Energy Drinks of Business Advice

 

Many of you swear by your energy drinks, whatever your favorite brand is and whether it is for knocking out some Rails code or the pitch deck. Is there any truth in their advertising? The New York attorney general does not think so as he issued subpoenas to big and small brands about their messaging.

Let me look at some of the claims made by these elixir makers that are being called into question:

  1. Create believability with lots of colorful details – they say they boost energy with a mix of additives including B-vitamins, taurine and ginseng.
  2.  Attribute causation to these ingredients, especially the exotic sounding ones – AMP’s website, for example, says the B-vitamins and caffeine in its Boost drinks offers “the kick you need to tackle the early morning meeting.”
  3. Make sweeping general promises – “hours of energy” with “no crash later.”
  4. Understate or ignore the effect of  another “boring” ingredient – “Understating the role of caffeine, a common stimulant that industry critics believe to be the main active ingredient”
  5. Ignore lurking variables – like caffeine indirectly contained in other ingredients
  6. Position against existing alternatives even though the product delivers no incremental value –  “You’re better off drinking a cup of coffee,”

Many also swear by their favorite business advice – be it for product development, customer  loyalty or customer experience. These popular quick fix business advices are marketed not that differently than the energy drinks:

  1. Create believability with lots of colorful details – “Take the percentage of those who picked 0.05 to 6.023 and subtract that from those who picked 8.91 to 10.02”
  2. Attribute causation to these ingredients – “Evernote is successful because of their freemium model”
  3. Make sweeping general promises –“1% increase in profit will result in 10% increase in profits”
  4.  Understate or ignore the effect of  another “boring” ingredient – “Let us ignore the fact Apple went about their business more strategically, and focus on the design elements of their products”
  5. Ignore lurking variables –“Businesses that had women members in their board saw their stock outperform by 26%”
  6. Position against existing alternatives –“you don’t want to look at ROI, you want this amazing engagement metric

Too bad New York attorney general won’t go after all these management witch doctors.

 

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

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


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.

Ideas that are convenient, popular, and acceptable have become sacrosanct

There is incessant and increasing attack on our intellect. We are fed simple ideas based on convenient samples and bombarded with regurgitation of weak ideas extended by other popular gurus.

As Galbraith wrote first in introducing The Conventional Wisdom by John Kenneth Galbraith, ideas that are convenient, popular and acceptable have become unquestioned truths. Times may change, new fads replace old fads – but our acceptance of what is convenient, familiar and popular as sacrosanct remains the same.

We now have instant communication, huge follower-ship, everywhere connectivity. Yet these remain the channels for spreading the same type of unquestioned ideas that suffer from cognitive biases and analytical errors.

Here are some nuggets from Galbraith’s essay, see how relevant these remain to what we see in social media:

  1. On attacking ideas: Anyone who attacks such [weak, incorrect] ideas must seem to be trifle self-confident and even aggressive. The man who makes his entry by leaning against an infirm door gets an unjustified reputation for violence. Something is to be attributed to be poor state of the door.
  2. Acceptable==Truth: Audiences of all kinds most applaud what is merely acceptable. In Social Comment, the test of audience approval, far more than the test of truth, comes to influence comment. (The more an idea gets blogged about, Retweeted …)
  3. Tribe Think:  Ideas come to be organized around what the community as a whole or particular audiences find acceptable. (Voting in Quora)
  4. Self-Esteem: We also find highly acceptable what contributes most to self esteem. The individual knows he is not alone in his thoughts – that he has not been left behind and alone.
  5. Power of Titles and Positions: Before assuming office, he ordinarily commands no attention. But on taking up his position, he is immediately assumed to be gifted with deep insights. Think of how we treat the ideas of those have the title “author, speaker” in their Bio. What would otherwise have been labeled as commonplace advice suddenly gets anointed as “inspiring advice” or “deep insight”.

It is time to call out that the Gurus have no robes!

Other articles:

  1. Evidence Based Management
  2. Informed Decision Making
  3. Fallacies of Cure-all Prescriptions

The Many Reasons Why Borders Bookstores Failed – Courtesy of Management Gurus

None of the gurus named or implied actually said anything about Borders, just taking their stated recommendations and applying it to Borders. You can see the futility of adopting that single magic, one-size-fits-all and Guru’s pedigree based recipes for running a business.

  1. Marketing is about telling stories. Borders failed to tell a compelling story that customers want to believe.
  2. Borders did not have a Level 5 leader. That would have moved them from Good to Great.
  3. They should have focused on their existing customers and retained them. Because increasing loyalty by 5% will increase profits by 80%. Not only that, the loyal customers will continue to pay higher prices.
  4. Borders stores were not managed and run by designers, they lacked Design Thinking.
  5. They did not follow the Toyota Way of lean manufacturing and lean inventories.
  6. Borders should have been a Long Tail retailer. (while this may sound as plausible, I would point you to the fact that Amazon makes bulk of its revenue not from the so called Long Tail products).
  7. Borders failed to Enchant their customers, the should have influenced people to keep coming back and pay the full price even though Amazon was selling it at 40% off.
  8. Borders failed in the area of customer service. They should have under-promised and over-delivered.
  9. Borders should have increased their prices by 1% because that would have resulted in 12-15% profit they could have used to grow the business.
  10. Borders lacked good copy-writing in their Ads. If the copy is fun and engages the customer they would come and pay full price for the books.
  11. Borders failed to recognize that marketing is about customer conversations. Your customers are having conversations about you whether you are part of it or not. Borders was left out of the conversation.
  12. Borders should have adopted co-creation, working with the customers to design the books they want to read.
  13. They should not have been running the business based on Airport business books instead they should have run this like a Silicon Valley startup. They should have gotten out of the building and talked to customers and pivoted.
  14. They should not have been running the traditional media Ads. They should have been blogging and done inbound marketing.
  15. Their website should have been ridiculously easy to use. It is all about the user experience.
  16. Borders employees were not in the “flow“, when employees are really engaged in what they are doing the business results take care of themselves.
  17. Discovering books should be fun, a game. Customers must be surprised, not knowing what is going to come next week. They failed to recognize this.
  18. A street vendor selling vegetables in India is still in business. Borders is not. They should have learned from that vendor.
  19. Borders stores and their eBook were not remarkable. When you are remarkable, people will remark on it.
  20. Borders should have given free lessons on each subject. Like Lulu Lemon did they should have asked local speakers and tutors to come teach free classes on various subjects at their stores.
  21. The should have adopted , The Sony Way, The Motorola Way, The GE Way, The Apple Way, …
  22. They should have followed in the footsteps Justin Bieber, Lady Gaga, Bruce Lee, Michael Jordan, …

Do you have one?