The Humanization of Data

While technology has given us the ability and tools to peer into the smaller spaces of our organizations, the ubiquity of data has remained a constant for as long as organizations have existed.  Data in this context is the raw, unrefined existence of information available to be harnessed to better relate the story of where we came from, who we are today, and what we are capable of becoming tomorrow.  Now, more than any time in our history, we have the ability to gain a balanced and objective definition of our existence.

Data is a living, breathing, being; it needs to be nourished, tended, and trained.  Effective analysis of that data is a combination of science and art:  logical, objectively based systems and tools used in combination with innovation, sensitivity, and human subjectivity.  Data becomes the paint and our tools the brush to depict the reality or sense of reality we decide to portray.  In perfect balance, data transcends both and becomes a vessel in which we can purposefully navigate towards idealism.

The impact of true analysis can be seen in its ability to prove or disprove hypotheses as much as its ability to create action.  Lacking either not only takes the art from it, but keeps it from developing into a productive member of your organization.  When developed properly, data is the catalyst for improvement and productivity.

Much like any members of your team, information must be treated as an integral part with emphasis placed on its development and ongoing benefit to the organization.  Like the others, it must be kept engaged through continuous development and an ongoing dedication to its growth. Data has its own personality, and like any other employee can be impacted by cultural, social, and economic issues.  When given autonomy, it can help create harmony, when stifled it will only tell us what we want to hear.

Not all data is beneficial, and in some cases unnecessary.  Working through the process to determine the value of your information capital is similar to the process of determining effectiveness of your human capital:  consistent feedback, coaching, and evaluation.  Focusing too much on non-productive data has the possibility of draining resources and creating vacuums in your organization. 

Data is prevalent in every organization.  The more successful ones have an understanding and deep appreciation for need to listen to it, nurture it, collaborate with it, and ensure that it receives the free reign to be an effective part of the team.   Your data is an asset and should be treated with respect.  Data should never be a CEO, CFO, CTO, CIO, or even a VP of any organization, but I would argue that it fits very well as the Chief of Staff or Aide-de-camp of every organization.

Sharing Your Market (Part 1)

If your business relies on customers to be successful, understanding your potential customer base, your conversion rates as well as your retention is a key to sustainability.  As technological advances continue to increase market sizes, competition and the need for innovation, staying on top of your key market variables has never been more important.  In this age of sometimes overwhelming amounts of data, it becomes increasingly more critical to develop a deep understanding of how your product is performing or is capable of performing in your chosen markets.  The effective utilization of data becomes paramount to sustainable success.

In any market, for any product, there are three distinct but equally important control variables that must be understood in order to gauge the potential of your product, the impact your product has, and the value your organization adds to it.

In any organization, for any product, there exist hierarchies necessary to align your products, processes and people with the market and your customers.  Fitting these hierarchies within the confines of the different shares of the market creates a consistent approach to identifying risks and rewards as well as hand-off points and the definition of organizational process and measurement.

The table below briefly identifies each share of the market, a basic description and the ideal department its success is attached to.

SHARE	DESCRIPTION	DEPARTMENT	A.S.K.
Mind Share	% of Market that is familiar with your product	MARKETING	Attracting the Customer
Market Share	% of Market buying your product	SALES	Satisfying the Customer
Wallet Share	% of Individual Customer Spend being spent on your product	CUSTOMER SUCCESS	Keeping the Customer

Mind Share –

For this purpose, Mind Share is defined as a percentage of the number of those potential purchasers that are aware of your product divided by the number of potential purchasers of your product.

i.e. – If you have determined that there are 10,000 potential users of your product and that 2000 of them are familiar with your brand and your product, your Mind Share is 20%.

Of the three shares, this is the first part of developing a growing business, without it, you can’t obtain the other levels. Mind share is about the customer knowing and understanding what your company does, how it does it, and most importantly, how what you do can benefit them.  Until you get out there, you have no idea which customers know and understand what you can do for them.  While you can make assumptions about who knows you and who doesn’t, asking the customer and sharing information directly with them is the only way to know for sure.

This share directly relates to attracting the customers.  In order to gain mind share, a conscious effort must be made to inform as many of your customer base as possible the entire solution that your organization can offer them.  Don’t assume that a customer knows what you can do for them unless you are sure that they have been thoroughly informed.

Organizational Hierarchy

From an organizational sense, mind sense is for the most part a Marketing function.  The ability to reach out to the masses to inform them of what you do, how you do it and what value you add can be done most effectively through a proactive marketing effort.  While your Sales Force can be led based on information and feedback from your marketing campaigns, their role in developing Mind Share is relatively limited and driven by the Marketing Department.

A Marketing Department serves multiple functions in an organization.  In regards to Mind Share, their responsibility is creating product awareness within a defined market for potential consumers.  Once that awareness has been confirmed, it creates a natural and effective hand-off point to the Sales Department.

Importance

A business survives based on getting people or organizations to purchase their products which makes understanding what your market consists of.

The value of Mind Share can be seen in its ability to quantify your market from an overall potential as well as a way to identify which part of a larger market you can focus your sales efforts on.  

The feedback given from potential customers at this phase can be crucial to making changes to your marketing efforts, your potential customer base and even your product.  Understanding who you are targeting gives you the opportunity to omit people or entities who aren’t good fits for your product and allows you to focus on just the ones that have potential of becoming a customer.

Measurements

Total Market Base(MB) – This measurement can be based on a number of variables utilizing demographics and geography.  The Total market base should be defined by counting all people or entities with the ability to spend money on your product.  In order to get this number, an organization must first identify its product targets.  This identification must be consistent and comprehensive.  Having gray areas will only serve to dilute your market base number and your marketing strategies.

Total Knowledge Base(KB) – This measurement is based on the number of people or entities in your identified market base who are knowledgeable about your product.  In a rather simplified form, this number can be derived from the assumption that members of your identified market that aren’t using your product aren’t familiar with it.  As your organization evolves, it becomes easier to identify the effectiveness of your mind share marketing strategy, and that data can be used to better identify your targets.

Product vs. Brand - If your organization has multiple product offerings, this knowledge base should be confined to single products as brand recognition and product recognition are not the same. Mind share should be based on product.  Some products may be more popular than others, but you shouldn’t make the assumption that because someone is using one of your products they are aware of others you may carry.

Mind Share Penetration – This measurement is based on the previous two variables and is the product of your total knowledge base divided by your total market base.       Mind Share = KB/MB

I admit that this is a very simplified explanation of a much more complex process.  That being said, the importance of understanding your Mind Share and utilizing that information to create an executable action plan is the first major step to identifying your customer journey.

Conversion Visibility = Healthier Organizations

Businesses are about converting something into something else.  Whether it is converting revenue into cash, prospects into customers or subscriptions into relationships, knowing how well you are doing is a key to having sustainable success.  Successful conversion rates are defined by their downstream impact on the health of the business.  If your conversion rates aren’t visible to you, their sway will be in the form of cash flow issues, declining sales or higher levels of customer attrition. 

Many of the organizations I have worked with could guess at best as to what their conversion rates were.  Those that could guess weren’t sure what information was available to confirm their estimation.  All of them were aware of problems in regards to cash flow, customer satisfaction, new customer growth, revenue stagnation and process issues.  Increasing the visibility to conversion metrics allows for the correlation of organizational concerns to the visibility of the root problems and viable solutions.

Because for so many businesses, CASH IS KING, we can use cash conversion rates as an example.  The first step is defining when the process starts.  In most cases, the process starts when the sale starts, i.e. when the customer commits to a purchase.  Once that starts, there are a series of events that occur including but not limited to:  Order Placement, fulfillment, shipping, billing, collection and deposit.   In this case, there will be a time period between each step. 

Adding up all of the time periods will give you the amount of time it takes to convert a sale into cash.  The average of those transaction times will give you your average conversion rate which can be compared to the amount of time it takes you to pay for your COGS.  If it takes you longer to get your cash than it does for you to pay for to goods, you have a negative conversion balance which means you are floating the money for your business.  Unless you are a bank and can charge interest on these transactions, you have an unbalanced scenario which leaves your business holding the bag.

Whether it is cash or any other conversion variable, understanding your metrics is the key to coming up with action plans to address any misses.  In the cash example, if you aren’t able to track the time between each step, you aren’t able to confirm your conversion rate.  This creates an inability to effectively improve your process or your results. 

The first step, as it is so many times, is admitting there is a gap in your information.  Once you have done that most difficult step, the next ones come much easier. 

Step 1. – Determine the key components of conversion.  Make sure they are quantifiable and consistent across the majority of your transaction scope. 

Step 2. – Once you have determined the individual components of your transaction ensure that you have a consistent way of tracking each one.  Make sure that your information is quantifiable and can be gathered in an efficient and consistent way.

Step 3. – Collect your data.  Depending on the size of your organization and the number of transactions you complete, the period before you have usable data may take a while.  It is important that you exercise patience here and understand that pushing the issue or trying to affect the data before it has time to come in may have a detrimental effect on the outcome.

Step 4.- Organize and analyze your data.  By placing the date in a consumable format that is easy to read and understand, you will have a simpler time creating your roadmaps for success.

Why does this matter?  Beyond the financial and organizational impact of not knowing what your conversion rates are, if you can’t see them, you can’t fix them. 

Having the information is only the first part, but now that you have it, you can create actionable plans to improve the results.  The beauty of having good information is the ability to create good plans from it.  Taking each section of your conversion process, you can determine which parts need more work than others.  In the case of the cash example, if it is taking you 15 days to create an invoice after the product is ordered, that might be an example of an area of opportunity.  From there, you can look at your process to figure out how you can create more efficiency in order to have a more positive outcome.

Organizing your action plans to address one or two issues at a time will have a better long term impact than trying to fix all of your issues at once.  I have found that picking two at a time is usually the most efficient.  Take one of the biggest areas of improvement and one of the smallest and tackle those first.

By creating a data driven matrix, you have given your organization the clear visibility to where you are currently (actuals), the ability to determine where you should be (benchmarks/goals), the variables you want to track (KPIs), and the possibility to create a clear path to improve them (action plans): all of the things a successful organization needs to be efficient and sustainable.

Why Revenue Based Forecasting Models Fail

Having been a part of numerous business planning and budgeting sessions for a number of industries, I have been able to see firsthand the failure of revenue based business models.  When budgets, forecasts or entire business plans are developed based on the increase or decrease in revenue, the end result is often times an inability to reach revenue based goals.  Those instances where the goals are reached or exceeded can be attributed more often than not to single point market contributions that may not be able to be continued or sustained.

Revenue is not a controllable key performance indicator, but rather a result of multiple controllable indicators.  Basing a forecast or budgeting model on growth in revenue without making the proper determination of which indicators can have the most impact and utilizing them to determine possible growth goals will most often result in an inability to grow in a sustainable and profitable manner.

Assuming first that a forecast will by nature include growth in revenue and profitability, basing either growth on an increase in revenue without diving into what creates it will leave an organization with shortfalls, or the inability to consistently recreate any standard of sustainable revenue enhancement. 

There are four basic flaws to revenue based budgets and forecasts:

1.       Revenue is a product of multiple indicators and therefore cannot be derived without considering the impact and ability of the other indicators to produce. Revenue is always the sum of number of transactions multiplied by the average dollars per transaction.

a.       Attempting to forecast growth in terms of a percentage becomes a guessing game that few people are able to predict accurately. 

b.      Top down forecasting (Revenue to COGS to Expenses to Profit) creates the inability to develop margin based indicators or track to results using anything but a P&L.

2.       Revenue based forecasts do not take into consideration the impact of change in the workforce.  Attrition, addition or reallocation of resources designed to create revenue streams will have an impact on the final number and must be taken into consideration when forecasting.

a.       Each member of a revenue production department will have an impact.  Change in workforce, workforce efficiency or lack of individual non-revenue based goals/quotas will lead to a declination of margins or inconsistent ability to grow.

3.       Revenue or revenue growth is not a sign of a healthy organization.  Using revenue as an indicator without understanding the effect and nature of its growth can be detrimental to organizational profitability.  

a.       When growth goals exceed carrying capacity, the result is either anemic or unprofitable growth.

b.      Growing revenue without understanding its makeup can dilute gross profit margins and require unbudgeted expenses to attain.

4.       Revenue based forecasts require a P&L to determine results and accuracy.

a.       Using a P&L to record results creates multiple issues including:

                                                               i.      Accuracy of the P&L.  P&L is based on accounting which is based on accurate recording of events throughout the course of a specific time period.  If there are adjustments in accounting in that time period or coming from previous time periods, the accuracy of the P&L will be impacted.

                                                             ii.      Timeliness of the P&L.  P&L statements record history not as it happens, but as it is accounted for and are not intended to be used accurately track critical variables.  When the P&L statements have been completed, it is too late to impact the results of what has already happened and not enough information to adjust what will happen during the next period.

Revenue based forecasting models are perhaps the easiest to use and explain to departmental or divisional managers when it comes to providing forecasts.  They are also innately more simplistic than other forecasting models based on critical variables and thus create less of a need to utilize additional time or resources.  In this case, easier is not necessarily better.  Taking the time to understand your carrying capacity, what your strengths and weaknesses are compared to your competition, developing real-time critical variable or KPI metrics that can be utilized to measure your success and more accurately forecast your future is definitely a longer and more difficult road, but at the end of it, you will have developed a blueprint to create better trained managers, more engaged employees and most importantly a path to repeatable and sustainable success.