Caught in The Optimization Loop? Prepare to be Disrupted

Focusing on one’s core mission is critical to any company’s success.  For startup or growth-stage companies, focus can often mean the ruthless elimination of any effort that detracts from the path that will lead to success.  At large organizations, focus means a rigid adherence to the core business process or model that got them there.

In either case, companies all too easily get caught optimizing on their core process, opening themselves up to being unexpectedly disrupted.  They think they’re innovating when they should be OUTovating.  They get caught in what I call The Optimization Loop.

spencer-watson-447779-unsplash

Big up to Spencer Watson for an image that captures our themes of a loop, focus and myopia.

Optimization is Good…Till it’s Not

Optimization in this context refers to the practice of making continuous, incremental improvements to the core aspect of a business – whether it’s conversion, performance or processes – as opposed to more large-scale, sweeping innovations.

I’m not going to argue against focus – it’s been a key part of the successful ventures with which I’ve been involved.  Finding a key metric and putting necessary resources to drive that metric is a natural part of the growth of a data-driven company.  And it’s never been easier to measure performance in so many ways.

Sophisticated algorithms and multi-variate testing schemes for example, are easy to implement and can automatically determine the right business logic, process or content for a marketing initiative.  By harnessing this rich data, we can predict with increasing precision what will drive a business outcome.

But too often metrics become a proxy for motivation – what customers really want, and why.  The problem is that data tells us about a consumer’s actions, less so about their intentions and how they perceive your brand.

Blinded by The Light…of Success

Large, successful organizations can get complacent, taking for granted why a consumer chooses their brand: “We’ve got the best selection,” or “we’re the fastest and easiest to use,” or “we’ve got the most rewarding loyalty program.”  That value proposition is reinforced, refined and optimized over and over again, in a virtuous circle – with good reason.

Such a singular focus though, can lead to strategic myopia.  It makes an enterprise increasingly vulnerable to disruption, where a new entrant seemingly comes out of nowhere to become a market leader.  Think airbnb, the largest accommodation provider in the world that didn’t even exist before 2008.

This is not a new problem – it’s well-documented in books like the seminal The Innovator’s Dilemma. It’s also partly explains why large players rely upon acquisitions to scale.  Their operations and entire business model has been optimized for that singular core focus, so much so that to capture a new market demand it can’t pivot quickly enough.  In addition, with huge user bases accustomed to a certain customer experience, any change must be incremental since alienating even a small percentage of customers can significantly damage the bottom line.

Sure, they may have the resources to bring a competitive product to market quickly enough to stave off new competitors but it’s not in their DNA.  Because it’s more than the product. Just looks at Google Plus, or their soon to be shuttered Trips app.

Give The People What They Want

There are plenty of good products that never get noticed, or gain any traction.   Often it’s due to not being truly customer-centric, not understanding the value proposition.  What the consumer actually wants.

At the startup Site59, where I was part of the founding team 20 years ago, we thought we had the hottest product out there – enabling consumers to travel, go out or buy things at the last minute, at unbelievably low prices.  We featured all the hippest places, and launched (like many ventures) to the sound of crickets. No traction. No Sales. No bueno.

After conducting some interviews and surveys, we learned what travelers actually want.  They didn’t care about being at the hippest restaurant (alas, we were 20 years too early, before people took photos of their food).  They wanted to go on beach getaways and to…gulp…theme parks. Neither of these would have been a surprise to travel veterans.  But to a group of downtown NYC pre-Brooklyn 30-somethings, it was a shocker.  We were focused on and optimizing for what we thought was our core mission of spontaneous getaways and experiences.  Fortunately, we were humble enough to pivot.  Sales ramped up and within 18 months we were acquired by Travelocity.

Creating a Lean, Mean Customer-Centric Machine

This is why Lean Startup principles have gained in popularity over the past 10 years – with startups (including ours, TripTuner) as well as large corporations.  It demands that you build only what is necessary to understand if it will satisfy a real demand, measure how well it does so and then learn what you ought to have built in the first place.  It’s true user-centricity.

Mark Zuckerberg once famously asked “what is design?” But to be truly user-centric, you have to think more like a marketer than a product engineer.  Design is where ideas meet reality.

At Amazon, they don’t even think about creating a new product without first thinking of what the press release would say.  How would it be described, what problem would it solve and would it be enough to make consumers care to read about it? Entries are ruthlessly weeded out at the ideation stage by the most important criteria: would it move the needle from a consumer’s perspective?

Breaking Out of The Optimization Loop

Often larger enterprises have been optimizing so long on their core, they may miss out on the “why” part of customer behavior or disruptive new approaches.  So as a hedge, they acquire.

Acquisitions are not the only way large organizations are staving off disruption.  Many companies now have their own innovation labs, or venture arms that regularly identify, mentor and even invest in promising startups.  Another way is to partner with select technology providers that innovate outside of but are complementary to, the core business.

That’s how the major players do it.  For the rest of us, regular live user testing is one easy way to start.  You can get feedback on a new product from live users within hours.  It’s the most humbling, painful and clearest mirror one can hold up to a product.  Consumer sentiment quickly becomes very clear.  Putting up a test landing page with a modest campaign to gauge demand is yet another way.  Similar to Amazon’s press release test, you can create the copy for a proposed innovation to gauge how viable it will be, before writing even one line of code.

Both methods point to the right direction, with minimal effort and cost.  Measuring consumer sentiment – both quantitatively and qualitatively – is the right kind of optimization.  It’s also a great first step on the path to being truly customer-centric.

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