Tag Archives: decision-making

Focus Early on the Value Proposition to Help Manage New Market and New Product Risks

By Karen Utgoff

Savvy small business owners and startup teams take time to develop, test, and validate assumed value proposition(s) before making a significant investment in a new market or new product. This is a cost effective way to learn whether — and how — to best pursue opportunities. Be smart. Include this step early in your new product development and/or market launch planning efforts.

Is this really necessary? The further a new market or new product is from your current business, the more value-proposition-based, hypothesis-driven approaches are likely to increase your probability of success, help avoid missteps, and minimize the cost of failure. It’s better to recognize a gap between what you think and what your market needs while you have the flexibility to improve product-market fit; if there is an incurable mismatch, it’s better to “fail fast and cheap,” especially if there would have been a big investment. Concerned that this just adds to your costs? Consider the wasted resources and employee demotivation associated with failure of a new product, especially when better alignment between product and customer needs might have led to success.

Before sinking dollars and employee time into a new market or product/service offering, develop a hypothetical value proposition. Use this as your starting assumption as you test, revise, and pivot to achieve the best possible fit between product/services, new target customers/markets and your business goals. Many believe this type of effort is just for startups but it’s very useful for any company ambitious to grow beyond familiar territory. This is different from the process Laurie Breitner describes to take advantage of the existing customer relationships and knowledge a team accumulates over time to clarify and confirm value propositions for established products in well understood markets.

Test your hypothetical value proposition to corroborate, refute, revise, and reinvent before making a big commitment. While methods for doing this aren’t foolproof, you will be amazed at what you can learn. The fundamental idea is to get feedback from customers and influencers early in the process. While this may reveal painful truths, it’s much better than discovering them after building the wrong inventory, focusing on disinterested customers, or setting prices too high or too low.

Three low-cost methods are within reach of most small businesses and new ventures. Each has its strengths. They are not mutually exclusive and are most effective when customized to apply to the particulars of each situation. In all cases, focus on learning not selling.

  • Observe potential users going about their daily routines. See how potential customers currently solve a problem and why they might value your alternative solution. These opportunities take some finesse to structure but cost little and — with the right frame of mind — can deepen your understanding of customers, improve your product, and clarify the value proposition. If you are contemplating entering a new market with an existing (or new) product, this method may work best as a next step with your interviewees (see below). If you are developing a new product for existing customers, it can build on established relationships.
  • Interview potential customers, influencers, distributors, and partners to gauge their attitudes and get their input. Your hypothetical value proposition embodies assumptions about what problems are important to potential customers and what they value in a new solution. One-on-one interviewing lets you test those assumptions and make changes to the value proposition, change the product design, and/or redefine the target market. Plan on devoting significant effort to interviews and to processing what you hear from each interviewee. These videos provide a good general guidance on planning, conducting and learning from interviews as a starting point; different situations, products, industries and customer segments require variations on this approach.
  • Test a pre-commercial (prototype) product by putting it in the hands of potential customers. Recruit a small group of thought leaders, early adopters, and (if you have them) interested customers to individually give you feedback on a prototype. There is nothing like getting an early version into customers’ hands to learn if the form factor, instructions, and performance meet their needs and it’s much better to improve the product before investing in inventory, advertising, and other expensive aspects of a product launch. Interviewing and observing this group maximizes learning — there is no survey that can follow up on interesting remarks or probe for more detail the way a skilled, well-prepared, objective, and curious interviewer can.

Who says you never get a second chance to make a first impression? All three of the above methods enable you to test your ideas, assumptions and decisions. To make the most of them and to preserve your chance for future “first” impressions, follow two rules:

  • Don’t argue with or disparage the expertise of interviewees or others with whom you engage. Be sure not to insist your assumptions are correct or preach that your product is “better.” Instead, acknowledge that you don’t have all the answers and appreciate the opportunity to learn from them. If you need to drill down for more detail, resist the urge to dissect the details in favor of asking open ended questions such as: “Why?” “How?” or “Can you tell me more?”
  • Be considerate. If interviewees are interested in spending more time with you than planned, be encouraged; but do not stay past your allotted time unless invited to do so. Be sure to thank everyone for their time and help. Ask if you may come back to clarify, ask more questions, or share future progress. An enthusiastic “yes” is a good indicator that you are on the right track.

When to begin? It is essential to begin early in the product or market definition/development process while you still have the flexibility, time, and resources to pivot. When well done, using hypothesis-based methods to craft, test, and refine an initially assumed value proposition can help to assure that product development and market development efforts are well-aligned and attuned to customers in initiatives that move forward. This increases the likelihood of success while reducing the risk that further investment will be off target.

 

 

© Copyright 2017 Karen Utgoff. All rights reserved.

Keep Your Business on Track and Growing: Measure What Matters

By Laurie Breitner and Karen Utgoff

There is more to keeping your business going in the right direction than looking at standard reports from QuickBooks or other accounting tools on a regular basis. While these reports can give you numbers, determining and appropriately tracking what matters — which numbers are important, how they are derived and what else you need to watch — is an essential responsibility of the owner(s) and management team.

In assessing current operations, it’s often useful to compare today’s results with past performance — prior period (year, quarter, month, or week) or effort (job run, project, or program) depending on your industry and particulars of your business. While this isn’t always possible for newer ventures, be assured that if you are diligent, ultimately these measurements will help reveal your company’s strengths and weaknesses, opportunities and threats, as well as performance.

For example, after one year in business you can only guess how seasonal factors will affect your cash flow. However, if you keep track, with five years experience you will be confident in anticipating how seasonal ups and downs might impact your business. When you hire a second employee in a particular role, you have some idea of how long it will take them to come up to speed; by the time you make your fifth such hire, you have a much better idea of how long it should take, as well as what it takes, to be productive.

For new initiatives, measuring is tied closely to looking forward (planning) for likely and intended outcomes. What will initial success look like? What events (milestones) are critical to track progress? How much will it likely cost? Are there gaps in your capabilities or resources that need to be filled before you can realize the potential of the new initiative? How much revenue and/or profit is the project expected to add and when?

What initial operational measures should be monitored? Here’s where it’s helpful to look at assumptions you made in making predictions. Did you assume that if you opened a second location in a nearby town that your strong positive reputation would automatically give a boost to the new site? Did your plan hinge on getting speedy municipal approval for a larger parking lot at the next planning board meeting? What key assumptions do you need to track?

Add to the standard routine of just reviewing (daily, weekly, monthly, quarterly, and annual) results with the following specific approaches that are critically important to measuring what matters:

Assess profitability and the fully allocated cost of goods sold from an operational perspective: For background review pages 8 and 9 of Laurie’s Thriving: Get and keep your business on track. Also, check out Karen’s Succeeding in Small Business post on Four tips for putting your business plan to work for your small business.

Project results for new initiatives with limited or no experience: For background, read Four steps to help small business owners evaluate the financial wisdom of new business-building initiatives and Small business management and entrepreneurship: Two key ingredients for sustaining success.

For additional information read Josh Patrick’s article on Every Business Has a Special Number, or Metric. Do You Know Yours? in the NY Times’ “You’re the Boss” blog and A Winning Culture Keeps Score by John Case and Bill Fotsch in the HBR Blog Network.

Here’s how to get started: On a single page, document the (up to) five most important measures, metrics, milestones, and/or numbers that you follow (or plan to track) to gauge whether you are on the right road, moving into the fast lane, or facing an unwanted detour. Review these metrics with your management team, board of advisers, mentors, and/or appropriate professional services providers. Evaluate them regularly to make sure they remain relevant guides for growing your business. Plan to fine tune them over time as your needs and business landscape change and you learn more.

© 2015 Laurie Breitner and Karen Utgoff. All rights reserved.

Six Misunderstandings about the Lean Startup

By Karen Utgoff

Use of Lean Startup techniques is becoming ubiquitous in entrepreneurship circles these days and rightly so. Along with the closely related Lean Launchpad methodology, this highly effective approach puts one essential success factor — fit between customers, markets, products and company — front and center for founders who might previously have defaulted to “If we build it they will come.”

In late 2012 I was privileged to serve as a mentor for a National Science Foundation Innovation Corps team and to be immersed in the Lean Launchpad method first-hand as part of that program. For more information on the team experience and methodology, visit Steve Blank’s blog; the link is in the list of resources at the bottom of this post. Recently, in preparation for a workshop I’m giving, I reread Eric Ries’ The Lean Startup and noted his observation that:

“Throughout our celebration of the success of the Lean Startup movement, a note of caution is essential. We cannot afford to have our success breed a new pseudoscience around pivots, MVPs, and the like.” (Eric Ries. The Lean Startup, p. 279)

This rang true to me and prompted me to write here about several significant misunderstandings that I’ve observed.

Misunderstanding One: Lean Launchpad methodology avoids failure. Actually the Lean Launchpad method and the Lean Startup movement focus on failing faster, at lower cost, and under controlled conditions that enable the team to learn rapidly and pivot effectively.

Misunderstanding Two: The tools and techniques are only for brand new startup ventures. Confusion on this point seems to be around the definition of a startup. I’ve written before about the need for entrepreneurial activity in established businesses and I was glad to rediscover Ries addressing the issue:

“Entrepreneurs who operate inside an established organization sometimes are called “intrapreneurs” because of the special circumstances that attend building a startup within a larger company. As I have applied Lean Startup ideas in an ever-widening variety of companies and industries, I have come to believe that intrapreneurs have much more in common with the rest of the community of entrepreneurs than most people believe.” (Eric Ries. The Lean Startup, pp. 26-27)

That said it’s important to recognize that a new external venture is different from an internal venture within a successfully operating business. Here is an interesting post by Henry Chesborough and my take on the subject as well.

Misunderstanding Three: We’re already customer focused and therefore in sync with the philosophy even if we don’t talk about minimal viable products (MVPs) and pivots. Perhaps, but it isn’t necessarily so; the key is the organization’s capacity to systematically learn. Are activities designed so that customer and market response will lead to insights? Is the team aware of leap-of-faith assumptions? Are your entrepreneurial teams truly cross-functional? Is your culture tolerant of setbacks and supportive of learning?

Misunderstanding Four: It’s about product development. This sells the methodology short. Sure, product development is one aspect but equally important is identifying receptive customer segments (customer discovery/development) and business model development. All three may be subject to change as the team learns.

Misunderstanding Five: It’s about iteration. Iteration is necessary but not sufficient. If you don’t organize and measure in a way that allows you to learn, iteration is just spinning your wheels.

Misunderstanding Six: The Lean Startup approach frees us from needing to worry about mission, vision, competition, intellectual property and so forth. Not so! Your initial hypothesis and pivots will be informed by and inform the evolution of each of these.

I hope this blog serves to clarify the Lean Startup and that it encourages you to try, and then embrace, it. It has a lot to offer ambitious entrepreneurs and intrapreneurs.

Books

  • Steve Blank and Bob Dorf, The Startup Owner’s Manual
  • Alexander Osterwalder et al, Business Model Generation (72 page preview available)
  • Eric Ries, The Lean Startup

Web Resources

© Copyright Karen Utgoff. All rights reserved.

What Do G.M. and the V.A. Have to Do with Your Organization?

By Karen Utgoff

Public domain

Public domain

I have been keeping my eye on the disturbing news about General Motors and the U.S. Department of Veterans Affairs. Recent reports describe deep dysfunction that appears to have resulted from failing to both acknowledge and then address systemic problems — some of life-and-death significance. While both organizations are huge and complex with many layers of bureaucracy, leaders of smaller, simpler businesses or nonprofits should not assume such problems are entirely a result of size and scope. Here are some thoughts on spotting and preventing such situations in your own business:

Recognize that no one is immune. Individual weaknesses differ but we all have them. Understanding your individual (and team) susceptibilities can help you to nip a potentially alarming systemic problem in the bud rather than assuming it away as an aberration.

Watch for symptoms of trouble brewing. Most business problems are made worse by ignoring them. Be alert to early warning signs of problems in general. This will help you prevent difficulties of titanic proportions as well as smaller ones that can interfere with routine operations and performance.

Create a quality-focused, high integrity-based culture. A culture that values honesty and questioning assures employees that they will be listened to — and not punished — for calling management’s attention to potentially significant problems. A culture of “see no evil, hear no evil, speak no evil” is dangerously disrespectful of your employees and their moral compasses. If you are not sure how to characterize your culture, here is one approach you can use to get a fresh perspective on it.

Manage by walking around. The leader who regularly walks among, talks with, and listens to employees throughout the organization is more likely to learn about problems individuals on the frontlines are seeing. Don’t stop there. Follow up on the information, demonstrate that you want to know about and will act to solve problems. Then, communicate with employees about what you’re doing and why; consider publicly thanking the individual(s) who brought the issue to your attention.

Encourage individuals to do the right thing. Do job descriptions, financial incentives, and other recognition motivate employees to bring such issues into the light of day or to sweep them under the rug?

Lead by example. None of the above will make a difference if your actions don’t match your words. This is as true day-to-day as it is when a crisis hits. If your employees see you cutting corners with products or product safety, they will get the message that they can — and perhaps should — do the same.

Start now. If you are concerned that significant problems are being overlooked, start to address them now. Ask questions and show that you would rather have accurate but unsettling answers than false comfort. It will take time and effort to overcome the status quo but keep at it.

Learn from the mistakes of others. To start, check out “Top Investigator Has Blistering Criticism for V.A. Response to Whistle-Blowers” (NYTimes, June 23, 2104) and “GM Recalls: How General Motors Silenced a Whistle-Blower” (BusinessWeek, June 18, 2014). Two key takeaways:

  • Problems take time to develop. In both cases, there were multiple warning signs over many years with many missed opportunities along the way.
  • People were trying to do the right thing but couldn’t.

 

If you do all of the above will you be immune from the sorts of crises that G.M. and the V.A. are now experiencing? No (remember item one), but you will be more likely to catch and fix significant problems with a minimum of injury and expense.

 

© Copyright 2014 Karen Utgoff. All rights reserved.

Want to Be a More Effective Decision Maker? Beware of Blind Spots and Biases that Can Interfere

By Karen Utgoff

In business and driving, beware of what you can't see. Photo: K. Utgoff

In business and driving, beware of what you can’t see. Photo: K. Utgoff

Business decisions are made every day and mistakes are inevitable — none of us can read minds, know the future, or wait for perfect information. However, it’s sad and unnecessarily costly when a mistake is preventable.

Wouldn’t it be wonderful if you could reduce avoidable errors at little or no cost? My experience tells me that many business owners, executives and managers could do just that if only they were more aware of personal tendencies that influence their decisions as well as vulnerabilities we all have that stem from the way we (that is, our brains) perceive and analyze situations and information. Cultivating this self-awareness is one of the lowest cost — but most challenging — ways I know to become a more effective decision-maker.

Perception and perspective are tricky things. Optical illusions exploit the way our brains work, causing us to misperceive objects and images. We often consider these to be tricks that aren’t very important to daily life, yet there is at least one major exception: the passenger side mirrors on our automobiles, which come with an engraved warning reminding us that “Objects in the mirror are closer than they appear.” In addition, to use this mirror effectively a driver must be aware of the blind spot. Both the blind spot and misperceiving distance are problems because (when we are in the driver’s seat) our brains are quick to misinterpret the image in the mirror as physical reality.

In similar ways, business decisions are vulnerable to misperceptions or skewed perspectives. Vulnerabilities generally fall into two categories: those everyone shares as part of the human condition and those that are particular to an individual. As with the side mirror, being aware is a critical first step to minimizing their impact.

No one is perfect; individual inclinations and gaps sway all of us. The ability to be self-critical is key. Here are some questions intended to provoke useful self-examination:

  • Do you tend to be overly optimistic or pessimistic based on recent experience?
  • Do you defer to experts or discount their opinions completely?
  • Do you balance intuition and evidence or automatically favor one over the other?
  • Do you probe for information and knowledge or make do with whatever is available?
  • Do you actively seek alternative views or protect yourself from being challenged?
  • Do you tend to make decisions too early or delay until the situation is critical?
  • Do you fear scrutiny or embrace it?
  • Do you change your mind too easily in the face of new information or resist too much?

Individual inclinations and tendencies can and do negatively impact decision-making.  None of us can escape entirely but self-awareness can help balance and counterbalance our weaknesses while making the most of our strengths.

It is also important to factor in biases and blind spots that researchers have identified as hardwired into each of us. Though hard to counteract, there are steps that can help to manage these human factors. Robert Wolf provides an excellent starting point in his post on “How to Minimize Your Biases When Making Decisions” for the HBR Blog Network. In my consulting practice I have seen these biases reinforced or mitigated by an individual’s personality and decision-making patterns; so be mindful of their interplay.

Another human factor to consider is willful blindness. This phenomenon is not confined to business decisions but can have a devastating effect on an organization in which it occurs. Especially insidious is that blind spots render issues that require attention or decisions invisible until they become crises, sometimes presenting an existential threat to the organization or inflicting terrible harm on others. To learn more, listen to Margaret Heffernan’s TED talk on the topic or read her article on “Willful blindness: When a leader turns a blind eye” in the Ivey Business Journal online.

While the focus of this post is on individual decision makers, it applies to teams as well. Startup ventures, intrapreneurial teams, and top management at organizations (large and small) are all susceptible. As with individuals, teams have their own vulnerabilities. Teams that are comfortable with internal conflict and seek information from divergent sources may be less susceptible to willful blindness but may have difficulty absorbing the final decision when it’s time to do so. Alternatively, the danger of willful blindness or confirmation bias may increase when team members are discouraged or punished for raising important concerns or contributing information.

SWOT spotHas this post convinced you that you can become a more effective decision maker? If so, use the information here to assess your own decision-making habit and patterns. Ask people you trust to level with you about your strengths and weaknesses. When you spot an opportunity to improve yourself or your team(s), remember that change is difficult and requires persistence. Progress takes time and set backs will occur. Keep at it; there is a lot to gain.

© Copyright 2013 Karen Utgoff. All rights reserved.