Episode 92 – Root Cause Analysis for Founders

April 15, 2023

It’s easy to make fun of management consultants. HBO even had an entire comedy series -House of Lies- that gnawed on this easy bone. But do you know why management consultants keep getting hired?

For the same reason, I do. 

There is a point at which top leadership realizes that the company has lost objectivity over certain big decisions or has descended into political infighting. The latter is more common at public firms, but I’ve seen it at a $50M early-stage business as well. 

It’s easier to see that you need a fresh pair of eyes when you’re new to the industry and suddenly, the decisions get riskier and riskier. 

But, if the team has been together for five years or more, there are already going to be blind spots that develop. 

These are areas of the business that just go un-examined due to the assumption that they can’t be the source of any current or long-term issues. 

This is where root cause analysis helps. And there isn’t one way to do it either. Chapter 11 of my book – Ramping Your Brand – outlines how I tend to do it with my early-stage clients. 

The key thing to understand about root cause analysis is that you have to have a theory about how to prioritize the analysis, the metrics to sequence, and how your mathematical findings link to execution. The latter is where the most debate still exists. And that’s OK.

My primary theory is public info. I call it the CPG Pyramid of Causality. It begins with understanding to what extent each of your 4Ps is causing the bad topline math you’re seeing. 

But, most root cause analysis starts with KPI analysis.

To me, the first KPI is overall topline growth, measured quad by quad over time, preferably smoothed to best understand the actual slope of growth. 

Then, you need to understand the sell-through velocity for retail brands. DTC-only businesses can skip straight to repeat purchase rates, AOV or CLV. 

Velocity is your first clue as to whether or not you have a fan-base building or not. 

If it’s climbing, in the same stores, you generally have repeat purchases in healthy amounts. 

You can decompose which accounts are causing a topline decline and should, but this is only partial information as to why. 

In DTC language, if your repeat purchase repeat for each monthly cohort is declining and/or below 50%, you should be concerned.

In BOTH cases, you need to examine your product offering, including your positioning of the product using the primal symbolism that markets it (either your package front panel or your e-commerce description and marketing language). 

In DTC, often the primal is traffic, not repeat itself, and I trust you understand that 50% of gross sales will need to go to online marketing and awareness building, although, personally, I would use PR to drive early traffic, so you can save money for paid marketing later when your national awareness has built. 

If your velocity is growing steadily in retail or repeat-driven growth is strong online, any topline deceleration is something you want to examine as a placement problem. Am I in inappropriate retailers at too high a price, for example? 

Is my global, omnichannel pricing too flat across channels?

Am I offering ways for heavy users to pantry-load? With a built-in discount per ounce?

Once you feel you have a product experience that drives meaningful repeat purchases for multiple years, and you’re growing organically in the mid-double digits, it’s time to now fuss about two things holding you back, and they exist in the Promotional “P”:

1. 1. National awareness of your trademark
   2. Marketing communications and positioning

Yet, there is NO point in spending millions on marketing just to build awareness if you don’t have a positioning and message that you know generates trial from ideal audiences. 

I mean, you can just fire out messaging if you’d like and focus only on awareness of your trademark only. Even sh*tty messaging to interesting niche audiences will grow awareness and sales. It just won’t be efficient financially. And it won’t be rapid awareness build necessary to properly activate large national retail accounts. 

My experience teaches me that getting your positioning right may need to happen twice to optimize 4P growth. 

The first time will be to ideal niche audiences who can rapidly create heavy users in small geographies you can efficiently service as a small business. They will prove an initial concept and hopefully give you a heads-up on broader, mass-market outcomes that will drive the bulk of your growth later on. 

But, then, you may need to re-position yourself partway up the ramp to be more mainstream. From geeky nutrition to satiety. From ethnic to spicy. From NPR to CNN. You get the picture. 

The key to figuring out the final P, promotions, is to really get to know your fans, to dialogue with them enough to understand the key attribute-outcome signal driving repeat purchase, hopefully, frequent usage as well. 

There’s no reason not to work on this fan-derived messaging early on, even if it’s not the root cause of underperformance. Just don’t fund consumer marketing to high levels before iterating the messaging that work.

When topline and velocity are not performing well, look to product issues first (including the primary product messaging, then your placement mix, then your consumer-facing pricing structure, and finally, the content of your consumer promotions.