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Wasting Money

This chapter is from the book

Iteration and the Myth of the Unpredictable Market

In an industry that is so filled with money and opportunities to earn it, it is often just easier to move right along to another venture and chalk up a previous failure to happenstance, rather than to any real reason.

I was a party to one of these failures in the early 1990s. I helped to start a venture-funded company whose stated goal was to make it absurdly simple to network PCs together.2 The product worked well and was easy to use, but a tragic series of self-inflicted marketing blunders caused it to fail dismally. I recently attended a conference where I ran into one of the investors who sat on the doomed company's board of directors. We hadn't talked since the failure of the company, and—like veterans of a battlefield defeat meeting years later—we consoled each other as sadder but wiser men. To my unbridled surprise, however, this otherwise extremely successful and intelligent man claimed that in hindsight he had learned a fundamental lesson: Although the marketing, management, and technical efforts had been flawless, the buying public "just wasn't interested in easy-to-install local area networks." I was flabbergasted that he would make such an obviously ridiculous claim and countered that surely it wasn't lack of desire, but rather our failure to satisfy the desire properly. He restated his position, arguing forcefully that we had demonstrated that easy networking just wasn't something that people wanted.

2 Actually, we said that we wanted to make it "as easy to network Intel/Windows computers as it was to network Macintosh computers." At the time, it was ridiculously simple to network Macs together with AppleTalk. Then, as now, it was quite difficult to network Wintel PCs together.

Later that evening, as I related this story to my wife, I realized that his rationalization of the failure was certainly convenient for all the parties involved in the effort. By blaming the failure on the random fickleness of the market, my colleague had exonerated the investors, the managers, the marketers, and the developers of any blame. And, in fact, each of the members of that start-up has gone on to other successful endeavors in Silicon Valley. The venture capitalist has a robust portfolio of other successful companies.

During development, the company had all the features itemized on the feature list. It stayed within budget. It shipped on schedule. (Well, actually, we kept extending the schedule, but it shipped on a schedule.) All the quantitatively measurable aspects of the product-development effort were within acceptable parameters. The only conclusion this management-savvy investor could make was the existence of an unexpected discontinuity in the marketplace. How could we have failed when all the meters were in the green?

The fact that these measures are objective is reassuring to everyone. Objective and quantitative measure is highly respected by both programmers and businesspeople. The fact that these measures are usually ineffective in producing successful products tends to get lost in the shuffle. If the product succeeds, its progenitors will take the credit, attributing the victory to their savvy understanding of technology and marketing.

On the other hand, if the product fails, nobody will have the slightest motivation to exhume the carcass and analyze the failure. Almost any excuse will do, as long as the players—both management and technical—can move along to the next high-tech opportunity, of which there is an embarrassment of riches. Thus, there is no reason to weep over the occasional failure. The unfortunate side effect of not understanding failure is the silent admission that success is not predictable—that luck and happenstance rule the high-tech world. In turn, this gives rise to what the venture capitalists call the "spray and pray" method of funding: Put a little bit of money into a lot of investments and then hope that one of them gets lucky.

Rapid-development environments such as the World Wide Web—and Visual Basic before it—have also promoted this idea of simply iterating until something works. Because the Web is a new advertising medium, it has attracted a multitude of marketing experts who are particularly receptive to the myth of the unpredictable market and its imperative to iterate. Marketers are familiar with the harsh and arbitrary world of advertising and media. After all, much of advertising really is random guesswork. For example, in advertising, "new" is the single most effective marketing concept, yet when Coca-Cola introduced "New Coke" in the mid-1980s, it failed utterly. Nobody could have predicted this result. People's tastes and styles change randomly, and the effectiveness of marketing can appear to be random.

On the Web, the problem arises when a Web site matures from the online-catalog stage into the online-store stage. It changes from a one-way presentation of data to an interactive software application. The advertising and media people who had such great success with the first-generation site now try their same iteration methods on the interactive site and run into trouble, often without realizing it. Marketing results may be random, but interaction is not. The cognitive friction generated by the software's interactivity is what gives the impression of randomness to those untrained in interaction design.

The remarkably easy-to-change nature of the World Wide Web plays into this because an advertisement or marketing campaign can be aired for a tiny fraction of the cost (and time) of print or TV advertising. The savvy Web marketer can get almost instantaneous feedback on the effectiveness of an ad, so the speed of the iteration increases dramatically, and things are hacked together overnight. In practice, it boils down to "throw it against the wall and see what sticks." Many managers of Web start-ups use this embarrassingly simple doctrine of design by guesswork. They write any old program that can be built in the least time and then put it before their users. They then listen to the complaints and feedback, measure the patterns of the user's navigation clicks, change the weak parts, and then ship it again.

Generally, programmers aren't thrilled about the iterative method because it means extra work for them. Typically, it's managers new to technology who like the iterative process because it relieves them of having to perform rigorous planning, thinking, and product due diligence (in other words, interaction design). Of course, it's the users who pay the dearest price. They have to suffer through one halfhearted attempt after another before they get a program that isn't too painful.

Just because customer feedback improves your understanding of your product or service, you cannot then deduce that it is efficient, cheap, or even effective to toss random features at your customers and see which ones are liked and which are disliked. In a world of dancing bears, this can be a marginally viable strategy, but in any market in which there is the least hint of competition, it is suicidal. Even when you are all alone in a market, it is a very wasteful method.

Many otherwise sensitive and skilled managers are unashamedly proud of this method. One mature, experienced executive (a former marketing man) asked me, in self-effacing rhetoric, "How could anyone presume to know what the users want?" This is a staggering question. Every businessperson presumes. The value that most businesspeople bring to their market is precisely their "presumption" of what the customer wants. Yes, that presumption will miss the mark with some users, but not to presume at all means that every user won't like it. This foolish man believed that his customers didn't mind plowing through his guesses to do his design work for him. Today, in Silicon Valley, there might be lots of enthusiastic Web-surfing apologists who are willing to help this lazy executive figure out his business, but how many struggling survivors did he alienate with that haughty attitude? As he posted sketchy version after sketchy version of his site, reacting only to those people with the stamina to return to it, how many customers did he lose permanently? What did they want? It has been said that the way Stalin cleared a minefield was to march a regiment through it. Effective? Yes. Efficient, humanitarian, viable, desirable? No.

Figure 3.2Figure 3.2

The biggest drawback, of course, is that you immediately scare away all survivors, and your only remaining users will be apologists. This seriously skews the nature and quality of your feedback, condemning you to a clientele of technoid apologists, which is a relatively small segment. This is one reason why so few personal-computer software-product makers have successfully crossed over into mass markets.

I am not saying that you cannot learn from trial and error, but those trials should be informed by something more than random chance and should begin from a well-thought-out solution, not an overnight hack. Otherwise, it's just giving lazy or ignorant businesspeople license to abuse consumers.

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