An Entrepreneur’s Three Strategies To Outsmart the Quants
In a downbeat tone the manager of a fast-growing healthcare provider rattled off a list of reasons that her company was turning into a numbers-driven organization: Industry regulations required it, Medicare reimbursement policies required it, and delivering specialized services required yet another form of quantitative analysis. “Numbers-based decisions…are a necessity,” she told us. But since her company didn’t excel at number-crunching, these efforts alone were unlikely to distinguish it from its competitors.
As companies like this one grow from start-ups into larger enterprises, they’re often compelled to analyze numerical data to reduce risk, maintain operations, and model predictable outcomes. For instance, in our new Babson Executive Education survey of 622 companies, the percentage of respondents adopting a predictive orientation increases with number of employees, as the chart below shows. (Thanks to Kate McKone-Sweet, Danna Greenberg, and Elaine Eisenman for input on this ongoing research.)
Conversely, our research also shows that fast-growing and established companies worry about losing their entrepreneurial street smarts as they focus more on analytics. In all that number crunching, will they lose the ability to effectively interpret near-certain (and low-risk) opportunities in everyday conversations and work practices?
Because of the direct and experiential way this non-numeric data is generated, these opportunities are appealing because they’re unpredictable and unknowable to rivals, unlike the even playing fields generated by quantitative competition. Here are three strategies larger companies use to bring scrappy, entrepreneurial know-how into their established businesses. Each can be used to complement your predictive skills, giving you a new edge against rivals that rely mainly on number-crunching:
Redirect conversations toward genuine competency. One software design firm we studied had a long-time partner that was trying to figure out how to hire and develop an “in house” group to manage network and technology hardware issues. The partner confidentially approached the software CEO for advice on how they developed and trained their own staff over the years. During the discussion, the software CEO realized their significant expertise in technology hardware administration could become the basis for an adjacent business. He then successfully proposed that the client hire his firm instead, on a test-basis.
This might seem like just good old-fashioned salesmanship. But the deal became a success not simply because the CEO saw the opportunity, but because he knew that his firm had the competency and resources to deliver on it efficiently. “We created a credible model with reasonable expectations,” he said.
Compare this success to another case of firm that saw potential for a lucrative deal in an informal business development discussion, but was not equipped to meet the client’s needs: “We then tried to convince the prospective client that we knew the industry rather than invest the time and effort to really know what was required,” our respondent reported. As a result of this overreaching, he said, “the client eventually backed off of the relationship when they concluded we did not have the capability.”
Re-frame customer objections as new businesses. Companies rightly view customer complaints as an opportunity to fix an offering. But how often is this qualitative feedback seen as a sturdy platform for innovation and growth? Consider the firm that provided cost optimization advice to companies that buy phone service contracts. Large clients regularly told firm representatives that their services should be free, complaining that “telecom carriers should already be doing the optimization.”
Rather than relegating customer complaints to a far-off call center, the firm’s leaders listened to and interpreted them. As a result they developed and successfully pitched the idea of alliance partnerships to telecommunications firms. “Now on major bids, where cost optimization is a client requirement, our chance of winning is 100%,” says an executive. “It has allowed us to secure a new bank and insurance company as clients this year.”
Revise project scope to transform work practices. Project-based work gives outside consultants and contractors a fresh view not only of the explicit problems they’ve been hired to solve, but also of the tacit problems they notice in the course of their work. Accordingly, these consultants develop a repository of untapped knowledge on issues like wasted manpower and hidden transaction costs that lie outside the scope of their projects.
By training consultants to identify the subset of problems that your company may have overlooked, you create opportunity to revise the project scope and swiftly boost revenues, while lowering costs for clients. For example, an architectural design firm that worked frequently for a construction company saw the inefficiency in its client’s contract negotiation procedures. Poor management of the bidding process and protracted haggling often led to “scheduling delays and unnecessary costs,” according to a lead architect in our sample. Guided by this experiential data, they made a bid that proposed several interlinked pieces of work that extended well beyond the RFP’s scope.
The bid was dramatically higher than those of their competitors, but the construction company saw the upside of avoiding three additional rounds of negotiation over the next few years. “In the end we got the project, it was finished in record time, and the client avoided all those added costs [of negotiation],” he said, adding, “the additional revenue got us through the majority of the recession.”
When acting on opportunities, does your company rely upon astute observations, number crunching, or perhaps a bit of both?
H. James Wilson is a senior researcher at Babson Executive Education.
An Entrepreneur’s Three Strategies To Outsmart the Quants
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