September 13, 2016

Increase Your Return on Optimisation (ROO)

Increase Your Return on Optimisation (ROO)

Many might remember the story of Eric Moussambani, the ‘Olympic swimmer’ from Equatorial Guinea who took 1:52.72 to complete his 100m swim at Sydney 2000, more than twice that of his nearest competitor. Before the Olympics, he had never even seen a 50m long pool, took up swimming eight months prior and practiced swimming in a lake.

Yet, many of us are no better than Eric when it comes to building new products.

Most progressive tech companies are getting really good at optimising their marketing funnels in order to improve metrics such as cost per acquisition, customer lifetime value and ultimately generate more sales and increase their return on investment.

Optimising the Wrong Metrics

However, for emerging businesses, startups and new corporate ventures, there is a tendency to optimise the wrong thing.

Below is an interpretation of what Ash Maurya, author of Running Lean, Scaling Lean and creator of the lean canvas, essentially describes as the product development lifecycle:

  1. Validate the problem you are solving
  2. Define the smallest possible solution
  3. Validate your solution / unique value proposition
  4. Validate product market fit (that people will pay for your product)
  5. Scale

When it comes to optimising customer engagement and activity, many startups focus on the pirate metrics made famous by Dave McClure of 500 Startups, below.

Jumping to Conclusions

Matthew E May, author of Winning The Brain Game, seven fatal flaws of thinking preventing us from innovating and creating genuine value for our companies and the world at large is a tendency to jump to conclusions.

Oftentimes, entrepreneurs and corporate innovators tend to jump to conclusions when it comes to their unique value proposition and find themselves painstakingly trying to optimise the number of people visiting their site (acquisition), signing up to a mailing list (activation) and ultimately buying their product (revenue).

These optimisation techniques might include A/B testing ad and website copy, the position of call to action ‘find out more’ buttons, search engine rankings and sales funnel optimisation.

First Base or Home Run?

It’s normal for early stage startups successfully optimising their marketing funnel and generating six or seven figures to jump to the logical conclusion that they are “

But what if the target customer problem wasn’t defined as best as it could be early on in the piece. This subtle but significant oversight can be the difference between the business getting to first base or hitting the proverbial home run with the bases loaded. Or if you’re not down with baseball analogies, failure to optimise early could be the difference between a lifestyle business generating several hundred thousand dollars a year and becoming the poster child for your industry, generating, say, tens of millions of dollars a quarter.

Pirate Metrics are Awesome, But...

Let’s be clear, I am a massive advocate of using pirate metrics and tools such as landing pages to test new ideas. However, when startups and new product teams ultimately fail - which, by the way, is 90% of the time, it’s usually because such metrics were used purely to optimise the marketing funnel whilst the underlying definition of customer problem and solution remained unchanged.

We can hit said home runs by developing a much more intimate understanding of the customer problem and subsequently building an effective solution at a price point that enough customers are willing to pay for, generating a healthy margin in the process.

Not nearly enough time is devoted towards validating the problem and defining the solution from which everything else flows.

It’s kind of like trying to build a house on a shaky foundation - you can spend a ton of money installing the most opulent fixtures and fittings but once that house comes crashing down you can say goodbye to your 18th century chandelier.

Return on Optimisation (ROO)

When it comes to optimisation, the earlier you do it, the higher the return.

One could argue that it looks a little something like this.

Case Studies on Optimising Early

While PayPal had some success with its initial offering - a mechanism to transfer funds via palm pilots - optimising their solution and facilitating transactions via email instead is what helped the company become the US$45B company it is today.

As Clayton Christensen mused in The Innovator’s Dilemma, when Honda entered the American motorcycle market in the 50s, it tried to compete head on with the likes of Harley Davidson. However, they quickly found that Americans (a) didn’t like the look of Honda’s Supercub, (b) the bikes weren’t cut out for highway driving and (c) motorcycle retailers stood to make much higher margins pushing Harleys.

Honda redefined its customer and solution and effectively created the dirt biking market, by striking a deal with sporting goods retailers and positioning the Supercub as a recreational off-road bike. Today, Honda’s market cap is US$5.6T.

Essentially, optimising the latter end of the product development lifecycle without taking the time to effectively define your customer problem and create an effective solution is akin to Eric Moussambani’s story - turning up to the Olympics having never seen a swimming pool. Sure, you might doggy paddle your way through and finish in twice the time of your competitors, but you’ve got no chance of winning.

Question to ponder: Are you stuck trying to optimise a half baked solution to a poorly defined problem?

Innovate or die.

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Steve Glaveski

Steve Glaveski is the CEO and Co-Founder of Collective Campus which he established to help companies and their employees to create more meaningful impact in the world in an age of rapid change and increasing uncertainty. Steve also founded Lemonade Stand - a children's entrepreneurship program, wrote the Innovation Manager's Handbook vol 1 and 2, hosts Future², an iTunes chart topping podcast on corporate innovation and entrepreneurship and is a keynote speaker. He previously founded HOTDESK, an office sharing platform and has worked for the likes of Westpac, Dun & Bradstreet, the Victorian Auditor General's Office, Ernst & Young, KPMG and Macquarie Bank. Follow him at @steveglaveski and Book a free 15-minute call with Steve to talk through your innovation objectives.

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