Selling dreams and rainbows is common made even easier by the internet. It leads me to imagine that there are hordes of hopeful, trusting, and sometimes gullible people willing to buy those promises. Equally, I imagine there are hordes of unscrupulous, deluded, ill-informed, and in some cases well-meaning salespeople behind those promises. On a personal level, I have a relative who paid around $5,000 for a website starter kit to enable them to start an online shop. Were they successful? Yes, the salesperson was very successful in reducing my relative’s bank account by a significant amount. Was the relative successful? NO!
Chris Argyris has written a number of great books, with one of my favourites being Flawed Advice and the Management Trap – how managers can know when they’re getting good advice and when they’re not.
Look past the bit about “how managers …” and substitute your favourite noun such as entrepreneur or your-name – the book still works.
Here’s an excerpt from the introduction:
Advice is effective to the extent that it is valid and actionable, that is, leads to effective action.
Action is effective to the extent that it leads to the consequences intended in ways that persevere, but without generating, unintended consequences that undermine the beneficial outcomes.
There are three tests for the validity of advice:
- If implemented correctly, it leads to the consequences that it predicts will occur;
- its effectiveness persists so long as no unforeseen conditions interfere;
- and it can be implemented and tested in the world of everyday practice.
There are four tests for the actionability of advice:
- It specifies the detailed, concrete behaviours required to achieve the intended consequences;
- it must be crafted in the form of designs that contain causal statements;
- people must have, or be able to be taught, the concepts and skills required to implement those causal statements;
- and the context in which it is to be implemented does not prevent its implementation.
So how did my relative do?
Tests for the validity of advice:
- Correct Implementation: There was no hope for effective implementation due to the general lack of skills. The lack of products and services to sell and therefore a prospective customer-base didn’t help either.
- Unforeseen Conditions: The effectiveness of any retail endeavour rests on having something that people want to buy at a price you need and those customers existing in sufficient numbers. Even assuming that one can get a store magically fired up and running, maintaining an enthusiastic customer base is a never-ending job.
- Real world implementation: Starting an online store is surprisingly easy, the hard part is having something to sell that people want to buy at a price you need, the customers existing in sufficient numbers both now and into the future, and those customers knowing that you exist.
Tests for actionability of advice:
- Details specified: I never saw the material provided, but assuming there were no major errors of omission or commission, then I’m assuming, for the purpose of this discussion, that one could build an online store with it.
- Designs and causal statement: See previous.
- Learn concepts and skill: Simply not possible for the person concerned.
- Context: The context was simply sub-optimal, such as, lack of technical or business skills with no real prospect of this capability changing, lack of products and services to sell, especially in sustainable quantities, and lack of a business network or fortuitous position in an existing business network to help germinate and then grow the business.
I don’t mean to be harsh on my relative, but this is a close-to-home real-world example. Top marks should be awarded for having a go. But in the end, we all need to be responsible for the actions we take based on the advice we are given.
Moreover, there is a duty of care on the advisor to ensure that all the criteria above are fulfilled. In the example, the only people who benefited were the salesperson and their company.
Assuming that all the criteria above are satisfied, then in addition to the above (and repeating a little an earlier post on using a breakeven calculator), a simple calculation with a breakeven calculator will in most cases be quite sobering. Using a breakeven calculator will provide a good indication of how many socks, woollen hats, chickens, trailers of firewood, etc. that you need to make and then sell to break even and then make a profit. Calculations I have performed in the past show that you might have to sell more than 20,000 gift/birthday/Christmas cards if that is your thing. What, wait, 20,000!? Yep, that’s about right. It’s not materially important to the analysis exercise whether you need to sell 5, 500, 5,000 or 50,000 of whatever. What is important is to ask is, is there a market, that is, does anyone want what I think is important and want to make and sell, can I manufacture or have manufactured the quantities needed, AND, are there or will there be sufficient prospective customers to buy my stuff day in and day out for years to come?
So here is some actionable advice: if you can’t answer in the affirmative the last question, then go find something else to be entrepreneurial about.