What is the difference between the old and the new entrepreneur? I’ve started teaching again and in presenting to the class drew up a quick slide that highlights the key difference. At the core, the idea is that when you are dealing with unknown problems (in contrast to known problems), you have to test your assumptions in as low-cost a manner as possible and then iterate when you inevitably find out that you were wrong. The difference really comes down to the difference between a planning-based model and a learning-based model where you employ all the tactics you can to learn as honestly and flexibly about the unknown. It sounds simple but it can be difficult to break free of the old wisdom in practice.

Old versus New Entrepreneur

How Launching Your Business Differs

Let me provide an example of what the new entrepreneur means in practice. In the old model of entrepreneurship, if you have an idea, the next step is to write a business plan, then build your product, perfect that product, and finally launch with a big marketing push through the most well respected channels (usually through print or  other media which ends up being quite expensive). Of course the fundamental problem is that once you launch, most often you find out that very few people buy your product. Why? Because you executed beautifully on a guess about what customers actually want but most often such guesses turn out to be wrong. In contrast, the new entrepreneur has the intellectual honesty to recognize a guess for what it is and then find the shortest and least expensive way to conduct a real test of that guess. So let’s apply this to a real business: Dropbox.

Dropbox as an Example

Dropbox has received a great deal of attention for going up against over eighty other competitors in the online storage space and winning. Dropbox had more reasons than most businesses to follow the traditional model of building and then perfecting your product: if Dropbox had launched a crappy product and screwed up their users’ critical files, those users would have been exceptionally angry. Traditional wisdom would suggest delaying launch until you have the product right and then winning as many customers as possible. By contrast, when I talk about the new entrepreneur approach, I argue that you only learn at the end of your development cycle, so launch small and early so that you can learn because failing to learn will kill your business. Why? You’ll waste precious time and resources building something that no one wants.

Don’t Mix Old and New Logic

Fortunately, Dropbox decided that they needed to launch early to learn about their customers. But here’s the rub. When I work with entrepreneurs and emphasize launching with a bare-bones product to learn what customers really want, they almost always think it means that they should try to get as many customers as early as possible. But take a closer look—getting as many customers as fast as possible is the logic of the old model and it leads to premature scaling and death. Instead, find a small sample of representative customers and try out your product or service with them. If you totally screw up, it really won’t matter in the end because the group is so small and most likely those customers are forgiving early adopters anyway. But you will learn lessons crucial to your survival.

How Dropbox Discovered their Critical Edge

That’s exactly what Dropbox did to discover their critical edge. Dropbox’s founder, Drew Houston, created a short video himself (for free) and posted it on Hacker News (headquarters of early tech adopters) and held a small private alpha test. What did he discover? When he started the business, Houston had been convinced that what customers valued was the actual storage space for their files but his tests helped him realize something fundamental: it wasn’t the storage space that was driving use—it was the simplicity of the interface. What users really valued, what they were even willing to pay for was a solution that in Houston’s words “just works.” That one competitive insight is the key to Dropbox winning out over eighty other competitors and the future of their success. But they wouldn’t have learned it following the old model, even when everything seemed to justify following the old model and launching late. In closing, think of launching small and early like an experiment—you select a sample, you test, you learn, and you iterate.