In this article, we continue our mission of exploring lesser known concepts in business. … [+]
Through our entrepreneurial experience and work with clients, we have learned that the ability to think outside the box (critical in the startup world where innovation determines business value) is not something you’re born with, but rather a skill that must be acquired. And the best way to cultivate original thinking is to have a rich toolbox full of diverse mental models that you can draw on and apply to different situations. This is also why we often explore concepts from philosophy, science, and technology.
So in this article, we continue our mission of exploring lesser known concepts in business that can help you think in ways that most founders don’t typically think.
1. Entry into force
Effectuation, a concept developed by Sarath Sarasvati, emphasizes starting with the available levers and focusing on what is controllable, rather than predicting the future. This approach is especially useful in the uncertain and dynamic environment of a startup. Entrepreneurs who use effectuation principles increase their chances of success by leveraging their resources, networks, and knowledge to create opportunities and adapt to changing circumstances.
A striking example of effectuation is the story of Grameen Bank, founded by Nobel Prize winner Muhammad Yunus. In the 1970s, Yunus aimed to address rural poverty in Bangladesh. Instead of waiting for big funding or the perfect conditions, he started with what he had: a small personal loan of $27 to a group of 42 women. This initial act developed into a microfinance movement that has since provided loans to millions of people. It shows that starting small and leveraging readily available resources can have a big impact.
2. Jugaad Innovation
Jugaad is an Indian term that stands for frugal innovation – finding simple and creative solutions to problems with limited resources. The concept encourages startups to be resourceful and innovative, often resulting in cost-effective and efficient solutions.
The Mitticool clay refrigerator by Mansukhbhai Prajapati in India is a great example of this principle. Faced with the challenge of preserving food without electricity in a rural area, Prajapati used traditional clay materials to develop a refrigerator that uses evaporative cooling. This cost-effective, environmentally friendly solution leverages local resources and knowledge, and shows how startups can innovate under resource constraints to fill a huge need in an underserved market.
3. Customer Development Model
The customer development model, developed by Steve Blank, emphasizes understanding customer problems and needs before developing a product. The approach has four steps: customer discovery, customer validation, customer generation, and company building. Focusing on the customer early in the development process helps startups build products that truly address market demand and reduce the risk of failure.
When Dropbox first launched, founder Drew Houston adopted a customer development model to validate product ideas before fully developing them. Instead of building an entire piece of software, Houston created a quick video showing how Dropbox worked, showcasing its features and ease of use. This video was shared on platforms like Hacker News, which led to a surge in sign-ups, demonstrating market interest without a large investment. This approach allowed Dropbox to gather valuable customer feedback early on, giving them confidence that they were building a product that truly addressed their users’ needs. By focusing on customer validation first, Dropbox minimized risk and aligned development with real market demand.
4. Exponential Organization
Exponential Organizations (ExOs) leverage technology to achieve rapid growth and impact. These organizations use scalable technology, decentralized networks, and innovative business models to grow exponentially rather than linearly. Startups like Airbnb and Uber are examples of ExOs that are leveraging platforms and network effects to scale rapidly and disrupt traditional industries.
A prime example of an exponential organization is Uber. Founded in 2009 by Travis Kalanick and Garrett Camp, Uber revolutionized the transportation industry by connecting passengers and drivers using a simple mobile app. Instead of owning a fleet of vehicles, Uber created a platform that leveraged existing resources: individual car owners looking to generate revenue. This asset-light approach enabled Uber to scale rapidly without the large overhead of purchasing and maintaining vehicles. Economically, Uber’s marginal cost of expansion was very low, making the overall business highly scalable.
