🏫 A Stanford Business School case study on lateral thinking

This Stanford business school experiment may completely change how you think about business. I know it shifted my perspective when I first read it years ago.

In 2009, a Stanford business professor named Tina Seelig split her class into groups and issued a challenge:

Each group had $5 and 2 hours to make the highest possible return.

At the end, they'd give a short presentation on their strategy.

Now, let me tell you that the results of this experiment were fascinating. BUT before we move on, I want you to take a second and think: What would you do?

How would you maximise the return in these circumstances?

When you’re ready, here are the results.

Most of the groups followed a basic approach:

• Use the $5 to buy a few items.

  
  

• Barter or resell those items.

  
  

• Repeat

  
  

• Sell final items for (hopefully) more than $5.

These groups made the smallest return on their initial $5.

A few groups ignored the $5. They brainstormed and executed on ways to make the most money in the 2 hours of allotted time:

• Made and sold reservations at hot restaurants.

  
  

• Refilled bike tires on campus for $1 each (in fact, halfway through the two-hour period, the team stopped asking for a specific payment and requested donations instead. Their income soared!)

These groups made a better return on their initial $5.

The winning group took an entirely different approach. They had three core realizations:

1. The $5 was nothing more than a distraction.

   
   

2. The 2 hours of time was not enough to make an attractive, outsized, return with a mini-business (like selling restaurant reservations or filling bike tires).

   
   

3. The most valuable "asset" they had was actually the presentation time in front of a class of Stanford students.

   
   

Realizing the value of this hidden asset, they offered the presentation time to companies looking to recruit Stanford students.

They struck a deal to sell the time slot for $650, netting a monstrous return on the $5 of initial capital (130x!) in just two hours.

What are the takeaways from this? How can it impact your business?

The losing groups thought in linear, logical terms and achieved a linear, logical outcome. The winning group thought differently. This can be incredibly hard to do and often requires real training and practice.

The winning group spent most of their time identifying their situation, considering their resources and what would be valuable to potential buyers. They thoroughly analysed their situation and created a unique offer. Ultimately, their offer outcompeted that of their competitors.

Their offer was not only more valuable, it was lower-effort. Why run around buying and selling things when you can simply offer a speaking slot to an interested buyer? This is the power of a winning offer, they are easier to deliver and more valuable.

It takes time to develop lateral thinking like this, but here are three steps to start thinking differently:

• Step 1: Avoid the Distraction

  
  

There will always be an "obvious" solution that is simple and clear. Unfortunately, it is also often comparatively ineffective.

In the challenge, the $5 was nothing more than a distraction. It was a trap.

To find the best path, you have to avoid the distraction. Take the time to identify your distractions.

• Step 2: Ask Foundational Questions

  
  

Ask and answer questions that expose underlying assumptions and logic.

- What is the root problem you are trying to solve?

- How will success be measured?

- What resources are available to us?

- What are your core assumptions? Why? What evidence do you have?

- How can we test our assumptions quickly and cheaply before fully committing to our strategy?

- What are your solution options? Include options that sound unrealistic. Small changes can make unrealistic options suddenly realistic.

This takes time, but it's an essential exercise when facing a problem with the potential for non-linear rewards.

• Step 3: Select the High Leverage Approach

  
  

Slow down and evaluate the options on the table. It pays to take your time to get your offer right.

Select the path most likely to generate the asymmetric risk-adjusted returns.

For me, the story has two key takeaways that apply to every business:

Creative, non-linear, asymmetric thinking generates creative, non-linear, asymmetric outcomes.

Your offer is fundamental to your success. Focus on creating the right offer.

I shared this in my Work Smart Wednesday newsletter. Want the full set of related insights? You can read them here: https://worksmartwednesday.substack.com/p/work-smart-wednesday-july-24-2024

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