The Empirical Empire

“If you want to succeed in business, you’re going to have to make a lot of mistakes.”

That’s true. But…

it’s not the mistakes themselves that matter.

Many business owners make lots of mistakes, and don’t survive them. In fact, that’s true for the majority of small businesses.

They make pricing mistakes; they order too much inventory; they shoot for the moon with their restaurant design or gym equipment. Then they run out of money and it kills their business.

The more fragile your business, the more impact a single mistake can make. In a book that I wrote for gym owners (“Start A Gym”,) I wrote that every mistake made at startup requires at least six months to correct…and, sadly, many gyms can’t survive long enough to fix their mistakes.

The key to success isn’t making mistakes–it’s learning from mistakes, and never repeating the same mistakes twice.

The US military calls this the “OODA loop”. In previous articles, I’ve referred to it as the Audit Cycle. Business schools call it the “Evaluation Process”. My seventh-grade teacher called it “The Scientific Method” and my high school teacher called it “Evidence-based decision making.”

It goes like this:

  1. Try something
  2. Measure the result
  3. Compare the result against other results
  4. If the result is better, keep doing it. If the result is worse, stop.

Of course, this system only works if you measure your results.

If you try something — like running Instagram ads — and you get ten new leads, then you don’t really know if the advertising was successful until you compare it to something else.

Did you get ten new leads without the ads last month?

Could you have earned twenty new leads if you’d done the same ads on Facebook instead?

Would you have earned twenty leads with a different Instagram ad?

Would you have earned twenty leads if you’d doubled your ad spend with the same ads?

You don’t know–yet. But measuring the efficacy of the first ad means you have a baseline to compare against.

The next month, you can change one of these variables, and measure against your baseline: ten leads.

This is how science works. This is the process of empiricism on which empires are built.

Now let’s apply this to making mistakes.

Let’s say you have people coming into your shop, but they’re not signing up.

Are your prices too high?

Does your service not solve their problem?

Did you not explain your service in a way that evokes value?

Does your advertising attract the wrong people?

Your hypothesis is that your prices are too high. But you don’t know until you measure, because your first attempt at pricing your service was a straight-up guess.

First, you measure your close rate.

Then, you look at the variables you can control: your price, your advertising, your sales process, your sales skill.

Then you choose one–and only one–variable to change. Since changing your prices carries the largest risk (if you’re wrong, you’re underpriced; if you’re right, you have a different problem), you change your sales process.

You try a new sales process for the next ten leads, and measure the change.

If you sell more of your service, great – you keep the new sales process going.

The next test might be upgrading your sales skills. You work on those, and track the results over the next two months. Did your sales improve?

Real business “experience” has little to do with how much time an entrepreneur has spent owning a business, and everything to do with how many mistakes they’ve corrected.

The biggest challenge in entrepreneurship isn’t that our first decisions are guesses. Of course they are–and most of our guesses will be wrong. We’re going to make mistakes. What kills businesses is when entrepreneurs compound their guesses–and compound their mistakes.

For example, many gym owners will tell our mentors, “I can’t charge that much for our coaching service.”

When asked, “What else have you tried?” the answer is always “nothing.”

Maybe they could charge more; maybe they couldn’t. They don’t know.

Maybe they tried raising their prices and fewer people signed up. But was the mistake in raising prices, or something else? They don’t know for sure–they’re layering a guess on top of a guess.

I’m absolutely guilty of this. As a new entrepreneur, I was overconfident in my guesses. I thought I was smart enough to guess right most of the time (which was wrong) and hardworking enough to just grind through my mistakes (also wrong). As I’ve matured, I’ve come to see every decision I make through an empirical lens: “we’re going to try this. We’re going to measure the outcome. If it works, we’ll commit to doing it until we find something better. If it doesn’t, we’ll go back to the old way. We’re not going to commit to doing it forever.” Not only has this grown my business exponentially, but it’s also removed the stress from making decisions, because every decision is just the next experiment.

The best part about taking an empirical approach is that your stress drops immensely, because you’re no longer making ‘forever’ decisions. Your’e testing.

I’m comfortable with change, because I have a feedback loop in place. Not all of my decisions are good–but the good ones pull me forward, and the bad ones don’t drag me backward for long.

“You don’t win or lose – you win or learn.” I’ve heard that one before. Learning – evaluation, measurement – is the key.

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