We recently read this excellent blog from Benn Stancil that asks, do data driven companies actually win? It is, as usual, an excellent and thought-provoking piece and we are big fans of Benn’s work, but this one got us thinking, so we thought we’d add our opinions to it.
Do data driven companies actually win premise
To summarize Benn’s blog. He paints an amusing picture of a venture capitalist who is approached by four fashion companies that are almost identical. The only difference between them is their approach to business.
- Company one has vast market experience and draws upon this with intuition.
- Business two is fast-moving and decisive and believes in making things.
- Number three is run by a generational wonder who has disrupted the market to make their mark.
- Company four believes business is science and uses data to make decisions.
Using the fashion companies, Benn ponders the actuality of data being the most important facet of these businesses over experience, decisiveness, and inspirational leaders. He argues no. If he were to invest, he would choose businesses 1-3 over the data driven one.
Benn doesn’t say that being data driven is wrong, in fact, he says the opposite. He just argues that having a management board who won’t drive the business over a financial cliff is equally (if not more) important and that being data driven isn’t the panacea for all business decisions.
Our thoughts on data driven companies
The blog uses fashion companies as an example. Not all companies share these problems. The companies are launching a new product to the market. An innovation. There simply isn’t the right data to make informed calls. In the example, innovation is almost completely unknowable. A company might have data about other product launches, but they’re for different markets and different products. We would wholeheartedly agree with Benn’s assessment that incisiveness, speed, intuition, and plain old dumb luck are more important than being data driven.
However, when you broaden the topic out into other areas, then data becomes more of a factor, and indeed, data driven companies can and do win.
We do data consultancy, and in our early days, we worked with wholesalers and distributors. These types of companies, and there are many of them across a plethora of sectors, have huge volumes of products, complex supply chains, and lots of customers.
Say one of these wants to cut the fat and become a leaner and more profitable business. 100% data analysis is involved to analyse SKUs, the supply chain, customer sales, and manufacturer contracts to understand how to make their product holding more cost-effective. This doesn’t need great intuition, or even an inspirational board to be successful, it needs to be data centric.
A great example of this now (July 2022, if you’re reading from the future) is within the food wholesale business in the UK. After recovering from the pandemic, this industry is facing now facing the woes of Brexit (this is a rather brilliant tweet looking at the UK government’s Brexit promises).
This has knock-on effects for the wholesaler. Out of stocks negatively impact sales and customer relations, increased costs reduce profits, and the supply chain is more costly and time-consuming. With thousands of products, this is a logistical nightmare to respond to as a business. You might know that some products cost 25% more and need an extra two-week lead time, but that doesn’t reflect everything.
So again, being a data driven company will help, even though the immediate information isn’t available. By monitoring and analyzing real-time data as orders are fulfilled, data driven companies can respond faster for their competitive advantage. Perhaps reorder particular lines more frequently, introduce price increases, and employ additional staff to manage the increased bureaucracy. Importantly, they can understand the true costs of Brexit and make faster decisions for a new future.
The point Benn really makes in his blog is that analyzing data is no magic bullet when it comes to blue-sky thinking. Being data driven is suited to mature processes where data is available to make informed decisions. It is still guess work to some extent, but it’s educated guesswork.
For startups operating in unknown fields, or innovative product launches, being data driven is no bad thing. If you have the industry experience, incisiveness, or brilliance, instilling a data focus will only benefit you in the long run. Putting the technology aspect to one side, the most important part of being data driven is the right mindset. Understanding the importance of data from the beginning will instill the right principles and give you a better chance of improving your long-term data governance, accuracy, and access so that when the time comes, finding, understanding, and analyzing your data is easier to manage to drive value.
A distinction between data driven and data intensive
Data is one of the most powerful tools for complex industries such as manufacturing, SaaS providers, and pharmaceutical. But there is a separation here from being data driven to being data intensive. The listed sectors all process huge amounts of data. They are data intensive organizations.
Using Benn’s example of a fashion company, being data driven to penetrate and dominate a new market is practically impossible. This is because the company is not data intensive. The vast majority of data will be generated over time through transactions and sales and marketing campaigns. Running analytics is not really the same as being data driven. The reality is, these companies would have to wait too long before they can extract any real value from their data. A marketing campaign generates $20,000, is that good? They don’t know as they have no comparison or base to go from. Fast forward 12-24 months, they can see if it’s good or not, but in that time, they might have burnt through all of their cash. So intuition and experience might well be a better driver for the business.
Now take a SaaS provider as an example. They collect data on all aspects of their service. Usage logs, performance benchmarks, churn rates, import times, compute costs, and a host of other valuable data. This is a data intensive business. They can use data in real time to monitor performance and react swiftly. They are data driven, but the data intensive nature of their business means that it is essential to be data driven in order to operate, compete, and satisfy customers. Intuition and experience cannot help. Say the company is churning lots of users, someone can’t use their experience to say, ‘aha, this is it’. They can analyse the data to see that import times are slow and people are getting frustrated and moving on to a different solution. This is the value of being data driven in a data intensive company.
To conclude, Benn’s article is brilliant, entertaining, and accurate. Not every data driven company will win. Other facets of ownership do play a huge part and are more important than data when it comes to blue-sky thinking and innovation. But being data centric is essential in complex sectors and will help companies win by improving market responsiveness, operational efficiency, and internal processes.
Being data driven as the only merit of a business may result in failure, but when combined with other talents, it will improve your chance of winning.