On Good Judgment and Decision-Making: The Science and Practice

Imagine you’ve made two decisions. One has resulted in a loss of 10 thousand dollars, while the other resulted in a gain of 10 thousand dollars. Would you say that the former was a bad decision, and the latter was a good one?

The first response that usually comes to everyone’s mind is “of course, the second decision was better”. But this is not necessarily the case. Can you think of a scenario where your response would be the opposite?

I’ve been thinking and reading about decision-making for many years while trying to put everything I learned into practice. Below, I summarize the strategies and mental models that I personally found most useful.

The Process vs. The Outcome

We all have a natural tendency to judge decisions based on their outcomes. This is not the worst heuristic, as there is a correlation between the quality of decisions and outcomes. But this heuristic has a major flaw — it doesn’t account for luck and incomplete information.

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How to Find Your Ideal Customers

Trying to market your product without knowing whom you should market to is like walking blindfolded. You might still end up in the right place. But it’s not very likely.

Any Customers Vs. Ideal Customers

A new startup might try anything to get its first customers. At this exploration stage, you cast the net wide. You approach different individuals and companies and do whatever it takes. Any customer is a great customer.

But as the company grows, it learns that not all customers are created equal. Some are easier to acquire. Others benefit more from the product and are easier to retain. Yet others are easier to expand and upsell to.

This raises a question. How do you know who is your primary target audience?

At an early stage, you “just know” your ideal customer. Your ideal customer profile is whoever was willing to buy your first product or sign an agreement before you even developed a prototype.

Of course, you can always stop here.

But if you’re planning to become a world-class company, you might need to take it to another level and make sure that your marketing is also world-class. All top technology–, and more narrowly, Software as a Service (SaaS) companies have a very clear understanding of their ideal customer profile. Even though this post will be particularly relevant to this type of company, the general principles can be applied to any industry.

A side-note on terminology: terms such as “ideal customer profile” and “target audience” are often used interchangeably. “Buyer Persona” is another similar term that emphasizes the focus on individuals – as opposed to companies.

Why Define Ideal Customer Profile (ICP)

An ideal customer is a customer that is more likely to like your product and pay for it. Knowing your ICP should help you grow revenue while investing less. This higher return on investment is achieved through better targeting among other things.

Imagine, you sell software that helps cities analyze traffic patterns and make better urban planning decisions. You could place a TV commercial and hope that the right people will see it. This would be utterly inefficient.

Alternatively, you could identify a subset of cities that are most likely to adopt this type of software, then identify the right officials who are most likely to be decision-makers and target them with a proposal that addresses their specific pains and explains how your product can alleviate them. Needless to say, this would be infinitely more effective.

And, by the way, customers will also appreciate this targeted approach. See “Principles of Ethical Marketing” for more on this.

If you need more reasons:

Ideal Customer Profile benefits: marketing targets, sales enablement, customer-centric products

How to Develop ICP

The approach will depend on a number of things:

  • Company size and stage
  • Available resources
  • Available data

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Monthly newsletter: technology, startups, business growth and marketing

Monthly Newsletter: Issue 3

This is an issue of my monthly newsletter. Main topics: technology, startups, business growth, and marketing. See other issues on my blog or subscribe. ~Max


Now, get a cup of coffee and enjoy!

Technology and Startups

Growth and Marketing

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market differentiation

How to Develop and Validate a Value Proposition (Product Positioning)

If I were to ask you these questions right now, would you be able to answer them?

  • What does your company do?
  • What product does your company sell, and how is it different from the competition?
  • Who is this product for?

Seriously, stop reading right now and try to answer these questions aloud or in your head.

Can you answer these questions in 1-3 sentences and in a clear way that wouldn’t invite follow-up questions from an average customer?

Can everyone in your organization?

What is a Value Proposition?

A value proposition is simply a way to connect a product offering with customer needs in a clear way.

It should resonate with customers and would motivate them to try or buy your product. Essentially, the value proposition is synonymous with the unique selling proposition and product positioning.

In order to find its product-market fit, startups need to come up with value proposition statements for its products. Initially, they begin with a hypothesis or a simple guess.

This hypothesis then needs to be validated with customers and refined as the product evolves and as the company acquires more knowledge about the market and customers.

A validated value proposition statement is the ultimate outcome of finding the product-market fit. This statement should encapsulate the key insights you’ve gathered about customers, as well as unique product strengths.

Do You Need One?

If you don’t have one, you’re shooting in the dark. If you have one but it’s not validated, you might be deluding yourself.

Here are some practical benefits of developing a value proposition:

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Principles of Ethical Marketing

“Aww, it’s just marketing…”

You probably heard people use marketing as a derogatory term.

Admit it, you probably did too.

Why?

You can probably think of many examples when marketing wasn’t practiced ethically. It’s true that one doesn’t need to go far to find them. Spam emails that lack “unsubscribe” buttons, misleading packaging, annoying pop-up, or video ads that you cannot skip.

Marketing can go wrong for all the same reasons business can go wrong: misaligned incentives, short-term focus, and tunnel vision.

But business is not inherently and inevitably net-negative to society – quite the contrary. So isn’t marketing.

The thing is not all marketing is created equal. It’s just that some people in marketing make the wrong decisions. Just like some engineers ignore safety standards, some doctors overprescribe medications, and some businesses pollute the environment.

Essentially, marketing is simply helping organizations serve more customers.

More specifically, marketing is about finding the right customers who actually need your product, using their feedback to make the product better, and consistently communicating useful information through the right channels and at scale.

With this in mind, I decided to outline a few high-level principles of ethical marketing.

Principles of Ethical Marketing

  1. Create value before capturing value.
  2. Long-term over short-term optimization.
  3. Customer feedback over company politics.
  4. Educate customers instead of misleading them.
  5. Build products that people want instead of selling the ones you have.
  6. Target customers who can benefit from the product instead of targeting everyone.
  7. Measure NPS, retention, virality, and product usage in addition to ROI, revenue, and growth metrics.
  8. Consider the impact of marketing decisions on employees, other companies, society, government, and the environment.

Here you go, a small manifesto of sorts.

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Monthly Newsletter: Issue 1

This is an issue of my monthly newsletter. Main topics: technology, startups, business growth, and marketing. See other issues on my blog or subscribe. ~Max

Technology and Startups

  • Ten-year Futures – a presentation by A16z. New technologies enable new use cases. Seeing them, as well as non-obvious “second order” effects, is key. E.g. mobile enabled Instagram, Instacart, and ride-sharing.
  • Decrypting Crypto – another presentation by A16z. Bitcoin is a combination of three old technologies: hashcash, public key cryptography, and distributed ledger. Value of cryptocurrencies goes beyond the traditional store of value and medium of exchange. E.g. tokens can help bootstrap new protocol-level innovation and incentivize developers, customers, and investors to contribute.
  • AlphaGo Zero masters the game of Go from scratch. The ML algorithm learned the game without any pre-existing understanding of rules or strategies. Building a general or at least a-little-bit-less-narrow AI appears to be a big priority for DeepMind. Perhaps this can count as a small step in this direction?
  • Delivering blood with drones in Rwanda – a TED talk by the founder of Zipline. What an amazing application of new technology and a case study in social entrepreneurship.
  • Tacotron 2 is a new text-to-speech technology by Google that is (almost?) indistinguishable from a human voice. If Google manages to make it less computationally demanding and ship it as part of the Android OS, all kinds of interesting use cases will be made possible. I personally will listen to more of my Pocket articles in audio.
  • Magic Leap is launching its SDK, shipping in 2018. AR/VR is already quite a saturated market. It’s not entirely clear yet how hyped Magic Leap technology will compare to Microsoft HoloLens, as well as to VR headsets: HTC Vive and Oculus Rift.

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Stanford Class: How to Start a Startup by YC

Free, open to everyone and highly educational Stanford class “How to Start a Startup” has just ended. But all the materials, including talks by star speakers, such as Paul Graham, Peter Thiel, Ben Horowitz, Sam Altman, Brian Chesky and others are going to be available online. For quick reference, here is the complete collection of all course materials:

Videos.

Lectures

Date Speaker Topic
9/23/14 Sam Altman, President, Y Combinator
Dustin Moskovitz, Cofounder, Facebook, Cofounder, Asana, Cofounder, Good Ventures
Welcome, and Ideas, Products, Teams and Execution Part I
Why to Start a Startup
9/25/14 Sam Altman, President, Y Combinator Ideas, Products, Teams and Execution Part II
9/30/14 Paul Graham, Founder, Y Combinator Before the Startup
10/2/14 Adora Cheung, Founder, Homejoy Building Product, Talking to Users, and Growing
10/7/14 Peter Thiel, Founder, Paypal, Founder, Palantir, and Founder, Founders Fund Competition is For Losers

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Good vs Bad PM by Ben Horowitz

“Good Product Manager – Bad Product Manager” doc written by Ben Horowitz during his tenure as Opsware CEO was mentioned in his book The Hard Thing About Hard Things. So I looked up the doc on khoslaventures.com and found it well worth reading.

Sharing the pdf in case you’re interested: Good Product Manager – Bad Product Manager.