The Power of Prediction

Many of us have heard business educators or coaches denounce the foolishness of business owners who “step over a dollar to pick up a dime.” They use this example to warn of the dangers of ignoring paths to profit that are all around you in favor of a more difficult path to profit that yields less value. Be less stupid than the guy before you, and you will get the money they looked past. 

But the assumption here is that there are plenty of other business owners dense enough to ignore money-making opportunities that are easy and obvious. And this assumption proves true many times. There are business and sales people out there doing exactly that, and a simple competitive strategy can be developed to pick up the opportunities these less-than-shrewd business people are leaving behind.

This is what is referred to as an ‘exploitative strategy’--what I’ll call Strategy 1. The plan here is to wait for other businesses to make a mistake, and then exploit that mistake. Another way to use Strategy #1 is to realize that YOU are the less-smart business owner that has been making money-wasting mistakes until now, and leaving obvious revenue unclaimed. In this case the solution is to wise-up and minimize YOUR OWN mistakes and plug profit loss. Strategy #1 is about taking advantage of waste. It is a scavenger’s paradise, picking up the leftovers from people further ahead in business. 

It is a great place to start, but it is a second-rater’s game, and not without competitors.

When you come to the end of the usefulness and payoff of Strategy #1, you’ll find yourself in the company of people competing for money that hasn’t technically made an appearance yet. Now comes the tricky part–predicting where the money will turn up so you can be there waiting before it arrives. This is, in essence, finding money where it’s not. Yet.

This is Strategy #2–”predictive strategy”--in which you have to foresee where profit is going to turn up, and you have to get there before other predictors like yourself get there. These other competitors are smart, slick, and just as hungry as you are for the next big break. Your best bet is to go ahead and assume that they’re already clued into the next profitable strike and are planning to get there before you because they’ve already read blogs like this one and they have had practice predicting profit for years. 

You’ll need to think hard, plan hard, and work hard to beat them–and hope for favorable opportunities. According to Michael Gerber of the E-Myth, 40% of all businesses fail in the first year and 80% in the first five years. You have to be the right person with the right skills and resources, in the right market, doing the right things at the right time to survive long enough to make it past Strategy #1 and start aggressively using Strategy #2.

This isn’t meant to discourage you, but to help you understand why being profitable sometimes gets harder as you grow  as a business owner. Understanding this will help you stay alert and protect you from succumbing to business consultants that claim to show you where all the easy money is (Strategy #1). 

The truth is, the only ‘easy money’ is less money. Making significantly more money generally requires much more effort and intelligence.

Strategy #2 assumes you’ve burned through all the get-rich-quick plans, you’ve swept up the financial crumbs of others, and now you need to do some hard thinking and planning.

Successful Predictive Strategy consists in:

1. Analyzing trends that produce desirable outcomes
2. Understanding the mechanics and variables of these trends
3. Selecting specific mechanics to impact and control
4. Creating products and services that impact these mechanics
5. Tracking results of these efforts and refining your understanding
6. Revising and Increasing effort that produces desired results

Trends, Mechanics, Selection, Creation, Tracking, Revision. 

Each of these actions deserve detailed discussion, but the main thing to see here is the order of operation for powerful prediction. It’s very similar to the Scientific Method: observe, theorize, and test. In business we add “succeed” to this list.

Successful Predictive Strategy is not merely imagining outcomes and ‘trying harder.’ It is not setting arbitrary percentage increase goals in sales, production, or gross revenue. Prediction is not believing in a mission or inspiring others to reach it. 

Prediction is understanding how things work and targeting efforts to explicit mechanics that have historically increased results.

If you want to grow your gross revenue by 10%, it would seem plausible to know how your gross revenue has grown to where it is currently, and increase that effort by 10%. For example, if a company identified the mechanic of EDDM (Every Door Direct Mail) as being primarily responsible for increasing the number of leads by 10% with a 10% conversion rate; one could reason that increasing EEDM by 50% would yield another 5% leads with similar conversion. In this way, prediction is simple math and can function objectively, without emotion or abstraction. This assumes you know what to do, and you are able to do it. There’s no dreaming here.

Simply put: this thing does that thing, so if I do more of this thing, I’ll get more of that thing.

Now, I don’t mean to imply that successful prediction isn’t more complex at times. Variables such as market saturation, competition, economy of scale, and skilled labor may all complicate the matter so that an extra 50% of effort not only fails to produce the 5% increase in revenue, but also puts a strain on current systems which causes a 10% decrease in revenue. When this happens, you need to go back to the beginning stages of analysis and identification to more accurately dissect ambiguities such as market forces, core customer personas, product limitations, team morale, or other identifiable causes.

Strategy #2–predictive strategy–is more difficult and complex than sifting through someone’s leftovers, but it is a bigger game with greater payoff. Big business isn’t for dummies. But the good news is that prediction is a very systematic process that can be learned and refined and reveals the future whereabouts of money that no one has discovered yet. It takes a lot of work, and it takes a lot of planning and thinking, but there are people doing it, and if you can understand this, then you are probably one of those who are ready to start.