The role of experimentation in reducing uncertainty in new ventures

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Why new ventures face issues of uncertainty

Uncertainty can be a major issue for new ventures. Starting a business, and particularly one that is attempting to do something new, requires gaining commitments from others. You likely will not be able to do everything internally and will have to convince a number of external partners to work with you, as well as customers to buy your products. 

There are often a lot of uncertainties surrounding new ventures – from the technology, product, financing, and overall system to support the firm’s operations. Uncertainty surrounding whether the company will be a success or not can make others resultant to make commitments – potentially waiting until that uncertainty has resolved. The fewer people make commitments, the more uncertainty remains. 

Stakeholders that face uncertainty with new ventures

Some of the key stakeholders that can have significant uncertainties surrounding a new firm include:

  • Potential employees: May have uncertainties about whether the company is going to be in business a year from now.
  • Potential investors: May have uncertainties surrounding whether the company will be able to deliver on its vision.
  • Suppliers: May have uncertainties as to whether the company will see anticipated sales, and thus whether to commit to making investments in their operations.
  • Retailers: May have uncertainties surrounding whether the company will be able to meet commitments and whether the products will be successful with the customers. 
  • Customers: May have uncertainties regarding whether the company will be able to deliver on its promises. 

How experimentation can help reduce uncertainty

Experimentation within firms can be important for reducing uncertainty and gaining commitments by allowing the firms to test and illustrate various components of their operations. If stakeholders are concerned about a particular aspect of the company’s operations – potentially the demand of customers, the company may be able to pursue an experiment to help alleviate that concern. Similarly, if there is concern regarding the technical feasibility of a particular suggestion, then a prototype may be able to illustrate how that component of the firm’s operations does function as expected.

Reducing uncertainties – and in turn gaining stakeholder commitments – requires a systematic approach to identifying what the various stakeholder uncertainties are. Once you have an understanding of the themes surrounding their concerns, you can systematically explore ways of addressing these concerns. By gradually addressing concerns through experimentation, you can over time gain various commitments, which can result in other stakeholders also feeling more comfortable committing to your firm.