Saturday, July 5, 2008

What you don't Know you don't Know

I promised that I would try to give some practical advice on how to improve your business in simple to understand concepts and ideas. One of the most pressings issues for any company is how to increase sales profitably with the least amount of effort, or something I call 'Return on Effort.' Most people believe that the best way to grow a company is to either get your existing customers to purchase more or to get them to tell their friends and acquaintances to purchase from you. While repeat business is much easier the get than new business, and referrals can help you grow, you are at best looking at incremental gains. It is like fishing in the same pond trying to catch different fish. What most companies would like are macromental gains and in sales and profits. In order to get to the lofty goals, you are going to have to abandon some old held beliefs, and move far enough away from the safe harbor so as to no longer see the shore.

First, I have to diagram what I am talking about (click on image above). Draw four progressively larger, concentric circles, with the smallest being “What you know you know,” the next largest titled “What you don’t know you know,” the third largest “What you know you don’t know,” and the last being much, much larger circle titled “What you don’t know you don’t know.” If you look at the diagram, you will notice what we know, either as an individual or company, is pretty small in comparison to the infinitely large what we do not know we do not know.  Even with "big data" we still now know what we do not know, which is a start.

Most companies and individuals like to operate in the sphere of what they know they already know. They conduct surveys with customers they already have to see how they the purchase and discover their likes and dislikes. Essentially, this type of market research just reinforces the beliefs (be they right or wrong) you have come to accept as truths about the types of customers you should be selling to. This is similar to driving looking in the rear-view mirror.

A few brave individuals will try to expand their horizons and knowledge (and customer base) by venturing to discover what might be in “adjacent ponds” and discover what they once knew and have forgotten or what they know but have not yet realized. They will do a little research of customers who look very much like the customers they have now, or whom they think should like their product or service.

The hardest thing you will ever do is to take that step into the unknown, but in order to really make any type of impact, that is exactly where you have to go. I cannot imagine what would have happened (or failed to happened), if the founders of this country (Adams, Washington, Madison, Franklin, Jefferson, Payne, Lafayette, etc.), had NOT taken that first fateful step. They ventured into the space of “what they did not know what they did not know.”

Closer to home, I look at a few notables: Apple and Microsoft to name a few. What is interesting is that both of these companies MISSED the Internet revolution when access the world wide web was virtually an unknown entity! During the time that the Internet went from being just an oddity to a mainstream event, Mac lost 50% of its market share, and Netscape became the darling of the industry. To give Microsoft credit, they did regroup rapidly to put out a browser to compete with Netscape, and actually due to their leverage already in the PC market, was able to muscle out Netscape. Incredibly, Microsoft missed out again with open sourced software when Linux came to the fore. Again, this was something Microsoft did not know what they did not know, and instead choose to ignore it.

To Apple’s credit, they did jump out into the unknown with the iPod / iTunes. They did NOT know that iTunes would be such a hit (it now accounted for 80% of their 2010 stock valuation). It is sort of amazing to see Apple move (almost over night) from a failing PC manufacturer, to the leader in the digital media world. They accounted for 25% of ALL music sales worldwide in the last 3 years. Essentially, they began to operate in a industry the did not know. Credit to the late Steve Jobs, here doubled down with the iPhone, essentially once again going where he did not know what he did not know, mobile phones.

If you look at the most successful companies that have emerged from the advent of the Internet they have been companies that created something that no market data could have shown them: eBay, craigslist, PayPal, Amazon, Facebook, and Twitter.  They essentially went where no one had gone before, and reaped the benefits of getting unknown customers.  

Bottom line is: Go to where you do not know what you do not know. That is where you will find all your opportunities.

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