I have advised startups for more than twenty years, and simultaneously have designed and run behavioral experiments for my academic research for over thirty-five. It took a while for the light bulb to go off, but eventually I began to think of start-ups as experiments. There are valuable lessons to learn from this analogy. These may sound abstract, even theoretical, but I have found that they are helpful for founders and start-up teams, including VCs. In exchange for the level of abstraction, I’ll keep it simple: let’s look at three lessons.

By definition, a start-up environment and its expected outcomes are uncertain. The idea/product may or may not work, and there may or may not be a market for it. It is uncertain how big the market is, or could be, and there is uncertainty about whether this particular venture is the means of realizing the value that is posited. In Silicon Valley, startup ideas are sometimes described as “hypotheses” that need to be tested. From there, it is not a large leap to think of startups as experiments designed to test those hypotheses. This way of conceptualizing startups carries implications.

First, to be viable, to get funded, and to attract a competent team, a start-up idea must be an interesting hypothesis – one worth putting together a start-up to test it. In practice, this often means an idea to serve a large, growing, and hopefully unserved market. But it also means that the hypothesis must fit into a current narrative about the state of technology in its domain, and the narrative of markets, such as the evolution of consumer behavior or ecosystem within which it plays. For example, social media may have been just as technically feasible as search in the early days of the internet, but as a hypothesis it made sense to test search first and social media later because the market, including consumer behavior and the advertising ecosystem, provided a better test later. In general terms, there is a natural trajectory or progression for the evolution of ideas, and the hypotheses are best tested in a certain order.

The implications for start-ups are clear: know the narrative, know where your idea/hypothesis fits, know when is the right time to test it.

Which brings us to a second implication of treating startups as tests of hypotheses: the test must be strong. In practice, what this means is that you must take the best shot possible: the startup idea should not fail because of weak management, weak funding, weak products, or a weak economy. If it fails, it should fail because the hypothesis was not true: it should fail because there was no market there. Of course, in practice there are many more moving parts in a startup than are measured, let alone managed, so a pristine attribution for success or failure is not possible. But there’s no denying that everything about a startup should be designed to test whether there is a market there. A tight design is one that rules out extraneous explanations or possible attributions for the success or failure of a startup: if there is a market, it will be found and addressed, and if there isn’t a market, that disappointing truth will be revealed for all to see. The team’s efforts are designed to deliver a conclusive answer: yes or no. What this means is that every startup must have success metrics that provide a test of the central hypothesis.

Which brings us to the third implication of treating startups as hypotheses:

Everything the startup team does is about reducing the uncertainty that you begin with. Specifically, you are out to reduce two types of uncertainty: (1) Is there a market there? And (2) How quickly can you provide a definitive answer to this question?

Conceptualizing a startup as an experiment means that that definitively demonstrating that there isn’t a market there can be almost as much a success as proving that there is a market. It is not surprising that in experienced start-up environments such as in Silicon Valley, the failure of any single startup carries little stigma for the founders or team: it is understood that the team accomplished its mission of definitively testing the hypothesis by demonstrating that there was no market there.

For the funders of the startups, the value of looking at them as experiments is evident. Not every experiment will succeed, but each experiment needs to be tight enough to validate or rule out the central hypotheses that was funded. Knowing that the startup provided a disconfirmation of the hypothesis also helps make another critical decision: knowing when to stop funding it.

A startup designed as a strong experiment, with clear hypotheses, measurable success hurdles, and a well-defined timeline (milestones) is far more likely to succeed than one that is set up to try and sell a product.

Contributed to Branding Strategy Insider by: Niraj Dawar, Professor Emeritus of Marketing and Author of TILT: Shifting Your Strategy From Products To Customers

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On the one hand, reality is that which is verifiable by evidence. On the other, reality is that about which there is consensus. It’s simple when the two are the same: when there is consensus about things for which there is evidence.

But in many spheres and in many groups, evidence and consensus are increasingly diverging. Groups of people, bound only by their coincident presence in electronic rooms, appear to forego real world evidence to believe instead in a group fiction. To outsiders, this group’s ontology is a set of alternative facts or, more derisively, fake news. But the phenomenon is not limited to Q-anon. It is happening in groups of all types, sizes, cultures and ages, each living in its own constructed, divergent reality.

For marketing, marketers, advertising jockeys, brand builders, and not-so-hidden persuaders, the last couple of decades have been tough as moving customers to buy became much more an analytical skill of data manipulation and funnel management than emotion and psychology. Advertising became boring, devoid of creativity, focused on reminders rather than enticing, cajoling, seducing and charming the consumer. But the consumers’ need for dreams never really went away. The construction of fantasies simply became a peer-to-peer activity.

Consensus is not just divorced from evidence, it is increasingly fragmented… the consensus of smaller and smaller groups, micro-segments each believing their own fiction. Each group lives in its own digitally filtered, electronically augmented reality, with its own logic and only a tenuous and tangential connection to the physical world. In these chimeric worlds grow connections with other people, relationships, and a consensus about reality.

It seems humans of the 21st century would much rather live in a fiction we can agree on than in a reality we can verify.

But maybe this is not unique to the 21st century. It has always been so, with various religions and sects creating consensus around their own shared beliefs. We have always lived inside Plato’s cave, experienced only its rear wall. Maybe it was the brief interlude of the latter half of the 20th century where mass media and mass schooling, a common curriculum with a shared belief in science and the idea of progress that created the illusion of convergence between consensus and evidence. And maybe even in that universe, the convergence between evidence and consensus was manufactured. And maybe the internet that brooks no mass, has returned us to a natural divergence of consensus and evidence based realities. Maybe that is, like opposable thumbs and language and the ability to plan, one of the things that makes us human, distinct from other animals: the ability to construct fictional shared realities that are internally consistent and consensually coherent.

Enter The Metaverse

And if that is true, then is it any surprise that that divergence is at the heart of the new businesses that are emerging from Silicon Valley this century? In the span of a few short decades, the Valley has rapidly evolved from building chips and hardware, to software, to networks (including the Web), to hosting social connections and communities in social media, to now constructing a metaverse: a technology in the service of creating shared fictions inside which we can live, a merger of the economies of northern and southern California, of Silicon Valley and Hollywood.

The construction of the infrastructure of the metaverse, as envisaged by the moguls building it, is naturally bankrolled by advertising, which has always, even in the age of mass marketing, been the siren’s invitation to disconnect from mundane or harsh reality and dive into fantasy purpose-built brandscapes. It offers marketers a new lease on life, provided they are humble enough to recognize they are no longer the creators and disseminators of consumers’ imaginary worlds, but rather curators and facilitators of realities constructed through consumer interactions.

The pandemic that kicked off the third decade of the 21st century provided impetus and a proof of concept for the idea that we can all live inside the machines, or the machine. It is now a matter of building the code matrices that will furnish the new living quarters. No sooner had Facebook announced its name change to Meta and its mission to build the Metaverse, events seen as the formal ribbon cutting of the grand project to migrate humanity to the promised virtual land, Microsoft announced its acquisition of Activision Blizzard, a maker of electronic worlds, including Call of Duty and World of Warcraft, that already host 400 million people, signaling that there will be more than one manufacturer of promised lands, more than one prophet to take us there. More announcements are bound to follow.

While some of the founders of these new worlds may themselves choose to escape the constraints of this planet by blasting into space or living on Mars, most of us will escape by going inside the metaverse. Here, we will live, work, and play in the fictions we help construct within the laws of physics defined by the matrices of the prophets, and the laws of economics handed to us by Satoshi san.

Disclaimer: this version of reality may or may not be the one that comes to be, and may be subject to possible violent clashes with physical realities such as climate change or clashes among groups adhering to different fictions.

Contributed to Branding Strategy Insider by: Niraj Dawar, Author of TILT: Shifting Your Strategy From Products To Customers

The Blake Project Can Help: The Brand Positioning Workshop

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So what does brand mean?

Fact is, we use “brand” to mean many things. Many different things.

So I thought I’d start a glossary of the different meanings of the term brand. Please feel free to add to the list in the comments section below.

1. A brand is a name that a seller uses to label a product in order to communicate with consumers. As in: let’s call this fizzy caramel-colored sugar water Coca-Cola. Once the seller and the buyer agree on common terminology, transactions become a lot easier – for one, consumers can recognize and buy the product they liked the last time – repeat purchases become possible, brand loyalty is born. Which leads us to the second use of the term “brand.”

2. A brand is the reputation that that name builds for itself in the marketplace. As in: Do we have a good brand? A positive reputation is often the reason consumers repurchase, and new customers are attracted to your products. So a lot of effort goes into building that reputation. One of the ways a reputation is built is by offering something other brands don’t or can’t – this brings us to the third meaning of the term “brand.”

3. A brand is your positioning, or the space you occupy in the marketplace — and that includes your competitive differentiation. As in: What is our unique selling proposition? Your points of difference are what makes your products stand out and be chosen on the shelf – but also in the consumers’ minds – which brings us to the fourth meaning of the term.

4. A brand is the set of associations that that name evokes in the customers’ minds: it is the piece of mental real estate you own in the minds of your customers. What comes to mind when consumers think of Fedex? Turns out, many of them think of the film Castaway. But is that what Fedex would like them to think about? That question brings us to the fifth meaning of the term.

5. A brand is your strategy; at the very least, your communication strategy. As in: Are we on brand? Consider a company, such as Johnson and Johnson. Imagine they are considering launching a new product, say a face cream. Should they use their existing brand, which is well known and has a well established positioning, or should they launch a new brand? A key component of the answer to that question is whether the new product is consistent with the meaning and positioning of the J&J brand in consumers’ minds. In this example, the brand sets the boundaries for the strategy of the company – are we on brand is essentially asking are we on strategy? The reason you don’t want to launch a new product that is off brand is because it might harm the brand’s equity. And that brings us to a sixth meaning of the term.

6. A brand is an asset. A brand’s value can be measured, a brand can be bought and sold, as brands often are in mergers and acquisitions. You can make investments in your brand, and you expect a return on that investment.

And that’s not all a brand is. I’m sure you’ll add to the list below.

Contributed to Branding Strategy Insider by: Niraj Dawar, Author of TILT: Shifting Your Strategy From Products To Customers

The Blake Project Can Help: The Brand Positioning Workshop

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Hollywood’s goal is to entertain (and some of the more ambitious movies also aim to make us think).

Marketing’s goal is to make us desire things or experiences, or more technically, to increase the perceived value of things and experiences.

Hollywood builds dreams in 90-minute shots that we generally watch once, when we choose to watch it. We pay to watch.

Marketing is about repetitive exposure, through multiple media, and we’re exposed to it incidentally, while doing other things. We do not pay to watch.

Of course, sometimes the lines are blurred. Product placement puts marketing inside movies (dreams inside dreams). Sometimes, the movie is basically one long advertisement. Take, for example, a typical Disney animation. For these movies, the licensing revenue from merchandise sales (the Princess lunch boxes, the Dalmatian blanket and pillow sets, the Simba pencil cases) exceed box-office sales several fold. The movie is a 90-minute ad that gets kids to want products with the logo on it. They pay to watch the ad.

But there appears to be one big difference between Hollywood and marketing. Hollywood has the capacity for self-reflection and self-reference. Marketing, it seems, does not.

Movies like The Wizard of Oz, The Truman Show, The Matrix, and yes, Inception, speak of the human capacity (proclivity) to a construct reality, a fantasy world, and then live inside it like a fish in a bowl. Behind the curtain, the wizard is Hollywood itself. And it is not shy of pointing to the fish bowl.

Marketing has no such self-referential, self-reflective equivalent. Perhaps because it is too self-conscious, or not enough so. Or perhaps it is too risky for marketing to talk about a constructed reality: you can’t let the consumer go there. If you start alluding to the constructed nature of the fantasy, the fantasy bubble pops. You can’t sell a popped bubble.

Contributed to Branding Strategy Insider by: Niraj Dawar, Author of TILT: Shifting Your Strategy From Products To Customers

The Blake Project Can Help: The Strategic Brand Storytelling Workshop

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But calling it a financial crisis may obscure some of the lessons to be learned from the crisis. What happened on Wall Street during the early part of this century, and that led to the crash of 2008, the extinction of Lehman Bros., the collapse of AIG and the near death of many other financial institutions was as much a failure of marketing as it was a failure of finance.

I know, it’s foolish for any field to raise their hand and claim even partial responsibility for such a calamity. But there are important lessons to be learned from it.

The crisis, many will remember, was triggered by banks selling sub-prime mortgages to NINJA (no income, no job or assets) customers, packaging these mortgages into AAA-rated instruments that were then wholesaled to other financial institutions, who bought them or sometimes just bought insurance against their decline in value. When some of the component mortgages in those packages turned out to be toxic, everybody was as shocked, shocked as Captain Renault in Casa Blanca. The valuations of the packages plummeted, and the global financial system went into cardiac arrest.

Now consider another story, this one about pet food sold under various brands and private labels in North America. From the Food and Drug Administration’s website: “On March 15, 2007, FDA learned that certain pet foods were sickening and killing cats and dogs.”

As many as 150 brands of pet food were affected, including large brands such as Iams and Purina. Thousands of pets died or went into kidney failure.

The source was traced to Menu Foods, an Ontario-based pet food supplier. Menu Foods traced it to a toxic ingredient imported from China that contained melamine. The recall nearly destroyed several pet food brands. Menu Foods battled several lawsuits from pet owners, and was eventually bought out by Simmons Pet Food in 2010.

What is common to the two crises is that in a complex global supply chain, toxic ingredients were introduced by unscrupulous or ignorant intermediaries, and caused significant damage downstream. The ingredients were included in innocuous packages that were branded by resellers who did not or chose not to understand the risks of the products they were selling.

Similar stories abound in many industries, from lead in toys, to the wheels on baby strollers.

As sourcing fragments into global supply chains, each manufacturer or ingredient supplier is producing a small part or component of an end product. Quality control at every stage is always incomplete, because quality control can only measure a few salient variables – who would have thought to test wheat gluten for melamine, or S&P AAA-rated instruments for toxic assets?

Is there a marketing solution to the ingredient problem?

Brands are the mechanism by which sellers are held to account in a marketplace. By putting their brand on a product, the seller takes responsibility for its quality, and risks a reputation if the quality doesn’t meet customer expectations. Note that quality here could mean anything, not just quality as defined and measured on a few pre-determined variables. So the seller is kept on his toes.

So is it possible that if ingredient suppliers were putting their reputations at stake, they would be more careful with the quality of their products? Should ingredient suppliers be branded?

Intel, not long after it launched its Intel-inside ingredient brand strategy and resulting campaign, also launched the Pentium chip. In November 1994 news of a bug in the new Pentium chip – a technical floating point error – lit up the internet. Initially, Intel responded in a technical fashion, stating that the errors caused by the bug were so rare (1 in nine billion calculations were minutely affected) that only those who could prove their calculations were materially affected would be offered a replacement. By December of that year, realizing that its brand was at risk, Intel offered to recall and replace all Pentium chips.

The brand places a much greater burden of quality on the seller. Could that have reduced the risk of toxic mortgages in AAA packages, and melamine in pet food ingredients in global supply chains where the ingredient manufacturers remain anonymous?

Contributed to Branding Strategy Insider by: Niraj Dawar, Author of TILT: Shifting Your Strategy From Products To Customers

The Blake Project Can Help: The Brand Positioning Workshop

Branding Strategy Insider is a service of The Blake Project: A strategic brand consultancy specializing in Brand Research, Brand Strategy, Brand Growth and Brand Education

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