Lag and Confusion

Today I want to talk about one of the more irritating aspects of running a business. 

Have you noticed that cause and effect don’t seem to happen at the same time? The result is that one is hard to pin to the other. 

• Change your pricing today and you may not know the real effect for months. 

• Hire a great salesperson and their first few weeks tell you almost nothing. 

• Improve your culture and nobody hands you a graph on Friday showing a 7% increase in enthusiasm. 

• Spend money on marketing and the customer who notices you today might buy six months from now. 

Business has lag built into almost everything. This echoes the common theme of this series, as it lends to the symptoms being seen while the cause can be hidden. 

And this tends to create a peculiar problem for founders. We make a decision. We wait for something to happen. And we become increasingly uncomfortable when it doesn't. So we intervene. 

• We change the campaign. 

• We replace the agency. 

• We abandon the product. 

• We alter the price. 

Or… 

We do the absolute opposite. We become emotionally attached to the original decision, convince ourselves it needs more time and continue pouring resources into something that isn't working. Are you flogging the horse that won’t get up? 

Both mistakes have the same cause. 

We don't know whether we're looking at failure or simply waiting for the result to arrive. 

The Story

Adobe faced this difficulty of time lag when it shifted the sales of creative software from lifetime ownership to subscriptions. Today, Creative Cloud feels entirely normal and the term SaaS is commonplace. At the time, it was anything but.

Customers accustomed to buying Photoshop or Illustrator outright were being asked to pay continuously instead. There was considerable resistance. Petitions appeared, customers complained and Adobe faced the uncomfortable financial consequence of replacing large upfront payments with smaller recurring ones. Case in point, as a customer three decades ago, I felt they were evil, and I still refuse to purchase an Adobe or Microsoft product as a subscription. For me, it’s a rip-off, and it’s a principle I’m not giving up. 

For Adobe, this new business model faced a danger of making the business look worse, before it made it better. 

There were two reasons for Adobe’s decision and persistence: 

1. Subscription business models were becoming much more familiar to consumers and businesses by the early 2010s, particularly for software, media and digital services. 

2. Adobe wasn't simply watching today's revenue. It was looking at what the new system might produce over time: predictable recurring income, continuously updated software and a much closer ongoing relationship with its customers.

But the lag mattered. Judged too early, the strategy could have looked like an expensive mistake. Given time, however, the economics became rather different. 

Kodak offers a look at the other side of the coin. 

While Adobe had to resist bad short-term evidence. Kodak had to distrust good short-term evidence. 

It was a Kodak engineer who created the first digital camera back in 1975. 

Kodak understood digital photography remarkably early, but its enormously profitable business remained built around film, chemicals, processing and printing. This is where Kodak fell into a trap of its own making. 

Digital wasn't immediately fatal to film. For years, Kodak continued making considerable amounts of money from the analogue system. It took internet speed, improvements in chip technology, and a culture of sharing content for digital photography to become mainstream. But these consequences of technological change arrived slowly enough for yesterday's success to remain reassuring. 

By the time the full effect became impossible to ignore, consumer behaviour in both case studies had moved dramatically.

Adobe endured short-term evidence that could have persuaded it to abandon a good decision. 

Kodak enjoyed short-term evidence that helped it nearly destroy itself. 

The lag… It was confusing to both. 

The System

We see lag in almost every business.

You change your marketing because enquiries are down. The new campaign launches on Monday. Yet two weeks later, enquiries remain disappointing. Did the campaign fail? Perhaps. Or perhaps the sales cycle is eight weeks.

You hire a new manager to improve a team that’s failing to pull its weight. Three months later, productivity hasn't improved. Did you hire the wrong person? Possibly. But is it likely that the embedded culture that took five years to create, isn't going to disappear before the next quarterly review? This is a factor I see surprisingly often when called in to help. 

Pricing, too, can create lag. 

You raise your prices. Revenue improves immediately as existing customers remain, paying more. Six months later, new customer acquisition has dropped and retention is weakening. The first result said the decision was excellent. The later result told a rather different story. 

Management information can be surprisingly dangerous when stripped of context. Numbers are factual, but our interpretation of them is often not. 

Revenue tells us what happened, but not necessarily when it began. 

• Today's sales may be the product of marketing done months ago. 

• Today's staff turnover may have its roots in leadership decisions made years ago. 

• Today's healthy cash balance may disguise a sales pipeline that has already begun to deteriorate. 

We’d all like cause and effect to behave like a light switch. They just don’t. Business behaves more like steering a large ship. You turn the wheel and, for a while, apparently nothing happens. And if you turn it again too soon, you may create an entirely new problem. 

The Season

Here we see the distinction between spring and summer. 

Spring is for sowing, nurturing, testing, measuring, correcting and refining. This is where we should interfere. 

An idea meets reality, we learn from what happens and make adjustments while the stakes remain relatively low. 

By summer, that work should have been done. Summer is for selling like buggery. This is not the moment to dig up the seeds every few days to see whether the roots are growing. We execute the plan, exploit the selling period and log what happens. 

The danger is that lag can make a good strategy look bad, halfway through its journey. 

A retailer doesn't want to panic in early December and reinvent the Christmas strategy because the first few week's figures were disappointing. 

And a hospitality business cannot be constantly changing an offer during its busiest period. 

There comes a point when continual refinement stops being agility and becomes simply interference. 

But at the same time, patience doesn't mean blindness.

Summer generates the evidence that autumn will gather and sort. Some of what we see will be the result of decisions made recently. Some will be echoes of decisions made months or even years before. 

Autumn gives us the opportunity to separate the two before winter asks us to decide what comes next.

That's the discipline that the lag demands. 

Know when to test.

Know when to stop fiddling.

And, perhaps hardest of all, know how long you should wait before deciding which result you're actually looking at.

Because in business, being right, but too early, can look remarkably like being wrong.

Easter Eggs above 

“cause and effect” – God is a Dj, by Faithless 

“echoes” – Echoes, by Pink Floyd 

“disappointing” – Disappointing, by John Grant and Tracey Thorn 

“the other side of the coin” – The Other Side Of The Coin, by Solomon Burke 

#StrongerTogether

P.S. 

What loops are your feeding, hidden out of view?