In a meeting of the engineers and creative folk, I was recently reviewing the fantastic success we had in growing our product portfolio and reaching nearly 5 million users per month. I dangerously mixed metaphors and summed up our accomplishment by saying “our secret sauce is that we know how to dance.”
What I meant was that we execute idea after idea for communicating our value and getting more customers. In so doing, we rapidly iterate over each concept with minimal up-front effort, while tweaking for performance. Some of these ideas are winners, which we invest more time in. Some are not clear winners, but don’t take a lot of time, so we let them be. Some other mechanisms that we try just perform badly, so we withdraw them. This is a dance. As we do it we find that over the passage of time, the center of gravity of our operation changes, step by step in the (otherwise hidden) evolving direction of the mar-ket. The fact that we gather data on many different strategies simultaneously gives us the information we need to act smart and choose the best options. In the absence of multiple simultaneous outreaches into the market, we would be less likely to perform well. It would be a matter of chance when what we were doing worked (or didn’t). We increase the odds of success proportionate to the number of things we try. Key is that each of these efforts is relatively small in terms of resources employed.
A core strategy for finding and capitalizing on a business model that works is to actively iterate through variations of ideas and strategies to connect with cus-tomers and fulfill their needs. It is important to always keep feelers out in the
market for changes. Adapt as the market changes to avoid drastic and painful adjustments later. This means building in feedback mechanisms to keep you connected to the pulse of the market, as well as a set of measures that will help you to detect change as it happens and before it becomes any kind of threat to your survival.
Here are some examples of feedback mechanisms:
• Talking to your customers
• Tracking classic performance metrics such as sales, visi-tors, cost per lead, cost per sale, and inventory levels.
• Tracking the performance of each marketing source (e.g., separate phone numbers for different campaigns)
Your data collection is only useful if it alters or has the potential to alter your decision-making. Clearly, the most relevant and meaningful data in the world is useless to you if you do not have a willingness to allow it to change how you do things. If you are going to go to the effort to gather data, couple that with a commitment to listen to it and to act on what it tells you.
Let’s boil this down by looking at Figure 2-4. There are three iterative phases of operation for a business strategy: exploration, refinement, and repetition.
Figure 2-4. The phases of forming a business strategy
Exploration is when you are not sure what will work. You are putting out fee-lers to find what the market will respond to. Refinement is when you have found a way of touching your customers that has promise, and you are tweak-ing it to make it sharper and better. Repetition is when you have explored and refined, and hit the point of diminishing returns on tweaking a particular activ-ity. Once you have something that works, you repeat it for as long as the mar-ket will bear it. Successful businesses are based around this cycle, sometimes running dozens of such cycles in parallel.
■ Note Your business is like a living organism. If you understand it as such, and treat it as such, you will play Charles Darwin and search for opportunities to evolve by pushing the boundaries of what you understand, and what you are capable of doing. You will treat this evolutionary research and adaptation as a core component of your operations.
A feedback loop is a system in which data is collected at regular intervals, and that data is used to correct or alter the conduct of your business at regular intervals. This is the same type of system that governs all living creatures, both great and small. If it is good enough for nature, it is good enough for your busi-ness. Beyond that, I would say that multiple feedback loops are required for you to be successful in any business venture that has even a medium level of complexity.
The result of active feedback loops, and general feedback from all sources, will likely be a series of stages of evolution over time. This is adaptation, just as a living organism will adapt to its environment as the environment changes. Pay attention to two rules here:
• Avoid doing something today just because it was what you did yesterday. Be open to changing any process or aspect of your operation if needed.
• Experiment with low-risk feelers into new and untried activities. Set aside some of your capital to dedicate to novel gestures that can connect you to your existing mar-ket or altogether new marmar-kets in ways that you have not tried before. This is very important. Constant experimen-tation is the cornerstone strategy for moving beyond sur-vival and becoming a standout success among your peers in any kind of business. You will find business ideas that fail, some that break even, and a few that will really work.
The best ones will eventually become core to your operation, while some things that you do today will eventually become obsolete and you will stop doing them altogether. This is fundamental.
Takeaway: Search for low-cost opportunities to try to connect with your customers. Gather data to improve your business, but do not make the effort to gather data on a process or facet of your business if you know it will not affect your decision-making.