Editor’s note: Joe Procopio is the Chief Product Officer at Get Spiffy and the founder of teachingstartup.com. Joe has a long entrepreneurial history in the Triangle that includes Automated Insights, ExitEvent, and Intrepid Media. He writes a column about startups and entrepreneurship exclusively for WRAL TechWire. Effective July 18 his column moves to a Monday publication date as part of TechWire’s Startup Monday package.
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RESEARCH TRIANGLE PARK – When you use data to drive the growth of your business, you give your company a much better chance to survive and succeed. But too much of a good thing can be bad for you, and that holds true for data analysis as well.
In over 20 years of building products and growing startups using data as my singular source of truth, I’ve always advocated that no matter what kind of business you’re running, the more numbers you can generate about your business, and the more real-time you understand them, and the more accurate they are, the bigger and faster your company will grow.
But company founders and leaders oftentimes put too much trust in the numbers, which can quickly become a problem that manifests itself in several different ways. No one is immune.
Joe Procopio (Photo courtesy of Joe Procopio)
Here are a few methods I’ve learned to put some walls around your data analysis - transforming that data into a guide that doesn’t lead you down the wrong path.
How data can lead you the wrong way
Every startup founder or leader needs to be hyper-focused on numbers - from revenue to margins to growth, and even data produced by experimenting with the product or service. But when that hyper-focus turns into an obsession, a couple of shifts start to happen:
- You start to consider data that isn’t robust enough or accurate enough to be weighted properly.
- You give that data too much weight in your decision making process.
- You start to let emotion creep in, because this un-baked data is telling you something “scary” or “exciting.”
- You wind up making the wrong decisions. And those errors can be fatal to your business.
I’ll use plain-old stock market investing as an example. We all know that successful stock investing involves two rules: Buy a stock when it’s undervalued and hold it until it’s overvalued. This doesn’t guarantee maximum returns, because no one has a crystal ball, but it’s logical.
It still takes everything I have to ignore my emotion and just buy low and sell high. It’s human nature. I’m afraid of risk, which is healthy, but sometimes it leads me to holding off on buying an undervalued stock. On the other side, I don’t want to give up hard-earned gains, which is healthy, but sometimes I end up hanging on to an overvalued stock long after I should’ve taken my gains.
This is exactly what we do with our businesses. We start to doubt what’s working and we start to overestimate what isn’t. Then we either get frozen where we are or we put too much effort into something that’s not going to provide the return we need. Or worst of all, we keep hopping from initiative to initiative without taking the time to see if any single one of them should be expanded, ditched, or tweaked.
Let’s look at some of the data analysis DON’Ts. In a future post, I’ll cover some of the DO’s.
Don’t ride any wave too long, plan for the end
No matter how good your product or your market or your company is today, those things need to change, not just for your company to grow, but to survive. When we start to see initial success in an initiative, we need to mine that initiative for all it’s worth. But the mistake comes from putting 100% of our effort into that mining.
Don’t do this. Wells dry up, all of them, and it can happen at any time. A rule I live by is that the higher the angle of the rise, the less flight time and the quicker the fall.
Spend more than half of your effort mining those successful initiatives. Then spend the rest of that effort digging new wells. Some of those new efforts will be directly related to your initial success, like an offshoot of a market or a new feature based on the successful feature. Other efforts will require an almost random pivot away from your initial success. And still others, probably the most ideal, will be initiatives to capture that success and build off of it.
For example, when my startup ExitEvent hit on a content gold mine, I could have just brought in more content. The data told me to do that. So I did, but just a little. I could have charged for the content, and the data said I should (and so did everyone around me), but I didn’t, because that would have killed the business.
Instead, my next effort was to capture my content customers and offer them features that they would find valuable, based on their interest in the content. That worked spectacularly.
Don’t kill the cash cow
New initiatives should be applied carefully. You can be tempted to risk all the gains you get from one initiative by immediately trying to convert those customers to a different initiative. This usually happens in the name of profitability or growth or both. The strategy is right, the execution can be really, really wrong.
With ExitEvent, even if I had charged my content customers a low price to read the content, they all would have gone away. The content wasn’t strong enough to hold them, and I knew this from experience, even though the data was showing me big revenue numbers at almost 90% margins.
This has happened with other startups from my past on a much bigger level. We had products that were generating great revenue but the margins weren’t where they should have been. So we figured out how to get the highest margins out of the same product, and immediately put all our effort into that. It hurt the business every single time.
Once you have customers, revenue, and success, any expansion has to be careful, slow, and it has to bring over as much of the existing customer population as possible. You won’t get them all, but you need as many as you can keep. You do this by building bridges. Small changes, transitions, education, and lifelines to your existing customer base.
Don’t give up the macro for the micro
Let’s go back to stock market investing for a minute. Any experienced investor will tell you to avoid looking at your portfolio statement every day. I’m not going to tell you not to look at your data every day. You have to. What I will tell you is don’t let the day-to-day roller coaster cloud your decision-making for the long term.
You have to look at the numbers in aggregate, and this applies to all the data. The number of new customers on the first day means nothing. The delta between the number on the first day and the second day is more important. The angle of increase or decrease in the first week is even more important. And so on.
You can learn something every day, but don’t act every day. Every initiative you take on and every change you make should be focused on increasing deltas, not volume.
But just because you shouldn’t act doesn’t mean you can’t experiment.
Whether it’s a product feature or a marketing plan or a company-wide process rule, I’ll consider its initial impact but ignore what that means until I get more information.
As that information comes in, I’ll adjust. It could mean changing the location of a button in a web app. It could mean swapping sentences or paragraphs in a marketing email. It could mean telling support if they run into a certain scenario, to give the customer a refund.
It doesn’t matter what the initiative is, I will try to tweak it a dozen times, using the micro data as my guide, before I start making decisions on whether that initiative is successful.
This takes time, patience, and a total detachment of emotion. It’s difficult not to get excited when you see a big spike up, or concerned when you see a big spike down. But when you act on those spikes, you make mistakes.
It’s easy to get lost in the data. If you’re an entrepreneur, you geek out on this stuff. I’ll admit that checking the data is the first thing I do every morning, and sometimes it can make or break my day. But while it’s OK to be in a bad mood for an hour or so, you should never let that bad mood influence what you do next.
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