Strategy Centre

The Danger of Unknown Unknowns in Ecommerce

  
12 May 2015 15:36
  

The Danger of Unknown Unknowns

There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.

— Donald Rumsfeld, United States Secretary of Defence, The Unknown Known


Since 1998, my main work-related interests have been software and ecommerce.

From 2000 to 2010, this tied in with an interest in bikes because the main focus of our software and our business model was to grow sales for Chain Reaction Cycles (CRC).

Much as I like cycling, this focus was not entirely by design. It was down to the fact that our revenues grew as CRC’s sales grew – and kept growing to 177 Million GBP (> 1/4 Billion USD) in the final 12 months that we worked in partnership.

The drive to succeed in ecommerce

CRC grew in a very different way to other clients that we had.

Analysing this now, I realise that this was down to timing and a number of factors related to the bike market. It was a good market to be in, it had major tailwinds, it was ideally suited to the internet and to internationalisation. Also the bike market had weak digital competition. And it had many small players but very few major ones.

CRC were driven, which was key. But there was one other huge differentiator that I was unaware of at the time. They continually – and without operational friction – pushed the digital channel in the right direction.

Between us, as far as ecommerce went, we executed great digital strategy. CRC backed up the strategy with the commercial underpinning and logistics required to feed the growth. So they took their opportunity.

It was this alignment of interests that helped to generate a compound growth rate of 69% over 12 years of CRC running the IRP platform.

Initially I thought CRC growth was normal as I tried to recreate the growth in other markets. But by 2008 the penny had conclusively dropped that CRC was very different.

As far as our business model was concerned, which centred around client growth, I realised a fact that mattered: 99% of businesses will not take the opportunity for growth – actually much less than 1 in 100.

Why businesses do not grow

You would think that any rational business would grab the opportunity for growth when it is offered. Not so.

Why do businesses not take the opportunity for growth? Because, at the SME and mid-market level, very few companies execute the right digital strategy.

‘Knowing what to do’ strategy-wise simply does not happen naturally for 99% of businesses.

The main reasons I see for this are as follows:

  • Success requires an unparalleled alignment and restructure.
  • SME businesses are generally led by owners whose instincts and entrepreneurial skills have been key to success. However, in the digital arena, these instincts (plus knowing what actions to take or what skills to acquire) no longer work.
  • There is almost no parallel between retail and ecommerce. Skills in retail do not transfer automatically to online commerce.
  • Being used to running their businesses, business owners try to lead from the front in ecommerce and often fail.
  • When SMEs seek advice, often they do not have enough understanding to differentiate between good strategy advice and bad strategy advice.
  • Due to the complexity of the digital channel, decision making can become irrational in a way that never happens in other sales channels. This can lead to false starts, loss of energy and loss of momentum compounding failure of the digital channel.

The things you don’t know you don’t know

I quoted Donald Rumsfeld at the start of this article. Although he obviously wasn’t talking about ecommerce, his third category of “unknowns” — which he calls “unknown unknowns” — is particularly pertinent to online business.

Many owners of SME companies “don’t know what they don’t know”. And they won’t find out these things by ‘doing a Google’ …

Rumsfeld’s “unknown unknowns”, when applied to digital commerce, describes a principle reason why SME and mid-market companies do not achieve their potential. They “don’t know what they don’t know” — and therefore the leadership of the companies cannot execute effective strategy.

It is hard to overstate the negative impact that this has on their compound growth rates. It is the reason why many will not retire early and will not retire rich.

Numbers are everything

So what is the solution to this huge challenge?

For the last three years our best software engineers have been creating a numbers-based system in the IRP World. We call this ‘IRP Insights’ and it will soon be released.

IRP Insights will indicate clearly where sales have come from. IRP Insights will pull information from the “unknown” into the “known”.

This will be different from Google Analytics traffic analysis which provides great data but fails to piece together where the value is. IRP Insights will provide an overall understanding of the components involved and their sales value. Importantly, this includes the people who have generated sales and the actions companies should take.

When we have the system in place, it will help us to find companies to bring with us and to deliver growth.

These companies will reap the full benefits of knowing what decisions to make, knowing what counts, knowing who counts — and knowing more than their competitors.

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