S6 Ep4 Advice from business’s best thought leaders made easy - Jeremy Gray

Season 6 Show 4

Advice from business’s best thought leaders made easy to understand and practical to implement

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In today’s show we start by looking at the evolving world of e-commerce. This is very much the world of entrepreneurs, or solopreneurs as they are sometimes called, as well as the huge retail giants. In many ways e-commerce is ideal for folks wanting to start their own businesses. The barriers to entry are low, you do not need much capital and there are many tools available to help you set up your retail store. Of course, low barriers to entry mean a lot of competition. It is estimated that there are up to 3 million resellers on Amazon alone.

Our first article from McKinsey looks at how live commerce is transforming the shopping experience. By blending entertainment with instant purchasing, live commerce provides the solopreneur the opportunity to stand out from the crowd.

Then we turn to McKinsey Digital “Building e-commerce ecosystems on Amazon. A conversation with Rainforest’s JJ Chai” a cofounder of the Singapore based e-commerce aggregator. By understanding what Mr. Chai looks for in a potential acquisition you can learn where you should focus your efforts and maybe achieve that big payday as you exit your business.

Then it is time for some self-reflection. From the Harvard Business Review – How susceptible are you to the sunk cost fallacy? Have you continued a project too long after you should have abandoned it? Dragged yourself to an event in miserable weather just because you already bought a ticket with your hard-earned cash. These are examples of the sunk cost effect. Later in the show I will let you know what the author, David Ronayne has to say on the topic. Also, how you can assess your own susceptibility to the sunken cost, or continuation, bias.

After that from  Gartner Business Quarterly, we can learn why do executives move forward with Strategic initiatives when they see pitfalls ahead. The author Marc Kelly says it's due to overconfidence and in most cases their confidence is not justified.

It’s showtime! How live commerce is transforming the shopping experience

Live commerce arrived in May 2016 with Alibaba’s Taobao Live. This was a new approach combining online livestream broadcast with an e-commerce store that allowed viewers to watch and shop at the same time. This has approach has established itself as a fixture of Singles Day, 11 November which is a major shopping event in China. And the results are staggering, last year, 2020, sales in the first thirty minutes of the presale campaign totaled $7.5 billion in revenue.

Some of the advantages of live commerce include:

Faster conversion – a well presented live stream holds viewers attention longer, it shortens the buying journey from awareness to purchase. Some companies report conversion rates as high at 30% 10X the typical e-commerce  rate.

Improving your brand appeal and differentiation. It can help you strengthen your position with existing customers and possibly more importantly attract new customers to your website. Younger views are especially keen on new shopping formats and experiences.

What type of products are most suitable for live commerce? Based on McKinsey’s analysis apparel and fashion are the most often show cased items, followed by beauty products and food. Consumer electronics and home decor are also popular products for live commerce.

As you might expect Generation Z and Millennials dominate the audience but middle aged and senior consumers are increasingly part of the audience. Knowing your audience and where they turn to for information is important. There is a lot more information in the article, links are in the show notes, but Gen Z is heavily influenced by non traditional media. 75% of Gen Z say they turn to social media, online reviews and websites and experts, celebrities or influencers when researching a product or brand. I found it interesting that they looked to family or friends only 15% of the time.

Outside of China live commerce is still relatively limited so there is still time for you to be a leader in this field. Can you do this as a solo entrepreneur? The answer is yes. To cover this aspect I will move away from the McKinsey article now which is focused on larger businesses, to advice for smaller companies I have found while researching this show. Much of what follows comes from an article from OCBC, for those of you outside of Singapore OCBC or Oversea China Banking Corporation to give it its full name is one of Singapore’s major banks. A link to the article is in the show notes.

The article focuses on Singaporean SME businesses and cites some interesting success stories but the lessons and advice are relevant wherever you are in the world.

Getting started in this regard may be easier than you think as SME owners and staff can leverage social media platforms that they are already familiar with such as Facebook and Instagram. These businesses can leverage the Facebook Live or Instagram Live features within these apps to carry out their live streams and by considering the following basic guidelines they will be able to get started.

1. No fancy equipment required. All you need is your smartphone or tablet. If possible, use an affordable tripod for a steadier, more professional shot.

2. Get some basic lighting. While this isn't necessary, it can help to improve the video quality. Consider low cost selfie lights that you can attach to smartphones or tripods or just make sure that you or your products aren't lost in any shadows.

3. Test your internet connection. Make sure that you have a strong enough signal or Wi-Fi connection as you don't want your video to cut in and out as you live stream.

4. Use apps that can live stream. As mentioned, Facebook and Instagram are probably the easiest and cheapest options to do your live broadcast but Shopee or Amazon also have a live stream module where you can run flash sales too.

5. Leverage online ordering and e-payment. As the Shopee example shows, you can also use third-party online ordering apps and also register for PayNow to collect payments easily, securely and quickly.

6. Plan your broadcast. It may be useful to have a simple outline of what you would like to say, do and promote during your live stream.

Moving back to the McKinsey article, consider the use of micro or nano influencers in some of your live streams. Big name influencers are expensive to hire and may not resonate well with your target market. Using influencers with a few thousand dedicated followers can generate a more intimate and trusted connection at a lower cost.

A study from Better Marketing found that engagement rates for nano-influencers on Instagram are ten times higher than those of mega and macro influencers

This is high level advice and much more information is available to you with a few hours of research. Amazon Live Streaming is well worth looking at, we cannot ignore one of the largest global online shopping platforms. My take away from this topic is that Live Commerce will give you an opportunity to stand out from the crowd, you can experiment without investing a lot. And it has the potential to scale. If you feel uncomfortable in front of the camera, in almost every town or city there are struggling actors and actresses who can be hired at reasonable rates.

If I were into e-commerce I would certainly give this a try. And those of you who may have seen my promo videos on Linked In will know I am not the most professional of presenters.

Now let’s focus on e-commerce on Amazon. JJ Chai tells us how his start up experience has helped him identify, acquire, and scale up Asian solopreneurs targeting US customers on Amazon. Selling on Amazon is a particularly popular business venture in Singapore. There are multiple companies selling advice on how to find and sell products on Amazon, targeting the North American market. Some seem to promise instant wealth; others admit it’s not that easy. I act as a sounding board for one young entrepreneur who is trying to enter this market, and she is not finding it easy to identify that breakthrough product that will be the foundation for growing her business.

In his interview with McKinsey JJ Chai talks about the type of successful sellers that Rainforest acquires. Rainforest gives the solopreneur a way to exit and then Rainforest scales up the business. Understanding what Rainforest is seeking can help the budding entrepreneur make decisions on how to grow their business.

Amazon gives entrepreneurs the ability to create their own products and brands. It is estimated that there are between two to three million third party sellers on Amazon. Why does Rainforest focus on companies selling on Amazon? Amazon offers strong brand protection on the Amazon ecosystem, this is well established. You can create your own product, register the trademark on Amazon and no one can copy you. To stand out from the other three million sellers on Amazon you need reviews and rankings. With the brand protection available the reviews and rankings belong to you. JJ says this is unique to Amazon. He contrasts this with Shopee or Lazada where the leading seller of product Y may not be the leading seller in the next six months. Whereas on Amazon, the brand and the reviews it accrues actually mean something. It is reflected in the algorithms and Amazon takes steps to ensure your brand is protected from being reused or pirated.

The fulfillment by Amazon (FBA) is another important program. This is where brands rely on Amazon to handle the fulfillment, returns etc for fee. This is a light process for the solopreneur and can easily scale up. There are no employees to transfer, no warehouses, no hard assets. This makes an acquisition very simple. JJ says they complete a deal in under 60 days.

The type of people that Rainforest hires gives the Amazon entrepreneur a good guide to the skills you will need to be highly successful. They hire generalists who know how to run e-commerce brands, but they supplement this with specialists who know how to source products and build more resilient supply chains. They also hire product design experts to study reviews, identify the most common complaints and decide what the next version or product should be like. They focus on improving the return on advertising. These are areas you should also focus on, it will help you be more successful while running your venture and drive a higher valuation when you want to exit.

Now let’s turn to HBR How Susceptible Are You to the Sunk Cost Fallacy?by David Ronayne

Or throwing good money after bad, and how susceptible is your organization to this error?

History is littered with examples of projects or strategies that are maintained long after it should have been clear that they were no longer relevant. General Motors reluctance to move away from once winning strategies is said to have led to the declines in the late twentieth century. The British and French governments continued to invest in the supersonic airliner Concord after it became understood that its operational capability would be limited by the sonic boom it emitted when traveling above the speed of sound. Indeed, it was only ever viable, with commercial success, on the transatlantic route.  But with all the money that had been poured into the project it was difficult for either government to pull out. And, of course, Concord was an exceptionally beautiful plane. I used to work under the flightpath of London Heathrow and Concord was majestic sight. It was also very loud even when subsonic, which was part of its problem.

Indeed it can be very difficult to pull the plug on a project and have to write off all those sunk costs. At about the same time Concord was being developed, the British government was investing in a new high speed strike and reconnaissance aircraft, the TSR-2. It suffered from technical problems which meant costs were escalating and the project timeline was getting longer and longer. Eventually the government cancelled the project to a great deal of hue and cry from the British people.

We all have been taught that unrecoverable sunk costs are irrelevant when deciding what to do next. When sunk costs affect strategic decisions the outcome is not usually good. If you can understand which of your managers are likely to be susceptible to the sunk cost syndrome the better you will be able to identify when this might be happening.

The author with two of his colleagues identified a weakness in earlier research that aimed to identify sunken cost bias. The questions were generally hypothetical and focused on money. Money is only one element that drives sunken cost bias. Time spent, effort made, and emotional commitment can also cloud our judgement, causing us to continue with a project long after it should have been abandoned. Emotional commitment can be a strong motivation and when in place it can be very hard to persuade that person to shut down a project to which they feel so strongly about.

The researchers developed a list of eighteen everyday scenarios with a choice from continue to abandon on a 1-5 scale. Through their research they narrowed this down to eight questions. Which using the 1-5 scale gives a total range of zero to forty. The average score found was 10. So anyone scoring above 10 maybe more susceptible to the sunken cost bias. In fact much more susceptible, they found those who scored above ten were three times more likely to fall prey to this bias than those who scored 9 or below.

Strangely the HBR article does not provide details of the 8 questions selected by the researchers. By doing some internet research I have found the list of questions and they are included in my show notes.
Can intelligence or wisdom help you avoid the sunken cost bias? The researchers conducted psychological tests and found experience rather than being smart was the best indicator of whether an individual can recognize and overcome this bias. In other words if you have the wisdom to recognize you may be facing this type of continuation bias, it is relatively easy to overcome the problem.

Self awareness is the first step to fixing a potential bias. Answer the eight questions found in my show notes ranking yourself on a scale of 1-5. This will tell you where you fit within the zero to forty range. If you score 10 or above consider yourself to be more liable to continue projects longer than you should. This knowledge should prompt you to question more closely if a project really should be continued. This will enable you to make better decisions in the future.

By the way I scored 9 on the test. It was the question on personal relationships that increased my score. I was doing well except for that question when I had to admit I would most likely continue an unsatisfactory relationship.

For the final topic of today’s show, from Gartner Why do executives move forward with Strategic Initiatives even when they see pitfalls ahead.

Many executives complain about the slow pace of change in their organization. Yet two thirds of those who launch transformational initiatives say that half of the issues causing hold ups were no surprise when they arose. They had been anticipated. If they can be anticipated why do some many teams allow disruptive issues to slow down their projects. In a word, overconfidence. Leaders believe they can overcome such obstacles as they arise. In general they are wrong.

Long term initiatives have a high failure rate, with only 1 in 12 achieving 90% of their objections. Less than half meet 70% or more of their objectives. When asked why the initiative failed to deliver what had been expected, leaders mentioned co-ordination challenges, such as stakeholders downplaying conflicts, input being misinterpreted and the impact of the initiative on business partners. Other causes identified were the failure to understand the true cost of delivering the initiative. It is all to common to underestimate the costs involved in change. It is rare for a major change project to come in on time and under budget. In fact, it is rare for any project to come in on time and under budget.

Another explanation was the difficulty of utilizing needed skills and resources. A common failing in business is the belief that skills and resources are lying around unused and available for the latest project. This leads to conflicts between the new project and other ongoing projects. This is particularly common in larger organization where there is a VP of that or a EVP of this located in HQ whose role is to advance the company in say the area of procurement. To keep their job they have to be driving initiatives that improve, enhance or optimize the company's supply chain processes, and preferably at no additional cost. Good ideas are discussed and become programs, that fall on the local operations to implement. Which would be fine if the local operations were given the resources needed, All too often teams are expected to find the extra time out of their already busy schedule.  

Many companies have launched initiatives to increase co-ordination, develop more oversight. Needless to say, these initiatives failed to deliver. That is likely because failures of co-ordination are a symptom of the problem rather than the cause.

So what can be done to improve the chances that your project will succeed. The authors suggest you take two deep dives before you plunge ahead.

The first deep dive is to look for patterns in past successes and failures. Initiatives that aim to change the company’s business model often follow recognizable patterns, such as new customer engagement programs or new service offerings. These often end in the same failure mode as early ideas. By identifying such failure patterns it can help a company define which areas might be better untouched.

The second deep dive is to look at the overlap of initiatives and how the business creates value today. Sketch out how you currently create value, such as revenue, optimization, staying ahead of the competition and compare that with how value is created by the initiative. This type of analysis can be daunting, you might want to enlist the help of outsiders to bring a fresh set of eyes.

Remember only 8% of change initiatives meet 90% of their objectives. Some solid planning can help you ensure your project is one of the 8%.

Links to this weeks articles:

• https://www.mckinsey.com/~/media/mckinsey/business%20functions/mckinsey%20digital/our%20insights/building%20e%20commerce%20ecosystems%20on%20amazon%20rainforests%20jj%20chai/building-e-commerce-ecosystems-on-amazon-a-conversation-with-rainforests-jj-chai.pdf?shouldIndex=false
• https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/its-showtime-how-live-commerce-is-transforming-the-shopping-experience
• https://www.ocbc.com/business-banking/articles/why-live-commerce-is-changing-online-shopping
• https://hbr.org/2021/07/how-susceptible-are-you-to-the-sunk-cost-fallacy
• https://www.gartner.com/en/insights/gartner-business-quarterly/q2-2021/executives-move-forward-with-strategic-initiatives-with-pitfalls-ahead

You can contact me via the following links:
mailto:jeremy@business-in-asia.org

Or schedule time via Calendly:
https://calendly.com/3-continents-consulting

My websites include:
https://business-in-asia.org/
https://thedentistscfo.com/

My LinkedIn URL
https://www.linkedin.com/in/jeremy-gray1
Bonus - The eight questions to understand your potential to Sunk Cost bias.

APPENDIX: FOR ONLINE PUBLICATION ONLY --
 
SCE-8: A scale to measure susceptibility to the sunk cost ect
You will be presented with 8 hypothetical scenarios, each of which lead to a choice. For each one, tell us what you would do. [For each item subjects have a 5-point scale for which the two alternatives are written over the left-most and right-most points. The alternatives are provided after each scenario below.]

A. You have been looking forward to this year’s Halloween party. You have the right cape, the right wig,and the right hat. All week, you have been trying to perfect the outfit by cutting out a large number of tiny stars to glue to the cape and the hat, and you still need to glue them on. On the day of Halloween, you decide that the outfit looks better without all these stars you have worked so hard on.

[Wear stars; Go without.]
B. You have been asked to give a toast at your friend’s wedding. You have worked for hours on this one story about you and your friend taking drivers’ education, but you still have some work to do on it. Then you realize that you could finish writing the speech faster if you start over and tell the funnier story aboutthe dance lessons you took together.

[Finish the toast about driving; Rewrite the toast about dancing.] 
C. You are painting your bedroom with a sponge pattern in your favorite color. It takes a long time to do. After you finish two of the four walls, you realize you would have preferred the solid color instead of the sponge pattern. You have enough paint left over to redo the entire room in the solid color. It would take you the same amount of time as finishing the sponge pattern on the two walls you have left.
[Finish the sponge pattern; Redo the room in a solid color.]

D. You have invested a good deal of your time into a project and it is failing. You have the option to start on something different that you now know is more likely to be successful but you know you cannot get the time back that you spent on the project.
[Keep going with the project; Start something different.]

E. You have an investment strategy that you have developed over several months. It is not working
and you are losing money, but there is no way for you to recover the lost effort put into developing the strategy.
[Start afresh; Keep going.]

F. Your relationship with your partner is not going well. You have reasoned it out and you have realized that if you knew how it would go when you started the relationship you would not have gone through with it. You now have the opportunity to break up, but you have been together for many months.
[Keep going; Break up.]

G. You have been thinking about how to vote in an election and have invested a good deal of your time to try and make the right decisions including reading newspapers and comment pieces online and thinking hard about the issues. You discover that much of the information you were using is false and a more trustworthy source suggests your initial view was wrong.
[Keep beliefs; Change beliefs.]

H. You have been thinking hard about the best route to get to somewhere you haven’t been to before. Unfortunately, your internet connection isn’t working so you have to base your decision on your beliefs about the town’s layout. You come to a conclusion on the best possible route but then suddenly the internet is back online. 
[Look up route online; Stick to planned route.]
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Ronayne, David & Sgroi, Daniel & Tuckwell, Anthony, 2020. "Evaluating the Sunk Cost Effect,"

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