The Simple Lesson of Microeconomics in Tough Times
There is a place where things happen beyond our control. Don’t try to change things that happen in this place, because you can’t.
This place is called the Land of Interpretation. It is the place where interest rates live, along with exchange rates, unemployment rates, climate patterns and Googles being invented. Things that happen in the Land of Interpretation have a major effect on us, but they are out of our control.
Don’t try to change things in the Land of Interpretation, because you’ll be very frustrated. Everything that comes from the Land of Interpretation is like the weather. You just have to deal with it.
There is another place, a place where we can change everything. This place exists downstream from the Land of Interpretation. It is the Land of Ideas & Decisions.
The Land of Ideas & Decisions is the place where people decide what they’re going to eat for dinner tonight. It’s the place where a company chooses which cleaning service is going to tidy up their office every evening. The Land of Ideas & Decisions is the place where you get a job offer for $95K, but you promised yourself you wouldn’t accept anything that wasn’t six figures… and now you decide what you are going to do.
The Land of Ideas & Decisions is the place where people and companies operate every day. It’s where they try to improve their lives, or improve their businesses. It’s where people allocate their resources; it’s where they determine what’s important to them.
I like to hang out in the Land of Ideas & Decisions, because it is where my customers form ideas and make decisions about what they are going to do with their lives, what they are going to do with their time and what they are going to do with their money. I want to be there, engaged with them, as these ideas and decisions are created. My goal: That my interactions with my customers, in the Land of Ideas & Decisions, lead them to strengthen their relationships with me.
The Land of Interpretation is the realm of large-scale macroeconomic trends and forces. The Land of Interpretation has dominated the news over the past year, as we have slid into an era of economic mayhem.
It is important to look at the Land of Interpretation… so we can interpret it. We need to listen to it, see it, and seek to understand it. Then, we need to turn our focus to the Land of Ideas & Decisions and decide what to do.
The Land of Ideas & Decisions is the realm of microeconomics, of individual people and companies making decisions that affect themselves. It is the place where people say, “Yeah, I want to do that,” or “I want to buy that,” or “I’m willing to sell my services for that price.”
Focusing on the Land of Ideas & Decisions is “going micro.” You acknowledge the macroeconomic news from the Land of Interpretation, but you don’t bury your head in the sand after hearing the rough news. You turn your attention to influencing the microeconomic decisions made by your customers, your potential customers, your vendors, your partners, your employees, your bosses, your bankers and others.
For most businesses, a relative handful of microeconomic decisions made in your favor can have a significant impact on results. Influence some of your customers to form ideas and make decisions that benefit you and — BAM! — your results improve.
Here’s an example: I was advising a group of high-end restaurants, and we were brainstorming ways for one of their locations to meet its revenue forecast. I asked the general manager of that location if he thought it was possible for each of his servers to sell one more bottle of wine each night. He said he thought they could do it, easily. I quickly did the math: 10 servers x $30/bottle of wine x 365 nights = $109,500. The location was only $50,000 off its forecast… if each server could focus on influencing the ideas and decisions of just one table every night — encouraging them to buy a bottle of wine — the restaurant could not only make up its deficit, but beat its forecast handsomely.
Another example: A client and I were talking about how to improve sales of a particular line of shirts in his retail stores. We estimated that each of his salespeople was selling one of these shirts every four days. I asked if he thought his salespeople could improve their pace and sell one shirt every three days. He wasn’t sure, but then I pointed out that this increase amounts to only one additional sale, per salesperson, every 12 days. (Simple math: Four shirts every 12 days vs. three shirts every 12 days.) Think about that: If each salesperson can persuade just one more customer to buy a shirt every 12 days, sales of these shirts will increase by 33.3%. Wow. The Land of Ideas & Decisions is full of leverage.
How does word of mouth work in the Land of Ideas & Decisions? Let’s say that of every 100 of your customers, 10 go out of their way to rave to friends about your products and services. Many of these friends end up as your customers. Now, ask yourself: What can I do to influence just five more customers, out of every 100, to rave about us? This would be a very valuable to answer, because this slight increase in raves, from 10 to 15 out of every 100 customers,would increase your viral-generated business by 50%.
The businesses that I see succeeding in 2009 (including my own) are those that are focused on the Land of Ideas & Decisions. Yes, bad tidings from the Land of Interpretation have shaken me, and others, but the only place I can affect the effects of this news is in the Land of Ideas & Decisions.
Focus on the Land of Ideas & Decisions. Go micro!
Think of the business people you talk to on a regular basis –colleagues, customers, vendors, friends. Are they wallowing in bad news from the Land of Interpretation, or are they trying to improve the state of their business in the Land of Ideas & Decisions? How can you tell?
How do you compare?
So, what about you? Are you taking news from the Land of Interpretation and throwing your arms up in despair, or are you using that news to help you determine how to improve your lot in the Land of Ideas & Decisions?
Gather together with colleagues in your organization, and make a list of the top 10 customers (or types of customers) whose actions can most affect your results for the balance of 2009.
Now, for each of those customers, list the ideas and decisions they could make which would have the most positive impact on your business. Be creative… imagine these customers forming compelling, motivating ideas about your business, and acting on those ideas.
Then, discuss what it would take to influence those ideas and decisions. How could you better engage your customers? How well do your current offerings incent those ideas and decisions? How well does your current set of marketing and sales efforts drive these kinds of ideas and decisions?
Understand what you can’t change; focus on what you can change. Hang out with me in the Land of Ideas & Decisions, and we’ll both have more prosperous businesses in years to come.