# Truth and Beauty Make Better Sales Projections

(Note: I posted this on American Express OPEN first. I’m reposting it here with permission.)

Are you doing a sales forecast? Projections that draw good-looking curves are better than straight lines. That’s because sales are the result of human behavior, and human behavior is a natural phenomenon. Natural phenomena come much more often in sweeping curves than in straight lines. Look at the spiral of a snail’s shell, or the curve of a giraffe’s neck. Rarely in nature will you see straight lines.

And that’s true in the world of commerce. Business phenomena—sales, users, growth and such—are natural phenomena. Cycles sweep up and curve over in big S curves or bell curves, graceful waves—not straight lines.

One important trick in forecasting (and I mean real, practical, business forecasting) is finding the built-in curves inside the straight lines. And with one simple mathematical formula, plus some creative thinking, you can do that for your own forecasts.

Take the example shown here, a collection of line charts, from real data for a SaaS (software as a service) app a few months after launch. In the first chart, the blue line represents sales, which went sweeping up as the product launched. There’s a nice curve there, reminiscent of the famous bell curve of diffusion of innovation.

Then I plotted the month-to-month growth rate, not the actual sales, but the month-to-month growth. You can see that in the orange line in the second chart here. That’s natural, too. It’s easy to grow at high rates from a small base, but as the base grows, the rate of growth slows. It happens all the time.

What I wanted was the green line, the underlying curve, so I could use it to project the near future, which you can see below in the third line chart. So I used the standard compound growth rate formula, and applied it to the growth rate to find the underlying average decline in growth. I used the standard formula for any kind of compound growth:

((most recent period growth/starting period growth)^(1-number of periods))-1

Where the ^ sign, the little arrow that’s normally the shifted uppercase over the number 6 key on a computer keyboard, means “raised to the power” as in ^2 means squared and ^3 means cubed. In this case we had growth of 57 percent declining to 20 percent in eight months of growth. So the formula actually applied to the spreadsheet is:

((.20/.57)^(1/8))-1

Which results in a growth rate declining at 12 percent per month. This isn’t a straight decline, it’s a slowing of the rate of growth. The third line chart here starts with 57 percent growth and drops that growth rate by 12 percent per month for eight months, ending up at 20 percent.

So that gives me the underlying formula for the natural decline, which I can then project forward to create a forecast.

I hope the visual in the third chart, with the underlying growth phenomenon extended, show you the point of the exercise. To finish the actual curve with a future projection, I use a spreadsheet to apply the projected growth rates to existing numbers. Take the most recent month’s sales and increase it by the growth rate plotted on the green line.

Obviously there is no guarantee that this gradual curve is better than a straight line. But does the gradual curve feel like it’s more useful than an arbitrary straight line?

One final thought: Don’t expect to accurately predict the future very often. Forecasting isn’t about guessing right, but rather about teasing apart the assumptions so you can track results.

# Do Your Team Members Own Their Areas?

I posted what you call management I call ownership last week on the Amex OPEN forum.  Here’s the gist of it:

… ownership might be the key to success in managing a business. I’m not talking about ownership as owning shares, stocks or percentages of a business. I’m talking about ownership as owning a job and caring about it. People who own their job care about it. They take pride in it. When their area does well, they’re proud and happy about it. And when their area does poorly, they’re worried about it.

1. Develop objective measures of performance
2. Manage performance against plan

That’s on Amex OPEN if you want to read more.

# Fear is Nothing to be Afraid Of

(I posted this last month on the American Express OPEN Forum as Harness the Power of Fear. I’m reposting it here, with permission, because I like it and I want to share it with you.)

The power of fear, you might ask? How can that be? We’ve been taught that fear is bad, as in Winston Churchill’s “we have nothing to fear but fear itself.” And heaven forbid you should relate the power of fear to those loathsome fear tactics in advertising and politics, scaring people to do buy something, or to think something.

No. I’m not referring to fear tactics as marketing. But I am serious about the business power of fear.  Let me explain:

1.  Understanding Power

First, think of the raging hurricane, lightning, flood or tornado. These are all raw power, truly fearsome. Fearing them is common sense and self preservation.

Then think instead of water power generating electricity, flowing through the grid, powering your house and office. Think about wind powering huge sailing ships. With these you have power harnessed and turned useful.

Human thought and emotion can be power too. You women who are mothers know how powerful that maternal love and protection instinct (think of grizzly bears) can be.  And there’s a lot of varieties of love that create power, plus the power of ideas and inspiration and, yes, fear too.

Power makes thing happen. It drives wheels and sails and water and wind and – yes – people too.

2. How Can Fear be Power?

Contrary to popular opinion, fear isn’t always bad. Sometimes fear is common sense. Fear keeps me from jumping off the edge of Nevada Falls. Fear makes me get a flu shot and buckle my seat belt.

Sure, paralyzing fear is bad. Nobody wants to be that deer caught in the headlights. But what about the deer in the meadow, standing still so its camouflage works, its ears perked to hear any sounds? It senses something coming. It stands still, or runs, depending on what danger it senses.

But back when Churchill was talking about fear, he was also running a nation that turned off the lights and ran to the basements when the German bombers flew overhead. They weren’t paralyzed. Despite the rhetoric, they had a lot to fear besides fear itself. And they took precautions. They ran to basements.

Fear in business means staying alert, keeping a fresh lookout, being aware of the competition, new markets developing, new trends, and changes. It shows up in good planning. Have you heard of the classic SWOT analysis? and the O and T in SWOT are opportunities and threats, right? So you look for threats before it’s too late. And you see them coming, early, so you can move away and avoid them.

3.  Harness the Fear and Put it to Good Use

Here are my recommendations:

1. Develop a regular planning process for your business. That means having a business plan that’s a plan, not necessarily a document, and is just big enough to manage the business. And it also means having a regular review schedule, so that the plan is subjected to good plan vs. actual analysis, and it changes as needed, which of course is often.

2. Build antennae and watching points into that plan. That means you see the threats. You recognize competition and think about what it might be doing, not just now, but also in the future. Make it your normal routine to step away from the business every so often and take a good look at what’s happening around you – and, when you do, keep your eyes open. See the threats.

Always knock wood, don’t spill salt, and don’t break mirrors. And keep your fingers crossed.

(Image: Leonid Tit/Shutterstock)

# Wise Guy on Business Planning, Not Just the Plan

I was happy to see Guy Kawasaki’s The Key to Attracting Investors yesterday morning on Amex OPEN Forum.  I do know that Guy understands business planning and its place in management (he interviewed me about it in this post, for example). But he also scoffs at the misuse of business plans and the cult of the business plan document. He’s right about that too, but people don’t always understand it’s the misuse and the cult that causes the problem, not the planning.  Here’s his key quote in yesterday’s piece:

You should not focus on a business plan, but this doesn’t mean you shouldn’t do business planning.

Yes. And he goes on:

Planning you need to do; that is, think about what your customers need (maybe they can’t even articulate it—that’s when the vision thing comes in), how you can serve these needs, what kind of people you want to hire, and how to finish your product and get it to market.

And this…

One of the most valuable outcomes of business planning is getting your team on the same page. You’d be amazed at how founders differ on what’s really happening and what’s really important.

Just so you don’t make yourself crazy trying to create the War and Peace of business plans, these are the sections that you need: Executive Summary, Problem, Solution, Business Model, Underlying Magic, Marketing and Sales, Competition, Team, Projections, Status and Timeline, and Conclusion. All of this should add up to less than twenty pages.

I couldn’t agree more. And I think I’ve been pretty clear on that on this blog: planning, not plan; and plan as you go.

# Guy Kawasaki and the Zen of Not Zen

I admit it. I got really jealous of all the Zen of this and Zen of that writing, dating all the way back to the book Zen and the Art of Motorcycle Maintenance, which I wanted to like, tried to like, but couldn’t. Yes, I gave into the horrible temptation, and even posted Zen and Business Planning here. I’m sorry. It was a moment of weakness.

Yes, I’m conflicted. Here I am after 30+ years of professional business planning fascinated by Gil Fronsdal and friends on Zencast, trying hard to reconcile Zen and business planning, and failing. Putting Zen and business planning into the same post is kind of like putting a dog and a raccoon into the same laundry bag.

Confession: my vanity license plate reads “not Zen.” If I could add a subtitle, it would be “… but trying.” After all, if I really were Zen, I wouldn’t put it on a vanity license plate. Right?

So you can only imagine my envy when Guy Kawasaki manages to bundle Zen of PowerPoint, Facebook, and Twitter, all at once, in a single post on the American Express OPEN Forum. Complete with 10 Japanese Zen concepts, each of them in Japanese, and each connected  to the points he makes. And then 10 more, which is really showing off. Damn, he’s good! He writes:

I love this kind of stuff: not only can these principles improve your PowerPoint pitches, products, website, and outlook on life, but they make people think you’re smart when you mention them.

Amen to that. Or something more Zen than Amen.

(Image: well, at least I get a point for that one. I took that picture in a Zen temple in Kyoto.)

# 3 Marketing Truths I Wish I’d Known Sooner

I posted 3 Marketing Truths I Wish I’d Known Sooner on Amex OPEN Forum earlier this week. I hope you have a chance to read it there; it’s been getting a lot of play. The alleged truths are 1.) Great marketing beats great product; 2.) Real people beat real money; and 3.) Consistency beats brilliance.  I’ll leave the explanations there, not repeat them here.

Just between you and me, it was awkward for a while because I’d started it as a list of five but eventually cut it down to three. Then I got rushed and sent it in without changing the title, so it promised five truths and included only three. Gulp. That’s embarrassing.

A couple of people asked about that on Twitter. I told them truth #4 is that marketers exaggerate their numbers and truth #5 would have been that marketers can’t count, if it weren’t for the fact that marketers can’t count.

Anyhow, it’s back to 3 in the title there, and I hope you read it and like it.

Empathy is essential. Sure, that’s obvious for your life and your relationships, but also, although not so obvious, for your business. Empathy is putting yourself in the other person’s shoes: feeling what they’re feeling, imagining what it’s like to be them. Isn’t that the key to marketing and product development? Isn’t that also the single most important factor in leadership? Dealing with people? And business strategy? I think so.

I posted Empathy as a key to business success here a bit more than a year ago. What’s new about it today is Gandhi’s Neurons: The Practice of Empathy by Bruna Martinuzzi on the American Express OPEN Forum. She links to this fascinating video by Nova Science (PBS), which examines something called mirror neurons, also dubbed Gandhi’s neurons. The mirror neurons fire as we feel for others, or with others. Narrator Robert Krulwich introduces this as new science:

We humans are really good at reading faces and bodies. ‘Cause if I can look at you and feel what you’re feeling, I can learn from you, connect to you, I can love you. Empathy is one of our finer traits, and when it happens it happens so easily, perhaps because—and this is brand new science, this is just out of the lab—we may have some special circuitry in our brains that helps us whenever we look at each other.

It’s because of mirror neurons that “you can adopt another person’s point of view,” according to Dr. V.S. Ramachandran of the University of California at San Diego. He notes that humans are intensely social. We invent dances, games, groups… we eat together, we work together, and we talk. Language and culture come from imitation. He even suggests that it was a sudden advance in mirror neurons that spurred a jump in evolution to make us human.

So, as I said earlier, marketing? Product development? Leadership? I hope the connection is obvious.

I don’t know how the science of it necessarily helps us with the actual practice; but I find it fascinating, and when I saw this, I wanted to share.

# In Love With Social Media? Do a Social Media Plan

OK, I agree, Twitter and Facebook can be fun, LinkedIn can be useful, but is the time you spend there really business time? Or is it just a rationalization for not doing real work?

I posted Social Media Business Plan in 5 Easy Pieces today on the American Express OPEN Forum. I like to think it’s a reminder that business activities ought to be about business, which means you can define business objectives, metrics, tasks and responsibilities, and then track and review progress. And of course that means revising the plan with course corrections on a regular basis.

It seems to me to be especially important for social media, because — at least for me — there is a fun factor that makes it especially alluring. Like allegedly low-calorie desserts. Waste your time without feeling guilty.

That’s one of the good reasons for doing a plan for your social media activities. And following up with it.