My analysis was incomplete (but it was there)

May 21 2 Comments latest by James

Last week I posted about the financial planner who I thought had a horrible marketing strategy. I made the assumptions and asked people what they thought, and the comments pointed out a bunch of things I had forgotten (note to students: don’t be a dumbass like me and forget to include revenues after the first year). A few takeaways for me:

1. It’s ok to do something with the wrong assumptions as long as you do something at all. If someone comes to me at PBwiki and says, “Here’s a marketing plan I have with a detailed timeline and deliverables,” I’m going to pay attention — even if they’ve picked the completely wrong market to go after. This is sort of like the case interviews for consulting firms like McKinsey, Bain, and BCG, in which they might ask you a question like “How many golf balls are sold in the United States every year?” They don’t care if you get the answer wrong by 1,000 or 100,000 — it’s the way that you think. Coming prepared, even with the wrong answer, is better than doing nothing at all. Most people are lazy and don’t do anything at all, and they’re right 100% of the time! Good job!! As Winston Churchill said, “I never worry about action, but only about inaction.” Right on, my good man (smoke pipe).

2. A lot of people got caught up on the tax writeoffs, but I almost always hate making business or financial decision for tax reasons (except retirement accounts). As Fidelity notes, “decision making by tax avoidance” is a common investor mistake. For the financial planner or marketer, what about finding a targeted way of marketing (aka, not at a mexican restaurant) that increase your conversion by 5x? That might be better than a tax writeoff for a $10 lunch.

3. The people who say, “If it didn’t work, nobody would be doing it” shouldn’t be so quick, as I outline in The World is Not Darwinian.

4. Still, with all my criticism of this model, maybe I’m just a marketing snob. Finding a formula where you can put money in and get more money out is the classic dream business. In this case, her employer discovered it and is using her as a channel to get more money (”Hire one more person for $60k/year and we’ll make $100k/year”) and maybe the lunches actually do pay off. If it works, it works, and if so she can ignore some random blogger dude poking holes in her marketing strategy.

The overarching point for me is the same with all personal-finance things: Most people don’t take the time to sit down and analyze the results of what they’re doing, making it impossible to evaluate performance. Then psychology often takes over decision-making (e.g., attribution theory: “I’ve been doing this for a long time and I’m not homeless yet, so it must work”). But for the people who do consciously spend — like my friend who spends $21,000 / year going out, consciously — if they do analyze their spending and find that something unconventional works, awesome.

Anyway, just some thoughts.

Posted May 21, 2007 under Personal entrepreneurship, Saving, Investing

Site acting weird, I’m looking into it

Ben’s book on entrepreneurship is out today, and it’s good