Thursday, March 02, 2006

Why Increased Choice = Increasing Biased Reporting

Why Increased Choice = Increasing Biased Reporting
I had always thought it paradoxical that even as the Internet makes it possible to disseminate the truth more widely, we seem to have entered an increasingly strident and partisan age of biased reporting.

Now I see that this increase in bias is a natural consequence of increased choice.

The most recent Harvard Magazine has a brief article on the work of two economics professors, Andrei Shleifer and Sendhil Mullainathan. In it, Mullainathan uses an analogy so perfect and convincing that I will simply quote it in its entirety:
Mullainathan draws the analogy of a long beach occupied by swimmers
enjoying the sun. An ice-cream vendor arrives. If all the swimmers are at one
end of the beach, the vendor would set up the stand there. But if customers are
spread out along the entire beach, the single vendor should locate in the middle
of the beach to offer easy access to the most customers.

“Think of that beach as the political spectrum,” Mullainathan says. “If
there is one seller, you locate in the middle—just as a monopoly newspaper will
locate itself in the center of the political spectrum to draw the most readers.
But if a second seller sets up in the center, the two newspapers will just be
competing on price. So instead they segment the market, with one paper going to
the right-hand side of the beach, the other to the left.” One paper might even
go to the extreme right end of the beach, where it can charge a higher price to
readers who don’t want to make the long walk to the left. “As two firms move
farther out from the center,” Mullainathan says, “they insinuate themselves more
with their customers.” In just this way, the researchers write, “Newspapers
locate themselves in the product space through their reporting strategies (i.e.,
how they slant).” Bias is not a product defect, but a feature.

Their conclusion? If you want to overcome your own innate biases, you need to seek out a heterogenous array of news sources. In other words, just reading Daily Kos or watching Fox News ain't going to cut it.

Do What You Love (Because No One Really Knows What Will Make Money)

Do What You Love (Because No One Really Knows What Will Make Money)
Recently, a friend of mine was contemplating a career opportunity. She ultimately decided not to go for it because her heart wasn't in it, though she added, "maybe I'll regret this financially."

I think she made the right decision. Here's how I look at it:

1. You have 20, maybe 30 prime years of your career. That's essentially your working life.

2. If you decide to do something for the money, it will probably consume several years of your life, maybe even more.

3. There's never any guarantee that you'll get the money (there are exceptions, such as professional basketball players, but I'm talking about the rest of us). One of my other friends accepted a position as CEO of a high-profile startup with wads of funding and a fancy 5-year contract with tons of stock. A year later, he was fired.

Let's say that you spend 5 years working on Wall Street so that you can become rich. That's up to 25% of your working life. Maybe you'll get rich. Or maybe there will be a bear market or a merger, and you won't. Either way, do you really want to sacrifice 1/4 of your most productive years?

Let me phrase it in a different way: If someone offered you to give you $10 million in exchange for 10 years of your life, would you do it?

I sure as hell would not. And when it comes down to it, doing something for the money is like selling years off your precious, finite, all-too-brief life in exchange for the *mere possibility* of the money.

To me, that's a sucker's bet. If you must have money, you can still pursue your goal--just restrict your set of possible careers to the ones you can love.

Colleges As Marketers

Colleges As Marketers
Everyone is a marketer now. In the age of choice, where the consumer has access to orders of magnitude more options than ever before, marketing is more important than ever as a way to cut through the noise.

Just take a look at this article on how colleges are incorporating online marketing into the admissions/recruiting process.

Colleges are starting to use all the tactics marketers have developed this past decade, from old chestnuts like email and personalization (Case Western, Cal Poly), to the new new things like podcasting (Allegheny College), blogging (MIT), viral videos (Franklin & Marshall), and even a videogame (DePauw).

Sadly, my alma mater HBS does seem to be doing anything innovative...I've been begging them to do something with blogging for years now. That's the problem with being #1--you get conservative and stop trying as hard.

Beware--no matter how prestigious you are, you're not immune to the market. Just remember what one student told the reporter:

"I read e-mails more than I looked at all the paper schools sent," she
says. "I put all the pamphlets from schools in a pile to look at one day. But
with e-mail, I would read it and was either intrigued and looked further or I
ignored it."

Wednesday, March 01, 2006

When I was 18, I wish....

When I was 18, I wish....
My friend Ben Casnocha just turned 18 (thank God I'm not yet old enough to be his dad...when I start having friends that are young enough to be my kids, then I'll really freak out), and as a birthday present, asked his geriatric friends to tell him what they most regretted either doing or not doing as an 18-year-old.

My answer was that I regretted not doing a quarter overseas, probably in Oxford or Salamanca. At the time, I was busy with school, and didn't think that I could afford a term away, given the heavy requirements of double-majoring.

In retrospect, I truly regret it. As it turns out, I recently found out that my friend Alysia Andrikopoulous was in my same position, and got a dispensation from the Stanford Product Design department to skip one of the core classes and still graduate.

Plus, back in 1993, the world was an incredible place. Communism and fallen, and we hadn't yet experienced the full horrors of ethnic cleansing, genocide, and terrorism. For a brief time, anything seemed possible.

Alas, that world is gone forever, and I shall always wonder what it would have been like to experience it.

Trackback

The Face of Harvard Business School?

The Face of Harvard Business School?
Your friendly neighborhood blogger is currently on the front page of the HBS alumni Web site. See if you can figure out which photo I'm in. I'll give you a hint, it's not the one on the left.







If you need any more help, in the photo, I'm congratulating my old friend, D. E. Shaw &. Co., L.P. colleague, and HBS sectionmate Jim Dixon on his recent marriage.

Bursting the Housing Bubble, Part 43

Bursting the Housing Bubble, Part 43

This post is brought to you by The Big Picture.

The stats:

Part 1:
  • The supply of houses for sale (in terms of months of supply) is at a 10 year high.
  • The number of houses under construction is at an all-time high (or at least for the 40 years that this stat has been kept).
  • The 3-month moving average of houses sold has declined for year, and the decline is accelerating.
Part 2:
  • Meanwhile, condo sales (a leading indicator) dropped 10.6% from December.
Conclusion? Mean reversion is a bitch. And soon the blood will flow.

You can't force cats to do anything

You can't force cats to do anything
Amazing story I ran across via O'Reilly Radar. Yuri Kuklachev's "Moscow Cats Theater" features 26 cats performing various tricks including handstands and tightrope walking.

Given the fact that most people struggle just to get a cat to come when called, Yuri's accomplishments are pretty amazing.

How does he do it?
"If the cat likes to sit you can't force her to do anything else," he said,
adding that several of the cats in the New York show simply sit and watch the
others.

"Each cat likes to do her own trick," said Kuklachev, whose show has
not been the target of animal rights protesters. "Maruska is the only one who
does the handstand. I find the cat and see what they like to do and use that in
the show."

Simple, but profound.

The same principle applies to just about any activity that involves working with others, from parenting to management. As Marcus Buckingham says, the one thing a manager should do is to find each person's particular strengths and figure out how best to use them.

This is another great example of the principles behind what I call "The Era of Choice." Someday I will write this book!

Tuesday, February 28, 2006

Move Over, Mr. Burns

Move Over, Mr. Burns

Move over Mr. Burns. See you later, Scrooge McDuck. Hasta la vista, Richie Rich.

The new champion for richest cartoon character in the world? Warren Buffett.

The Sage of Omaha will be lending his voice to a 13-part cartoon series to teach kids about money and investing. I have got to get a copy!

I'm almost excited about this as I am about Action finally being out on DVD.

Monday, February 27, 2006

Stupid Football Players?

Stupid Football Players?
Rumor has it that Vince Young, the quarterback from the national champion Texas Longhorns scored a 6 out of 50 on the Wonderlic intelligence test. His agent and college coach hastened to quell the rumor by saying that the test had been improperly graded, and that Young had re-taken the test and gotten a 16. Of course, since all Wonderlic scores are supposedly confidential, there is no way to confirm or deny the rumors.

The average person scores a 20 on the Wonderlic. According to Charlie Wonderlic Jr., "A score of 10 is literacy, that's about all we can say." That means a 16 corresponds to mild retardation, and a 6 constitutes illiteracy.

The average quarterback scores a 24 on the Wonderlic, higher than any other position other than offensive lineman (whose mastery of complex blocking schemes makes them the brainiacs of the pigskin set). Scores for quarterbacks in the past five drafts vary, according to nfldraftscout.com. Other high profile quarterbacks scored in that range. Michael Vick scored a 20, David Carr scored a 24 and Eli Manning scored a 39.

Does it make sense to judge a player based on a single test score? After all, if he's already had success, wouldn't that be a better measure of the man? And aren't standardized tests culturally biased?

More broadly, does it make sense to judge non-football-players by their test scores? By their IQs and SATs?

That's a question you have to answer for yourself. Vince Young looked amazing in the Rose Bowl. But if he really scored a 6, I'd drop him like a hot potato.

Bursting the Housing Bubble: New Home Prices Register Biggest Drop Ever

Bursting the Housing Bubble: New Home Prices Register Biggest Drop Ever

The WSJ (via The Big Picture) reports that home builders are lowering prices to sell, sell, sell. Builders are a leading indicator, and this particular indicator is pointing firmly towards a major correction.

In December, the average price of a new home was $272,900, according to the
Commerce Department. That was 8.9% below September's $299,600 -- the biggest three-month percentage drop on record. The median price (as opposed to the average price) fell by a slightly smaller 7.7% to $221,800. That is an
indication that more expensive homes have seen the steepest price declines.

Prices for existing (that is, previously owned) homes, on the other hand, have registered only slight declines. One reason is that builders are much more motivated sellers than the average homeowner is.

Sunday, February 26, 2006

PersonalDNA: Benevolent Idealist

PersonalDNA: Benevolent Idealist

I ran across PersonalDNA on Fred Wilson's blog. Fred's an Animated Leader, while I am a Benevolent Idealist.

What's interesting about PersonalDNA is that others can also rate you, so that you can see if your own perceptions and those of your colleagues differ.

Of course, to do so requires you to take the test yourself (lost of nifty AJAX widgets). Can't escape from viral marketing anywhere, I guess!

If you want to rate yourself and rate me, you can follow this link.

Book Summary: The Ultimate Question

The Ultimate Question
by Fred Reichheld

I received this book as part of a BzzAgent campaign. Overall, I've found BzzAgent's books a mixed bag. Some, like Guy Kawasaki's "Art of the Start" rock hard and kick ass. Others, which shall remain nameless, well, suck.

The Ultimate Question falls into the former category. I think it's one of the most important business books of the year.

The Ultimate Question is about a simple, yet all-encompassing insight: The best way to build a successful business is to have loyal customers, and the best way to measure loyalty is by the proportion of customers who will recommend you to others.

The Ultimate Question is simple: "How likely is it that you would recommend this company to a friend or colleague?"

Based on the answer to that question, you can divide your customer base into three groups: Promoters (who act as evangelists for your company), Passives, and Detractors (who feel like they are trapped in a bad relationship).

The Net Promoter Score (NPS) is calculated by subtracting the % of Detractors from the % of Promoters.

The average company has an NPS of 5-10%. The best companies have an NPS of 50-80%. And then there are the bad companies who actually have negative NPS ratings.

Companies that engender loyalty enjoy higher growth and better profitability. They spend less on marketing and customer acquisition (thanks to their loyal customer who do that for them).

Answering the Ultimate Question is a beginning, rather than an end. Once you know your score, you still need to figure out ways to improve it. You still have to do the hard work of identifying ways to improve the customer experience. But the Ultimate Question provides the needed measuring stick to go about this systematically and more efficiently.

Companies like Enterprise Rent-a-Car use the NPS to seek continually improvement. With scores down to the level of individual offices, it gives Enterprise the ability to see where it needs to focus...and to make achieving a high NPS a part of the corporate culture.

The Ultimate Question can also be used to segment and manage customers. By grouping customers on a matrix that cross-references profitability and NPS scores, it is possible to apply different strategies to different situations.

1. INVEST in your profitable promoters.
2. REDUCE bad profits (profitable detractors) by identifying and solving their problems
3. Move unprofitable detractors UP or OUT by either finding a lower-cost way to serve them, or better yet, foisting them on the competition.
4. INCREASE the profitability of your unprofitable promoters by cross-selling more profitable services
5. INCREASE the happiness of your passives, but not at the expense of the above priorities

If you're building a company from scratch, design a business model around delighting profitable promoters. Do this, and you can prosper even in a cutthroat commodity business like HomeBanc, which focuses on mortgage loans to home purchasers with great service, no marketing, and competitive prices. It is able to do these things despite investing in its employees thanks to their high productivity.

Companies like Enterprise, Southwest Airlines, and many others succeed despite of their industry.

Some of the ways to build an organization that creates promoters are:

1. Send the right messages. If your focus is on delighting the customer, reward those who do, and punish those who don't, even if they deliver profits. Those profits are bad profits, bought at the expense of the customer relationship.
2. Hire (and fire) to inspire. Hire people with the right attitudes. Do not compromise and hire people who don't embody your core values just because they are skilled. And rely on employee referrals for hiring.
3. Pay well and invest in training--so employees invest in relationships. Make up for the cost with productivity.
4. Small teams enhance accountability and service. The military has found that the best building block for an organization are two five-man squads.
5. Link measures and rewards to company values.

Measure and reward what helps the customer experience, not just maximizing profits.
USAA uses these tactics. It spends double the industry average on training. Its people are empowered to use their judgment on all issues, including refunds, so that customers don't have to be transferred around. Call center operators work in small teams that collaborate. And NPS ratings are over 90%.

It's also important to make the customers part of the process. You develop a community of promoters by listening.

1. Hold direct conversations with customers. Senior managers need to stay in direct contact with real customers. CEOs man the customer service lines.
2. Create processes for systematic listening by frontline employees. SAS for example gathers all the suggestions and feedback and put them up on the Web site for users to vote on.
3. Let customers guide innovation. See what the customers want, rather than assuming you know.
4. Help customers delight one another. Connect them together and see what happens.

In the end, the Ultimate Question is the glue that ties together a number of themes, ranging from Seth Godin's "Free Prize Inside" to Ricardo Semler's "The 7-Day Weekend". In today's world of ultimate choice, the companies that delight their customers (and their employees) are the ones which will win in the marketplace and in their market cap. The Ultimate Question offers the best feedback mechanism to see how you're doing.