Analytics

Fear Not the Numbers: Learn from a Quant Guy How to Hire an Analyst

October 12, 2015 by influexwp 1 Comment

The best interview question I’ve ever asked…

“How would you find a needle in a haystack?”

I’ll come back to that in a second…

It’s no secret I’m a fan of making sure you have an analyst on your team. I harp on it so much not simply because it’s my background and I’m biased. The role provides real value to a business but seems to be one of the most overlooked ones.

One of the obstacles I’ve found from friends and clients is that they don’t know what exactly to look for. “Analyst” is a broad term and just because someone says they can run reports or knows how to use Excel doesn’t make them the right person for your company.

“I don’t know what I’ll even do with the reports when we get them”

If you’re reading this, that means you have the desire to improve your business. So trust me when I say that you and your team will quickly realize how much better you understand your business with reports (and I’m not even talking about hard-core analyses yet).

You’ll figure out how to use it.

I’ve built multiple high-performing analytics’ teams and have seen what works and what doesn’t.

To that end, below is a breakdown of what to look for and how to hire an analyst.

Comp
What Do I need in Place Before Hiring Somebody
What to Screen For – Personality
What to Screen For – Technical Skills
What’s Not Required
Red Flags
What Additional Training to Provide
What in particular to keep in mind with these roles
Screening, Interview Questions and Assignments
Sample Job Description

(Click on the links above to jump to that section)

Comp

Let’s get this out of the way first since those who haven’t hired an analyst before are worried about how much the role is going to cost them. (This, despite my strong feeling that the role will ROI very quickly and will become one of those you ask yourself how you did without.)

As with everything, the range depends on experience and where you are.

Here in Los Angeles, I’ve hired folks straight out of college for $45K-$50K and seen more experienced folks at $150K.

There are several factors that play into how senior you hire, but you don’t have to go big right off the bat. I’d say at $60K-$70K you should be able to get someone pretty decent, possibly a manager level.

What Do I Need in Place Before Hiring Somebody

Data integrity is the key to anything quantitative. It sounds obvious, but the reality is that most people don’t spend nearly as much time as necessary making sure their data is good. They think because they have an InfusionSoft integration or are using a high-end Oracle BI tool, that the data is good.

Or that they understand their data. Meaning, they assume their definition of something, like “sales”, is what the report is spitting out. When I was at Beachbody, I used to say that there were at least 5 different definitions of sales – Gross sales, shipped sales, net sales (after returns), wholesale, sales net of commissions – and so when someone described sales, we had to have a short conversation to make sure we were speaking the same language.

To that end, if you know your data is bad, plan on one of the first responsibilities for the analyst role to be to dig in to understand and work with IT to clean it up.

If you think your data is good, unless you’ve spent a ton of time cleaning it up, you probably are not aware of where the issues are. And you’ll need some clean-up. Just be prepared for some of this work to need to happen.

By the way, every organization has data integrity issues. Perfect data doesn’t exist. There is no company where you simply press a button and out comes a perfect report. Annoying? Yes. Relief to some who are frustrated with their issues? Sure. A reason to throw your hands up and do nothing? Absolutely not.

What to Screen For – Personality

Intellectual Curiosity – one of the top 2 personal characteristics I think this role needs. It’s intellectual curiosity that drives someone to question, to dig in, to be frustrated by not understanding something and digging in even further. This role is all about curiosity.
Attitude – probably the single most factor for success in any role. If this role is new to your organization, that means they are a guinea pig, so they need to know that. They also need to be able to persevere through bad data.
Attention to detail – What the job is about. Here’s how I screen for this trait. At the beginning of the job description, write IN ALL CAPS to read the entire job description as it contains important info. And then halfway down the job description, ask candidates to put a specific word in the subject line. It’s the fastest way to filter out people, which is one of the biggest challenges in recruiting (just like knowing which hands to fold in poker).
Comfortable with unclear goals / targets – Most of the time, you and they don’t know what you’re looking for. It might be, “Here’s a bunch of data. Tell me what you find.” Which is why those annoying consulting questions actually have some value. (My favorite question was, “How would you find a needle in a haystack.” See the bottom of this post for some of the best responses I’ve heard. You can answer for yourself before scrolling down.)

What to Screen For – Technical Skills

Excel – an analyst who can’t navigate in Excel is essentially useless. See below for my test I used to give interview candidates. (One random question I’d also throw in would be to ask them what % zoom their Excel is in their current job – 100% is used by non-analysts, anyone doing anything meaningful is probably around 75%-85%. Geeky but true.)
Microsoft Access – not a deal-killer for me. I didn’t learn Access for years and only a select few on my teams used it. A nice-to-have but if the individual knows Excel, they can figure out Access if necessary.
Critical and analytical thinking – again, the core of what the role is about. In terms of resume screening, I look for something on the resume that indicates analytical ability – previous roles, engineering / math degrees, or perhaps a random but related hobby. But there has to be some base level of analytical ability. Training on the business versus training on the technical side are two completely different things. Personally, I don’t really care much about where they went to school – good candidates come from everywhere.

What’s Not Required

Specific knowledge about your business or industry – clearly dependent on the role and your company, but if the individual is a smart analyst, they’ll figure out how to add value and dig in to your business pretty quickly. Don’t ding someone because they haven’t worked in your industry before.
Management skills – analysts typically aren’t managers. And your first one or two don’t even need to have management potential. Focus on what they’ll be doing. Not what you might have them do in 3 years.

Red Flags

The “Strategic” candidate – some candidates will say they are really interested in being strategic and want to help affect company strategy. To the point where you get tired of hearing the word. (Usually most prevalent in recent MBA grads – this from a Stanford guy so I’m mocking my own here…) The issue is that these folks don’t want to roll up their sleeves and live in Excel for a while. The bummer is they miss the point that everything is in the details. And that the more in the weeds they are, the better they will understand the business. And thus, the more strategic they can and would be.
Complete inability to communicate – This role is admittedly a bit geeky. Okay, a lot geeky. Unlike some copywriters who can get away with being socially awkward introverts, analysts need to have decent communication skills. Or you need someone on the team who can communicate with them effectively. Copywriters at least have a communication style that works for them. Finding an analyst who can’t communicate in any medium is a disaster you need to avoid.

What Additional Training to Provide

Technical – honestly, if you’ve screened correctly, there should be much technical training required initially. Over time, they may want or need some advanced Excel training or even Access and SQL.
Communication – again, I would do this on day 1, but getting your analyst some communication and / or presentation training may not be a bad idea
Books to read – “Made to Stick” by Chip and Dan Heath. One of my all-time favorite books. It’s about how to get ideas to stick. There are several sections that apply to people who go deep on something and then have to share their learnings – essentially what analysts have to do.

What in particular to keep in mind with these roles

Most analysts are cerebral types, and as I mentioned above, likely introverts. As such, they may not always initiate issues and concerns. So you have to be more proactive in making sure they are doing okay.
Take them to meetings – obvious to some, not so much to others. Analysts want to be appreciated and know that their work is of value. The best way is to be in a meeting where they are presenting their work or if they aren’t ready for prime-time, at least where their work is being discussed.
- Note, to the extent people start making decisions based on the reports, you’ll want the analyst in there anyways to make sure conclusions are correct. It’s also just smart to do so.
- Get them the fastest computers in the company and really nice monitors. Just do it. They’ll feel special. And it actually helps them be more efficient, especially the added processing power.
- Typically these folks like a quieter environment but unless you have a super raucous environment, I think it’s better to have them in the middle of things – they’ll learn faster through osmosis and will start sharing things real-time.

Screening, Interview Questions and Assignments

I have found that 3 different visits in-person works the best – the first is an initial screen of 25 minutes, the second is more extensive, and the third is really to make sure both parties do in fact like each other and feel there is a fit.

As mentioned above, one of the keys to the recruiting process is filtering out as many unqualified and frankly lazy applicants as quickly and efficiently as possible. That’s why, in the section above on “attention to detail”, I suggest having applicants put a specific word in the subject line of the email. Immediately, 30%-50% of the applicants will be filtered out. And using a rule in your mail provider, voila…

Next, I typically do an Excel test in a 2^nd round interview (see link below), but you can do part or all of this remotely and have them email you the results. I wouldn’t worry about “cheating” because again, you’re looking to filter people out if they aren’t willing to make the effort. And then I would do an in-person test as well if you want.

The in-person interview questions really aren’t rocket science – it’s about trying to get a feel for the person, do they display a history of intellectual curiosity, do they have a good attitude, are they a cultural fit, etc. The Excel test is a big tool for filtering on real skill, plus it gives a candidate a sense of the type of work they’ll be doing.

In terms of questions, etc., here is a list of what I work through:

The first question I ask every candidate in any role is what they like doing and want to be doing professionally. (If you don’t add “professionally”, you can set yourself up for legal issues – but professionally is fine.)
- I like broad questions initially because how someone answers tell you a lot about themselves.
- Obviously if they are straight out of college, I’d go with a “tell me about your favorite class or activity”
- This question can surprise many candidates because they are in “why I want this job” or “how do I impress this interviewer mode”
- The intent is actually to put people at ease so they can talk about themselves in a broader way
What about what you’ve read or heard about this role is exciting to you?
- This is both to see what research they’ve done and to get a continued sense of their communication style. Plus, they better be talking about their desire to dig in to data to find stuff.
Why do you think you would be good in this role?
What kind of things do you read? Tell me about a book, article, etc. that you read recently that you really liked.
- These go to intellectual curiosity
I’ll also throw in one of the consulting-type questions
- How would you find a needle in a haystack?
- Can you talk me through how you would go about estimating the number of gas stations in LA
- Note – I know many people find these annoying. But afterwards I’ll explain to candidates that the reason I ask them is because they are indicative of the work they’ll be doing. Sometimes it feels like you are actually trying to find a needle in a haystack. Sometimes you don’t have clear direction and so how they approach solving these questions gives a glimpse into how they think on their feet.
How do you think about the next 12-18 months of your career
- I never liked 5 years out because who knows. But 12-18 months is manageable for most people.
What other opportunities are you considering
- Somewhat obvious, but I like to know that people are looking at roughly similar roles elsewhere

Sample Job Description

Strategy Analyst (Note, I like adding Strategy in the title because it usually draws in a broader group, but if you know exactly what you’re looking for – a web analyst, marketing analyst, etc., use what you feel is best)

Description

This individual will be responsible for building reports and creating models and analyses to support the day-to-day decisions of the company.

The ideal candidate will not simply be a “number cruncher” but one who both wants to gain operational exposure and can think strategically beyond the basic work that needs to get done. Intellectual curiosity, analytical thinking, and a great attitude are keys to success in this role.

This individual in this unique position will learn about the inner workings of the Company and will become a provider of crucial information to help guide the company.

Primary Responsibilities

Provide quantitative analysis to support the Company’s operating efforts
Design reports to track financial metrics as well as operational metrics
Create analyses using disparate data sources and large volumes of detailed data, often starting from scratch
Translate the results of an analysis into easily understood presentation quality materials
Provide input through business modeling and pro forma analyses to support strategic decision-making in day-to-day operations and new programs
Proactively identify and evaluate strategic and operational opportunities and provide recommendations for potential solutions
Provide regular reporting and analysis on key sales and marketing metrics, including sales force analytics, trends, etc.
Perform exploratory data analyses that helps the company better understand the customer and present findings to both technical and non-technical audiences

Requirements

4-year degree in a related field
Minimum of 2-3 years as an analyst in a finance environment / investment banking role
MBA preferred but not required
Excellent analytical skills
Inquisitive mind with superior intellectual and quantitative analysis capabilities
Strong proficiency with Excel
Knowledge of Microsoft Access and SQL are a huge plus
Ability to thrive in a new and unstructured position
Ability to balance multiple projects at once
Flexible team player who is looking to thrive in a fast-growing and often-times uncertain environment
Excellent communication and interpersonal skills
Self-starter with a willingness to take a hands-on approach to data analysis

Link to View and Download Interview File

Click Here to Get the File

My Favorite Answers to the Question:

“How would you find a needle in a haystack?”

Best example of stopping to ask questions before you go on a goose chase: How big is the needle and how big is the haystack?
2nd best example of asking questions: What tools and resources do I have available to me to find the needle?
Thinking unlike how most people think: I would send an email to the company or my team asking if anyone has solved this problem before (most people think they have to solve the problem entirely by themselves)
Best example of a pyromaniac: I’d burn all the hay and then look thru what’s left to find the needle
From a CEO: I would delegate to the CFO (exactly what the CEO is supposed to do)
From my sister: How important is that specific needle, because if it’s not that important, I would just go to the store or amazon to get one

Please leave a comment below because I’d like to hear what you think.

You can also follow me on social media or connect with me directly by clicking the links to the left.

My Rant About Diminishing Returns

October 12, 2015 by influexwp Leave a Comment

The topic of diminishing returns is following me around everywhere I go recently. And one key component about is starting to get on my nerves. Suffice to say, that this post might take a different form and tone, in a video, but this’ll have to do. And while the focus below is about managing media, the point is applicable to many other situations.

In multiple meetings this week, I’ve heard people talk about what media is more efficient than others for a given business, what the optimal level of spend is, and how best to manage media. The dialogue has gone something like this:

Person #1: Well, this media is working, but as we scale it, we’re going to see diminishing returns.

Person #2 (Not bothering to ask what media “working” means nor how significant the diminishing returns are): Ok. Well, then stop spending there.

That’s it. Literally, I’ve heard that 3 times in the past week. Here’s my problem with this conversation, beyond the sheer blanket acceptance the 2^nd person made of the other’s comment:

WHAT’S THE GOAL?!!!

In the below example, assume for a moment that at increasing levels of media spend, that the cost per order to acquire customers also increases (with a few exceptions, this is almost always the case). And so yes, it is true that the media has diminishing returns as you scale it.

BUT HERE’S THE THING, the target cost per order is higher than the actuals at all 3 media levels. Which means that unless all the media that ran as this marketer increased from $60K to $100 came in well above breakeven, then despite the fact that the increased media had diminishing returns, you still would want to run it if you were this marketer.

(For the moment, let’s not get caught up in inventory or cash flow issues – which I don’t mean to minimize, but that’s not where these discussions have been and what’s bothered me so much.)

So please, to tweak a great quote I heard about relationships (“Do you want to be right or do you want to be happy?”):

“Do you want to be right or do you want to make more money?”

This is why context is so key. And why challenging what people say is so key.

There, I feel better now.

Please leave a comment below because I’d like to hear what you think.

You can also follow me on social media or connect with me directly by clicking the links to the left.

Customer LTV: The Single Model Your Business Success (or Not) Relies On

October 12, 2015 by influexwp 1 Comment

If your business includes the following: 1) get customers; 2) make a profit from those customers; then this post is for you. While I’m being a bit tongue-in-cheek, I’m not kidding all that much. Because there are some fundamentals about how you manage your business model that transcend all business types.

In my recent posts, I’ve made reference to understanding the value of a customer. I think it is the single most important piece of information you need to have to run your business. This applies regardless of what category you place yourself in – direct response, brand, or anything else. And in a lot of the work I do with folks, I raise it early in our conversations not simply because it’s neat and interesting to have, but because:

If you are running any paid media, you need to know the value of a customer to know if the media you run is working – and what “working” actually means
It helps to ensure you actually understand your business model. As a unit economics model, it has to capture what actually shows up on the P&L, and in so doing, you figure out how much you make per customer. That is a lot more important than most people think. If you’re not making money, on average, on an individual customer, then you’re not going to make it up on volume…
With this model, you create a way to understand the key levers in your business, which, AND THIS IS THE MOST IMPORTANT PART, helps you to determine what ACTIONS you take. Having a model that does NOT result in action means there’s something wrong with the model or you’re not using it correctly.

So what the heck do we mean by the value of a customer (or “Customer LTV”). I’ve seen so many different definitions:

The revenues generated on a customer’s first transaction
All the revenues generated by a customer regardless of timing
Gross revenues less refunds/returns over the life of a customer
Net revenues less costs (with varying definitions both of what each of those means)

To be clear, NO DEFINITION IS RIGHT OR WRONG. But what is crucial is that whoever is using the information knows what it means and is using the information in an appropriate manner.

So let me jump in to what I consider Customer LTV:

For a given media source, what contribution margin does the average customer generate.
- For example, when you run branded search, what’s the value of that customer? When you run Facebook ads, what’s the value of that customer?

How, then, do you calculate contribution margin?

First, calculate Pre-Media Margin by taking all the revenues generated by a customer over their lifetime, adjusting for returns/refunds, customer cancellations and credit card declines (“Net Revenues”) less all the variable costs that are the direct result of those revenues. These may include physical product costs, merchant processing charges, shipping, warehouse/fulfillment expenses, customer care, server costs, and bad debt.

Net Revenues Less Variable Expenses = Pre-Media Margin

Then, include a desired margin on your revenues (more on this in a moment). The difference between the Pre-Media Margin and Target Contribution Margin is the amount you can pay to acquire a customer and still hit your goal. Usually the term “allowable” or “target customer acquisition cost” means the goal, and then the actual figure (media divided by customers) is CPO or CPA (Cost per Order / Cost per Acquisition).

Pre-Media Margin Less Required Profit = Target Customer Acquisition Cost / Media Allowable

Thus: Contribution Margin = Net Revenues Less Variable Expenses Less The Cost of Acquiring a Customer

Notice that by working to understand the value of a customer, you have backed into how you can afford to pay to acquire that customer. Which in turns allows you to manage your media in a more explicit and intentional manner. You now will have a way of determining what it means for your media (marketing) to be “working” or “not working”.

This is a very simplified view of a customer lifetime value model (also called a margin model):

I like to break down the numbers into front-end (first transaction) and back-end (subsequent transactions), seen below. What time horizon you use for the subsequent transactions is a bit of a business decision, based on cash flow requirements, risk associated with those revenues, etc.

(Note: this structure is not a proprietary one. Most of the top direct-response marketers use a version of it. You can also see how the folks at Digital Marketer use it here. Or if you want to dig in really hard, this is a great book about how to use metrics in your business.)

In the below example, imagine a marketer who signs up a customer for a trial offer and then upsells them into a subscription or continuity offer – these are clearly NOT their numbers, but anyone familiar with Proactiv, the anti-acne product, might have a model structured in this way. The company may be subsidizing the first bottle knowing that customers will buy a bunch more in the future.

In reality, the media cost should actually be part of the front-end because the marketer pays for the media on day 1 but has to wait some time in the future for those future sales to come in.

Cash Flow Implications

Unless you’re one of those fortunate marketers who has a ton of cash in the bank, even if you knew with a high degree of confidence that customers will generate a good amount of revenues (read: cash) in the 90, 180, or 360 days after their first transaction with you, you have to be sensitive to cash flow. Which will affect how aggressive you can be on going in the hole with new customers or how aggressive you can be with scaling your media.

This decision is business-specific. If you have a physical product business, you may need to pay for inventory well before your continuity orders kick in (or you may have great terms or a short lead-time that allows you to not have to carry that much inventory until you actually need it).

This is where information / digital products have an advantage, since often times one of the only/biggest investments is the creation of the product/service. And then of course the media spend to acquire the customer.

Below is very simplistic example to showcase the point for a physical products business:

Before even running media, this physical product marketer has already paid out $2,000 for inventory.
They are running a low-priced trial offer so they may not cover their initial expenses even when they’ve acquired customers.
Perhaps they don’t pay for media right away but pay weekly, and perhaps the warehouse gives them 30 days to pay for work they’ve done.
At that point the first set of continuity orders ship out and generates revenues/cash for the marketer. If this were a multi-pay offer, then that push out cash even further.

This post isn’t meant to focus on cash flow but you can see the implications on cash when running media. And it’s something that you have to model. You need to understand your model, so that you can pay your bills, based on when customers will be paying you.

For whatever reason, the 90-day breakeven seems to be a standard that many people I talk with use, but again, that depends on your model.

Target Margin

In the lifetime value model above, I used a return on revenues of 15%. This is another business-specific decision. While it is somewhat arbitrary, there are a few factors you want to consider when setting it.

What are your business goals? If your goal is about pure customer acquisition and you don’t have a high burn rate, you might be able to run at a low/zero margin.
- Who would do this? Plenty of VC-funded companies run at negative margin, or if your play is about building a list to monetize, that strategy might push you to run this way.
- What is actually possible? As I’ve mentioned, one of the values of this unit economics model is to understand your business model. You may find that your revenues and cost structure don’t support the margin you thought was attainable. Kinda important to know.
- Balancing volume with margin – higher margins are always nice but you have to balance that with volume.
  - This point is much more nuanced and doesn’t have a good scientific explanation. All I know is that it’s true.
  - For each form of media and each campaign, there seem to be breakpoints where if you have an allowable above a certain number, you can jump your media spend. So while you might want to increase your target margin (thereby lowering your allowable), it might mean that you are making it more difficult to run at scale. Someone should always be looking to see how much media they think you can run based on different allowables/margins.

A More Exhaustive Analysis

Let’s dig deeper and look a specific model, a physical product (in this case a supplement marketer).

Before jumping in, I need to make something clear – these models apply for each media channel. If you only have 1 channel or don’t have the info to separate out different customers, use what you have right now, but start building the tools and systems to track customers from different places.

The values used below are for an average customer. Meaning, if everyone takes your $5 initial offer and 15% of the people take your 1st upsell which is $100, then your average order value is $5 + 0.15*100 = $20. For the back-end, it’s the same thing – the simplest way to calc that figure is to take all the back-end revenues generated by customers (typically we group them into cohorts based on the timing of their first transaction) and divide by the number of customers.

In this below example, you can see I’ve expanded the model to include more line items that are relevant for this business model. Let’s go through each step by step:

The marketer generates gross sales, but some customers call to cancel their order right away and some credit cards don’t get correct authorization.
That leaves shipped revenues, revenues associated with orders/customers where an actual product shipped out.
A certain percentage of customers want refunds – I’ve assumed 10% for both front and back-end when in reality it’s rarely the same. Nor is it the same for customers who are getting their 2nd bottle versus their 7th one. Long-time customers, not surprisingly, have much lower return rates than newer customers.
That gets us to net revenues.
At this point, we need to deduct all the costs associated with these orders/revenues – the physical product, fulfillment and warehouse fees (which many people include in their product cost), shipping expense (UPS, Fedex, USPS, etc.), credit card processing, customer service, and bad debt assuming this marketer allows people to pay in installments.
We are now at pre-media margin. And in this case, the marketer wants a return of 15% on their revenues, which means that as long as this marketer spends $48 or less to acquire an average customer (reflected in this model), they’ll do so.

Each of these line items can have further nuance, for example:

There are warehouse costs incurred when customers return product, not to mention the product returned may or may not be salvageable.
Cancels on the front-end are likely different than on the back-end.
But wherever you are, and whatever level of detail you have for your business, start there as your baseline and then work to improve the information you gather.

To my prior point that this model should drive action, in addition to helping manage media, this marketer might identify an opportunity with reducing shipping expense. Not that it is easy to do, but if this marketer could decrease the average shipping costs for the back-end from $16 to $13, that would add $3 to their media allowable. And as so many folks before me have said, “He/She who can pay the most to acquire a customer, wins!”

This is a fictitious model, but if it were real, I would work with the team to understand what opportunities they have both to increase revenues and to create efficiencies in the cost structure, serving both the media allowable here as well as the broader P&L.

Other Business Models

Info Products

What about marketers who aren’t selling a physical product but rather are selling an information product, like an online training program?

Well, the process is the same, but the specific line items would be different. If it’s a pure info product, then there would be no shipping or warehouse fees, nor physical product costs. Some of those might be replaced with the cost of delivering the product – whether an e-book, or server and bandwidth fees associated with a membership area.

Lead-Gen

The same structure of the model works for lead-gen folks who are not managing to paying customers but to leads (names on a list, email opt-ins, etc.). The only difference is that the Target Customer Acquisition Cost needs to be multiplied by the percent of leads who convert to paying customers. That gets you a Target Cost per Lead

What about fixed costs – why are those NOT included?

Noticeably missing from these models are fixed costs, such as labor, rent, technology, and even product development costs (R&D for a product, the cost of developing a training program, etc.). I’m often asked why I don’t include them in the model. There are a few reasons:

The goal of the model – often referred to as a “Margin Model” – is to understand the marginal revenues and costs associated with new customers. As such, it is very rare that an average, additional customer creates additional fixed cost requirements for a company.
1. As you scale the business, you will likely need more resources to support the growing customer base, but this model is capturing the economics at the unit level, not at a macro level.
2. Put more simply, acquiring and servicing a single additional customer doesn’t drive you to hire another person.
3. In addition, these fixed costs mentioned above are often sunk costs – whether you generate 5,000 customers, 100,000 customers or 3 customers, for at least a period of time, you are already burdened with those expenses or you have already incurred them.
  1. Now, you absolutely need to run some analysis and look at your full P&L to know how many customers do you need, assuming you hit your target CPA, to breakeven when you factor in fixed costs, G&A, etc. – this is crucial work that I am not under-emphasizing. My focus right now is on this unit economics / margin model exclusively.

Interestingly, I get asked whether or not to include headcount in this model but no one ever asks whether investments in technology (servers, software, etc.) should be included. My response, in addition to the point above, is that you should look at your people similar to technology – they are investments in your company’s future.

Is it wrong to include any of these fixed costs in the model? No. But I would say that you’ll be under-cutting your allowable, and especially as you look to scale, you’re going to be holding yourself back from pushing as aggressively as you might ordinarily.

If you can’t tell, I’m pretty passionate about this topic. But not simply because I come from a quant background, but because I believe strongly that it is one of the crucial components of running any business.

You need to have someone who owns your model(s). And then have people who work with those analysts to identify points of leverage in the business and specific tests to run to optimize your business. The ROI on this is a no-brainer. Not to mention it might save your business.

Please leave a comment below because I’d like to hear what you think.

The 2 Crucial Roles You Need to Hire for Now

October 12, 2015 by influexwp Leave a Comment

This post is directed more to entrepreneurs but if you want to work with an entrepreneur but don’t feel like you know what product/service to launch, if you look closely, you’ll see a way to do so (I’ll reveal near the end).

I love entrepreneurs. They create something that wasn’t there. They buck trends. They tolerate the mocking of their friends (and oftentimes customers). It’s at times a lonely, thankless, and sleepless life.

And if you want to be good at building a business, you have to focus on product and sales. Without it, everything else doesn’t matter (I’m excluding those businesses focused on audience and list-building – see Facebook). And so they and their organizations have to move as rapidly as possible to just start generating sales. Optimizing the back-end, operations, etc. is simply not the best use of time on day 1 if there are no orders to process.

But then once the business has gotten some traction, the business needs additional attention. But oftentimes the entrepreneur is still in “Ready, Fire, Aim” mindest. Or even “Fire. Fire. Fire.” Selling. Selling. Selling. And not tending to working “on” the organization. A lot is done on the fly and on gut instinct. And frankly, I can’t argue with folks who have built their business to some scale with that approach.

But that doesn’t mean that you can’t add and build on that. In particular, I’ve found that the following 2 roles, if added to many organizations, would create huge value but are often ignored.

1. The analyst.

If you don’t have basic KPI’s (or know that KPI stands for “Key Performance Indicators”), and don’t have someone in your org running even basic reports, you’re missing out. Yes, having more money in the bank at the end of the month than at the beginning of the month is a good thing, but as Peter Drucker once said, “If you can’t measure it, you can’t manage it.”

The moment you start tracking and measuring a metric in your organization, it will almost immediately get better. Partly because it just forces people to stare at a number. Or even that it allows people to look at a number. It just happens.

To be clear, even though the role is called “analyst”, to start, you don’t even need someone to run analyses. Just basic reporting would be good enough.

Many organizations would be best served by hiring a kid straight out of college who wants to learn the business. They don’t need to know anything about your business. They just need to be able to navigate Excel. And if you have any sort of scale, that investment is going to ROI within 3 months max.

2. The Disciplined Operations Person

Many / most entrepreneurs have short attention spans – it’s actually what drives/allows/inspires them to do what they do so I am definitely not mocking that personality trait. But every idea person needs a counterpart. (Insert reference to Batman needing Robin…)

I was recently talking with a potential client who said they needed another idea person in their organization, so that they didn’t feel the pressure to have to come up with ideas all the time. Which might actually have some truth to it. The problem, however, is that they are really good at developing ideas and it’s what they really enjoy. And in this case, if they just brought on someone to help make sure balls don’t drop, it would give them more time and peace-of-mind to focus in on what they probably should be doing.

Many growing businesses would be better served to do the same. The problem is that the personality type of the individual who focuses on execution, makes sure that stuff gets done, etc. can be very different, almost diametrically opposed, to the entrepreneur. They’ll likely ask more questions, be more detailed-oriented, tend to say “no”, etc.

And it’s not that they should have zero ideas. That’s silly. But it is to say that they should be more focused on execution and operations than the next big product or service.

And frankly, very likely, others in the organization will appreciate someone in this role (assuming of course they aren’t a jackass…). People who’ve been with a company from their early days get used to the crazy nature of the entrepreneur, and yet, more often than not, they are yearning for someone with some sense of authority, to help prioritize and create a semblance of organization in the company.

Entrepreneurs like to climb peaks. These operational people like to operate at high plateaus. There’s a place in companies for both. And if they’re good, you should hopefully be less likely to say, “Why did we stop doing that thing that was making us a ton of money? I don’t know. We just moved on to something else.”

How to Find Them?

As I mentioned, the analyst role just needs to be someone smart, hungry, and adept at Excel. All of which you should be able to screen for and create an Excel test for (one of the best tools I added to my interview process for those folks years ago – feel free to shoot me an email at babak@babakazad.com for sample job descriptions or the Excel tests I’ve used).

As for the ops role, if you’re an entrepreneur, the first point I’ll make is that you’re not going to find this person hanging out with your friends. Because very likely your friends are just like you. So you’ve got to start going to more “corporate” events, reaching out to your network, looking at job postings you think mirror the role you want (hint: if the job description makes you think you’ll go crazy doing it, that’s likely the right one!).

And if you want to get in to a growing company and feel like you might fill one of these 2 roles, you also need to stop hanging out with your friends. Go to events where entrepreneurs hang out – mastermind groups, networking events, etc. And remember, they may at first not realize the value you add. So you need to speak in their language – what benefit and value will you bring to the organization, what have you done before, are you as passionate about their business as they likely are.

In this case, I’d hesitate to say that “opposites attract.” But I would say they can help each other out. In a big way.

Please leave a comment below because I’d like to hear what you think.

The 14 Questions All Marketers Should Have Answers To

October 12, 2015 by influexwp 2 Comments

A friend recently asked me for a list of questions that would help marketers make their business more efficient and optimized. These questions span a variety of areas within a business; while not all may be relevant to every business, the vast majority of them do (or should).

There is no right or wrong answer to any of these. What’s more important is being able to answer these questions yourself or knowing where and who to go to. None should take more than 5 minutes to answer; if so, then that means you aren’t giving them their due attention. (Hint: these are important points of leverage within most/all organizations.) And if these are entirely new questions, then this is your chance to address key areas of opportunity within your business.

1. What are your top 2 sources of traffic? Are they different than your top 2 sources of paying customers?

No one is good at everything. That goes for marketers as well. It’s a rare company that is actually good at more than 2 media channels. Folks great at TV are rarely just as exceptional online. Even within online media, it’s rare to find a company that is great at SEO, YouTube, Facebook and banner advertising. Which sorta makes sense. You test a bunch of stuff, find success in 1 or 2 areas, and then push hard there to grow. And then as a company grows, competence builds in these areas.

As it relates to the question(s) above, many people don’t actually know where their biggest volume of traffic comes from. And for a lot of folks, the list of traffic sources vs. list of converting customers isn’t always the same. Impressions, reach and visitors don’t always translate to paying customers. Understanding that breakdown and then managing accordingly is important to most efficiently use resources, dollars, etc.

2. What is the average lifetime value (“LTV”) of a customer?

The single most important question any marketer (not just a direct response marketer) can answer. How much is a customer worth? $100? $1,000? Are you including the first transaction or all future transactions as well? Do you actually have the tools, systems and people in place to measure and track this information? When you think of the value of a customer, are you talking revenues or profits? Do you know if customers from different channels vary in LTV?

I don’t know how you can manage your media or your business without knowing the answer to this question and the resulting questions that come out of it. How do you know if your media is working? Are the customers you acquired last week actually going to make you money? Do you have the cash position to tolerate losing money on the front-end with the knowledge (not hope) you will generate more revenue later? What steps are you taking every week to increase the value of a customer, either through increasing sales or decreasing costs?

Understanding the value of a customer is crucial for 2 reasons: 1) it helps to ensure the business model is actually intact; and 2) it helps to drive future actions.

3. What is the average amount you pay to acquire a customer?

A direct corollary to the prior question but it deserves its own question. Some call this a media allowable, CAC (customer acquisition cost), or SAC (subscriber acquisition cost). The name used doesn’t matter. Put simply, how much did you spend to get a new customer? For most folks that means media dollars divided by new customers – assuming you can match customers back to media. For others, you have to factor in PR, promotions/sponsorships, and other non-trackable media spend. Regardless, if you don’t know the value of your customer (#2 above), you won’t know whether your cost to acquire a customer works in your model. For example, while it might sound like a lot to pay $10,000 to acquire a customer, if you are a high-end divorce attorney, that might actually be cheap given the millions of dollars a client might generate for you. And while a typical Starbucks customers spends around $6 per visit (I’m making that number up but it feels about right), given just how many times they return over not just 1 year but numerous years, Starbucks may be able to spend hundreds of dollars to acquire a new customer and make it profitable.

4. What do your customer service reps say to customers who want a refund because they feel your product/service is too expensive?

My guess is that even the 99 Cent Store gets customers who say the product was too expensive (Note – I’m not trying to live in an ivory tower – I know there are a ton of people who can barely afford those stores, I’m just picking a low-priced establishment to make the point that every company selling something most likely has customers who think their products are too expensive.). The question is whether someone has provided guidance to the customer service reps on what to say. I’m not suggesting making life miserable for customers who want to return a product. But assuming the product is of value, then presumably it’s a positive for customers to have and use it.

The real issue is whether the product/service actually has value. Are the people who are buying it the ones it would benefit? Are customers clear on what they are purchasing? And then do customer service folks understand the value so that they can make sure that customers understand and capture the value.

5. When was the last time you personally ordered your own product / service?

Everyone is busy. I get it. And we get so caught up in managing the business, managing others, looking at analyses on the business, etc. that we forget one of the most valuable and simplest things of all – putting ourselves in the shoes of our customer. And that means going through the same process that an actual customer (or potential customer) goes through. Whether that means calling a phone number, visiting the website, going into an actual brick-and-mortar location, or even buying person-to-person, pretending like you are a first-time customer and playing that part in the buying process will likely make you appreciate the pros and cons of what you are taking others through.

A couple more thoughts – if you sell online (I know that sounds silly to actually say today), go through the process both on your desktop/laptop as well as your smartphone. Also, once you’ve bought the product/service, try to return it and see what that experience is like (see #4 above).

6. When was the last time you personally ordered your top 3 competitors’ product / service?

Here’s a shocker to some marketers – your competitors are better than you in at least one area. You actually aren’t the best at every single component of your business. Competitors are also a great source of ideas and inspiration, both because of the good and the bad things they do.

See what their experience is like. You’ll likely pick up a thing or two.

7. Have you opened the emails your company sends to customers on your smartphone?

Because that’s where the vast majority of them are reading them. And do you know where they physically are when they are reading those emails? Especially if you send them overnight or early in the morning, they are reading them (and likely deleting them) while sitting on the toilet. Email, just like TV, is too often described as dead or at least no longer relevant. Yea, no. There are still plenty of companies that use only email (and TV) to build 9-figure businesses.

But it is getting harder to get through the clutter. So whether it’s evaluating the subject line, design, or content, experience your emails how most of your customers are.

And if you don’t feel like you are aggressively emailing your customers, you probably aren’t. (Btw, here is a great analysis of the email marketing campaign used by the Obama campaign in 2012 – https://blog.kissmetrics.com/email-marketing-lessons-obama/.)

8. If you have a physical product, are you selling on Amazon? How many images do you have on your listing?

News flash, Amazon is taking over. I’ve already written about this once before here, so I won’t revisit it in depth other than to say if you put your physical product up on Amazon, you’re going to make more money than you do today. It’s largely incremental, and there are a lot of folks out there (myself included) who try to make as many of our purchases on Amazon, even if we found your product on your website.

The question about the number of images is really about how optimized is your listing. You are allowed 7 images. Most people have 1-2. Not to mention, there are a host of additional areas to optimize your page – the bullets, description, and reviews.

If you don’t have your products up on Amazon, get them up there.

If you don’t have some who is accountable for maximizing Amazon, get that assigned – whether it’s their full-time job or a component of it. It needs an owner.

9. What happens to customers whose credit cards decline / default on a multi-pay or a subscription payment?

Another point I previously wrote about here, but these are really important points that I keep re-raising.

10. How often do customers get a call from someone in your organization checking in to see how things are going?

I was at a mastermind event last week where I heard the CEO of MemphisInvest describe how every month, their folks call each of their Company’s 1,200+ investors to see how they are doing. And yes, there are investors who tell them they get the point of calling and don’t need a call every month, but I was struck at the level of service. It also goes to show how much they think of their offer that they aren’t afraid to call customers. As silly as that may sound, many marketers don’t want to talk with their customers, whether that’s because they know their product isn’t good, they think it’s a headache to deal with customers, or they just don’t care to improve.

As with many of these questions, there are implications of the original question. Each reflects assumptions, attitudes, and philosophies of your business.

11. What is the 2nd item (product/service) you offer to a customer?

It’s amazing how many people don’t offer more to their customers. Some think it’s sneaky or beneath them. But there are countless examples in mainstream companies where it’s happening everyday:

-Do you want fries with that?

-For $0.25 more, you can get the large drink instead of the medium

And if you think it’s only at McDonald’s or the movie theater when this happens, go add an item to your Amazon cart. What shows up immediately below is the “customers who bought this product also bought these” section. That’s an upsell.

Depending on what the initial offer is, upsells can be orders of magnitude greater value than the original offer. But whether they add up to 10x or .25x more, adding them – I’ve seen up to 8 and still make sense – is a crucial way to add to your customer LTV.

12. What was the last test you ran on your thank you page?

Or let’s just start with, when was the last test you ran period? Too many people aren’t testing enough (or at all). There is just no way that what worked last year or what worked initially is the most optimized way of doing things. But it’s also not about just blindly switching things – your organization has to become a testing organization. It needs to be built into the culture. Testing means failing, and too many organizations are fearful of failure.

But testing is the only way to get better.

Please do it.

13. What tasks that you individually do are the highest value and which are the lowest value? What are you doing to delegate or eliminate the lowest value ones?

There is a value associated with everything we do. Hopefully it’s positive, sometimes it’s neutral, and the reality is that some of our actions have negative value. But when was the last time you looked at how and where you spend your time, and whether explicitly or otherwise, put a value on each of the things you do? What during your day is the greatest ROI thing you do? For some, it’s about writing copy, for others it’s about building technology, for other it’s about hiring for key roles. Too often people are doing a lot of the things they did when they were on their own or didn’t have a team. But those can be really really low-value time-sucks. Everything from managing your schedule, filling out expense forms, booking travel, etc. This is not to say that you necessarily need to hire someone. New tools like Expensify make the expense process tons easier. Or for $10/ month you can use travel app Native to help with booking, re-scheduling, etc. It’s time to start getting rid of those low-value tasks, especially those you detest, that you’ve been doing “just because.”

14. In 2 sentences, describe where you want your company to be in 18 months?

Depending on your role, you may have varying ability to affect your company’s strategic vision. Sounds obvious, but a lot of professionals feel that they are so busy that they don’t have time to plan. These are the same folks who are usually complaining about the same types of issues over and over.

As the saying goes, “If you don’t know where you’re going, all roads lead there.”

For your sake and for that of your company, you need a written plan of where you want your company to be in 18 months. In your head or even spoken isn’t good enough. Something happens once you write something. It forces a different clarity of thought, allows people to react to it, and serves as a reference document that everyone can refer to.

Bonus Question:

15. In 2 sentences, describe where you personally want to be in 18 months?

And then there are folks for whom business planning is a no-brainer, but they forget that planning for themselves should also be such. Whether it’s around the New Year, halfway through, or a quarterly review, it’s the same idea as business planning. You certainly need to know where you are and then plan for how to get where you want to be.

Btw, one of the best books I’ve read recently about getting from Point A to Point B is Straight-Line Leadership by Dusan Djukich. My favorite line from the book is, “It’s been said that your life, when it’s over, will either be a warning or an example.” Powerful words.

Feel free to take this list and have a conversation with your partners or management team. Because these are some of the more important issues every business should not only be paying attention to but also be working to optimize.

Please leave a comment below because I’d like to hear what you think.

The DR vs. Brand Conundrum No Longer – Modelling Income vs. Wealth

October 12, 2015 by influexwp Leave a Comment

If you asked a DR marketer or a brand marketer what they think of the other, you would most likely hear about a lack of understanding of the other model, possibly even a snide or cynical view of the other.

Most DR marketers are pretty proud, borderline arrogant, about how they approach marketing – and very few truly care about building a brand; I say this not because they avoid spending money on “brand” advertising, but rather because of their business practices. More on this point in a bit.

At the same time, many brand marketers either don’t really know what DR is or describe being a DR marketer themselves, but in a way that most hard-core DR marketers would scoff at. Managing to impressions or reach is not how a pure-bred DR marketer manages their media. But a brand marketer’s emphasis on the longer-term is usually superior to that of DR marketers.

So why such a difference? Why are direct response and brand often times so much at odds with one another?

Some of it is legacy. And some is just practicality.

From a historical perspective, many DR marketers had a churn-and-burn mentality, working to extract as much money from a customer as possible, knowing full well that that customer would rarely refer the product (rarely a service) to a friend once that relationship (read: billing) had ceased. Very few DR marketers – think infomercial guys from the 90s – were interested and working towards building a business. They behaved in a way that created the stereotype about infomercials – I remember hearing about a marketer that required a return be shipped in the original packaging, despite that the packaging was designed to essentially fall apart when originally opened. That kind of practice deserved a crappy reputation. And clearly reflected a lack of concern about impact on the brand.

What DR folks have done well, however, is being laser-focused on optimizing traffic and media, and maximizing revenues and customer LTV. Especially early on in a business’ life cycle, maximizing the return on money spent is crucial.

On the other hand, traditional advertising has been focused on branding and awareness. Once TV advertising was opened up, marketers realized they could dramatically increase their reach. The mentality was more about influencing public opinion, but the need to specifically track the effectiveness of individual media wasn’t as prevalent. It’s what spurned the comment, “50% of media doesn’t work, we just don’t know which 50%.” If a DR marketer said that, they be laughed at, fired, and/or out of business pretty quickly.

Where brand marketers have been particularly good, however, has been in, well, branding – crafting a story, persona and experience around a brand. More than that, they oftentimes have a greater attention towards true customer experience and satisfaction, and all the work that goes into increasing those measures.

So which is better? And which is more relevant in different phases in a business’ evolution?

The answer to both questions is “yes”…

The value of a DR sensibility is the attention towards optimization and increasing revenues/margin. For a startup with minimal funds, it’s almost a requirement to think this way. But for a business that wants to stay around for the longer-term, it’s nearly impossible to do so with a crappy brand (though the cable companies have done so in spite of themselves, but that’s a different conversation…). People want to associate with brands. A brand is what garners a premium vs. the generic option. A brand is what helps people to choose between multiple similarly-appearing offerings.

In some ways, DR can be likened to income, while brand can be likened to wealth. One helps you generate money, the other helps you to keep and grow it.

The reality is that both models need to be considered and used by all marketers. The idea that DR is a niche business model needs to end. DR folks understand the importance of tracking and measuring as much as possible and are obsessed with ROI of any spend. At the same time, unless an organization wants to continue to reinvent itself, sometimes weekly, and just wants to live in the acquisition world, they have to understand the value of a brand – and that understanding needs to be reflected in how the company treats its customers, how much they try to “extract” from their leads and customers, and frankly, how they realize that everyone customer interaction is both an opportunity as well as recipe for disaster if mis-handled.

These are not issues to address, especially when DR can be like a drug that a marketer wants to keep peddling, while being focused on brand can be really fun when it comes to creative advertising. But branding is so much more than media and advertising. Ultimately, the brand is your consumer’s experience and perception of your business. And anyone interested in building an enterprise that lasts any remotely-extended period of time, needs to pay attention to that experience.

Marketers traditionally immersed in one need to understand how to apply the relevant component’s of the other business model. Both have significant value and need to have attention placed towards them.

You don’t generate wealth without an income. And unless you pay attention to what you do with your income, you don’t build wealth.

And that is why it shouldn’t be a conundrum, but rather a matter of figuring out how both DR and brand fundamentals are relevant to your business.

Please leave a comment below because I’d like to hear what you think.

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