Simple Business Market Plans are Often Wrong: Hypnotic Trance Theory

 At a local undergraduate college, I’ve sat in several entrepreneurial student presentations for hypothetical businesses. I’ve also been a guest lecturer at entrepreneurship classes. I’ve also coached several young entrepreneurs. I’m sure my experience is not unusual but this initial marketing plan is often what I see, with only a little exaggeration.

There are 300 million people in the US wearing socks on a daily basis—discounted from the total because of the newborns, those in southern climes who go barefoot and others who wear sandals. On average each person has 40 pairs of socks—10 for babies, 20-30 for youth, more for adults because they want different types of socks for different activities and seasons. Therefore there are 12 billion pairs of socks being bought. My new company will capture 1% of this market through innovative product, pricing, promotion through social media by celebrities and influencers. We’ll sell 120 million pairs of socks. Won’t you want to invest now at the ground floor?

[Apologies to Bombas and other new sock companies if their pitch sounded like this.]

This simple marketing plan is wrong on several levels:

• The data: each person might have dozens of pairs but they’re not replacing each pair every year. (I’m sure the average age of my pairs is 3 years. If I have to replace a type of sock every year, and I’m not wearing them every week, I’m buying a different brand next time.) Plus the average is just that and doesn’t show the statistical distribution of socks ownership: what’s the median number? Is the distribution normal or skewed, exponential…? Nor do we have socioeconomic demographic breakdown. There is some acknowledgment of geographic differences and seasonal differences but we don’t know how this influences ownership quantities or replacement volume. After these and other considerations, what really is the market potential?
• Marketing strategies are dependent on the target segment. Consumer marketing is definitely from business-to-business (B2B) marketing. The “volume” of consumer marketing is like the ocean and you’re going to throw your cup of red dye in it and hope to see some spread throughout. Not impossible but improbable for startups. When is marketing effective for the target segment—in their unaware-of-the-need phase, their research phase if any, in their okay-I’m-ready phase? If the last, how do you time it and how many of your target segment is it in any given day (think “data” again)?
• Buying habits: most of business, like most of our lives, is dominated by habits honed from previous decisions. We avoid making new decisions unless we need to. We generally buy the same things we did before, get exposed to the same media channels as yesterday, follow buying patterns that are seasonal or some other frequent triggerpoint. We basically reorder what we’ve purchased before.. We might only change if we can’t buy what we’ve done before. And there may be a few things where brand loyalty is fluid. What do we know about the sock market? How much does brand loyalty influence our target market decisions? How much is driven by immediate need? Habits are a bit like a hypnotic trance. It takes something amazing, startling or catastrophic to snap us out of our trance. (These same considerations happen in B2B marketing too. A businesses customer list is only good to the new owner for 30 days; the change in ownership snaps the customers out of their “reorder” trance. Sometimes a fresh look allows for customers to ask the dumb question—e.g. “Why are we ordering this $80/lb cold-temperature grease to slap on parts that are put in an oven?” “Don’t know. We must have ordered it once because it was all we could get and never stopped reordering it.”)

So I’d like to see how young entrepreneurs are going to snap an established customer base out of their buying (or non-buying) habits. Early adopters are not a significant market segment and there are limited number of early adopters for any single product/service niche. (There are no universal early adopters who try everything new no matter what kind of product or service it is: geography, age, sex are obvious limiters plus only the super-rich can gamble on ineffective or unsatisfactory products/services that don’t meet a need, want or reduce a pain.)

In one business, I couldn’t find the secret to getting new customers out of their habit of ordering from my competitors. I couldn’t find the trigger to bump one of those other suppliers out of the reorder plan. So I was stuck. There might have been a way but I didn’t find it. It wasn’t social media because that’s not where the customers would have looked. They already had an established and satisfactory base of service providers. No need to Google/Bing/Instagram/TikTok/Twitter/Facebook anyone else. I was also fighting against much bigger players in the market so it was a struggle to get brand recognition. 

All you budding entrepreneurs, please don’t show me plans that start with a global population. Tell me more about your target market segment’s buying habits and how you plan to snap them out of their repurchasing trance.

 

Success: Is It Only Defined by Growth?

 Lately I’ve been facilitating strategic planning sessions. I’ve also done some speaking engagement on this topic. My primary rock-the-boat question is: Is growth the only measure for success? Why?

Too often we US business leaders have a feeling of entitlement. We follow the plan. We should be rewarded. If we fail, it’s somebody else’s fault: fuel prices, government, lazy people, etc. We need to stop whining. I have the privilege of working with several businesses in Haiti. They have been in business for over a decade despite earthquakes, hurricanes and several collapses of their government and a inconsistent logistics because gangs control the roads and ports. Bribery is rampant. They’re still in business. Would you be?

Generally, I have a problem with case studies. They don’t capture the whole universe of data on company strategies. Despite Tom Peters’ efforts quite a few decades ago with In Search of Excellence and later Jim Collins’ and his co-authors’ efforts with Built to Last and Good to Great and a counterpart volume by McFarland, The Breakthrough Company (the small business Good to Great)…even when they did comparison analyses between companies that grew and those that didn’t in order to define the distinctions…they still didn’t uncover any companies that operated similar to their success stories but failed. Therefore, we really can’t test the hypothesis that their recipe for success is foolproof. In fact, it may not even provide a probability of success greater than 10%. (Okay, that statistic was made up.)

I’m intrigued by John List’s The Voltage Effect. His premise: all successful businesses follow the same recipe whereas all failed companies failed in a myriad of ways. This would imply that the Peters, Collins, McFarland formulae never fail; that there are no companies that have done the same things as the highlighted companies but collapsed. I doubt that's true. But I do see a lot of his initial diagnoses into the lack of scalability of successful products/services:

• Confirmation bias: believing is seeing; we ignore the data that doesn’t fit our preconceived ideas of what will work (based on others’ success or early analysis of our own data). We don’t try to make our success formula robust by deliberating finding the factor that would cause it to fail. We take the set of conditions that worked once and duplicate it. Once in my career, I helped a paper cup manufacturer try to solve a leaking problem. 10% of their cups leaked. I asked operators to keep track of operational settings. For 24 hours there were no leaks. There were also no settings changes. We didn’t learn what wouldn’t work. We only learned we had a good chance of not having leaks—if nothing else changed like cup materials (paper, glue) and the environment. Unlikely.
• Selection bias: even when we try to “experiment” and collect “random” data, we go about it the wrong way and have self-selecting survey respondents, focus group participants, promotion accepters, early adopters, homogeneous regional values (think East Coast vs West Coast vs Middle America), and so on. We extrapolate the data to market segments that we really haven’t tested.

So we define our recipe for success with the goal of growth. Because that’s our only target. This may be the fallacy in List's argument. He's looking for scalability, growth as his definition of success. But one of the things we learned from the aftermath of Peters' book when the companies he touted flopped: not all great companies survive.

But what if the target was just excellence in your core competency? What would your strategy be then? What if you target was robustness to tolerate all kinds of extrinsic volatility (economic boons/busts, changes in government policies, import/export tariff and supply chain disruptions, physical destruction, endemics that reduce workforce availability, etc.)?

How do you avoid confirmation bias on your strategic plan for excellence and robustness? Avoid selection bias? 

I believe there’s a lot we can learn from our Haitian brother/sister entrepreneurs regarding these things. And many others around the world.