What doesn’t get measured… doesn’t exist?

Many of us have heard the saying “What gets measured, gets managed”. A simple, yet powerful thought. With a simple corollary – what doesn’t get measured, doesn’t get managed.

But last week I heard an interesting anecdote that drove home the power of measurement. In reality, the corollary is far more extreme. In the eyes of the person responsible, what doesn’t get measured… doesn’t really exist.

 

But before we get into that, let’s take a second look at Peter Drucker’s statement.

What gets measured gets managed - Peter Drucker

In just five words, he captures an overwhelming amount of insight. On human behavior, cognitive biases, the power of incentives, and the strength of a goal-driven approach.

If you want something done, measure it. If there’s an objective number representing the outcome of your actions, you (or your team or partner) will automatically work towards improving it. If you’re assessing something subjectively (or not at all), then progress will never happen.

 

We see scores of examples of this, across our personal and professional lives:

A. Choose an objective metric

  1. If you need to exercise more, then don’t just tell yourself to do that every day. Track your activities. A guy I know walks up and down his office building five times every day, just so he can hit the step goal on his Fitbit.
  2. If you want to increase user engagement on your app, look at your Daily Active Users or Monthly Active Users metrics. Run experiments to increase them. Don’t directly start integrating fun-and-games mechanics without an objective goal.

 

B. Choose the right metric

  1. If you want to lose weight, don’t just count calories. Instead, count the amount of simple carbs you’re eating. [Aside: this is an excellent layman’s book on the subject].
  2. If you want your salespeople to increase sales, don’t measure the daily hours they clock. Count the amount of sales they make. Else, you’ll have diligent workers… who use Facebook 8 hours a day (9-5, on the clock).

As they say, “track it till you crack it” (it rhymes, so it must be true).

What doesn't get measured

But I heard a surprising story last week about Indian broadcast media. It underlined the power of the measure, or in business jargon, the Key Performance Indicator (KPI). It showed how, when marketers can’t measure their impact on a market, they all pretend it doesn’t exist. Even though they know full well that the market is substantial.

 

First, some quick background on the Indian broadcast market.

Traditional audience measurement was flawed

Till recently, TV broadcasters and advertisers in India measured impact of TV programming using an agency called TAM. TAM had special set-top boxes installed in 20K households across India, which tracked data on TV watching habits.

Using this, TAM could tell broadcasters how many people, in which cities, were watching which show. Broadcasters were incentivized to produce content that generated high TAM scores, so they could show this data to advertisers and demand hefty ad rates.

It was a useful KPI, aligning incentives all round. Except for a tiny problem – TAM’s sample was urban-centric. In a market where the rural populace forms a sizeable proportion of TV watchers.

 

Broadcasters recognized this problem, and fixed it

Since TAM placed disproportionate importance on urban TV viewing, it was clearly unrepresentative. And the powers-that-be knew that. So, in the last two years, the industry created an alternative – the Broadcast Audience Research Council, or BARC.

BARC looks at a much larger sample, including a sizeable rural proportion. The system rolled out just recently, with an objective of giving a clearer picture to broadcasters and advertisers.

 

Instantly, broadcasters started generating new, “rural-focused”, content

Here’s where it gets interesting.

As BARC launched, more and more shows with supernatural elements started appearing on TV. Even existing shows, whether staid family dramas or comedies, started having occult “tracks”. This is what happened in 2015:

  1. New shows were launched, like Darr Sabko Lagta Hai (“Everyone gets scared”), Naagin (rough translation: “serpent woman”), etc. In fact, Naagin was one of FOUR new shows about serpent-women!
  2. Many ongoing shows started introducing supernatural elements. Not only daily soaps (or saas-bahu shows as we call them in India), but also comedies.

 

Why did this happen? The reasoning goes – ghosts, serpent-people and others are integral parts of age-old Indian folklore. These beliefs are still a major part of rural lives. Hence we’ve introduced them to create a better connect with the new rural audience.

Disregard the blatant stereotyping for now (we’ll come back to it later). Assuming that this is what the rural audience wants, the logic makes eminent sense.

 

Except for one trivial detail.

The rural market is not new!

It has existed for some time. The 2011 Census showed that the no. of rural households with TVs were as many as urban. A major satellite TV company, Dish TV, said in 2013 that 50% of its connections were in rural areas.

Why then was television content urban-focused? Why were there no shows targeting the rural populace?

 

Because rural wasn’t measured.

The only number available was the urban-focused TAM, which was out of step with reality. And producers of TV shows, in full knowledge of this fact, nevertheless used it. There was no other number, so they followed this one. Single-minded and unswerving, like mice following the Pied Piper.

A classic example of availability bias.

What does this mean for us? We need to be more careful than ever in choosing our KPI – the True North that we set our sails by.

If we don’t choose the right metric (or worse, choose the wrong one), the outcomes will be the antithesis of our objectives. No matter how well-meaning we or our colleagues are.

 

Coming back to our rural stereotype, we’ll find out how true it is in the coming months. If it isn’t, expect the broadcasters to nimbly eliminate the black magic tracks from their shows. It will be managed adeptly. After all, it’s getting measured now.


PS. I couldn’t help but see the link to quantum mechanics. At sub-atomic scales, things don’t exist until they are measured.

PPS. And in this article that first seems to be about politics, Scott Adams explains why this means our reality is probably a computer simulation.

Related Posts:

Does a great market really pull product out of a startup?

Large market

Over the last few years, I’ve been quite interested in the startup investing process.

At the trivial level, understanding the investing process could help struggling entrepreneurs (like me) raise funding faster. And, assuming that this investing philosophy does pick winners, this could also teach us what kinds of businesses tend to make it big. And we could then apply those patterns to our own businesses.

Marc Andreessen wrote a landmark article in 2007, on the only thing that matters. If you haven’t read it, go do so now. I’ll wait.

 

I re-read this article every few months. One line stood out to me the first time itself (and every time since).

He channels Andy Rachleff (Co-founder of Benchmark Fund, one of the most successful VCs) in his article, saying:

When a great team meets a lousy market, market wins.
When a lousy team meets a great market, market wins.
When a great team meets a great market, something special happens.

Thus, of the three key dimensions of a startup opportunity – market, product and team – market is far and away the most important aspect.

What’s the takeaway for an entrepreneur? Take aim at a humongous market, and put your head down and execute.

But is that true? Is targeting a large market the only important factor? Are the team, technology, etc. not as important?[1]

Is large market the most important factor?

It certainly is, according to the conventional wisdom. According to Andy Rachleff, again [emphasis mine]:

The best investments have high technical risk and low market risk. Market risk causes companies to fail. In other words, you want companies that are highly likely to succeed if they can really deliver what they say they will.

Don’t take market risk – i.e., aim for markets that are already large. Instead, take tech risk – where the product itself is hard to create.

This sounds great, and is a commonly accepted truism. And it also seems to be common sense.

But, again, is it true?

 

One way to settle this is to look at the performance of venture capital over time. As they say, nothing talks like money. But a quick look at VC returns can be quite sobering.

The Kauffman Foundation reports that VC hasn’t outperformed public markets since the late 1990s. In fact, since 1997, VCs have returned less cash to investors than they invested!

Could it be that this VC approach of taking high tech risk but low market risk isn’t working? 

 

Tech matters (more)

I’ve just finished reading Crossing the Chasm, Geoffrey Moore’s landmark book. He presents technology adoption as a bell curve, with a few “gaps” between segments.

Chasm ModelIt’s easy to get the innovators and the early adopters. They want to be the first to try new technologies, so they’re primed to be convinced. You start hitting the main market only with the next group, the early majority.

Moore’s key insight is that it’s not natural to move from the innovators and the early adopters to the early majority. That’s why there’s such a huge chasm between these segments in the image above. A graveyard of companies that show great early traction, but suddenly hit a wall and collapse into the chasm.

His model suggests two pointers for technology companies:

  1. Building a version of the tech, and serving innovators and early adopters, comes first.
  2. The real challenge is crossing the chasm. You need to find a specific application to solve the early majority’s existing problems. This market isn’t visible or obvious at first – you need to create / discover it.

Thus, tech companies don’t take tech risk. They take market risk. If they find a big market, they succeed big. If they don’t, they fail. 

Jerry Neumann has written an excellent history of venture capital in the 80s. He makes a few similar observations (I paraphrase):

  • Whenever VC returns peaked, the driver was high market risk. Would there be a big market for computers (60s, Intel)? Would there be a big market for PCs (70s, Apple, Microsoft)? Would biotech become big (Genentech)? Would the Internet reach the masses, or would it remain a plaything of the elite (90s)?
  • These markets may seem inevitable today, but that’s just hindsight bias. Ask Ken Olsen. Or Thomas Watson. Or anyone in this article.
  • In most cases, investors didn’t take tech risk. Often, they found already-working products. Apple’s technology was already working when it raised funding.
  • Whenever VCs tried to reduce market risk to stabilize returns, they failed. For example, in the 80s, they entered more traditional, massive industries like retail. Result: returns were consistent and stable. But bad.

Thus, VCs didn’t often take tech risk. They preferred technologies that were already proven, and showed promise. And whenever they tried to reduce market risk by entering existing large markets, they failed.

At the end, Jerry summarizes:

The only thing VCs can control that will improve their outcomes is having enough guts to bet on markets that don’t yet exist. Everything else is noise.

There is no reason anyone would want a computer in their home – Ken Olsen, Founder, DEC

There is no reason anyone would want a computer in their home – Ken Olsen, Founder, DEC

Peter Thiel’s Founders Fund adds its own voice to the argument. It highlights how, from the 60s to the 90s, VC was a predictor of the future. Today, though,

VC has ceased to be the funder of the future, and instead has become a funder of features, widgets, irrelevances. In large part, it also ceased making money, as the bottom half of venture produced flat to negative return for the past decade.

When you focus on incremental innovation, for a market that’s here and now, returns fall.

 

And last, Paul Graham makes a similar point, even more indirectly:

When something is described as a toy, that means it has everything an idea needs except being important. It’s cool; users love it; it just doesn’t matter. But if you’re living in the future and you build something cool that users love, it may matter more than outsiders think. Microcomputers seemed like toys when Apple and Microsoft started working on them… The Facebook was just a way for undergrads to stalk one another.

I alluded to a similar point in a previous article, where I said that you must target a deep need for a narrow population, rather than a shallow need for a broad one.

What about the team, then?

As a VC friend of mine was quick to remind me when we discussed this, the quality of the team is incredibly important!

Large Market or Strong Team

But this quality is not theoretical or bookish. It’s not about which Ivy League school you graduated from. Or even whether you have a string of successes under your belt (at least in consumer).

Instead, it’s about three things:

  1. How driven you are. Will you overturn that 99th stone to find the gold mine? Or will the first 2-3 pivots fatigue you? Your initial ideas for tackling a problem will rarely be right. You’ll need to persist: find a new beachhead, and wade in again.
  2. Are you willing to learn? Again, you won’t be right the first time. They say industry knowledge is a great unfair advantage. True, but it’s also a double-edged sword.
  3. Can you execute?

 

So what’s the conclusion?

Which of these three is the most important?

The ex-consultant in me would answer, “all three”. And he’d throw in an “it depends” for good measure.

But it appears the conventional VC wisdom, of taking tech risk but not market risk, is wrong. As the Founders’ Fund article above says, the current trend of funding incremental innovations and more efficient solutions for existing markets is what has pushed VC returns downwards.

And what does this mean for entrepreneurs? Instead of trying to build something for large markets that VCs seem to be interested in, “swing for the fences”. But not in the conventional sense of aiming for large markets. Instead, try and piggy back on emerging trends that could become waves.

Sure, you’ll probably strike out. But should the market materialize, you will laugh all the way to buying the bank.


I’d love to hear your opinions. If you’re an entrepreneur or startup investor – what’s your stand on market risk vs. tech risk? Do email me at gt.jithamithra@gmail.com, tweet at @jithamithra, or comment here. I’d love to publish a follow-up sharing your opinions.

Thanks to Aditi Gupta and Abhishek Agarwal for commenting on drafts of this post.

[1] This article is about VC backable startup, and not a small business in general. Many great cashflow businesses (e.g., auto dealerships, general manufacturing) are often not high-growth businesses that can return 20x on invested capital, and are therefore not VC backable. See this article for a great description of such businesses

Related Posts:

How ratings result in worse, not better, customer service

A few weeks ago, my wife and I were in Galle, Sri Lanka for a much-awaited vacation. We chose a villa with great reviews on TripAdvisor. It seemed a decent place. A little far from the main town, but the hosts were quite friendly.

But we couldn’t get much sleep any of the nights we stayed there, because our room had bedbugs.

After we came back from the trip, we made sure to rate the place. We left not one, but two ratings (one each from my wife and me). Both of them were 5 stars.

Wait, what?

Did we enjoy getting bitten by bedbugs?

I was surprised too. Not just at my own rating, but at other ratings on TripAdvisor too. This place was one of the most recommended ones in Galle!

So how did this happen? How did I – and all the other guests – rate inferior customer service so highly?

 

Do ratings work?

The prevailing wisdom is that ratings work. That’s why they are everywhere. When you open an app on your Android phone, it asks you to rate it on the Play Store. Complete a ride on Uber, and you have to rate your driver. Order something from Amazon, same story. Open your inbox after a long vacation, and what’s the first email you see? A message from either your airline or hotel, requesting you to rate your experience.

Blog00001

I’ve always found the act of rating quite empowering. The equation is simple – if you can rate a service provider in public, he has every incentive to ensure that you get great service. Right?

Well, after that incident in Galle, I realized that ratings may not result in better customer service. In some situations, they may be worsening it.

Wait, how does that make sense?

 

I’ll explain. But first, let’s agree on two key facts about ratings.

1. Ratings have an impact on service providers. That’s one reason they’re ubiquitous. Drivers on Uber do get blacklisted for low ratings. Top-rated hotels on TripAdvisor do get ten times as many bookings as lower-rated ones.

2. Customers know ratings have an impact. This makes them capricious (this Verge article calls them – us – entitled jerks). To see this, you only need to see a few app reviews. Sample these ratings on Circa (an app that used to provide summaries of important news):

Blog00002

Ratings are supposed to highlight how good an app is. But no, sometimes you get a 1-star for an innocuous review request.

This customer fickleness is not just an app store phenomenon. As the Verge article says,

We rate for the routes drivers take, for price fluctuations beyond their control, for slow traffic, for refusing to speed, for talking too much or too little, for failing to perform large tasks unrealistically quickly, for the food being cold when they delivered it, for telling us that, No, we can’t bring beer in the car and put our friend in the trunk — really, for any reason at all, including subconscious biases about race or gender.

Please the customer, and hope for the best

The fact that we wield a strange amount of power and know it, turns upstanding, proud cab drivers and B&B hosts into fawning, obsequious and servile slaves. You can’t jilt or offend a customer in any way. A single misstep, and you get a 1-star rating. Not a 4- or 3-star. Your last five customers may have given you 5 stars, but this single rating could put you out of business. In New York, Uber delists drivers from the platform if they go below a 4.5 star average!

So what is a service provider to do? Provide honest-to-God great service. And hope that nothing gets screwed up.

Blog00003

 

But there’s an easier way.

The honest approach is hard, time-intensive and expensive. And it’s subject to random whims of the entitled customer. If a customer expects Hilton service at McDonald’s rates, you’re bound to get 1 star. No matter what you do.

But there is an easier, quicker and more inexpensive way. One of the oldest psychological tricks in the book.

Dr. Cialdini, the author of Influence, calls this trick “Liking – The Friendly Thief”. Studies show that if you spend more time with a person, you end up liking her. And if you like a person, you tend to favor her in your dealings.

At a certain level, this is obvious. But that doesn’t make it any less powerful. Malcolm Gladwell cites a great example of this in Blink. Patients don’t file lawsuits when they suffer shoddy medical care, if the doctor is polite. They only file when they feel the doctor mistreated or ignored them.

“People just don’t sue doctors they like.”

So, to get a great rating, all you need to do is: (a) smile a lot and appear likeable; and (b) talk a lot, to create a human connection and familiarity.

Tried and tested. Once you get to know the service provider, you’d be a stone-hearted reviewer to leave anything less than 5 stars.

 

Nice host + bad customer service = 5 star rating

That’s what happened to us in Galle. Even though I was aware of this cognitive bias, I was powerless to counteract it.

The owner received us with great cheer. He chatted with us for hours. Always smiling and laughing (even when I didn’t crack a joke. And I’m not that funny anyway). I learned a lot about his life. I commiserated on his past troubles, and lauded him on his recent turn in fortunes.

My room still had bedbugs.

But my wife and I didn’t complain. Who can tell off such a nice guy? And when he requested us to leave two ratings on TripAdvisor, how could we refuse?

 

Talk more. Do less. Get 5 stars. Repeat.

This is just one small episode. But it sets in motion an insidious feedback loop, which could result in worsening customer service over time.

Blog00005

  1. Customer give a 5-star rating despite bad customer service.
  2. Service provider sees this as validation of his strategy. And becomes more chatty, more fawning.
  3. Soon, if he’s smart (our guy was), he realizes there’s no return on actual customer service. It’s much easier to smile and bluster, than it is to clean the room. Over time, he’ll become more talkative, and true customer service will degrade.

Woe betide the unsuspecting traveler when that happens.

Thus, ratings may have an impact that’s the polar opposite of your intention.

 

How do we break this loop?

Now, I’m sure you want great customer service. So, how can we break this loop?

Just being aware of what’s happening is not enough. You’ll only feel worse, as you continue to give 5-star ratings like a powerless lab rat.

The only way to break this cycle is to have a system of multiple ratings on different attributes, instead of one single unidimensional one.

Why would that work? For three reasons:

  1. It would force objectivity. If you’re rating your stay at a B&B separately on Cleanliness, Quality of Food and Friendliness of Staff, you’re more likely to question the halo around your host’s head, and distill your cheery feeling into its components
  2. It would give the service provider the right feedback on how to improve.

 

Ratings are here to stay. Let’s make sure they actually improve customer service. Rather than slowly turning us into smiling zombies.

Related Posts:

Clear and Present (Virtual) Reality

Final00005

I first encountered Virtual Reality in a few movies in the 90s. Characters wearing giant headsets and inhabiting virtual worlds. At that time, it seemed a creative plot device, but not much more. Till recent months, I thought of it only as a somewhat cool but clumsy gaming mechanic. It could make playing Call of Duty more immersive, sure. Till you turn your head and the surroundings pixelate.

But I was wrong.

A lot of articles today talk of the VR industry as fast coming of age. The first heavy-duty Virtual Reality headsets will hit the market in 6 months. Yes, ‘coming of age’ is a heavy cliché – Bollywood has been coming of age since I was ten. But the term has a specific meaning in Virtual Reality – ‘presence’. A VR environment achieves presence when it’s of such high quality that it tricks your brain. It’s when your mild fear of heights stops you from bungee jumping in a virtual adventure game. One minute you’re laughing at a joke from your friends. The next, you’re struck with sudden terror that a zombie’s about to eat you.

I thought this talk of ‘presence’ was idle fan-boy chatter. How can an obviously artificial image fool anyone? Then I saw this:

Looks like VR will achieve presence soon (if not already) in games. But what are the implications of this, beyond standard First Person Shooter games? Is it going to affect oldies like me who’re over games?

 

 

There’s a saying in the industry that virtual reality is the ‘last medium’. Once VR achieves presence and becomes ‘real’, you don’t need any other communication medium. You can communicate anything within VR, using just code.

If that’s the case, possibilities are limitless.

I’ve just listed a few below, off the top of my head. These are not flights of fancy. Quite the contrary. What would surprise me is if someone somewhere is not already doing all of these things.

 

1. Games + Motion Tracking

Final00003

I lied – I’m not over games. The most immediate potential is there. But not Doom in VR. When Doom first came out, I heard of people dying from shock while playing the game on a slow PC. Imagine the same in (virtual) reality – recipe for a spike in heart attacks.

Instead, simpler games could be the way to go. Just like Wii caught on with embarrassingly crude graphics in amateurish games. Combine this with motion tracking, and this could well be Wii 2.0. Mortal Kombat, where you’re actually fighting. Tip: Make sure you do this in a large room, or you’ll bust your knee on a wall.

 

2. Physical Fitness & Development

This follows almost immediately from gaming. How would you port Temple Run to Virtual Reality? With a treadmill. And what better way to learn a martial art than to spar with Morpheus? (Plus it would be a virtual rendering… of a movie about virtual reality).

But not just physical development. VR could also improve your confidence. Could a VR simulation where you defuse an atomic bomb and save a billion people improve your self-esteem?

Peace of mind is also not far away. No longer will your meditation guru say, “Imagine a sylvan paradise…” He’ll say, “Wear this headset.”

 

3. Tourism

This could well be the ‘killer app’ that brings VR to the mainstream. Can’t spare the cash for a trip to Easter Island? Experience it in VR instead. You’ll feel like you’re there. You could also make the long pending pilgrimage to Las Vegas with your best friend. Sitting at your respective desks 500 miles apart. Always scared of skydiving? Do it virtually and enjoy the thrill (and terror) from the comfort of your sofa.

But why restrict yourself to places on Earth? You could even travel to distant stars, stopping over at Pluto on the way.

And talking of space, can time be far behind? I visited some Indus Valley ruins last year and got mighty bored. What if, instead, I could go back in time and walk among the people who lived there?

Having explored all four dimensions of reality, why stop there? (Can you tell I’m enjoying this?) Dive into a book instead – Sophie’s World Redux. Experience To Kill a Mockingbird from Scout’s eyes. Or Atticus’ – take your pick. What about movies? I don’t know about you, but I’d love to say, “Why. So. Serious?”.

 

4. Education

Education also smacks of potential for virtual reality. When I was a kid, my dad got me a Dinosaur encyclopedia CD. It had videos that you could watch with 3D glasses. I loved that almost as much as Jurassic Park. But tomorrow’s kids will be able to experience all this in VR.

VR will also pave the way for a better understanding of the micro-world. A biology student will be able to take a roller-coaster ride through the esophagus. Then fall into the stomach, just in time to see digestion happen. Or zoom in a little more and see how the body’s cells function.

 

5. Occupational training – Simulators

Simulators have been in use for a long time to train pilots. But VR would bring a step-change in training and testing. You’d be able to place the trainee under pressure with a stalling engine, and see how they react. It’s one thing to know what to do in a theoretical exam. But when you actually believe you’re going to crash, we’ll see what stuff you’re made of.

We could also use simulators for physical rehabilitation after severe injuries. Re-learning movements would be much easier (and more enjoyable) if you’re playing a  game.

Parental training is another area to explore. VR and motion tracking could help test how well you’d handle a child, and teach you what to do. Maybe in the future we’ll have parent certifications too? OK, maybe I’m getting a bit ahead of myself.

 

6. Augmented Reality

Final00001

Augmented reality (AR) is a close cousin of Virtual Reality. Instead of a completely artificial world, you overlay simulated objects on the real world. But good AR is at least five or ten years away. With current processor speeds, it’s much harder to overlay virtual objects on your surroundings in real-time.

But once Moore’s Law does its thing, great AR will become possible. Once that happens, we could do a lot of interesting things:

  1. We could have real-life navigation in our cars. The correct turns would be highlighted on your glasses. Yes, this may be distracting. But we can have our little fun, before self-driving cars make all this redundant.
  2. Games could become a lot more engaging. Imagine: you’re in Rome, and you play a treasure hunt across the important monuments. The ‘treasures’ don’t have to placed anywhere. The moment you reach the right place, you’ll see them on your glasses.
  3. The next Farmville won’t be on Facebook. It may be in your drawing room.
  4. There would be business implications too. Virtual meetings will finally become a decent substitute for actual presence. You’d see perfect holograms of your colleagues around your table, as you brainstorm on the next VR product you’re going to create.
  5. Finally, the way you consume content would change completely. Remember Minority Report? A company in Florida, Magic Leap, is working to create exactly that experience. Check out this video:

I’m excited about Virtual Reality, and the many new frontiers it will unlock. But it will also unlock several opportunities to make a ton of money.

Every new communication platform creates several industries in its wake. TV created filming technology innovators, video content companies, and network behemoths. iOS and Android have fueled sharp growth in many industries – app design and development, mobile advertising, and even frameworks and systems to make app development easier.

Virtual reality holds even more promise, as it combines both technology and visual depiction. The main platforms are emerging – Oculus Rift, Sony’s Project Morpheus, and Samsung’s Galaxy Gear. Others will appear soon. This will create opportunities in many areas, including:

  1. Creation of VR content. Whether games, tourist content, or any of the ideas mentioned above.
  2. Technology to help capture the content. 360-degree camera rigs to capture VR-ready videos, apps to help you create VR videos using your phone, etc.
  3. Programming architectures to write code for VR, and frameworks / SDKs to help in VR app development (like PhoneGap for Android and iOS).

Thus, VR could be the next big thing. It could change how we consume content and travel, and afford tremendous business opportunities. And then they’ll start using it for porn.

Final00006

Hope you had as much fun reading this article as I had writing it. I didn’t think VR was a big deal, till I got to reading about it. What’s your reaction – comment here, tweet at @jithamithra, or email me at gt.jithamithra@gmail.com. Also, before I forget. I’ve put together a few interesting articles on VR in my newsletter this week. Check it out here.

Related Posts:

  • No Related Posts

What strategy consulting for big businesses taught me about… starting up?

[This article first appeared in YourStory.]

Presentation

Strategy consultants are a much maligned lot in the startup and business world. Over the five years I spent at the Monitor Group (a strategy consulting firm started by Michael Porter), I heard various complaints:

  • How can a young consultant say anything useful to an industry veteran?
  • What’s the use of a plan that’ll take five years to execute?
  • Consultants don’t do anything except make slides.
  • You don’t know how to make decisions. Sure, you can advise people…
  • You never put your money where your mouth is. (I think Paul Graham meant this, when he called management consulting a version of ‘gaming the system’).

I heard many such comments during my tenure, from friends, relatives, and chatty fellow travelers on long flights. And seeing how we addressed these complaints at Monitor – while advising large conglomerates in established industries, paradoxically enough – prepared me for starting up.

1. It doesn’t matter who you are or what you know. You need to have a hypothesis, and be ready to learn.

When I started in strategy consulting, the first thing that struck me was the novel, hypothesis-based approach.

Hypothesis-Based Approach

Hypothesis-Based Approach

Coming from an engineering background, I was used to the deductive approach – start from what you know, and proceed towards conclusions. But a hypothesis-based, inductive approach starts from the other end – you make some predictions, and then proceed to test them (and modify them as needed). This data-driven learning approach is a great complement to industry understanding. That’s why companies hire strategy consultants – to hold up a mirror to their beliefs, test them, and help company executives understand how the industry’s evolving.

Performing this process – of making predictions, being proved wrong, and correcting them – repeatedly over multiple projects gives you a healthy appreciation of your own ignorance. I’ve found this invaluable when starting up – I may not know the right answer, but I know how to test my beliefs and work my way there.

2. You need to be OK with uncertainty.

One of the differences between strategy and operational consulting is the timeframe – strategy is more long-term. The industry trends you bank on may play out over 3-4 years – some may not have even started yet. So there will be ambiguity. But you still need to make some bets, and find creative ways to validate (or invalidate) them – talk to industry experts, observe trends in related industries and evolution of similar economies, etc. But none of these will give you the perfect answer – you need to ‘satisfice’. Thus, not only do you not know the answer starting out, but you also may never know the answer with certainty.

And it’s the same at my startup – I don’t know if my product is going to be loved, hated, or worst of all, ignored – first by early adopters, then by followers, and then the rest (if I get that far). But I’ll keep plugging away, and figure out ways to run small tests often to ensure I’m on the right track.

 

3. Serving your clients’ needs is your foremost objective.

Ignoring the double entendre for a bit, client service is the priority in consulting – I heard this all the time from Partners at Monitor. Whether it’s sudden weekend work or an ill-timed field visit, you do it if it benefits the client.

Today, I have a consumer-facing Android app. Every once in a while I get a caustic review, or a needlessly harsh 1-star rating. But it’s not my place to rail against unreasonable users – if I focus on serving them well, then I hopefully won’t have to worry about these ratings in the future.

 

4. Brevity is the soul of communication.

Quote

Naysayers are true when they say consultants make a lot of PowerPoint slides. Boy, did I make a LOT! But the thing about slides is that, unlike a Word document, there’s limited space. So you need to make your point succinctly. And you need to say first up why that message is important (or as they say at Monitor, you need to bring out the ‘so whats’).

I’ve done my 10,000 hours of slide-making. I’m still far from a genius at it (Gladwell was wrong), but knowing how to deliver the key message upfront and in as few words as possible is a very useful skill at a startup. Whether it’s in crisp emails to potential clients, high-impact copy for Facebook ads, or elevator pitches to investors with short attention spans, brevity is invaluable to startups.

 

5. Ideas are worthless. Execution is key.

I know this sounds very ‘global’ (and it is – I won’t lie), but project after project has taught me that the best-articulated strategy can stop making sense once you start implementing. There was one case where we designed the strategy and left, and the client came to us after a few months saying everything is shot to hell and can we please come back and help them. We could definitely have done better – it was our responsibility to devise a plan that the client could implement, and explain it to the client’s team.

But the larger learning for me was that your plan doesn’t matter so much; it probably wasn’t rocket science to begin with. But you need to be able to execute on it effectively. It needs to be ‘actionable’.

In the same article where Paul Graham says that management consulting is gaming the system, he also mentions the similarity to college. And while I may not fully agree with his first comment, his second is spot on. A strategy consulting firm is one of the best finishing schools you can go to, if you want to build a business of your own someday.


What do you think? Did these learnings resonate with you? And did I miss anything? I’d love to hear what you think – mail me at gt.jithamithra@gmail.com, tweet at @jithamithra, or just comment here.

 

Related Posts:

Yes, rewards motivate people. To get more rewards.

Hello! I’m finally back to blogging, after a short hiatus to focus on my app’s launch. It’s been a topsy-turvy few weeks with several delays, but we’re now only a week away from launch. Hopefully.

Delays beyond your control can be quite deflating when you’re waiting for the culmination of months of effort. But it’s at times like these that it’s most important to keep your shoulders to the wheel – even when things are not fully in your control, you need to do everything you can.

In this sense, the last few weeks have been a microcosm of the entire starting up experience – unless you’re Elon Musk, luck and other external factors will play a significant role (often more than your otherwise significant efforts) in success or failure. What you can do, is stay on the field. And that requires motivation.

Hard at work

Motivation is a strange beast. I used to think that decent pay and bonuses are good motivators, but here I am, grinding away with no income. And I’m enjoying myself. Clearly, there are some intrinsic factors at play that keep struggling entrepreneurs in the game (hopefully not foolhardiness though).

I’ve wondered about this quite a lot over the last 2 years. But a lot of my questions were answered when I read Drive a few weeks ago. This book, written by Daniel Pink, explores what really motivates us, based on findings from scientific research. [Hint: it’s not money and bonuses]. I’d recommend this book to everyone – understanding what motivates people has pretty direct implications for how we manage our employees, our bosses, our customers, our families, and everyone else we interact with on a regular basis.

 

But this isn’t a book review or summary. Ever empathetic to the busy reader, Pink himself has included summaries (both Twitter and cocktail party variants) at the end of his book. Instead, I would like to dwell a little on one aspect – his discussion on extrinsic motivation. I found it fascinating to understand some of the pitfalls of extrinsic ‘carrot’ rewards like money and bonuses.

Pitfalls_Extrinsic_Motivation

1. Money drowns out intrinsic motivation and performance.

Research shows that even if you innately like a task, being paid for it actually reduces how much you like it. I was surprised by this result, but some others intuitively get it. For example, one person I know loves baking in her free time, but doesn’t want to do it full-time – she feels that the pressure of earning money will reduce the pleasure she gets from baking.

Rewards perform a weird sort of behavioral alchemy – they can transform an interesting task into a drudge, a fun assignment into a bore, and play into work. And by reducing intrinsic motivation, they can send your performance and creativity toppling like dominoes. What’s more, you’ll now only do these tasks if you’re paid for them. [Note to parents – don’t pay your kids for household chores]

2. Extrinsic rewards give a short-term boost. Like a jolt of caffeine, they’re particularly useful when a deadline is looming. But like the energy crash that inevitably follows a post-coffee frenzy, long-term motivation and performance will also fall.

3. ‘Carrots’ can become addictive.

Offering an extrinsic monetary reward for a task signals that it is undesirable (if it were desirable, would you need a carrot?). And this, to resort to cliché, is a slippery slope. Offer too small a reward, and they won’t comply. But offer a reward that’s enticing enough the first time, and you’re doomed to offer it forever.

But the bad news doesn’t end there. Once the initial money buzz wears off, this will feel less like a bonus and more like the status quo. You’ll then have to offer ever-larger rewards to get the same task done, just like the nicotine addict falls into the vicious cycle of more and more cigarettes to get his ‘hit’.

 

4. Rewards promote short-term thinking

Donkey and a carrot

Once there’s a carrot in front of you, that’s all you’ll see, at the expense of more long-term objectives. Just like the auto mechanics who conduct unnecessary repairs to meet their sales quotas. Or, more terrifyingly, Delhi’s monster Blueline buses which went on a killing spree, all because of an innocuous incentive to ply their routes quickly.

5. However, extrinsic rewards aren’t completely useless. If the task at hand is process-oriented, like filing documents into folders, then an incentive can speed you up and reduce your Facebook / power nap breaks. But if a task is creative, then monetary rewards have the effect of narrowing your thinking – when what you require is the exact opposite.

6. When you attach a bonus to a target, you may increase the probability that it will be hit (at least if the task is process-oriented). But you almost guarantee that the target will not be surpassed. Your teams will work hard to meet the target. But no further.

 

Thus, over a basic threshold of the amount needed for basic comforts and happiness, monetary incentives can work negatively. This has deep implications for how we manage our teams, employees, families, etc.

Team

 

We could now talk about what does motivate people. But why don’t you read the book for that? Let’s do something more interesting instead – let’s predict what these findings mean for some of the trends in our economy.

a. E-commerce: If your value proposition is ‘lowest prices’, don’t expect any loyalty once that becomes untrue. Case in point: Deep discounts in Indian e-commerce today are themselves hurting brick-and-mortar discount retailers.

b. Many heavily funded startups are spending equally heavily to acquire employees and customers. But these efforts may have a short shelf life.

    1. If you’re throwing money at employees, you should expect that you won’t retain them over time, and that performance will suffer in the interim. Unlike large companies, work at startups is not algorithmic and process-oriented – you need someone who reigns in (and reins in) chaos.
    2. In their bid to conquer the mobile space, many companies are incentivizing app downloads by the millions (yes, users actually get paid for downloading apps). Even if these investments boost vanity metrics today, results will tail off very quickly, as users begin to install apps just for the rewards, and then never use them again.

Throwing away money

c. If you do have to use incentives, design a mix of long- and short-term targets, and make them harder to game.

    1. App marketers could incentivize use of the app over time, and not just installs. Give a bonus on the first major activity, rather than on ‘Install and use for 30 seconds’.
    2. In a corporate sales scenario, bonuses could be driven by both new sales and customer churn, to promote longer-term customer management vs. one-time discounts.

d. But even when promoting use, a monetary incentive is bad news. Just like Drive showed, if you create incentives around specific targets, people will work hard just to meet them, and no more.

A case in point is the Indian government’s drive for rural toilet construction (a strong interest area of mine – see this). Over the last 15 years, the government has given ever-increasing incentives for toilet construction – starting with Rs. 200-400 in the early 2000s, to Rs. 12,000 today. But they’ve seen large numbers of toilets being used as anything but – often as store-rooms or an additional room. People have just constructed ‘toilets’ to pocket the incentive.

Yes, this is a toilet!

Yes, this is a toilet!

Many stakeholders are now trying to move the incentive towards usage – e.g., a part of the reward comes to you only if you’re still using the toilet 3 months after construction. While this idea sounded great the first time I heard it, I now fear it may also be doomed to fail. This effectively destroys intrinsic motivation to use a toilet (which there otherwise would be – it is indeed far more convenient than open defecation). People will feel they’re being paid to defecate at home because that’s the less comfortable thing to do. When the incentives stop, use will fall too. Bringing us back to square one.

 


Extrinsic rewards are undoubtedly simpler to design – what’s easier than throwing money at a problem, in these profligate times? But Drive serves a timely reminder that as in most other areas, only the hard work of creating intrinsic motivation will bear fruit.

Hope you found this post interesting. Can you think of any other implications of extrinsic ‘carrot’ rewards? Do share in the comments. You can also email me at gt.jithamithra@gmail.com or tweet at @jithamithra. Until next time, then!

Related Posts:

Why Taj is the best customer service company in the world

I stayed at a Taj Hotels property in Delhi last week, for a conference. And I was blown away by the customer service there. Thinking back to my days as a business consultant, I stayed at several hotels across the price spectrum while traveling. But Taj hotels – whether Gateway, Vivanta or the higher-end ones – were always head and shoulders above the next best ones. Why, even when I’m just visiting a Taj for a meeting, the customer service there is superior to other hotels that I may actually be staying at.

But this post is not about why Taj is the best hotel. It’s about why it’s the best company, across sectors – how it embodies customer delight like no other company.

Taj

Over the years, I’ve interacted with a bunch of companies that excel at customer service. Amazon, for one, always has me marveling at how wonderfully well it treats its customers. Whether the big stuff (the ridiculously good deals that it offers with Prime and the Kindle) or the small (you don’t have to call Amazon if you have any issues; rather, they call you), Amazon has got your back. Many of Amazon’s customer service decisions fly in the face of its bottom line, but they are guaranteed to make customers happy – and Amazon always trades off in favor of its customers. It’s not for nothing that its stated vision is “to become the Earth’s most customer centric company”

But whether Amazon or Zappos (which introduced the “Try different shoes, and send back the ones you don’t like” model), excellent customer service feels ‘processified’. So, over time, these become expected and fail to surprise you anymore. So, while you would become a loyal customer of Amazon (I am), you’d not necessarily become an advocate (I wouldn’t write a blog post solely extolling its virtues). This is excellent customer service no doubt, but it’s not customer delight.

With Taj hotels, on the other hand, customer delight is present in every interaction with guests. The staff – whether in housekeeping, at the restaurants, or room service – all perform random acts of kindness that leave you surprised. So, rather than a customer service process, a customer service culture shines through. When I was preparing for this post, I could remember at least 10 examples of how their customer service left me spellbound. I won’t share all 10 (I wanted to write a short post for a change), but here are a few:

  1. An ex-colleague of mine broke his suitcase trolley while in Nairobi on a project. He tried everywhere, but couldn’t get it fixed – the standard advice was “Buy a new suitcase”. After two weeks of lugging it around on one wheel, he had become inured to the inconvenience. But the moment he entered the Taj Palace in Delhi, the bellman came up to him and said “Can I get that fixed for you?” This was over 4 years ago, but he still uses that example to highlight the ‘jugaad’ innovation approach in India. I think, though, that the lesson is far deeper – he would not have received the same response at every other hotel.
  2. During my most recent visit, the waiter at breakfast remembered that I had ordered a dosa on the first day and brought it to my table himself the next day. I marveled to myself for a bit about how, among a multitude of guests, he remembered what I wanted. But when I started eating, I realized that he had also remembered what chutney I hadn’t touched the previous time – it was missing from my plate! I was quite spellbound at the detail-orientedness that goes into their customer service (and remember, they don’t have big data algorithms churning at the back!). And this is not necessarily designed to show every customer they care – if I wasn’t similarly detail-oriented, I may not have noticed. This is not lip service customer care – they genuinely want guests to feel comfortable.
  3. From the previous example, you may have guessed I have OCD. But the hotel housekeeping staff didn’t know that. Yet, when I returned to my hotel room after a conference session, I noticed that they had velcro-ed all the stray charging wires I had left hanging from plug-points. A great convenience, but one many guests are liable to not notice. But ones that do are guaranteed to be pleasantly surprised at how customer delight permeates every single interface with the Taj’s staff.
  4. This stellar customer service is not restricted to the hotel’s guests. I had a meeting at a Vivanta once, and I was an hour early. I ordered coffee at the hotel’s restaurant, and was quite a prima donna about it – I asked them to bring it to the lobby (quite a distance away), as there were no free plug points at the restaurant and I wanted to charge my laptop. Not only did they cheerfully comply, they were equally cheerful in saying that it’s on the house when I asked for the cheque an hour later.

A common theme across these examples is the element of surprise. And I think it’s essential. This tiny overlap of excellent customer service and complete unexpectedness is what really creates customer delight.

Another critical element of customer delight is service recovery. Anyone can smile pleasantly at genial and benign customers. But how do you rescue a negative situation – a disgruntled customer, an overturned wine glass, a missing booking, etc. – in a way that transforms the irate customer into a loyal one? Sure, you can create many customer-friendly policies like a free dessert or a large discount to defuse such situations, but to truly delight even the most agitated nay-sayer, you need to go above and beyond. These extreme cases are what distinguish merely excellent customer service companies from ones that delight customers.

And the Taj staff came through in what is perhaps the most extreme case of all – the 26/11 attack in Mumbai, when terrorists laid seige to the Taj Mahal Palace hotel at Gateway of India. Numerous employees, in different parts of the hotel, were instrumental in shepherding the guests to safety – all of them made sure that guests came through unscathed. They were the last men out. And in some cases, they did not get out.

The Taj has thus created a culture – not a mission, not a process – of customer service. And unlike a mission statement “We exist for and because of our customers” that’s only read out sonorously at company meetings, this has trickled down to the lowest level employees across departments – employees are empowered to make customers happy, even if it means extra costs.

This willingness of Taj’s employees to go beyond their remit – in both traditional and extreme situations – is how great customer service stories are made.


I can’t afford to stay at the Taj whenever I travel, but it’s one hotel I look forward to visiting, even if just for a meeting. Do you guys have any other examples of such companies – where you look forward to just interacting with them? Would love to hear about them – do comment below / mail me at gt.jithamithra@gmail.com / tweet at @jithamithra. And yes, do subscribe – I post roughly once a week, on startups, business models, consumer behavior, etc.

PS. I’ve just started a newsletter called The Startup Weekly with Abhishek Agarwal, a close friend, curating the most interesting articles, case studies, etc. for startups that we come across every week. It would be a good addition to your inbox. Sign up here – the second issue goes out this Saturday! And here’s a link to the first issue, in case you need some more convincing!

Related Posts:

5 things I learnt from talking toilets in rural Bihar

Toilet_Final

Over the past year, sanitation has hogged headlines in India like nobody’s business. And rightly so – it’s everybody’s business. Two out of three households in rural India don’t have a toilet. And many of those who do don’t use them. Against this intimidating backdrop, over two years ago, my colleagues and I at Monitor / Monitor Inclusive Markets set out to develop a market-based solution to the sanitation problem in rural Bihar. And over these two years of selling the idea of a toilet to rural consumers and working closely with people selling toilets there, I’ve learned a lot regarding consumers and how to sell to them.

 

With the Swachh Bharat Abhiyan (the new avatar of the Nirmal Bharat Abhiyan, itself a new avatar of the Total Sanitation Campaign), the government wants to make India open defecation free by 2019. In less than five years, all 1.2 billion of India’s population will use a toilet. Today, we’re at least 600 million shy of that. In fact, as people in the sanitation sector often say:

According to the 2011 Census of India, Bihar is a laggard in toilet coverage – only 18% of rural households have toilets. In 2012, we set out to develop a market-based business model to resolve this – could we harness market forces to drive adoption of toilets? After talking to 1000+ villagers in Bihar, meeting 150 value chain players and visiting sanitation interventions in many other areas, we developed business models that are now being implemented in parts of Bihar (see post-script for more details on the models). It has been fascinating to put together a business model and see it take shape on the ground. Along the way, I have also learned a lot about how consumers think, and how to sell to them.

1. Your value proposition needs to be concrete, tangible and real to your consumers

Customers_Final

Your product’s value proposition has to make sense to the user, which means three things:

  1. Concrete: Your product’s benefits can’t be nebulous – they need to be specific. For example, just telling consumers that using a toilet is good for health is not convincing – you need to explain step-by-step how open defecation means you’re eating your own shit.
  2. Tangible: Sanitation NGOs today are doing a good job of making the health benefit concrete. But it’s not tangible. Even after you explain the benefits, people still need to be able to see it – just logic won’t do. And health benefits are particularly hard to demonstrate because (a) they start accruing only after a majority of the village stops open defecation, and (b) even after safe disposal of faeces, people still fall ill due to unsafe drinking water and other factors. And if something so axiomatic is hard to prove statistically, try convincing your village consumer anecdotally! Instead, what we found from speaking to people is that they want toilets for safety (vs. traveling early in the day / late at night for open defecation), convenience (especially when ill / for the elderly), and privacy – all far more tangible.
  3. Real: While the benefit may be tangible, it’s important that there be a need for it – else you’re just a very good solution in search of a problem that may not exist. A hallowed business model in rural sanitation is that of a one-stop shop, and one of its main value propositions is convenience. Of course it is more convenient, but do consumers value that? What we saw was that farmers or agricultural workers finish their day’s work in the morning and have a lot of free time later – they’d rather use this time to buy all the materials, than pay someone a commission to do it for them.

 

2. Even if affordability is an issue, people don’t want a ‘cheap’ solution

With toilets, as with cars, people want quality, albeit at a low price. ‘Cheap’ is not a value proposition, ‘value for money’ is. And when offered a cheap solution, people who otherwise wanted toilets did not buy. “If we have to get a toilet, it has to be a quality one”. Convincing people that your low-cost solution is also high-quality is critical.

 

3. To convert customers, ability and triggers are as important as motivation

According to BJ Fogg’s Behavioral model, behavior change is driven by motivation, ability and triggers. This holds even for sanitation behavior – if you want a consumer to construct a toilet, driving ability and triggering purchase are at least as important as motivating purchase. One single step to increase ability to purchase – financing – has disproportionate impact on toilet adoption. Similarly, from a usage point of view, a household that constructs a toilet will not use it if procuring water is inconvenient – ability or ease of use is critical.

Financing also triggers purchase among households that can already afford toilets. One such household took a loan of Rs. 5,000 to construct a large toilet, with an attached bathroom, a shower, and a large septic tank – and they use it religiously (toilets vs. temples, anyone?). This cost at least Rs. 60,000 to construct – they could have, of course, constructed a toilet without financing, but that was the trigger.

 

4. Skin in the game is important, to drive usage

Over the last 10-15 years, toilets have been constructed with government subsidy for rural households across the country. But usage is markedly lower when households contribute neither materials or money, according to last year’s SQUAT report on sanitation usage – none or only a few household members use it. Financial participation keeps people’s skin in the game and drives long-term usage. Maybe it’s a good thing most people don’t understand sunk cost.

 

5. Choice is helpful. But don’t make a user choose between a Nano and a Mercedes

Giving customers choices (but not too many) is definitely more helpful than one-size-fits-all. This is not a new insight. But when you offer three toilets at prices of Rs. 10,000, Rs. 15,000 and Rs. 25,000 respectively, consumers buy none of them – this was an unexpected response during our business model pilots (easily explained in retrospect of course – hindsight is 20:20). The reason is that over 90% of people in most villages in Bihar cannot afford a Rs. 25K toilet – it’s the rural toilet equivalent of a Mercedes. And when you offer a middle-class prospective buyer a Nano and a Mercedes in the same choice, you cause decision paralysis. He may have come in considering a Nano, but he changes his mind on seeing the Mercedes – “Maybe I can save up over the next few years to get a Merc.” He may come back 5 years later or he may not, but he’s no longer a prospective customer today.

Choices need to be from the same cohort – Nano vs. Alto vs. Indica is an easier decision to make, and even easier is a choice between A/C and non-A/C variants of a Nano.

 

As I’ve been setting up my own business, I’ve remembered each of these learnings multiple times –  initially as rationalizations for observed user behavior, but later more and more to predict user reactions. But my most important learning of all – reinforced by every piece of user feedback I receive on my app and every user grievance I address every day – is that users are who they are, and they want what they want. Take that as a given, and try to deliver that value through your product. If you’re trying to tell a consumer what to want, well, good luck to you!


PS. You can read more about our Bihar work and the business models we developed here.

PPS. I must thank Monitor (now Monitor Deloitte) and Monitor Inclusive Markets (now FSG India) for the opportunity to work in sanitation for so long. Of course, this post doesn’t necessarily represent the views of these two companies, and the people I worked with.

Related Posts:

Pregnant mothers – the holy grail of retail

Retail_Small

Retailers try many tactics, some obvious and others devious, to take advantage of our buying habits and maximize how much we purchase. They also use purchase data and buyer demographics to identify their most valuable customers, and make them purchase more. Nothing surprising there. But what’s interesting is that across retailers, one customer archetype is consistently the most valuable – pregnant and new mothers.

I recently read The Power of Habit, which outlines the process by which we form habits and explains how we can modify them or create new, more constructive habits. It’s a fascinating and insightful read, and I’m going to try changing some of my habits using this framework (no more candy for me!).  But this post is not about the habit process (read the book, lazy people!). The book had a very interesting chapter on retail habits, and how retailers take advantage of them.

Some of these retailers’ tactics are pretty obvious – think of how you have to walk all the way across the mall in search of a staircase. Studies have found that over 50% of your purchases are impulse buys – and this is if you made a list beforehand! So, making you walk across the mall, seeing more products than you would otherwise, will make you purchase more. Slightly more devious is how supermarkets keep fruits and vegetables right near the entrance. If we stock up on healthy stuff right at the start of a shopping trip, we feel great about ourselves and are much more likely to stock up on chocolates, biscuits, chips, ice creams, etc. when we encounter them later. There are many more such tactics employed by retailers to take advantage of our habits – you can see a few more here.

These habits – buying what we see, weakening after buying healthy products, etc. – are ingrained, as are our choices for where we buy specific products. Tactics to take advantage of these habits are now table stakes. But where retailers can make the most impact is when habits change. And even ingrained habits change – typically during some major life change or emotional upheaval.

For example, when people get married, they’re more likely to start buying a new brand of coffee. When they get divorced, there’s a higher chance of them trying different kinds of beer (and of course, more beer). And what’s the most major life change there is? No prizes for guessing (especially since I let the cat out of the bag in the title) – it’s the birth of a child.

Given the sea change in lifestyle that occurs with the birth of a child, new or expecting parents are particularly flexible to changing their buying behavior – more than any other consumer segment. As a result, they are a gold mine for retailers.

  1. They buy a lot of new products – diapers, wipes, cribs, prams, blankets, bottles, etc. – that they haven’t bought before. Surveys in the US have shown that new parents can easily spend over $10,000 on baby items before their child’s first birthday!
  2. They’re less price sensitive: New parents are highly price insensitive; they’re less likely to cringe at high prices. When you’re heavily deprived of time and sleep, you want to make quick decisions on baby purchases – you’re going to buy a lot of them! Therefore, retailers always manage to sell such products at a hefty profit.
  3. They prefer buying everything in one place: Being sleep-deprived also means that you value ease and convenience over anything else. Therefore, new parents tend to buy everything they need in one place. If they come to a particular store to buy diapers, they’re more likely to buy juices, snacks, groceries, clothes, etc. there as well.
  4. And given that these new habits will also quickly get ingrained, they will remain loyal and valuable customers for years (till their next child, at least).

Given these factors, new mothers are the most valuable customer segment there is. Getting one into your store to buy just diapers today can have significant revenue and profit impact for years to come. Retailers, therefore, try a lot of different tactics to catch these customers in time. It’s easy to find new mothers – just go to a maternity hospital! The book talks about how P&G, Disney, and others have giveaways for new mothers at hospitals.

But if everyone is targeting new mothers, you need to target them even earlier to capture them – when the woman is pregnant. As a retailer, one can mine purchase data for different customers to know what people who are buying diapers today were buying six months earlier. Using these correlations, one can then start tracking families where the wife is pregnant, in real time. Of course, finding out that you know this can creep families out quite a bit. It can also lead to very sticky situations, like this one!


This is just one interesting tidbit from an excellent book. Do give it a read. Would love your feedback on this post – do comment here / email me at gt.jithamithra@gmail.com / tweet to @jithamithra. And yes, subscribe – I write about startups, books, consumer behavior, etc. once a week, and I promise not to spam you.

Related Posts:

How to destroy poaching and save our wildlife – a market-based approach

Two weeks ago, newspapers proclaimed that India may be winning the battle with tiger poachers. But, clichéd as it may sound, the war is far from over. Governments today have taken a ‘supply-side approach’ – making it more difficult to poach. But what if we took a demand-side approach? Could we do something to depress the market, i.e., the demand itself, for poached animal products?

Why would anyone want to kill this?

(copyright Bharat Ram)

On Jan 20, newspapers in India (and indeed in many other parts of the world) proclaimed that India’s tiger population is now over 2000. It has risen 30% over the last count – the conservation efforts seem to be working (apart from the fact that the previous count didn’t cover some tiger populations). This is undoubtedly great news for lovers of tigers and the wild, but the war has far from taken a decisive turn. We’re still on course for the Sixth Great Extinction, and the first man-made one.

  1. There are only FIVE northern white rhinos left in the world. Barring a miracle, they will be extinct soon
  2. Wildlife of all kinds – sharks (for shark fin soup), elephants, tigers, leopards, etc. – are still being poached all over the world in great numbers
  3. Of course, elephants, rhinos, and tigers are the poster-boys of anti-poaching drives. But even the unassuming and reserved pangolin is being hunted to extinction.

Now, governments have been making efforts to curb poaching. And the efforts have started bearing results. But these efforts have primarily been ‘supply-side’ – making poaching more difficult. Whether it’s better monitoring, tighter security or reducing overlap of forest land with human settlements, these measures constrain the ability of poachers to hunt. This is a battle of attrition (yes, one more war metaphor) – we cannot relax our efforts. The day the funding runs out, poachers WILL return. This is not a sustainable victory – for how long, and for how many animals, can you keep funding the effort?

Market-side approaches offer two key benefits: (a) they give you leverage over the upstream value chain – a change here would reverberate all the way up to the first step of supply; and (b) they are more sustainable – reducing the motivation of poachers means that tomorrow, even if supply-side monitoring relaxes slightly, poachers may not return. Many industries have been created with such market-side approaches – think toothpastes (the tingling sensation makes you want to brush, but it has no role in cleaning your teeth), diamond rings (making wives and fiancées demand diamonds, rather than just selling them), etc. The question is, can you use a similar approach to destroy a market?

Now, I’m no conservation expert, and poaching is a far more complex issue than it seems at first sight, but it would be interesting to try and answer this question, purely as a thought experiment. The first approach that comes to mind is to:

 

Change the market dynamics

With a purely supply-side approach, we gradually make poaching harder. This raises end-prices for smuggled animal products, in turn raising poachers’ motivations to grind on. Could we change the structure of the market in such a way as to reduce the attraction towards poached animal products?

  1. Flood the market with fakes:

Bringing in fake animal products could make the market a lemon market, like second-hand cars – prices will naturally depress if the buyer is unsure whether what he’s buying is the real thing. This would, over time, reduce the reward for poaching, which, in tandem with tighter supply-side monitoring, could inhibit poaching. Let the bad drive out the good from the market.

This approach would be sustainable in itself – as long as even a tiny sliver of a market exists for poached products, entrepreneurs selling such fake products would have an incentive to remain in the market.

However, one important precondition is that supply constraints – monitoring and enforcement – need to make poaching hard and expensive. As long as poaching is relatively easy, this may only increase the demand and price of true animal parts. This is already happening.

  1. Bring in farmed substitutes:

Another alternative is to try and bring in farmed substitutes. E.g., try and convince consumers who believe in the medicinal properties of tiger genitals (did you know the name Viagra comes from the Sanskrit vyaaghra for tiger?) that bulls’ private parts are just as good. I once went to a restaurant called Carnivore in Nairobi, where they served ‘ox balls’. Unsure whether I heard it right, I asked the waiter again. And he replied, in a dubious Caribbean accent – “Yes maan, they is ox balls … they increase your productivity”.

Of course, this is much easier said than done. It would need sustained marketing to cement this belief. Could we instead take a more direct approach?

  1. Grow animals in captivity for such uses:

A natural extension of introducing farmed substitutes like cattle is to farm the endangered animals themselves. Abhorrent though the idea seems at first, it is only slightly different from farming cattle for food. The only reason this is not done traditionally for, say, tigers, is that rearing carnivores is very expensive – one would need to spend at least ten times as much to feed them vis-a-vis cattle (they’ll have to be fed the cattle).

But simultaneously with a supply side crackdown making poaching more expensive, this could become a viable option, in turn reducing the demand for poaching even more.

There are tiger farms in China already, doing exactly this. However, hunting animals in the wild is still cheaper than rearing them, so this has paradoxically just increased prices for wild animal parts (the poaching equivalent of free-range chicken).

Thus, each of these methods can have some unintended consequences unless all efforts work perfectly and in tandem with the supply-side. And as anyone who’s worked on a project of the smallest duration knows, nothing works perfectly, especially if heavy coordination is involved. And in any case, in a world where a single rhino horn can sell at tens of thousands of dollars, poaching will always seem worth the risk. In other words, one would need to:

 

Strike directly at demand for animal products

Strong social campaigns to reduce the demand for animal products and make it socially unacceptable would be harder but would have more lasting impact. Appealing to people’s altruistic tendencies is evidently working for sharks – total import of shark fins to China reduced by 70% in 2012.

However, this appeal to people’s better senses would not work in every instance. It would be far more effective to directly attack the reasons why buy animal products:

  1. Prestige: Make showcasing / displaying animal trophies a signal of bad taste. This worked for minks in the US – sustained social activism reduced domestic demand for mink coats. Of course, the market is now skyrocketing, due to huge demand from China. Some things don’t change, I guess.
  2. Medical benefits: Debunk myths regarding the curative properties of endangered animal parts. This will not be easy, especially in countries where people use rhino horns to even treat hangovers! But it would strike at the heart of the reason why poaching is such a profitable enterprise.

While this approach definitely seems to have potential, one can also attack the most upstream motivation – that of the poachers themselves.

 

Offer alternatives to poachers

Poachers today in many places have few alternative occupations. And even when they do, poaching remains far more lucrative. When supply side constraints are making poaching harder and more risky (shoot at sight?), poachers may be more amenable to steady jobs with decent pay. Creating jobs that locals aspire to or offering vocational training and incentives for migration may be a sustainable approach to reduce poachers’ motivations.

Another approach would be to educate communities on biodiversity being a form of wealth, and helping them take pride in their natural heritage. Educating communities thus and involving them in protection can be quite fruitful – this, among other interventions, helped Nepal achieve zero rhino deaths in 2011.

 

Will these work? Hard to say – obviously this is just a thought experiment in market-based approaches, without much understanding of the dynamics at play. But what is clear is that we need an alternative approach that attacks demand in some form, localized to the geography and the specific animal; in addition to the current policing model.

Coopting Anna Kournikova’s immortal wisdom, may only eggs be poached!


Would love your feedback on the ramifications of the above actions – comment here / email me at gt.jithamithra@gmail.com / tweet at @jithamithra. Please also subscribe for updates from me roughly once a week, on consumers and markets, startups, books, etc.

Related Posts: