Feb 1, 2021 | Customers, Marketing
I regularly see and hear people suggest that ‘thinking from first principles’ is a great thing, a foundation of success. Often when these people are flogging a product or service of some sort, their offering somehow becomes a function of a first principle.
‘This marketing automation stack is built from first principles‘ is a claim made by a vendor to an acquaintance who runs a modest but long-lived SME. The business is constrained by IT limitations of various types. A combination of lack of cash, underdeveloped understanding of the tools available and how they work both individually and together, and general wariness about florid claims about the returns that will arrive, magically, on installation,
What should we mean by ‘first principles’?
Aristotle defined it as ‘The first basis from which a thing is known’. Philosophers since have added their own wrinkles, but it comes down to the few single facts that provide the foundation of whatever idea you are considering. When you break a problem down to this level, it enables you to, sometimes, reassemble from a different set of possibilities, ideas from different fields, and end up with something new.
Thinking from first principles is challenging.
Our brains have evolved to reduce the cognitive load as a survival mechanism. Fight or flight must kick in quickly, automatically, just in case the rustle in the weeds is a sabre-toothed tiger. We therefore have mental models, or patterns we use unconsciously to classify things we see and set out to think about. Even when we set about thinking carefully, we are still subject to the mental models we have built up, the analogies and experiences we have that enable us to respond with the minimum of cognitive energy.
John Boyd used the evolution of the snowmobile as a demonstration of ‘First principles’. A snowmobile combines the body of a boat, the tracks of a tank, motor and controls of a motor bike, and skis, to deliver a machine that gives mobility on the snow. Similarly, Elon Musk used first principles to build his own rockets for SpaceX. He broke up a rocket into its component parts, then built his own rockets with parts sourced independently. Musk’s whole business empire is based on reimagining something and rebuilding from first principles. Arthur Conan Doyle via his character Sherlock Holmes, advocated the same approach. ‘When you have eliminated the impossible, whatever remains, however improbable, must be the truth‘. William of Ockham in the 14th century wrote similar words that have been passed down as the wisdom of Occam’s razor.
When you apply this thinking to marketing, and consideration of what it is that makes a successful business, you come down to one simple first principal.
Happy customers, who willingly and spontaneously refer you to others.
When you have happy customers, little else matters beyond a competitive capability to supply the product or service at a competitive price that returns an industry average gross margin.
What are the first principles of your business model?
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Jan 29, 2021 | Change, Customers
Technology is not disruptive: it is customers that are doing the disruption, technology is just the tool.
Just like matches disrupted the flint and steel manufacturing industry, Josiah Wedgewood disrupted the pottery industry, and the motor car disrupted the horse transport industry. These three, and many others you can think of, were driven by customers preferring the new offering, as it better met their needs. It is customers who are driving the disruption of shopping, communicating, travelling, and all the rest.
Once you accept technology is just the tool, you can start thinking about customers.
The best place to start is with the customer journey.
What are your customers trying to achieve when they buy a product? Do they want a drill bit, or do they want a hole? Do they want a luxury central city hotel, or do they want somewhere comfortable to sleep with a café nearby for their breakfast?
Understand the customer journey, what it is they are looking for, and the means by which they currently get there is key.
Once you have that figured out, you might be able to see places where the current value chain that serves customers can be re-engineered.
Technology is one way, but there are others.
A business I worked for years ago replaced a network of distributors with direct salespeople backed up by a very friendly telephone process. This was pre internet, so no tech beyond the phone and a hand recorded version of a CRM on customer cards was used. The results were spectacular.
Considering any sort of reengineering of the existing value chain means that there will be an element of risk, However, the risk can these days be mitigated by using the Lean Startup methodology, simply, placing a version of the chain in front of customers and seeing if, and how they use it. If the product is entirely new, it is not much use asking them, as they have little frame of reference. Henry Fords dictum of the faster horse still holds true, but seeing how customers use a new product in its minimum viable form is the best way to gather insight. We used to call it test marketing, so this idea is not really new, but the technology that enables it more easily than ever before is.
Alongside technology enabling customers to make different choices, there comes the second baseball bat to the head of incumbents: the business model.
Again, business models are simply the manner in which you deliver value to your customers. The manner in which this value delivery happens can change, enabled by technology, which changes the business model.
They go hand in hand.
Let’s take retail. I was in a large format general retail store a few weeks ago, and there were customers all over the place playing with their phones. Some were just amusing themselves, but many were price checking, seeking product specifications, availability, and looking at product comparison websites. I am sure some bought products, but equally sure that many walked out, either delaying the purchase or making it elsewhere.
Opportunity lost.
The huge untapped competitive advantage bricks and mortar retailers have, is that they have the potential for human interaction. We are a social species, so seek to commune with others. Yet, this retail store, typically, had cut down on staff on the floor, saving costs presumably in the face of online competition. A few added sales staff who were product experts, there not to sell product but to assist potential customers make the right choice, even if that choice was not available immediately, would have made a huge difference,
Back to the customer journey.
In the old days, customers travelled almost the whole journey in the one place, a retail store. Once they determined they needed a product, they went to a store they trusted, and were given information by the salespeople, made a choice and paid, had it delivered. All in the one place.
That has changed,
Now the power of the retailer that came from controlling the information has been lost, the information is available everywhere, so the customer can make their choices while nowhere near a retail outlet. However, often they will go and have a look at the physical product, in a store, just to make sure, or just to get a better sense of the physicality of the product. They then can check price and availability and make a decision on the supplier. Showrooming is the term often used, and it is a powerful new force, underutilised by retailers. The customer journey doesn’t finish with the product delivery. Now there are tech tools that will follow up, ensure service is delivered, ask for referrals and ratings, all designed to offer information to the next customer who may be showrooming.
Technology is the enabler of changed customer behaviour, not the driver. The driver is customers looking for increased value by seeking and accepting the removal of commercial friction.
Header cartoon courtesy of Hugh McLeod at gapingvoid.com
Dec 8, 2020 | Customers, Innovation
Everyone wants ‘innovation’.
Fair enough, unless we innovate, we stand still, and get killed in the rush.
However, in my experience, it is not the number or quality of ideas that is the limiting factor, it is the execution of those ideas that limits us.
We do not need more ideas, we need more of them to see the light of day. Even if they fail, you will learn, and hopefully do better next time.
It is also necessary to define what you mean by ‘innovation’.
To some, an innovation is a change of pack design, to others, it means the development of an entirely new application of some basic science. Most fall somewhere in the middle.
To my mind, anything that results in new value being created can be classed as an innovation.
Then you get those who refer to innovators as disrupters, further clouding the landscape.
For example, Uber is often cited as a disrupter, a source of disruptive innovation. Do they create new value? Yes, a bit, but there have been taxis around since the Romans were building on the seven hills, so that is not new. What is new is the app that puts the ordering, payment and progress of the Uber to your pick up point in one place. The disruptive element is that the previous cosy registration systems of most cities and their taxi services have been thrown away, so what has been disrupted is something that added no value. The exception to this is the London Black taxi service, where ‘The knowledge’ is a huge barrier to entry, while delivering sustained certainty of high quality service.
I also do not like the ‘fail fast fail often’ crowd, as that becomes an excuse for a lack of due diligence.
What I do like is a stream of disciplined experiments, aimed at testing the veracity of a hypothesis, which becomes a platform for improvement.
In some markets this experimentation is easy, in others, it is extremely hard.
Similarly, in some contexts it is easy, and in others very hard.
For example, the successful tech companies are running A/B experiments all the time on their websites, making evolutionary changes to their algorithms constantly.
By contrast, if you want to test market a new consumer retail FMCG product aimed at mass distribution, you have a real problem. The choice is South Australia, or Western Australia, which some might say are not representative anyway. Testing your product in farmers markets, food service, or your wife’s friends remains an option, but rarely a good model for supermarket distribution.
Red herrings abound!
Do not let them distract you from the hard work of creating new value for customers.
Nov 30, 2020 | Customers, Sales
We all use mental models, it is how we get through life without overloading our cognitive capacity all the time. Mental models are evolutions way of enabling us to respond automatically, without a lot of thought, over, and over again, as we come up against similar situations.
They are a bit like driving to a destination. The first time, you need a map, but as you do it a few times, the route becomes automatic, you are responding rather than thinking.
How good would it to be to be able to build a mental model of your customers minds as it relates to the product or service you provide, to enable them to just go there almost automatically?
First step. Distil down how they see your offering to its essential core. To do this you need to understand the how, what, where, when, and why of your ideal customers potential use of your product.
How it is used, what they do with it, where or what context it is used in, when it is used, and why they should source it from you.
With work, you can arrive at a sentence, sometimes two, that describes in a customers words these elements that add up to create the value they derive from your product.
Second step. Recognise this is an iterative process, one that can take some time, and benefits hugely from talking with customers. Therefore, once you have what you think are the distilled words, test them, understand the reasons you get the responses you got, and adjust your proposition if necessary. Use a process to enhance and eliminate items from the list with customers. For example:
IF .. Summary description that captures the mental model you are creating
BY… Removing, adding, changing, tests the variables that influence behaviour
WILL.. Improve performance. Summarises the expected impact
BECAUSE…. Understanding the reason this resonates more than others in your customers mind.
This is a simple process that uses the pretty standard continuous improvement cycle, Plan, Do, Check, Act, in a slightly different context.
The other thing to remember is that copy sells, you need clarity in your copy.
Third step. Live test with customers, this is in effect a minimum viable product of your value proposition.
Fourth step. Roll out the final proposition. Adjust as necessary based on feedback and factors in the market that influence behaviour over time
This is a challenging process, way too easy to take a short cut which will erode the impact of the end result. It is a process that evolves over time, so you need to be constantly looking critically at your offering through your customers eyes to understand the manner in which you can add value to their lives, in return for their money, and referrals.
Oct 9, 2020 | Customers, Management
I just had another of those moments that caused an unpleasant ‘tummy churn’.
A post from a so called ‘business coach’ that promised a ‘business turnaround in 90 days’.
Perhaps they know something I do not.
Having stumbled around in this arena for 35 years, I have not yet found anything like the template that can make any sort of promise like that.
Yes, there are sensible activities you can do that when done well will create the opportunities for significant change and improvement. Sometimes a complete revision of the business can be kicked off, but events rarely happen like that in the absence of an outside catalyst.
Every successful turnaround I have seen, or been involved with, has had four common characteristics:
- They have identified and taken immediate action that addresses the current activities that cost more than they generate in customer value. In other words, putting customer service and satisfaction at the centre of consideration.
- They have taken the immediate opportunities, often staring them in the face, to increase revenue
- They have removed the usually obvious wasted effort and activity which when eliminated delivers incremental cost free capacity.
- They have ensured that the actions taken are scalable.
In that 4 part formula is a host of improvement opportunity, and difficulty.
And, it is never completed in 90 days. It is a journey, with a first 90 days, followed by another, and another.
To promise a ‘90 day turn-around’ is fantasy. It simply cannot be delivered; best you can do is to take a big first step along the road. However, taking that first step is often the hardest one to take.
Beware of the gold tooth brigade!
Sep 10, 2020 | Customers, Small business
Regularly, I find myself in a discussion with those who sell their time and expertise rather than a physical product, talking about price.
How do you set it?
After 25 years of doing it for myself, you might think I have some tips?
Well, I have plenty of experience and some scars, but it remains a really tough question. It is especially tough when there is not much work around.
There are only two driving considerations:
- How long the project will take me.
- What is the value of the project to you.
These two factors combined with my standard rate will define a quote.
Generally my quotes are fixed, if I make an error in scoping in my favour, OK, if the error is in your favour, good luck to you.
I will not haggle, either the knowledge and experience I have is of value to you, or it is not.
However, there are a few mitigating factors that can influence the price.
- Project scope. I am an expert in specific areas, not all. Often there is the opportunity for you to use others who may generate a better outcome more quickly. In that case, I will recommend a couple of people to you, people that I would trust were I in your shoes. In that case I will not clip the ticket in any way, unless you need me to project manage the ‘subbie’. This may reduce my price, as it no longer consumes my time.
- Timing. As I work on projects, there are times when I am up to the gills, and others when there is plenty left over. If your project is flexible in its timing, and I can get to it in those slower times, perhaps we can agree on some price flexibility as well. However, that is unusual, as what seems to be a ‘dry patch’ has the habit of suddenly turning into a downpour.
- For some reason, the project we are discussing is more than just interesting to me, as those are the only ones I take, but compelling, addictive in its potential to make a difference. Again, rare.
I am a stand alone freelancer, an expert in a narrow but very deep field, trading my time, experience and knowledge for money. I know a lot about a wide range of other things, but do not claim expertise of any great depth. Generally, I do not do projects that require those skills, except as a catalyst and enabler of the areas of deep expertise.
The focus should be on the value that will be delivered, not the price.
Maybe that helps you to think about your own pricing strategy.
