The Milgram Experiment

The Milgram experiment was a series of social psychology experiments which measured the willingness of study participants to obey an authority figure who instructed them to perform acts that conflicted with their personal conscience. In Milgram’s own words:

I set up a simple experiment at Yale University to test how much pain an ordinary citizen would inflict on another person simply because he was ordered to by an experimental scientist. Stark authority was pitted against the subjects’ [participants'] strongest moral imperatives against hurting others, and, with the subjects’ [participants'] ears ringing with the screams of the victims, authority won more often than not. The extreme willingness of adults to go to almost any lengths on the command of an authority constitutes the chief finding of the study and the fact most urgently demanding explanation.

The results: 65% of participants administered the final 450-volt shock to another person — simply because an authority figure told them to do it.

Milgram says it’s our deep-seated sense of duty to authority. We’re trained from childhood to respect authority, and the obedience that comes with it stays with us throughout our lives, even when we feel something may not be quite right.

Dress the part

Our deference to authority is driven mostly by perception. That’s why a lab coat, police officer’s uniform or $4,000 bespoke suit alone can facilitate influence over or control of others. We even act differently toward other people depending on our perception of their authority level, sometimes even adopting their mannerisms and speech patterns.

Everything else being equal, context matters more than actual content. In other words, if a person is perceived as an authority figure, what they say is taken at face value and accepted as fact more readily. It helps someone bypass otherwise common objections. Building authority is therefore crucial to building a business, especially if you are selling services or knowledge products.

Next time you’re heading into an important meeting or simply trying to make new friends, take a minute to look in the mirror — what are your clothes actually saying about you?

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That’s interesting because they used to run pre-Christmas ads for their “December to Remember” events featuring a loving spouse giving his or her significant other a new Lexus wrapped in a big red bow.

Even Hyundai’s doing it — in their most recent ad, they noted that the new Genesis sedan ($33K) has the same sound system as a Rolls-Royce Phantom ($300K+). “If you’d rather have money than a hood ornament,” goes the ad, the Genesis may “look even better than a Rolls-Royce.” Nice.

At the end of the day, the ‘I-buy-it-because-I-can” mentality is dead. No one wants to look like the idiot who bought something because it’s expensive anymore. If you’re selling to this market, you should be focusing on practicality, value and durability.

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Focus on hitting singles and doubles. Home runs don’t happen every day or even every decade.

Everyone knows Tiger Woods is the greatest golfer ever and most people attribute that success to something vague and intangible, like talent or sheer luck. But, did you know that Tiger works out every day, runs for miles and wins less than 50% of the time? Did you also know that he started golfing when he was 3 years old?

Tiger learned to swing the club consistently — he had to learn to connect with the ball and make it go where he wanted before he could win any tournaments. These were his “singles and doubles.”

The things your business does on a day-to-day basis are your singles and doubles. Use metrics to incrementally improve them.

I don’t blame people for ignoring metrics — it’s only natural to push this stuff to the end of your task list when you’ve got a million other things to do. A few years ago, I did the same thing.

It’s easy to get overwhelmed by the numbers, but the key to successfully taking your business to the next level is understanding how to prioritize the metrics that directly impact your success. At the end of the day, you only need to build the metrics that enable you to grow your offering, whether it’s a product or service, by hitting a number of singles and doubles.

Two types of business metrics

1. Operational Metrics. These reflect the things that your business cares about on a day-to-day basis. Inventory, cash flow, net new customer counts, etc. You alone are the expert at your business, take a minute to write down the numbers that are important to you.
2. Investigative Metrics. These are the numbers that you’re curious about. Which product/service do most of my customers buy? Where do my customers typically come from? You get the idea.

Metrics: Where to start

When it comes to metrics within the context of the small business, the general rule of thumb is that you only measure what you intend to improve upon. So, ask yourself some of these questions:

1. What are your current goals for the business?
2. What assumptions are you making?
3. What key metrics will help you track the progress towards the business’ goals?

For most of you, the best place to start is by setting up your operational metrics. This gives you a handle on where your business is on a day-to-day basis and, more importantly, helps you start hitting singles and doubles.

Breaking News: No one can create the perfect plan to get ahead.

If I could tell you the specific steps you need to take in order to get ahead and promise that you could succeed 100% of the time, you’d love me. But, I can’t. The specific road map to successfully (and consistently) grow your business just doesn’t exist. You can’t predict the future; otherwise, psychics would be billionaires.

So what can you actually control?

Your odds.

Most people succeed because they hit “singles and doubles.” These people understand that this is the single best way to make your odds of success better — you can’t hit a home run without first learning how to hit the ball in the first place.

Rather than looking for the next idea that’s going to make them an overnight success, the best entrepreneurs spend their time improving the fundamentals of their business using metrics. By learning how to consistently hit these singles and doubles, these entrepreneurs set themselves up to knock a home run out of the park.

The bottom line

Don’t waste your time or money by searching for home runs. Use the right business metrics to focus your efforts on your business’ singles and doubles — this will inevitably improve your odds of knocking one out of the park.

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The fact of the matter is that if you never actually get started, you’ll never actually finish. Whoa–I bet you’ve never heard this one before.

Don’t waste time making things perfect — follow best practices and move on. As a rule of thumb, it’s better to do something, anything, rather than sitting around and waiting longer. Follow best practices, then move on.

Build momentum by accumulating small successes. That first thing you do - from start to finish - serves as a model for you to do subsequent things. From there, repetition breeds ease:

Do one new thing, do millions more.

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As you’ve built your business, you’ve put a lot of effort into building a brand. You have a logo, a website, and a business card establishing who you are and what you do. But there is one thing more important than your brand: your reputation. With a poor reputation, putting more work into your brand just isn’t worth the time.

Warren Buffett understands the importance of a good reputation — and how difficult it is to overcome a poor past. When Buffett wants to add another company to Berkshire Hathaway’s portfolio, he’ll ignore those options with bad reputations even as he looks at companies with cash-flow problems and members of weak industries. Says Buffett,

When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact.

He has every confidence that he can deal with any other problem in a business, but even Warren Buffett doesn’t feel up to repairing a poor reputation.

Build An Amazing Reputation

We know that a poor reputation is not something we want. But how can we build a reputation that really helps our businesses (and our personal brands)?

Many companies build their reputation by ‘underpromising and overdelivering.’ They want to give the image that they’ve gone a step beyond for their clients while really just performing at their normal level. As far as reputations go, this sort of average performance isn’t bad: businesses that succeed in underpromising and overdelivering certainly won’t scare off prospective clients. But they also won’t have a great reputation.

To get a great reputation, your business needs to go beyond average. You need to promise great things and deliver. Go back to Warren Buffett for a moment: everyone wants stock in Berkshire Hathaway because of his reputation of making money for his investors. He got that reputation by demonstrating, time and again, that he could get the great returns he promised. You don’t have to get Buffett’s return to build a great reputation, but you do need his ability to follow through.

On one level, building a good reputation is easier than building your brand. You don’t need to print out fliers or distribute business cards to let people know about your abilities; your clients will do it for you. You do need to make sure that your clients have a few good things to contribute to your reputation, though. At the most basic level, your customer has to be satisfied. Your product must be problem-free or your service must be completed on time. But you should take customer satisfaction to the next level. Go beyond their expectations and provide a product with an extra bell or whistle.

As your business grows, your brand will change. Your logo may go for a redesign and your website may get an upgrade. But the reputation you have today will still be affecting your business. In ten years, your customers will still remember you — if you go beyond their expectations.

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Peter Drucker once said, “What gets measured, gets managed.” Let that sink in for a minute.

The problem with most small businesses these days is that they don’t actually know whether they’re actually successful or simply lucky to be surviving.

“But Paul,” you might say, “my store/website/lemonade-stand received 2,200 visitors last month and it generated 35 sales.” My response: “Great! So, was last month a successful one for you?” And then, I get nothing but a blank stare. (Seriously, I have a conversation like this at least once a week these days.)

Look, everyone knows that selling more stuff can usually mean that your business is doing just fine. But, the key is to define a clear, measurable goal.

“Sell more stuff” is not a goal. “Sell 30 widgets and 50 hubcaps every week” is much, much better.

As a rule of thumb, always start with your goal. You can’t create a good plan until you know your objective. So, be crystal clear on exactly what you intend to achieve. (Use this template to track your goals.)

Then, measure compulsively. Seriously, you’ve got no excuse — spreadsheets, Google Analytics or the 872,345 other tools out there will all do the job for you. Besides the usual operational stats, other useful metrics might be CPO (“Cost-Per-Order,” which includes advertising, fulfillment and expected returns, chargebacks, and bad debt), ad allowable (the maximum you can spend on an advertisement and expect breakeven), and projected lifetime value (LV) given return rates and reorder %.

In the end, just remember that you’ve got to start thinking about how to systematically build the business that you’ve started. Setting goals and measuring progress towards them is the smartest way to get there without wasting a ton of time and energy along the way.

Need some expert help to sort out the right goals or get some sort analytics package in place? Let me know.

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Based on a number of websites I’ve visited this week, it’s clear to me that many of you are leaving a ton of money on the table. (Warning: Shield your eyes, you’re about to see some of my fantastic ghetto artistic skills.)

Most companies spend some amount of time figuring out how to make a visitor buy something from their site. In some cases, they’ll even spend tons of money on some overpriced contractor to actually make this happen. When they actually launch the site, the sales process looks a little something like this:

Visitors somehow end up on the company website and, if you’re lucky, they’ll buy something. Yep, it’s pretty weak. But then again, it’s the first iteration of the site — hopefully you’ll learn something from the the data you’re collecting via Google Analytics or other free services. (If you haven’t already, check out 14 free tools to understand your visitors.)

Soon thereafter, you realize you can setup RSS feeds, newsletters and integrate your content with Facebook, LinkedIn, Twitter… you get the idea. The site naturally moves to its second evolution:

Getting better. You’re keeping visitors engaged and, as long as you’re providing them with valuable information, they’ll hopefully come back to the site later on and actually buy something from you. For most companies, this is probably as advanced as their sales processes are going to get.

Though, the few insanely smart businesses out there instantly recognize that there’s a huge gap in the sales loop and realize that they’re leaving a ton of money on the table. The key is to understand that when customers buy something from you, they’re voting with their wallets. They clearly like something about what you have to offer and, chances are, they’re likely to buy from you again. So, why not take advantage of it? Ideally, your new flow would look like this:

The point here is to keep your customers engaged in what you’re doing. They’re already loyal to you, you might as well take advantage of that and keep talking to them. The simplest way to do this is to make sure they’re subscribed to your newsletters, RSS feeds or whatever else you think is good. Better yet, segment your lists so that customers are on a totally separate list — this lets you send them different materials or even give them exclusive special offers that regular visitors never even see.

First things first: Clear off 15 minutes today, grab a pen & paper and start making flowcharts that show how you interact with your customers. Chances are, there’s at least one thing you could be doing better.

If you’re feeling especially lazy (or would rather get some expert help), let me know.

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Most small businesses are already focusing on aggressively cutting costs by streamlining their current business processes and focusing on cash flow as if their life depended on it. That’s great, but it seems to me that one big thing might be getting overlooked:

Buy or Bury the Competition.

If you’re cutting costs across your business and you’ve done a decent job of keeping your employees focused on the right things, you’re probably in a good position to take advantage of the one big benefit of the economic downturn: the opportunity to hurt or, better yet, destroy the competition.

Two tactics that might be useful as you start going after your competition:

1. Steal their customers. The competition is probably hurting for cash, but you’re probably in a better position to extend some decent credit lines to customers that you may never have been able to reach before.
2. Steal their employees. If you’re doing well, start talking about it. Your competition’s employees are probably getting concerned about their job security — use this to your advantage and get some great talent that you might not have ordinarily had access to.

Look, there’s no doubt that you’ve got to get on the defensive in times like this. Just don’t forget that there are some benefits to going on the offensive while everyone else is weak. In the words of Jack Welch,

There’s little downside to an overaggressive response to economic turmoil. The risk lies in wishful thinking and timidity.

Rather than focusing on your own survival, think about how you can take advantage of the fire sale.

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I decided to stop by a local shopping mall the other day. It was still early in the day, probably around 11am, the store was nearly empty and there was just one employee on duty. As I was looking around, I noticed that this employee was on his cell phone the whole time and based on what I could hear, he was applying for another job elsewhere.

If you can relate to the employee, that’s great — I’ll be the first to encourage you to always be on the lookout for better opportunities. For those of you that are employers, read on:

Great leaders understand that historical success tends to produce stable and inwardly focused organizations, and these outfits, in turn, reinforce a feeling of contentment with the status quo. Later failures to produce short-term results or to adapt to change can produce a great deal of activity—but this is often unproductive activity driven by anxiety about one’s own future (not the organization’s future) or by anger at others.

The key to constant growth, success or whatever else you want is to maintain the sense of urgency. Or, in plain english, just keep hustling. When in doubt, it’s far better to be violently executing something than to sit around navel-gazing for hours or days.

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Working 90% to 95% of the time is not working. When my company’s services fail to deliver, we don’t get paid—and our customers get angry. When a technology product doesn’t do what it’s supposed to do all the time, we’re stuck. Unfortunately, the technology my company buys fails way too much. But like everything else that makes me angry, I just deal with it. And so can you.

Something you should know:

1. Technology sucks. Once you begin to depend on it, you’re confined by it’s inherent limitations.
2. It won’t make you successful. That is, not unless you completely understand how it will help your business.

What Great Businesses Do

Have you noticed that so many successful companies are “behind” on tech’s latest trends? It’s because successful businesses relentlessly focus on creating incredible value for the world. They know that once you begin worshipping technology, you switch focus from providing value and then continue going downhill from there.

The Key: Exploit tech only when you know precisely how it can help accelerate your ability to get ahead.

“So, how do you exploit technology?”

Two steps:

1. First, embrace low-tech. Spreadsheets can single-handedly kick the asses of pretty much any of the latest gadgets out there.
   
2. Then, grow outward stubbornly. Improve your systems as you go. You will know you’ve outgrown your current systems when you understand precisely how to increase your efficiency.

And dont forget: Since the beginning of time (and up until a few years ago), most businesses didn’t need completely custom technology solutions. They used paper, spreadsheets, whiteboards… you get the idea.

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Unfortunately, most people have absolutely no idea how to determine whether they actually get any real value out of having a website. Let’s fix that today: read on for a crash course in measuring your website’s success.

What’s a Conversion Point?

Whenever a visitor to your website makes a choice, a conversion point exists that generates two metrics:

1. Cost of Conversion. For the sake of this article, we’ll skip over this particular metric — just realize that it exists and is an important metric to keep track of when you decide to start paying to generate traffic (via online and offline methods).
2. Rate of Conversion.

The key is to identify your business’ significant conversion points which, if chosen most often by visitors, will lead to the achievement of your goals. (More on this in future posts.)

Conversion Rate

Google’s dictionary defines a conversion rate as “the number of visitors who took a desired action divided by the total number of visitors in a given time period (typically, per month).”

Formula: Desired Action / Total Visitors = Conversion Rate

For example, if 1,000 unique visitors were driven to your website from a search engine and 10 of those visitors signed up for your newsletter, then your newsletter conversion rate would be 1.0%. (As a rule of thumb, you should be shooting for a conversion rate of at least 2%.)

In general, a conversion rate is calculated whenever a desired action occurs by a visitor to your website. The most crucial conversion rates are those directly associated with the achievement of your business’ goals.

Examples include:

• A visitor types in their email address and clicks “submit” to join your newsletter.
• A visitor subscribes to your blog via RSS or email.
• A visitor clicks their browser’s “back” button to leave your website.
• A visitor buys your product.

The most important metric: Sales Conversion Rate

For most businesses, sales are the lifeblood of the company. Without them, nothing else really matters anyways.

Formula: # of Sales / Total Visitors = Sales Conversion Rate

For example, if the 1,000 unique visitors generated 20 sales, then your sales conversion rate is 2%.

So, what does this really mean?

Rather than simply putting up your website and blindly waiting for customers, you should be constantly tracking your conversion rates. (Tip: Google Analytics is a free, easy way to automate the tracking and reporting.)

As a rule of thumb, you should constantly aim for a conversion rate of around 2% (or higher). Anything lower, it’s time to start testing new ideas to raise this number. If you’re already at 2%, it’s time to dig a bit deeper into the newsletter, RSS and other conversion rates and see where things can be improved further.

Spend your the vast majority of your time increasing conversion rates — this is the most effective use of your time. Simplify your decision making: If you’re working on something that isn’t improving your conversion rates, stop and move on to the next thing.

Image Credit: batega

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Call it what you want: customer loyalty, customer retention or anything else under the sun. Stickiness transforms the average business from a transaction-based model to a more lasting, mutually beneficial one in which companies improve their own revenues and margins by maintaining a win-win relationship with the customer. It may sound like yet another hand-wavy strategy, but it’s really not — let’s run through a few tactical ideas:

• You’ve probably got a website. So, why’s it so hard to subscribe to RSS feeds or newsletters? I may not be ready to buy anything today but sign me up for one of your lists and keep me updated with tips that are relevant to me. Do this right and it’ll be obvious that your product can solve my needs, I’ll buy it when I’m ready.
• You probably sell a product. So, why don’t I hear from you after I’ve bought anything? If I’ve bought from you once, it’s reasonable to assume that I might be interested in buying from you again — talk to me! Stop being a product focused business and become a product-and-long-term-service business. Guarantee the benefits of your product to me over the long run and do stuff to help me get those benefits.
• Your competitors probably sell something similar to you. So, go the extra mile and solve a particular problem for me in a unique way. The Trunk Club sells clothes, just like most other clothiers, but they actually do most of the work for me.

Look, we’re not talking about rocket science here — in fact, you’ve probably heard tons of advice on how to build your business. The problem is that many entrepreneurs either do too much of the wrong thing or, worse, sit around as they figure out what to do next.

The key is to focus on doing something, anything, to actually build the business — for most people, improving the stickiness is the most effective place to focus your efforts.

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The lesson: Building your business creates the brand. The unconscious process of forming your brand comes out of unrelenting passion, not unending spin.

Ever heard of Starbucks? Contrary to what you may have heard or thought, Starbucks never sought to create a brand. Instead, the company passionately sought to create appreciation for a better tasting cup of coffee. It was, in fact, as basic as that.

Starbucks was too busy sourcing and roasting the highest-quality coffee beans to think about branding. Starbucks was too busy educating customers on how and why they should appreciate a stronger, bolder, more flavorful cup of coffee to think about branding. Starbucks was too busy creating a comforting and welcoming place for people to exhale than to think about branding.

Last week, I met Ryan Moede with Viget Labs (a web strategy firm based just outside of Washington, DC). He told me that before they accept a particular client, the Viget team asks themselves if they’d ever become employees of the client company. Unless the answer is yes, they won’t proceed. Rather than taking just any work that comes their way, they’re relentlessly focused on building their business with the right clients — the branding inevitably follows.

So, the first thing to do is to start ignoring all the “professionals” out there that advise you to spend hundreds, or even thousands, of dollars on “creating” a brand for your company. Instead, focus your efforts on being the best at what you do — the brand will follow.

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I met with him for a second time earlier this week and peppered him with some more questions before we discovered the problem: He shied away from picking a particular niche because he thought it would limit his profit margins or customer counts. He’s not alone — unfortunately, I see this far too often.

Here’s the thing though — why be a small fish in a ginormous pond? It’s far smarter to be the big-ass fish in the tiny little pond. Less is more.

Mark Vadon, Blue Nile’s co-founder, was quoted in a recent BusinessWeek article:

I want to be the best in the world at one thing. I don’t want to be half-assed at a lot of things.

Most businesses suck when they try to do too many things — cut down the number of things you do and your margins shoot through the roof. Every small business that I’ve consulted has told me that once they narrowed their focus to a specific niche, their sales skyrocketed.

In fact, when my own construction company decided to stop actively looking for commercial work, our residential sales skyrocketed. Once we focused on the few things we did better than anyone else, everything got better — more clients, more money and, most importantly, less stress.

How do you define your niche? To start, determine one thing that you do better than anyone else. Not sure? Ask people who know you well. I bet they can come up with at least one thing that makes you a rock star. If you need more help, Geekpreneur has some tips on ways to find your niche and I recently included a few more tips here: the importance of being the best at what you do.

By narrowing your focus, you’ll start to be seen as the expert in your industry. Which instills confidence in your customers and brings even more people to your door. Doesn’t get much better than that.

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It’s no secret that most people have a hard time talking about money — just look at how many bloggers write about ways to ask for raises at work or save $100 on your next purchase. Sure, it’s great if people use the advice but most people won’t, so why keep beating the proverbial dead horse?

The point is not to avoid asking for the discount but to know exactly what to do when that tactic fails.

The art of asking for more

Next time you’re negotiating, try asking for more. I use this tactic when buying cars, dealing with vendors or bargaining with street merchants and it works every time — despite what you might believe, mos