How to Make Small Bets and Win Big

In my previous article, I talked about the benefits of running small experiments, and taking small bets—where you control your downside, but expose yourself to massive upsides.

If you start small, get your feet wet, and test things out without becoming too invested in a decision, you can tinker along the way. This is the advantage of small bets—making progress and tweaking as you go—approaching problems in a non-linear manner.

Of course, we all want to make big bets, put all our eggs in one basket from the start. There are certain people who would say, “I’m not in the habit of keeping a Plan B.” It sounds bold, and does feed your ego, but it’s irrational. Do it at your own peril.

If you really want to solve a problem, then it’s more important to learn about it—it’s subtleties, it’s nuances, and the opportunities it provides. That’s where small bets come in. Small bets are about learning from problems and opportunities, while big bets are about capitalising upon them once they’ve been identified.

Also, when you are trying to do something new, you are most likely not to get the right answer in the first try, no matter how hard you plan. You are very likely to meet with failure. Therefore detailed planning is not usually recommended.

But the process of planning is easy, and does give you a sense of false control. And that’s why many people waste a good amount of time, effort, and resources trying to plan what cannot be planned. Don’t over-plan. As Mike Tyson says: “Everybody has a plan until they get punched in the mouth.”

On top of that, if you expect to get things right at the start, you block yourselves psychologically from many creative options, and in that process you give up a host of opportunities to learn.

People with growth mindset have an advantage here as they naturally believe that intelligence and abilities can be grown through effort. So they tend to view failures or setbacks as opportunities for growth. They have a desire to constantly challenge and stretch themselves.

Hence, becoming more comfortable with (inevitable) failure, and coming to view false starts and mistakes as opportunities opens you up creatively.

If you are thinking, “But I don’t have a growth mindset,” do not worry! Carol Dweck’s research shows that with enough practice, growth mindset can be cultivated.

But doing so would require you to be be willing to challenge your underlying beliefs about abilities and learning. The good news is that simply knowing more about the growth mindset also allows you to react to situations in new ways.

So if you are a person who tends towards a fixed mindset, you can catch yourself and reframe situations as opportunities to learn, rather than viewing them as a potential for failure.

A method that is most helpful to embrace the learning potential of failure, is “prototyping”. It’s a method very common among designers. In fact, the creation of low cost, rough prototypes makes it possible to fail quickly in order to learn fast.

One of the biggest problems with planning, perfectionism, and needing correct answers is that so much time can pass before actually doing anything. Prototyping solves this problem.

The following image is an early prototype of the computer mouse by Douglas Engelbart. Back then the computer mouse was a completely new idea, and nobody knew how it would look like.

But as you can see, this looks nothing like the final product. It wasn’t designed to go into production anyway. But it does what it’s supposed to do pretty darn well. It demonstrates a new concept i.e. a computer mouse, and in the process collects actionable feedback from users who play with it.

This prototype is one among the many low cost versions of the idea of a computer mouse. It’s a small experiment, not the final product.

Similarly, all softwares have alpha and beta versions. Alpha versions are what teams test among themselves internally. Betas are what they release to the public, to be able to actively collect feedback from real users.

In startups, the very concept of an MVP or Minimal Viable Product is to try and see what works and what doesn’t as early as possible, before committing too much time, or investing too much money and effort into an idea.

All these are variations of prototyping.

While describing Pixar’s creative process of making films, Ed Catmull (President of Pixar and Walt Disney Animation Studios) writes, “Pixar films are not good at first, and our job is to make them so—to go, as I say, ‘from suck to not-suck.’”

The process of transforming a product idea that sucks to something that doesn’t suck involves multiple rounds of peer review of unpolished ideas with the Braintrust.

The Braintrust is a group of trusted colleagues at Pixar that gets together periodically to review the progress of a film that is in development. The job of the Braintrust is to give actionable feedback and “push towards excellence, and root out mediocrity,” writes Catmull.

Similarly, Andrew Stanton, director of Finding Nemo and WALL-E is fond of saying, “People need to be wrong as fast as they can. In a battle, if you’re faced with two hills and you’re unsure which one to attack, he says, the right course of action is to hurry up and choose. If you find out it’s the wrong hill, turn around and attack the other one. In that scenario, the only unacceptable course of action is running between the hills.”

So, this is what I say: be wrong as fast as you can. Which basically means, while trying something new, you’re gonna screw up. Just admit that, and do not be afraid of it. But do it as fast as you can so you can get to the answer.

After all, you can’t reach adulthood before you go through puberty. You won’t get it right the first time, true, but you will get it wrong really soon, really quickly.

Building the future is not a linear process of going from step A to step B to step C. Given the dynamic quality of any discovery process, small wins (from small bets) provide a technique to validate and adapt ideas. Small wins provide clarity amid uncertainty.

So, what really makes a small bet? There are no hard and fast rules, but it generally boils down to: trying out something, observing, learning, adjusting, and repeating.

It is however important to recognise that something may or may not come of this, and since you are not betting everything on it, that is okay. The goal is not to guarantee success, but to explore the possibilities in a way that doesn’t have a lot of downside.

As NNT says in Antifragile, “How do you innovate? First, try to get in trouble. I mean serious, but not terminal, trouble.”