When to Use New Ideas

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Scenario: "Dude, we'll just incorporate anything that looks good. Then, we'll win. Yay!"

  • How do the Dallas Mavericks, the Oakland A's, and the Manchester United decide their starting lineups?
  • Similarly, how do 3M, McKinsey, and Starbucks promote its people?

Instead of deciding on what "sounds good" -- like the many shoddy organizations, they look to objective data for their decisions (e.g. batting %, free-throw %, ^ sales/quarter, ^ innovations/month, etc.) That is, before 3M promotes Johnny B. Boy over Timmy T. Toy, the company understands precisely how much Johnny increased more sales for the company. Likewise, before you disrupt your organization with a new idea: Know for certain the new idea will make your company more profitable than the old idea.

Where Most Organizations Go Wrong

Consider Sally J's Coffee Shop. Sally J. is selling one deliciously awesome cup of coffee for $1.25.

  • She has a loyal following with the cup of coffee among the community.
  • Her repeat-purchase rate stands at a solid 50%.
  • Her sales of the cup have consistently rocked since the 70s.

And then, she encounters business magazines that herald: "Gourmet coffee is going to be the next super-billion-dollar industry!"

  1. So she tells herself: "Instead of selling my regular cups of coffee, I will now sell gourmet coffee!"
  2. She thinks: "I can't miss this great opportunity! Let's stop selling the regular -- and start selling gourmet!"
  3. She assumes: "This is the next big thing! We're going to fatten our sales 10x! Yay!"

What soon happens?

  • Gourmet hardly appeals to her customer segment.
  • Her repeat-purchase rate falls dramatically.
  • Her net-profit diminishes by 25%.

Net result: Super-negative. Instead of relying on objective data to make her decisions, she uses the "what sounds good" philosophy -- destroying her profits.

What should Sally J. should have done?

The options:

  • a) Sell both at the same time.
  • b) Don't listen to fads. Keep selling what made you successful: the regular cups.
  • c) Continue selling regular cups of coffee. Run small experiments to test how well gourmet coffee sells -- compared to the regular cups. Decide, accordingly.

What'd your booty answer? If you went with (c), great job for your badass.

Why (a) Sucks

When you try to sell both, you stretch your resources/$$$/energy significantly. If gourmet coffee sales suck, you'll put your company into a major hole.

Why (b) Sucks

Sure, "sticking to knitting" makes good business sense. At the same time, however, you'll leave major money on the table if you're not looking for more profitable opportunities.

Why (c) Rocks

You get the best of both worlds: (1) selling what already makes you super sexy, and (2) running small experiments -- that doesn't break your bank -- to look for potentially more lucrative opportunities. Doing so gives you a control group (i.e. regular cups of coffee), then lets you see how well your new idea (i.e. gourmet coffee) stacks up to what you're already doing.

  • If gourmet profits suckier: You continue selling the regular.
  • If gourmet profits better: You'll adopt the new idea.

And that, folks, is how you adopt new ideas into your fabulous organization.

When an Idea Sounds "Sucky"

If your funds allow you, test it anyway. People thought the personal computer was one of the suckiest of the suckiest sucky ideas in the world -- but real-world market testing proved otherwise. An idea that seems sucky could very well destroy one that seems "totally awesome! Yay!" The only way to figure out: Testing your ideas in the real world, and seeing what rocks more.

The 3 Steps to Incorporating New Ideas

  1. Define your control group (e.g. what you want replaced.)
  2. Experiment with a new idea (i.e. what you want incorporated.)
  3. Measure what's more profitable; then, decide accordingly.

So when you're looking to incorporate a new idea, ask yourself:

"Where's the data, playa?!"

 

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Posted on March 27

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