On Organizations and Lessons from the Industrial Revolution

The Industrial Revolution was possible because organizations could be built and managed effectively. Today too, problem #1 in business is creating the organization in the right way.

changing landscape, in the 19th century (photo credit: thomasgenweb.com)

The first time I saw this chart below, a light bulb went off in my head.

It shows the world’s average GDP per capita over the past thousand years. It is basically represents an average human’s economic productivity over time. Note: this is on a log scale.

source: http://www.j-bradford-delong.net/TCEH/1998_Draft/World_GDP/Estimating_World_GDP.html

I mainly want to talk about the last couple of hundred years in this chart, but let’s get a couple of things out of the way upfront. Firstly, the GDP estimates go back a million years, but most of human history is rather uneventful from an economic perspective. Secondly, the dip around 1300 AD is due to the “Black Death” plague that killed nearly a third of the world’s population, most devastatingly in Europe.

After the plague, productivity recovered with the population, and started improving as we kept getting a little better at what we did. But what made the line shoot up so drastically in the 19th century?

The Industrial Revolution happened.

Firstly, technology.

There were newer, more sophisticated machines that made large scale manufacturing possible, and there was power available to run these machines.

The textile industry is everyone’s favorite example. Historically, production of cloth used to be largely a domestic enterprise and sometimes a cottage industry. Farmers’ wives would spin the cotton at home, and the men would then weave it into cloth. It would take four to eight spinners to supply one handloom weaver. Enter the Industrial Revolution: at the time the textile industry was inventing the Flying Shuttle and the Power Loom, the steam engine was also being invented. And very quickly, the two came together to enable large factories where steam-powered machines would do the work of hundreds of people.

Secondly, people formed organizations.

The most important part (in my mind) of the Industrial Revolution was the rise of the business organization and of management as a function.

While the initial spurts of technological advancement led to the creation of many businesses, they were still run by one or a few owners or partners trying to do everything, and that could not scale. You could draw an analogy with startups today, but it wouldn’t be accurate as we do have access to management tools. Back then, it just didn’t exist. The railroad companies spearheaded the science and practice of management, being one of the largest organizations and requiring large numbers of people across different aspects of the entire operation to act as one unit. They realized they could organize into departments and appoint managers who planned tasks and supervised the workers that carried out those tasks.

Organizations of an unprecedented size and scale could exist because of this, kicking off many self-fueling virtuous cycles, and not just enabling co-ordination across a large enterprise but also dramatically improving processes and workforce utilization. This is what made the right side of the chart possible.

While it seems like a blip in history, this took time: nearly two hundred years. It completely elevated what we as a species are capable of, but also came at a great societal cost (large scale unemployment and severe exploitation of those that were employed).

And it hasn’t ended: that line is only going up (and perhaps with different kinds of costs).


Now, based on all this, I’m going to posit:

Now, based on all this, I’m going to posit:

The key to all progress lies in creating scalable organizations.

Misallocating Entrepreneurship

There is an interesting example that elucidates this point. This article — India is a much more Entrepreneurial Society than the United States (and that’s a problem) — talks about the problems when a society cannot scale its organizations:

India is a much more entrepreneurial society than the United States. That may seem surprising since India is poor and we typically associate entrepreneurship with being rich but it’s clearly true. Only ~15% of Indians work for a firm compared to approximately 90% of US workers.

It digs into why it can be a problem.

Entrepreneurship in India isn’t a choice, it’s a requirement. Indian entrepreneurship is a consequence of India’s failed economy. The problem with developing countries is not that they lack entrepreneurs but that entrepreneurs cannot grow their firms large enough to become major employers.

Entrepreneurship, like other factors of production, can be misallocated. India has great entrepreneurs but their hard work, creativity, and risk taking is being wasted building tiny, stunted firms.

Entrepreneurship, like other factors of production, can be misallocated.

But our culture is becoming more individualistic, in all aspects of society. In business, everyone wants to be the entrepreneur, and is looking for “non-entrepreneurs” to recruit to their cause. And it has never been easier to start a company — limited liability and easy access to capital, distribution and technology have made sure of that.

Perhaps the optimal size of the firm will change in response to these forces, but I don’t see evidence of that yet — quite the opposite, if anything. Perhaps this chart above will sober up for a bit, or perhaps technology (general AI?) will render people irrelevant in the scheme of things. Until then, building high-functioning, scalable organizations that fit into the cultural mood will have to be the foremost problem company-builders need to solve.

(Huge thanks to Michael Dearing for showing me this chart for the first time, and opening up the first principles of management for me. I highly recommend his General Management course.)

Simple Dynamic Pricing for Mobile Games and Apps

There are many tactics mobile games and apps can borrow from retailers and e-commerce stores when it comes to selling In-App Purchases. Dynamic Pricing is one of the most powerful of them. This post is going to look at the low-hanging fruit with dynamic pricing that almost every mobile app or game can take advantage of, quickly and effectively.

WHAT is Dynamic Pricing?

Changing the effective price of an item based on the situation or context is dynamic pricing. Note that it is “effective” price. If the grocery store stocks half a gallon of milk for $2.00, and one gallon of milk at $3.00, the full gallon is actually cheaper even though the total dollars paid by the customer is more.

The simplest way to change the price is to offer a straight-up discount to the customer: a dollar off on a $2.99 item.

There are other ways to vary prices:

  • Quietly sticking a new price on the tag.
  • Creating a bundle of different items with a single price tag such that the individual prices cannot be determined.
  • Creating a premium class of the item via additional value (organic milk?) or a limited supply.
  • Etc.

For the low hanging fruit, we will just focus on discounts.

HOW can you give discounts on the In-App Purchase items?

Both Apple and Google require you to declare your In-App Products up front (in iTunes or the Play Store) and assign static prices. The workaround is to create multiple products for every item, but at different prices. The SKU or Product ID will be unique, but you can create a “disable ads for $0.99″, a “disable ads for $2.99″ and a “disable ads for $4.99″ item that all maps to the same item / functionality.

Here are instances of some of the popular apps doing this (showing examples from AppStore because PlayStore doesn’t show IAPs):

Go to the LinkedIn App in the App Store and scroll down to the In-App Purchases section. This is what you will see. Notice the same items at a different price?

Here are Hay Day, Candy Crush Saga and Spotify too:

Or, some games offer bonuses at existing price points like this:

WHEN should you give a discount?

This is the “dynamic” part of Dynamic Pricing. Big businesses, especially retailers, have teams of data scientists trying to determine the most optimum answer to this very question.

The low hanging fruit for mobile games and apps is in determining the basic rules or conditions under which a discount will get a user to make the purchase. Obviously, discounting the same item for everyone at the same time is a really bad idea – you should only do that when having a closing sale: “everything must go”.

Here are some instances of when you should offer a discount:

  • An Abandoned Cart: A user clicked on an IAP but cancelled out at the confirmation dialog from iTunes or PlayStore. Track these events and offer a discount to that user for that item the next time they are in the app. Will this teach users to hit cancel and wait for the discount? It could. One way around it is to offer the discount only when the abandoned cart is by an infrequent buyer.
  • Free Users: Users who have been using the free version of the app for a while and are not paying for the premium upgrade or game currency likely think the price is too high. Offer them a discount once they have used the app for enough time. Extra effectiveness if you offer the discount at a time when they will immediately be able to benefit from the upgrade (extra health just after running out of lives?).
  • Potential Power Users: If there are users who are buying the small packages: the weekly subscription instead of the quarterly, the $1.99 coin pack instead of the $4.99, consider giving them a discount on the larger items to give them a nudge into becoming power users.

These are three “dynamic” discounts your app should have as soon as it goes out of the door. There are lots more, and if you want to pick our brains about them, drop us a line!

HOW MUCH discount?

The next question is obvious: how much should you discount? 10%? 20%? 50%?

The answer is not as obvious: do not pick a number based on your gut. You will invariably be wrong. The human psyche has a tendency to qualitatively evaluate numbers based on the nearest comparison. You might decide 20% is a lot of discount, based on what you see in the grocery store down the street. But the grocery store has a different cost structure and RoI than your app or game.

The right answer would be to test a few different discounts levels: 20% and 40% are good numbers to start with. Apple makes the price choices a little easier by letting you change the price only in $1 discrete amounts.

Also see what other similar games or apps do. If you see the Hay Day example above, they drop the price of their “Bag of Diamonds” from $4.99 to $0.99 – that a huge 80%! The level of discount can also depend on when you are offering the discount: if it is to a first-time buyer for their first purchase only, getting the conversion is more optimal, so the largest discount is the right strategy at that point.

Don’t you incur a loss by dynamic pricing?

Not if your product is 0s and 1s getting duplicated in computer memory. The cost of duplicating is 0. Any price you sell the item at is a profit. In fact, you incur a loss if you DON’T do dynamic pricing. For every user who does not buy your product because the price was too high for them , you incur a loss of the price they would have bought at. This is true of all products that have a zero marginal cost.

All you should focus on is the total revenue, which needs to be greater than your total cost of building, marketing and running the app. Price per unit is not important.

The Lattice system is built to automatically do dynamic pricing in your app. If you want to find out what it can do for your app, drop us a line!

Personalized UI: Shape Shifting

Whenever we think of Personalization the first thing that comes to mind is Amazon displaying products we are likely to be interested in. The next thing that come to mind is like advertising on the internet. A little more pondering, and Google’s search results and Facebook’s news feed would strike us as being personalized too.

Notice how personalization is invariably assumed to apply to information — whether products to buy or ads to click or statuses to like. The structure around which information is placed often goes ignored — and underestimated — when it comes to suiting the individual.

20140812-shapeshiftingui-man-bike-phone

On the mobile, the ubiquity results in apps rarely getting more than a few fleeting glances. Darwinian economics of App Stores thus have necessitated apps evolve into the leanest units of functionality possible. Any unnecessary clicks, pauses or confusion that could trigger distraction are an evolutionary disadvantage.

Darwinian economics of App Stores have necessitated apps evolve into the leanest units of functionality possible.

A fluid UI that shifts shape depending on the user and their context can streamline the user experience.

There are many simple ways for interfaces to adapt to the user’s context without the need for sophisticated personalization algorithms.

Mobile Games were probably the first to innovate in this area. Starting with a dedicated First-Time User Experience (FTUE or ‘fatooey’) that would run only for new users to introduce them to basic game elements and get them started. In freemium games, it is not uncommon to see different views when trying to buy game currency packs: for players who have never bought before, these packs will be sorted with the lowest priced option on top. But for regular buyers, they are sorted with the highest priced option on top.

(Image Source: kryshiggins.com)

Other apps have started to take a leaf out of this book: the image above is a walkthrough of the FTUE of Weave, a popular ToDo app. Secret and Slack have recently received accolades for their FTUE too. Smashing Magazine has a really interesting guide to FTUEs on mobile:

Adapting UI to context is prevalent in more ways than just the FTUE in mobile apps

1. Screens on GPS devices switch to a darker color scheme at night, for low glare.

2. Language localization is perhaps one of the oldest forms of adapting the interface for the user.

3. Responsive web pages are a great example of the UI adapting automatically, with the context being your screen size.

4. The Uber app changes its default view after you have requested a car, to directly show you where it is and when it will arrive, and put the relevant information immediately in front of you.

5. The new Foursquare app, that notifies you of interesting place around, only triggers the notification when it senses that your location has changed.

(original source: It’s A Read/Write Web by Luke Wroblewski)
(original source: It’s A Read/Write Web by Luke Wroblewski)

6. Knowing that most users use a single thumb of their dominant hand, it might be a good idea for apps to structure their navigation accordingly, AND laterally invert key elements for left-handed users. (If you know of any apps that already do this do let us know in the comments.)

In contrast, desktop user interfaces have static, making all options available at once, and expecting the user to “pull” what they want.

3 key ingredients to consider while designing personalized UI are Identity, Context and Behavior.

Identity

There are two parts to Identity: the first part is knowing every user, being able to recognize them when they come back to your app even if on different devices. Knowing every user more is part of this – various traits that let you tailor the app experience: whether the user is left-handed or right, their internet bandwidth, language preferences, social graph, etc.

The other part of identity is created by the user: their identity in your app. How they use your app, and the persona they create in your app is a large part of this. For example, users portray themselves very differently on Facebook vs. Instagram vs. LinkedIn. Sometimes users use Instagram to post pictures of what they sell to their audience, while other times users use Instagram to share personal photos with their friends.

Context

Context is about the here and now. Knowing if a user is at home or walking on the street can play a big role in shaping the UI of a restaurant recommendation app. Or a payment app — whether a history of transactions on the main screen is more important, or a pay here button. What screen the app is being used on – a TV or a car – will govern what actions are front and center. The user’s local time, whether the user is currently on a subway train or running down the jogging track, whether they came to the app from a specific notification are all piece of context that can be used to personalize the experience.

Behavior

Interpreting users’ collective previous actions to anticipate what they might do, and shaping the UI accordingly is where personalization gets complex but also magical. All content recommendations – products, music, search results, news – do this. With UI, it overlaps with the second part of Identity mentioned above: is the user using a calendaring for their business or for personal scheduling? Can the payment app know if it is being used to pay for purchases or to send money to friends? Can a news app learn about your sharing habits to decide the prominence of the sharing button?

BUT there is a slippery slope to ultimate confusion

The best UIs are the ones that are familiar – the user instinctively knows where to click and how to reach their goal. Too fluid a UI can create confusion. Getting the personalization wrong can be even worse. It is always the right thing to make changes in small steps, and A/B test to learn from how users react.

Hiring Is Growth Hacking

Hiring is Growth Hacking applied to organizations.

What does that mean?
It is expensive to pay a staffing consulting $10k – $20k per hire, so creative, guerrilla tactics have to be adopted. Using your network to reach out to your audience, relying on word of mouth, the referral program that extends beyond employees, Quora/Twitter/LinkedIn for lead generation, fancy videos and blog posts with great content, etc.

It can be harder for large companies to do real growth hacking, whether to acquire users or employees, for many reasons, some legitimate: agility, red tape, risk averseness, etc. But there are always inspired employees in these companies making an exception.

So how should one go about hiring like a growth hacker?

1. Double down on metrics
Draw out funnels for every channel you are sourcing candidates from. Measure success rates (define success explicitly: an interview accept? the actual hire?) and work on drop off points. Be ruthless about cutting out the underperforming channels, regardless of how cool they are right now. It is an optimization problem.

2. Growth is a culture
You have to build acquisition and retention into your product DNA. Same for your organization. Every employee should be an evangelist. Every employee should be helping with the hiring process.

3. Initial user experience
If the first interaction requires a prospective candidate to commit to a job search or going through an interview process, it’s an anti-hack. It’s why you choose to ignore those InMails. Elicit a “wow” the first time, then take it from there.

4. Spread success stories
Get new employees to update LinkedIn profiles, Facebook/Twitter statuses immediately. Ask them to blog about their first day. Show off internal successes.

5. Multi multi channel
That’s two “multi”s. Everyone is already multi-channel: they’re on LinkedIn, Quora, Twitter, StackOverflow, etc. Find more channels. Treat everything as a channel. Exactly why this is like growth hacking: the answers are not already available.

6. Create content
Content is one of the best ways to engage your audience. The Kixeye hiring video. The Facebook Engineering blog. Meet The Team sections on so many company websites.

7. Bootstrap
When you’re starting from zero, you have to bootstrap. An online education startup bootstrapped by creating courses themselves from publicly available course material. A local services marketplace bootstrapped by letting you type in any service you wanted, and then going out to find and sign up a provider for that service. An e-commerce selling diapers online started by fulfilling orders by buying diapers from the local Target store.

Got any more growth hacks that can be applied to hiring? Leave a comment, and I’ll add it to this list.