Analyst Spotlight: Anticipation

Dear Analysts:

One of the most important skills you can acquire is the gift of "anticipation".

This isn't an easy skill to obtain, and it requires you to spend a lot of time listening to what others say.

In late 2002, our ability to forecast new store performance at Nordstrom wasn't as good as we wanted for it to be. My Business Intelligence Director, without being specifically asked to do so by management, created a new real estate model, one that we could backtest against prior store openings. He was able to demonstrate that his model was much more accurate than anything that had been done. And even though his model was scrutinized by management, it was implemented. Future forecasts were much closer to actual performance.

This person, the Business Intelligence Director, had no prior experience in new store forecasting. This person, however, could anticipate what the company needed. This person anticipated what the biggest "pain point" was ... forecasts that were not accurate.

By anticipating what was needed (a new forecasting model) and by anticipating what the pain point was (accuracy), this person became an important part of an expensive capital investment process at Nordstrom.

This is the opportunity that is available to you, dear analyst. You, too, can make a difference, in fact, you already make a difference. But you can expand your sphere of influence by listening to what leadership is actually saying, by anticipating needs and building solutions to those needs before leadership specifically asks somebody to solve a problem for them.

Analyst Spotlight: Timing and Listening

Dear Analysts:

These days, the analytics and vendor community communicate to us how important it is to have integrated data, great software, dashboards filled with robust KPIs, and an outstanding testing infrastructure.

Add "timing" to the list.

"Timing" represents your ability to sense when Executives are receptive to key issues. Honestly, there are times when Executives need to hear your message, there are times when Executives want to hear your message, and there's the 80% of the time when Executives are not in a position to listen to or respond to your message.

In order to sense if the timing is right for your message, you need to become good at "listening". Oh, I know you don't want to hear this, your analytics message should be self-evident, it is the Executive that is the Luddite who "doesn't get it". For good for for bad, if you aren't willing to listen, you are not likely to be heard.

Back in the early 1990s, I executed a myriad of multivariate tests. I wrote summarizations of the tests, full of valuable KPIs that thoroughly explained how customers interacted with brands. The documents were circulated to every VP/Director at Lands' End.

For two years, essentially nothing came of my tests or write-ups.

And then, I became aware of a meeting that was going to happen on a Thursday, where Executives were going to talk about how customers interacted with brands. I became aware that very little of my information was going to be used.

I got busy.

I couldn't just get myself (a lowly manager) invited to a meeting with Executives. So I did the next best thing. I worked all weekend, creating an 85 page Powerpoint presentation, summarizing everything I had learned across all of the tests I had analyzed over the past three years. I set up a meeting with the leaders of the Direct Marketing department, hosting the meeting one day prior to the big Executive meeting. At that meeting, I shared my "re-packaged" results.

At the end of that meeting, our department head asked me to present my slides to the Executive team at the Executive meeting the next day.

Now, mind you, for the previous 2-3 years, I had done everything that the analytics vendor community tells you to do. We had an integrated database, we had business intelligence software, we executed multivariate tests designed to optimize the business, we had dashboards and reports and KPIs, we circulated everything to every Executive.

What was missing was timing. By listening to business leaders, I could tell that I had a brief window to "re-package" my information.

I tried the exact same strategy at Eddie Bauer, in 1997, with one notable exception ... I failed to listen to leadership. I created about 60 slides that explained how customers interacted with our brands and channels, set up a big meeting, invited marketing leadership ... and almost nobody showed up. I didn't listen to the various ways that Executives at Eddie Bauer worked. As a result, my timing (which was good) was wasted because I didn't listen.

There are so many ways that timing and listening are combined to yield success. At Nordstrom, our leadership team held quarterly conference calls with the investment community. About three weeks before these calls, I listened carefully to what our leadership team was talking about, then asked my team to query the database for answers to questions that were not being directly asked of my team. About a week before the conference call, I shared my findings with our investor relations director (and my boss). And then I'd listen to the conference call. About 40% of the time, I'd hear a metric that my team generated mentioned in the call.

You can listen all of the time. This is a skill you must become good at. If you listen long enough, you'll develop an intuition for what is important, and this skill will inform the timing that makes magic happen.

Analyst Spotlight: Profit

Dear Analysts:

You asked me to help you understand what CEOs and Executives are looking for from the analyst community. Today, we're going to focus on profit.

Always remember that Executives care about two things.

1. Increased Sales.
2. Increased Profit.

And there are three reasons that Executives care about these two things.

1. As long as Sales and Profit increase, they get to keep their job.
2. If Sales and Profit increase consistently over time, under their watch, they get promoted.
3. Executives usually have a bonus structure that pays if both Sales and Profit increase. And for most Executives, the bonus structure is very rewarding, and consequently, very motivating.

So, in order for an Executive to truly be interested in what you have to offer, your analysis needs to be aligned with increasing Sales, and increasing Profit. Increasing both will perk up the ears of any Executive. Increasing just profit (in other words, recommending to decrease sales as a way to increase profit) is a very slippery slope that most Executives aren't interested in (though it can be exactly what a company needs).

Now, it isn't hard to calculate the annual sales impact of what you are communicating. For instance, say you execute an online optimization test, and you find that you can increase conversion rates by 7%, increasing the rate from 5% to 5.35%. Say you have 3,000,000 annual visitors. And assume that the average order value is $100.

• Annual Sales Increase = 3,000,000 * (0.0535 - 0.0500) * $100 = $1,050,000.

As an analyst, you're half-way there. Next, you need to convert the $1,050,000 to profit.

To do this, go find a friend in your Finance department. In fact, set up a meeting with the CFO (Chief Financial Officer). Now this may surprise you. Of all the members of the Executive team, the CFO is most likely to take a meeting with you.

Here's why. Your CFO knows where your business is headed (sales up/down, profit up/down). Your CFO might be dying to trim the advertising budget, your CFO might be dying to add money to the advertising budget to prop up sales, your CFO might be livid with the IT team for not implementing website improvements that could boost sales today.

So if you have any information that could help the company increase sales or profit, your CFO wants to know about it. Now.

Here's where you benefit. After you present your findings to the CFO, ask for help converting sales to profit. Ask the CFO to share with you the formula for converting sales to profit.

At most companies, there is a percentage that Finance folks use to quickly convert sales to profit. This number is called the "flow-through rate" or the "profit factor". The metric represents the percentage of sales that convert to profit after backing out returns, unfulfilled items, cost of goods sold, marketing discounts, pick/pack/shipment of items, and call center / distribution center staffing costs. Across the businesses I work with, this percentage varies, usually between 10% (companies like Overstock.com that sell $500 items with a $425 cost of goods) to as much as 50% (companies that sell $500 items with a $200 cost of goods).

Assume that the percentage is 30%. In our case, sales increased by $1,050,000. We multiply this number by 0.30, yielding an estimated amount of profit of $315,000.

Is $315,000 a good number? Who knows?

Here is where you can work with your Finance team for some additional information. Ask the Finance team for a year-end projection of Sales and Profit. If they are willing to share the information (most Finance folks at most companies will be willing to provide you with numbers that are close to accurate), you're likely to see something like this:

• Annual Sales = $15,000,000.
• Annual Profit = $800,000.

Now you have some "context". If you are working for this company, you just found a way to increase annual profit from $800,000 to $1,115,000.

I promise you, that if you have found a way to increase company profitability by about 40%, your CFO is going to annoint you as The Savior to a vast audience of Executives.

This is what is important, Dear Analysts.

• Do not communicate that your multivariate optimization testing strategy increased conversion rates by 7%.
• Do communicate that you found a way to tweak the website so that company profit increases by 40%.

Which of those two sentences is more likely to resonate with your Executive team?

Analysts seldom succeed on the merits of their work. Analysts have a good chance of succeeding when they communicate via the language of the Executive. The most important word in Executive parlance is "profit".

"Profit".

Learn how to calculate "profit".

Make friends with an Executive in Finance.

Demonstrate to your Executive team, via "profit", that you have the keys to business success!

You can do this!