Ideas

Volatility is the New Equilibrium

By Bill Freedman

Cognitive and biological science has demonstrated that our animal instincts replace human reasoning in the face of mortal threats. When individual survival is at stake, Charles Darwin trumps Adam Smith.

Instincts are powerful. They are put into practice without training or thought. But they aren’t always “right.” Those of us who’ve lived a little know that some threats are real while others are illusions of our imperfect ability to perceive the world around us. A noise in the dark will awaken a deep sleeper, even if it’s from the wind knocking over a trashcan rather than a lion preparing to pounce.

I started with a biology lesson because I believe that collectively, our imperfect instincts have distracted us from reality when it comes to the current economic crisis. Let me explain why.

The past twenty years of improving American prosperity have conditioned us that there is a single economic reality: consistent and predictable quarter-over-quarter growth. In the past year this perception has been challenged by sharp declines in prices for stocks, homes and labor. We’ve weathered other declines in financial markets, specifically in 1987 and 2001. The difference is that the current decline is broader-based and steeper than those other declines. No question about it, these changes are frightening.

With regard to the economy, I believe its time to turn decision-making back to human reasoning. The sense of mortal threat needs to be eliminated before reason can take over. Have you noticed:

  • The sun has come up every day
  • Your family still loves you
  • Police patrol our streets and teachers teach our children
  • Innovators are still looking for the next big idea
  • Entrepreneurs are still looking for the next opportunity
  • Lions didn’t pounce in my neighborhood last night

Volatility: It’s Not that Bad

The main lesson I’m learning from the crisis is that volatility is greater today then my comfort level allows. Yes, housing prices have fallen and markets are disorderly. Some individuals are facing “gambler’s ruin” which will severely impact their lives.

On the positive side, social services are available to soften the economic blow for many (though not all). I’m making the choice to accept the higher levels of volatility. Asset values will rise sometime in the future as certainly as the sun will rise tomorrow. Price volatility will remain high for some time and I need to deal with that.

Volatility is the new equilibrium. Purple is the new black. Democrat is the new Republican. Green energy is the new biotech. I’m ready to tackle volatility with my intellect and humanity.

Are you?

Listening to Linkbait

By Bill Freedman

Good ideas come in many shapes and sizes. The ideas that matter, however, are those that are actively evaluated and employed.

Linkbaiting, despite its unseemly name, is an idea that matters. It combines the economics of information on the Internet with the best practice of exceptional customer service. It’s Seth Godin meets Peter Drucker. It drives customers to your website with no variable cost. It quickly connects consumers with information.

Linkbaiting is the umbrella term for the range of techniques that attracts links to your Web site.  And while links of all kinds are the medium of the Web, linkbaiting draws a disproportionately large number of links without cash payment.  Linkbaiting matters because, when done effectively, it drives improvement in search engine ranking, web traffic and visitors.

Here are a few linkbaiting techniques that work (with examples and links to effective linkbait content):

One caution to linkbaiting novices: use linkbaiting for the long run. Getting someone to come to your site once, visit one page and leave disappointed does little for your business. Trick me once, shame on you. Trick me twice, shame on me.

What Optimists Do in 2009

By Bill Freedman

As an enterprise software entrepreneur, American, father, husband and optimist, here is where I’m directing my personal energies in 2009:

Innovate. There is no recession on innovation. Things like economic uncertainty, instability in our financial markets and the housing crisis are widely reported. These developments are clearly depressing but not under our immediate control. That is why I’m continuing to process the depressing information, but focusing my personal creativity, enthusiasm and industry on producing innovative products, services and solutions.

Participate in global and local communities. Web 2.0 has made the world smaller, which is great. Technology has made it easier to communicate, collaborate and transact business around the globe. We are all richer for these new connections. One of the unfortunate by-products of globalization is a “crowding out” of local activities, institutions and businesses. Global is good, but so is local. I’m participating in both spheres.

Contribute your abundance generously. The lessons of early economists remain true today. Specialize. Create value within your specialization. Trade your created value with others for personal and communal enrichment. What do you have in abundance today: time, skill, finances, ideas or something else. Figure out how to get your abundance into circulation.

Manage scarce resources carefully. Optimism isn’t blind. It’s pragmatic. In a recent San Francisco Chronicle interview Benchmark Capital partner Bill Gurley wisely stated, “in market downturns, frugality is not only a virtue, but also it could be the difference between survival and failure.” Understand what’s scarce. Cash savings, fossil fuels and the environment are under scrutiny in our household.

Improve education. Education is America’s greatest industry. Our universities are coveted around the world and our commitment to providing K-12 education to all residents is one of the greatest public policy practices in human history. Sadly, public education is in need of a strategic overhaul, increased funding, better public relations and increased participation from parents and communities. Every investment I’ve made in education has provided a spectacular economic return and has made me happy. I want the same for my children and everyone’s children.

Comments and contributions to this discussion on optimism are encouraged!

Would Your Recommend This Product to a Friend?

By Bill Freedman

Business consulting firms and academics are actively working to quantify the degree to which word of mouth advocacy drives revenue growth in industries ranging from mobile phone networks to automobiles to enterprise software.

Advocacy correlating with revenue growth seems like a reasonable assertion. Word of mouth recommendations should improve sales productivity and reduce the length of sales cycles, both of which improve revenue growth. Alternatively, “bad buzz” will drive potential buyers to seek alternatives. Bain & Company, Fred Reichheld and Satmetrix have jointly copyrighted the term “net promoter score” and formalized the statistical calculations of customer answers to the question “would you recommend this product/brand/company/stock to a friend.”

One recent study published in Brand Strategy confirmed the validity of the Net Promoter Score. Using large sample sizes across multiple industries in the UK, this study confirmed that the “Net Promoter Score” accurately predicts revenue growth (correlation coefficient of 0.484 and significance less than 0.01), and negative word of mouth correlates with reduced revenue growth (correlation coefficient of -0.524 and significance less than 0.01). Wow, that is good evidence…and it’s only one of many studies.

With repeated studies confirming the value behind the Net Promoter Score, it is worth thinking about monitoring this statistic and implementing programs that improve customer referral behavior. A few such programs include:

  • Referral rewards, ranging from service credits to hard cash for customer referrals
  • Free product trials, making it easy to progress from receiving a recommendation to experiencing the product
  • Anointing customers as brand ambassadors, this creates an emotional bond between the customer and your product. The savviest tech brands have made industries out of ambassador programs: Novel CNE and Microsoft MSCE are examples
  • And my personal favorite: having sales ask the question directly of their customers. If the answer is anything less than a yes, the reason needs to be tracked and managed.

Before you can manage your net promoter score, you need to establish a base line. So start asking your customers: would you recommend this product to a friend?

Resistance to Change

By Bill Freedman

Sales and marketing professionals at technology companies often complain that IT customers are resistant to change. The evidence supporting this assertion ranges from customers turning down meeting requests to older products continuing in use despite the availability of newer versions.

The shocking truth is that, collectively, these stick-in-the-mud IT organizations are making many important changes. They are embracing Service Oriented Architecture, 64-bit computing, open source technology, outsourcing and mobile computing. They are exceeding demanding service levels for back office application availability and improving end user productivity. They are holding the line on costs, while helping their organizations achieve top-line and bottom-line growth.

Labeling customers as “resistant to change” is convenient, but the facts tell a different and more complex story. Many changes are taking place in these organizations every day. Many ideas and distractions arise to compete with the plan of record, but only a precious few earn much attention. Is the problem resistance to change or are vendor claims not inspiring decision-makers to change their plans?

Overcoming Resistance to Change: Look Inward

Human attitudes towards change result from a complex interplay of emotions and cognitive processes. We all make choices in our lives that result in changes to the status quo. We all cope and adapt to changes that happen in our environment and that impel a reaction.

Former University of California Chancellor Clark Kerr wisely stated “the status quo is the only solution that cannot be vetoed.” I believe that the status quo is what the disgruntled technology vendors are bemoaning. And, broadly speaking, the status quo plan of record appears to serve IT decision-makers quite well.

There is hope for disgruntled vendors, but it won’t come easy. While IT decision-makers are heavily dependent on IT vendors, they are also pragmatic and skeptical. They will resist products which are not aligned with their priorities. Time and time again, compelling, urgent and value-creating products are purchased, deployed, used and upgraded.

Look at your product portfolio. Resistance to change?