Posted on | November 11, 2013 | 13 Comments
What do an economics professor and your company’s profits have in common? Not much, and that’s why your profits likely aren’t what they should be.
Ever hear of a guy named Steve Levitt? Dr. Levitt holds degrees from Harvard and MIT yet freely admits, “The only reason I made it through college is the schools didn’t want to hassle with flunking me.” Proof he isn’t joking: He holds the record at his high school for the lowest ever math score: 2%. Yet Steve Levitt found a way to work around his math struggles and has become one of the world’s most famous economists.
After graduating, Dr. Levitt took a job as a professor. There he lived in anonymity until he started experimenting. “What if I take a completely different approach to economics?” he asked himself. “Instead of living in a world of numbers, what if I applied my skills to the world of association?”
“For example, instead of writing papers about the possible impact of currency fluctuations in Timbuktu (boring!), what if I study the association between drug dealers and McDonald’s workers? Unique names and inner-city academic performance?” (strange but interesting!)
Taking a different track, something his fellow economists considered idiotic, Dr. Levitt is now a global celebrity. Perhaps you’re among the 4 million+ worldwide who’ve read the book that spawned his fame, Freakonomics.
Last month I attended a conference where Dr. Levitt spoke about the most ignored opportunity that businesses have to change their fortune: experimentation.
Dr. Levitt: “One area where the academic and scientific arenas excel is experimentation. Professionals in those fields are challenged to ask different questions and seek different solutions. In business, it’s the opposite! The business world is so resistant to change. But we’ve found that even the tiniest experiments within a business make profound differences in bottom line profits.”
Real life examples that prove Dr. Levitt’s statement:
• A bike share business in Denmark was suffering many thefts from its bike cages.
The experiment: Hang a big poster of an eye inside the cage. (Weird, right?)
The result: 62% decrease in thefts.
• Wal-Mart’s sales were falling despite massive increases in marketing.
The experiment: Increase the size of its shopping carts.
The result: 50% increase in sales.
• Target’s shipping costs were skyrocketing.
The experiment: Sell detergents in concentrated formulas, thereby reducing package sizes by 75%.
The result: 110,000 tons less plastic and cardboard waste, 400 Million fewer gallons of water shipped, 500,000 fewer gallons diesel fuel.
• My own problem from years ago:
No realtors referring me business even though our bank’s rates were the lowest in town.
The experiment: Stop advertising low rates and start educating realtors on how to sell more houses.
The result: Quick bounce from no results to leading mortgage provider in town.
(A special thanks to my #1 mentor, my dad, for that one but that’s a blog for another day!)
So here’s my challenge for you:
Immediately after reading this blog, take five minutes and brainstorm five low cost, simple experiments you can run in your organization. Not large scale changes that require massive planning, just small scale experiments you can run on the side.
Sample questions to ask yourself:
• How can you show more appreciation to your customers?
• What offers can you make that your customers will find compelling?
• What’s another way you can deliver your products to your customers?
• Whose business is a good complement to yours? How can you work together?
• What’s a problem your customers face that you can help them solve?
C’mon, kind reader, try something new! Prove to Dr. Levitt and to yourself that your business is not the norm, that you are willing to experiment your way to bigger profits.