The Influence Of Context On Business Decisions

We failed to understand the context and it cost us.

A year ago, I was working with a team of 4 other people to build out a marketplace for independent musicians to rent the rights of their music for commercial use.

We wanted to be a facilitator between enterprise and artist.

First wireframes of platform

When we were conducting our initial research we realized that the sync licensing was the best way to transform a musician from a "starving artist" to making enough to live.

So like most people would do, we started looking at the other players in the $7.18B market.

The more research we did the more attractive the business model became.

  • $92 average revenue per transaction (based on premium collected)
  • The average SMB buys content for $552
  • CAC an artist $11.60

If we could do 1,355 transactions through our platform, we calculated that we would break even.

There was some bigger players in the space, but each one had a very clear point of differentiation. Ours was going to be the "artist centric" platform as most of them tailored towards the businesses.

Now, none of us really knew anything about the music industry -- besides the fact that we liked to listen to music. We were all outside our circle of competency.

This lack of understanding cost us.

VirtuoSync went no where...

No users.

No money.

No traction.

Thankfully, the platform was never built outside of the iterations of wireframes we did. There was missing context into the motivations of both businesses and artist, which we eventually learned.

Making decisions for your business involves broader considerations.

Many times a business idea comes from a gap identified in the market. An unmet need exist which someone can step in to serve.

With VirtuoSync we realized that there was no artist first platforms -- the creators of the music itself.

People always assume their ideas are novel and new. They feel as though the customers don't have any other alternatives.

"We're first to market for this unmet need" you'll often hear.

They go and validate the idea collecting information, but neglect the weak law of large numbers in their research.

Any initial positive feedback received gets weighted more and confirmation bias creeps in to top it all off. Without the proper context our understanding is limited. Information is misinterpreted and false conclusions are drawn.

Gathering proper context brings confidence that the solution solves the problem.

Ultimately, decisions fall on a spectrum of importance. I don't want to reengineer every decision, but when it comes to bigger decisions (like which business to start) context is worth its weight in gold.

It's important to understand the things that may not be visible immediately. Having a framework for this helps.

Every business exist to easily move customers from the problem they have to a desired state. That's where the value add is. Which helps to retain customers so the business can continue to capture the value it creates in the form of revenue.

The context that's often neglected by people in the business is the understanding of how customers think and feel. The beliefs they have surrounding the problem.

The customer already has a perception of the problem.

Without an understanding of the way they perceive the problem, how can an effective message and position be established?

You're never first to market, because there's all sorts of alternatives consumers turn to. A business has three types of competitors:

  1. Direct competitors
  2. Secondary competitors
  3. Indirect competitors

Consumers are always moving from old solutions to new ones.

A company like Netflix understand this really well.

You get a show or a movie you're really dying to watch, and you end up staying up late at night, so we actually compete with sleep

- Reed Hastings, Co-founder of Netflix

If there's an alternative that exist with a lower learning curve, cost, efficiency, etc. consumers will always gravitate towards that.

There's always an outcome customers want to achieve.

When it comes to writing there's an outcome I am looking for doing this. I could write through many different mediums outside this newsletter.

  • Pen and paper
  • Text messages
  • White boards
  • Post-it notes
  • Video scripts

I chose this medium, but it's the longest form of writing that I can scale. My motivation is scale and ConvertKit knows that which is why they have all the features they do.

An incredibly powerful concept to apply when conducting research is the Jobs to be Done (JTBD) theory. With an understanding of this, it's easier to gain context into what the consumer really wants to achieve.

The 5 steps to gather clear context for decisions are:

1) Prepare through research

Do all the initial research to understand what exist today.

Where the market is at.

How direct competitors are solving the problems.

Everything you would normally do.

This is where most people stop.

2) Determine the additional information needed

It's hard to know what you don't know.

Which is why a heuristic like 100 questions is so powerful in a situation like this.

Ask 100 questions in one sitting (this takes about 20-30 minutes). Go all the questions after and figure out what ones will provide you with additional context.

3) Interview and record

Find people to interview and ask the some of the questions that were established. Get into the roots of their motivations and what they are struggling with in achieving their desired state.

Try to talk to as many people as possible.

The more people you speak to, the better your understanding of their problems and the they language used to describe them become.

4) Map the responses

The way responses get mapped depends on the specific issue context is being gathered around. It could be in personas, user flows, or even success metrics all the information gets fed into.

In the past I've used post-it notes to help group different pieces of information because they're easy to move around.

5) Develop insights

Sit with the mapped responses. Look for novel insights. Nuggets of gold that sit in the commonalities and patterns.

If there is nothing new jumping out then repeat steps 1 through 4 until there is.

Ideally you gain wisdom on 3 or 4 pieces of critical context that guide your business decisions through the next phase.


Join 1,000+ others receiving Pioneers Project

Every Sunday, you'll receive ideas to help you challenge the status quo, refine your craft, and shape the future.