Tom was caught in a delicate situation
Clyde, the CFO, was pressing Tom to invest in a new product idea. Tom’s quandary was that the idea had been pitched to Clyde by Frank, his good friend and fellow yachtsman.
Clyde said, “Frank is a millionaire. He became one by developing, twice in a row, specialty devices used in gas pumps. He believes his new idea has the same potential for adoption and growth.”
Tom, as Business Development Dir, saw no match of the idea with the firm’s technical and market skills. Before making a development investment, Tom’s rule is: Trust, but verify. He needed to know what knowledgable individuals thought about the idea.
With Clyde’s approval, Tom engaged me for a project that used the Rule of 30 method  for end-user research. Clyde was familiar with my B2B customer research work in other projects for Tom.
Customer Research Report: Executive Summary
At a gas station, a Leaking Underground Storage Tank (LUST) can seep petroleum into the soil and contaminate groundwater. Groundwater is the source of drinking water for almost half of all Americans.
In 1988, Congress gave the EPA the authority to regulate USTs. EPA’s regulations demand owners and operators protect USTs from spills, overfills, and corrosion. Fines for not following the law are severe.
There are more than 540,000 active USTs. Frank’s idea was to develop a fiber optic detector to track petroleum leaks in the soil outside a gas station’s perimeter.
No interest in Frank’s idea
Conversations with 30 knowledgable individuals elicited consensus that Frank’s idea missed the mark.
“Your inventor doesn’t understand EPA’s approach on eliminating leaks. We do not encourage the use of out-of-tank detectors. Too many false alarms from decaying vegetable matter and old spills.”
Dir., Technology, EPA-Technology Innovation Office
“In the late 1980s, fiber optics sensors for monitoring gasoline leaks was a hot-bed of research. Now research is dormant due to severe problems with background noise.”
Engr.-Environmental Dept., ExxonMobil
At the end of a meeting on the results of the project, the CFO and Tom decided not to invest in development of Frank’s idea.
Wait! The project wasn’t over yet
After the meeting, the CFO said, “Frank is a good friend. I’d like you to show him the same analysis you gave us.”
I journeyed to Frank’s office and presented the analysis. After I finished, Frank said: “This analysis is great. It’s what I need to interest investors.”
Unfortunately, two cognitive biases influenced Frank’s belief in his idea
- The hot-hand fallacy is the belief that a person who has experienced success with a random event has a greater chance of further success in additional attempts.
- The sunk cost fallacy is the phenomenon where people justify increased investment in a decision, based on cumulative prior investment despite new evidence suggesting that the decision was probably wrong.
(Wikipedia List of Cognitive Biases: accessed 12/15/19)
My work followed the Rule of 30 method.
- Blind study
- Gathered intelligence through 30 elicitation conversations with experts on LUSTs. They were from a random sample of 220 knowledgable individuals.
- Used the Central Limit Theorem to analyze rate of adoption for a device developed from Frank’s idea.