They corrected this, and I must say that this year’s competition was great entertainment and educational.

The following presents an overview of each of the competitors and how they fared. I graded each of the competitors and ranked them and then sent my rankings to Tom Ulbrich of CEL and Sam Marrazzo of SuperiorGroup by 5pm on October 27th. The finals started at 6:30 pm that evening. The 43North Judges composite ranking was inferred from the email press release and Sunday Buffalo News article. They did not put the $500,000 names in alphabetical order, so I assumed that this was a composite judge ranking.

Here are the results with my ranking.

  1. $1,000,0000 Oncolinxcombines an antibody that only targets tumor cancer cells with a toxin (Azonafide) that kills cancer cells.  Great idea and many pharmaceutical partners. I ranked them 1.
  1. $600,000 HigherMe assists in finding, screening and hiring employees for retailers. Rob Hunter is an outstanding presenter. Tim Cook should hire him for launch days. I did not think the judges would rank HigherMe this high. I was wrong, and I actually agree with the judges after further reflection. I ranked them 6.
  1. $500,000 Asarasi  produces organic water that is bottled by Mayer Brothers as a byproduct of maple syrup production. Great story with significant sustainability implications. I ranked them 3.
  1. $500,000 UltraCell Insulation produces water-resistant building insulation from recycled corrugated cardboard. Now you have a use for those Amazon boxes. Great sustainability idea. I ranked them 5.
  1. $500,000 PathoVax  is a vaccine that targets all human papillomavirus viruses (HPV) that can cause cancers and other diseases. This looked like a no-brainer challenge for first place. But maybe the judges have better insight into this business than I did. I ranked them 2.
  1. $500,000 Formarum is a device that uses the existing swimming pool circulation system to chlorinate and disinfect swimming pools. It has an app, and it is self-monitoring.This was my favorite creative idea in the competition. This idea is so simple, yet powerful enough to be adapted to a wide variety of applications. Beautiful design and just cool. I ranked them 4.
  1. $500,000 WeDidIt assist nonprofits in mining existing donors to develop specialized targeting strategies and to assist with the entire fund-raising process. They can garner a tremendous amount of information from the email addresses of existing donors. I ranked them 7.
  1. $500,000 Bounce Imaging has a throwable 360-degree camera that can be used for first responders for disasters, fires, and police situations. Very intriguing idea. Getting local Buffalo police testimony was a good tactic. I would want 2 or 3 of these cameras in each responding vehicle. Might be a little pricey, at $2,300 plus. I ranked them 9.
  1. $10,000 The Wealth Factory design games to improve financial literacy to assist in preparing students to meet the financial core standards. This will be an important way for students to become more engaged in education. One of the judges does not play games. Ok, but if you want to understand the Millennials and Generation Z, you need to try them. They received $10,000 as the People’s Choice Winner. I ranked them 8.
  1. $0.00 Arthena is a crowdfunding platform that offers investors to invest  investing in artwork funds such as emerging art, modern masters, and contemporary art.  I think the judges were unsure about the concept and giving the 43North imprimatur.  This will probably end-up be making some people millions. Too many questions about this. I ranked them 10.

Using Pivoting and Real Options to Evolve a Business Model

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Nothing is certain, except death, taxes and business decline. It does not matter how much money the current business is making; there is a life cycle for products and technologies, and eventually the business will decline without constant re-priming. Re-priming is essentially an investment decision involving the selection of the right product, the right people, and the right technologies at the right time. Real options theory can help with that decision.

Real options theory can be traced to a 1977 paper by Stewart Myers. They are called real options because they are investment decisions in tangible, real things such as a tangible asset, a product, machine or even a process since a process can be perceived. The real options investment decisions for a startup are:

  1. Concentrate on executing the existing business model. Focus on selling your existing products and versions.
  2. Add more versions to your exiting product line. The current product line looks viable, but needs fine tuning and freshening.
  3. Redirect the business in a new direction. Use existing competencies and acquire additional competencies to develop a new product line. Your existing products are not attracting customers.
  4. Abandon the current business. Fail fast and go back to the drawing board.

A real option is a decision or choice to invest a little or a lot in a corporate asset such as a business model, a product, or a technology. Real options look very much like the relatively recent concept of pivoting a startup. Eric Ries introduced the concept of pivoting and changing business direction in his 2011 book The Lean Startup.

“Companies that cannot bring themselves to pivot to a new direction on the basis of feedback from the marketplace can get stuck in the land of the living dead, neither growing enough, nor dying, consuming resources and commitment from employees and other stakeholders but not moving ahead. pp. 151-152”

The problem with the pivot concept is that it is a bit simplistic and parochial. The problem with the real options concept, when it is applied rigorously in its academic manifestation, is that it is too abstract and mathematically complex because it is based on stock options concepts.

An Enhanced Pivoting Model that Draws on Real Options

I have expanded on the pivot concept to take advantage of the more comprehensive real options approach by extending the basketball analogy. In basketball the pivot gives you the opportunity to get into the triple threat position. In the triple threat position the player can either pass, shoot or dribble. Check out Kobe Bryant in the triple threat position.). Each game is a continuous series of decisions to shoot, pass or dribble. Each season involves games against some of the same opponents and new opponents with the same shoot pass and dribble decisions. Finally, if the game is too tough, the player and the entire team can just walk off the court, albeit a radical, though sometimes prudent strategy in some situations.

The essence of the model (see Figure 1) is that founders should modify their business model based on the market potential and the degree to which the current founders and employees have core competencies and domain expertise in a particular area.

  1. Shoot: Go with the current business model and grow the business as quickly as possible.
  2. Dribble: Try to get in a better position by modifying and tweaking the current business model using versioning and identifying appropriate market niches. Identify mashup artists, and marketing expertise. Focus on product design and prototyping.
  3. Pass: Dramatically change the current business model. Use some or all of the core concepts of the existing model. Conduct intense R&D and acquire talent and perhaps even acquire a business with the desired core competencies. Get ready to receive the ball and be in the triple threat position develop a new and improved business model.
  4. Abandon the game & fail fast. Leave the game and walk off the court. Your position and perhaps your game is not good enough to compete effectively in this situation. Try to improve your game (domain knowledge).  You might even have to find a new court to compete on and introduce a new business model that draws on previous experience and new domain knowledge.

Triple threat

Figure 1: The Triple Threat Pivot Model

Market Potential and Core Competencies

Market potential refers to the size and the growth rate of a market. The size and growth potential of a market accounts to a large extent the attractiveness of a market and often drives the decision making process for startups and legacy businesses. Questions to be answered include determining the absolute size of the market, how much of the market can be reached and your potential to gain market share.

Core competencies are the knowledge, expertise and capabilities of the founders, employees and contained in existing processes. Pivoting and going in a new direction and embracing a new business model is often the key to business survival. But there are implications, because new investments can interact positively or negatively with existing skills and assets of the firm.

(The basic idea behind the model was published in Decision Support Systems.) 

Examples of pivoting over the last 150 years

As noted earlier, nothing is certain, except death, taxes and business decline. As illustrated in Table 1, many old and new economy companies have pivoted their way to success. Survival requires adaptation. It is truly a pivot or perish world and pivoters will inherit the revenues.

Real options analysis can be very technical, requiring a significant amount of financial and technical scrutiny. However, using complicated calculations is overkill for startups and small to medium-sized businesses. Real options concepts are nevertheless important.

The takeaway from the perspective of the entrepreneur is that you need to experiment and also need to diversify your portfolio of products and projects under consideration. You need to be constantly aware of the pivot. This does not mean that you have to actually buy machinery, make products, and constantly modify your business processes, but it does mean that you should learn-about many products and technologies related to your business and learn-by-doing and experimenting when an opportunity looks promising. As noted in the previous post, you might consider implementing a Chief Illuminati Officer function and start investing in options to keep your company viable.

Table 1: Old and New Economy Pivots

Company Name Initial Business Current Business
American Express Started as express mail business in Buffalo New York 1850 with merger of Wells and Company and Livingston, Fargo and Company Financial services corporation
Apple Launched in 1976 they introduced the Apple I computer. Sells computers, phones software and  sundry electronics items
AT&T Telephone company established in 1874 to protect Bell patent Currently a voice, data and internet communications company
Blockbuster Video and Entertainment Started in 1985 as a home movie and game rental business. Company is non-existent. Casualty of Netflix and Redbox. Had an unsuccessful pivot to online rental.
Coca Cola Launched in 1886 to combat morphine addiction. French Wine Coca made of coca, kola nut, and alcohol. Multinational manufacturer, distributor, and retailer of beverages, concentrates and syrups.
DuPont Launched as a gunpowder company in 1802. Chemical company producing neoprene, nylon, Corian, Teflon, Mylar Kevlar, Tyvek, Lycra and refrigerants among others.
Facebook Started in 2003 as Facemash it was used to compare the hotness of people pictures Large social networking company
Flickr Started in 2004 as a developer of MMORPG tools and migrated to a chat room with photo sharing Video and photo hosting
IBM Established in 1911 as Computer-Tabulating-Recording Company.  Sold scales, time recorders, meat and cheese slicers, tabulators and punched cards. Designs & manufactures hardware and software, and offers infrastructure, hosting and consulting services for IT and emerging technologies.
Nike Started in 1964 as Blue Ribbon Sports by when Phillip Knight distributed Tiger and Asics shoes out of his car. Designer, manufacturer and distributor of sports footwear, apparel, equipment and sports services.
PayPal Started in 1998 as Confinity a Palm Pilot and cryptography company After merger with Elon Musk’s X.com focused on money service
Pfizer Established in 1849 and produced an anti-parasitic for expelling worms and citric acid as a flavoring and preservative Multinational pharmaceutical.
Procter and Gamble Launched in 1837.  Sold soap and candles. Sold Pringles in 2009 and, Jif and Folgers around 2001 Multinational consumer goods company selling pet foods, cleaning agents, & personal care products.
Twitter Launched in 2005 as a podcasting syndicate for audio and video content. Large microblogging company
YouTube Initially conceptualized in 2005 as a video version of online dating site. Video sharing website

Selecting the best start-up idea and project feasibility

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This past year I have had numerous teams that had two or three startup ideas. Some of the teams want me to make the decision on what project to select. Most of them, however, just want some guidance on what questions to ask.

In its simplest form, the questions should relate to the economic, market, financial, operational and technical feasibility aspects of the idea, along with the characteristics of the founder(s). Here is a list of 14 questions to consider when weighing-in on an idea for a start-up (Figure 1).

Startup Potential

Figure 1: Questions related to Start-Up Potential

Questions related to market and business sustainability

Many investors and founders look at the size of the market and the potential profits as the critical criterion for investing in a startup. But a startup must be able to capture part of that market and reach those customers through a marketing campaign. In order to become a viable sustainable business, funds are needed to launch the business, regardless of whether they come from the founders, family, friends or investors. If the startup costs for the business are low relative to the availability of funds then the business may eventually exist as a sustainable entity. The enemy is the burn rate or burning cash and not having funds to pay the bills. Long term sustainability is very difficult unless there is some way to obtain recurring revenues in the form of complementary products and services and refreshing the product line through R&D.

  • Q1.  How large is the market?
  • Q2.  Will the business be able to capture some of the market and realize a profit?
  • Q3.  Can the customers be readily identified and reached?
  • Q4.  Can funds be secured for starting the company?
  • Q5.  Are the startup cost relatively low?
  • Q6.  Is the time till the company is sustainable short?

Questions related to building the product or service

These questions relate to manufacturability, which is the ability of the startup to make the product and in the case of services, to set up processes that will be used to deliver a service.  These questions are related to the ability of a start-up to develop a viable supply chain.   A good indication of degree of manufacturability is whether or not a realistic prototype can be built. The key is to be able to obtain raw materials, components and people and to design processes for delivering a product or service. Scalable business are desirable because they can grow and contract with changes customer preferences and disturbances in the economy.  When a product or service involves emerging technologies then research and development will be an important driver of manufacturability and product design.  Products and services requiring high levels of initial investment of R&D requirements are inherently risky and contribute to cash burn, even though they can be the ticket to hyper-profitability.

  • Q7.  Manufacturability: Is the product or service manufacturable?
  • Q8.  Can a prototype or mockup of a product or service be built?
  • Q9.  Can employees be secured with the necessary expertise and skills?
  • Q10. Are the materials and components available to build the product or service?
  • Q11. Is the business easily scaled for growth and retrenchment?
  • Q12. Are there minimal initial R&D requirements for manufacturability and product design to get the business going?

Questions related to founders and team composition

There is some evidence that the composition of the startup team will have a positive impact on survival. But the evidence is confusing. Diverse teams can in some instances improve firm performance in a very competitive environment. But sometimes, teams that are homogeneous can act quicker when they are well-aligned on strategic decisions. It appears that the team composition should depend on the characteristics of the industry and the product being developed.

Many pundits and academics have identified their own typology of  what founding teams should look like (e.g. go here for blog discussions, here for Steve Blank’s typology and go here for recent academic research). A high-tech startup team might include a founder that is a visionary/strategist, a technologist/engineer founder, a designer/prototyper, and a marketer/hustler (Figure 2). It also appears that founder teams with about 3 or 4 members are more successful than a solo team or teams with more than 4 members.

If the founders are familiar with the product then many of the questions related to the market and the manufacturability of the product or service are answered or at least can be addressed. But sometimes, individuals and companies have to jump to a very dissimilar product or service in order to survive. Hard work, and learning about and exploring new product lines by prototyping can lead eventually to familiarity and insight. And of course, ignorance that is fueled by enthusiasm has fueled many inventions. Never count out enthusiasm, determination and hard work.

  • Q13. Do the founders have the right mix of expertise and do the team members complement each other?
  • Q14. Are the founders enthusiastic and willing to work hard?

How to use the questions

The questions are set up so that if you answered “yes” rather than “no” to a question, there would be less project risk. Lower risk usually means that the project is feasible. But that does not mean that risk aversion is the goal. There is usually a trade-off between the level of risk and potential returns. There are numerous examples where high risk projects produced numerous millionaires and hyper-profitability.

I had thought about developing a simple scoring model where you could compare different projects using the questions, but I think that would also be a mistake. Selecting the project with the highest score might eliminate a project that could change the world or perhaps just lead to financial security.

It is important that we not to eliminate ideas too early by letting preconceived biases get in the way of creativity (see “How to Let 999 flowers Die”).  Sometimes it takes a while to get people to understand what you are trying to do because you have not been a good communicator.  Sometimes, however, it takes a long time for people like me to “get it.”

The march to innovation should be in between a turtle’s and a rabbit’s pace. You have to give the idea time to mature, but not move too slowly because the idea will wilt on the vine. I suspect a kindergartner pace would work best. Just don’t spend too much time pondering the questions and don’t just race from question to question.  Ponder, race, prototype, ponder, race, prototype, ponder race prototype ….

Typology

Figure 2: Potential Areas of Expertise for Founders

Using Thought Experiments to Develop Innovative Products and Business Models

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The most intriguing aspect of Walter Isaacson’s biography on Einstein was his numerous discussions of thought experiments. Einstein conducted many, many thought experiments. Thought experiments helped Einstein to understand and disentangled complex concepts and to develop theories.

“He made imaginative leaps and discerned great principles through thought experiments rather than by methodical inductions based on experimental data. The theories that resulted were at times astonishing, mysterious, and counterintuitive, yet they contained notions that could capture the popular imagination: the relativity of space and time, E=mc2, the bending of light beams, and the warping of space. [2007, W. Isaacson, p. 6]”

“Over the years, he would picture in his mind such things as lightning strikes and moving trains accelerating elevators and falling painters, two-dimensional blind beetles crawling on curved branches, as well as a variety of contraptions designed to pinpoint, at least in theory, the location and velocity of speeding electrons. [2007, W. Isaacson, p. 27]”

Thought experiments need to be rhetorical in a good way.  A good thought experiment should be artful, eloquent, effective and persuasive in conveying the ideas, but not too pretentious or bombastic There is a downside to rhetoric in that the innovator, the scientist or the storyteller may be too good in developing  a colorful and vivid description at the expense of gathering facts and testing the veracity of the theory.  Sometimes thought experiments can actually confuse more than illuminate. The thought experiment may not work because of differences in the eyes of the beholder, because it needs more refinement or because it is invalid. Here are some guidelines for developing your own though experiment in order to tell a clear and cogent story.

  1. You need to be able to explain your concept in 3 or 4 sentences.
  2. You should eventually write your ideas in a paragraph.
  3. You need to use pencil and paper to illustrate your innovation. (Tablets are also Ok, but the interface should not get in the way of your creativity.)
  4. You should try to present your thought experiment on 1 page. It should be self-explanatory.
  5. You should present your thought experiment to many people.
  6. You should refine your thought experiment over and over after you receive feedback.
  7. You should sometimes return to your original iterations and ignore some of the feedback.
  8. You should let your ideas incubate. Layoff the idea for several days and do this often.
  9. You should be obsessed with the project and the compulsive about the details.
  10. Go back to 1, 2, 3, 4, 5, 6, 7, 8 or 9. Remember this is a nonlinear iterative process

I believe that thought experiments are the genesis of all innovations and creative process. This includes new products and new business models. Sometimes scientific thought experiments are verified by real-world experiments, data collection, and mathematical proofs.  The innovator progressively validates a thought experiment with the pitch and the business plan. The plan and the pitch are the refinement and incarnation of the entrepreneur’s thought experiment. The ultimate validation is when the business or the innovation goes live.

Figures 1 and 2 illustrates the migration of a thought experiment involving tracking individuals, pets and expensive assets. The initial drawing and narrative was started on Sunday evening and 3.2 was completed by 7am on Tuesday. Feedback from several individuals helped to refine the drawing.  Most of the time was spent futzing around with the interfaces of the two apps and locating symbols and graphics. The idea was derived from several student projects and from watching my son crack our Wi-Fi password in less than an hour using Backtrack. I think similar cracking code could be implemented in a very small unobtrusive device.  CPU, memory, Wi-Fi, cellular and GPS chipsets are shrinking in size and price. This technology has undoubtedly been developed in some form. But, there is always room for improvement and a thought experiment can be used to drive that process.

Here are some additional references on thought experiments:

  • Walter Isaacson’s 2007 biography entitled Einstein: His Life and Universe, Simon Schuster is one of my favorite books. It does a good job of describing how thought experiments influenced Einstein’s ideas.
  • As expected Wired Magazine has an interesting twist on thought experiments by Greta Lorge
  • Great animations of thought experiments can be found at Brain Pickings. BTW some of these animations don’t really help me to understand the ideas.
  • Very nice overview of thought experiments can be found at the Stanford Encyclopedia of Philosophy
  • Horowitz and Massey present a detailed discussion of how thought experiments have influenced scientific reasoning and philosophy.
  • Here is an interesting discussion of Einstein’s chasing a beam of light thought experiment by John Norton and go here for more of his philosophy of science work.
  • Another good philosophy book on the what, how and whys of thought experiments was written by Roy Sorenson.
  • Here is an illustration of a brute force method for cracking WiFi access points. This type of tool is available on a number of free digital forensics and penetration testing tools such as Backtrack. No, we are not safe from intrusions.

Figure 1: Thought Experiment 1.0

Kidnapping 1.0

Figure 2: Thought Experiment 3.2

Kidnapping 3.2