Ep. 52 Think Like a Scientist, Plan Your Experiment

AUGUST 15, 2021

Nielsen’s new spinoff company NielsenIQ just burped up a great finding in a LinkedIn ad. It’s a finding only they could offer us from the bowels of their data archive: 23% of new CPG brands get delisted in the first 12 months. I imagine it’s an even larger % by 18 months. 

And, as my own research revealed in my book Ramping Your Brand, almost 80% of CPG brands never get past $1M in POS sales, even if they survive past the first year. They spin around in circles or flame out, usually the latter.. 

While the number one reason for early failure is a lack of working capital/poor cash management in which you run out of money to keep producing, one of the biggest reasons for early failure is that folks don’t run their business like an experiment. They don’t think like a scientist and form a strategic hypothesis. And then test it. And be open to being wrong. Instead, the average founder just proceeds without listening to the market signals or even looking for them. It’s just sell, sell, sell, customer acquisition, boom! 

If there’s one thing I learned in graduate school, it’s that you won’t learn much, if you can’t unlearn bad assumptions you didn’t realize you had when started your field research…until some data showed you that you were dead wrong. 

Doctoral programs are a ritual hazing that I wouldn’t wish on anyone, but at least you actually get forced to receive negative feedback before you fail. You become very used to being wrong, learning, and moving on. Not so as a business entrepreneur. It’s easy to surround yourself with fan employees, fan e-mails, positivity coaches, motivational podcast streams, etc. I’m with Elon, by the way, if you need to listen to motivational podcasts, you’re not an entrepreneur. Just quit and go be a lawyer. 

I have a simpatico big brother on this theme of experimenting and iterating. Adam Grant’s latest social science book -Think Again – is spreading fast. You may have heard about it. He opens the book with a chapter you should read, and read again. Early on, he cites a study of an Italian entrepreneurship program where one student cohort was taught to launch their startup with a hypothesis and use consumer research to optimize it in the market and one cohort was given the traditional curriculum. The experimentalists outperformed the control cohort by 12:1 in annual revenue in Year One. They went in intending to learn from the market, not intending to manipulate it. 

Grant believes the key was something he terms “confident humility,” a trait I rarely see among entrepreneurs in CPG. I believe the longer-than-normal process of initial product development is the primary reason so many founders forget to listen and keep iterating. It’s very hard to simulate repeat purchases in a sensory test in your commercial kitchen. This is a fallacious belief promoted by BigCo, because it’s much more accurate when selling Walmerican innovations that aren’t innovative at all.  

In my work with early-stage brands, I regularly see product lines with suboptimal package symbolism, formulations, category positioning, etc. make it to seven figures off of aggressive selling alone. Happens regularly. This is what Tom Eisenmann calls a False Positive. Everything seems great due to initial growth, except that you have no idea why you’re growing and whether or not it’s a house of cards.

The faster the initial growth happens, the more the underlying demand problem gets buried under superficially, false-positive information. The quantity of sell-in cases doesn’t equal sell-through automatically. And it takes time for sell-through rates to settle out in brick retail. The faster you open accounts or add doors, the longer it will take to establish your actual baseline velocities. 

More than one aggressive selling brand has found themselves playing account management whack-a-mole in year two.

I’ve gained a reputation as Dr. Planner because I preach about the importance of strategic planning in an end of the industry where it rarely happens. Two years ago, I even did an episode, Episode 10, on the seven reasons strategic plans matter to a young consumer brand. 

I’m here this time to add an eighth: strategic plans force you to run the business like a science experiment…but only if you use them properly.

Too often, business plans are simply chest-beating exercises designed to raise money. Usually, there’s some silly addressable market section designed to point to billions of dollars available for the startup. In fact, most founders don’t even put a plan together until they realize they need to raise funds. This is way too late to start planning folks. Planning is not theater for venture capitalists. 

It’s a basic practice as an entrepreneur unless you’re just rich with tons of money to waste. And a few of you actually are, now that I think about it. Whatever. At least you’re doing something constructive, not writing shitty PowerPoints about why we should have national health insurance or labor unions. I digress.

The point I’m making here is that your offering will get money to come to you from other brands. And that hypothesis should be behavior-based. It should not focus on lofty aspirations few consumers actually follow through on. 

This hypothesis should be the top line of your 1-page strat plan. Yes, one frickin’ page. If any of you go off and create a ‘deck,’ I swear don’t ever admit it to me…:) Save your pretty little decks for investors…

What you need is a very simple plan for your experiment. Then collect just enough data to understand what is going on, especially if you’re doing well. And, please, for God’s sake, don’t forget that you have to collect data from your fans, not random consumers, to understand what you really have, what it means to people who buy you repeatedly.

Fans build brands, not founders. Honor their behavior. It holds the keys to exponential growth you can bank on.