Numbers Lie. Don’t Focus On The Bottom Line.
Growing up, my friends called me a “human calculator.” I was obsessed with numbers and often spent time in high school analyzing stocks or counting cards in Atlantic City. I studied statistics and economics in school and began my career in finance, spending several years in risk management. I had my head down in spreadsheets all day, building statistical models to analyze the risks of all types of financial instruments from stocks and bonds to credit default swaps and exotic derivatives.
Some investments were more volatile and risky than others, but combining a portfolio of volatile assets that were uncorrelated dramatically reduced the risk. At least that is what the numbers suggested. However, in the financial crisis of 1998, when previously uncorrelated assets all moved in the same downward direction, a nearly impossible feat according to the any financial model, I learned my first lesson. Numbers can be deceiving.
I learned from the financial crisis of 1998 that historical data could not always be trusted to predict future events. But what I did yet not know is that numbers can fail to tell the full story even for outwardly simple business decisions. After leaving finance, I started a company called thepit.com, a sports stock market, which I sold to Topps in 2001. I then went on to run WizKids, a collectible strategy game company that was a subsidiary of Topps.
The company was built on the back of a super passionate gamer community. One of our most popular games, HeroClicks, had a slightly oversized board that seemingly had no real purpose. I realized that if we made the board just 10 percent smaller it would drastically improve profitability. I didn’t think anyone would ever notice the change and the cost savings were huge. So we did it. Sales were not impacted by the change and profits were way up — it appeared to be a genius move.
After analyzing the numbers I went on to make a dozen or so insignificant changes to the game, driving up profitability even more. What I completely missed was that although every decision in isolation clearly penciled out, I was, little by little, draining gamers’ passion until eventually the magic was gone. And once it was completely gone gamers left and the profits fell. I heard the advice loud and clear. Numbers can be misleading when it comes to inspiring passion. Great brands need to look past the numbers.
When I started Diapers.com in 2005, I took a leap of faith on a category that is traditionally a loss leader. Shipping heavy boxes of diapers didn’t make a strong business case. As a busy parent, though, I understood how stressful it was to keep diapers in stock. I thought if we could create a lifeline for parents by offering premium service and speedy delivery, we could create a really loyal community that might eventually shop higher margin categories.
Working backwards we set out to create a brand that would inspire passion.We made several decisions that, on their own, could not be supported by the numbers. We offered free overnight delivery to most of the country and a free, no-questions-asked 360-day return policy. We packed products in colorful boxes — many times with a handwritten note inside. We invested heavily in our 24/7 customer care center and empowered them to wow customers on every call. We would solve every problem no matter the cost. Our head of customer service once even drove to a UPS facility that was shut down due to a snowstorm to pick up and deliver a much-needed package of baby formula to a stranded mom.
While implementing all of these actions together was very expensive, it created a passionate and fanatically loyal customer base. The love for the Diapers.com brand allowed us to go on and launch additional websites in other, higher margin product categories that made the numbers work. If we had analyzed the return on each of these service propositions independently, we wouldn’t have done any of them. It was the entire experience that bred loyalty.
When it comes to creating a brand that people will care about and fight for, put numbers aside and work backwards. Ask yourself, “What can we do to create an unforgettable customer experience?” Figure out how to do that as efficiently as possible. Then trust that a holistic experience inspires passion, even if it costs you in the short term.
Originally published at www.linkedin.com on February 2, 2015.
