Category Archives: Business Research

Why Plan Your Business? Look At This Data

Business Planning, Business Research, ,

While I’m not a big fan of surveys, this one is pretty straight forward, and I like the results. Palo Alto Software asked thousands of Business Plan Pro users a couple of dozen questions about their businesses, goals, type of business, years in existence, and business planning. Almost 3,000 people responded. And here, in the chart below, is one good summary:

Business Chart

Simply put, those who finished their business plans were about twice as likely to successfully grow their business, get investment, or land a loan than those who didn’t. You can see the numbers on the chart.

For the record, we sent the results to the University of Oregon Department of Economics for validation. I posted more details about that study and the statistical validation yesterday on our Business in General blog.

Is It Hooray for Social Media or Goodbye to Privacy or Both?

Business Ethics, Business Research, Marketing, Weblogs,

Speaking of paradox and contradictions (as I did with my post here last month), how about the good news/bad news mess of mixed-up emotions with the increasing personalization of advertising.

1984The good news (well, sort of) is less of the traditional shouting and interrupting types of advertising we all grew up with. Nobody really likes the ads that interrupt the flow of television and radio shows. We tolerate ads where we can just not click, or turn the page.

I’d like to think that this is happening because of the gradual growth of the business impact of social media and similar phenomena, in which word of mouth multiplies organically, replacing advertising with relationships and authenticity. That seems like a relatively pleasant scenario.

The bad news is more of the personalization that smacks a bit of 1984 and Big Brother and paranoia. This is what the New York Times called Ads Follow Web Users, and Get Deeply Personal:

“The result is a sea change in the way consumers encounter the Web. Not only will people see customized advertising, they will see different versions of Web sites from other consumers and even receive different discount offers while shopping — all based on information from their offline history. Two women in adjoining offices could go to the same cosmetic site, but one might see a $300 Missoni perfume, the other the house-brand lipstick on sale for $2.”

I have mixed feelings about privacy, particularly when it’s “Privacy” as political motivator and campaign slogan. I’ve seen it used as justification for all kinds of crazy ideas, such as somebody ringing my phone in my house being able to block caller ID (if you don’t want to be identified when you intrude, don’t intrude. Seems simple to me). By the way, have you asked yourself the relationship between privacy and authenticity? In social media?

I also have mixed feelings about our national confusion between ideas, speech, and commerce. I don’t think commercial messages (much less corporations, but that’s a different matter) need to be protected by the Constitution. I don’t think the Constitution gives a damn about which perfume the women see on the commercial site.

And this 1984 queasy feeling… does it still hold when it’s not an evil government controlling thought, but a cosmetics vendor optimizing sales?

Which brings us to the simple discussion of business. Is it good business to customize messages, even business offerings, to match very carefully defined and tracked consumer characteristics?

Bad Research is Worse Than No Research at All

Business Mistakes, Business Research

A couple of weeks ago I posted “bad research is worse than no research at all” on Twitter. Some thoughts, like that one, fit perfectly well in 140 characters. And it seems like a useful one too. And true.

The reasons for that statement seem pretty obvious to me. Better to know what you don’t know than to make business decisions based on false information and false conclusions. If the focus group said red is better than green, nobody dares to argue for green. Even if green is really better, and the focus group was off, distorted by one very articulate and engaging green hater. Red it is.

Seth Godin gave a great example on his blog a few days ago. He called it Learning from bad graphs and weak analysis. He takes some business charts and analysis from the New York Times and shows why it doesn’t actually show what it is supposed to show.

(Image: istockphoto.com)

The Fog of Research

Business Research,

Are you familiar with the phrase, “the fog of war?” You can get the idea from the image here, from a computer strategy game: the pieces in the center of the image can see the terrain for only a short distance, shown here as the brighter area. The rest is obscured by the fog of war.

Some days, bad days mostly, I think there’s something like this that goes on with most business research. They create the fog of research. It’s like the fog of war. Poor vision. Partial vision.

I think this happens all the time with focus groups and surveys. The research is almost always flawed because it’s almost impossible to get random people lists. Questions inadvertently distort results. People answer what they like to hear themselves or think of themselves answering, not the truth. Often they don’t know the truth. Surveys ask “would you buy this?” for example. “What price would you pay?” People often project who they want to be as they answer these questions. And focus groups: they depend on randomly chosen participants, but that almost never really happens. People can’t gather random people. And then one person — bad day, good day, some outside annoyance — can influence the whole group.

Then comes the problem of fog of research: once there is research in house, discussion gets fogged. People stop thinking fully, fairly, unwilling to question assumptions, and quick to devalue common sense. “After all, we have the research,” we say. “Let’s not ignore the research.”

I realize that this fog of research idea makes me seem to be against research, against analysis, and against study. I’m not, really; I’ve done a lot of research through the years.

What I do say is do the research, but don’t believe it blindly. Don’t lose your skepticism and common sense.

Special reminder: I’m doing my Global Entrepreneurship Week webinar today, free of course, at 11 am PST, titled: Develop Your Business, Not Just Your Business Plan. Click here now to register.

(Image credit: from classic.battle.net)

Why Survivor Bias Threatens Business Research

Advice, Business Mistakes, Business Research, ,

I want to start this with a story. I’m quoting Jason Cohen in his post Business advice plagued by survivor bias, with thanks to Alan Gleeson for tipping me off to this one. As you read this story, think of how it applies to business experts and business advice:

During World War II the English sent daily bombing raids into Germany. Many planes never returned; those that did were often riddled with bullet holes from anti-aircraft machine guns and German fighters.

Wanting to improve the odds of getting a crew home alive, English engineers studied the locations of the bullet holes. Where the planes were hit most, they reasoned, is where they should attach heavy armor plating. Sure enough, a pattern emerged: Bullets clustered on the wings, tail, and rear gunner’s station. Few bullets were found in the main cockpit or fuel tanks.

The logical conclusion is that they should add armor plating to the spots that get hit most often by bullets. But that’s wrong.

Planes with bullets in the cockpit or fuel tanks didn’t make it home; the bullet holes in returning planes were “found” in places that were by definition relatively benign. The real data is in the planes that were shot down, not the ones that survived.

Could there possibly be a better summary of survivor bias? Do you see how it matters with business research? I need to thank Steve King as well, because he focused on survivor bias recently in his post Don’t Quit Your Job Until You’ve Talked to a Small Business Failure. Steve points out, in that post, that if we only ask small business owners about risk, we only get opinions from the survivors. 

But if your goal is to find out how all small businesses owners think about risk, this approach is flawed.  This is because former small business owners – the folks that went bankrupt, lost their companies or were removed from their jobs – are no longer small business owners so they aren’t included in these surveys.  Because business failures are excluded, the survey results are biased towards successful small businesses. 

Do you see his point? You can’t get an accurate picture of a contest by asking only the winners. Sure, the winners are the right ones to ask for stories of what worked. But the losers have some insight too, like on what didn’t work. 

 (Image: Nick Schroedl/Shutterstock)

Don’t Believe the Research Until You’ve Read Steve’s Post

Business Research, Entrepreneurship, , ,

Posting on his Small Business Labs blog, Steve King wrote: Don’t Quit Your Job Until You’ve Talked to a Small Business Failure. Amen. Everybody even thinking about starting a business should 1.) Read that post; and 2.) do what it says, talk to a small business failure.

Steve cites a couple posts he’s done recently on research showing small business owners feel relatively safe in their jobs. But then he adds:

Several people have asked me does this data mean that small business ownership is less risky than traditional employment?  The quick answer is yes, but only if your small businesses is successful. (emphasis is mine).

I love the irony: the polltakers ruled out failures by asking existing business – which, by definition, aren’t failures – about risk. Steve’s a professional researcher, so he quickly identifies the problem as survivor bias, which he says turns up often in research. He adds:

My favorite example of survivor bias is surveying existing customers to develop satisfaction ratings.  I was once asked to figure out why a company was losing so many customers despite having stellar customer satisfaction ratings.

It turned out they didn’t include customers that left prior to the annual customer satisfaction survey.  After all, they explained, they weren’t customers anymore.

So, as Steve suggests, if you want to explore the dark side of small business, talk to the losers instead of the winners.

(Photo credit: el lobo/shutterstock.com)

2 Pictures, 200 Words, Lots of Ideas.

Business Research, Creativity, Technology, Twitter, Web/Tech, , , , , , , ,

Pictures, words, ideas. If one picture equals 1,000 words, how many ideas does it generate? Is there a transitive property there? I had time over the weekend to pick up two unrelated pictures. Each covers something entirely different. Both are full of ideas.

The first, a chart by Seth Godin:

From Seth Godins Blog
From Seth Godin

This is one of those things that must have been hard to come up with, but makes sense when you look at it. A map of communication. On the horizontal axis of the chart, from book on one end to a conversation at the other. With a book, the writer writes it at one point in time and the reader reads it at an entirely different time. With the telephone and coaching, both parties of the communication, sender and receiver, are involved at the same time. On the chart’s vertical axis, how much bandwidth is involved, from mail and graffiti at the low extreme, to movies and coaching at the high extreme.

The Second, from Buzz Networker:

from bizzia.com
From bizzia.com, buzzworker

This one is fascinating to me. As always with this kind of research, accuracy depends on how they sampled, but even if it could be off by a bit, it still gives a big picture of the main social networking sites (which is what I assume the acronym SNS stands for) usage by age. I have no conclusions to draw, but maybe you do.

News Flash: Research Shows Business Planning Pays Off for Start-Ups

Business Planning, Business Research

How do you spell "no-duh?" New research just released by the SBA shows that Advance Planning Pays Off for Start-Ups. That's the headline on a good piece of reporting by Kelly Spors of the Wall Street Journal's Independent Street. And, to be fair, she also offers background on why that's news.

It's the confusion between planning and the big fat formal business plan, frankly, that causes a lot of confusion in this area. You know: the people who confuse not needing a formal business plan document with not having or wanting to plan? Kelly Spors also wrote about that, a couple of years ago, when research showed that some successful businesses said they didn't have a formal business plan. (Again, "no-duh"; that's the same confusion. Added together with people who say they didn't have a plan, which is the same dynamic as when some people say they never studied in school (but got straight A's)). 

What this research actually shows, in my first skimming of it, is that startups with formal business plans early, tended to get more things done sooner. Startups that did only informal planning later, not surprisingly, tended to get things done later.

I do like this review of the state of business planning, from the text of the study:

We believe there is a substantial body of empirical evidence that indicates that the presence of a business plan during the venture creation process significantly improves the odds of successfully starting a business. In addition, Gartner and Liao (2007) found that the formality of the business plan (e.g.,unwritten, informal, formally written) significantly influences the success of starting a
business.

So, given that as background, this new study looks at three characteristics of business planning: presence, formality, and timing. The conclusion:

We believe that the evidence from this study and evidence from previous studies using the Panel Study of Entrepreneurial Dynamics indicate that engaging in pre-venture business planning has significant benefits that appear to encourage action and success at getting into business.

Me too.

Other Shoes Dropping

Business Planning, Business Research, Current Affairs

Here’s an eloquent business chart, from the NY Times reporting yesterday on retail sales last month. I find the economics behind it fascinating. The big discount places, the high-volume low-price strategies of Wal-Mart and Costco, increased sales. The more expensive places, Saks and Nordstrom, fell heavily.

It looks to me like a classic example of price sensitivity. I see the retailers here as almost in order of their general price perception, from low price at the top to high price at the bottom. I’m actually not sure about TJX or Kohl’s, that’s not my expertise.

This is an interesting counterpoint to one of my favorite assumptions, namely that the high end holds up in a downturn. I got that from watching the Mexico economy for Business Week during the 1970s. In that economy, during a downturn, luxury cars held up while the sales of the economy cars fell.

That never seemed intuitive, and that was then, in Mexico; while this is now, and here in the U.S. Here we have data that seems to confirm what I think we’d all expect: people rushing down market during a recession.