This article will show some tips on letting the market shape your decisions. First, we have a story to enliven this topic; there was once a group of intrepid Venture Scouts who got lost in the Alps during a snowstorm. As conditions deteriorated and their plight became increasingly hopeless, they began to resign themselves to a grisly fate.
Suddenly, one of them rummaged in the depths of his rucksack and discovered a long-forgotten map. It was creased, stained, frayed at the edges, and somewhat faded, but it was still just about useable.
Armed with this unexpected means of escape, the group set off. They encountered ravines, near-blinding blizzards, and other obstacles, yet they determinedly plowed on. Finally, hours later, they reached a nearby village.
It wasn’t until the following morning that they looked at the map again. Only then, away from the chaos of their search for safety, did they realize it was a map of a completely different area of the Alps. The truth was that it hadn’t given them a sense of direction: it had merely given them a precious shred of structure.
The story is most likely apocryphal, but it nonetheless contains an important message: any plan is superior to no plan whatsoever. This is undoubtedly the case in business, where it’s vital to find structure in the face of a dizzying muddle of markets, clients, competitors, and opportunities.
Finding Structure in an Organizational Setting
In another attempt to let the market shape your decisions – surviving and thriving in business can feel like hard work. There’s very often a sense that the unknowns hugely outweigh the knowns – that there are many more things we don’t entirely comprehend and far fewer things we have reliable information about.
It remains very easy for companies to fail. The shelves of business libraries around the world may be stacked with tomes about success and how to achieve it, but many firms go bust every year. Meanwhile, completely new market categories continue to spring into life.
As a consequence, there are countless businesspeople who exist within a sort of bounded rationality. They would love to think they know more than they actually do, but their capacity to accomplish this ideal is constrained by the insights they’re able to accumulate, analyze and act upon.
Like the members of our Venture Scout group, they’re basically looking for structure. They’re desperate for a means of managing uncertainty. An especially effective means of doing so is to carry out market experiments.
Perhaps the greatest appeal of this approach is that it uses the actual market to answer your questions. By designing and implementing these experiments, you can shed light on key business issues without risking sizable amounts of money or expending undue effort.
Engaging with Would-Be Customers
Market experiments in some way underpin the concept of lean start-ups. These use customer interactions – especially those close to or proxies for purchase decisions – to assess whether a product or service is fit for purpose.
By launching a “virtual product”, for example, you can get a decent idea of whether the genuine article will sell. Alternatively, you might unveil various product names simultaneously to see which resonates most strongly with consumers.
Maybe the most straightforward market experiment is the A/B test, in which alternate offerings are presented to two sample customer groups. Comparing the results should show which is superior, clearing the way for further research into precisely why.
Today, thanks to the march of digitization and the advent of platforms such as Kickstarter, it has never been simpler to engage with would-be customers. It has also never been cheaper.
You just need to remember that a suitable measurement process or feedback loop is essential if you want your market experiments to work well. Figuratively speaking, that’s how you’re most likely to end up with the right map for the right district of the Alps.
Blind Luck Versus Informed Decision-Making
By contrast, you’re most likely to end up with the wrong map if you put your faith in a framework or a snippet of business theory. This is the route many businesses continue to favor.
The dream in these instances is that you toss in a twist of logic and a few fragments of information and wait for a fantastic business decision to somehow emerge from the mess. Good luck with that.
Sometimes, like those doughty Scouts, you could get lucky. Fortune might choose to smile at you, and you may just navigate your way out of trouble – albeit on a totally false basis.
On the whole, though, it’s much wiser to have a bona fide grasp of where you are and where you need to go – not to mention how on Earth to get there. And that’s what market experiments can give you.
Make no mistake: succeeding in business is difficult. But letting the market shape your decisions is one way of making the task just a bit easier – and it’s an approach you shouldn’t overlook.
David Falzani MBE is a Professor at Nottingham University Business School’s Haydn Green Institute for Innovation and Entrepreneurship (HGIIE) and president of the Sainsbury Management Fellowship.
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Nottingham University Business School specialises in developing leadership potential, encouraging innovation and enterprise, and developing a global outlook in its students, partners, and faculty. It is recognised as one of the world’s top business schools for integrating responsible and sustainable business issues into its undergraduate, MBA, MSc, PhD, and executive programmes and has unrivalled global reach through Nottingham’s campuses in the UK, China, and Malaysia. The School holds a Small Business Charter Award in recognition of its important role in supporting small and medium enterprises. It is accredited by both the Association of MBAs (AMBA) and the European Quality Improvement System (EQUIS) and ranks among the UK’s top ten for research power.