Taking a brake until 2011

This blog will be on vacation until 2011. See you in the new year. YOu can reach me at 215 219 5825 or twb2@verizon.net

Validity

An issue for entrepreneurs: how do you measure and reward performance? Your own and that of others.

Last time I talked about reliability, the consistency of measurement across time. Reliability and validity are two basic issues in measurement. To be effective, measures have to be reliable, i.e. repeatable, and valid.

Validity refers to the extent that you are measuring what you think you are measuing. You can have results that are reliable, that is they come out within acceptable limits time after time. If you aren't measuring what you think you are measuring reliability doesn't matter.

There are a number of different kinds of validity, so look it up on Wikipedia or in a research methods textbook.

Here's an example of how an entrepreneur I used to work for, the president of a market research sompany, used an invalid measure.

She measured the productivity of her employees according to how many hours they put in according to their time sheets. While I was there her data collection manager worked 60-80 hours a week. She thought her data collection manager (whom she treated like a daughter because she'd had a falling out with her real daughter--but another story) was the cat's meow.

My analyst came in at 8 o'clock a.m. every day, five days a week, took an hour for lunch, and left at 5PM every day. The president didn't think much of him because he didn't put in the hours that little Miss Data Collection Manager put in. She continually trashed him at every opportunity, used him as an example of a lazy employee, and wouldn't okay raises for my guy. She continually talked up her surrogate daughter and upped her salary repeatedly. My analyst finally got fed up with this nonsense and went and got a better job for more money.

Only thing was, Miss Perfect put in all those extra hours because she couln't do anything right the first time and had to do everything over. My analyst was really smart, got his work done, and went home.

So my boss lost a really good employee and rewarded a barely competent one. She measured productivity on what she could see, hours on a time sheet.

We hired a new analyst who looked really good on paper but who took really a really long time to get anything done, but put in 60-80 hours a week. My boss thought she was the cat's meow, too.

Sad, really, when you think of it. She thought she was measuring productivity, instead she was measuring ineptitude.

To repeat: how do you measure and reward productivity.

My second novel is out. Go to amazon.com and plug in my name and you'll come up with both mysteries, The Case of the Kearney Music School Murders and No Stop on Red. Neither is ready yet for the Kindle but will be.

Reliability

In real life, a reliable person means you can count on him being there for you over time. We think the same thing of products. We want a can of soup made by a certain company to be the same all the time. You can count on its taste and not to make you sick. You want a restaurant to put out consistently healthy and delicious food that costs the same each time. If one time it's good, another time it's bad, tha prices are all over the map, you won't go there.

In research reliability means that if you measure something at more than one point in time the measurements are relatively consistent within desired parameters. If you measure the age of umbrella owners one week and find that average is 48.5 years and replicate the study two weeks later and find the average age of the same group is 22.3 years, something is wrong. Your methodology does not produce reliable measures. You can't count on them.

Reliability is a real issue for entrepreneurs because if your business is new, people have to be sure they can rely on you being there for the long call. You have to convince them to buy from you the first time then give them reason to believe you'll be there next time.

An economical way of doing market studies is to sample small groups every so often to get a measure of reliability. Too many people do a big study once.

My second novel is out. Go to amazon.com and plug in my name and you'll come up with both mysteries, The Case of the Kearney Music School Murders and No Stop on Red. Neither is ready yet for the Kindle but will be.

Entrepreneur

An entrepreneur is a person who undertakes a venture within an environment of significant risk and uncertainty.

Entrepreneurs need to make sure they understand what risk and uncertainty is. Uncertainty is whether or not a tree will fall on your car. Risk is what is how serious the damage will be.

Entrepreneurs need to estimate both the risk and uncertainty of any given business they start and should evolve strategies for dealing with them.

My second novel is out. Go to amazon.com and plug in my name and you'll come up with both mysteries, The Case of the Kearney Music School Murders and No Stop on Red. Neither is ready yet for the Kindle but will be.

Forms of Business Organization

When you start a business you have to choose a form of organization. There are basically four: a sole proprietorship, a partnership, a corporation, or some hybrid form.

The simplest form of organization is a sole proprietorship. You're out there, doing it, your own boss, and so on. Just get a domain name, put up a website, get some cards, whatever collateral materials you need. You're in business. Your record your revenue and your expenses on a schedule C and you're good.

I recommend people start out as simply as possible but no simpler. It maybe that a sole proprietorship is insufficient. You may have partners and you may want to hire employees or you may want to set up something that will out live you. Then you might want to consider some hybrid form.

You need to consult an attorney and a accountant who can advise you about what's specifically best for you. Start simple. Don't get ahead of yourself.

Back in my early days, you had three forms: a sole proprietorship, partnership, and corporation. You could elect sub chapter S if you were incorporating. Now you have more options.

My second novel is out. Go to amazon.com and plug in my name and you'll come up with both mysteries, The Case of the Kearney Music School Murders and No Stop on Red. Neither is ready yet for the Kindle but will be.

Network Effect (Externality)

A network effect, or externality, is said to exist when the benefit to a node in a network changes as a result of the change in the number of links in that network caused by increasing the number of nodes. (Remember that a network is defined as a set of nodes and links. The nodes are the things connected and the links are the interstices between the nodes.)

Let's assume you live in a state of nature. You get a fax machine, but you're the only person on earth that has a fax machine. Your fax machine has 0 value because you have no one to fax anything to.

Then a friend of yours buys a fax machine and you can now fax back in forth. Now your fax machine is worth 1 unit of something because there is someone to fax something to.

Then another friend of yours and a friend of your first friend's gets a fax machine. Now, there are 3 people to fax things to, your second friend, your first friend, and your first friend's friend. If a friend of each of theirs gets a fax machine, the benefit to you increased even though you didn't do anything to increase it.

A silly example, but you see the point. The network becomes more valuable with more people in it.

That's a network effect. It's also called an externality.

My second novel is out. Go to amazon.com and plug in my name and you'll come up with both mysteries, The Case of the Kearney Music School Murders and No Stop on Red. Neither is ready yet for the Kindle but will be.

Awareness

Awareness is one of the four main issue areas for delivering product: awareness, image, usage, and satisfaction. A truly valid marketing effort has to address each of these issues.

Awareness refers to how and the extent to which a person or group perceives their environment. What they filter out they're not aware of.

Market surveys generally measure two kinds of awareness: unaided and aided. Let's say you have a great new craft ale you've named Dog Poop Ale. You've had it on the market for a while and sales are below where you need them to be to sustain your company. So you want to find out how many people area aware of Dog Poop Ale.

To measure unaided awareness, you ask, "Please name all the beers or ales you can think of." Turns out everybody mentions Budweiser (who wouldn't unless they've been living in a cave.) but nobody mentions Dog Poop.

To measure aided awareness, you ask the same question, but you prompt the respondent, to wit: "Next I'm going to read a list of beers and ales, and after I read each one, I would like you to say whether you have ever heard of it." Then you have the interviewer read each product and record the response.

The results tell you that everybody has heard of Budweiser, but 5% have heard of Dog Poop Ale. You could ask some follow up questions for each one they're aware of, like "How did you hear or become aware of this particular beer or ale?"

There are pros and cons to each measure, so consult a professional researcher before you decide to measure awareness, but that is what it is. But from this question you can construct a statistic called "Share of Mind." The idea is that before someone can buy something they have to know about it.

My second novel is out. Go to amazon.com and plug in my name and you'll come up with both mysteries, The Case of the Kearney Music School Murders and No Stop on Red. Neither is ready yet for the Kindle but will be.

Filters

Ever wonder why you notice some things but not others? It's primarily because of our filters. Filters are put there by our environment or by our genetic make-up or both. By filtering out most stimuli they allow us to focus. We have 1,500 to 3,000 or ore messages coming at us every day so we really need them.

Sometimes I'll notice something or someone for the first time. I'm not conscious of ever having seen that person or thing before and after I see them everywhere?

Just for fun, say that on Monday on the bus on my way to work I notice a man wearing a coat just like mine. I don't remember ever seeing him before. Then, almost every day thereafter I see him on the bus I take going to work.

At this point why I just noticed him is not clear. Maybe he just bought the coat. Maybe he just moved into my neighborhood. Maybe he just started riding the bus to work. Maybe he'd been there all along and I just didn't notice him because whatever happened to make me notice him hadn't happened yet but now it has and so I do. I won't know until I talk to him. If I talk to him I might gain a friend or a customer or learn something about myself or my world that I didn't know before.

One route I take to continued creativity and learning is to put myself in situations where the unexpected happens. I take a new route to the store. I go to a different part of town than I'm used to. I have coffee at a different place. My perceptual screen adjusts as I add a new facet to my world and I "see" new things or I get new ideas or I understand the world around me a little differently. As a result I grow as a person.

My second novel is out. Go to amazon.com and plug in my name and you'll come up with both mysteries, The Case of the Kearney Music School Murders and No Stop on Red. Neither is ready yet for the Kindle but will be.

Fiduciary

The word "fiduciary" works as both a noun and an adjective. A fiduciary is a person or organization that is legally bound to place the interests of another over his or her own. A fiduciary relationship is the legal relationship of trust and confidence that the fiduciary has with that other person or organization. A trustee has a fiduciary responsibility to the organization he or she is trustee of. If you violate this trust by acting not in accordance with the other's best interests, you can be prosecuted.

A skilled entrepreneur will act as though they are a fiduciary of themselves and their family and their business and their partners and their market and the greater society. If your actions aren't aligned you should look into yourself and see where the problem lies.

I once put together a board of advisors. I wanted this board to mentor me and treated them as though they constituted a board of directors. They didn't have any authority to make me do anything and I didn't have to do what they advised but unless there was a good reason not do what they advised I followed their advice. After all that's what I had them for. If I hadn't wanted to listen to them I wouldn't have asked them to help me out. And if I'd asked for their advice then not followed it they would have stopped advising me.

I invited my lending officer to serve on it but he said he could not because it would posed a risk to the fiduciary responsibility he had toward this bank. We remained good friends. And I still asked his advice when I met him at the bank. He had a serious case of the yeabuts. I'd have a good quarter, and when I pointet this out he'd say "Yeah, but look at {whatever}, you'd better do something about it." He did his best to make sure I didn't get too comfortable.

Act always as though you are upholding your fiduciary responsibility to the the three entities listed above and you'll be okay.

My second novel is out. Go to amazon.com and plug in my name and you'll come up with both mysteries, The Case of the Kearney Music School Murders and No Stop on Red. Neither is ready yet for the Kindle but will be.

Focus Group

There is a lot of nonsense out there about focus groups. They've come to be so misdescribed that they have come to mean a bunch of people in a room talking about something. Actually, a focus group is a group interviewing technique consisting of between 6 and 12 people (more or less depending) who are carefully screened according to specific criteria and who are led through a carefully designed list of questions by a trained moderator.

A focus groups is a qualitative research technique. The best uses are for understanding how people think about things that can be seen or heard or felt. You cannot predict from a focus group to a larger population. That is, you can't say that because 4 of 12 people in a focus group said a certain thing, 33.3% of the population think or believe something.

It's dangerous just to do one focus group. Say you want to know how teens aged 16 to 19 react to a certain kind of food. Doing just one group may be misleading. Two or three groups would give you a much better read.

Focus groups can be very useful and in some cases are best. Good uses are for testing advertisements, reactions to food (as above), acceptance to new products, and so forth. For anything that must be personally experienced.

I suspect as we go down the road web-based tools will be able to do a lot of the things focus groups used to be the best things for.

Entrepreneurship is the lifeblood of my professional activities. My second novel is out. Go to amazon.com and plug in my name and you'll come up with both mysteries, The Case of the Kearney Music School Murders and No Stop on Red. Neither is ready yet for the Kindle but will be.

Entrepreneurship, Art, and War

I'm reading the Art of War by Sun Tzu tr. Thomas Cleary,(Boston, Shambala, 2005) and seeing lots of parralels between the art of war and the art of entrepreneurship. There's good reason for this. An older meaning of entreprenur is who organizes military adventures.

We also talk of the entrepreneur as warrior as opposed to victim. A warrior sees setback as opportunity where a victim asks why this or that had to happen to him or her.

There is also an art to entrepreneuring. Dictionary.com lists among others these meanings to the word "art":

> The quality, production, expression, or realm, according to aesthetic principles, of what is beautiful, appealing, or of more than ordinary significance.

> The principles or methods governing any craft or branch of learning: the art of baking; the art of selling.

> The craft or trade using these principles or methods.

> The skill in conducting any human activity: a master at the art of conversation.

> A branch of learning or university study, esp. one of the fine arts or the humanities, as music, philosophy, or literature.

> Skilled workmanship, execution, or agency, as distinguished from nature.

There is another meaning to art, sneakiness, cunning, artificiality, which I suppose an entrepreneur needs to have in his arsenal, but that's not what I'm talking about here.

Entrepreneurship is the lifeblood of my professional activities. My second novel is out. Go to amazon.com and plug in my name and you'll come up with both mysteries, The Case of the Kearney Music School Murders and No Stop on Red. Neither is ready yet for the Kindle but will be.

Central Tendency

In nature we have variation. Things tend to spread out across a range. Some measures we have of variation are the standard deviation, variance, range, so on.

But nature also shows us another side. Things vary but they also clump. There tends to be more of one kind of species and less of another. We have thousands of different species of monkeys, but a few tend to be more common than others. We have We have millions of different kinds of birds, but some are more common than others. People vary in age between 0 and 130 years, yet those aged between 35 and 75 tend to predominate. And so on. I don't know whether my figures are right but you get the idea. There's only one platypus for example.

We have several measures to help us measure and describe central tendency: mean, median, mode, kurtosis, skewness, etc. These tell us how clumpy some aspect of nature is and how it clumps.

It's key for entrepreneurs to understand simple statistical concepts and how to apply them. They need to know them to understand their own business' and to be able to understand how other are using them or misusing them. For example, when some business proclaims, "We are Number One in customer satisfaction," you might like to know what that means. What measures are they using? Where did they get their data? how did they analyze it? And so on and so forth.

Chances are the proclaimer doesn't care about all of this. He or she just wants to shoot it's mouth off. Don't you just hate that? We get a lot of people shooting their mouths off to.

When I lived in Bloomington, Indiana, two radio stations proclaimed they were Bloomington's most listened to radio station. I said, "How can this be?" Turned out one was the most listened to in the city, the other county-wide.

A business in Madison, Wisconsin, proclaimed it had a "99.9% customer satisfaction rating. That meant that they had to have surveyed at least 1,000 customers and 999 of them had to have indicated some sort of satisfaction. But what does that mean? They were extremely satisfied? They weren't extremely dissatisfied? How were the data collected? What scales did they use? Hard to know. Pretty much they were blowing smoke.

Entrepreneurship is the lifeblood of my professional activities. For my books, go to amazon.com and plug in my name and you'll come up with both mysteries, The Case of the Kearney Music School Murders and No Stop on Red. Neither is ready yet for the Kindle.