Unknown Unknowns: Three Approaches to Business Growth

Former US Defence Secretary Donald Rumsfeld passed away earlier this year, aged 88. He was famous – or infamous – for many things, including his role in America’s invasions of Afghanistan and Iraq. Still, many people perhaps best remember him for his extraordinary “There are known knowns…” ramble. This article discusses Rumsfeld’s ramble and how it informs approaches to business growth.

Rumsfeld’s ill-fated outburst was delivered during a 2002 news briefing about Saddam Hussein’s alleged possession of weapons of mass destruction. To the bemusement of pretty much everyone who witnessed the spectacle, Rumsfeld suddenly began explaining – to use the word loosely – “known knowns”, “known unknowns”, and “unknown unknowns”.

His remarks earned immediate and widespread mockery. The consensus was that they amounted to little more than garbled nonsense. Yet the reality – however hard it might have been to believe at the time – is that, at least deep down, he knew what he was talking about.

The framework he referred to is, in fact, an established cornerstone of risk analysis. And the good news for our purposes is that the “unknown unknowns” dimension is extremely relevant to the challenge of growing a business. In this context, an unknown unknown describes an instance when we literally don’t know what we don’t know.

We can think of it as representing a complete blank or an area of enormous uncertainty. This might relate to decisions, their impacts and the all-round likelihood of success. Where should we spend money? Which products should we develop? Which markets should we target?

The critical question when it comes to unknown unknowns such as these is basically this. What approaches to business growth can an organisation take while exposing itself to the lowest risk of failure? Below are three approaches to growth, each entailing a different level of risk.

1. Gut feeling and good fortune

Most of us have heard a success story attributed to an individual’s vision or instinct. Fair enough, but the problem is that there’s often a sizeable element of luck involved as well.

For example, simply being in the right place at the right time can make a world of difference. It can undoubtedly have a tremendous impact on why a particular decision is made at a particular time.

The proof lies in the countless entrepreneurs who relied on gut feeling but didn’t get the necessary slice of good fortune. The result: they failed miserably. That’s why this approach involves the greatest risk, doesn’t withstand scrutiny and is ultimately less a matter of mitigating unknown unknowns and more a case of pure chance.

2. Market research analysis

This more sophisticated and robust approach is based on exploring the market and competitors. The objective is to lower the risk of failure by using analytical techniques and theoretical frameworks.

These skills draw on many decades of accepted business wisdom. They are often taught by business schools and also constitute a money-spinning arena for research companies and consultants.

Yet analysis takes you only so far. As various high-profile commercial cock-ups have demonstrated – think New Coke in the 1980s – risk can be heightened rather than reduced if the fundamental premises are mistaken. Almost all corporate product launches are rooted in market research, and 80% crash and burn somehow.

3. Market experiments

This is the most recent technique to emerge. It’s both different and powerful. It works on the principle that the market can fill the complete blanks that unknown unknowns represent.

How does this happen? Lean Startup and Design Thinking are two well-known examples of the process. The idea is that a business sets up “touch and learn” cycles or carries out experiments in the market, whose mechanisms then highlight the best choices.

Especially in light of the spread of digitisation, it has never been cheaper or easier to run a concept past would-be customers. Platforms such as Kickstarter show how market acceptance can be gauged via virtual launches of products that don’t yet exist.

Which approach best suits you?

Big companies tend to have deep pockets. This means they can embark on massive campaigns and sustained spending. They can develop an idea, execute it and keep executing it until they create a new market.

The first and second approaches lend themselves to this cosy ideal. But entrepreneurs with limited funds don’t enjoy the same luxury: most have just one shot at getting it right.

Those who use the first method and succeed are fortunate souls. Bless them. Those who use the second method have probably benefited from a business education but need to be aware of the potential pitfalls of their chosen path.

Meanwhile, those who favour the third approach are likely to be serial entrepreneurs with a confirmed capacity for diminishing the risk of failure through the market dynamic. In addition, as the COVID-19 crisis has illustrated, many will have learnt how to pivot in the face of unexpected developments.

And this brings us to the crucial lesson: recognising the existence of unknown unknowns from the get-go builds pivoting into a business’s contingency. Moreover, it does so in a way that banking on gut instinct, good fortune, and even market research analysis never could.

Rumsfeld was struggling to make a similar point during that bizarre briefing all those years ago. He understood that the US faced unknown unknowns and would need to respond to them as they became more apparent. Here’s hoping that your efforts to prove more successful when considering approaches to business growth than his efforts to make himself clear.

David Falzani MBE is a Professor at Nottingham University Business School’s Haydn Green Institute for Innovation and Entrepreneurship (HGIIE) and president of the Sainsbury Management Fellowship. Paul Kirkham is a former researcher in the field of entrepreneurial creativity at HGIIE.