31 Jan Good strategy? That’s your opinion.
There’s a quote I just love that’s attributed to Jim Barksdale, former Netscape CEO and backer of Spread Networks, the dark fibre company in Michael Lewis’ excellent book Flash Boys
If we have data, let’s look at data. If all we have are opinions, let’s go with mine.
The reason I love this is because it not only captures how good business decisions should
be made, but it also shows how most decisions are actually
made in business.
More than just data
Firstly, let’s not get distracted by the word “data”. We could be fooled into thinking that this only applies to technology companies or large online businesses that are awash with data. We could assume that this quote is all about the ability to harness “big data” to provide insight into our strategy or decision making. But it’s not. For a start, Jim Barksdale said this back in the late 90s when he was CEO of Netscape. From 1999 (when Netscape merged with AOL) to today the number of users on the Internet has grown from 4.1% of the world’s population to 40.9%, or 2,937 million users. Our concept of data today has certainly changed. If we replace the word data with “facts” then I think it becomes a more insightful statement for businesses of any size or sector.
Is it fact or opinion?
All too often, and particularly when we’re talking about strategy, big decisions are made on opinions rather than facts. I hear this all the time when I speak with entrepreneurs about their strategy. A lot of what I hear is really opinion presented as fact. When I the question, “how do you know that?” it soon becomes apparent. Because when it comes to making decisions about strategy it’s important to realise whether you’re basing those decisions on facts or opinions. Why? A wrong strategic decision can have a far reaching impact on the business, often months and years down the line. Launching a business is typically based on a number of opinions, the results of which may not become evident until it’s too late. Market demand is an obvious example. Or even the market that you target (based on the opinion that it’s an attractive market to be in). By the time you work out whether you were correct it could well be too late. Collect data. Establish the facts I saw a really good example of this in the UK TV programme “The Restaurant Man”
where Russell Norman advises entrepreneurs who are opening their first restaurant. Before considering the location for a restaurant, Russell basically spends a day or so sat outside, counting foot-fall in the street and chatting to passers-by. He collects data. He’s establishing facts. What struck me when watching this was that it was such an obvious (and cost free) thing to do and yet none of the entrepreneurs in the TV series (and I’d guess 95% of small restaurant owners setting up their first venture) did it. In a recent Sunday Times article, Michael Weedon, the deputy chief executive at the British Independent Retail Association (BIRA) underlined this point: “Empty shops, of which there are nearly 50,000, provide a fantastic resource for new businesses but they need to choose wisely to find the right place to open”. It seems that for most entrepreneurs the location of their restaurant or retail business (which is surely a fundamental part of the business strategy) can be more down to chance and opportunity rather than a well thought out decision.
Create an experiment
Once we start to question the opinions in our strategy then we begin to wonder how to check whether they are true or not. How can we find out? Well, we need to create an experiment. An experiment is effectively doing something that tells you whether your opinion is correct or not. The best approach is to adopt a scientific attitude by predicting the results you expect based on the opinions that you have. You want to test a hypothesis (your opinion) by predicting a result that would be true if the original hypothesis was correct and then measuring the result. This will determine if your hypothesis is correct… or not. And this is the crucial part. Predict the results that will support your opinions. So, going back to our restaurant scenario, let’s say that your business plan has projected revenues from 100 covers per day (opinions). How could you check whether your proposed location could support that number? Counting footfall during the day outside the location will give you some indication of potential passing trade but that in itself doesn’t necessarily relate to covers. You could do some research to establish a conversion metric. Perhaps you could talk to other restaurant owners, or view your competitors on the high-street to understand their average number of covers (as well as footfall for their location too). This research will give you some numbers to apply to any location you view. If the footfall is X over a specific period then it’s large enough to support the revenue goals of the business. You could also design other experiments such as surveying passers-by to get some qualitative data around their eating habits, what type of food they like, how often they eat out, etc. Unlike Russell Norman, I’m not a restaurant guru but the get the idea. The crucial part, and the bit where most entrepreneurs go wrong, is to predict the data you need to validate your opinions and, if you don’t get the data you need, change your opinion.
Let’s go with mine
Of course, the reality is that most, if not all, entrepreneurs act on opinion and back themselves that they are correct. Entrepreneurs like to shoot from the hip and ask questions later. In my experience, as both a business owner and a consultant working with 40+ startups over the last 10 years, where many entrepreneurs go wrong is when they don’t get the result they expect (or want) they don’t go back to the strategy or plan. They don’t question or change their opinions when the data tells them otherwise. I’ve seen so many examples of failed marketing campaigns where the entrepreneur’s reaction is “we just need to get the messaging right”. Which is basically saying the market is wrong because they “just don’t get it”. This reaction is usually because to think otherwise challenges the fundamental opinions that they have based their business on. A classic problem of the sunk costs
trap. But, despite all that, as I said at the beginning, I love Jim Barksdale’s quote because it also captures perfectly how many decisions are actually made in business – “let’s go with mine”
. Truth be told, if every business took the time to really dig into and test every opinion and assumption that is baked in their strategy they wouldn’t do anything. And there’s the rub. In reality, all startups are, in and of themselves, an experiment. They’re based on the opinion of the entrepreneur and, most often, their blinkered view and determination to make it happen. For startups, and to some extent all businesses, uncertainty is part of the game. Often there’s so many variables that no experiment will capture enough data. Creating an experiment, is, by definition not the end product or service. It’s enough to give you insight but, ultimately, it still leaves you with some uncertainty. You can sit outside a potential restaurant location counting passers by all you want but it still won’t tell you definitively if the high street is ready for your Thai-Mexican burger concept until you actually open your doors. So, at some point, every entrepreneur has to look into the unknown and say “let’s go with mine”. Published originally by David Regler on LinkedIn in 2014