Whenever I have my hair cut I adhere to two rules. Firstly, I try to switch between hairdressers which I know and new ones, and secondly I give the hairdresser free reins. The first rule is really just in case there are better hairdressers out there than the ones I've been using, it’s about discovery. The second rule is the one that’s the most fun. It's worth noting here that I've been in college for the past five years, so it’s never really been a big problem if my hair was a bit weird. There has been no boss to send me home should I suddenly have a green mohawk, and thus I have been in a position to take high risks with my hairdo.
This is how it works; I go to a hairdresser and get seated. The hairdresser will ask me how I want my hair, and I’ll say something like ‘Oh, I really hadn't though of that…. What do you think? Ok, I trust you. Do what you think would look awesome!’ The reason of course is this: I am not an expert on hair, hair dressers are. They cut hair al day, they know what's cool! Imagining and describing new hair styles and judging their awesomeness is way outside my field of expertise. I trust experts to do this for me.
The really surprising part of the story is that I have never experienced, in five years of doing this, a truly horrific haircut. No green mohawks. And what’s more is that I can see the hairdressers faces light up when I tell them. Apparently, this is not a common practice. Normal customers just want the handiwork, not the creative part, yet hairdressers are often times really good at that. I believe that if you free skilled and creative people, that they will sometimes do awesome things. This, I think, begs the question, ‘do we do this in other situations?’ I mean, when we hire ad agencies, do we bring a slogan, and an idea for how the final print media should look? Do we say, ‘Yeah, you guys should just design this…’ Because that seems like a really bad idea, right? Or do we go to architects get them to draw the exact house that we had already decided on. I think we do, and i don't think it's a smart way to buy services from skilled people. I think we need to let go, and trust that professionals are good at what they do.
It’s important, I think, to be aware that you have people around you that are good at things you aren't, and it’s even more important to utilize these people. When you micromanage people that knows what they’re doing, you get sub-par results. Letting people do what they do best will often give the best outcome. But yes, it does entail a risk. You don’t always get exactly what you wanted, and you won’t always have control over every part of everything you do.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Showing posts with label decision making. Show all posts
Showing posts with label decision making. Show all posts
Sunday, 15 August 2010
Tuesday, 13 April 2010
How to deal with uncertainty - the maximize options approach
In a recent blog post I wrote that it is becoming increasingly difficult to forecast the future. As I imply, the problem is choice: Lower distances between people increases the ripple effect of individual choices, and technology together with consumerism increase the sets of choices, and options available to each choice to create an exponentially growing possible futures.
"Difficult to see. Always in motion is the future.” (Yoda)
Simply put I would claim that the uncertainty of the future is a function of the number of people that make choices, times the number of choices available, times the number of options available in each choice, times a coefficient for the impact of each choice. As all the factors that go in to the function have higher values now than they did earlier the uncertainty increases. What I don’t mention is how to cope with the increasing uncertainty; this is what I will address here.
Economists love choices, because they apply math to find the “right” choice. Consider that you’re in a TV game show, you get presented with two choices, a) 100% chance of $ 10 000 or b) 50 % chance of either $0 or $50 000. Any economist will tell you that the options are worth respectively $10 000 and $25 000, so you should choose b) (this is because given enough similar choices the average outcome would be those numbers). Now, if however, you chose b) and you lost and had to go home with $ 0, did you make the wrong choice? Many will say yes, because you lost all the money. These people think that a good choice is a choice that you would not change after you see the outcome; this seems to me like it is a bad definition. I think that you always have to judge a choice based on the information that was available at the time, thus it was still the right choice! If you are presented with a choice of this type, you should follow this procedure.
The problem, as the clever reader has already deduced, is that you rarely know the numbers. And this is exactly what forecasting has been occupied with since the beginning of the industrial era; how can we put numbers on stuff that we know very little about? There are tons of books on this subject, so I won’t go in to it, but rather utter my proposition on how to deal with uncertainty in choices in these days, and especially in the years to come. First, let me repeat myself, in instances where numbers are available or could be attained, follow the above procedure. This is for all those other instances.
I already professed my love for platform technologies, but I haven't explained why, so here goes. The more malleable a technology is, the more uses it can have, thus the more ways it can be successful should it fail in its intentional use. The more adaptable a technology is (Cēterīs paribus), the higher is the probability that its owners will find an application that is profitable. Consider a hypothetical example, two companies are specializing in medical technology, both companies have a development cycle of 15 years, and neither has any information about what its competitors are doing. One company is certain that it can make a cure for let’s say AIDS, and the other is certain that it can make a platform that will cure every bacterial infection known to man, but would only be able to market it for one use at a time. Assume that the technical challenge is equal, and that the main risk is that competitors beat them to market. Which company would you invest in? Since neither has any information about what their competitors are doing (the premise of uncertainty), I would invest in the bacterial platform company. The AIDS company has one chance to succeed, if someone else beats them to market they are dead, finito. If someone else makes the bacterial technology, the company can just change its marketing to target another disease, because the drug can target all diseases, but just market towards one at a time.
By the same principle, even if I don’t believe in global warming I believe in environmentalism, because an earth with rainforests have more options that an earth without them. A country with a highly educated workforce has more options than one without it. A company with several paths to market has more options than one with only one path to market. A technology with many uses has more options than one with limited use. A user friendly computer has more options than one that’s not. A diverse education gives more opportunities than one that’s specific. This principle is universal.
But, you may ask, how does this relate to forecasting the future? Well, the concept I’m trying to explain has two implications for you. Firstly, it means that if there are high uncertainty go with the option that leaves more options open. Secondly, when creating something, try to leave as many options open for as long as possible. If you don’t know how things are going to turn out right now, maybe you will have a better understanding in the future, thus closing doors prematurely is extremely dangerous and will become even more so in the future.
To wrap it up, here are some simple predictions made following this principle:
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
"Difficult to see. Always in motion is the future.” (Yoda)
Simply put I would claim that the uncertainty of the future is a function of the number of people that make choices, times the number of choices available, times the number of options available in each choice, times a coefficient for the impact of each choice. As all the factors that go in to the function have higher values now than they did earlier the uncertainty increases. What I don’t mention is how to cope with the increasing uncertainty; this is what I will address here.
Economists love choices, because they apply math to find the “right” choice. Consider that you’re in a TV game show, you get presented with two choices, a) 100% chance of $ 10 000 or b) 50 % chance of either $0 or $50 000. Any economist will tell you that the options are worth respectively $10 000 and $25 000, so you should choose b) (this is because given enough similar choices the average outcome would be those numbers). Now, if however, you chose b) and you lost and had to go home with $ 0, did you make the wrong choice? Many will say yes, because you lost all the money. These people think that a good choice is a choice that you would not change after you see the outcome; this seems to me like it is a bad definition. I think that you always have to judge a choice based on the information that was available at the time, thus it was still the right choice! If you are presented with a choice of this type, you should follow this procedure.
The problem, as the clever reader has already deduced, is that you rarely know the numbers. And this is exactly what forecasting has been occupied with since the beginning of the industrial era; how can we put numbers on stuff that we know very little about? There are tons of books on this subject, so I won’t go in to it, but rather utter my proposition on how to deal with uncertainty in choices in these days, and especially in the years to come. First, let me repeat myself, in instances where numbers are available or could be attained, follow the above procedure. This is for all those other instances.
I already professed my love for platform technologies, but I haven't explained why, so here goes. The more malleable a technology is, the more uses it can have, thus the more ways it can be successful should it fail in its intentional use. The more adaptable a technology is (Cēterīs paribus), the higher is the probability that its owners will find an application that is profitable. Consider a hypothetical example, two companies are specializing in medical technology, both companies have a development cycle of 15 years, and neither has any information about what its competitors are doing. One company is certain that it can make a cure for let’s say AIDS, and the other is certain that it can make a platform that will cure every bacterial infection known to man, but would only be able to market it for one use at a time. Assume that the technical challenge is equal, and that the main risk is that competitors beat them to market. Which company would you invest in? Since neither has any information about what their competitors are doing (the premise of uncertainty), I would invest in the bacterial platform company. The AIDS company has one chance to succeed, if someone else beats them to market they are dead, finito. If someone else makes the bacterial technology, the company can just change its marketing to target another disease, because the drug can target all diseases, but just market towards one at a time.
By the same principle, even if I don’t believe in global warming I believe in environmentalism, because an earth with rainforests have more options that an earth without them. A country with a highly educated workforce has more options than one without it. A company with several paths to market has more options than one with only one path to market. A technology with many uses has more options than one with limited use. A user friendly computer has more options than one that’s not. A diverse education gives more opportunities than one that’s specific. This principle is universal.
But, you may ask, how does this relate to forecasting the future? Well, the concept I’m trying to explain has two implications for you. Firstly, it means that if there are high uncertainty go with the option that leaves more options open. Secondly, when creating something, try to leave as many options open for as long as possible. If you don’t know how things are going to turn out right now, maybe you will have a better understanding in the future, thus closing doors prematurely is extremely dangerous and will become even more so in the future.
To wrap it up, here are some simple predictions made following this principle:
- Mobile phones that allows anyone to create uses will have more uses than a mobile phone that don’t, thus cell phone producers that have open platforms will outlive those that don’t.
- Countries that have an adaptable workforce will be less affected by upheaval, because they can shift the workforce over in other industries temporarily or permanently should disaster strike in a specific industry.
- Renewable energy producers that use existing infrastructure, such as oil from algae, will be more successful than those that gamble on technologies like hydrogen that requires major rebuilds of gas stations etc, because they have more potential customers, quicker.
- On demand television will outcompete fixed programming, because people will have more options on when and where to watch. On demand television also have more options on how to make money - the business model.
- The deck of cards will survive Monopoly, because you can play many more games with a deck of cards. Also you can do magic, tell someone’s fortune or even use them for a raffle.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Tuesday, 2 February 2010
Stepping out of the box (part 2): Techniques for stepping out of the box
This post continues from this post, and explains some steps that can be taken to step out of the afore-mentioned box.
Start anywhere but at the start
If you were to write a book, a criminal novel, where would you start? Most people I guess, would figure out a plot, and then start fiddling with the details. What if you just started to write? Don’t have a plot; don’t know how it ends or who the killer is. Just write something crazy, introduce us to the situation where the protagonist comes across the murder. Put in as many weird details as you can, then start working them out. The result will be very different than if you start by deciding how the murder took place, how the murderer covered it up and then write the book. In inventing it’s the same, most people start either with a technology or an unmet need. Don’t do that, find somewhere else to start. Find a crazy theory of where to start.
How about this? Most people start companies that they either know something about or that interest them. Find out what you know the least about and start with that. Find something that interests no one and start there. Think about roads, extremely boring, and I know nothing about making them. Maybe that’s a good place to start, exactly because I don’t know anything I can’t have any preconceived notions, I don’t know that I have to make the roads using asphalt and stone, maybe because I don’t know that I had to go to a university to ask someone, maybe I went in to the wrong building and met the wrong guy, but maybe it turned out that he had just invented a cheap material that would be perfect for roads, only that he hadn’t realized what the material was for? Maybe he had invented something completely different and you could go with that instead?
Find a starting place that is outside the normal, then you force yourself to think in a new way.
Challenge yourself beyond your capability
The previous example also advocates this point. A friend of mine considers himself a pickup artist, which means he goes out twice a week to pick up girls, and are fairly successful. However, he never uses the same approach twice, so each time he picks up a girl the difficulty goes up, and so does his success rate. My theory is that the more approaches he use, the further he comes from what is normal to do when picking up girls, and the less he is categorized as “the guy who just want to get laid”. It also shows that he is having fun, he’s a cool guy, that loves what he is doing. He says random things, and because of that he get’s random results. My point is that for us that accompany him we always think “that is never going to work”, but sometimes it does, and we are as surprised each time. The thing is that you never discover new grounds if you keep doing the same stuff. A business example would be the notion that start-ups cannot sell to fortune 500 companies. So people will generally tell you to not try. Why not? You have nothing to lose, call Microsoft, tell them about your product, request a meeting. Don’t think your product is good enough? Well, then your that guy sitting on the sideline saying that’s never going to work while your friend steps out of his comfort zone and get the girls. Embarrass yourself, fail, but try; you will be surprised at what you can achieve!
Give yourself over to chance
We make our decisions based on our assumptions, that means that there’s systematic errors in your decision making. If you want something new to happen you can throw a dice. Should I go to that interview or that interview? Throw a dice, let chance decide, not because there’s faith and everything is supposed to happen and so forth, no, because then you end up in situations that you normally wouldn’t be in, and then you get to think about problems that you normally wouldn’t.
Ask someone different
Take the Play-Doh example above, the solution to the problem wasn’t anything that was in the toolbox of the director or the MBA’s, it was a preschool teacher that came up with a solution. Again, if you keep doing the same you get the same results, if you ask the same people you get same answer. MBA’s are all in the same box, so ask someone that’s outside the box, maybe that can shed light from an angle you haven’t seen. If you however are a preschool teacher try asking an MBA. If you are a CEO, try asking someone on the floor, of you are an entrepreneur try asking an athlete. Find people that are different than you, that think different, that knows less, ask them and listen to them. It's not always those that should have the answers that have them, we often just assume they do. Did you know that monkeys can pick stocks just as well as professionals? Often better? Consider this excerpt:
How about that? So maybe amateur investors should stop listening to professionals and go ask the monkeys, or even start making their own theories - that shouldn't be based on the ideas of the financial advisors. (I would go get a sociologist to explain the nature of socially constructed reality if I wanted to make money on stocks, stock brokers don't even know what it is and yet the sociologist will claim thatit controls their every move).
It’s ok to be wrong
Seriously. It is. Whenever in an argument over what’s right and what’s not, try to think “what if I’m wrong”. A good way to do this is to whenever you have a discussion about something, take a break, go to someone that agrees with you and argue the other point. Often we are so sure that we are right that we cannot for the life of us even consider the alternative, but remember that the other person is just as likely to be right if that person believe in her ideas as strongly as you do!
Question all assumptions!
It’s well known that kids have an easier time learning languages than adults. Is it true? I don’t know. It takes a kid two years to learn their first language in a way that they can make themselves understood, and still it’s a couple of years before they speak it any good. I’m pretty sure I could learn French in four years if that’s all I had to do. That kids can learn to speak languages easier than adults is a cultural assumption. It’s something we all (or most of us) believe to be true. The thing is that it doesn’t have to be true, it can of course be true, but if you start questioning these assumptions when you come across them you will surprisingly often find that maybe they aren’t always true. The man running the factory in the example above assumed that his product could only be used for cleaning wall paper. His assumption was wrong, now we assume that making Play-Doh was his best course of action, maybe we are wrong? When you talk to someone, try figure out what yours and theirs basic assumptions are. Challenge them.
Crisis
When everything goes as planned it’s easy to keep routinely doing the tasks you have always done. When crisis appear, that’s when you have to think about new ways to do something. In a way crisis force you to consider option you otherwise wouldn’t, a teenager might not get into the educational program she wanted, so she has to look for new options, a company might discover that their product is no longer in demand, so they have to find new products, or new uses for their products. A new father might discover that his life is turned upside down, so he has to change his routines and his survival strategies.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Start anywhere but at the start
If you were to write a book, a criminal novel, where would you start? Most people I guess, would figure out a plot, and then start fiddling with the details. What if you just started to write? Don’t have a plot; don’t know how it ends or who the killer is. Just write something crazy, introduce us to the situation where the protagonist comes across the murder. Put in as many weird details as you can, then start working them out. The result will be very different than if you start by deciding how the murder took place, how the murderer covered it up and then write the book. In inventing it’s the same, most people start either with a technology or an unmet need. Don’t do that, find somewhere else to start. Find a crazy theory of where to start.
How about this? Most people start companies that they either know something about or that interest them. Find out what you know the least about and start with that. Find something that interests no one and start there. Think about roads, extremely boring, and I know nothing about making them. Maybe that’s a good place to start, exactly because I don’t know anything I can’t have any preconceived notions, I don’t know that I have to make the roads using asphalt and stone, maybe because I don’t know that I had to go to a university to ask someone, maybe I went in to the wrong building and met the wrong guy, but maybe it turned out that he had just invented a cheap material that would be perfect for roads, only that he hadn’t realized what the material was for? Maybe he had invented something completely different and you could go with that instead?
Find a starting place that is outside the normal, then you force yourself to think in a new way.
Challenge yourself beyond your capability
The previous example also advocates this point. A friend of mine considers himself a pickup artist, which means he goes out twice a week to pick up girls, and are fairly successful. However, he never uses the same approach twice, so each time he picks up a girl the difficulty goes up, and so does his success rate. My theory is that the more approaches he use, the further he comes from what is normal to do when picking up girls, and the less he is categorized as “the guy who just want to get laid”. It also shows that he is having fun, he’s a cool guy, that loves what he is doing. He says random things, and because of that he get’s random results. My point is that for us that accompany him we always think “that is never going to work”, but sometimes it does, and we are as surprised each time. The thing is that you never discover new grounds if you keep doing the same stuff. A business example would be the notion that start-ups cannot sell to fortune 500 companies. So people will generally tell you to not try. Why not? You have nothing to lose, call Microsoft, tell them about your product, request a meeting. Don’t think your product is good enough? Well, then your that guy sitting on the sideline saying that’s never going to work while your friend steps out of his comfort zone and get the girls. Embarrass yourself, fail, but try; you will be surprised at what you can achieve!
Give yourself over to chance
We make our decisions based on our assumptions, that means that there’s systematic errors in your decision making. If you want something new to happen you can throw a dice. Should I go to that interview or that interview? Throw a dice, let chance decide, not because there’s faith and everything is supposed to happen and so forth, no, because then you end up in situations that you normally wouldn’t be in, and then you get to think about problems that you normally wouldn’t.
Ask someone different
Take the Play-Doh example above, the solution to the problem wasn’t anything that was in the toolbox of the director or the MBA’s, it was a preschool teacher that came up with a solution. Again, if you keep doing the same you get the same results, if you ask the same people you get same answer. MBA’s are all in the same box, so ask someone that’s outside the box, maybe that can shed light from an angle you haven’t seen. If you however are a preschool teacher try asking an MBA. If you are a CEO, try asking someone on the floor, of you are an entrepreneur try asking an athlete. Find people that are different than you, that think different, that knows less, ask them and listen to them. It's not always those that should have the answers that have them, we often just assume they do. Did you know that monkeys can pick stocks just as well as professionals? Often better? Consider this excerpt:
“In the four years since [Chicago Sun’s Monkey] has chaired and inspired this contest, his stocks have posted annual returns of 37 percent, 36 percent, 3 percent and, in 2006, 36 percent, beating the major indexes every time. It's proof that you don't have to be an insider CEO, an insider hedge-fund manager or a loudmouth on CNBC to make money in the market.”(read the entire article)
How about that? So maybe amateur investors should stop listening to professionals and go ask the monkeys, or even start making their own theories - that shouldn't be based on the ideas of the financial advisors. (I would go get a sociologist to explain the nature of socially constructed reality if I wanted to make money on stocks, stock brokers don't even know what it is and yet the sociologist will claim thatit controls their every move).
It’s ok to be wrong
Seriously. It is. Whenever in an argument over what’s right and what’s not, try to think “what if I’m wrong”. A good way to do this is to whenever you have a discussion about something, take a break, go to someone that agrees with you and argue the other point. Often we are so sure that we are right that we cannot for the life of us even consider the alternative, but remember that the other person is just as likely to be right if that person believe in her ideas as strongly as you do!
Question all assumptions!
It’s well known that kids have an easier time learning languages than adults. Is it true? I don’t know. It takes a kid two years to learn their first language in a way that they can make themselves understood, and still it’s a couple of years before they speak it any good. I’m pretty sure I could learn French in four years if that’s all I had to do. That kids can learn to speak languages easier than adults is a cultural assumption. It’s something we all (or most of us) believe to be true. The thing is that it doesn’t have to be true, it can of course be true, but if you start questioning these assumptions when you come across them you will surprisingly often find that maybe they aren’t always true. The man running the factory in the example above assumed that his product could only be used for cleaning wall paper. His assumption was wrong, now we assume that making Play-Doh was his best course of action, maybe we are wrong? When you talk to someone, try figure out what yours and theirs basic assumptions are. Challenge them.
Crisis
When everything goes as planned it’s easy to keep routinely doing the tasks you have always done. When crisis appear, that’s when you have to think about new ways to do something. In a way crisis force you to consider option you otherwise wouldn’t, a teenager might not get into the educational program she wanted, so she has to look for new options, a company might discover that their product is no longer in demand, so they have to find new products, or new uses for their products. A new father might discover that his life is turned upside down, so he has to change his routines and his survival strategies.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Stepping out of the box (part 1): Taking the red pill / Drinking the Kool-Aid
What is the box?
Coming up with radical inventions requires you to step out of the box, but what does this mean? Well, the box is a metaphor for your preconceived notions. The box is the Matrix. It is the world that has been pulled over your eyes and blinds you from the truth. It is said that Edison once fired a man for salting his soup before he tasted it; the reason is that this implied that the man was so blinded by the box that he forgot to check its validity. The man couldn’t know that soup needed salt if he hadn’t tasted it, but of course he assumed that he had to salt it because he had eaten so much soup that the salting was on autopilot. The box are all those things we take for granted. From the small things, such as “hamburgers are eaten with a side of french fries, not rice” to the big things, like, “the earth orbits the sun”, some of these assumptions may be true, but this isn’t really the point, the point is that the assumptions block us from thinking differently.
Why should we step out of the box?
First let’s look at why we are in the box. Our minds are designed to maintain the reality we believe exists, and generally this is very useful. What if you had to rethink how to open a door each time you walked through it? What if you had to decide if you liked your girlfriend each time you met her? What if the doctor had to convince you that the drugs you are taking actually will help each morning? It would make life extremely tedious, and the strain on our cognitive ability would be very high, so that our brains would require a lot more energy, i.e. we would need bigger brains and more to eat, which isn't good from an evolutionary perspective. Another reason we are in the box is because it is useful to maintain a sense of stability and reality. Research even shows that after people make a decision on any topic the brain will start to justify the decision so that you won’t change your mind so easily. This also goes for belief. Think about politics, when you decide that a certain party or politician is the one that should be elected it is really hard to change. This is called cognitive dissonance, and is just one of many mechanisms that help us maintain a healthy sense of continuity and reality, it makes us feel consistent. Historically this was useful because it freed up the brain to solve more important issues with its limited resources, in modern day society it's useful for that very same reason.
The problem with our sense of continuity is that it blocks our ability to think about what the world would be if it wasn’t the way it is. This is why US presidents are reelected more times than not. We strive for continuity, because we don’t understand how the world could be different. Stepping out of the box allows us to think about the world in new ways. It allows us to see things that others cannot see. First when you free your mind from the idea that transportation is either by foot or by horse can you start thinking about cars. Did you know that the wheel was never invented on the American continent before the Europeans arrived? They had circles, but no wheels, how weird is that? And no one can blame them, this is how our minds work. We see everything that exist as obvious and natural (the wheel for you and me), and everything that don’t exist, well it generally doesn’t occur to us.
Let me give you an example. I heard an anecdote that goes something like this: Once upon a time, in the olden days a man was running a factory, this factory produced a type of malleable sticky clay that was used to remove sot from the walls. You see, back in those days people warmed their houses by burning coal, and this left residue on the walls. A person would then buy some of this clay-like substance and roll it on the wall, the sot from the coal would then stick to the blob. Since the blob was white the coal would color it so you could even see when it was so dirty that you had to get a new one. One day however the sales started declining, a thorough market analysis revealed that people were using less coal to heat their houses, thus the demand for white clay-blobs fell as well. The manager of this factory started to worry, so he hired the best MBA’s in the kingdom to figure out what to do. The MBA’s effectivised the routines, lay off people, streamlined shipping and so on until they had reduced the cost of the factory to the point where it was impossible to reduce them further. The factory was however still in a crisis, because the problem of course wasn’t the cost, it was that no one needed their product. So what was he to do? In total despair he went to dinner to his sister, she was a preschool teacher, and as casual dinner conversation he explained everything and that he was probably going to lose his job and would have to shut down the entire business. His sister asked if she could look at the product and the manager fished out a piece of white clay from his pocket, his sister started molding it into shapes, and decided to bring it to her daycare the next day to show the kids. When she came back, she suggested making the clay in different colors, calling it Play-Doh and marketing it to kids. Today this business is much bigger than the wallpaper cleaning business of decades past ever was.
The moral of the story is of course that when you look outside the box of your usual surrounding you find solutions that you wouldn't otherwise find. This manager hired MBA’s, and no offence to MBA’s, they’re great, but they all think alike. If you need someone to think different, then don’t use people that think like you and each other. If you do the same, then how come you expect different results? MBA’s have a set of tools, and when you have a hammer, a surprising amount of problems looks like nails. Only when the manager (by chance in this case) got someone that thought differently to think about the problem could a radically new idea come about. To continue reading click here.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Coming up with radical inventions requires you to step out of the box, but what does this mean? Well, the box is a metaphor for your preconceived notions. The box is the Matrix. It is the world that has been pulled over your eyes and blinds you from the truth. It is said that Edison once fired a man for salting his soup before he tasted it; the reason is that this implied that the man was so blinded by the box that he forgot to check its validity. The man couldn’t know that soup needed salt if he hadn’t tasted it, but of course he assumed that he had to salt it because he had eaten so much soup that the salting was on autopilot. The box are all those things we take for granted. From the small things, such as “hamburgers are eaten with a side of french fries, not rice” to the big things, like, “the earth orbits the sun”, some of these assumptions may be true, but this isn’t really the point, the point is that the assumptions block us from thinking differently.
Why should we step out of the box?
First let’s look at why we are in the box. Our minds are designed to maintain the reality we believe exists, and generally this is very useful. What if you had to rethink how to open a door each time you walked through it? What if you had to decide if you liked your girlfriend each time you met her? What if the doctor had to convince you that the drugs you are taking actually will help each morning? It would make life extremely tedious, and the strain on our cognitive ability would be very high, so that our brains would require a lot more energy, i.e. we would need bigger brains and more to eat, which isn't good from an evolutionary perspective. Another reason we are in the box is because it is useful to maintain a sense of stability and reality. Research even shows that after people make a decision on any topic the brain will start to justify the decision so that you won’t change your mind so easily. This also goes for belief. Think about politics, when you decide that a certain party or politician is the one that should be elected it is really hard to change. This is called cognitive dissonance, and is just one of many mechanisms that help us maintain a healthy sense of continuity and reality, it makes us feel consistent. Historically this was useful because it freed up the brain to solve more important issues with its limited resources, in modern day society it's useful for that very same reason.
The problem with our sense of continuity is that it blocks our ability to think about what the world would be if it wasn’t the way it is. This is why US presidents are reelected more times than not. We strive for continuity, because we don’t understand how the world could be different. Stepping out of the box allows us to think about the world in new ways. It allows us to see things that others cannot see. First when you free your mind from the idea that transportation is either by foot or by horse can you start thinking about cars. Did you know that the wheel was never invented on the American continent before the Europeans arrived? They had circles, but no wheels, how weird is that? And no one can blame them, this is how our minds work. We see everything that exist as obvious and natural (the wheel for you and me), and everything that don’t exist, well it generally doesn’t occur to us.
Let me give you an example. I heard an anecdote that goes something like this: Once upon a time, in the olden days a man was running a factory, this factory produced a type of malleable sticky clay that was used to remove sot from the walls. You see, back in those days people warmed their houses by burning coal, and this left residue on the walls. A person would then buy some of this clay-like substance and roll it on the wall, the sot from the coal would then stick to the blob. Since the blob was white the coal would color it so you could even see when it was so dirty that you had to get a new one. One day however the sales started declining, a thorough market analysis revealed that people were using less coal to heat their houses, thus the demand for white clay-blobs fell as well. The manager of this factory started to worry, so he hired the best MBA’s in the kingdom to figure out what to do. The MBA’s effectivised the routines, lay off people, streamlined shipping and so on until they had reduced the cost of the factory to the point where it was impossible to reduce them further. The factory was however still in a crisis, because the problem of course wasn’t the cost, it was that no one needed their product. So what was he to do? In total despair he went to dinner to his sister, she was a preschool teacher, and as casual dinner conversation he explained everything and that he was probably going to lose his job and would have to shut down the entire business. His sister asked if she could look at the product and the manager fished out a piece of white clay from his pocket, his sister started molding it into shapes, and decided to bring it to her daycare the next day to show the kids. When she came back, she suggested making the clay in different colors, calling it Play-Doh and marketing it to kids. Today this business is much bigger than the wallpaper cleaning business of decades past ever was.
The moral of the story is of course that when you look outside the box of your usual surrounding you find solutions that you wouldn't otherwise find. This manager hired MBA’s, and no offence to MBA’s, they’re great, but they all think alike. If you need someone to think different, then don’t use people that think like you and each other. If you do the same, then how come you expect different results? MBA’s have a set of tools, and when you have a hammer, a surprising amount of problems looks like nails. Only when the manager (by chance in this case) got someone that thought differently to think about the problem could a radically new idea come about. To continue reading click here.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Wednesday, 20 January 2010
Do I launch my product or do I develop it further?
As a start-up you will eventually end up in a situation where you have to make a choice; do you spend your last money on improving the product, or do you spend it on launching your product and marketing it? Most marketers will tell you that you should always have a perfect product (you see the “product” is one of the four P’s in marketing). But I disagree.
Imagine that you have $1000, but you are afraid it will get stolen, the only way to avoid this, it seems, is to buy a safe. Unfortunately the safe cost $1000. Would you buy the safe? The same concept applies here, do you make a fantastic product that no one will hear about or do you make a mediocre product that many hear about? I would chose the latter and then use the money I make to improve the product later. This will grow your company quicker. And let’s face it, you have no idea what the consumer want in a product anyway. Just face it.
This is of course assuming this is a new product to some extent, you probably don’t know what people want, even if you think you do. Edison started rolling out electricity at an alarming rate, the killer application, was of course electric light. This meant that when people first got electricity, the outlet was a socket that matched the light bulb, not the socket we know today. Little did Edison know that washing machines and electrical irons would come along and that a socket where you had to screw in the cord would become dangerous. Everything, as we know now, worked out well for Edison, but he had no idea what electricity was going to be, or how big it was going to be. Start rolling out your product, make money and adapt your product to the feedback you get, who knows, maybe the technical improvement you have in mind isn’t what you should improve at all?
I also talked to a former product developer at Phillips once, he now runs his own company. He explained that Phillips, and the other big ones, never launch with their best product. Launch with your number two, price it in the stars, and then when your sales decline, introduce the next generation at the same price and lower the price of the last generation. And never launch a new generation until the next is in a drawer somewhere ready to launch
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Imagine that you have $1000, but you are afraid it will get stolen, the only way to avoid this, it seems, is to buy a safe. Unfortunately the safe cost $1000. Would you buy the safe? The same concept applies here, do you make a fantastic product that no one will hear about or do you make a mediocre product that many hear about? I would chose the latter and then use the money I make to improve the product later. This will grow your company quicker. And let’s face it, you have no idea what the consumer want in a product anyway. Just face it.
This is of course assuming this is a new product to some extent, you probably don’t know what people want, even if you think you do. Edison started rolling out electricity at an alarming rate, the killer application, was of course electric light. This meant that when people first got electricity, the outlet was a socket that matched the light bulb, not the socket we know today. Little did Edison know that washing machines and electrical irons would come along and that a socket where you had to screw in the cord would become dangerous. Everything, as we know now, worked out well for Edison, but he had no idea what electricity was going to be, or how big it was going to be. Start rolling out your product, make money and adapt your product to the feedback you get, who knows, maybe the technical improvement you have in mind isn’t what you should improve at all?
I also talked to a former product developer at Phillips once, he now runs his own company. He explained that Phillips, and the other big ones, never launch with their best product. Launch with your number two, price it in the stars, and then when your sales decline, introduce the next generation at the same price and lower the price of the last generation. And never launch a new generation until the next is in a drawer somewhere ready to launch
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Tuesday, 1 December 2009
Which products should you push first?
Walking past my local grocery store today I noticed a sign that that said “Ice cream. On sale.” Now for those of you from the warmer parts of the world let me underline the fact that I am from Norway and in Norway only a very special segment of the populations yearns for ice cream in December. It came to my mind that this grocery store probably had left over ice cream from the recently concluded ice cream season, which they were afraid would go bad if they didn’t sell it soon. But was this really a good idea?
It occurred to me that if they advertised packets of instant hot chocolate instead they would sell much more extra units than if they sold boxes of ice cream. So I thought to myself, let’s assume that a packet of instant hot chocolate cost about the same and have approximately the same margins as ice cream, should they advertise for ice cream or hot chocolate? It is important to underline that if they sell one extra hot chocolate they would have to buy an extra one from the grocer while in the case of the ice cream they would have to throw away that which is not sold. Given that the price and margins for both goods are, well let’s say $5 and 20 %, we can see that only if the sign sells five times as many boxes of hot chocolate than ice cream the store should focus on selling hot chocolate. Let me explain that again.
Since the alternative to selling the ice cream is to throw them away, both the 20 % margin and the already spent 80 % purchase price counts as profit for the ice cream. If the store can sell 1 additional box of ice cream it makes $5, since the alternative is to throw away the box. If the store sells one additional carton of instant hot chocolate it only makes $1, because the alternative was to order less hot chocolate next week, and thus avoiding the $4 expense it would mean to buy an extra unit. Because of this the store should keep selling the ice cream if it is more than 20 % as effective as advertising for the instant hot chocolate. Also you shouldn’t throw food away.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
It occurred to me that if they advertised packets of instant hot chocolate instead they would sell much more extra units than if they sold boxes of ice cream. So I thought to myself, let’s assume that a packet of instant hot chocolate cost about the same and have approximately the same margins as ice cream, should they advertise for ice cream or hot chocolate? It is important to underline that if they sell one extra hot chocolate they would have to buy an extra one from the grocer while in the case of the ice cream they would have to throw away that which is not sold. Given that the price and margins for both goods are, well let’s say $5 and 20 %, we can see that only if the sign sells five times as many boxes of hot chocolate than ice cream the store should focus on selling hot chocolate. Let me explain that again.
Since the alternative to selling the ice cream is to throw them away, both the 20 % margin and the already spent 80 % purchase price counts as profit for the ice cream. If the store can sell 1 additional box of ice cream it makes $5, since the alternative is to throw away the box. If the store sells one additional carton of instant hot chocolate it only makes $1, because the alternative was to order less hot chocolate next week, and thus avoiding the $4 expense it would mean to buy an extra unit. Because of this the store should keep selling the ice cream if it is more than 20 % as effective as advertising for the instant hot chocolate. Also you shouldn’t throw food away.
If you liked this post or any other post feel free to click the “follow” button to the right to stay tuned to new posts when they appear. You can also follow me on Twitter as @vetleen.
Wednesday, 21 October 2009
How to decide the size of your marketing budget? or Viewing marketing as an investment instead of cost let you make a better decision
I, and I suppose most of us, have often heard people asking questions along the line of “What is a reasonable marketing cost as a percentage of revenue?”, which is an interesting angle to determining marketing spending. I would argue that if marketing only represents a cost for you then you might as well cut it out. The purpose of marketing, as I am sure most people would agree, is to make more money. Thus, marketing should be viewed as an investment. Marketing as an investment is difficult to understand, partly because the long term effects are hard to measure.
I would pose that if you knew exactly how much you would have to spend in marketing to get one extra sale then you would be able to determine your marketing budget quite easily and logically. This however, to the dismay of many marketers, is a difficult and often impossible task. But if we stick to the economic assumption that the first marketing activity you buy is the one that gets you the highest yield/cost ratio, and when that resource is exhausted you move to the next best, then the marginal returns of marketing does decline. In this case the marginal ROI (the derivative of ROI) will eventually reach a point in which adding extra money to marketing, is equal to adding that extra money to the second best investment (let’s say new production facilities, or a better webpage or whatever). Identifying this point is of course impossible for most businesses.
One way to approach logical thinking is to ask, if I add x money to the budget, how many more customers will that buy me? And if so, what happens if I add 2x, and so forth. Correspondingly, you should ask, if I don’t add x, what else could I use that money on, and how would that effect the value of my business? What if I remove x? The problem with this approach is that it may to some extent be based on a gut feeling rather than on actual performance metrics, in a scientific sense, but still this may be a better way to think about marketing. I would also like to note that the practice of assigning a given percentage of revenue, or budget or whatever to marketing is one that is widely criticized, because it does not look at what your business actually needs. The main lesson here is to think “what does that next dollar buy me?” and “what else could I have bought for that dollar?”.
I would pose that if you knew exactly how much you would have to spend in marketing to get one extra sale then you would be able to determine your marketing budget quite easily and logically. This however, to the dismay of many marketers, is a difficult and often impossible task. But if we stick to the economic assumption that the first marketing activity you buy is the one that gets you the highest yield/cost ratio, and when that resource is exhausted you move to the next best, then the marginal returns of marketing does decline. In this case the marginal ROI (the derivative of ROI) will eventually reach a point in which adding extra money to marketing, is equal to adding that extra money to the second best investment (let’s say new production facilities, or a better webpage or whatever). Identifying this point is of course impossible for most businesses.
One way to approach logical thinking is to ask, if I add x money to the budget, how many more customers will that buy me? And if so, what happens if I add 2x, and so forth. Correspondingly, you should ask, if I don’t add x, what else could I use that money on, and how would that effect the value of my business? What if I remove x? The problem with this approach is that it may to some extent be based on a gut feeling rather than on actual performance metrics, in a scientific sense, but still this may be a better way to think about marketing. I would also like to note that the practice of assigning a given percentage of revenue, or budget or whatever to marketing is one that is widely criticized, because it does not look at what your business actually needs. The main lesson here is to think “what does that next dollar buy me?” and “what else could I have bought for that dollar?”.
Saturday, 5 September 2009
Predictable irrationality: Why we are wrong!
A central theme in marketing as well as leadership is the question of: how do we make decisions? It seems suitable to kick of this new blog by saying some words about this. For most people that have either studied psychology or business it seems like a cliché to say that humans have long been looked at as rational actors, when we are really not. Stating this over and over has little or no value, but the question is: why are we systematically wrong? This is a topic that is intriguing to me, and the other day I came over a series of short lectures (13 x >5 minutes), that shed some light over this question, the introduction follows:
To see all the chapters go to http://www.predictablyirrational.com/?page_id=7. Click the pictures on the right to open the videos, I recommend viewing them in the order they are presented.
Lecture by: Dan Ariely, author of "Predictably Irrational" and Professor of Behavioral Economics at Duke University
To see all the chapters go to http://www.predictablyirrational.com/?page_id=7. Click the pictures on the right to open the videos, I recommend viewing them in the order they are presented.
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