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A Challenge — Bet or Not Bet?
By Dave Ramsey

Assume you (or your company) are given a simple challenge – make as much money as possible from a bet on a new product or service.

Assume you accept the bet – businesses do it every day, why wouldn’t you?

Suppose you accept the bet. As a first step you are handed one normal 6 sided die and instructed to make a wager of $100 (or a multiple thereof) on one side landing face up. Upon wagering, you are given a chance to roll the die; if you guess correctly, you win $4.50 for each dollar you bet.

Most everyone would take the bet. It looks like the payout is pretty good.

If the die is fair, most everyone would lose no matter what the strategy. As shown by the following calculation, the expected loss from a $100 bet would be $25.

Since each roll does not affect other rolls, if one makes enough rolls in succession, one can expect to break even whether the wager is $100 or $1.

But suppose that you found out that the die was not fair – that one side (you do not know which side) has face-up odds of 1/3, with each of the other sides having face-up odds of 2/15 (i.e. 2/3 divided by 5). Again you wager. This time you wager your entire stake on one roll - again your loss would be $25.

The expected return is (1/6 x $450) + (5/6 x $0) - $100 = -$25.

But consider another similar scenario but with better information.

Assume you were to know which side was better; your odds would be measurably improved. If you knew what the good side was ahead of time, you would bet on it every time and expect to gain $50 from every $100 wagered.

This would be a clear market advantage if you were in business and your competitors didn’t know your secret!

Imagine, you would know what the next big product should be. You would constantly dictate the next market curve and perhaps even more importantly know when the market was ready for the product.

There are two questions that arise. Given an initial stake of $100, what would be your wagering strategy in order to discover which side was best and capitalize on that knowledge? In other words, how would you change the game from one in which you are likely to lose to one in which you expect to win consistently?

In situations such as this, it would be sound strategy to make a series of small bets so that you could observe the actual outcomes. As you observe the outcomes and after watching a sufficient number of outcomes, you could modify your betting pattern from a purely random method to increasing the concentration on the side that you believe the best. Eventually, you would place all your bets on the side that you thought was the unfairly good one. In other words, through many rapid, small bets – win or lose, you improve your odds of winning on the next toss because each toss provides additional information as to what is the best of your alternatives.

This type of pattern is the essence of trial and error.

Imagine if you are looking to develop a new product. There is a strong reason for developing the product. Your nearest competitor has caught up with the quality of your product and is beginning to offer their version of the product at a lower price because their costs are lower and, in short, because they are interested in taking away a piece of your market share.

Do you have the time to try an unknown number of new product features or even worse totally new products? Even more important, do you have the money to produce the trial products in sufficient numbers to find out which one will again give you a competitive advantage? Most companies do not have either the time or money.

For many years companies have tried a combination of methods; brainstorming coupled with engineering tools such as FMEA, QFD, and Six Sigma. In fact Toyota developed a methodology that for several years was their own – Modular Design. In modular design, many small, rapid experiments are conducted. The experiments are less costly in time and engineering resources and are conducted concurrently. The outcomes from one experiment are used to shape the next cycle. In essence, they have used the betting scenario to make certain that they will win the battle for competitive advantage.

But if a company doesn’t have the resources of Toyota, or the time to complete trial and error, what alternatives do they have? One alternative might be to wait until someone else introduces the next big product. For instance, the Grand Theft Auto series of electronic games by Rockstar games is the fastest selling series of games for X-box, Playstation and the like. Rockstar was the first to introduce the type of violent action in a game that kills innocent victims, blows up police cars and assists and works to serve gangsters and drug dealer.

Since the introduction of Grand Theft Auto, several other games have been developed with different yet similar anti-civilization actions. Yet no company has succeeded in matching the series’ sales. In fact one company, EA Games has tried to buy three times to buy Rockstar Games in order to get the rights to Grand Theft Auto

Not many companies are in a position to grow through mergers, and acquisitions. Additionally, not many companies are equipped with the extensive resources and engineering staff of large conglomerates such as Toyota, Raytheon and Procter and Gamble. The alternative to the expensive forms of development is Directed Evolution.

Toward Directed Evolution

In biomedical product development, directed evolution is used to develop new genomes and proteins that contain specific characteristics. To accomplish the desired outcome, the development team utilizes a series of steps that builds upon the output (knowledge) of each previous activity to achieve the outcome. As described in the Wikipedia (http://en.wikipedia.org/wiki/Directed_evolution) the team first diversifies the number of choices; secondly, the team then selects the combinations that best fit the desired outcome. As the third step, once the selection is made, the team works to amplify or strengthen the selected combination in order to make certain that they understand what is happening in the creation process and that errors can be avoided.

While this is a simplified explanation of the process, the three steps, when completed, are known as one round of directed evolution. The development team has directed the genomes and/or proteins to evolve in a certain way and toward a defined set of goals or outcome.

Over the past 15 years, a similar method of directed evolution for application to other industries and societal organizations has been researched and developed. Using information gleaned from the past product market lifecycles and from product development information published in hundreds of thousands of patents, Directed Evolution methodology developed by Ideation International and distributed by Aptimise is the one proven tool that allows a company to escape the trial and error, modular, and combined engineering approaches.

How Directed Evolution Works

All products have a market lifecycle. The lifecycle, portrayed in an S-curve, portrays 6 stages that describe market conditions for that product. By knowing the conditions of the stage that the product is in, predictions can be made as to the evolution of the market; furthermore, it can give insight into what the next market changing product will be.

Any company with enough time, money and ideas can do this technique. However most companies run into obstacles such as: not enough time, not enough money, and once the research and analysis are done, not enough ideas for new products.

Using advanced tools developed by the Ideation research scientists, Directed Evolution® evaluates today's knowledge systematically; using the stage of the market cycle, identifies what is achievable; then suggests the technological advances necessary to dominate the market with innovative products in the shortest amount of time.
This article started with giving you a choice – to bet or not to bet. Based upon our calculations, you only bet when you have the knowledge that there will be a positive return on investment. Likewise, the company with the knowledge that they will receive a positive return on their investment will bet on the development of the next new product.

The question that remains is which company will be the one that takes the least amount of time and introduces the new product at the right time?

The experts at Aptimise know the answer. It is the company that uses Directed Evolution.

Aptimise is Dave Ramsey, Dan Templeton, Ron Minke, Dave Redding, and Mark Riechmann. They can be reached at (260) 407-0203 or via e-mail at dramsey@aptimise.com.