Scientific Method

I am surprised at how many small businesses determine their targets. It seems to be based on round numbers rather than analysis. A 5% profit margin is good because it is a nice number-the same as the number of fingers on one hand. Can you run the business at 5% profit?  Is 5.4% more realistic based on your costs and the level of service you plan on providing to the clients?

Picking numbers out of the air is ok if you don’t have any facts. For example when a business is just starting there is little information on costs or how much customers are willing to pay. As a company progresses and more facts are available, decisions should be made in a more systematic manner. This is why I want to review the scientific method and how it can be applied to business problems.

 

The Scientific Method

  • Observations: Constantly ask why things are the way they are. Should they or could they be different. Many people saw apples fall to the ground, but it was Isaac Newton who asked why.
  • Hypothesis or Theory:  This step is an attempt to explain the observed events. A good hypothesis is one that makes testable predictions. “Newton proposed his law of gravitation in 1687 and stated that every particle in the universe attracts every other particle in the universe with a force that depends on the product of the two particles' masses divided by the square of the distance between them.”
  • Experimentation: This is the step that separates the scientific method from other disciplines. Experiments can prove a hypothesis wrong or indicate that the hypothesis is at least partially correct. By applying the law of gravity to the motion of the planets it was found that Uranus did not follow the rules. This meant that something was either wrong with the theory or the observation was incomplete. By using Newton’s theory of gravitation the planet Neptune was discovered.

The Scientific Method applied to Business:

  • Observation: Entrepreneurs are always asking questions. Most small business are started because someone observed a need for a product/service that was not being met. Within a business, constantly look for problems/bottlenecks. Example: Sales are lower than they should be based on the business plan.
  • Hypothesis or Theory: Make a guess why this is so. Example: People are unaware of the company’s products. Therefore we need to do more marketing. The best marketing method is to hire a blimp
  • Experimentation: Increase marketing and observe the results carefully. If sales do not increase then you need to determine if the hypothesis is wrong or if the experiment is flawed. There might be a considerable lag between the marketing and a customer’s decision to buy. Marketing may not be the bottleneck. It might be shipping, customer service, or an inferior product. Monitor the results over time. Don’t assume an increase in sales volume is a long-term trend. In other words using a blimp for marketing might only cause a blip in sales.

Both the business and scientific worlds move fast. Constantly reevaluate your hypothesis as you get more observations and test results. Einstein came up with an entirely different theory to explain gravity. It turned out that Newton’s was wrong. Both theories predict the same results in the everyday world. The difference comes at the extremes. At very fast speeds such as near the speed of light or near high-density objects such as the sun, objects don’t match the predictions of Newton. If both theories make the same predictions in the everyday world what difference does it make? Many of the technology changes that occurred in the twentieth century where due to the greater understanding of the universe that Einstein provided. In any competitive business, you need to have an edge. A greater understanding of how the parts of your business are interrelated and how they might change at the ‘extremes’ will give you that vital edge that might separate success from also-ran.

Other aspects of the scientific method can be applied to the business world. Two that I find useful are peer review and Ockham’s Razor. Having another pair of eyes review both the hypothesis and the experimental result dramatically increase the likelihood of success. Ockham's Razor is the principle proposed by William of Ockham in the fourteenth century: ``Pluralitas non est ponenda sine neccesitate'', which translates as ”entities should not be multiplied unnecessarily”. In other words if you have two hypothesis that make the same predictions choose the simpler one.

 In order to grow a business you need to know why you are successful. Thinking that your clients like your product because it is blue is not a firm basis for increasing sales. The scientific method should help you establish how you can improve your business.

 

*"Gravitation," Microsoft® Encarta® Online Encyclopedia 2002 http://encarta.msn.com © 1997-2002 Microsoft Corporation. All Rights Reserved

 


The most exciting phrase to hear in science, the one that heralds new discoveries, is not 'Eureka!' (I found it!) but 'That's funny ...'; -Isaac Asimov (1920 - 1992)

The great tragedy of Science - the slaying of a beautiful hypothesis by an ugly fact. Thomas H. Huxley (1825 - 1895)

No amount of experimentation can ever prove me right; a single experiment can prove me wrong. Albert Einstein (1879 - 1955)

There are in fact two things, science and opinion; the former begets knowledge, the latter ignorance. Hippocrates (460 BC - 377 BC)

The whole of science is nothing more than a refinement of everyday thinking. Albert Einstein (1879 - 1955), Physics and Reality [1936]

A conclusion is the place where you got tired of thinking. -Martin H. Fischer

In science it often happens that scientists say, 'You know that's a really good argument; my position is mistaken,' and then they would actually change their minds and you never hear that old view from them again. They really do it. It doesn't happen as often as it should, because scientists are human and change is sometimes painful. But it happens every day. I cannot recall the last time something like that happened in politics or religion. Carl Sagan, 1987 CSICOP Keynote Address

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