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Do You Have a Challenge Making Important Decisions?
Recently, a number of friends and businesses associates said essentially the same thing to me: “Sales of my new product or service are not meeting my forecast and I am nervous.”
At the same time, I talked with two people from different companies who were jointly starting up a new business. When I asked them about validating their basic assumptions about who will buy from them and how much they are willing to pay, I received the famous “glassy eye stare.”
All of these people invested a lot of time, effort, and money because they believed their own BS.
They did not recognize that their high-level decision making was flawed — they were not using inputs from their customers even though the decisions were related to these people.
3 Real Life Examples
1. Consider Regulations
Ruth Winett, a good friend of mine and an experienced market researcher, recently posted an article on her website titled Listening to Customers: Three Short Case Studies. In one of her case studies, she writes, “A distributor of textiles used for retail displays wondered if hotels would use one of its fabrics to decorate hotel rooms. We interviewed a few hotel managers and interior designers who said that they would not consider the fabric for such use: It did not meet fire regulations!”
2. Communicate Changes
A few years ago, I had an interesting project. I was working with a manufacturer of lighting control equipment who decided that a number of SKUs would benefit from having settable buttons engraved with the chosen setting. The engraving looked very professional and clean and made the installation special. However, about six months after starting to offer the engraving, the head of service did an audit and discovered that the engraving option had received virtually no orders. I was asked to find out why.
Although I told my client that I would talk with about 12 recent customers, I only needed eight interviews. I already had enough data to answer my client’s “why no orders” question. Only one of the eight randomly chosen customers I interviewed knew about the service! Either few of the service and sales knew about it, or they just forgot to mention it, or they decided they didn’t want to be associated with the offer.
And in all the cases, the buttons were pushed either once or twice a week by the same individual. There was no need to add the labelling cost because it added no additional value.
3. Confirm Your Perceptions to Ensure They Match Customer Reality
On March 5, 2021 the Harvard Business Review posted the article “Data Is Great — But It’s Not a Replacement for Talking to Customers” by Dr. Graham Kenny. Dr. Kenny made a number of key points based on the results produced by a team from a large Australian wealth management business, which decided to ditch surveys and instead turn to structured interviews. What the executives found out “really shocked them.”
“The first [realization] was that their data was based on nonsense,” the article notes. “This came about because the questions they’d been asking were built on managers’ perceptions of what clients needed to answer. They weren’t constructed on what clients wanted to express. This resulted in data that didn’t reflect clients’ real requirements. The list of priorities obtained via client interviews compared to management’s assumed client priorities coincided a mere 50% of the time.”
“What [the leadership team] also discovered, to their surprise, was how few interviews it took to gain genuine insight,” the article continues. The business leaders later noted “‘we needed around 18 to 20 clients to uncover most of the substantive feedback. We thought we’d need many more.’ What [they had] encountered here is saturation; a research term referring to the point when you can stop conducting interviews because you fail to hear anything new.”
Data Points to Keep In Mind
According to data from the U.S. Bureau of Labor Statistics, approximately 20% of small businesses fail within the first year. By the end of the second year, 30% of businesses will have failed. By the end of the fifth year, about half will have failed. And by the end of the decade, only 30% of businesses will remain — a 70% failure rate!
LendingTree reports that the #1 reason small businesses fail is “lack of demand for the product or service.” Almost half — 42% — of startup businesses fail because people don’t actually need or want what they’re selling, according to research firm CB Insights. This means that assessing the potential market is essential to ensure success.
Timothy Carter, the author of the LendingTree article, also clarified the Bureau of Labor Statistics data by saying, “I also want to acknowledge that whenever failure statistics are misrepresented, they’re usually inflated. In other words, people have a tendency to exaggerate the failure rate of small businesses. Why? It might be a conservative way to taper expectations, or it might play into the desire to discourage would-be entrepreneurs. Either way, we need to be cautious of people who confidently assert a trivial “truth” about business ownership.”
In his new book “Rethinking Competitive Advantage,” Ram Charan uses consumer to stand for any customer. He writes, “However sophisticated the data and methodology, analysis of the customer journey can only supplement, not fully replace, unfiltered observation of the customer.” He goes on to say that “every leader and employee should look for opportunities to directly observe consumers and reflect on why their experience is the way it is. Why are people behaving that way or doing things the way they do? What is unsatisfactory to them? What might a consumer wish would happen differently? What is missing? Simple questions like these can generate powerful insights.”
Recently the Harvard Business Review (HBR) published an article entitled “11 Myths About Decision- Making” written by Cheryl Strauss Einhorn. In the article, the author notes, “Known as confirmation bias, this decision-making flaw has been behind notorious failures from the Bay of Pigs to the subprime loan market implosion to the NASA Challenger explosion to the Deepwater Horizon environmental catastrophe. In each case, disconfirming data was available and should have raised concerns, but groupthink set in, and no one wanted to raise the red flag. To better understand and define the limitations of what you think you know, look for contrary examples and evaluate rival explanations. These techniques can prevent “frame blindness” to keep you from seeing what you want to see rather than what may be present.”
The reason people buy your products or services is because they believe your offer will provide their desired business outcomes (sometimes called “Jobs to be Done”) at a lower cost or other important reason than what they could get from other sellers. In other words, your offer provides the greatest value they can get from any other source they know about.
How to Minimize the Likelihood of Making Wrong Strategic Decisions
- Recognize that the only way not to make a wrong decision is to completely avoid making any decisions. Nobody ever gets everything right or wrong. We all make mistakes. So, do the best you can and take responsibility for the inevitable wrong decisions. And when you make some great decisions, make sure to recognize the people that helped you! That’s what great leaders do.
- Take time to make big decisions. Don’t procrastinate on the small decisions but for strategic decisions, collect data, opinions, insights, ideas, alternatives, pro/con analyses, and any other advice you can from as many people as you can let into the situation.
- Make a preliminary decision. Write it down and make sure that the thinking that got you to the decision was clear.
- Test the decision on a set of the people who will be most impacted by it. For a big decision affecting customers, you must talk with a group of typical customers.
- When you are convinced the decision will achieve your desired results, document the “why” and “how” to share with everyone effected.
- After implementing the decision, get feedback and make any necessary modifications. This is not the time to be inflexible — you have to do everything you can to achieve your desired outcomes.
- Follow the same approach when making big decisions affecting employees, industry partners, shareholders, and the communities in which you have a strong presence.
Before Moving Forward, Ask the Right Questions
When trying to either improve or substantiate a major decision, it is best practice to interview and not survey customers and potential customers to get to the real desired business outcomes they are trying to achieve. This can only be accomplished by asking open-ended questions and following up with enough why questions to get down to the basic answers.
All you need is a list of the right people to talk with, the right interviewer, and a few days of interviewing, and you will be able to feel confident that your decision has a significant probability of yielding the success you are looking for.
Image Credit: Jacob Lund / Shutterstock.com
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