And that resulted in what?

One problem in the business world is that business folks approach business problems as if they are school assignments to be graded rather than trying to make something customers want.

Another problem in the business world is that their bosses often do grade their work as a school assignment, on the inputs rather than the outputs.

One of my old bosses taught me a trick to snap people out of this. Ask “and that resulted in what?”

Shark Tank Season Premiere Business Lessons

I’m a big fan of the show Shark Tank. I think it can provide valuable lessons to us mere mortals.

I was LOL’ing during a segment of last night’s Shark Tank season premiere as the Sharks taught a valuable lesson to a self-described “husband and wife dynamic duo” who were pitching their $12 direct-to-consumer healthy bread cube for a $16.7 million valuation.

What I found funny is that these folks would be rising stars in the corporate world with their energy, salesmanship and command of jargon (ahem, BS).

What I like about Shark Tank is that what is celebrated in the corporate world, is often ridiculed in startup land.

The company’s sales sound impressive, rising in three years to $2.1 million year to date.

The dynamic duo are also self-described “digital marketing experts” but the Sharks busted them on their acquisition cost of $50 for a loaf of bread, which is probably about 5-10x what it needs to be.

O’Leary asked how they get to the $16 million valuation?

Here’s the paraphrased exchanged:

We’re on track to do $5 million this year, you heard we’ve done $2.1 million year to date. We believe other companies like us can get a 6-10x multiplier on revenue in market.

O’Leary: But, you don’t make money yet. Are you saying you’re going to make money if you hit $5 million?

No, absolutely not.

O’Leary: So, when you become profitable? Ever?

We will become profitable when we reach a certain level of scale.

O’Leary: What is that?

Cuban: No kidding? [In a sarcastic tone] You will become profitable when you reach a certain level of scale?

[In a smarmy, we’re like Jeff Bezos tone] Our goal is drive top line revenue.

Cuban: No [bleep]?

[Looks on the dynamic duo’s faces show they realize that this isn’t about to go so well. What make them stars in the corporate world is making them look like snake oil vendors in the startup world]

Corcoran: I don’t think I’ve ever spent this time in my seat and heard more fancy words in my entire life. I think if I were to put any money into your business, I would not sleep a wink tonight.

The guest Shark: You guys did not come in and demonstrate what your path to profitability is. You missed it. You spoke about all your economics, which aren’t that great by the way, because you are paying too much to acquire the customer, as everybody said, you are not profitable on your first customers. So, I think for me, I’m out.

Cuban: Why don’t you run the company to be profitable now?

That’s actually exactly what we did, Mark.

Cuban: But you lost a million dollars!

To get here we drove CAC [customer acquistion cost] to the floor. We’ve the the #1 lowest CAC in the…

Cuban: [Throwing arms up] That’s such a nonsense grammar. You start small. You got a nice little product. Whatever you do, you go door-to-door and you make money and use that to grow…but now, your back is really against the wall because you’re losing money on every product you sell. So the more customers you acquire, the more money you lose, unless you can make sure that you’re selling them a whole lot more products. Then you get the loaf of bread unsliced, what do I do now? You gonna take a bite out of it?

That crust is very important to preserving the product. People buy that product for the trifecta of three reasons. You can’t find something this healthy, that tastes this good that’s this fresh.

Cuban: Then why don’t you say that?

Corcoran: That’s the best thing you’ve said all day.

Cuban: That was the best sales pitch you’ve made.

That packaging you’re looking at there is our Gen 2 packaging before we really dialed in that positioning statement…

Cuban: [waving hands in frustration] The jargon! You’re driving me nuts.Shh..You’re overselling with all the jargon when you have an authentically good product.

End exchange. They didn’t get the deal.

Here are some business lessons that I take from this.

Customer Acquisition Cost is an important predictor of success. Large companies with deep pockets have the luxury of being able to buy sales and make new product launches appear to be successful. But, if, like Cuban says, you lose money on every product that you sell because you have to spend so much to convince people to buy it, then it isn’t worth anything.

Another lesson is to cut the BS. So many large companies are jobs programs for corporate bureaucrats that embrace a BS culture to spin their lackluster contributions to the company’s performance into resume builders for them. The companies survive on the spoils of previous successes, many happened upon long ago, which is also what helps those companies weather the damage caused by these BS artists.

Premature solicitation and onerous survey gripes

When I visit your website that I never heard of before for the first time because I followed a link and you foist a ‘sign up’ pop-up on me before I read a single word, I leave. Maybe data shows that’s a good thing to do to increase your subscriptions, but an even better thing is to create good content to keep me coming back.

Also, companies, I don’t want to take a 5 minute survey after every single interaction I have with your company. Here’s a tip: If I return, I was happy. If I don’t, I wasn’t. You should have a good idea of what constitutes good service without me having to take my time to tell you. If not, maybe you shouldn’t be running things.

Breakeven Frontier

Many mature businesses are stuck on what I call the Breakeven Frontier and their managers don’t know it.

What is the Breakeven Frontier?

It’s also called saturation. Their products are available to nearly all the folks who naturally value them and the cost to increase sales is roughly equal to (or more) than the value of those extra sales.

So, the company might spend $10 million on advertising and see sales rise, but only enough to add $10 million or less to the bottom line.

Marketing isn’t the only breakeven investment for a mature business. Most investments they make to increase sales or reduce costs are also breakeven, at best, which is why I call it a frontier.

They might try to cut costs by putting fewer chips in the bag. Their supply chain will brag about the cost savings. But, customers notice and end up buying fewer bags of chips. A move that might save $10 million a year on potatoes can easily cost that much in sales.

What can businesses do when they’re stuck on the breakeven frontier?

A couple of simple things. They should be investing some of the earnings from their mature product in innovation to create new products that can find their own growth curves.

On the cost side, they should be looking at making cost reductions that do not actually lower the quality of the product. Taking chips out of the bag is not a good idea. Getting a better deal on the oil you use to make the chips, might work better.

I once had a nice chair: be cautious of statistical studies

I once worked for a company that had nice office chairs.

It wasn’t a huge perk. They didn’t make a big deal of it. They didn’t even mention it.

But I liked it. There were days without much else to look forward to at work than that chair. So it helped.

When I was procrastinating on starting a project, the nice chair was there to sit in and get me started.

When a meeting didn’t quite go my way, I turned the corner and saw the chair and it brightened things a bit.

I worked for other companies, where chairs were good enough. Nothing wrong with them. They were comfortable. They did the job.

But, not once did I look forward to my chairs there. Just like the folks that bought them, I never gave them a second thought.

Does this mean managers should approve nice chairs for their staff to improve motivation and productivity? I doubt it. I’m sure that benefit would be hard to detect in a way managers desire: “Workers with the nice chair are 10% more productive!”

Part of it was the nice chair. Part of it was a little reminder that the owners thought enough about employees to even think about providing nice chairs without expecting anything in return. That last part doesn’t replicate in a ‘data-driven decision to drive results.’

After all, when employees catch wind that the managers made the decision to drive results, they realize there was no soul in the decision, the employee was an afterthought and, oh yeah, there’s the expectation of more productivity.

In that way, the chair might become more of a sore spot than a bright spot in a person’s day, because it becomes a reminder that there is an expectation to do more because of it, even though it’s not exactly clear what doing more is.

Maybe it does mean that managers who genuinely care about their workers in ways that show up like buying them nice chairs without any expectation on results might be more satisfying to work with than managers who ‘do what the data tell them.’

Are you a gatekeeper or competition enabler?

If I were hiring a business manager, I would ask candidates to explain whether they view their role more as a gatekeeper for the organization or an enabler of competition?

Gatekeepers decide what the organization does and doesn’t do. They view themselves as the judge of the competition and their ideas usually win, at least in terms of what the organization does, not necessarily in the marketplace.

Competition enablers are open to let good ideas come from anywhere. They create systems that try more ideas and let the best ideas earn their way in our out.

They understand that customers are the best judge of this competition.

Leaders of highly innovative companies like Google, Amazon and even McDonald’s have tended to be competition enablers.

Mature businesses that struggle to stay relevant, tend to have gatekeepers in charge.

Think of Blockbuster as Netflix offered to partner with them. Blockbuster leaders could have easily said, you know this doesn’t seem like something customers would want, but let’s try it and see, because we could be wrong.

Instead, they acted as gatekeeper and said no, customers don’t want to wait for their movie to arrive in the mail. They want to be able to come in on Friday night and pick one out.

By the time they realized they were wrong enough, it was too late.

A common comeback to that is, but that Netflix deal was probably one of dozens of decisions Blockbuster faced and the rest didn’t work out. How would they be able to predict that this one would?

That’s the beauty of being a competition enabler. You don’t have to say no and worry about picking right or wrong.

You just have to ask, how can we try this so we can find out? Can we do it in a small test?

It’s a lot like picking stocks. You can do a lot of analysis and invest all your money in 2-3 stocks and hope for the best. But most folks learn that strategy banks more on luck than skill, because no amount of analysis can turn up information that simply isn’t known, yet.

A better strategy is to spread the bets out more, knowing you can always be wrong.

And, for every example that you can give of someone who did well picking 2-3 stocks, I can give you 10 more who did not.

I’ve worked for several mature businesses that struggle to stay relevant. The Board never realizes the root cause is that they keep hiring gatekeepers instead of competition enablers.

Another thought on the 1-in-10 chance of success

On Naked & Afraid, participants who take a lot of pride in their experience at fishing or hunting think they can beat the 1-in-10 odds of getting food. They might believe their experience and know-how improves their odds to the 1-in-3, for example.

In the business world, managers think they can similarly improve their chances of succeeding with their smarts and/or experience.

Neither are good at assessing odds.

Both are correct that their know-how does increase their odds, but it improves it to 1-in-10.

Someone without the same know-how might have even lower odds of succeeding, maybe 1-in-20 or worse.

1-in-10 vs linear innovation mindset

I’ve worked with a few companies that have the same problem that constrains growth: management overestimates the odds of innovations succeeding.

They tend to see innovation as a linear, strategically planned process that relies heavily on their, or a small group’s, expertise and keen eye for innovating the ‘right stuff.’

This vision constrains the efforts of their organization to about a tenth what it needs for sustainable growth, because innovation has a 1-in-10 of succeeding, no matter how smart or keen the innovators are.

1-in-10 is not exact. It might be 1-in-50 or 1-in-5, but the idea is understanding the order of magnitude of the odds you’re dealing with.

Some with the linear innovation mindset pay lip service to the 1-in-10 chances, but think they can improve on those odds. They might think good innovation is as simple as following the data or they simply forget their failures well and overestimate their chances.

In this post, I likened the 1-in-10 innovation mindset with the chances of obtaining food during the TV show Naked & Afraid’s primitive survival challenge.

Participants who understand their chances of getting food is 1-in-10 appear to do better than those who fall into the same traps as managers with the linear innovation mindset when it comes to getting food.

They might think their fishing skills, for example, will help them beat the odds. “I know the right places to fish.”

While they cast one hook at a time in the ‘right spot,’ the 1-in-10’ers set 10 hooks and check them each day.

Others lend support to this idea.

In the article, Navigating the Route to Innovation, Bain & Co says companies with a variety of innovation approaches grow more than companies that rely on fewer approaches.

In other words, the more ways a company opens itself to innovating, the better the chance of finding their 1-in-10’s.

Scott Adams, the Dilbert Guy, wrote in his book, How to Fail at Almost Everything and Still Win Big, that we live in a reality where the odds of something new succeeding are 1-in-10. He uses his life as an example, writing about the many failures and a few successes that made his career.

I found it interesting that Scott’s “1-in-10” term is the same used by used by the successful Naked & Afraid participants about getting food, “I have to keep trying to get my 1-in-10!”

If I’m hiring a business manager, I’d look for someone with the 1-in-10 mindset.

In the next post I’ll use another one of Scott’s concepts, Systems vs. Goals, to illustrate how someone with the 1-in-10 innovation mindset can achieve sustainable growth.

Why do they hire people who do the same things as the people they just fired?

Honest question: Why do the folks who hire managers for mature companies hire people who do the same darned things as the people they just fired?

Does the hiring committee ask them what they plan to do?

If so, when the candidates answers, does anyone point out that the five predecessors did the same thing? Does the committee think they will do it better?

I think it may be because many on the the hiring committee know how to play politics, but don’t understand how business works.

Common business manager mistake

They think it’s their job to ‘sell ice to Eskimos,’ as the old saying goes, rather than figure out what kind of ice Eskimos might value.

It is assumed that Eskimos don’t need ice since they are surrounded by it.

Many folks in the lower 48 are surrounded by trees, yet they still buy wood in many different forms like lumber that frames their home, furniture, cabinets and decks.

And, they didn’t need a slick-talking salesperson to persuade them not to cut down the trees in their backyard and fashion their own wood products from them.