Data vs. Instinct: How to Run a Company

Should the rise of data mean the fall of instinct?
Seth Kniep
November 1, 2019
Ecom News
Facebook refuses to fact-check politicians! Shared workspace company WeWork suffers $900 million loss! Should you let data or instinct drive your company? A mega-mall opens in the e-commerce era! Here's my 10 cents:

Amazon sales tax

Amazon is now collecting and remitting sales taxes for the following states: Arizona, California, Colorado, Maine, Maryland, Massachusetts, Nevada, North Dakota, Texas, and Utah.

If you are selling on Amazon, do this right now: in seller central click on Settings, click on Tax Settings, click the name of the state, type in your Tax Registration number, then click the button that says Click To Assign Custom Tax Rate.

Amazon will now collect and remit—that means payout to that state—the sales tax due on this.

Back in the day, we had to pay these ourselves. Keep in mind that you are still responsible for all sales tax as the business owner. You still need to send in the form as often as each state requires it (usually quarterly).

Don't worry about the other states yet. Focus on these ones and Amazon will roll this out to the other states later.

WeWork CEO steps down amid losses

Can the founder who started a company, scale that company?

BBC News reports that WeWork, the office space-renting company formerly valued at $50 billion and grew from "a single office in New York City to more than 500 locations around the world" lost around $900 million the first six months of 2018.

Adam Neumann, the CEO, is stepping down.

As BBC News puts it, "The co-founder's brash charisma, which once attracted investors, emerged as a liability."

         Adam Neumann speaking in January in Los Angeles. Photo: Michael Kovac/Getty Images for WeWork            

What happened? How could a dynamic leader grow a company this huge and have to step down to avoid accelerating the demise of the company? What it takes to launch a company is a different set of skills from what it takes to scale a company. Launch and scale are NOT the same thing.

This is actually pretty common in the business world.

To launch a company requires visionary thinking that takes risks and moves fast. But to scale a company—to keep it growing and profitable over a long period of time—requires systems, automation, delegation, and deep amounts of trust from a lot of people, anywhere from staff to investors.

Mr. Neumann's colorful personality and his wife’s fame—by being a cousin of actress Gwyneth Paltrow—may have added some charm and phenomenal growth to WeWork in the early days, but his hard-partying life raised the eyebrows of too many investors. The charm that launched his company could not sustain the scale of his company.

If you want to see your company grow, you must become the person your company needs you to be. That means you have to change. The needs of the company change as it grows. This is absolutely necessary for its survival.

Mega-mall Opens

While shopping malls suffer from a vacancy of shoppers due to the rise of online stores like Amazon, eBay, and your own eCommerce brands, does it make any sense to build a three million-square-foot jumbo mall with a theme park?

Starting in early 2020, take a drive to East Rutherford, New Jersey and you will find ski slopes, the largest indoor water park in North America, a beach kept at 87 degrees Fahrenheit year-round, a Sea Life aquarium, a regulation National Hockey League skating rink, an aviary featuring local birds, a Nickelodeon universe, a Slime Stage, and costumed characters including SpongeBob, Dora the Explorer, and the Teenage Mutant Ninja Turtles.

They are calling it the "American Dream Shopping Mall".

I said it before, and I'm telling you again: your options to surviving the brick and mortar apocalypse are—

  1. Selling Online
  2. Creating a brick and mortar experience that no one can compete with.

I predict that this mall is going to be insanely profitable.

Zuckerberg holds stance not fact-checking campaign ads

Many US lawmakers are grilling Facebook CEO Mark Zuckerberg while debate rages between them. Talk of regulating Facebook escalates by the day. Senator and USA presidential hopeful Elizabeth Warren ran an ad on Facebook falsely claiming that Zuckerberg endorsed Donald Trump. In the following text, it says that while that's not true, he might as well have. She says Facebook is careless in refusing to take action against US politicians and Russian and Chinese manipulators who post false and misleading ads on the 2.5 billion active-user platform. Facebook historically played a role during the 2016 election, when "fake news" and "Russian meddling" entered the popular lexicon.

The heat is rising as other platforms agree to fact-checking or have outright banned political ads like Twitter (which comes with its own controversy).

Zuckerberg has a tightrope to dance across after acknowledging that Facebook was used to spread misinformation inciting genocide in Myanmar. Facebook responded by banning certain non-state actors in early 2019 but reached the ideological limit when it came to censoring government officials.

According to one BBC News article in October of 2019, "Mr. Zuckerberg said the platform would take down posts from anyone, including politicians, that called for violence or tried to suppress voter participation. As for untruths, however, he said it was not Facebook's role to prevent people in an election from seeing that you had lied'."

I'm usually inclined to take the road of caution when it comes to censoring speech. One layer of this is that finding the truth of an ad is not just doing a quick Google check. There are so many layers to finding the truth or falseness to something it's not even funny.

Do you think it's the responsibility of Facebook to police the truthfulness of political ads run on their platform? If the politician who created those ads tells lies, can/will the government or public hold them accountable?

No one would care if Facebook was still a struggling startup. But now that they are a titan does this now mandate government control of their policies?

CEOs sound off on data versus instinct

John D. Stoll wrote an article in the Wall Street Journal entitled: "'Feel the Force': Gut instinct, not data, is the thing."

The question is simple but monumental: should I trust data or my instincts when making decisions for my companies?

What about that moment when the data is saying one thing, but you have this strong sense—a hunch you can't even prove—that you should go the opposite direction?

Here's what some CEOs are saying:

PricewaterhouseCoopers LLP senior executives were asked in 2016 how reliant they would be on computer-generated analytics in 2020. The answer: "Much more.”

Starbucks CEO, Kevin Johnson, says it's time for data to replace guesswork. He says, "data-driven decision making is the secret blend he has used to keep the coffee empire percolating since the departure of Howard Schultz." When Starbucks was floundering years ago, Howard Schultz made decisions that the data analysts said were suicide for the company. Schultz did it anyway. And today, Starbucks is a global coffee icon.

Then we get to billionaire venture capitalist named Masayoshi Son—who approaches business decision-making more like Yoda and less like Warren Buffet. He "feels the force" when appraising an opportunity.

Softbank founder Masayoshi Son, Photo: Sho Tamura/AFLO/ZUMA Press

Mr. Son made a high-risk investment of $1.5 billion into an unknown Finnish mobile game developer, Supercell. Here's where Mr. Son drives analysts crazy: he said he felt chemistry with Supercell's founder.

Likewise, a global CEO survey shows only 35% of executives highly trust their organization's data.

One risky, gut-driven, non-data verified decision made Mr. Son $8.6 billion in less than 3 years later when he sold his stake in the “Clash of Clans” game maker.

However, his bet on WeWork cost him. He gets praised for his risks when they pay off and maligned when they don't.

It's almost like an American football coach who goes for it on fourth down or tries a trick play. While the data may say one thing, all that matters to everyone else is if it pays off in that particular instance. 🏈 New England Patriots' head coach Bill Belicheck said he evaluates what he sees over analytics. And he's won six Superbowls!

What does that mean when the data show that American football teams are leaving games losers because they didn't go for it when the data say they should? Likewise, one ill-placed failure can cost them the game regardless of the data!

So, who's right? It seems that both instinct and data win and fail!

It's been said, "Data doesn't lie." Sure it doesn't. But how you prioritize one set of data over another, the process you use to collect data, and how you interpret that data is as subjective as asking a cactus to name the best desert plant.

The answer is simple: use all that you can of both.

The company entirely driven by data will struggle to innovate or excel because data alone leaves out the human ingenuity of instinct that a computer can never replicate.

Data cannot measure the non-mathematical elements of timing, personality, and moments of opportunity that exist before enough data is relevant to prove their existence.

On the other hand, only trusting instinct only will destroy a company fast with risky decisions because, without data, one is blind.

Learn to use both. Integrate the two.

My business partner and I would spend several days in a row from morning to night, just analyzing data based on our followers and our prospects.

The need for data drove us to spend over $100,000 to build a software platform that would get us data faster and more accurately.

But then we would also look at what kinds of things prospects got more emotional about (those things computers aren't so good at measuring), and we knew that focusing on those topics would make it easier to persuade someone to buy the product.

When you mix data with leadership instinct, the result is strategy.

Here is an example:

You create a survey asking people their favorite type of monkey.

The survey is multiple choice with two options: funny or jumpy.

This survey subjectively assumes that funny and jumpy are the only two important options for why someone loves monkeys.

If a third choice had been offered (like snuggly), 50% of the respondents may have chosen the third option, but because it was not offered originally, they had to choose between option one and two.

This means that the person who created the survey had to make a decision about the parameters of the data. You can have all the data in the world, but the decision on how detailed the data collection is can completely change the final numbers.

Data only looks backward. With data, you can only deal with what’s already happened. Instinct looks forwards. It sees something before it happens because it's using the patterns data creates to forecast what he/she believes will happen in the future.

Data show patterns, and instinct seizes opportunities that data could never see because it hasn’t happened yet. Both are vital.

As a business owner, here's what you need to do: Collect all the data you can and then apply your instincts. Sometimes, you'll just know. You may not be able to explain why but—if you do it right and are a master of your craft—your brain has integrated the data to what you know about the market and the patterns you've picked up on your prospects. Don't second guess yourself. Act on it and make it happen.

That's my 10 cents!

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Seth Kniep

Married a pearl. Fathered 4 miracles. Fired his boss. Turned a single dime into $104,857. Today, a self-made millionaire, Seth and his team of 8 badass coaches teach entrepreneurs how to build passive income on Amazon.

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