Category Archives: Strategy

Sales & Marketing is dead, Long live Sales & Marketing (Data driven that is): Customer Lifetime Value

Sales & Marketing is dead, Long live Sales & Marketing (Data driven that is): Customer Lifetime Value

Anytime someone says that they work in a creative field hence they cannot measure the creative output of their work is a concerning statement. I would argue creativity stems because you are trying to drive an outcome. So how do you know that your creative juices actually resulted in the outcome that you wanted? 
We don’t have to look far, remember the dot com bubble or the housing bubble? The reason why bubbles happen is because you work under the premise that everything will be rosy and hence you become creative to drive that outcome.  You may realize it but the premise of everything being rosy is a constraint, which provides you the basis to operate.
Unfortunately we don’t think about measuring right out of the gate.  This is what usually happens, we start down a path to do something, and then stuff happens and suddenly we have the epiphany that we need to track it and measure our progress.  By the time you get to the last part you are overwhelmed because the infrastructure to measure your progress becomes an excel spreadsheet and tracking progress becomes a manual and tedious task because results from the various elements of your value chain are stored in different repository and you are out of luck….. Does this sound familiar?
One of my favorite metric in any sales and marketing effort is something known as Customer Lifetime Value (CLV). CLV is a very simple premise what is the value of a customer to your business starting from the time of acquisition to a set amount of years.  Now I know that the term lifetime word sounds intimidating because you really don’t know. Which is fine, but in most case using a time horizon of 3 to 5 years usually works.
So the obvious question is how do you calculate customer lifetime value? The elements that make up the calculation of customer lifetime value are as follows:
Acquisition Cost (AC): This basically means what does it take to acquire a set of customers based on various segments etc. The initial cost of acquisition is usually captured in the investment you make in your sales force, advertising, marketing, PPC, etc. initially, to get potential clients in to the funnel.  If it takes a lot to get you noticed the first time, you are not alone.
Marginal Profit per Customer (M): If you have dealt with microeconomics you know what this is. If you have not gone through an economics 101, that is fine too. What this is the measure of profit that you continue to add to your user base. This is not just the initial booking, but also the subsequent renewals that you get. You need to know this for the various time slices in your overall time horizon

Probability that the customer will stay (p): Like the measure says this is the probability on whether the customer will stay with you after they have tried your products (switching costs may also be a factor here).  In order to derive this number you have to have the something called the churn rate.  Churn rate is basically a measure of how many customers are leaving you vs. staying with you. The probability measure is basically (1- the Churn rate).
Discount rate ( r ): This is the rate that you will use to discount future value  in terms of current value.  In most cases if you are familiar with NPV, you can use the weighted average cost of capital (wacc) as the discount rate
Formula for Customer Lifetime value
CLV  =  -AC + (M1 + C1) p/ (1+r) + (M2 + C2)p2/(1+r)2 + (Mn+Cn)pn/(1+r)n
Now there are other factors that I have not included in this blog such as the capability of the product or service in question. For that matter the ability to deliver capabilities quicker and incorporate feedback into product and service quickly etc. These are all elements that can help increase the customer life time value of your product or service. The net is  with the arrival of Cloud and Big Data technologies is naïve to think that traditional sales and marketing can survive, data driven sales marketing is the future and it is here to stay now matter how creative you claim to be.  Bottom line any creative idea has to be something that is
  1. Measurable
  2. Testable 
  3. Try-able

Otherwise you are just making stuff up to make yourself feel important. Which might help you in the short term but long term you need to know what is going on to consistently reward yourself  and react to changes in the market place. You can contact me @ kkanakas on twitter with your comments


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Web Strategy: What is a good bounce rate?

I don’t know how many times I have heard that question, that is like asking how many times do get acknowledged when you say hello?  Sorry to sound to presumptuous here but it would be a wasted conversation because the person asking the question does not understand the web or even does not know what outcome they want to drive and hence ask for a “prescriptive” set of numbers so that they can measure against.

 Why is it hard for people to be more outcome driven? Because bounce rate although they are an ok metric, it is contingent upon other factors such as :
Location: If you are targeting a particular geography and you have high bounce rates from sources outside of the geography should you care ?
New vs Returning: This is another factor that you need to consider on the bounce rates. New users are great but if you have a higher rate of people returning then that is a good thing
Device: What are the devices people using to come to your website? If you find a high bounce rate because your site is not mobile optimized.Then you should do something about that
Medium: How are people coming to your site? SEO, Email campaigns, Social media, Paid Search, organic etc. If you break up your traffic this way you will be able to see what are some of the more effective mediums to reach out to your clientele.
All these divisions/ segments are interrelated I guess the net of this blog is that know you what your outcomes are and segment accordingly.  Bounce rates are great start if you don’t know web metrics but what you should be really looking at are exit rates (thanks to Avinash Kaushik: http://goo.gl/qjpn0). To me exit rates are more revealing about the leaks in your conversion funnel and what you need to fix. 
Another more important metric would be churn rates, similar to exit rates except churn rates focus on the customers you already have. What are you doing to take care of your existing customers and at what rate are they leaving (http://goo.gl/t1ADj).

So when some asks you about what is the ideal bounce rate? Please take the time to educate them and let them understand what outcomes are they trying to drive ( Increase registrations, downloads, donations, buy products etc,)

Caveat: If your company is obsessed  about bounce rates, then you have a good inkling that the organization has never thought of the web as a viable channel and you have long road to educate people.

You can contact me @ kkanakas on twitter with your comments

How do you get respect for a Strategist without any real world experience? You don’t!

People usually say that Strategists can only think of crazy ideas because they are not the actual “doers” of the work. If they were “doers” then they would not  be coming up with such crazy ideas.

I pride myself because I come a technical background myself. Even though I am a strategist myself and I don’t condone strategists that do not have real world experience  and coming up with ideas. Actually I have really little respect for such people, because they are mostly people that do not like to upset the apple cart. Since Strategy can be so nebulous, it can be made to appease anyone’s thinking especially if people end up designing a strategy based on the HiPPO rule.
          I prefer working with people that have been through the trenches and can empathies with situation of others. Strategist who have history of being the “doers” and getting s*it done are usually the ones that come out on top, everyone else just rides their coat tails.
What you think ?
You can contact me @ kkanakas on twitter with your comments

3 things that need to be considered when Job Mapping with Jobs to be done

My first blog after a long summer break, I hope all of you had a safe and sound summer as well.  I did catch up on a lot well-deserved reading but somehow my reading list from amazon has not gotten shorter. I bet you if Amazon did a customer lifetime value analysis on me, I think Amazon has probably made quite a pretty penny off of me just on books.
When I wrote the “Jobs to be done” write up on my blog, I did get a few feedback from folks who read it.  Some of them mentioned that the “Jobs to be done” notion sounds great but it is mostly theoretical (Cleary some folks have not read Clay Christensen’s Innovator’s solution), because when have to jobs you want get done in real life there are constraints. To which I thought a little bit and realized, and a little inspiration from the book The Fortune at the Bottom of the Pyramid by C.K. Prahalad, that innovation is not limited by constraints but actually happens because of it. With realization I went through the process of retracing my steps on activities which forced me to improvise or bootstrap projects in the past, the reason I had to improvise were because constraints along with a few other things such as effort and risk. Considering these limits in mind I did proceed to execute with a series of actions.  I know this sounds trivial because this behavior is so ingrained in us that most of us don’t think twice.  So this blog is dedicated to those 3 things that me realize I had not done justice to my earlier blog on “Jobs to be done”.

Constraints

For innovation to happen constraints can come in various forms. These constraints could be the usual suspects like finance/budget, resources, business model at a micro level or these constraints can be imposed at a macro level such as Political, Environmental, Social, or Technological. There is a reason why such decision-making tools exist whether it is the SWOT analysis framework or the PEST analysis framework. These tools allow us to look at the constraint in an objective way and figure out the right course of action.  I mean think about if these constraints were not put in place how would we have gotten some of the greatest innovations of our time. These constraints become even more relevant as our economy moves on from a post-industrialized society to knowledge driven society. Just think about the Reinvent the toilet challenge held by the gates foundation with a very simple constraint “it should be useable by 2.5 billion people that do not have access simple, hygienic, and sustainable toilets”.

Effort

Beyond the constraint this is usually the top most thing in our mind. I know it because every time I have been given a project my initial request is always more resources and the answer usually is work with what you have.  Because of this limitation, I am forced to improvise and work around ways to get my job done. My usual formula is the get the maximum efficiency with the most minimum amount of effort but it does force me to think in ways that I would not thought in an environment that is more comfortable. That is the other thing comfortable surrounding means bad news to me it means you are going to go stale pretty quickly  (that is topic for a blog later)

Risk

This is the other big one. With everything you do there is an element of risk. The only question you have to ask yourself is what is the threshold you and are team can withstand.  I know there are plenty of books and magazines that romanticize the notion of risk taking, which sound a hell of lot cooler than saying that before a so called rock star CEO was about embark on a risky proposition he/she was sweating bullets. Which is why I am a big fan of things like continuous integration, delivery, A/B testing, and data driven analysis. All these paradigms help reducing the cone of uncertainity that we know as risk. But with all these tools that we have to help us make better decision a few complimentary tools help us in making the right decisions and they are “Observing people and what they do, and sometimes just plain listening”.  Both these non-technical elements that give you ample insight on what you need to do next to innovate (Yes, engaging LinkedIn groups can be a proxy provided that you actually engage in dialog in those groups)
I would like to add a fourth element to this as well (Yes, I know I said 3 things in the blog title, but you folks have not heard from me throughout the summer, so I feel compelled to share with you a little bit more).

Metric

What is the measure of success that people use for the job they want to get done? This dawned on me the other day that in the West, we don’t think about price when we know that a product has a high level of performance and reliability. But if you think about products in the emerging markets, performance is the least of the concerns, their threshold is so low that they want to be able to do basic things at reasonable price.  In both these cases you can observe that the metric of success for one constituent is performance whereas for the other constituent it is the price.  You can take a performance product and place it a price sensitive market but at best you will skim the market but if you listen to price person you might design a product that could not only work in the emerging markets but also in the rest of world there by creating a new market (this is part is a bonus).  The intent of this section to make sure success metric is not forgotten. Too often we get carried away by other things but really do not pay attention to actual metric that will define success for the target constituent. This is something we need to pay attention do and it might just be a statement like “Minimize the time to reinitialize after an emergency to eject thrusters”
Just take a look at what GEis doing on this whole notion of reverse innovation, it really shows that they looking into all 4 things, when it comes to the jobs to be done framework and it’s implementation.
As always I look forward to a very enriching discussion. You can contact me @ kkanakas on twitter with your comments

The world has not changed. It is just the medium that has

Unlike my past blog posts this is more of me just being reflective on the way the world has evolved over the past decade. People say the world has changed and I believe that the world has not changed but the medium has changed. Those who don’t understand the medium, well they believe the world has changed.
It is funny that these days traditional companies still view their service to their clients based on products and offerings and ignore the complete “experience”. Yes I know experience is a catch all term but in the context of this blog the term “experience” is the culmination of both product and services.
I will be the first to admit, this is not something new, but if you look around the Internet. You will think everyone has found this new talisman to profitability called “experience” or even better “Delighting your customers”. To me terms like “Delighting your customers” does not mean much, what is more valuable is what can you do for them that will make them look better in the eyes of their clients.  That is more meaningful, because you can focus on the kind of jobs you clients want to accomplish.
The web was founded on the principal to allow humankind to collaborate irrespective geographical and political boundaries (it took a while to get there) but it has not changed one thing our innate tendency to be social (matter of fact it has amplified it exponentially). Which is why the power of Web of equalizes the people who consume a service with the people who produce a service. Social computing has now allowed people to be more informed about a product and service and also understand what other people like them think about the “experience” before they commit to such a service themselves.
As most of you know I am very big Apple fan, the reason for that is Apple as a company does not do everything well, but the things that are part of my day to day routine, it does extremely well. Which is why I as a consumer will pay premium for that kind of service. Yes there is a market for a Samsung type client but that is not a demographic that belong too.
What is amazing is that most smaller companies and some big have figured out the engagement aspect of the web and have really created a fan following, where as the rest of the industry is still using the web as an online brochure for their company. In the future companies that will survive are the companies serve their clients well and use the web channel effectively to engage and build a community around them.
There are still companies that still believe that slow and steady wins the race. But unlike in Aesop’s Fables I imagine today’s world there is a big hare competing with 1000’s of tortoises and each tortoise covers piece of the track they are going to race in and they do it really well. By racing like that the hare has already lost the race before it even started because each slow tortoise is a specialist in a micro conversion (i.e. each segment) which all work together in the context of the macro conversion (i.e. win the race).
Companies of the future will all have passionate user base and community. They will have a 1000 tortoises racing and that will enable a more fluid and complete experience against the bigger hare (unless the hare come forward with a 1000’s hares themselves).They will value more what each of their peers has to say instead of “vendor speak”. They will focus and engaging rather just being consumers.
So the net is nothing has changed except the medium ….. and some are just figuring that out
You can contact me @ kkanakas on twitter with your comments

3 ways to research an Opportunity

I know I am not an entrepreneur but I do know a thing or 2 about intra-preneurship. Working in technology company, every now and then you come across new cool things. Being product manager in my prior incarnation, I have been called a buzz kill  when it came to taking out the “coolness”  from the shiny new thing (Although I must confess I do enjoy working with cool things too). 
          When I am look at cool technology especially since I am in the business of selling software. I have to ask myself the following questions:

  • Does this new solution or cool technology solve a pressing problem?
  • Is the problem big enough that a potential customer is willing to pay for it ?
  • Does the opportunity match with my ability or my teams ability to deliver a solution?
  • Are the profits worth taking the risks?
Granted that one cannot be a complete expert in everything but that is where your ability to research comes in  and I am not talking about going on the internet and searching on the topic.  The internet is one of the few tools in your quiver that you use. 
The first thing you need to do is a frame the problem by asking yourself the following question:
What is the problem you are intending to solve ?
By answering that question you have identified the problem area/s you are going to research (It is critical for any venture actually_ .  Once you have identified the problem then  these are the following 3 areas that I would look at to evaluate the opportunity further:

1 – Meeting with Clients about a potential problem to be solved

Clients will tell you what their specific problems they are facing without even prompting and also the jobs they want to get done. Some might go to the extent on how you should help them to get their job done.  To me clients are a great source innovation. Now if you believe the Henry Ford’s old adage (which I do) “If I had asked my clients what did they want ?  They would have said faster horses”. But when working with your client base, the framing of the question needs to be different   instead of asking them the opportunity problem ask them the kind of work they are trying to accomplish. You may find some surprising inputs that might validate the opportunity at hand. Too many people expect their clients to just get it and understand the problem space they are going after or intend to go after.

2 – Meet with your Business Partners and Sales force

Both of these constituents are hungry to look at new opportunities and they are usually one of the few sources of validation. Business partners are useful because their business depends on you being successful and they also have access to first hand knowledge of why they are being employed by your clientele. 
Your sales force is the other constituent (if you don’t have a sales force then you should go back to doing #1). Sales always wants to win and as they should. They are one of the strongest advocates of  your products/solutions and they would be first one to let you know why they are losing on certain opportunities

3 – Internet based 3rd party research

The internet is truly a boon to doing tertiary research. You can get access to papers written by some well established analyst at a large analyst firm or you can take the simple route of trolling websites where your potential user base gets together to exchange and share ideas. I would go as far to say that trolling forums is just as effective as reading up on analyst papers (there is an art to it, but it can be done). It is called social listening. What do I mean by social listening ?  Well in the “internet of things” there are congregations of people in the virtual world building relationships especially on forums like “Linkedn” or even “Twitter” for that matter. Sometimes, all you have to do is join the right group or follow the right hashtag and you can get your answer/validation of the opportunity at hand. The analyst paper will probably give you a better idea of the market size but these two efforts combined provide a winning combination.
Let me assure you these are not fool proof activities and sometimes no matter how much research you do you may deliver a dud sometimes (just do it fast enough, so that you can course correct early on).
What are some of your ways to research an opportunity ? Appreciate any insight you can provide.
You can contact me @ kkanakas on twitter with your comments

How to get your business idea going

I am big a fan of Spreecast, but this topic is something that is close to my heart. Some insights on how to implement a business idea and get it going.