What can we learn about business from Sophie?

Posted on by Rags Srinivasan

Sophie is an international star. Sophie is no ordinary person, it is a rubber teething toy for children. It brings in $29 million a year in sales. Only six years ago it was doing less than $8 million a year.  No teething trouble here. For all these big numbers, Sophie is not backed up by big company with large marketing budget.

While Mattel and other toy makers are plowing billions into new product development and marketing, a small company in France captured the hearts and minds of millions of parents and gums of their children. The revenue numbers and growth trajectory of Sophie are no child’s play.

Their journey to this state, their product decisions and marketing methods teach us valuable lessons for running a business, especially startups.

What can we learn about business from Sophie?

  1. Sophie is simple: Your product cannot be any more complex than this remarkable children’s toy. Less is more. Cut everything possible and deliver a minimum product the customer is willing to pay for. They will bite. Set the price to $25 too.
  2. User Experience must tap into all 5 senses:
    “The CEO hired a psychotherapist, who concluded the rubber chew toy tapped into all five senses: sight with its strongly contrasting colors; hearing with its easy squeak; taste because it is easy to chomp on; and the touch and smell of the natural rubber. The toy’s petite size made it easy for babies to grip.”
    Your product’s User Experience cannot be just about color of the buttons. Remember, with iPad and other devices your customers touch your product. Sooner or later, with next new iPad, they will be tasting it too.
  3. Turn customers into marketers:
    “Parents create pressure on other parents”
    Enchant your customers with a remarkable product. Delighted customers will create significant social pressure  for their friends and peers and create an environment where use of any other product will be a shame. rabid fans will be recommending your  products on a scale of 0 to 10.
  4. Stick to what works:
    “The manufacturing of Sophie has changed little over the years”
    Do not chase every new technology that comes around in the name of efficiency and cost reduction. Your product’s intrinsic characteristics are defined by how it is made. When you change how it is made, you are changing the product and the User Experience.
  5. Pivot: Sophie got its start  as rubber ballon used to spy on German lines during WW-I. Then as their business model changed and the company got out of the building and talked to their customers, it became the present day adorable product. It is clear that they applied all the lean startup principles, failed fast and pivoted by hypothesis testing.

What is your excuse for not growing your sales four-fold like Sophie did?

Leave it to Fast Company experts to find number one predictor of success

Posted on by Rags Srinivasan

Fast Company has an FC Expert Blog. I do not know who these experts or what their qualifications are. They really are experts in declaring broad predictions, especially from reading few lines of some old academic paper. One of the experts write in their blog (the Fast Company says it is not responsible for their wisdom),

Grit: The Top Predictor of Success

Why do some companies consistently outperform their competition? Why do some people become champions while others fall short? What skills do you need to improve to reach your highest potential?

How ironic that a back-to-basics approach carries the day: It turns out that good old-fashioned grit is the number one indicator of high performance.

The experts, it turns out, did not read the details of the paper they quote. Nor do they seem to understand how predictability is measured in statistical terms and what it means. Needless to say they neglect to speak about omitted variable bias and other experimental errors.

What the paper says is grit, a trait defined by the authors, has an incremental R2 of 4%. That is when you add measure of Grit to whatever linear regression model they were building, the predictability of the model increased by 4%.

4%, just 4% increase after all other variables.

To go from here to “The Top Predictor of Success” is ludicrous.

Not just that, even the authors of the paper list severe limitations. The very definition of Grit is amorphous, it is highly correlated with the Big Five traits (classified in Psychology literature) and in their studies the authors measured it based on self-reporting by test participants.

From a study with such severe limitations (I am surprised it was even published), we get sage advice from Fast Company experts,

It doesn’t matter if you’re rich or poor, come from a good neighborhood, have a fancy-pants degree, or are good looking. We all have nearly limitless potential, and the opportunity to seize it is waiting for you.

Let old-school grit and determination serve as the catalyst to achieving your own personal greatness.  You don’t need another tech gadget; just the same killer app that has been foundation of success since the beginning of civilization.

The expert has filtered out gaping holes in the original study, ignored effect of lurking variables,  generalized a self-reported measurement of students to the entire population and urges us to show grit.

I grit my teeth!

Recipes for Growing a Business

Posted on by Rags Srinivasan


How can a business grow its revenue?

In one form or other this question is posed and answered many times –  be it in management consulting interviews,  in popular business books by self-proclaimed gurus, or in real-life in businesses small and large.

An MBA student looking for summer internship with any of the big names, McKinsey, Bain, BCG etc. will use one of the common recipes (“framework”) to explore ways to help a hypothetical business struggling to increase it revenues. One tried and tested framework is the Ansoff Matrix – a 2X2 matrix representation of the business world.

The options are sell more of the same or new products to existing customers, acquire new customers, sell something completely new to you to new customers. All nicely fit in 2X2.

The popular business books rely on popular successful examples that are already well published in the news media. They look at how GE, Microsoft, Apple, Amazon, Zappos, etc grew their revenue from $0 to billions. Then they distill a causation out of it. The solutions they recommend are simple and far reaching with universal applicability.

It could be searching for excellence, seeking customer loyalty, customer engagement, co-creation, Word of Mouth Marketing, employee engagement, delighting customers, delivering them happiness, telling stories to customers, etc. When you do all these, revenue will grow, trust them.

Real businesses do not answer them any different. After all they have the same MBAs working for them either directly or through a consulting firm. Businesses that cannot afford to hire MBAs (or despise them like startups do) rely on the wisdom of popular Gurus and their pet theories. They succumb to the lure of snake-oil salesman selling social media marketing, social commerce etc. Since there are thousands of businesses, each trying a different growth recipe, just by sheer randomness some of these businesses will succeed.

The biggest of these successes get written about and causation attributed to the recipe they tried. We get Harvard Business School case study, Management consulting case question, yet another book by Seth Godin or someone else — and the cycle continues.

In the interest of intellectual honesty, it would help if all of us stood up and accepted that we really do not know for sure. There is considerable uncertainty and other variables in what we prescribe, we ignored macro-economic factors in studying growth of businesses and frankly we (especially Gurus) are making things up as we go along.

Unfortunately uncertainty, self-doubt and measured approach do not sell. MBAs are repeatedly taught at school and told by their consulting mentors to, “take a stand, don’t waffle”. Gunslinging entrepreneurs believe ounce of any action is better than taking the time to think through the scenarios. Gurus, lacking real skills and critical thinking, cannot afford to state anything less than certain. Try selling a book titled, “A few complex procedures that are 60% likely to grow your business by 15% if the macroeconomic conditions do not change and may still cost you lot more to achieve that”

But businesses (or the people who run them) want 80% growth from just 5% change in a simple metric. We want easy solutions, like telling stories to our customers or making them Like our facebook page.  No one wants uncertainty or understand uncertainty.

So that is what we will get – Certain, simple and elegant (can you spell say 2X2) but mostly wrong solutions to a very complex problem in an increasingly complex world.