Customer value conforms to the laws of Thermodynamics

Customer value conforms to the laws of Thermodynamics

Sep 24, 2018 | Change, Marketing

Theoretical Physicists disagree on a lot, but one thing they do agree on is that matter is constant, it does not disappear, it can undergo changes of form, and become something different, but is not destroyed.

Value is like matter, it does not disappear, it just undergoes change, and moves somewhere else.

Customers used to look for value in places where they no longer get the best return, so they look elsewhere to find it.

Technology may destroy some jobs, as it has in retail, and factories, but the jobs are not destroyed, they change form and move elsewhere.

For the last 20 years I have heard the ‘technology destroys jobs’ story, usually told by those with a direct interest in the industries being disrupted, in parallel to the number of jobs being created, usually touted by politicians with an agenda.

This is  not to denigrate the pain of those whose jobs are replaced by an automated process, but it does demonstrate the movement from one form to another.

Apple may have been a destroyer of jobs in some sectors, but they created many more in different locations, and in newly imagined retail as they re-created lost retail jobs in their Apple stores, now the most successful retailer in the world on a GM/Square foot metric.

If you take this perspective when thinking about the pressures on your business, and how it must respond to those pressures to survive, you just might be one of the fortunate ones who sees a picture of what the future might look like, and move there in front of the wave.

My favourite marketing strategist, Albert Einstein, once again, got it right!!

 

The online advertising fantasy revealed

The online advertising fantasy revealed

Sep 20, 2018 | Branding, Marketing

 

The web gives us huge value, piles of stuff we want that we think we need, for free.

Or is it?

The web is fuelled by advertising. Pure and simple.

The ‘free ‘ stuff we get is really in exchange for our eyeballs, not because there is some benevolent power seeking to help us.

The two most powerful businesses on the planet, Google and Facebook are dependent on advertising for their profitability. Ok, Google has diversified a lot, and now generates profits from all sorts of other activities, but the core is still ads.

As consumers we all want the free stuff, and resent the advertising, otherwise, we would not install all the millions of ad blockers we have.

Pity no-one seems to have figured out what Don Draper knew, that advertising to be of commercial value has to be entertaining, as well as informative and behaviour changing. The deluge of crap on the web seems to have overwhelmed the need to be anything other than there. Those who flog various forms of unaccountable ‘ad tech’ have badly  mistaken the value of the big idea, believing that many small poor ideas used every day, labelled content, can add up to the impact of the one big one.

Fantasy.

This missive is fuelled by the recent tightening of the LinkedIn algorithms related to the number and apparent management of ads being shown on an individuals home page, and the increasing challenge of communicating in groups. Clearly, the Microsoft behemoth is becoming more aggressive about squeezing  a return from its purchase of LinkedIn. Not unreasonable in principal, but if they wreck the reason we are all there, it will blow up in their face.

It is time to wake up and recognise that advertising is the foundation of the web, so it had better be good, or the foundations will crumble. Advertising itself is not bad, it is bad advertising that is bad, coupled with its rotten digital bedfellow, tracking.

Having our digital footsteps stored and accumulated to better ‘personalise’ the ads we see, which is really code for trashing any personal digital security and privacy we may have, is not something I like at all. To my mind, it is a significant part of the price we really pay for the ‘free stuff’, and is on he verge of becoming too high.

Cartoon credit: Once again to Tom Fishburne, who continues to distil the fluff, self interest, hubris and pure bullshit that infests the marketing industry into bite sized chunks of reality.

‘Data Science’ in marketing is frequently bullshit

‘Data Science’ in marketing is frequently bullshit

Sep 17, 2018 | Branding, Marketing

I started life as an accountant, and luckily, recognised before anyone else that I would be the world’s worst. However, from my trials, I do have respect for numbers, proof, real outcomes tested and validated by the scientific method.

As a marketer, I have always tried to find the quantitative base of the stuff I was doing, rather than being seduced by the hyperbole, supposition, and self-interested ‘data’ presented by someone with an interest in the outcome.

Usually that someone has had a pecuniary interest in the decision. They are selling something, from a piece of machinery to an advertising campaign, to a bottle of shampoo sitting on a supermarket shelf.

Science starts with a hypothesis that you set out to prove by trying to disproving it. Having failed to disprove it, the result must be the truth. As Arthur Conan Doyle via Sherlock Holmes said ‘When you have eliminated the impossible, whatever remains, however improbable, must be the truth.‘ A sample of 12 carefully selected personnel from your ad agency does not constitute proof that your made up new natural sounding ‘extract’ will make your hair shine.

‘Data’ as used by whole ranges of marketers, advertisers, and perhaps worst of all, politicians, is often nothing like a reliable representation of the truth, it is just the opposite. It is the selective use of bits of pieces of information, (real or imagined)  and contextual engineering that suits the pre-ordained conclusion that is presented. The opposite to the scientific method, in that the result is determined, then data is constructed that does as good a job as possible to ‘prove’ the outcome.

In academic and scientific circles, this is a heinous crime that will end your career.

From time to time I have not been popular as a result of asking what to me seems to be reasonable questions of those presenting ‘data’ in an effort to sell something.

What is the size and structure of the sample used?

How does the methodology replicate actual behaviour?

What controls were used to manage the data?

Where did the outliers come from, and where are they in the stats?

Have the results been substantiated by independent repeat studies?

There are a few more, but usually I only get one or two out before I am dismissed as some sort of data cretin who does not understand these things.

It is amazing to me how often I see major decisions taken on the basis of flawed, incomplete and inconsistent ‘data’ where the vested interest is clear to all who choose to look closely.

 

 

What makes the perfect business?

What makes the perfect business?

Sep 14, 2018 | Marketing, Small business

A while ago after a networking meeting, a few of us went to a pub for a steak, and ended up solving the problems of the world on beer coasters.

As you do.

Given we all owned and ran small businesses, the main topic of conversation was around the nature of the perfect business, the one none of us had.

The depth of intellectual effort that had gone into  the discussion deserved preservation, so I collected the tattered and somewhat wet coasters at the end of the night.

The next day it took a greater than anticipated effort to decipher what had been very clear just a few hours before. However, following are the parameters of the perfect business we arrived at.

  • It has a wide demand area, not just the local area, the world. This is now a possibility whereas a decade ago it was still fantasy.
  • You have a ‘monopoly’ in a niche, with inelastic demand. To achieve this the business must be very specific, and very good at what it does. So good, and so specific in fact, that it is simply not worth the investment and risk of competitors coming after you, but customers need your product and are prepared to pay for it. (A former client sold a highly refined chemical into a high end niche in the professional photographic market. A tiny, narrow world market, where the users needed the product in very small quantities, so price was not an issue, but the challenges for a competitor were significant. Perfect.
  • Substitutes are hard to find. In the example above, there were substitutes, quite acceptable ones at average levels of output integrity, but at the really pointy end, there were none so he could set his own prices. This is, until digital took over, making his business one of the bits of disrupted post digital debris.
  • Labour costs are minimal, the fewer personnel the better. Contractors undertake the recurrent processes, often in lower cost locations.
  • As above with overheads, which just anchor you to a place.
  • Investments in inventory, which chews up working capital, are minimal.
  • The business is mobile, in the sense it really does not matter if the HQ is in Sydney, Melbourne, or under a tree in Port Douglas.
  • There are limited regulatory regimes that interfere in the running of the business. The opposite is also true, where the regulatory impositions are so high that they discourage competition.
  • There is some element of cash, not for tax evasion purposes (although this angle did have some attraction) but to minimise the working capital necessary to run the day to day operations.
  • It is not bricks and mortar retail. Sounds specific, but in retail there are always long hours, and problems with personnel and customers, that just get in the way of making a profit. Besides, B&M retail is in the early stages of disruption, and Amazon had just opened their warehouse in Melbourne.
  • It is a subscription business of some sort, where the revenue just rolls in without the necessity to go through the sales process again and again for every dollar of revenue.
  • It is not a straight trade of your time for money, there has to be leverage involved. The web with its opportunity to leverage content has opened up a host of opportunities not around a few years ago.
  • The business has some value to your ‘internal’ life. It is something you love, it feeds your intellect, gives you the time you need to chase a dream, whatever it is, it delivers more than just the financial rewards.

None of this allows you to be successful in the absence of real marketing understanding, a product that fills a genuine need in ways not easily replicated by others, and a bit of being in the right place at the right time. Being able to see an opportunity when it knocks is critical, as it rarely knocks twice.

Additions to the list are very welcome, and it may serve as a scorecard for your business!!

The 5 steps to optimise process development

The 5 steps to optimise process development

Sep 10, 2018 | Change, Management

 

Processes are the means by which we get stuff done, and are therefore an integral part of our personal and professional lives.

Mostly we just  allow them to evolve, usually in a pretty unthinking manner without much critical analysis. However, this is a mistake, as it leads to duplication, mistakes, omissions, personal idiosyncratic behaviour, and waste.

When valuing a business, one of the tell-tale signs of good management is the presence of a simple set of process maps which guide the way things are done, from the most mundane to the really important. This ensures, or at least makes the effort to ensure, that the same jobs get done in the same way every time, irrespective of who is actually doing the job.

The cost savings that result from this simple idea are enormous.

Creating a ‘process map’ or running sheet for the simplest to the most complicated process is pretty much the same.

The point however, is not to create a set of rules that can never be broken, it is just the opposite. A process to be optimised and improved  needs to be subjected to critical analysis on an ongoing basis, the written process just gives a stable starting point.

My experience with process mapping has involved 5 steps, that usually happen in an overlapping manner

 

Learn by observation and questions: Observe what happens currently, how things actually get done, consider the range of cause and effect chains in place, ensuring you do not confuse cause and effect with simple correlation. Go out and ask questions, seek insight into the hidden ‘wrinkles’ that exist in every process.

Experiment: An effective experiment requires discipline, primarily to test one thing at a time so you can accurately measure the impact of any change. The scientific method works: develop a hypothesis, test if it is true or false by collecting data, adjust the hypothesis and test again, until you find a hypothesis that holds true. As  Sherlock Holmes’s mentor said: ‘When you have eliminated the impossible, whatever remains, however improbable, must be the truth’

Codify: a process that remains in one persons head is no more than an opinion. To be effective the thought must be codified in such a manner that it can be accessed by anyone, and given the status of the ‘right way’ of doing something. I like visual process maps, they are easier to understand, and absorb quickly.

Distribute: once codified, the process needs to be distributed, and made easily available. There are now many digital tools around that enable distribution and simple reference. In the ‘old days’ processes would be in a manual somewhere that nobody looked at, even if they knew it existed. Nowadays there is no excuse, the process can be available to everyone with digital access.

Optimisation and creativity.  The paradox of all this is that with a stable process, you can now be creative, seeing alternative ways of delivering an outcome.  For improvement to occur you first need a stable system so the impact of changes are visible in measureable outcomes. This is the opposite to the chaos that people often consider to be a part of the ‘creative process’

Header acknowledgement:  Hugh McLeod at Gapingvoid.com