More New Zealand businesses need to use the "fast-fail" strategy when they start up, as Transfercar chief executive Brian Karlson discovered from personal experience.
When Karlson co-founded the free rental car company in 2007, he didn't adopt modern entrepreneurial approaches.
But now the part-time teacher at the University of Auckland's Centre for Innovation and Entrepreneurship is practising what he preaches - and by using the fast-fail technique has re-invented his business.
Transfervans is now trialling a van delivery service in Auckland where people who own vans and small trucks can be hired to pick up and deliver other people's large purchases, like furniture.
"It's like Uber for bulky items," Karlson says. "We developed this concept in only a few months. This is where fast-fail is excellent. Instead of focusing on a product, we concentrated on satisfying a need. Then you focus on improving it marginally over time as you learn."
The principle of the fast-fail strategy is that most small businesses fail after two years, so start-ups need to think of factors that could sink the venture and test them out up front.
"You try to fail as fast as possible to save yourself the investment of time and money.
Instead of planning first then executing, you execute first, gain evidence, and then plan," says University of Auckland Business School Associate Professor Daniel Vidal.
"Most small businesses don't fail shortly after launch - they tend to fail a couple of years later. Traditionally, an entrepreneur puts in a lot of time and effort at the beginning; some may leave permanent jobs, seek loans and carry a lot of debt in their pursuit.
"They despair over the first couple of years until the point where the business runs into cash flow problems, or has a reality check with the market, and it fails.
"The principle of fast-fail is, 'let's test those reasons for failure right at the beginning, before doing any detailed planning'. If it fails, at least it has saved two or three years of aggravation and disappointment."
In the case of Transfercar - which offers travellers free one-way car hire, helping rental companies return vehicles to where they are needed most - Karlson admits not applying fast-fail techniques from the beginning was a costly exercise.
"We followed the strategy of many start-ups - building a product, rather than focusing on whether there was a market need. In New Zealand, we were quite lucky there was a good fit with the product we had," he says.
But, when Transfercar moved to Australia and the United States, they found the market need wasn't the same as in New Zealand. In the US, they discovered more people would rent a car in one spot and return it to the same place or nearby.
"But still, we had to try to push our product through. We learned our lesson trying to modify your product to the local market rather than try to make the market fit with your product.
"Now we're spending a lot more time trying to understand market needs. I can see that, if we had applied fast-fail from the beginning, it could have saved more than a year in time and in money - a six-digit figure."
Realising the company needed to diversify, Karlson taught all of his staff the latest strategy techniques - market validation, lean start-up and fast-fail.
"We went out and talked to people who told us their needs. Our ideas list is now very long," he says.
While the newer entrepreneurial strategies are not well-known, having been in existence for less than a decade, they are now more frequently used throughout the western world - including in New Zealand business, Vidal says. He has been teaching the concepts at the University of Auckland's Graduate School of Management for the past three years; small business incubators like the Icehouse are also introducing them.
The traditional tools of business, like market research and focus groups, are still effective in mature, stable industries - like pharmaceuticals, car and food-related industries where they can forecast demand and price changes. But, with breakthrough products, operating in a highly-uncertain environment, the "old ways don't make sense," Vidal says.
"My gut feeling is most businesses are still working within the traditional frameworks of a business plan - excessive planning up front, rather than getting outside the building and validating whether those assumptions about a product are correct.
"That early feedback can help tailor-wrap or change your product completely to something more likely to succeed. Most entrepreneurs' initial ideas are not the ones that finally come to fruition - often the second hit is the one that becomes successful."
Vidal believes more businesses adopting new strategy techniques will have a major benefit for New Zealand's economy and innovation sector: "You can be in a position of creating much more innovative products and services, which can lead to a demand in the market, and consequently build wealth for everyone else."
Daniel Vidal teaches on the Strategic CFO Programme at the University of Auckland Business School.