It is one of the toughest tasks for the successful entrepreneur. That’s why your proof of concept should get done first! In this Tough Things First podcast, Ray Zinn discusses “Proof of Concept” as structured experimentation. Ray makes it easier to understand than it sounds.
Rob Artigo: Rob Artigo here once again, your host for this edition of The Tough Things First podcast. I’m an entrepreneur in California. Great to be back here again, Ray, for another great podcast.
Ray Zinn: Well, good to be with you again, Rob. I’m grateful that you’re able to do these with me. See, Rob used to be a radio announcer, and so he’s been able to go in and really hone his skills in this area.
Rob Artigo: Well, and I’m glad I can put them to some use, helping you out here on Tough Things First. I’m a big fan of what you do and I always get a lot from your knowledge and experience. Let’s just jump right into it, Ray. Let’s talk about proof of concept as it relates to structured experimentation. Finding out what fails and what works, but using those results to learn and grow and optimize to make a product that actually works and is a profitable product.
Ray Zinn: In other words, you’ve proven it, it’s viable. I know on Shark Tank, they often ask you, “Well, what’s your revenues?” That’s almost the first question out of their mouth is, “Well, what kind of revenues do you have? What’s been the experience so far?”
Ray Zinn Cont.: And that’s part of the proof of concept. Some of them say, “Well, we’re pre-introduction, we’re just ramping up”. That’s not proof of concept. Proof of concept is when you’ve actually gone out and has developed a viable product that has been proven. Proven means that it has been accepted, and the bugs have been primarily worked out. That’s the best kind.
If you’re going to be pre proof of concept, then, of course, there’s a lot of questions come up, “Well then, what’s the market? Who are your competitors? How are they doing”? It’s more of a longer explanation than if you get in and have a structured experimentation, which means you’ve already developed a proof of concept. I mean, you’ve developed a concept, now you’re going out and you’ve proven it. So that term that you really want to use is proof of concept.
Rob Artigo: It’s adapting the experimental model to your project. In other words, asking serious questions. If you go to pitch somebody with Shark Tank or someone else, they’re going to expect you to have answers, because they’re going to say, “Well, what happens if…” and “What do you do when there’s no power? What do you do when you run out of food or product or supporting products”? You don’t have the ball bearings that that’ll make this thing operate, what are you going to do? All these things are part of your experiment, right?
Ray Zinn: Well again, that structured experimentation is nothing more than proof of concept. So you say, “Okay, here is the idea and here’s the proof behind the idea to support it”. So if you’re not there, if you haven’t done that, then of course you’re probably not going to get funded.
At Micrel, the company that I founded in 1978, we had this thing called a PDP, which is a product definition proposal, that they had to come in with a package that defined the product. Here’s the idea, here’s the definition of that product, here’s the market for it, here’s the competition, here’s what it’s going to cost, the development, and here’s what the development time period and then the production time period looks like. And so it was a very important document. All the marketing guys that worked for me, they dreaded having to do these PDPs because you had to sit before the committee as you would, and you had to, just like a Shark Tank, “Hey, here, help me, fund it”.
The product definition proposal is really the same concept of what we’re talking about, this structured experimentation, or proof of concept. And so you have to show the viability and this product definition proposal, and our company was 30 something years old or whatever, 20 something years old when we were… I take that back, we were like 10 years old when we started this PDP process. But that’s that proof of concept, here’s my idea, and so here, please fund it.
Rob Artigo: Well, we talked about cryptocurrencies recently on this podcast, and FTX, the big collapse of that company. You can go back further to Theranos, and you can go back for much further to Enron. And if you’re working through creating products, let’s say you go through the process of this product experiment and you’re asking all these questions to test your product viability and everything else you’ve already described. What about asking yourself the question, could what I’m testing be unethical?
Ray Zinn: Well, that’s, again, goes into that product definition proposal what I’m talking about, because you need to define it in sufficient detail that it shows that this is not something that is a pig in a poke, as they say. This is something that is really viable, ethical, and substantial.
Again, a lot of companies do it fly-by-night. They’re just what they call fly-by-night proposals. I’ve seen a few of those that have come across my desk, what I call a fly-by-night proposal, which is the stealth type, which sounds a little bit unethical, as you would, being stealthy, unless you don’t want the enemy to see you. But anyway, that’s what we call fly by night. So I didn’t like fly-by-night proposals because they look too stealthy to me, whereas there’s something hidden here that I should know about. And of course, they would never admit they’re fly-by-night, but when our committee would dig into it, then we would say, “Okay, this looks a little unethical”.
For example, in my company, Micrel, if we were having some patent issues, conflicts, where the product looked like it was infringing on a patent, that to me is unethical. And even though the proposal might say, oh no, there’s no patent infringement, I would say, “Has a patent search been done? Is there any opportunity for a patent infringement problem”? And they’d have to prove it. They’d have to show how we’re not infringing, or how this is not unethical.
Rob Artigo: Your practice at Micrel for that 37 years, when people were coming up with ideas or were presenting ideas to you, and you often asked them to make a list of the pluses and minuses. Usually they would give short shrift to the minuses and you said, “No, go out and look for more minuses”. Certainly a potential lawsuit related to infringement on a patent would be a minus.
Ray Zinn: Right. And then how are you going to get around the patent? As you pointed out, there has to be equal number of pluses and minuses on the proposal. They could always come up with all the pluses, or the pros as they say, but they couldn’t come up with the cons of the minuses. They struggle, struggle, struggle. The reason is because they didn’t want to find any, and you’re not going to find something you’re not going to look for. So if they didn’t have an equal number of minuses or cons for the proposal, I wouldn’t even read it. The first thing I look for is the pros and cons, or the pluses and minuses, and if I didn’t see an equal number of minuses, then I would not even consider the proposal.
Rob Artigo: Would you start out in your process of structured experimentation on something with this kind of list, pluses and minuses?
Ray Zinn: Absolutely. They knew upfront that there was many, that I was looking for more, as many plus or minuses as I did pluses, or pros or cons as I do pros. So we always did that, and that was a struggle for them because they hate the list of cons because they’re afraid that we would dig into it. In other words, if certain minuses were there, they were flags, like patent infringement was a minus, and so then that required more digging. And of course, there’s no marketing person that wants their minuses to show up, in other words, to come out glaring, like patent infringement or some other dishonest or unethical thing.
But again, I’m serious. I required as many minuses as I did pluses. And if the pluses outweigh the minuses, not in quantity, but in quality, then you went ahead with it. You said, “Okay, the quality of the pluses have to be stronger than the quality, or the non-quality of the minuses”. We always look for, what are the negatives? Because that means, in other words, if they have a sufficient number of negatives to off offset their positives, then it means they’ve looked into it more. There’s better structured experimentation, as you say.
Rob Artigo: Yeah. And it has to be something that starts at the beginning or you end up leaving out something. And I do like thinking about the ethical factors in it. In my military experience, one of the things that I would do is I would, “Okay, well, here’s my plan. This is my plan”. But here is what I think could happen. Here’s what I think could happen. And you go, “What do you mean”? Well, I’m not trying to tell you don’t do this, I think this is the best plan. But I want you to know that before we do it, let’s talk about what do we do, if.
Ray Zinn: That’s the, what if, thing. We always, especially in military strategies, plans, these war game plans, these strategies that they come up with, they have to say the, what ifs. What if this or what if that. Honestly, if you watch Shark Tank, they ask more negatives. They really do. I mean, they focus so much on the negative, you hardly ever hear the positives. That’s why they say, “Well, I’m out”. There’s, I don’t know, five or six sharks on the panel, and inevitably 90% of the time, at least two or three, half of them are going to be out. They say, well, I’m out because of this or this, this doesn’t fit my strategy. I don’t see how I can help, or blah, blah, blah. So they focus more on the negatives than they do the positives, and they like presenters who have thought through the negatives. They really do. That’s the one that seems to light them up the most, are the ones where the people are really thought through some of the what ifs.
Rob Artigo: Yeah, the snappy response is if they propose a question and you don’t have to think about the answer, then they like that too, because they know that you’ve done that critical analysis. Because there’s always the danger that in your process that you don’t want to hear the negatives because your own personal confirmation biases that you just want to know that it’s good and you want people to tell you it’s good.
I think that hearing a negative doesn’t mean something’s not good. What you’re going to do is you’re going to take a serious consideration of those factors that may have a negative impact on your progress, and so that’s where your money’s going to come from. I mean, your money’s going to come from convincing people that you’ve got to handle on all these things because they’re, like you said, the Shark Tank, the first thing they do is they go, “Well, look, here’s the problems with this. Do you have a solution for that”? “Oh, well, you know what? Okay, all right, well, I’m out for that reason”.
Ray Zinn: You turn a negative into a positive, that’s what they’re looking for.
Rob Artigo: Yeah, because you’ve learned something from it or it has made your product stronger. It’s just as something as simple as building a wall. You’re putting up a wall, you’ve got your two by fours, and you’re putting everything together and somebody says, “Hey, let’s put this support here”. And somebody else says, “Well, you put that support there, that’s great, but you’ve got to add a support over here because this is going to make this area too heavy or something”.
Ray Zinn: For example, in the cryptocurrency story. Or the TFX, or FTX, I’m sorry. What they could do is show how they’re regulating themselves. In other words saying, “Okay, here’s how we are regulating ourselves,” and make it sound believable. In other words, turning a negative into a positive because regulations are considered negatives. Take the negative and you make it a positive by saying, “Here’s how we’re going to regulate our company and our business. And as long as it sounds like it’s viable, people will invest, as long as they know you’ve considered the negatives.
Rob Artigo: Right? Viability and surviving all those questions are keys to making your proposal to investors stick, I think.
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So please do check us out at toughthingsfirst.com. You can find links to Ray’s social media toughthingsfirst.com, and also more on the book series, Zen of Zen and the book, Tough Things First. The Zen of Zen series, by the way, with three books, the third one just out is a series of books on entrepreneurship, leadership, management, and also discipline, determination, and really about life, the Zen of Zen Books. Thanks, Ray.
Ray Zinn: Thank you, Rob. Good to be with you.
Rob Artigo: Sure.