Category Archives: Revenue Risk Management

Are Your Estimates Actually Masquerading in SWAG?

“General Electric estimates that the Industrial Internet—its name for the world of interconnected, sensor-equipped, data-generating machines and other objects more commonly known as the Internet of Things—will deliver as much as $15 trillion in economic value in the next twenty years. Cisco, perhaps having learned the lesson that round figures don’t convey precision, puts that number at $14.4 trillion— but it sees that economic value coming within just seven years, not twenty,” according to an InformationWeek article, Hyper-inflated Tech Stats Just Got 217% Crazier.

GE and Cisco, both publicly-traded companies, have reason to pump oodles of sunshine into their revenue estimates. But it amazes me how an industry analyst can posit a numerical outcome like $15 trillion in revenue, and provide a timeframe for the result. With numbers that size, you can estimate almost anything without fear of rebuttal. How about, “$9 trillion by 2038.” Sounds good to me! By then, if I’m wrong, people won’t inform me through email, but through a nano-chip embedded in my brain—something I’m not sure I’m looking forward to.

For some analysts, a trillion dollars here or there represents an estimation rounding error—hardly worth obsessing about. But many of us sweat over much smaller estimates. We’re accountable for forecast accuracy, project lead-times, and budget-to-actual variances. And we’re often in hand-wringing mode. “Can’t anyone around here estimate correctly? We can’t plan anything when our numbers are all over the place!”

What, exactly, is an estimate? One definition, “the most optimistic prediction that has a non-zero probability of coming true,” comes from a widely-respected book about project management, Rapid Development, by Steve McConnell. I know—I had to think about that one, too. But hold the idea, because I’ll get back to it.

While you’re ruminating, try this quick estimation exercise:

Without consulting online search, write down your estimated Low Value and High Value for the following items. At the end of this blog, you’ll have the opportunity to compare your estimated range to the correct answer.

1. The year of Napolean’s birth
2. Length of the Nile River in miles
3. Maximum takeoff weight in pounds for a Boeing 747-300
4. Number of seconds for a radio signal to travel from the earth to the moon
5. Number of minutes for a space shuttle to complete one full orbit of the earth
6. Height in feet of the Great Pyramid
7. Number of bones in the adult human body

No pressure, but you will be evaluated on the total average variance of your estimates. The point of the exercise, of course, isn’t to find out how well you paid attention in school, or to measure intelligence. It’s to expose the challenges involved in estimation, particularly when we’re already familiar with what’s being estimated.

The first time I tried this exercise, I found that for some questions, the correct answer was included within the range I estimated. But for other questions, I whiffed the correct answer altogether, even when I thought my low and high values were meekly broad. Sure, people regularly game their estimates by providing generous risk buffers to ensure the ranges cover results, but that compromises the estimate’s usefulness for forecasting, planning, and budgeting.

What distinguishes an estimate from a guess-timate from a SWAG*? Very little, actually. Estimates generally involve logic, reasoning, and require the use of related facts. Guess-timates are more thinly supported. By how much? Who knows?

And SWAG’s are just SWAG’s.They are only marginally more credible when the S stands for Scientific, rather than Simple. In any case, by keying on the Wild-Assed-Guess part, you’ll retain an appreciation for the true quality of the resulting number. Caveat Plan-or!—Planner, beware!

McConnell connects his definition of estimate, “the most optimistic prediction that has a non-zero probability of coming true,” with its ultimate goal, which he says is “to seek a convergence between your estimates and reality.” Ah—now everything makes sense. Here are some tips for creating convergence:

1. Avoid seat-of-the-pants estimates. Though there’s wonderful lore about how a perfunctory, back-of-the-napkin calculation spawned a high-growth company or two, avoid the temptation to wing it. Instead, use an algorithm, estimation software, or a benchmark from a comparable project or program.

2. Request input from those who will be directly involved in delivering the actual results. If someone protests and says, “but Sales is too close to this to offer an objective view . . .” smack him.

3. Estimate results at a detailed level first, then aggregate the estimates. “A 10% error on one big piece is 10% high or 10% low,” McConnell writes. “The 10% errors on fifty small pieces will be both high and low and will tend to cancel each other out.”

4. When justifying the estimation range, explain why it’s unreasonable to estimate a higher value, and do the same for the lower value.

5. Identify and explain the key assumptions involved in the estimate.

All estimates include at least implied probabilities, even if the estimator doesn’t realize it. While software has made forays into probability assessment, humans still have a leg up, making estimation a blend of both science and art. The science part involves software tools and theoretical numbers, while the art involves heuristics and abstract thinking.

I estimate that humans will have a role in estimation for at least another thirty years. After that, the only safe job title will be Algorithm.

* SWAG: Simple—or sometimes, Scientific—Wild-Assed Guess

Answers:

1. Napolean was born in 1769
2. The Nile River is 4,132 miles long
3. The takeoff weight of a 747-300 is 833,000 pounds
4. It takes 1.5 seconds for a radio signal to reach the moon from the earth
5. It takes 90 minutes for the space shuttle to complete one full orbit of the earth
6. The Great Pyramid is 481 feet high
7. There are 206 bones in the adult human body

Prospect Decides to Postpone Buying Decision. Lives Happily Ever After!

Photo credit: loopholesonlife.com

Photo credit: loopholesonlife.com

Prospect Decides to Postpone Buying Decision, and Lives Happily Ever After!

Try to imagine a more frightening headline. How about, Sales Team Thrilled to Give Price Concessions! For me, it’s a tossup. Most people have a visceral dislike for indecisiveness.

As Donal Daly wrote in a recent blog, What to Do When ‘No Decision’ is not in the Customer’s Best Interest, “sometimes being outsold means you lost to the dreaded No Decision. In fact, according a report I read from CSO Insights, this is happening 26% of the time. Ouch!”

Others share similar disdain. In discussing a prospect’s choice to do nothing, Bob Apollo wrote, “you might attempt to derive some comfort from the fact that at least you weren’t beaten by anyone else. However, that’s a pretty unsatisfying conclusion.” (In Complex Sales, Your Fiercest Competitor is often ‘Do Nothing’).

There’s a different way to spin this—without losers, dread, pain, and defeat: In 26% of purchasing instances, customers found “no decision” the more compelling choice.

For some, combining no decision and choice in the same sentence might seem odd, but that’s the point. No decision should never be construed as absence of decision. Deciding not to act, postponing a purchase, and re-prioritizing objectives are choices executives make—and are therefore, decisions.

And there are reasons executives make such choices, namely, “once we act, we forfeit the option of waiting until new information comes along. Not acting has value. The more uncertain the outcome, the greater may be the value of procrastination,” according to Peter L. Bernstein, author of Against the Gods: The True Story of Risk.

Without realizing it, Mr. Bernstein provides the world’s best explanation for why salespeople “lose” to no decision. So the right question to ask isn’t “why are 26% of buying decisions resulting in no decision?,” it’s “how can uncertainty be reduced so that buying decisions occur without delay more than 75% of the time?”

Clearly, not acting has value for prospects—but not for sales executives. And that represents a difficult fork in the road—a bifurcation where vendor motivation clashes with customer-perceived value, and fulfilling those objectives takes inexorably different pathways. Salespeople envision a purchase order right now as the most valuable outcome, and prospects, when faced with sufficient uncertainty and risk, sometimes see not now as the better choice.

Can these two positions be reconciled? Can sales hyperbole like win/win, customer-centric sales goals, and salespeople as trusted advisors reclaim their original, benevolent meanings? Whether you choose to refer to buyer reluctance as do nothing, no decision, or maintain the status quo, salespeople must recognize that prospective customers do not always defer decisions simply out of knock-kneed fear or irrational risk aversion.

Salespeople struggle to grasp the reasons for no decision, evidenced by popular expressions such as beaten by “no decision” and “no decision” as fierce competitor. This confrontational rhetoric serves a motivational purpose for salespeople, but it doesn’t promote understanding about the hard choices buyers face, let alone leave room for nuance. No decision—if that’s the term you want to use—is less a competitor than a possible outcome. A competitor vies for the same objective you want, and deploys resources and tactics to get it. None of which characterizes indecision

For many prospects, not acting right now might be a reasoned—and reasonable—business choice, and it should not be dismissed as “just taking the easy way out.” And many times, no decision isn’t a buyer’s end-point, but a choice prone to change based on developing pressures, forces, and events.

In the right circumstances, prospects can be quite happy with deciding not to decide. Dread and pain, on the other hand, result when people feel helpless and overwhelmed. Salespeople might not agree with no decision, but with more clarity about the rationale, they can manage the risk by planning and responding more effectively.

You Just Sent One of Your Salespeople Packing. Do You Know What He’s Taking with Him?

You just fired Mario, who was struggling to make his quota. You kept his company-issued laptop, de-provisioned him from your company’s cloud services, intranet, and online databases. Shut down his corporate email account. “Phew. Glad that’s over!” Every box on your HR department’s Exit Procedure Form, ticked. Time to head out for sushi!

child_stealing.s600x600 While you’re deciding between Uramaki or Makizushi, you have a queasy feeling about Mario. During his tenure, Mario received price lists, proposal templates, discount schedules, engineering updates, and new product announcements. He had internal memos about product defects, and patches—or workarounds—for service issues.

He had the sales team’s compensation and incentive plan down to the tiniest details, PowerPoints loaded with opportunity heat maps and sales performance pie charts. You’re not sure if he saw the specs for your upcoming software release, marketing’s five-year strategic plan, and HR’s recruiting strategies and tactics, but IT just told you that he had unrestricted access.

Where, oh where is that stuff now? Who might be reviewing your files and documents and forwarding them on? Hard to say. Mario’s not answering his cell phone or responding to email. You loosen your tie and order a drink, because your wasabi just got a little hotter.

To competitors, Mario is a walking, talking, sharing goldmine of company intelligence—a not-insignificant risk. In fact, in the 2013 State of Cybercrime Survey, when US public and private-sector executives were asked “with respect to your organization, what is the most adverse consequence that has ever occurred from a security event caused by an insider?,” their top response was “loss of confidential or proprietary information.”

How can companies protect themselves?

Prepare.
“Companies should focus their security efforts by identifying the data and systems most in need of protection, then act to limit access,” according to a recent article in The Wall Street Journal, Stop Information Theft by Employees. Proper preparation also includes planning for the end at the beginning. Before hiring a new salesperson, require a signed non-disclosure agreement (NDA), and when appropriate, make sure company communications conform to designations such as proprietary or confidential.

Prevent. Data Loss Prevention software such as Migrate2.com “can help to protect data from any number of sources, such as portals, applications, personal employee information, e-mail communications and documents,” according to the company’s website. In addition, by regularly updating price lists, commission plans, and other company-confidential documents, you can reduce their usefulness if they fall into the wrong hands.

Detect. An employee who intends to obtain confidential information can be exposed through tracking new activity in keyword searches, or from the employee’s requests to access databases that might be outside of his or her normal business needs. Some software applications like IBM’s InfoSphere Guardium Data Activity Monitor can issue alerts when risk conditions are met.

Respond. While forensics tools, such as EnCase, help organizations discover after-the-fact extent of information theft, companies respond poorly to information breaches for a major reason: no one likes to publicize or even talk about them. “Yeah, as of today, Mario’s not on the team. Heaven knows what he did with our customer contact lists . . .” Instead,

• At the employee’s exit interview, retrieve the file copy of the signed NDA—assuming you have it—especially if it was completed more than a year ago. Remind the employee about what’s enforceable, and underscore the company’s intention to maintain the terms of the agreement.

• Don’t sweep the situation under the rug. Let your sales team and others in the company know right away what happened, which information was compromised, which risks are most concerning, and why.

• Let anyone with skin in the game—including employees, customers, and resellers—know how you will respond, and provide guidance for actions they need to take.

• If breached information might compromise a customer relationship, make sure you take steps to manage the problem before your customer learns about it.

Salespeople possess a rare blend of corporate information—one that’s useful to many outside the organization. With Mario, at least there’s a consolation: a year from now, his pirated information probably won’t be any fresher than your sushi.

Make Techno-jargon Taboo in Your Marketing Communications

If you have played the word game, Taboo, you already know where this discussion will lead.

If you haven’t, a quick tutorial. The game is played with two teams consisting of two or more people on each team. Players on Team A draw a card with a word, and the person holding the card describes that word or phrase to their partner—or partners—without using any of the five common additional words or phrases presented on the card.

At the same time, players on Team B monitor a timer, and sound an annoying buzzer (supplied with the game) if any of the five taboo words or phrases is inadvertently used. The roles for each team reverse for every card draw. The team that conveys the most words without using taboo words wins. Oh, you can’t gesture, either.

The challenge is harder than it appears. And beer and wine don’t make the game easier. I’ve tried.

For example, to describe the word SOAP, the card shows the taboo words CLEAN, WASH, SUDS, LAUNDRY, and OPERA. If the word to describe combines two words, like BASKETBALL, then BASKET and BALL are also banned.

A corporate version of this game would be salvation for all of us. Imagine a card with DATA WAREHOUSE as the phrase to describe, and you can’t say FILE, INFORMATION, SERVER, ITIL, and TERABYTE.

Why do I say this? Because a software company I work with recently sent me a key piece of their marketing collateral to review. I expected typical minor stuff. “Change happy to glad,” as we say in the trade. But my head quickly began to hurt from the abundant techno-jargon. I stowed my surgical editing knife, reached for my heavy axe, and began chopping:

system, paradigm, data, platform, updates, interfaces

Gone! “But we use those words every day,” you say. Me too, so I understand. But to give this context, I’ll share a key artifact: my client intended their marketing piece for CFO’s and operations executives, not techies.

Before returning my revisions, I solicited the opinion of a friend of mine, a seasoned CFO, by asking him to have a look at the original content on the company’s website. Here’s his response:

“As a CFO, I would be very hesitant to buy this solution if my team (or more likely the IT team) brought it to me for approval. I really don’t like to buy solutions when I can’t get a common-sense handle on what the solution is and how it works.”

If your mission is selling something, you won’t find a red flag any redder. I printed his email in large text, framed it, and placed it on my office wall. I’m looking at it right now. If you’re in marketing communications, I recommend you do the same. If you’re short on wall space, just print and frame his second sentence.

Anytime we communicate, we risk falling into a jargon trap. But what, exactly, is jargon? A new book by Supreme Court Justice Antonin Scalia and Bryan A. Garner, Making Your Case: The Art of Persuading Judges defines jargon as “words and phrases used . . . in place of plain-English words and phrases that express the same thought. Jargon adds nothing but a phony air of expertise.” Their advice? “Avoid words that would cause people to look at you funny if you used them at a party. Pretend that you’re telling your story to some friends in your living room; that’s how you should tell it to the court.” Of course, we would say customer in place of court. Whatever. Same thing.

In addition to the words I mentioned earlier, what other common tech jargon are strong candidates for taboo in customer communications?

cloud, cloud computing, cloud-based, Web2.0, Web3.0, SocialWeb, Crowdsourcing, SaaS, on-demand, real-time, synch, gamification, virtual, virtualization, malware, next-generation, open system, seamless, ideation, infrastructure, seamlessly, IT architecture

Every day people coin new jargon, and marketers are only too eager to blast it to world through Twitter, blogs, and other marcomm—I mean Marketing Communications. Pressure for companies to be found through online search has pushed much of this jargon into places it doesn’t belong. “We were the first company to use gamification on our website!” Great. I got 4.7 million search results for the word just now—not bad, considering its first use goes all the way back to 2002.

If you don’t want your target buyer communicating to you through silent indifference, manage that risk by making jargon taboo at your company. Here are some steps:

1. Retrieve a random piece of your company’s current marketing communication.
2. Select a word you think is jargon. For example, interface.
3. Without the aid of online search, ask members of your team to define that word.
4. Any word lacking consensus on meaning should be considered for removal.
5. Compile your own internal list of taboo words, and assign staff to serve as jargon police to make sure the words don’t slip into any customer document, presentation, or face-to-face customer meeting.
6. Maintain the list, and distribute it to people who need to know.
7. Ask yourself, “how do our prospects perceive [alleged jargon word or phrase]? Are they familiar with [word or phrase]? Does using this word improve our most important ideas and messages—or shroud them?
8. If anyone at your company uses a taboo word when it should be avoided, don’t sound a buzzer. That would get too noisy. Instead, for every infraction, ask the violator to pony up $1.00 into the happy hour jar. You’ll squelch the use of jargon faster than anyone can imagine, and you’ll have great fun every Friday afternoon when you head out for drinks.

Want to learn more? Great! For a seamless way to integrate these breakthrough, game-changing ideas into a scalable framework embedded with your legacy process workflows, and to incentivize your staff and other stakeholders to utilize the output to align your resources for disruptive innovation, let’s connect, synch calendars, and collaborate.

Phew! That’s a lot, and I’ve still barely optimized the input from my cloud-based jargon repository.

A Good Social Media Policy Means Never Having to Say You’re Sorry

“When Strom Thurmond ran for president, we voted for him. We’re proud of it. And if the rest of the country had followed our lead, we wouldn’t have had all these problems over the years, either.”—Mississippi Senator Trent Lott

Lott resigned from the US Senate in 2002, just fifteen days after this immortal on-camera blunder. If he had a Twitter account back then, Mr. Lott might instead have Tweeted, #America would be better off if it had voted for a #racist in the 1940s and opposed #civilrights. #segregationrocks

Right now, there are thousands of Trent Lott’s sharing opinion through Tweeting, blogging, and other social media. And they’re not just politicians, but business executives, middle managers, health professionals, athletes, entrepreneurs and public servants.

When their sentiments get weird, the aftermath looks like this:

A Business Insider executive has made some comments on Twitter that do not reflect our values and have no place at our company. The executive has left the company, effective immediately. Business Insider’s team is composed of more than 100 talented men and women of many backgrounds, and we highly value this diversity.

Henry Blodget, CEO of Business Insider, wrote that contrite clarification on September 10, 2013. He had little choice—he was in damage-control mode. Pax Dickinson, the company’s now-former Chief Technology Officer, used Twitter to make racial slurs, denigrate women, and bash gay rights, according to blogger Anthonia Akitunde on American Express Open Forum.

Many companies encourage employees to use social media to converse online. “We want our management team to engage with our stakeholders. Here are all the passwords to our social media accounts. . .” Before you unlock that gate, think about what you have exposed. Corporate image and reputation, customer loyalty, brand equity. Did I leave anything out? Oh yeah, goodwill. The term no one really understood back in Accounting 101, but it’s probably on your company’s balance sheet. An asset at great risk—though few mention anything about social media’s role.

Still want to give up those passwords? Giving an employee access to your company’s online voice is like giving a first-grader a power saw when you don’t know if she can be trusted with scissors. “Here you go, Sweetie. The plug is right over there on the wall.”

I admit this comparison might seem unfair. After all, executives are adults, and we assume they could not get hired without a baseline cadre of social skills. And there’s pressure on them to speak up. Seventy percent of Fortune 500 CEO’s have no presence on major social media networks, according to a recent report by CEO.com and Domo. “People want CEO’s who are real. They want to know what you think. Can you think of a more cost-effective way of getting to your customers and employees?” said Bill George, a management professor at Harvard Business School.

The answer depends on how you interpret getting to. Dickinson’s misogynistic and racist statements got to customers and employees, but not in the way Mr. George envisioned. “Social media—with its demands for quick, unscripted updates that can quickly go viral—poses risks for top managers and the companies they represent, in the form of lawsuits, leaked trade secrets or angered customers,” according to a Wall Street Journal article, 140 Characters of Risk: Some CEO’s Fear Twitter.

Lawsuits and leaked trade secrets are real risks that give purpose to creating regulations, rules and policies. But in the still-nascent social media world, people resist the idea because it smacks head-on into the freedom of speech, serendipity, and unlimited sharing we cherish.

So recommending that companies formalize social media policies to establish boundaries, controls, and governance might sound like corporate totalitarianism, but it will reduce a multitude of risks. Here’s what to include in a social media policy statement:

1. A definition of company confidential information, and a list of what may not be shared under any circumstance.

2. Legal definitions of defamation, libel, and slander, and examples of related statements your company prohibits in social media.

3. Legal definition of fair use, and what’s prohibited for employees to share.

4. Explanations of what constitutes threatening or harassing comments, along with a clear boundary for what is unacceptable.

5. Establishment of boundaries for posting product claims, offering comments about competitors, providing customer endorsements, and sharing customer references.

6. Company policies for voicing comments about religion, politics, and social issues through corporate social media accounts.

7. A description of how the company monitors its social media conversations.

8. Explanation of the consequences of non-compliance, and how the company intends to enforce them.

Finally, no social media policy is complete without at least a mention of good old Respondeat superior, the legal doctrine stating that a company is responsible for the action of employees within the course of employment. A short translation: an employer could be involved in litigation for anything stupid or insensitive that an employee says online.

Will written social media policies protect your company’s reputation from fallout over employee social-media indiscretions? Not by itself. People say things, and last time I checked, Twitter did not offer a Preview button, not that we don’t desperately need the feature to protect us from ourselves. Maybe after the IPO, the company will develop a clever reality check: “This is inane. Are you still sure you want to say it?”

In the meantime, engage online! Hold conversations! Create killer content! But before all that—hope for the best, plan for the worst, establish unambiguous social media policies, and make sure they’re followed.

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