Not everything that counts can be counted … but did you try?

Photo Courtesy: Quote Investigator

Most people attribute this quote to Einstein,

Not everything that counts can be counted, and not everything that can be counted counts

It is repeated with deference by most. There are however alternative theories about whether or  not this quote should be attributed to Einstein or not. That is not the argument here.

The argument is how statements like

“not everything can be quantified”
“not everything can be measured”
“you have to look at this holistically”
“we have been in this business long, we know”

get  thrown around to support decisions made only with lots of hand waving and posturing. Anyone pushing back to ask for data is told about this famous quote by Einstein – “surely you are not smarter than Einstein”, is the implied message I guess.

Let us treat that famous quote as given – there are indeed factors that are relevant to a decision that cannot be quantified. But ..

  1. How many business decisions depend on such non-countable factors? Consider the many product, marketing, strategy, pricing, customer acquisition etc.  decisions you need to make in your job. Do all of them depend on factors that cannot be counted?
  2.  Considering many factors that go into making a decision what is the weight of non-countable factors in any decision? You don’t say 100% of any decision depends on non-countable factors.
  3. How many times have you tried to push through decisions based entirely on non-countable factors (stories?) with not an iota of data?
  4. Finally, have you stopped to check whether what you label as non-countable is indeed so and is not so because of your lack of trying? Are you casting those fators as non-countable either because you are not aware of the methods to count them or because you are taking shortcuts? If you made an attempt you will find most things are countable (How to Measure Anything), be it segment size, willingness to pay or brand influence.

I cannot speak for what Einstein (or someone else) meant with that quote about non-countable things that count. But I am going to interpret that for our present day decision making.

For any decision there are factors that are inputs for it. Some of those factors can be measured with certainty, some with quantifiable uncertainty* and others with unquantifiable uncertainty*. You must cover first, have a model for second and put in place methods to learn more to reduce the third.

Without this understanding if you try to invoke Einstein you are only cheating yourself (and impact your business in that process).

What is your decision making process?

 


Quantifiable Uncertainty means you can express the uncertainty within some known boundaries. Like saying, “I don’t know what is the click through rate is but I am 90% confident it is between  1% and 8%”

Unquantifable Uncertainty means those factors which are unknown and cannot even be expressed in terms of odds (or probabilities).

Customer Job To Be Done Growth Matrix

There is a very simple way to think about how to grow business. It requires us to think in terms of markets and products.

Markets – Current market segment you play in and new markets you do not serve yet
Products – Your existing products and new products you have not built yet (and are outside of your current product line)

That gives us four ways to grow any business

  1. Sell more of what you make now in markets you already play
  2. Sell something new – not just product extension, something outside your product line – in markets you already play
  3. Enter new markets with your current products
  4. Enter new markets with something new – not just product extension, something outside your product line

It is more popularly known as Ansoff Growth Matrix.

Ansoff Growth MatrixThe matrix tells us it is easier to do 1 and gets progressively difficult to do steps 2, 3 and 4.

Loyalty proponents believe in staying with 1 and may be add a bit of 2. Product proponents get bored with 1 and want to build new and great (facebook phone). Those who believe buying growth spend more time and resources on 2 and 3 by acquiring businesses that sell in new markets or acquiring companies outside their core (eBay/Microsoft acquiring Skype)

There is a problem with this matrix. It is product driven as opposed to being customer needs (jobs to be done)  driven. When you look through the lens of your current products and new products you end up with approaches like unnecessary M&A and Facebook phone that are not aligned with how customer needs and how those needs are changing.

Let us redraw the matrix but now with Customers (customer segments) and Jobs as the two axes. If you are not aware of the “jobs to be done metaphor“, please see here before reading further.

Briefly, the metaphor asks us to think about customer needs as jobs to be done. Customers hire products among many alternatives to fulfill those jobs.

Customer Jobs To Be Done Growth MatrixNow it is not anymore the question of how to sell more of same products or build new products but a question of what are the current jobs we are addressing and what new customers and new jobs provide us opportunities for growth with our core competence.

Here is the recommended strategy for each quadrant

  1. Existing Customers and Jobs: Continue product evolution that cements your product as the best candidate for the job.  
  2. Existing Customers and New Jobs: The new jobs could arise because of trends impacting customers or simply adjacent jobs you never positioned your product for. Remember positioning is telling customers which job your product is applying for. Instead of going after jobs that are outside your core competence you are better off investing your limited resources on evolving customer jobs and related jobs that can be served by product pivots vs. completely new products (facebook phone)
  3. New Customers and Jobs you currently address with Existing Customers: Here the invariant is the jobs – two different segments have the same job to be done but you chose one segment over other and now considering serving the second segment. Understand the reasons why you did not choose that segment in the first place – is it the challenges in reaching them?, is it their willingness to pay? etc.
    Understand that different customer segments have different alternatives for the same job and hence different reference price. Choosing to serve lower willingness to pay segment should not come at the expense of price erosion in higher willingness to pay segment.
    My recommendations are to focus on packaging and pricing innovations that help protect current profits and add net new profits from new segments. It is not revenue growth at the expense of overall profit drop.
  4. New Customers and New Jobs: You still have the option of better product positioning to help capture new markets. But most times you are looking at completely new jobs that require product innovations and business model innovations.
    But the advantage is your focus on customer jobs and not on products – your innovations are aligned with customer jobs. While this step once again proves to be most resource intensive with most uncertainty, taking the jobs approach helps you ease into this without taking big risks, pie in the sky product innovation or expensive acquisitions.

There you have it, your recipe for growth derived from customer job to be done.

Will Galaxy 4 fail because they based it on customer research?

I don’t know what is going to happen with Samsung Galaxy 4 sales and I am not going to make a prediction. One thing that is clear from the media reports is that initial excitement quickly gave way to a feeling of let down. Unlike Apple that says they don’t do customer research and shares no details about their understanding of what the customer needs, Samsung gladly shared their design process for S4

the phone’s software development was driven by four key requirements that Samsung research found consumers most desired:

  1. The phone had to be fun,
  2. encourage closer relationships,
  3. offer convenience and
  4. help improve health and wellness.

This is some very specific details based on whatever customer research they conducted. And they fed that input into their design process to deliver what they believe to be the right phone for these jobs customers are hiring a phone for.

Compare this against the famous Steve Jobs statement about not asking customers what they want and designing the product in secrecy.

The question is what will the bloggers and social media say if S4 turns out to be a bust? Will they once again extol Jobs school of product innovation and blame S4’s failure on taking the path of methodical customer research and developing products based on customer needs?

Again it is hard for me to say the outcome of S4 but if they were to fail then it is not because they designed it based on what customers desired but because of their interpretation of how to fulfill their desire.

For fun needs Samsung added a whole bunch of camera features like Sound and Shot for amateur news reporting, Beauty Face etc.

For relationships needs they added text translation to chats,emails and texts.

For convenience they delivered a set of gesture features to control phone without touching.

Finally for health they added features mirroring those of FitBit and other devices popular among quantified self movement.

If you are going to question Samsung’s approach to product development it is the way they chose to fulfill customer needs with these features that you should question. We hope they did not ask customers directly what will be more fun or convenient because that would be the equivalent of asking customers if faster horses will be more fun.

It is quite possible they did no follow-on research to determine if Samsung’s interpretation of desires matches that of customers’. It is also possible they first decided on these features and later fitted them on to customer needs.

Any of these reasons for sure will result in product failure that is not due to asking customers what is important but how it was asked and how it was interpreted.

So if S4 indeed fails in the market place do not rush to accept what you believe to be Apple’s method of product development and give up on customer research. Instead recognize that customer research is lot more complicated than finding what they desire or asking what will fulfill those desires. It is a multi-step approach that starts with customer desires and testing repeatedly with to deliver the right offering that serves customer needs better than any other alternative available to them.

How do you do product development.

Sure the market seems big but what can you address?

Here is a tried and tested triangulation framework to size your opportunity

Opportunity Size TriangulationTop-down: You can get an estimate of this from several secondary market research reports and analyst reports. Remember reading certain analyst firms predicting cloud spending reaching $xyz billions by 2016? That is  top down estimate. Even if your product is entirely new you can get an estimate of the market spend from related categories (like hand dryer market sizing)

Bottom-up: If top-down is about what others are making in revenues you need to find what exactly are the customers spending. Say if you see analyst report that fitness apparel revenues will reach $70 billion by 2016 you need check who is spending, how much and from what budget to generate that kind of revenue projection. Many sources are available including census.gov. You need to reconcile what you see as revenue with what you see from customer spend checking if the revenue projections are matched with customer spend.

Your Reach: Sure you can stop with the two but can you reach the identified market with your product, channels and limited resources? This is the hard part and requires you to make strategic decisions to define the segment you can successfully serve better than any other competition. For instance, there are indeed 30 million public toilets in USA but can you serve all of them with your $1500 designer hand dryer?

If you need help sizing your startup’s opportunity, let us talk (I have square device don’t worry).

More on Retention Vs. Acquisition – Sycamore Story

Right after my article on customer retention vs. acquisition (which was triggered by several live tweets I saw from certain loyalty conference) I saw the story of Sycamore networks,

Sycamore Networks: From $45 Billion to Zilch

The fifteen year old company known for its high flying stock from the 2000 bubble days ended the day with the decision to close down and liquidate remaining assets.

What went wrong? According to the WSJ article

analysts say the company’s demise also reflects strategic missteps—sticking with its initial product line as the market declined

It had one product that was relevant only to its original customers and failed to see how the market was evolving or where the new needs are arising.

They never kept pace with market development and never got customers.

In other words Sycamore failed to acquire new markets and in that process lost existing customers as well.

Engineers had figured out how to send much higher quantities of information by routing pulses of light down fiber-optic cables rather than relying on electrical signals sent across copper wires. Sycamore’s niche was to help network operators manage those pulses of light more efficiently.

Sycamore was loyal to its product and happy with its original customers. Even there it seemed to have failed to ask, “what job customers were hiring its product for” (i.e., the real need).

This is one just story and likely suffers from hindsight bias and selective recall. So do all the positive stories you hear about customer retention and loyalty. But one thing you need to care and apply diligently is the need for actionable business strategy rooted in data.

If your strategy is wrong it does not matter what rating your customers say on a 0 to 10 scale.

 

 

 

 

 

 

 

About your unsolicited business advice

You likely have seen this many times, perhaps in my own blog. Some expert walks by a store, salon or restaurant and sees some great big opportunities the business is missing out on. Their readers are treated to an essay of how the business got it all wrong or what it could be doing now.

Take for instance such an article I saw recently. (You will have to google this on your own to find the article.)

Someone buys chips in a supermarket, opens it to take a few before the checkout. While the store clerk folds the open bag at checkout an idea strikes. Wow, the store is missing out on new revenue and marketing opportunities – surely this one clerk thinks many people open their bag of chips, why not sell bag clips at the checkout counter? It is a revenue opportunity and if not the store can at least brand it and give it away for free for marketing opportunity. The expert is surprised by such incompetence on the part of the store – letting money slip through their fingers.

Let me make sure that this not a bad idea. It is indeed good idea but can a business act on every idea thrown its way or is it losing out because it isn’t?

Let us apply similar reasoning on the guru himself and say- Wow! This is a great monetization idea, why isn’t he hounding the store manager or the corporate buyers, business development folks with either consulting services or a supply of bag clips instead of writing a blog post about it.

Wieser coined the terms marginal utility and o...
Wieser coined the terms marginal utility and opportunity cost.

Underneath it all is the opportunity cost which we all forget when pitching our own ideas and ignoring what other opportunities available to the business (or the guru). Combine this with lack of knowledge about how the business measures its success and operates, presumption that the business did not already consider this, the tendency to generalize from single observation with a dash of hubris (some gurus, not this one).

In this specific case let us be clear that stores have done years of work on shopper behavior to maximize sales per cubic inch (square feet is so 2000). Stores operate on thinnest possible operating margin and are always squeezing out extra sales to make those tiny margin percentages make sense. Anything a store does needs to make sense on scale. Every cubic inch of shelf space has an opportunity cost – could they be stocking something else that is more profitable than say selling bag clips that a few may buy? Or could they be doing something completely different with the investment?

Exactly how big is the demand we are talking? A store clerk’s selective recall is definitely not what you would want to base a new product introduction on (unless every store clerk is recording every such instance over a period of time). This is extrapolating from one bad data point.

Even if they chose to do what will be the impact on their supply chain or sourcing?

I am just using this advice as example – you read even worse cases in tech blogs. Tech bloggers with no business experience telling billion dollar businesses what they should be doing with their products, how to set prices or who they should acquire next.

But can you blame them if their readers are eating it up and retweeting endlessly?

It is you, dear informed reader, who should skip past such pronouncements or at the very least ask some tough questions to the esteemed gurus and the well revered tech bloggers.