Making Little Bets

Although you’ve probably never heard of him, when it comes to creating new opportunities, Chet Pipkin is something of a master. As the founder and CEO of Belkin Corporation, a company that produces a wide range of computer accessories, Pipkin is that rare breed who is able to not only start a company without outside funding but guide it through numerous growth phases past $1 billion in annual sales. He started the company making cables in his parents’ garage, and today most people own a Belkin component or accessory for their iPod or computer, or have one in their homes.

At Summit Partners, the venture capital firm where I worked, which had invested in Belkin, Pipkin was one entrepreneur who everyone, including the toughest-minded partners, respected. One summer, I worked with Pipkin and a supporting team to develop the initial stages of a new market opportunity (the initiative has since become a large part of Belkin’s business). Here were a few of Pipkin’s mantras:

Get Out of the Office.

Pipkin suggested that we spend only a week or so doing market research, just enough to come up to speed on the industry and competitive landscape. His main message was that we should get out, talk with potential customers, and look for problems and needs before coming up with any strategies. As Silicon Valley entrepreneur and thought leader Steve Blank puts it, “No facts exist inside the building, only opinions.” As a former marketer, Blank’s point is that people won’t know what problems they are actually solving for customers if they always stay inside their cubicles. Pipkin shared Blank’s belief.

Make A Lot of Little Bets.

The second thing we did was try out a lot of low-risk ideas with potential customers.

Like most expert entrepreneurs, Pipkin’s approach was “Ready-Fire-Aim”—done in order to learn. He starts with an initial hunch about opportunities but then quickly gets out into the world to try ideas out with potential customers (although not the big customers at first). He’d say:

“Put some ideas in front of them, even if they are half-baked, and ask them lots of questions. Get a sense for what types of products and support they need. Which competitor does it best right now? Who does it worst? How sensitive are price points these days? And, oh yeah, always be selling!”

Failing quickly to learn fast and using affordable small bets are good ways to learn about opportunities, test ideas, and build up to great outcomes. Hewlett Packard cofounder Bill Hewlett was known for using a similar approach during HP’s early years. According to HP veterans, including Chuck House, who also coauthored a history of the company called The HP Phenomenon, cofounder Bill Hewlett loved to make what he called “small bets” to uncover unpredictable opportunities during the company’s early years. That approach helped HP pioneer handheld calculators.

In 1972, HP’s first calculator, the HP-35, would retail at $400 at a time when the market for scientific calculators did not yet exist. The technology was remarkable and it could fit into your pocket. But the price tag was hefty, especially at a time when the alternative was inexpensive slide rules. People inside HP were torn about what to do. So they hired a premier computing research group to do market research. “They knew more about computing than anyone,” House recalls, “And they said, ‘This thing can’t sell.’”

But Bill Hewlett wasn’t so sure. He had just spent several hours on a plane talking with the person next to him about the HP-35 who thought it was amazing. So Hewlett suggested, “Why don’t we build a thousand and see what happens.” It was an affordable bet. Within five months, HP was selling 1,000 calculators a day and could barely keep up with the demand.

Iterate, Iterate, Iterate.

HP’s success with the calculator was obviously an anomaly. Bill Hewlett estimated that roughly six out of every 100 small bets would become breakout successes. But while there will be inevitable failures and setbacks when trying new things, the risks are small with little bets. Pipkin and Hewlett repeated, refined, and tested small bets frequently, armed with better insights, information, and assumptions. HP’s first computer, in fact, began as a small bet after customers using HP voltmeters (an instrument for measuring electric circuits, this was another small bet for HP) complained about not being able to transcribe the meter’s six digital read-outs per second. “So the guys at the [HP] lab said, ‘You know, we’ve heard about these ‘computer things.’ Suppose they could grab the data?’” House recalls. That small bet would become very big for Hewlett Packard.

Of course, we all want to make big bets. That’s an American mantra. But people routinely bet big on ideas that aren’t solving the right problems for customers. Who can forget New Coke? And so, little bets are for learning about problems and opportunities, while big bets are for capitalizing upon them once they’ve been identified.

It all begins with one little bet. What will yours be?