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Deming, Long Tails and Reaching Obscure Markets

About 30 years ago, in a room packed with over 500 senior and mid level managers, my understanding of my role as a manager was forever changed. In the front of the room, on a large podium was an aging, serious looking man. He reminded me a bit of my grandfather.

I had to chuckle though. I was surrounded by some of the brightest and best managers in the country who had paid thousands of dollars to be lectured about how little they understood about management, by a man clearly pushing 90 years old.

That was my first experience of Dr. W. Edwards Deming.

By the end of day one of a four day seminar, I was not sure what I was doing there or if I should skip a couple of days and head down to Newport Beach and play in the warm California sun. On day two however, everything changed. Dr. Deming drove his points with such conviction and energy, even I got the message.

My epiphany started with his now famous Red Bead Experiment. Then, by time he finished a thorough discussion of the Nelson Funnel experiment, my thoughts about management had been transformed.

Here are some very important lessons from that seminar.

  • A business is a collection of systems that, when combined result in products or services to satisfy some need in the market.

  • Systems are only reliable to the extent to which they reduce variation.

  • Employees can do no better than the systems within which they operate.

  • Management is responsible for the systems.

  • Management must improve the systems to improve the business.

  • Tampering with any system will increase variation, not reduce it.

Those were the core messages I took from the Deming 4-Day Seminar. But there were also these additional points.

  • Having the best quality product or service does not make it viable, there must be a market.

  • The customer wants an end result, not the product or service, those are merely a means to an end.

  • It is better to create a bigger pie, than to simply try to grab a larger piece of an existing pie.

The last three points will be discussed in detail with respect to this economy and finding "long tail" opportunities.

There a couple terms I will be using that should be defined for those that may not be familiar with them.

Long Tails:

A term coined by Chris Anderson to describe the change in distribution models resulting from the Internet. In statistics, a normal distribution is represented by bell shaped curve where the majority of data points cluster around a central mean. At both ends of the curve are the tails. See Wikipedia

Anderson's long tail refers to a positively skewed distribution where the mass accumulation of data is to the left and off to the right a long tail of diminishing data points.

Signal to Noise Ratio

An easy way to understand signal to noise ratio is to imagine you are trying to have a conversation with a friend at a rock concert. Your conversation is the signal, the rock music in the background is the noise. In this example the signal to nose ratio is very small and it is hard to pull the conversation out of the background. By contrast if you are using a megaphone to talk to a friend in a library, the signal to noise ratio is very high.

In a previous article, "Of Black Swans, Long Tails and Surviving in this Economy" I discussed how the Internet is changing the 80/20 rule. Where roughly 80% of the revenues were earned by the top 20% of best sellers. The 80/20 market place, according to Anderson, artificially constrains free markets. For example, a handful of publishers determine what books are published by filtering out all the books they do not feel will sell enough copies to warrant limited shelf space.

As the Internet infrastructure has evolved, "shelf space" has become relatively inexpensive, and for the most part infinite. Creating a larger pie, as Dr. Deming put it, is now much easier to do. No longer is there a need to filter out products or services that appeal to very small niche markets.

Not so long ago, if you had a great training program on gold thread embroidery, you could not cost effectively fill a room in a small town or possibly larger city. Your marketing would have to be nation wide and the expense to attend would be very high for people a few hundred miles away. But now, for a a small fee per month you can maintain a Zoom account and provide the training online to anyone in the world. The barriers to having a successful event are very low.

That is life in the long tail

More niches, more opportunities, lower barriers to entry. Larger pies. Viable markets that heretofore were inaccessible.

It may appear somethings are still scarce. Time and disposable income are not infinite. If you are reading this article, you are not spending time with your family or having face time with a client. Similarly, people only have $X amount to spend, so if you are selling marketing services, you are still competing with a variety of other operational expenses.

There is little we can do about time. At one point it was believed that with computers and technology, we would have more free time. But I seem to recall hearing somewhere in spite of the technology, or maybe because of it, people are working longer hours than ever. I know in my case, that is certainly true.

Money is another thing altogether. It certainly seems scarce and finite. But, keep in mind the only role for money is to facilitate commerce. If you have more money than commerce, the value of the money is deflated. If there is not enough money to support commerce, the value of the money is inflated.

Imagine if we were still in an agrarian society. Do you think we would have a GDP of $28.8 Trillion? Our economy has grown because people come up with new products and services that people want. Those products and services create jobs that give people money to buy the things they want. And so the cycle goes. Money, if properly managed by the Fed, will be plentiful to support commerce, but not so plentiful as to devalue itself.

Amongst other things, to survive or thrive in this or any economy we must have the following:

  • A market for our product or service

  • A system to reach out to and communicate that market

In a Long Tail economy, there are markets for about anything. Some are too small to provide a good living. But if your product or service can serve a large number of these tiny markets, there is a good living to be had. But you have to think differently to identify and approach these markets.

First, you have to get brutal about what your customers want. Deming spoke of companies making carburetors. If they think of themselves as carburetor companies, they are missing the point. People could care less if it is a carburetor or fuel injection, they just want and efficient delivery of fuel and air to the engine to make it operate.

  • So, what business are you in?

  • Do your customers really want marketing or do they want qualified customers?

  • Do they want computers or systems to help them efficiently operate their business?

  • Do they want pictures or images that attract more custommers and revenue

Once you really know what business you are in, you can go looking in the long tail for customers that want what you provide. Note, each one of these micro-niches will have their own understanding of why they need what you provide. They are going to have their own unique vocabulary.

Your job is to efficiently communicate with each niche in terms that speak their need as THEY perceive it.

This is where it gets really tricky. The farther down you go in the long tail, the more noise you have to filter out. The harder it is to identify and speak to a niche.

Make extensive use of Google's Keyword tools to find the specific keywords people use when searching. Forget the generalized high hit keywords.

Finally, when you find your market, realize you must compete for their cash. To do that, you have to think in terms of THEIR opportunity cost. If they spend $X with you, what opportunities for chocolate or network services are they giving up. The more value you build into your product or service, the better the opportunity for the customer. They will give up more to buy from you.

Keep in mind. Value is a balance of money and perceived benefit in the mind of our customers.

Go back to step 1. What business are you in? There in lies the building blocks for establishing meaningful value.

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