Personality Types: Understanding Human Behavior

There are several different types of challenges in a work environment. In order to succeed, we must be able to identify these challenges and develop the appropriate skills to face them.

One obvious kind of challenge is the inherent difficulty to perform the tasks required by our professional role in the organization. Thus the sales person has the challenge of closing deals, the marketing person has the challenge of creating leads and the software developer has the challenge of implementing algorithms. When we choose a particular profession and go to college, our goal is to acquire the tools that will enable us to handle this kind of challenge.

However, there is also a very different type of challenge: interacting with our colleagues in the workplace. This includes the conversations we have with our boss, the collaboration with co-workers in our department and managing subordinates in the case we are in a leadership position. In general all these different types of relationships may become a dangerous source of conflicts and misunderstandings, but very few people actively invest their time in developing tools to handle these situations.

The first time I was exposed to the importance of managing relationships in the workplace was when I was still a Computer Sciences student and read Lee Iacocca’s autobiography. He was an American automobile executive who worked for Ford developing several successful new car models, and later became the CEO of Chrysler, saving it from bankruptcy at that time.

Iacocca studied Mechanical Engineering, but he also took several psychology courses. In his autobiography he writes about the relevance of studying psychology: “I’m not being facetious when I say that these were probably the most valuable courses of my college career.” He adds: “It makes for a bad pun, but it’s true: I’ve applied more of those courses in dealing with the nuts I’ve met in the corporate world than all the engineering courses in dealing with the nuts (and bolts) of automobiles.”

Personality Types

One of the topics I recently studied at ThePowerMBA was the diverse Personality Types. In particular, we covered the Myers-Briggs Type Indicator (MBTI) framework, which has 16 personality types, that are the possible combinations of 4 dimensions:

  • The first dimension is the Introvert/Extrovert scale. Introverts need more time by themselves, being alone and focusing on their inner world. Extroverts need to spend their time socializing with others, focusing on the outer world.
  • The second dimension is the Sensing/iNtuitive scale. When processing information, individuals on the Sensing side focus on evidence and experience in arriving at a decision they are comfortable with. In contrast, people who are more Intuitive tend to interpret things and give them a personal meaning.
  • The third dimension is the Thinking/Feeling scale. When making decisions, people on the Thinking side prefer to employ logic and a rational analysis. On the Feeling side, people are more driven by emotions and their personal feelings.
  • The fourth dimension is the Perceiving/Judging scale. When dealing with the outside world, people on the Perceiving side prefer to stay open to new information and alternatives. In contrast, people on the Judging side want to arrive quickly at a decision.

The image below, from the ToolChest website, summarizes the 4 MBTI dimensions:

I recently read an excellent book about the importance of Personality Types. It’s called “Surrounded by Idiots”, by the Swedish behavioral expert Thomas Erikson. This book is based on the DISC method, which classifies Human Behavior into four types: Dominance (D), Inducement (I), Submission (S), and Compliance (C). In his book, Erikson describes the many differences among the four types, in a way that is both practical and entertaining. Based on his own experience as a consultant for big companies, Erikson focuses on the situations created by these four types in the workplace. He gives concrete advice on how to overcome conflicts and develop productive relationships with our colleagues.

In the opening of the first chapter, Erikson explains why it is so difficult to communicate effectively: “Everything you say to a person is filtered through his frames of reference, biases, and preconceived ideas. What remains is ultimately the message that he understands. For many different reasons, he can interpret what you want to convey in a totally different way than you intended. What is actually understood will, naturally, vary depending on who you are speaking to, but it is very rare that the entire message gets through exactly as you conceived it in your mind.”

Understanding Human Behavior

One of the aspects that was covered in my ThePowerMBA class was the importance of understanding Human Behavior in order to improve relationships in the workplace. There are several benefits we can obtain from an increased awareness about the particular needs and expectations of the different types of people collaborating with us in our jobs.

Everyday communication: understanding how others perceive the world enables us to adjust our communication to them. For example, a person who is detail oriented may want to analyze all the values in a report. For such a person, focusing on the big picture may be seen as something abstract and not actionable. We need to know if the person we are working with is someone who expects to learn all the details or if this person feels comfortable by knowing only the bottom-line.

Coordinating a team: assigning tasks to the different team members according to their personality types ensures higher productivity. Some people will prefer to work on problem solving tasks that require mostly analytical skills, while others will feel better brainstorming new ideas, using their creativity and imagination. While some people feel comfortable speaking in public, others will prefer to contribute by preparing written documents.

Dealing with emotions and stress: being aware of what causes us and others stress will help us avoid it. Most professionals prefer to work on a few well-defined tasks with clear deadlines, even if some people actually enjoy developing multiple projects in parallel. The pressure to multi-task and the constant interruptions in the workplace may have a strong negative impact on the employees’ emotional wellbeing.

In general, a better understanding of Human Behavior will be beneficial for all professional activities that require interactions with co-workers. This includes our personal relationship with our boss, the effective cooperation with colleagues in a project or leading and coordinating the tasks of the members of our team.

Talking to Strangers

Another very interesting book about this subject is “Talking to Strangers”, by the best-selling author Malcolm Gladwell. This book presents several real-world stories that illustrate the difficulties we have when interacting with other humans. In his book, Gladwell brings fascinating examples of misunderstandings and misjudgments. Unfortunately some of these stories had a tragic end, with the cost of innocent human lives.

One phenomenon described by Gladwell in his book is the “default to truth“: we tend to believe in the things people tell us. Therefore, it is very difficult for us, as human beings, to accurately detect that someone is lying to us. In his words: “You believe someone not because you have no doubts about them. Belief is not the absence of doubt. You believe someone because you don’t have enough doubts about them.”

In Summary

It is essential for our personal and professional success to be able to understand human behavior. In order to acquire tools to improve our relationships, we should invest in learning about psychology and the different personality types. These skills can have a direct positive impact in the workplace and influence the development of our careers.

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Lean Startup Principles: Vanity Metrics and Actionable Metrics

One of my favorite topics during my recent studies at ThePowerMBA was the Lean Startup. I read the Lean Startup book by Eric Ries several years ago, and since then I have been trying to follow its main principles. In my opinion his methodology is applicable not only to startup companies, but also to any project which is very innovative and involves a high degree of risk.

One of the fundamental ideas in the Lean Startup approach is that we must plan experiments to test our hypotheses. This is called the Build-Measure-Learn Feedback Loop. 

Build-Measure-Learn Feedback Loop

Quoting from the Lean Startup principles page:

A core component of Lean Startup methodology is the build-measure-learn feedback loop. The first step is figuring out the problem that needs to be solved and then developing a minimum viable product (MVP) to begin the process of learning as quickly as possible. Once the MVP is established, a startup can work on tuning the engine. This will involve measurement and learning and must include actionable metrics that can demonstrate cause and effect question.”

In the quote above, I emphasized the concept “actionable metrics”. One of the main mistakes that entrepreneurs do when trying to apply the idea of the feedback loop is that instead of measuring actionable metrics they measure vanity metrics.

Actionable vs. Vanity Metrics

Here is a very nice definition of Vanity Metrics from the Tableau website:

“Vanity metrics are metrics that make you look good to others but do not help you understand your own performance in a way that informs future strategies. These metrics are exciting to point to if you want to appear to be improving, but they often aren’t actionable and aren’t related to anything you can control or repeat in a meaningful way.”

In contrast, Actionable Metrics are useful to make decisions and adapt our strategies, because they are related to things we can control and repeat.

Here is the definition from the Wikipedia:

Actionable metrics can lead to informed business decisions and subsequent action.

And here is the definition from Ash Maurya:

An actionable metric is one that ties specific and repeatable actions to observed results.

In the sections below we will analyze the main differences between vanity metrics and actionable metrics. I will illustrate these differences with relevant examples of both kinds of metric that are frequently used in startup companies.

Measuring Cause and Effect

In the build-measure-learn feedback loop our main goal is to learn. In the early-stages of a startup company we want to reach product-market fit.

Vanity Metrics are not good for learning because they are not necessarily a sign of a better product-market fit.

Actionable Metrics are good for learning because they are a clear sign of having stronger product-market fit.

For example, the number of followers on a social network or the number of visitors on a website are vanity metrics. A company may purchase followers to its page on Facebook. In the same way, a company may drastically increase the number of visitors in its website using paid campaigns on Google AdWords. However, these metrics are not indications of product-market fit. We can increase the values of these metrics by simply increasing our marketing spend.

In contrast, the conversion rate or the activation rate are actionable metrics. In an early-stage startup company, we can gradually learn how to increase the conversion rate. We can plan a series of experiments and test different hypotheses of how to improve the activation rate. If a company is able to increase these metrics, it is clearly getting closer to product-market fit.

What does the Metric Represent?

When using metrics, it’s very important to understand what we are measuring. In the context of the build-measure-learn feedback loop we want to focus on metrics that help us validate our product and our business model.

In general, Vanity Metrics are used to measure the size of the business.

On the other hand, Actionable Metrics are used to measure individual behaviour.

For example, the number of leads or the number of apps downloaded are vanity metrics. They certainly provide an indication of the size of our operation, but they do not help us validate our business model. We certainly want to increase the number of leads or have a higher number of apps downloaded, but this growth does not necessarily indicate product-market fit. Again, a company may increase its number of leads or have a higher number of apps downloaded just by increasing its marketing spend.

In contrast, the Cost per Acquisition and the Customer Life-Time Value (CLTV) are actionable metrics. An early stage startup company may try different strategies to reduce its cost per acquisition. In other words, this company may plan experiments to learn how to decrease its cost per acquisition. In the same way, a company may adopt several tactics to increase the CLTV. We may define a hypothesis of how to improve the CLTV and test it in practice. By working on the refinement of the Cost per Acquisition and the CLTV we are gradually validating our business model and getting closer to product-market fit.

Measuring Aggregates and Ratios

As we have observed above, in general the vanity metrics are used to measure the size of the business while the actionable metrics are used to measure individual behavior. This is reflected in the respective types of these metrics.

Vanity Metrics: In general, measure gross quantities.

Actionable Metrics: In general, measure ratios and unit economics.

Additional examples of vanity metrics are the  total number of registered users and the total revenues. These measures are important, but they are an aggregation. This kind of metrics alone are not useful to provide an indication of the “health” of our business. Actually, it is very common that a company may be increasing these totals at the same time that it is deteriorating other metrics. For example, an early stage startup company may increase the total number of registered users by increasing the user acquisition cost (which of course is undesirable), or it may increase its total revenues at the same time that it is decreasing the average CLTV.

Compare this to some additional examples of actionable metrics, such as the Repeat Rate and the Churn Rate, both of which are ratios and not aggregates. The Repeat Rate measures the ratio of users who are coming back to use our services or buy our products again. The Repeat Rate is an indication of customer loyalty and retention. The opposite is the Churn Rate, which measures the relative number of users who are leaving our product or platform. The Churn Rate is an indication of attrition and loss of users over time. Both the Repeat Rate and the Churn Rate have a clear impact on the CLTV, and as such are very valuable metrics.

When to Use the Metrics

Now that we have a clear understanding of vanity metrics and actionable metrics, and we have seen several examples for each kind of metric, it is time to ask when to use them.

In general, Vanity Metrics are important when the company wants to scale.

Actionable Metrics are important when the company is trying to reach product-market fit.

Thus, when a startup company reaches its growth stage, the vanity metrics may be useful to measure this growth. It makes sense for a company that is scaling up to measure the number of logins in its website, the number of apps downloaded and its total revenues. The values of these metrics over time provide an indication of the growth rate. In other words, these metrics together tell the history of growth. But we need to observe the actionable metrics in order to conclude if this growth is sustainable.

When a startup is still trying to reach its product-market fit, it must focus on actionable metrics such as the conversion rate, the user acquisition cost and the retention rate. Actually these metrics should be used to guide the company in its efforts to validate its product and validate its business model. If a company makes the mistake of being driven by vanity metrics in its early-stage, it may consume all its resources before it reaches product-market fit. In other words, an entrepreneur following only the vanity metrics will probably fail and also be surprised by this failure.

Please feel free to share in the comments below about your own experience with vanity metrics and actionable metrics. In my next posts I will continue to share interesting insights about the topics I’m learning at ThePowerMBA.

See below a summary of the differences between Vanity Metrics and Actionable Metrics (extracted from ThePowerMBA materials):

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The Power of the Platform Business Model for Startup Companies

One of the most interesting concepts I’ve studied at ThePowerMBA was the Platform Business Model. Many of the most successful companies today are based on platforms:

  • Amazon is a platform in which consumers are able to purchase almost anything.
  • Facebook is a platform in which users generate and share content with other users.
  • Uber is a platform in which clients get easy access to transportation almost anywhere.
  • AirBnB is a platform in which guests can rent rooms from private hosts.
  • WhatsApp is a platform in which users send instant messages to each other.
  • YouTube is a platform in which users can share videos with their followers.
  • PayPal is a platform that enables eCommerce websites to easily receive payments from users.

Of course all social networks are also platforms: Twitter, Instagram, LinkedIn, Pinterest, Snapchat, TikTok.

There are also many platforms for content sharing: Medium, WordPress, Blogger, Slideshare, Reddit, Pocket, Vimeo.

In the same way, all online marketplaces are platforms: Alibaba, eBay, Etsy.

The graph below, from the Innovation Tactics article “The Complete Guide to the Revolutionary Platform Business Model” shows examples of platforms organized by categories:

It is obvious by now that all these different platforms together have had a profound impact in our lives. They have changed the way we buy products; they have extended our ability to communicate with our family and friends; they have disrupted traditional industries; they have enabled us to become content creators and build a follower base.

Thus, I think it would be very interesting to analyze the main attributes of the Platform Business Model, and identify its strengths and challenges.

Strengths of the Platform Business Model

The main attribute of the Platform Business Model is that it enables users to create value for other users. In general the platform is not directly responsible for creating content or selling products and services that are consumed by the users. In the case of platforms, the users themselves are responsible for content generation and the provision of products and services.

In one-sided platforms all the users are of the same type, and they can be both producers and consumers at the same time. This is the case of most social networks like Facebook, in which users are active both posting and interacting with the posts of their friends.

In two-sided platforms there are different types of users, and some of them are producers while others are consumers. This is the case of marketplaces in which there are buyers and sellers and content-sharing platforms in which there are bloggers and readers.

But in all kinds of platforms there is a network effect: the bigger the number of users, the higher the value that is being generated for these users. In other words, as the number of users increases, the value for these users also increases.

This network effect creates a virtuous circle:

  • The growth in users creates a growth in value.
  • The growth in value brings new users.

This network effect is one of the reasons that the platform business model is so attractive for startup companies. If a startup is able to create the virtuous circle, it can actually grow exponentially. There are many startup companies that have experienced such explosive growth, and a recent example is the innovative social network Clubhouse, which reached millions of users in a short period of time.

Many platforms try to create this phenomenon of viral growth by motivating their current users to invite their friends to join the platform. This is the case of Clubhouse, which adopted successfully the policy of being invite-only. This kind of viral growth strategy may also drastically reduce the average user acquisition cost.

Very often the exponential growth also creates a winner-takes-all effect: only a few platforms reach the scale that enables them to operate efficiently and become profitable. As a consequence, each one of the few successful competitors dominates a significant share of the market. In some cases these few competitors may operate in practice like an oligopoly.

Another consequence of these effects is the creation of high entry barriers for new competitors. In a market in which there are already a few platforms operating successfully, and each one of these platforms has a significant share of the market, it is very difficult for a new competitor to penetrate this market.

Challenges of the Platform Business Model

The Platform Business Model also presents many challenges to entrepreneurs. Unfortunately, it is very common for the founders of platform-based startup companies to underestimate these challenges. In particular, founders without a business background fail to understand the main obstacles because these challenges are not related to the product features or its technology, they are related to the execution of the go-to-market strategy.

First of all, it is clear that a platform must reach a critical mass before it becomes really valuable for its users. For example, a messaging app like WhatsApp or Telegram is only useful for us if most of our friends are also using the same app. The platform as a product may have amazing features and it may be based on advanced technology, but if there are not enough active users in the platform it will not provide any value.

For this reason we commonly observe that the adoption of specific platforms follows geographic boundaries. In some cases a platform may be very popular in one state but have relatively few users in a different state. The map below shows the most popular messaging platforms by country in 2018:

In the case of two-sided platforms, this creates the well-known  chicken-and-egg problem. When a startup is trying to create a two-sided platform, it has a dilemma: which kind of user should we acquire first? The producers or the consumers? For example, in the case of marketplaces, there is no value for the sellers if there are no buyers, and there is no value for the buyers if there are no sellers.

Thus, in the case of two-sided platforms the challenges are even bigger, because they must reach a critical mass for both types of users. They also must make sure that the growth of their user base is always balanced: the platform will not be able to scale if the number of producers is growing much faster than the number of consumers, or the opposite.

One of the main consequences of this need to reach a critical mass is that platform-based startups also need more funding. If the startup founders are not able to obtain a considerable initial investment, they will not have the resources to implement their user acquisition strategy.

In Summary

A startup based on a Platform Business Model may benefit from network effects and grow virally and exponentially. If successful, this startup will dominate a significant market share and enjoy the protection of high entry barriers against potential competitors.

However, there are many challenges, in particular the need to reach critical mass before the platform delivers real value to its users. In general a startup company will only succeed in reaching this critical mass if it is able to raise considerable investments.

The insights in this blog post were inspired by the materials I learned during my studies at ThePowerMBA. Please let me know in the comments below if this post was useful for you and which other startup-related topics would you like to explore.

Posted in MBA, Social Networks, Startups, ThePowerMBA | Tagged , , , | 3 Comments

Measuring your Success: Dimensions of Self-Realization

The image below has become very popular recently, with lots of people sharing it on social networks. It addresses the issue of Work-Life Balance, which I already discussed in a previous post.

I don’t like the image above, because it mixes together many different things: time, money, health, happiness.

In my opinion, the right way to measure our success is through Dimensions of Self-Realization.

The idea is that our lives have several dimensions, and we should look for our self-realization in each one of these dimensions. In other words, we should try to make progress in each one of these different dimensions simultaneously.

For example, these are some possible dimensions we may have in our lives:

  • Professional: We want to acquire new professional skills, make progress in our careers, have more authority and more responsibility.
  • Intellectual: We want to learn new subjects, educate ourselves, read books, make courses and get certificates.
  • Material: We want to have a higher salary, a bigger house and be able to buy expensive products.
  • Health: We want to preserve and improve both our physical and mental health.
  • Family: We want to have a good and enjoyable relationship with our spouse and children.
  • Social: We want to meet friends, participate in parties, have an active community life.
  • Spiritual: We want to be connected to forces and traditions that give us more meaning to our lives.

These different dimensions should not conflict with each other. There should be no contradiction between making an effort to have a higher salary, being a better parent to our children and dedicating more time to socialize with friends.

I would say that the real success measure for an individual is the ability to make progress in each one of his/her dimensions of self-realization without feeling guilty. We should not have the impression that it is necessary to make big sacrifices in one dimension in order to develop a different dimension.

What do you think? Please share your opinion in the comments below.

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The Blue Ocean Eliminate-Reduce-Raise-Create (ERRC) Grid

During my studies at ThePowerMBA, I had the opportunity to revisit the main concepts of the Blue Ocean strategy, which offers several tools for companies that want to improve their unique value proposition, by differentiating their products from the competition.

One of these tools is the Eliminate-Reduce-Raise-Create (ERRC) Grid. It is a matrix that focuses on the different activities of the Four Actions Framework, as illustrated below.

The goal is to apply the four actions in order to create a product that is very different from the competition. This product may be cheaper than the competition (because it eliminates and reduces several costs), but at the same time it should offer something unique (because it raises and creates some relevant factors).

Below I will explain in detail how we have applied each one of  these four activities in my startup company KashKlik, and as a result we have created a very innovative product that is extremely different from the competition.

Example: KashKlik Influencer Marketing Platform

Eliminate:

  • Influencer Search: There are many platforms that enable the advertisers to search for influencers. On KashKlik, the advertisers cannot search for influencers. They simply create campaigns and define the targeting. Our algorithms automatically find the best influencers to promote each campaign.
  • Influencer Approval: On most platforms, the advertisers need to approve each influencer individually. On KashKlik, the advertisers do not need to approve the influencers. If the influencer satisfies the selection criteria that was defined in the campaign, then he/she can promote the campaign.
  • Negotiation with Influencer: In general influencers do not have fixed prices, and the advertisers need to negotiate with each influencer to define the amount to be paid for the promotion of the campaign. On KashKlik the advertisers do not need to negotiate with the influencers about the cost of the campaign. The advertiser pays a fixed value per-click to all the influencers promoting its campaign.
  • Post Approval: Many platforms require the advertisers to approve the contents of each post on the social networks. On KashKlik the advertisers do not need to approve individual posts. We trust the influencers based on the scores that were computed by our Machine Learning algorithms. The best influencers have higher scores.
  • Communication with Influencer: On other platforms, in order to negotiate payments and approve posts, the advertisers need to communicate directly with the influencers. On KashKlik there is no negotiation and no approval, so the advertisers do not need to communicate with the influencers.

Reduce:

  • Control Over Influencer Choice: On KashKlik, the advertisers have less control over the choice of influencers. The influencers are selected according to the targeting and profile requirements that are defined by the advertisers when the campaign is created.
  • Control Over the Contents of Posts: On KashKlik, the advertisers have less control over the influencers’ posts. The advertisers do provide examples of texts and images that may be used by the influencers to promote the campaign, but each influencer is free to use other contents that fit his/her audience.

Raise:

  • Campaign Management Efficiency: Because of all the features that were eliminated and replaced by automation, the KashKlik platform drastically reduces the amount of time and effort that the advertisers need to spend in order to create and manage their campaigns. Each campaign may start being promoted immediately after the advertiser has activated it. This is much more efficient than having to go over a process that requires direct communication between advertisers and influencers.
  • Audience Size Flexibility: KashKlik’s automation enables advertisers to work effectively with micro-influencers, who have audiences of less than 50 thousand followers. When there is no automation, it is not cost-effective to work with small influencers. Thus KashKlik provides more flexibility in the choice of audience sizes for each campaign.
  • Budget Size Flexibility: Thanks to KashKlik’s automation and the work with micro-influencers, it’s possible to create Influencer Marketing campaigns using budgets as low as a few hundred dollars. Traditional influencer marketing campaigns require budgets of tens of thousands of dollars. Thus KashKlik provides more flexibility in the choice of budget sizes for each campaign.
  • Machine Learning Application: There are several platforms that claim to use Machine Learning, but KashKlik raised the application of sophisticated algorithms to provide a new level of automation. KashKlik applies Machine Learning to create rich influencer profiles and to build an advanced Recommender System to match each campaign to the best influencers.
  • Scalability: Thanks to automation and the reduction in the time and effort required to promote the campaign, KashKlik makes it possible to promote a campaign using hundreds of micro-influencers simultaneously. Other platforms, that do not provide this level of automation, are not scalable.

Create:

  • Pay-Per-Click: KashKlik was a pioneer in the introduction of the Pay-Per-Click (PPC) model for Influencer Marketing. Most other platforms adopt the models of pay-per-post or pay-per-engagement. The adoption of PPC means in practice a very innovative combination of Influencer Marketing with Performance Marketing.
  • Influencers Choose Campaigns: KashKlik created a real marketplace that has inverted the relationship between advertisers and influencers. Instead of advertisers searching for influencers, on KashKlik the influencers search for campaigns.
  • Influencer Marketing for SMBs: Thanks to KashKlik’s reduction of the minimum budgets and the reduction of time and effort required to manage campaigns, the channel of Influencer Marketing became accessible to Small and Medium Businesses (SMBs). Previously, using traditional methods, which are very expensive and require lots of time and effort, SMBs could not afford to work with influencers.

As you can observe, as a result of the application of the four activities in the ERRC Grid, KashKlik has become one of the first Influencer Marketing platforms that addressed the SMBs market. In other words, we have created a Blue Ocean. I hope you have enjoyed this example. Please share your comments or questions below.

In a previous post I have shared a presentation and a video explaining how the application of these four activities have enabled KashKlik to create a new value curve that is very different from the competition.

In my next posts I intend to continue to share how the materials I’m learning at the ThePowerMBA can be directly applied to my startup company KashKlik. Please leave a comment if you would like me to address some specific topic. Thanks.

Posted in KashKlik, MBA, Startups, ThePowerMBA | Tagged , , , | 2 Comments

Remote Working is Here to Stay: Good or Bad?

One of the most interesting changes in the year of 2020 was the high increase in the number of people working from home. According to this article from the World Economic Forum, “roughly 35 to 40% of employees in developed economies have reported working from home most or all of the time during the pandemic, a marked increase from the past.”

This article also bring the interesting statistics that “a fifth of the workforce in advanced economies can work just as effectively from home” as depicted in the graph below:

It is also clear that people were initially forced to work from home because of the Covid pandemic, but most of them actually enjoyed it. According to this article in the British site YouGov, “once the crisis is over, most (57%) of those who were working before the outbreak and who intend to stay part of the workforce say they want to be able to continue working from home.”

The graph below shows workers expectations once Coronavirus is over:

There are many reasons people want to continue working from home. According to this article from the Business Standard, “69% prefer work from home to continue to avoid traffic.”

The graph below presents some of the main reasons people want to continue working from home:

The Downside of WFH

So apparently working from home is very desirable and has many benefits. But is there any negative aspect in this new reality of remote work?

In my personal opinion, very soon we will observe increased competition when looking for a new job. If this job position can be performed remotely, this means that candidates will now be competing with people who live in different cities, perhaps in other states, and possibly even in other countries.

I do expect that for many remote job positions there will still be some limitations related to time-zones, since in general we want co-workers to be able to communicate easily with each other.

But, if a person is able to participate in all required meetings, and if this person is able to communicate in the same language as the co-workers, and has the skills and experience to perform the job, then it is possible to work from anywhere in the world.

Yes, remote working is here to stay. Enjoy the benefits, but prepare for the competition.

Happy 2021!

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Measuring your Startup: Unit Economics, CAC and CLTV

During my studies at ThePowerMBA I was introduced to the concept of Unit Economics. The main goal is to define clear metrics to measure the performance of our business, including the measurement of our costs, our revenues and our profits.

I will present below the main metrics, with a brief explanation for each, and then discuss my personal experience at my own startup company, KashKlik, an innovative Influencer Marketing platform.

Measuring Costs

CAC

The Customer Acquisition Cost (CAC) measures how much we are spending to acquire a new customer. In order to calculate the CAC, for a given period of time, we must know how much was spent on acquiring new customers and how many customers did we acquire.

Customer Based Calculation (CAC):

Total acquisition costs ( time ) / # of new customers per ( time )

We can also calculate the cost per action performed by the customers, which in general is the amount of money we need to spend in order to generate a sale or some other form of conversion (such as a registration or a subscription to our services).

Sales Based Calculation (CPA, “cost per action”):

Total acquisition costs ( time ) / # of new sales per ( time )

Measuring Revenues

CLTV

The Customer Lifetime Value (CLTV) measures how much total value we are getting from every customer. In other words, the CLTV measures the total value that one customer generates over their lifetime as a customer.

CLTV Calculation:

“lifetime” revenues per customer X Gross margin (%)

ARPU

The Average Revenue Per User (ARPU) measures how much revenue we are getting from a customer in a certain time period. The ARPU is a key metric in recurring revenue models.

Calculating the ARPU:

Revenue (per time period) / # of users (per time period)

CHURN RATE

The Churn Rate measures how many customers (percentually) we are losing in a period of time. The Churn Rate is also a very important metric in recurring business models.

Calculating the Churn Rate:

# of customer lost (in the period) / # customers at the start of the period

Measuring Profitability

CLTV – CAC

The difference between the CLTV and the CAC enables us to calculate how much profit we make off of each customer. By increasing this difference, we make our business more profitable.

CLTV / CAC

The ratio between the CLTV and the CAC enables us to calculate how much we multiply our acquisition investment by. This ratio represents our return on CAC investments.

CAC PAYBACK

The CAC Payback measures how long it takes to make back our CAC investment. This is the average amount of time that passes between investing money in CAC (acquiring customers) and getting it back.

The CAC Payback may be calculated as:

CAC / ARPU

The Unit Metrics in Practice

Measuring Costs in Practice

As we defined above, the CAC is a very important metric, and if we are not measuring the CAC we cannot even be sure if our business is profitable (since all the profitability metrics are related to the CAC). However, in practice, there may be multiple customer acquisition channels, and we should be able to measure the CAC for each one of these channels.

For example, one channel may be campaigns on Google AdWords, a second channel may be Facebook Ads and a third channel may be Influencer Marketing campaigns. Each one of these channels will probably have a different CAC, and so we should develop mechanisms to be able to measure it precisely. In other words, we should track where our customers are coming from, and have specific CAC measures per channel, instead of a single generic CAC value.

After we have clear CAC measurements, and we observe that some channels are more expensive than others, we have basically two choices:

  • Continue using only the channel that provides us the cheapest CAC, and stop using the other channels that are more expensive.
  • Try to improve the performance of the more expensive channels, through fine-tuning of the campaign parameters and the targeting.

Measuring Revenue in Practice

In general in order to measure the CLTV we should use several other metrics that depend on the behavior and the kind of transactions being performed by our customers. These are some of the metrics we may need in practice in order to obtain the CLTV:

  • What is the expected lifetime of our customers? For how long do we expect that our customers will be active?
  • What is the observed frequency of transactions? How many transactions do our customers perform in a specific period of time?
  • What is the average amount of money each customer spends on each transaction?

So for example if we measure that the average lifetime of our customers is 10 months, and that they perform transactions twice per month, spending in average U$ 35 per transaction, their CLTV will be: 10 X 2 X 35 = U$ 700

In practice, it may be necessary to do this analysis by separating our customers in different segments. We may discover that we have one customer segment with a very high CLTV while another segment has a much lower CLTV. Then, we should observe which one of these segments is growing faster, and check if the different segments are growing at similar rates.

One common problem for startup companies is that they are able to attract early adopters that are enthusiastic about their product, and thus have a very high CLTV. However, when they try to expand to other customer segments, they discover that these new customers have a very different behavior than the early adopters, and as a consequence a much lower CLTV.

Measuring Profits in Practice

Our profitability metrics are based on relationships between the CAC and the CLTV, but as we observed above, in practice the CAC may be very different depending on the channel being used for customer acquisition, and the CLTV may be very different depending on the customer segment being measured.

So ideally we should try to build a matrix to measure the profits depending on both the customer acquisition channel and the customer segment.

Below I give you an example of 3 acquisition channels and 3 customer segments with the respective profitability computation.

The first table has the CAC per acquisition channel:

Customer Acquisition ChannelCAC
Google AdWordsU$ 10
Facebook AdsU$ 12
Influencer MarketingU$ 18

The second table has the CLTV per customer segment:

Customer SegmentCLTV
Enthusiastic UsersU$ 120
Regular UsersU$ 80
Low-Frequency UsersU$ 40

The third table has the user segments per acquisition channel:

Acquisition ChannelEnthusiasticRegularLow-Frequency
Google AdWords10%60%30%
Facebook Ads20%60%20%
Influencer Marketing40%50%10%

Then we can compute the profit per acquisition channel:

Acquisition ChannelWeighted Average CLTVCACCLTV – CAC
Google AdWords0.1×120 + 0.6×80 + 0.3×40 = U$ 72U$ 10U$ 62
Facebook Ads0.2×120 + 0.6×80 + 0.2×40 = U$ 80U$ 12U$ 68
Influencer Marketing0.4×120 + 0.5×80 + 0.1×40 =  U$ 92U$ 18U$ 74

As you can see in the example above, when we make a detailed analysis taking in consideration the different acquisition channels and the diverse customer segments, we may discover that the most expensive channel is also the most profitable one, because the customers we are acquiring through this channel have a much higher CLTV.

Conclusions

I hope you have enjoyed this discussion about the practical usage of unit metrics such as the CAC and the CLTV, and that my example above has motivated you to try to measure these metrics as accurately as possible. Please feel free to share your personal experience in the comments below.

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Applications of Machine Learning INDT Webinar

This week I had the pleasure to be invited by the INDT (National Institute for Technological Development) in Brazil to participate in a webinar about Artificial Intelligence (in Portuguese).

In the slides and video below, I present several applications of Machine Learning and their impact on our lives, including Recommender Systems and Autonomous Vehicles, with several examples of recent innovations in the fields of Industry, Health and Agriculture.

Applications of Machine Learning – INDT Webinar from Hayim Makabee

Here is the video of the talk (in Portuguese):

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Angles of Analysis: KashKlik Case Study

During my studies at ThePowerMBA I was introduced to the concept of Angles of Analysis, which are the aspects we should consider whenever we analyze a business model.

The main goals of this analysis are:

  • Be able to analyze the business model methodically.
  • Understand hidden or subtle aspects of the business model.
  • Catch problems or missing details in order to plan ahead.

I decided to make a short exercise to check how these Angles are reflected in the business model of my own startup company, KashKlik (an innovative Influencer Marketing platform).

Below you see a short description of each Angle of Analysis and its respective evaluation for the KashKlik business model.

Is the market big enough?

Knowing the market size for your product or service is essential to predict your growth potential.

In the case of KashKlik we researched the market (in 2016) and reached these numbers:

  • The Digital Ad Spending (total advertiser budgets for digital advertising) was higher than 150 Billion Dollars (globally), and a growing part of this budget was being invested in Influencer Marketing.
  • The total number of micro-influencers in the different Social Networks was higher than 250 million people (globally) including an estimated 75 million at Facebook and 60 million at YouTube.

Can you reach the market in a sustainable way?

The question here is if the company has the right marketing and distribution channels in place to grow, what is also called an “Engine of Growth” (a repeatable, stable way to grow).

In the case of KashKlik, this was our planned Marketing Strategy (in 2016):

Sales efforts:

  • Partnerships with Digital Marketing Agencies to acquire several advertisers through a single contact point.
  • Direct contact with potential advertisers through our Regional Managers.
  • Participation at professional conferences and meetups.

Content-driven growth:

  • Publications of professional reviews about KashKlik on Digital Marketing media outlets.
  • Inbound marketing: bring traffic to KashKlik’s site through the publication of professional articles on our blog.
  • Creation of marketing material such as infographics and presentations.
  • Search Engine Optimization (SEO).

Paid promotions:

  • Marketing campaigns of KashKlik on Google AdWords, Facebook, Twitter and other Social Networks.
  • Bootstrap campaigns in which the influencers can promote KashKlik itself.
  • Affiliate campaigns in which influencers are paid when they bring new users to the platform.
  • Email marketing campaigns, acquiring lists of email addresses of potential customers.

Organic growth:

  • Active presence on Social Media, sharing useful material about Influencer Marketing.
  • Daily reach to thousands of real followers on Facebook, Twitter and other Social Networks.
  • Email newsletters to our users and to subscribers of our blog.

Is it important to customers?

Here the question is what is your value proposition and if you are solving a real problem.

In the case of KashKlik, our value proposition is:

  • For advertisers: provide a new channel to promote their campaigns.
  • For influencers: provide a new source of income (be paid to promote campaigns).

Are you customers happy and returning?

The idea here is to measure if our customers are satisfied and if they are coming back.

In the case of KashKlik we validated our platform by initially running several pilot campaigns and asking about the satisfaction of both our advertisers and our influencers. Later, with a higher volume of campaigns and more active influencers, we also started collecting metrics, such as the average number of campaigns being promoted per influencer.

Is it difficult for customers to leave you or switch?

The question here is if the service you provide has a lock-in effect (switching costs), in the sense that it is difficult for your customer to switch from your service to the competition.

In the case of KashKlik, when the top influencers promote campaigns, they gradually build a history of positive achievements with high performance scores. This success history will give them access to the best campaigns in the future. Thus our top users have a clear and concrete incentive to continue using the platform.

Do you have recurring revenue streams?

Here the question is if the company may benefit from repeat transactions from the same customer.

In the case of KashKlik, we clearly observed that the advertisers that were satisfied with the performance of their campaigns would promote new campaigns, generating recurring revenue.

What kind of margins do you have?

This aspect focuses on the company’s profit margins.

In the case of KashKlilk, we get a 20% commission on top of the budget for each campaign, which is mostly profit because we have low fixed costs.

Are you generating cash flow?

The question here is if the company’s cash flow is stable and predictable.

At KashKlik we adopted a policy in which the advertiser must pay for the campaign before it starts, but we only pay to the influencers after the campaign finishes. This mechanism has created a very positive and safe cash flow.

Is your business model scalable?

Scalability is the ability of a business model to grow considerably, rapidly, and with increasing margins (the revenues grow more than the expenses).

At KashKlik we have created a fully-automated Influencer Marketing platform based on advanced Machine Learning algorithms. This high level of automation assures that we are scalable, with very low fixed costs.

Do you have any barriers of entry?

A barrier to entry is anything that protects you from potential competitors.

In the case of KashKlik, our main protection against the competition are our proprietary Machine Learning algorithms, which were developed based on many years of personal experience in the field of Computational Advertising.

Have you reached product-market fit?

The goal here is to find a clear fit between the market and your value offer.

At KashKlik we were able to validate our product during the several pilots we executed with different types of advertisers. It is clear for us now that there is a real demand for our solution, both on the advertiser side and on the influencer side.

Conclusions

I really enjoyed doing this analysis. As I wrote in a previous post, when I joined ThePowerMBA, I had the goal to apply what I would learn to my own startup company. Now I feel that I’ve started doing that, so I’m already benefiting from what I’m learning.

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Planning Your Aliyah

This week I was invited by the Jewish Agency to give an interview about Aliyah (immigration to Israel according to the Law of Return). In particular I spoke about Kiriat Yam, the city where I live. Many Brazilian Olim (new immigrants) come to Kiriat Yam because of our Mercaz Klitah (Absorption Center).

I have been working as a volunteer for more than 5 years helping new Olim, and in this interview I share my main observations about their challenges and the most effective ways to guarantee a successful Aliyah.

The interview was in Portuguese and was broadcasted as an Instagram Live Event:

View this post on Instagram

A post shared by Agencia Judaica (@agenciajudaica) on Oct 19, 2020 at 12:58pm PDT

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