Bad Capital vs Good Capital: 93% Pivot
Going through medical school to NOT become a doctor
I am an entrepreneur that has found success by focusing on daily progress. I share what I learn on the road to wealth. This weeks insights come from the book I finished reading called “How Will You Measure Your Life”:
Bad Capital vs Good Capital: 93% of companies that eventually find success had to ditch their original strategy.
Honda succeeded in the US because it pivoted from a deliberate but failing strategy to an emergent unexpected one.
Imagine going through medical school to realize that you don’t want to be a doctor. You don’t want that.
You can access previous editions of my weekly emails here. Let’s begin!
(1) Bad Capital vs Good Capital: 93% of companies that eventually find success had to ditch their original strategy.
Successful businesses don’t start out with the “perfect” strategy; instead, they survive because they still have funds left when the first plan fails, allowing them to pivot. In contrast, those that fail typically burn through all their resources on an initial approach that misses the mark. These were the findings from Amar Bhide’s book, Origin and Evolution of New Business.
When a startup’s winning strategy isn’t clear from the start, investor capital needs to be patient for growth but impatient for profit (good capital). This means the company should find a viable path quickly, with minimal investment, so they don’t waste resources chasing a dead-end strategy. With 93% of successful companies needing to change course, any capital that demands rapid growth before profit can easily drive a startup into the ground. This is why capital focused on growth over profitability is “bad” capital. Once a sustainable profit model is identified, scaling becomes the goal.
Take Honda, for example. In its early days, Honda was strapped for cash, which forced it to be patient for growth while figuring out a profitable model. Contrast this with Motorola’s approach with Iridium, which prioritized rapid growth, hoping profitability would follow. The result? Failure.
History is full of companies that tried to shortcut success by chasing growth without first finding a profit model, and it almost always ends badly.
(2) Honda succeeded in the US because it pivoted from a deliberate but failing strategy to an emergent unexpected one.
Let’s unfold the above example by going deeper into the Honda story. Honda entered the US in 1959 with a staff of only eight. They wanted to take on the big bikes category by competing against Harley Davidson. They wanted to sell their big bikes at a cheaper price. But they were struggling. Their original deliberate strategy was failing.
They had also imported their small bikes called Super Cubs as showcases from Japan. These bikes were designed to zip through crowded streets for deliveries. One day, one of the Honda employees took this bike up the Los Angeles hills to ride through the dirt. He had so much fun doing it that the next weekend his colleagues were also having fun with the tiny bike. Americans saw these employees in the hills with bikes that they’d never seen before. They started demanding what they started calling “dirt bikes”. The problem was that they were not available for sale in the US. The opportunity however could not be ignored when a Sears buyer spotted a Honda employee on a Super Cub and asked if they could sell them through their catalogue.
The Honda management was averse to the idea. After all this was NOT the strategy they came into the US with. They had come to fulfill the demand for big bikes.
The lack of funds that Honda had was a blessing in disguise. Had they had the funds, they would have kept on putting money into their big bike strategy to eventually fail. It was the need to sell the smaller bikes to stay afloat in the US that became their main source of revenue. They had to pivot. They set out in one direction but found success in another.
Start by focusing on anticipated opportunities, but stay open to unexpected ones. Your initial strategy should be flexible, allowing you to adapt based on real-world experiences. Make adjustments as you go, iterating quickly until things start to click.
The key is to get out there and test things until you discover where your strengths, interests, and priorities intersect in a way that pays off. When you find what truly works, that’s the moment to switch from a flexible, exploratory approach to a clear, deliberate strategy.
(3) Imagine going through medical school to realize that you don’t want to be a doctor. You don’t want that.
How do you figure out what’s most likely to work for you without making such a big commitment or other big commitments?
Ask yourself: “What has to prove true for this to succeed?”
Another way to approach this is to ask: “What are the most critical assumptions for these projections, and how will we measure them?”
Rank these assumptions by both their importance and uncertainty. At the top should be the assumptions that are crucial but uncertain. At the bottom, put the assumptions that are less important and already fairly certain.
Then, find quick and cost-effective ways to test whether your most important assumptions are valid. Once you know if your core assumptions hold up, you can make much smarter decisions about whether or not to invest in the project.
Harsh Batra (LinkedIn)
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