Using Thought Experiments to Develop Innovative Products and Business Models

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

Design is an Attitude and a Behavior

Design is the most important activity for the development of products, services, theories, algorithms, recipes, business plans, pizza and homework reports.

In the past 9 months I have read 2 books and watched a video that have forever changed the way I view the design process.

I read and listened to Walter Isaacson’s 2011 biography of Steve Jobs and his 2009 biography entitled Einstein: His Life and Universe.  I also watched the 2009 video Objectified by Gary Hustwit at least five times.

Objectified is an incredible view into the inner workings of contemporary designers. There are many insights to be gleaned from Objectified, but the interview with Joanathan Ive, the Senior VP of Industrial Design and the head of the Human Interface development at Apple is remarkable. I obtained more insight into the Apple Design Lab during that five minute interview than reading all of the magazine stories about the lab. Sir Jonathan Paul Ive is unabashedly obsessed with design and compulsive about details. (BTW Objectified is free to view if you have Amazon Prime.)

Then there are the two biographies by Isaacson. Einstein was obsessed with the physics of matter and energy and compulsive about the details  related to proving his theories. Jobs was obsessed with developing new products and compulsive about  design details. An on/off switch in the wrong place could unleash Job’s Kraken.

The take-away from these books and the video is that we need to be sort-of-obsessed with our projects and sort-of-compulsive about details. Extreme obsessions and compulsions are not good as psychologists will tell you and it appears that Jobs and Einstein had these traits in spades. So let us just scale it back a bit and be sort-of-obsessed and sort-of-compulsive.

There are two other activities that are essential for innovation to occur. Innovative people read and search for solutions and they learn-by-doing. They prototype with paper, objects and even conduct thought experiments, as Einstein did. This is essential. As noted in the last post, the designer uses the prototype to create a virtual product, a virtual service or virtual world.

Designers have to constantly attend to solving two equations when seeking innovation (see Figure 1). They are easy to write, but hard to achieve.

Figure 1: Solve for Innovation

The Best Business Plan Creates a Virtual World

A good business plan should draw on prototyping to create a virtual world that looks and acts like the real thing. Developing product and process prototypes is the cornerstone of developing a virtual business model because prototypes facilitate the understanding of how the business will work.

I see between 30 and 40 students business plans each year. It is not unusual to hear the following complaints at least five times each year: “They just don’t understand our business model.” orThey just don’t understand what we are doing.” There are many reasons that they do not  understand, including the idea might be flawed, the business idea needs to be refined, or they have simply not communicated their business concept in a clear manner.

The business plan is often the centerpiece of communicating the business model to outsiders such as investors, family, friends and other interested parties (see Figure 1). A more important use of the business plan and the executive summary is that they serve as communications platforms among the founders. It is, after all, the interplay and social dynamics among the founders that are the keys to success ( see Jennifer Houser on How to Build an Insanely Great Founding Team).

The evolution of the business model and the business plan involves hard work, but there are tools that can improve communication and facilitate the process. Prototyping, in one of its various incarnations is the centerpiece of these tools.

Prototypes are usually associated with the development of products and services. With successive iterations, or stepwise refinement, a prototype becomes more and more like a real product or service. Prototyping can also be applied to the development of the business model. With successive iterations, or stepwise refinement, a prototyped business becomes more and more like a real business. It is rarely feasible to build the product, service or entire business without some type of stepwise refinement. The executive summary, the business plan pitch and the business plan itself are not the actual business, but are actually models of what the business will produce and how it will function.

Ideas evolve over time. Prototyping is a very powerful tool because it facilitates learning and understanding and it reduces the length of time of the evolutionary process. Prototyping involves experimentation and encourages the evolution of ideas and leads to insight into the design of a viable product, a service and the business model. A blend of learning-by-doing (prototyping) and learning-about (education, reading, searching and synthesizing) is necessary and the foundation of the creative process. Research has cosnsistently shown that prototyping and collaboration facilitates the mutual and concurrent learning processes of all of the individuals involved and that it results in strong feelings of ownership towards the product, service or business model.

There are a variety of ways that prototyping and stepwise refinement can be used to develop a business model and new products and services. Here is one approach that is characteristic of how prototyping can be implemented.

  1. Initial Prototype: In the early stages, develop a pencil and paper picture of the product, the application or the process. The key is to focus on the vital and essential functions of the product or service.
  2. Review by Interested Parties: Let business stakeholders, family, friends and potential customers provide feedback on the product or service.
  3. Revise and redesign prototype: Use the feedback to refine and improve the design of the product or service. Use more advanced tools as the prototype becomes more refined and detailed. This usually leads to the use of graphics, drawings and mock-up software. Towards the later stages of development, the prototype might be a functioning product or service or an actual application with some level of functionality.
  4. Go back to step 2 after revising and redesigning the prototype.

Services and businesses processes can also be prototyped. There are a number of tools that can be used to conceptualize, design, and test the design of the service including drawings, sketches, scenario analysis and task structuring, mock-ups, storyboarding, systems, Lego mock-ups, and other tools including simulation (see http://www.servicedesigntools.org/repository ). One popular tool for designing services is service blueprinting. It is a visual and descriptive tool for modeling visible customer interactions with employees and processes that also illustrates how the hidden processes support the customer interactions.

In summary, prototyping and prototypes are very effective tools for facilitating the evolution of ideas and for presenting a virtual world, a virtual business, a virtual product or virtual service to interested parties.

In the last couple of years I have focused on having the student groups develop prototypes for their business plans. The results have been outstanding. Check out the business plans and presentations on my SkyDrive here. Also check out Chapters 6 and 7 for additional discussion on the role of prototyping in innovation and creativity.

Figure 1 Innovation, Learning and New Product Development

Business Planning Resources

Identifying business planning resources can often be a daunting task. Here are my favorite places to go for templates for preparing business plans, for preparing presentations, for ideas on new products and for overall guidance on developing a startup.

Start here with the FAD and Ten-Ten templates. for conceptualizing a new product or service. They will help you develop a strong foundation for crafting the executive summary and developing the business plan. They also are linked with my book, which is available for free download. See the opening menu for the free ebook.

Additional Resources

Here are my current favorite sites to get the creative juices flowing

Product Differentiation Dashboard

It makes economic sense to have more than one product version because of increased revenue generation[1].  There are additional reasons for versioning in addition to revenue generation. By having multiple versions of a product you can experiment and watch economic behavior as consumers will focus on the features and products that are most desirable. This sort of experimentation is the basis of monopolistic competition and the mechanism that allows the entrepreneur to successfully compete.  Product versions can be generated in a variety of ways including, distinct product features, product design, product promotions, product availability, warranties, and through customer service.

We have developed a product differentiation dashboard to assist with understanding the concepts and to help in determining how differentiation can improve revenues. The spreadsheet is currently in Beta development, but it is available for your perusal. The spreadsheet can be used with 3 products at this time. For now, it assumes that there is only one demand curve for the differentiated products. You can use the results from the Demand Dashboard discussed in the last post to identify the slope of the demand curve and the price where demand is close to zero.

Here is what you will enter in the Differentiation Dashboard.

  • The slope of the demand curve and the price level where demand is close to zero.
  • The variable and the fixed costs for a single product.
  • The variable and fixed costs for the high-end, mass appeal and low-end products.

Here is a link to the spreadsheet: https://skydrive.live.com/redir.aspx?cid=a3660eed58d91ed9&resid=A3660EED58D91ED9!107&parid=root

Special thanks are extended to students in the Technology Management Course for their suggestions for improving the spreadsheet. As is always the case; simplicity should be the goal and they helped to achieve that goal.

[1] Goldilocks pricing is a rule of thumb that suggests that you should start out with three price levels and offer additional versions of products to attract additional revenue (Varian and Shapiro, Information Rules, Harvard Business School Press 1998). The idea behind Goldilocks pricing is that one product is too few, ten products too many and three is just the right amount. Thus one arrives at Hermes, Mass Appeal, and Midas.


Demand Dashboard

When large organizations develop demand curves for existing products they turn to a variety of quantitative and qualitative approaches. Historical data plays an important role in developing and constructing demand curves for existing products. The historical data can also be used to forecast future demand using time series analysis and statistical approaches such as regression analysis and moving average approaches. Organizations can also draw on qualitative approaches such as market surveys, focus groups and the Delphi technique to gain additional insight into market demand.

Many entrepreneurs do not have the time, money and interest to engage in these approaches.  They are probably on the right track because it is often difficult to determine the demand for new products. This is particularly true for products and services that have been radically redesigned and in so-called Blue Ocean markets. The historical data is either not available or it is not appropriate for the context. Very few economic and marketing textbooks have actual data that can be used to construct a demand curve. Most of the data sets are generated by taking a demand curve (such as p = 80 -.2q or q = -5p + 400) and then generating the prices and quantities.

We have developed a Demand Dashboard to assist with identifying demand curves. The spreadsheet is currently in early Beta development, but it is available for your perusal.  You can get the spreadheet from my SkyDrive at https://skydrive.live.com/?cid=a3660eed58d91ed9&id=A3660EED58D91ED9%21107.

Here is what you can do in the demand Dashboard:

  • You can just enter the slope and the price where demand is close to zero and just play around with the curve.
  • If you want to use a statistical calculation to determine the demand, you will need at least 2 demand points to plot. If you want confidence intervals for the slope estimate you will need 3 points. Each point will represent the price and the demand quantity. One point can be the price level where demand is close to zero. You can also use the statistical estimates to manipulate the slope and the price level where the demand quantity is close to zero.

If you have access to IBISWorld  you can obtain some demand and market research information that can be used to assist in developing demand curves (this data is available to University of Buffalo faculty and students). The Economic Research Service for the US Department of agriculture also has some data that might be of interest, but it is of course mostly related to agriculture.

In the next  post we will present the  Product Differentiation Dashboard. It is part of the same spreadsheet that you can now dowlnoad from my SkyDrive. It will assist in making decisions related to developing different versions of a product.

What Would Midas, Atlas and Hermes do?

Figure 1: Midas, Atlas and Hermes

In their book on developing creative approaches for solving problems Barry Nalebuff and Ian Ayers describe the “What Would Croesus Do?” approach [1]. The gist of the approach is to consider how a consumer would solve a problem when she has unlimited resources.  Need tech support, have the tech sit outside your office and enter when called.  Bored, become a cosmonaut. This approach can help to identify products and services for the high-end where the consumer is not price-sensitive and is interested in many different features (see Figure 1). We have renamed Croesus to Midas products because it is easier to remember and because it imparts a very colorful and explicit image of high-end features. Midas products and service are designed for consumers that are not price-sensitive and demand high-end features. Products that are designed with high-end features for individual’s that are affluent or for individuals that are simply interested in high-end products are designed using extravagant engineering. Extravagant engineering is less concerned with costs and more concerned with using new technology and concepts to develop innovative and perhaps even radical products and services.  In general, products and services that are extravagantly engineered contain advanced features and attributes.

There is another part of the demand curve where the consumers are price-sensitive.  This could include students, seniors, and in general individuals with low levels of discretionary income or individuals that are value conscious [2]. In designing products and services for this group you can use the “What would Hermes Do?” approach. Hermes was the god of the traveler, the shepherd, the athlete, the merchants, the cunning, and was linked to invention and commerce. We are now designating Hermes as the patron for the part of the demand curve that does not have a patron. Hermes products and service are designed for consumers that are price-sensitive and demand features that are functional for the task at hand. Hermes products and services are still functional, but they have reduced and scaled-back features. There are a variety of very interesting products and services that have been developed for Hermes customers occupying the price-sensitive end of the demand curve. An important reason for offering Hermes products and services is to acquire customers that might eventually become Midas consumers. For example, students become less-price sensitive as they enter the work force and generate more discretionary income. Consumer’s tastes can also change as they become more familiar with a product line or because they get caught up in the hype around fashionable product. Designing Hermes products requires skills in frugal engineering.

Midas and Hermes product have an important role in developing new ideas for product and services for the middle of the demand curve. Midas gives product developers the license to create ideas that are unique and perhaps superfluous.  Hermes products and services establish a minimal baseline for a product or service with the additional prompting of being inexpensive to produce. Hermes products should be less expensive to produce because they are used to attract price-sensitive customers.

From the producer’s perspective, the idea is to get the creative juices flowing and use the top and bottom of the demand curve to generate new ideas for products and services by drawing on both extravagant and frugal engineering approaches to develop Atlas products.  The mass appeal or mainstream products in the middle are called Atlas products. Atlas was a Greek mythological figure that supported the weight of the heavens on his shoulders. Atlas products support the broad-based customer segment in the middle that requires products that have standard features and also have slightly differentiated features to meet the demand of monopolistic competition.The result of this dynamic tension between frugal and extravagant engineering is the development of Atlas products and services[1]. Atlas products and services have attractive features and an attractive contribution margin. The result of this dynamic tension is a robust process for continually inventing and reinventing products and services to stave off the competition and establish a strong foundation for survival.


Here are some interesting “What Would Hermes Do” ideas:


[1]Barry Nalebuff and Ian Ayers, Why Not?: How to Use Everyday Ingenuity to Solve Problems Big And Small, Harvard Business Press; 1 edition (December 1, 2006), http://www.whynot.net/main/about_book.php. Also visit Wikipedia for a discussion of Croesus http://en.wikipedia.org/wiki/Croesus

[2]I realize that there are many patrons for this large segment of humanity. The goal is to have a question for the bottom of the pyramid. Please see C.K. Prahalad, Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, Wharton School Publishing, 2005 and many others that have been committed to this group.

[3] Dynamic tension was an exercise approach developed by Charles Atlas, but it also works here.