Assumptions Matter!

We take assumptions in two different directions.

1. We assume, without facts, that various activities are important.  We believe that Social Media has a solid return on investment.  We believe that 93% of customers will buy everything on a 2" screen in 2012.
2. When asked to quantify the return on investment of said activity, we refuse to do so without solid facts.  We demand that organizations be "data driven", but we refuse to make decisions without perfect data.

In other words, we have faith that certain activities work, but we lack the accountability to put a stake in the ground.

Let me show you how assumptions can be used.  Take this blog as an example.

There are approximately 2,500 subscribers to this blog.  I make the assumption that 20% of the audience is VP/CEO/President/Owner.  Yes, this is an assumption.  I have various ways of assuming who reads this blog.


Therefore, there are 500 Executives and 2,000 Non-Executives that follow the blog.


Each year, assume that 10 Executives who follow this blog hire me for a project.  Let's pretend that the average value of a project is $5,000 (that is not the actual figure for project value, by the way, it's used for illustrative purposes).


Each year, assume that 200 of the Non-Executive audience purchases a book/booklet.  Let's pretend that the average value of a book, to me, is $2.00.  Also, about 1 Non-Executive hires me for a project, valued at $5,000 (that is not the actual figure for project value, by the way, it's used for illustrative purposes).


What is the value of a subscriber?

• Value of an Executive = (10/500) * $5,000 = $100.00.
• Value of a Non-Executive = (200/2,000) * $2.00 + (1/2,000) * $5,000 = $2.70.
• Value of a Subscriber = 0.20*$100 + 0.80*$2.70 = $22.16.

Now, are my assumptions wrong?  Absolutely!!

Do the assumptions clearly articulate the value of each audience?  Absolutely!!

Do the assumptions help me understand what type of content I should write to have a successful business?  Absolutely!!  If I write page-view generating content that the social media or analytics community adores, I'll get subscribers that pay $2.70 per year, on average.  If I write CEO-based articles that attract an Executive audience (but do not attract re-tweets), I'll be able to pay my bills.


Did I just demonstrate the value of Social Media?  Absolutely!!


Assumptions Matter!  It's time to not be frightened.  We are able to make strategic inferences by making educated assumptions.

Assumptions

Assumptions are terribly misunderstood.

Head out to Twitter to follow the #measure community, and you'll find a veritable plethora of criticism of Executives who make assumptions ... they're called "HIPPOs" or "Highest Paid Person's Opinion".

There seem to be at least three types of assumptions in the marketing/analytics world.

1. Assumptions based on myth.
2. Assumptions based on psuedo-statistics.
3. Assumptions based on facts.

Assumptions based on myth are the ones that drive people crazy.

• "Engaged customers are the most profitable customers, so we assume that our Facebook presence will significantly increase profit."

Assumptions based on psuedo-statistics are worse, because people are more likely to act upon them.  Often, the person making the assumption falls back on a research organization ... if the assumption fails, it isn't your fault, it's the research organization that screwed up:

• "Woodside Research predicts that mobile sales will exceed $2.9 trillion dollars in 2016, leading us to assume that mobile will be the most important revolution in the history of e-commerce."

Assumptions based on facts are a whole 'nother deal.  These are the assumptions that most people shy away from, because assumptions in this realm require the marketer/analyst to be an expert.

• "A year ago, only 1% of our visitors used tablets, converting at a 10% rate.  Today, 4% of our visitors used tablets, converting at an 8% rate.  Next year, we assume that 8% of our visitors will use tablets, converting at a 7% rate.  And in three years, we assume that 21% of our visitors will use tablets, converting at a 5% rate, causing us to completely rethink how we manage e-commerce, going forward."

Do you see the fundamental difference in assumptions based on facts?

Now, granted, the assumptions based on facts are questionable, anybody in your company can criticize you, and we all know that anybody/everybody will criticize you.  This is why we fall back on "Woodside Research", that way, we don't get blamed, they get blamed!


But assumptions based on facts lead us toward strategy.  It's irrelevant what "Woodside Research" or some Social Media Expert think, it's very important what YOU think!  If you have data that is trending in an interesting direction (tablets as a share of our e-commerce visitors are growing almost exponentially), and you project that trend into the future, you are almost required to face a future reality.


When the criticism starts, ask those who criticize you to come up with their own assumptions, in fact, demand that they publicly state their assumptions.  Ask ten of your critics to state their own assumptions.  Then average their assumptions with your assumption ... the result isn't likely to be all that different from what you originally assumed!  And if their assumptions are fundamentally different, see if their assumptions lead to a fundamentally different outcome.  Often, assumptions can be all across the board, with the end result being essentially the same.


There is nothing wrong with making assumptions based on facts.  Too often, we hide behind the lie that we don't have facts required to make good assumptions.  Instead, we need to stick our necks out there a bit more, faking confidence if necessary.  It is in the assumptions that we gain a vision for what the future may hold, and this vision leads to strategy.