The Danger of Opinions in Business
“Without data, you’re just another person with an opinion.” ― W. Edwards Deming
Opinions: everyone has one.
Business leaders tend to have a lot of them, and often we feel strongly about them. Our opinions of what should and shouldn’t happen are influenced by who we are, where we’re from and our own unique experiences in the job market.
I’ve found that opinions can be awfully dangerous in business. From Western Union turning down Alexander Graham Bell’s offer to sell the patent for the telephone to Fox letting George Lucas keep merchandising rights for Star Wars, opinions and hunches have been famously costing businesses for centuries.
Sure, sometimes hunches are correct, but they should be a starting point and not an ending. Instead of gambling with the veracity of an opinion, leaders should realize the risk and always take care to gather data to examine whether their idea is truly taking the company in the right direction.
How We Almost Fell Into the Trap
“I have a strong gut feeling about this” can bring a slew of unintended consequences, even when it’s said by the smartest person with the best intentions. Opinions can be especially dangerous when the person sharing them is a senior member of the team, and nobody wants to question their authority or intuition. Since nobody can argue with a gut feeling, statements like this are difficult to politely rebut and often go unrefuted out of fear.
We almost made that mistake of placing too much faith in gut reactions ourselves, during a time when we were looking for ways to reduce customer churn. This is a common challenge in the SaaS space, and we were looking for creative ideas.
After our latest round of investment with OpenView (full disclosure: they are current investors), the VCs introduced me to new people in the industry to expand our network and seek advice. When I brought up the customer churn issue, someone I met through OpenView shared a success story about how SurveyMonkey, a prominent and profitable survey generation tool, massively reduced customer churn by introducing a new pricing model called Emerald Pricing. This type of pricing is different from the usual SaaS monthly payment model. Under Emerald Pricing, customers get a discount by paying a year in advance.
When I introduced the idea of Emerald Pricing to my own leadership team, I was met by their gut reactions—a big fat “no way.”
They objected to introducing a new pricing model, afraid that at best, nobody would be interested in paying so far in advance. Who pays for something an entire year in advance? We don’t pay for our mobile phones a year in advance, so why would anyone pay for Deputy like that? At worst, they worried that we would scare away potential customers who would feel that they were being overcharged for wanting to pay on a monthly basis.
The Right Way of Thinking
They weren’t entirely at fault for their fears; they were simply using what Elon Musk calls “reasoning by analogy.” They were comparing the idea to other people’s experiences, and concluding that it wouldn’t work. “It doesn’t work for phone plans, so it won’t work for us.”
While it’s natural to think that it won’t work in a parallel situation, no two situations are exactly alike, and it would be a mistake to make decisions based on analogies without including additional information that could alter the final result.
As Musk suggests in a discussion about decision making, deciding based only on the past would be like assuming that there would never be any demand for automobiles because everybody is satisfied with horses.
A Narrow Escape
Although many people in the leadership team seriously doubted whether it would work at all, and even though I had my own doubts, I’m glad that we didn’t fall into this trap. Luckily, we knew better than to eliminate a potentially good idea based solely on assumptions.
Instead, we did the research to see what the data said. We asked our customers directly whether they would be interested in paying for Deputy for the whole year in advance in order to get a 25% discount. To our surprise, 40% of people said they would eagerly do so.
The results of our research held true in reality; the initiative was nearly as popular as our results suggested. Currently, 35% of all our subscriptions are paid annually and it turned out to be our most successful initiative this year. Additionally, introducing the yearly pricing model allowed us to raise our prices overall. Customers who were price-sensitive could choose the yearly model, and we were able to increase our monthly pricing without angering loyal users.
By doing customer research, delving into their feedback, rolling out the new process, and tracking responses along the way, we knew that incorporating the new model was the best practice for Deputy.
Using Data to Avoid Future Pitfalls
At Deputy we have made all of our employees data analysts to ensure the right decision is being made. Instead of tracking data and events on demand, we track a multitude of data points. All data across all systems are then replicated in Amazon’s Redshift Data Warehouse―which is more like a data lake than a warehouse. Also, while businesses traditionally employ a team of data engineers to extract, transform and load data into warehouses (known as ETL), we instead use solutions like Stitch Data to consolidate data, and Chartio, a reporting layer, to allow all authorized parties to draw information on how the business is tracking in real time.
Through our near-miss, we learned that opinions can be dangerous. Having a “bad feeling” is the chief creativity destroyer: it’s bad for new idea generation and it’s bad for business. Opinions and hunches are great, but decisions should depend on data. In my next post, I’ll go over what it means for even the smallest startup to use data to verify or disprove assumptions.
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