Innovation, and its big brother entrepreneurialism is usually an exercise in failure.  The vast majority of new ventures fail, and this has prompted the lean startup movement to provide a means by which startups and innovators can experiment in a frugal way so that those failures aren’t too costly.

A recent INSEAD paper examines the costs of entrepreneurship in more detail.  The paper focuses particularly on the level of uncertainty in the new venture, and the cost of experimenting with it.  These dimensions are plotted on a 2×2 matrix by which four zones of development are located.

As you can see from the image above, there are four distinct zones:

• The initiative regime is where both the costs of experimenting and the uncertainties of doing so are low.  For instance, the authors use an example of a cake shop introducing a new variety of cake to their store.
• The hypsometric regime sees an increase in uncertainty, but the costs remain low.  An example here might be the rise of social networking, where the demand for sites like Facebook were clear, but they needed to conduct a number of experiments to figure out how they could do it better.  This resulted in a number of early, experimental forays into the field before Facebook.com emerged.
• The cartographic regime sees uncertainties reach a high level, whilst costs can vary from low to medium.  Here, the authors suggest initial forays into areas such as 3D printing and lithium batteries are suitable examples, but even go as far as to suggest the exploration of space by Elon Musk and Jeff Bezos are relevant.
• The paradigmatic search regime represents the final section and should be reserved for so called paradigm changing ideas.  These are things for which there are no predecessors, so uncertainties are high, and costs likely to be high also.

The paper argues that an honest appreciation of your particular zone will enhance your likelihood of success with the project.  A little patience at the start of our entrepreneurial journey to investigate these things can pay dividends later on.

Now, suffice to say, this tool does only provide a snapshot of a project at a moment in time, and there are undoubtedly ways that you can both change the uncertainty and cost sides of the equation.

Nevertheless, the matrix does provide a nice way for entrepreneurs to examine their ventures, and particularly some of the vulnerabilities and biases that may hamper it so that they can then begin to address those issues.