Can You Be a Great Start-Up Advisor if You Can’t Handle Risk?

Written on February 21st, 2011 | Short URL: http://abcjr.me/4f

The Pittsburgh Business Times ran an interview this past Friday featuring Kit Needham (subscription required), a former colleague at the Allegheny Conference who is now: running her own consulting firm; working as a senior advisor at CMU’s Project Olympus (described as “bridging the gap between cutting-edge university research/innovation and economy-promoting commercialization for the benefit of our communities”); and serving as educational coordinator for Blue Tree Allied Angels, a network of local angel investors. There is no doubt that she has dedicated countless hours to the entrepreneurial community over the years.

In the article, she discusses her own investment strategy, which seems to be directly at odds with her advocacy for early-stage businesses. To quote Ms. Needham:

“It’s so hard to pick the winners and what I’ve learned is, I can’t pick winners,” said Needham, who also runs her own firm, Needham Consulting, and has worked for the Allegheny Conference on Community Development and what is now BNY Mellon.

“I learned I just didn’t have the time or, really, the commitment to spend the time to do a good job of this,” she said. “I am not keen on relatively illiquid investments.” (Emphasis mine.)

The article goes on to explain how she came to her investment strategy, which she described as a “proven sets of rules to build and preserve client’s wealth.” She broadly outlines her methods and the success she’s had (roughly 4% five-year return vs. S&P’s 0.99%).

For the record, I don’t fault anyone for a low-risk investment strategy that relies on mutual funds and stocks. Everyone has a different risk tolerance, which should be taken into account when pulling together a wealth-building strategy. Diversification is great. We should all aspire to structure our investments in a way that minimizes losses.

BUT, isn’t it concerning that someone so deeply entrenched in the entrepreneurial community can’t find space in her portfolio to directly invest in a local start-up? Sure, I could see where she might be reluctant to invest because of a potential conflict of interest, e.g. there’s an opportunity for personal profit if she provides advice relating to a company in which she’s invested. However, it seems counter-intuitive that someone who’s so directly involved in commercializing technology and guiding the funding of risky ventures admits that she can’t pick winners and isn’t keen on illiquid investments.

The oft-heard complaint in Pittsburgh is that we don’t have enough risk capital. I’ve heard great arguments from the various sides — some believe that VCs and angel investors are too risk-averse and let good companies flounder, others think there aren’t enough good deals worth funding, still others think that there’s plenty of risk capital in the region. Regardless of where you stand on the issue, can entrepreneurs get a fair hearing when someone who can’t handle the risk of a start-up is advising critical early-stage-oriented organizations? Finally, why would she publicly admit that she’s uninterested in risky ventures given her role?

I perceive that getting funded in Pittsburgh can be a challenge. While I’ve had the chance to help successfully pitch to an angel investor, our funding came from a close contact of one of the company’s founders who isn’t involved in the local angel community. As a result, we were fortunate to bypass the standard pitch-your-ass-off process that most start-up companies have to endure. Perhaps I’m over-reacting to a one-off PBT article, but if the folks influencing investment into our regional start-up companies can’t bring themselves to invest in these companies, then I can’t see how the money tree is going to be shake loose new money any time soon.

Posted in Entrepreneurship, Funding | Permalink | No Comments |

Marketing to Women #16 – Women Like Expensive Things?

Written on February 18th, 2011 | Short URL: http://abcjr.me/4e

I love psychological priming studies. For those who aren’t familiar, priming is the act of exposing someone to a stimulus (say, a picture of a smiling face or crying baby) and then seeing how someone reacts to another stimulus (say, how they feel about a certain product).

My favorite example of this phenomenon was mentioned in Martin Lindstrom’s book Buyology, where he showed that playing French music in a liquor store increased sales of French wine by about 60% (usually without the person realizing the music was playing). To pile on, the store changed the music to German and had a similar sales increase of German wines, while the French wines began selling at their previous rates. Background music significantly changed buying behavior with only a handful of customers realizing it.

I mention priming because I came across a study conducted by the American Association of Wine Economists (thanks to Eric Barker for posting at Barking Up The Wrong Tree — I highly recommend his blog) that showed that disclosing the high price of a wine before tasting the wine produces considerably higher ratings, although only from women. Perhaps counter-intuitively, disclosing a lower price does not result in lower ratings.

Here’s what I think is important:

• Drinking the wine, according to the researchers, was an ambiguous experience, meaning that measuring quality is inherently difficult or impossible, even for experienced tasters
• There’s an interesting gender-based differential showing that women have a significant high price-high quality bias compared to men for ambiguous status-related products
• A lower price doesn’t necessarily have an effect on the perception of quality of ambiguous status-related products for either gender

Now, the perception that higher price correlates to higher quality, regardless of gender, has been reinforced multiple times in research. However, this study cites experimental evidence that men and women have different attribute biases (feel free to read Gender Differences in Preferences by Croson and Gneezy, 2009 — I haven’t gotten there yet). So, what does this really mean with respect to the judgments women make? I don’t know for sure, but here are a couple of theories:

• Leaning on stereotypes, women like expensive things and get greater enjoyment out of things that cost a lot of money regardless of the quality of those things. This would be referred to as “princess syndrome” among bitter single men or men in committed relationships writing marketing blogs who tend to carry the “man flag” in the gender wars (ahem).
• Women might be uncomfortable (consciously or unconsciously) with their ability to judge something that they feel is beyond their area of expertise. Having pricing information before tasting it might be the way women substitute others’ judgment for their own. Remember, the study didn’t ask “what wine do you like more?”, but rather, “how would you rate this wine?” The lower-priced wine, therefore, was assessed more in line with their experience because they weren’t intimidated by a $5 bottle (subjects in the study spent, on average, $13 for a bottle of wine, with 40% of them spending $10 or less).

Do you see where those reasons for rating wine a certain way could drastically change the way you pursue a pricing and marketing strategy? If you’re in the “princess syndrome” camp, you’ll position your brand of wine to reflect high status, selling the bottle for considerably more than average in the hopes that you’ll capture a high-margin market. If you’re in the “judgment substitution” camp, you might sell your wine at an average price and position it to reflect quality and comfort, reinforcing that she simply can’t make a bad decision by buying your wine. Since the study didn’t address what wine women actually buy, a marketing manager could be pursuing the wrong strategy based upon their interpretation of the results of the study.

Regardless of what you perceive to be the reason for the study results, it’s undeniable that people can be led to perceive the world a certain way by exposing them to information/stimuli before making a decision. Marketers need to realize that they have to reach customers in much more specific, targeted ways in order to influence behavior. This often means getting a better understanding of why humans make decisions and admitting that most of the decisions we make are based upon subconscious influences. In the end, consumers are far more likely to make emotional decisions and marketers need to get better at figuring out how to appeal to the very real and complicated feelings our customers bring to the buying experience.

It’s the weekend … go out and have a drink. Just remember to drink the average wine — you probably can’t tell the difference and will save a couple of bucks in the process.

(Hat tip to my girlfriend, Mallory, for some great additional perspective.)

Posted in Consumer Behavior, Marketing, Marketing to Women, MBA | Permalink | No Comments |

Marketing to Women #15: Heart-Shaped Box of Chocolates

Written on February 14th, 2011 | Short URL: http://abcjr.me/4b

It’s Valentine’s Day, a special occasion deemed both by my father and a local arts and entertainment weekly to be a “made-up holiday” (that nearly any holiday can be accused of being “made up” is another argument entirely). Regardless of how fictional the premise (the Catholic Church nixed Saint Valentine from it’s calendar of celebration in 1969 since there is no historical connection to any of the saints named Valentine), King Henry VIII declared the day a holiday in 1537 (yes, THAT King Henry VIII).

Valentine’s Day is a big deal: 190 million cards (1,330 different designs by Hallmark alone!) and 36 million heart-shaped boxes of chocolate will be exchanged. Not surprisingly, the data skews female — most cards will be given to teachers (a majority of whom are female, especially in the lower grades, where a majority of the exchanging takes place), mothers and female significant others.

Interestingly, the commercialism of Valentine’s Day is at the foundation of its modern celebration. By the mid 19th century, printed valentines, with lace and bows, were widely available for purchase and mailing. Usually, it was the man who bought valentines for a woman who had caught his eye. In other words — very similar to what happens in 2011.

One of the more recent conversations about marketing and consumer insight centers around the idea that the purchaser is not the end user. In nearly anything written on the subject, the story is told of women who know the needs of another person (child, spouse, friend, etc.) and purchase a product for that person to use. On Valentine’s Day, not only are men the ones leading the purchasing, but men are also uncomfortable with that role (not a shock since a majority of women would break up with her boyfriend if he did nothing to acknowledge the day). Men on average will spend $130 on chocolate, flowers, jewelry and dates, which is roughly double what women expect to spend. That’s a lot of money up for grabs, and since Valentine’s Day is a test of the relationship, it’s a highly-profitable opportunity to help a guy avoid a social faux pas.

I challenge marketers to come up with a better way to help men through this minefield. Men are dying for some assistance — finding the right card, the right box of chocolate, the right restaurant — and there is precious little out there by way of help. Sure, you can order flowers online or swing by Kay’s Jewelers (Every Kiss Begins With Kay!), but their self-interest is untrustworthy. All men want is to not screw up … why isn’t there anyone to help?

This might be worth exploring further. Until then, I must run — like millions of other men around the world, I need to pick my girlfriend up for a nice dinner. Even marketers can be sold.

Posted in Consumer Behavior, Marketing, Marketing to Women, MBA | Permalink | No Comments |

Marketing to Women #14 – And He Was Wrapped In Swaddling Disney Merchandise

Written on February 7th, 2011 | Short URL: http://abcjr.me/49

Sometimes, in those random and unintentional moments of daydream, I think about what it will be like to have my first child (no, Mum, this is not my way of telling you that I’m soon to be a father). I think about the excitement, fear, concern, support, love, tension, frustration and holy-crap-I’m-now-legally-responsible-for-the-survival-of-another-human-being that my friends and family members have told me about when recounting their own experiences. It’s usually a positive momentary thought until I’m distracted by more important things, like remembering the time of the next Penguins game.

My daydream took a tumble today after reading an article in the New York Times titled Disney Looking Into Cradle for Customers. It explains that Disney is pushing its newest product priority, Disney Baby, in 580 maternity hospitals in the United States. According to the article, “A representative visits a new mother and offers a free Disney Cuddly Bodysuit, a variation of the classic Onesie.” The catch? The representative asks for the mother’s email address so that DisneyBaby.com can send her targeted marketing messages. The purpose of this campaign, as outlined in the article, is to build brand awareness and loyalty, and to get the mother (what, no daydreaming fathers in the mix?) to think about her first Disney park experience with her children at the earliest point possible. You ask yourself, “How do they get access to the mothers?” A consulting firm paid by Disney pays the hospitals for access.

Let me be clear: I think that it is the height of callousness that a sales representative from a corporation, no matter how family-friendly, attempts to collect marketing information from a woman who has just given birth. As someone who has recently experienced a moment of emotional vulnerability that could have been exploited for financial gain (my father passed away a month ago and I had to work closely with the funeral home to make arrangements), I realized just how refreshing it is to not have someone else’s profit motive take priority over my own emotional state. Does Disney really believe that a full-court press by a bilingual salesperson in a maternity ward is the best way to get a new mother to emotionally connect to their brand?

I fundamentally believe in the positive power of marketing. At its best, marketers find people who can use a product or service that will make that customer’s life easier/better/more fun and give that person a compelling reason to buy. However, I also believe that customers should be treated with dignity and respect. I believe Disney is failing that test.

Along the marketing-to-women conversation, I can’t help but notice that the quotes from company representatives were made by two men. I’d love to know — were women consulted on this strategy? Yes, an OB-GYN and a mother were quoted in the article in support of Disney’s strategy, but would most women follow? Do women feel comfortable being exploited like this, not only by a company but also the hospital in which they’re giving birth?

Note: My name is terribly difficult and, beyond the novelty of having ABC as initials, there is no reason for me to pass this name on to a future generation. For $2,500, I’ll gladly sell first naming rights to my child and $1,000 for middle naming rights. I can’t wait to daydream about the future Mickey McDonalds Ciuksza being born.

Posted in Consumer Behavior, Marketing, Marketing to Women, MBA | Permalink | 4 Comments |

Marketing to Women #13 – I’m Back and Commentary on Research

Written on September 29th, 2010 | Short URL: http://abcjr.me/3t

Hello All! I’m finally back after an extended absence, one that was originally planned to simply be the time off between semesters but was lengthened when my post-Summer semester lethargy turned into full-blown illness (I was diagnosed with mononucleosis). While I’m not 100% back to my old self — the fatigue seems to ebb and flow — I’m at least  at a point where I can kick start my research once again.

In my time off, I read a steady stream of articles that have focused on women — women in the workplace, women in society, women and the economy. I guess it’s the en vogue conversation at a time when women are now 51% of the workforce and society continues to shift. I don’t want to minimize the attention — I think it’s incredibly important for there to be dialog on this issue — however, I’m frustrated at some of the way some journalists and authors play fast-and-loose with research.

In the spirit of this frustration, I was delighted to come upon this post by Martin Robbins on The Lay Scientist blog entitled This is a news website article about a scientific paper. It pokes fun at the ridiculous way that journalists cover research discoveries. The beginning…

In the standfirst I will make a fairly obvious pun about the subject matter before posing an inane question I have no intention of really answering: is this an important scientific finding?

I feel strongly that research is often horribly misused (I’ve discussed this before). While some of the misuse is the result of bad research, the people who report the research (good and bad) make it worse. Often, they: a) don’t really understand how research works or how conclusions are drawn; and b) attempt to show balance with point/counterpoint when, in most cases, one side is far more correct than the other, creating a false sense opinion parity where it should not be. The result is that perfectly intelligent people come to incorrect conclusions about the world around them based upon poor analysis. Who really has time to check the methodology of every study we read?

I found a great summary of the warning signs of bad research research reporting here.

So, what to do when you read a startling fact that seems a bit too groundbreaking to be true? Do a little digging, especially if you think that it might influence the way you make decisions. If you believe that women speak 20,000 words a day and men only 7,000, you might make a different marketing decision than if you believe that men and women speak roughly the same number of words (the latter has been supported by multiple studies and, in my opinion, is a far more consistent conclusion than the former).

Finally, I’m doing my best to rigorously test the common numbers used when discussing marketing to women (the 85% number, for instance). As I find more information, I’ll be sure to report it, just not in a wishy-washy way.

Posted in Marketing, Marketing to Women | Permalink | No Comments |

<< Previous Page | Next Page >>