Thursday, January 31, 2008

How using people in your ads increases sales

We've all seen the light beer commercials with young, impossibly attractive people guzzling a product that, by all rights, should be making them fat and unhealthy. The obvious question is, "Do they think we're really that stupid? That we think if we drink their beer we'll become supermodels?"

Good question. But it gets the real thinking backwards.

When you show people using the product, you're helping the prospect visualize themselves using it. Make it seem familiar and safe, instead of new and unknown.

But since you can't put each viewer into their own personalized version of the ad (yet), you have to use a stand-in. If you show someone that the viewer would like to be, it increases their desire to want to recreate that image.

So you don't want the prospect thinking, "If I use that product, I will become like that cool, attractive person in the ad." You want them thinking, "Because I am cool and attractive, I can see myself using that product."

It's the same thinking that leads to cliques and fads:

  • I'm not cool because I wear Air Jordans. I wear Jordans because I'm cool.
  • I'm not tough because I play rugby. I play rugby because I'm tough.
  • I'm not a redneck because I drive a truck. I drive a truck because I'm a redneck.
You don't want your prospect to think your product will make them more attractive. You want to help them confirm what they already believe about themselves.

Why no one wants software: a case study

No one wants software.

Really, no one.

What they want is documents ... pictures ... loan applications ... insurance claims ... Software is just another tool they can use to maybe produce more of the things they really want, better or cheaper.

What this means to legions of unhappy, cynical programmers is that no one cares about the quality of the code. Nope. They don't. And odds are, they shouldn't.

Here's a little story to illustrate why. (By the way, this is the kind of thing you'll see in an MBA course. If you don't already do this kind of thinking, you should stop telling yourself there's no value in getting an MBA.)

The pitch

I'm in charge at an insurance company. I have a manual, paper-based process that requires 100 people working full time to process all the claims.

Someone comes in and offers to build me a system to automate much of the process. He projects the new system could reduce headcount by half. It will take six months for a team of four people to build.

If you're a programmer, and you think this probably sounds like a winner, try looking at the real numbers.

The direct cost

100 claims processors working at $8/hour. $1.6M per year in salaries. (Let's leave benefits out of it. The insurance company probably does.)

Four people on the project:
  • architect/dev lead, $100/hour
  • junior dev, $60/hour
  • DBA, $80/hour
  • analyst/UI designer, $75/hour
Total $325/hour, or about $325k for six months' work.

Still sounds like a winner, right? $325k for an $800k/year savings!

Except the savings doesn't start for six months. So my first year savings are at best $400k. Damn, now it's barely breaking even in the first year. That's OK though, it'll start paying off nicely in year two.

The hidden costs

Oh wait, then I need to include training costs for the new system. Let's figure four weeks of training before processors are back to their current efficiency. Maybe a short-term 20% bump in headcount through a temp agency to maintain current throughput during the conversion and training. Add the agency cut and you're paying $15/hour for the temps. 20 temps x $15/hour x 40 hours x 4 weeks = $48k one-time cost. Now my first-year cost is up to $373k.

And don't forget to add the cost of hiring a trainer. Say two weeks to create the training materials plus the four weeks of on-site training. Since this is a high-skill, short-term gig (possibly with travel) I'll be paying probably $150/hour or more. $36k for the trainer.

So if everything goes perfectly, I'll be paying $409k in the first year. And actually, I don't get even the $400k savings. I can't start cutting headcount until efficiency actully doubles. Generously assume that will be three months after the training finishes. Now I've got three months of gradually declining headcount, and only two months of full headcount reduction. Maybe $200k in reduced salary.

Of course you need to add a percentage for profit for the development company. Let's go with 30%. So ...

The balance sheet

Software$325k + 30% = $422.5k
Training (temps)$48k
Total Y1 cost$506.5k
Projected Y1 savings$200k
Y2 savings$64k/month

The project breaks even near the end of the fifth month of year 2. And that's if NOTHING GOES WRONG! The code works on time, it does exactly what it's supposed to, I don't lose all my senior processors as they see the layoffs starting, etc. etc. etc.

The other pitch

Then a lone consultant comes in and offers to build me a little Access database app. A simple data-entry form to replace the paper version, a printable claim form, and a couple quick management reports. Two months' work, and I'll see a 10% headcount reduction. The consultant will do the training, which will only take a week because the new app will duplicate their current workflow.

Software$200/hour x 8 weeks = $64k
Training$200/hour x 1 week = $8k
Total Y1 cost$72k
Savings$12.8k/month (starting in the fourth month)

The project breaks even six months after the project is done, so early in the ninth month of Y1. Since the scope was much less ambitious, the risk is also lower.

The obvious choice

Which sales pitch do you think I will go with? Does that mean I don't respect "proper" software development practices? And, the bottom line: should I spend more money on the "better" solution? And why?

Wednesday, January 30, 2008

The difference between innovation and sloppiness

I took a couple of art classes in college. In Life Drawing we were supposed to look at the arrangement or person in front of us and put it on paper. In pencil, then charcoal, then ink … watercolor … oil … etc.

I was always good at photorealism. I might not have been fast, but I had some pencil drawings that could have passed (at a distance) for black-and-white photos.

There was another student, an art major who fancied himself an "artiste". His work spanned the range from abstract to really abstract. He looked down on my mere technical facility.

But my grades were as good as his, sometimes better. It seems when he talked about his rejection of formal rules, it really meant he wasn't able to do realism. He didn't have the command of the tools, the mere technical facility. So everything he did owed as much to chance as to intent.

He may have been right, that I didn't have the creativity to do modern art. I'll admit that I appreciate paintings that simply look good, without high-flying pretension or socio-political overtones. I guess I'll never have a SOHO gallery showing. C'est la vie.

But with all his fervor, and whatever glorious visions he had in his head, he couldn't reliably get them onto the paper. He couldn't create something specific, on purpose.

[Cue un-subtle segue ... ]

But what does this have to do with the business world? Scott Berkun wrote recently about how constraints can help creative thinking. When a large corporation does "blue sky" thinking, they can wander aimlessly and never produce. Constraints set a direction.

But I think there's another problem with "blue sky" thinking that goes beyond a lack of direction. It's summed up by Voltaire's famous maxim:

The perfect is the enemy of the good.
When a company tries to "blue sky" a problem, they are implicitly seeking perfection: With no limits, what would be possible?

But there are always limits. They may be self-imposed, inconsequential, misunderstood, overblown, or in any number of other ways not real limits. And it helps to know the difference.

When you start out by asking people what they would do if there were no constraints, don't be surprised when they come back with a solution that can't possibly work. And then convince themselves that theirs is the only possible solution. By then, you've already lost.

Monday, January 14, 2008

Hate the game if you want, don't pretend it isn't being played

When I was in college I worked at a bar that had a pool room. I played a lot when it was slow and after hours. I got pretty good on those tables. Only "pretty good" and only on those tables ... I knew where the dead spots were in the rails.

If I put anything on the game, it was usually who bought the next round. Sometimes we couldn't drink as fast as we played, and we'd go for a dollar a game. We were all friends, and it was just to make the game more interesting.

But every so often someone would come in who none of us recognized. You could usually tell really fast who was better than just a casual player. Sometimes they'd see if they could get a game for $5. I'd always take them up on it. And I always won the first game.

Then they'd ask for a rematch ... let them win their money back. I'd take that game, too. Sometimes I'd win, sometimes not. But I was breaking even so I didn't care. It was usually after the second game that they'd look at their watch and realize they had somewhere they needed to be. But they had time for one more game.

How about one last round for $50?


How about $30?


Come on, give me a chance to win it back!

No, you're a better pool player than I am. But you suck at reading people. You thought I didn't know you were throwing the first two games.
That's when they'd get pissed. It wasn't fair that I took their money even though they could beat me without trying hard. I was just a punk-ass bitch that couldn't carry their stick.

Yup. But I had their money, and they were leaving.

If I wanted to, I could have spent the equivalent of a full-time job becoming a professional level pool player. I would have run into diminishing returns as I was going up against ever stronger competition. It would have dominated my life, and the only way to make a steady living would be constant travel.

Plus there'd be no retirement plan. Your earnings stop the moment you stop playing. The skills don't translate to anything else worthwhile.

So I stayed in school and learned to be a programmer, which doesn't suffer from any of those negatives. </sarcasm>

Hmm, that came out a lot longer (and a lot faster) than I expected. It all started from one idea, though: You don't win by being better, you win by playing better. And you start by knowing what game you're playing.

When you're in an interview, you're playing the "get the job" game. Once you have the job you're in the "impress the decision-makers" game. If you go the uISV route you're in the "sell the most product" game.

Being better at coding is one of the plays in each of those playbooks. But it's not the one they keep score with.

Is your resume hot or not?

Getting a job is like getting a date.

  1. There may or may not be rules to it.
  2. It may or may not be fair.
  3. They may be so desperate it doesn't matter what you say. But do you want to hook up with someone who's desperate?
  4. Or maybe it doesn't matter what you say because they've decided the answer is "no" before you opened your mouth.
  5. The more in-demand you are, the more choosy you can afford to be. But if you want to get this job -- or this date -- then you're probably going to have to say what they want to hear. Good luck figuring out what that is.