RonAmok!

The adventures of an analog engineer and digital storyteller who studies emerging networks and their impact on the great game of business.
Feb 15, 2012

There are two things that we know about the great game of business:

  • Companies are pretty good at predicting costs
  • and they’re not very good at predicting demand.

If they were, companies like Ford, Coca-Cola and Columbia Pictures never would have released the Edsel, New Coke, or Ishtar.

The problem is that until recently, the financial success of a project was determined posteriori (after the fact), by how much revenue was generated. But wouldn’t it be better if we could actually predict the project’s financial success a priori (before the fact?) Recent advances in “social” technologies have resulted in a new sort of crystal ball that can not only predict marketplace viability accurately, but can also establish the holy grail of marketing: value-based pricing.

A New Way

Imagine for a moment that you have an idea for a great new product. You know how much that product will cost to develop and manufacture, but don’t yet have a good feeling on how well the marketplace will respond to it. Sound familiar? So how do you determine whether or not to continue with the project? Product testing? Focus groups? Surveys? And even after performing all of these expensive pseudo-scientific actions, doesn’t the decision still come down to a gut-feel based on “intangibles?”

But, what if, instead of surveys or gut-feelings, we had a way to know exactly how many people would prepay for your product? And what if, those same customers would also determine an average selling price (ASP) for the product too?

Fantasy? Nope. Just another business innovation that is resulting from our experimentation with social technologies.

Musician Julia Nunes explains.

“Normally I’d record the album and incur a fun amount of debt, and then, I would try to make that money back by selling the album,” she says in her Kickstarter project video where she’s requesting $15,000 to fund her project. “But now we have this awesome platform called Kickstarter, and I can basically pre-sell the album, and offer up a bunch of stuff that I’d never sell on my regular website, with the added bonus of you guys knowing exactly where your money is going…directly into the studio.”

Had Julia decided to follow the traditional business decision cycle, she’d have to consider investing $15,000 of her own (or borrowed) money to record, manufacture, market, and distribute her album. If she assumed an ASP for each album at $9.99 on iTunes, she’d need to sell well over 1,500 of them (to also cover sales costs) just to break even. If that number passed her gut-check, she’d probably green-light the project.

However Kickstarter opened a new way for Julia to assess the financial viability of her project. Having already calculated the $15,000 that would make the project worth her while, she didn’t have to wait to determine the financial success of her project posteriori, instead the marketplace determined that for her a priori, as 1,685 people prepaid $77,888 for her to create her album.

Business Ramifications

Many people look at Kickstarter as a cute way for the little guy to make it. And they’re missing the point. Something much bigger is happening here as networked technologies are squeezing inefficiencies out of traditional business decision-making processes. The concept of network funding has applicability in any business, not just musicians, as indicated by the 5,258 people who gave $364,000 to Peter Dering to manufacture his Camera Clip System, or the 12,521 folks who gave $1.464M to Casey Hopkins to manufacture his Elevation Dock: The Best Dock for the iPhone.

The business ramifications of network-based funding run even deeper. Consider the fact that companies are never quite certain that they’ve optimized the price-to-demand ratio to generate the most revenue. Companies spend many hours trying to determine pricing, constantly “guesstimating” the consequences of setting prices high to establish a perceived value, or “diving the boat” to drive revenue through volume. Either way, the uncertainty frequently leaves companies with a nagging suspicion that they’ve left money on the table.

Yet, Julia Nunes established a value-based selling price for her album a priori to recording its first note. The ASP for her album was $46.22 [($77,888/1,685), with a median of $30 (determined by the breakdown of backers provided by Kickstarter]. Without a service like Kickstarter, had Julia gone to a record publisher and said, “I can sell exactly 1,685 albums at an ASP of $46.22,” she would have been laughed out of the building, because even the best A&R person in the world can’t predict sales with that level of accuracy. However, Julia’s prediction wasn’t based on the squishiness of a gut-feel; it was based on fact.

So, what does this mean for your business?

The more we use our social networks, the more we learn about their value. As we learn, new uses will emerge, such as helping businesses assess risk in a way that was impossible to do just a few years ago. Services like Kickstarter offer producers the ability to see exactly what consumers are willing to commit to their credit cards before getting too deep into the product development cycle.

So, I have a question. Is your company actively considering the power of networks in their business, or has it already dismissed them as minor tools to be placed into the hands of corporate communicators?

Note: If you’d like to read the full story behind Julia Nune’s successful use of social media technologies, please feel free to get your free copy of The Rule of Thumbs.

While driving home last fall, I noticed that a company called Microsemi had moved into the area. I was pretty excited because Microsemi is a world-wide semiconductor manufacturer whose product-line falls into the sweet-spot of my technical knowledge as an analog/mixed-signal circuit designer.

I went online to learn that the building that I saw represented their new corporate headquarters. I learned that they were growing, having acquired twelve additional semiconductor companies over the past three years–who each brought some pretty cool technologies with them. After a few more mouse-clicks, I also noticed that the company had a very small social media presence. Thinking that this might be Kismet (like how many analog/mixed signal companies with cool new technologies yet very little social media presence can I expect to move into the area?), I decided to write a report, on spec, complete with specific recommendations on how the company might use its online properties to better communicate with its customers–electrical engineers.

I wrote the report and snail-mailed a hardcopy to a Microsemi contact with whom I’d been introduced through a mutual colleague. Unfortunately, it wasn’t meant to be. No complaints. Such are the risks of spec research.

However, as I shared the report with a few friends, it occurred to me that independent of the subject-company’s name on the report, the document contained relevant information for any high-tech, B2B company who is considering the use of online publishing platforms. So, rather than having this report remain lost forever on my hard-drive, I decided to share it with my readers.

If you work for a B2B company in a high-tech industry, you should read this report: Microsemi Corporation: Online Properties Analysis and Recommendations. Perhaps it’ll help provide a new perspective by which to evaluate your own online properties.

Sep 26, 2011

Most companies don’t understand Twitter. Instead of seeing it as a real-time communications channel, many dismiss it as a 140 character-limited oddity.

The secret to understanding Twitter resides within its constraints. By understanding how to use brevity and timeliness as an advantage, companies can use Twitter as a lead generation machine. Take the following example:

At 11:44 a.m. on September 12th, Twitter user, @suburbanmama (Marcie Taylor), published the following post:

“Also right now I am evaluating #socialmedia analytics tools. Any suggestions? #smmoc @hubspot @radian6 @lithium”

From a business perspective, this tweet represents a prospect reaching out to her public network for opinions. For those not used to Twitter shorthand, let’s parse the tweet:

“Also right now I am evaluating #socialmedia analytics tools.”

Marcie has told her 3200 followers that she is looking to evaluate tools that track conversations in social mediums.

Her use of two hashtags (#socialmedia & #smmoc) aid those who are tracking specific Twitter conversations. For example, by tagging her post with “#smmoc,” she’s seeking the attention of a local social media support group called Social Media Masterminds of Orange County.

Finally, she’s called-out three of the top social media analytics companies through their Twitter handles: Hubspot, Radian6, and Lithium.

Marcie posted her question at 11:44 a.m.

Radian6 responded within seven minutes.

@suburbanmama Happy to help where we can. =)

But Radian6 wasn’t the first analytics company to respond. A competitor called ViralHeat had already responded five minutes earlier:

@suburbanmama Have you considered @viralheat as an analytics tool as well? Take a look & let me know if you have any Qs! #socialmedia #smmoc

(Note the use of her hashtags #socialmedia and #smmoc)

Twitter is a simple platform that allows direct correspondence between companies and their prospects. Marcie reached out to her followers via Twitter. Radian6 responded directly to her. Seeing an opportunity to add its name onto an exclusive list, Viral Heat also responded. Both use Twitter as a strategic sales tool.

Is your company monitoring and responding to prospects who are asking about your products and services? If not, consider the fact that your competition may be responding for you.