Nicolas Darveau-Garneau when he was at Google.Cliff Redeker
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Reaching your organization’s potential involves the right metrics. Similar to many companies, you might have those basic indicators wrong, however. If so, you’ll wind up like a bonsai tree rather than a sequoia.
Let Nicolas Darveau-Garneau explain. He’s a consultant and former chief evangelist at Google, where he headed the team that helped its largest customers boost their bottom lines through the use of Google Ads. Sequoias are among the tallest trees on earth. He points out their trunks split easily and branches grow haphazardly but they have an ability to continually sprout, even as they become older. Bonsais, on the other hand, can be trimmed to look spectacular. But they remain small and their lifespan tends to be much shorter than sequoias.
Neither tree has a metric gauging and guiding its growth, of course. Organizations do, but poorly chosen ones. “Corporate sequoias prioritize profitable growth, while bonsais concentrate on efficiency. In my experiences advising more than 1,000 companies, I estimate that more than 95 per cent of marketers focus on efficiency metrics like customer acquisition cost (CAC) and return on spend (ROAS) to optimize their investment instead of trying to maximize profits,” Mr. Darveau-Garneau, who was born in Chicoutimi, Que. and started with Google in Montreal before moving on to its head office in California, writes in Be a Sequoia Not a Bonsai.
He adds that if the marketing team – a place where profit maximization should be a given – isn’t focused on maximizing profit, the odds aren’t high that other departments such as product development, customer service, procurement or sales have a sequoia eye. If you aren’t aiming for profitability in your main key performance indicator for marketing – preferably long-term profitability – start your overhaul there (but don’t forget to attack other departments later).
Pick a metric that is clear, complete and consistent. Don’t mess it up with too many side issues, such as maintenance costs or depreciation, that hinder clarity for those seeking to use the metric. But it should reflect a company’s full profitability. He helped many retailers by switching to a quick-and-easy profit indicator, which worked initially to increase profitability, but over time more granular data on margin was added: Costs such as credit card and shipping and handling, as well as a calculation that took into account customers who looked at products online and then bought in a corporate store.
“Once the profit metric is clear and complete, it’s important to stay consistent. In my experience, even great marketers tend to seesaw between profit maximation and efficiency,” he warns.
That means accepting the internal tension that may arise between growing revenues and watching costs is handled by the profit metric. Don’t get diverted by other issues. There may be concerns that your advertising spend is high this month or customer acquisition costs are rising. Those are relevant matters but if profit is growing you are probably fine. One guardrail he recommends, however, is keeping tabs on customer satisfaction.
He also urges you to fully maximize profitable growth. “Sequoias don’t impose artificial limitations on their growth; they strive to grow as tall and as fast as possible. Most sequoias I advised had a flexible advertising budget, adjusted at least daily, to maximize profits. If an additional dollar invested on advertising could generate more profit, these sequoias found a way to budget it,” he says.
That means being agile on budgets, adjusting regularly. Another issue to think through is that the complexity of organization structures and partnerships can get in the way. He notes that hotel companies and their franchisees have different economic incentives. The franchisee, with lots of empty rooms tonight, might be eager to pump up digital advertising immediately but the overall hotel company, which decides on advertising, will only get a fraction of the revenue that might generate. Both lose out from this misalignment, he says.
Sequoias don’t care if a branch or two is growing imperfectly while bonsais are regularly trimmed. You must optimize the business holistically. “History is full of companies that optimized themselves into irrelevance. For example, Penn Central Railroad went bankrupt in 1970 because, in part, it optimized each route without considering the results for the whole network,” he says.
He learned that lesson first hand at one of his startups, when he found that 30 per cent of their advertising investment never directly led to acquiring a customer. He figured the cuts he made to that advertising was brilliant, saving 30 per cent of their advertising money, but customer acquisition plummeted by more than 40 per cent and even after reinstating the advertising the company didn’t fully recover. His mistake was although those tactics weren’t directly leading to acquisition they played what turned out to be an important role in some customers’ journey, as the individual returned at a later time to buy.
When acquiring customers, he adds, don’t focus on getting as many as possible. Instead, get the most valuable ones, who have the most to offer in lifetime customer value. That’s the sequoia way.
Cannonballs
- Culture can be tricky to conceptualize. Business anthropologist Oliver Sweet says we should view culture as a system of co-ordination. It is durable because it reduces uncertainty.
- To improve your presentations, communications consultant Carmine Galo in his newsletter recommends taking a highlighter to the parts you want to stand out – to punch up the power of the words as you talk.
- If you want more women to want leadership roles at your company, offer executives a financial incentive to help female employees succeed. In a field experiment at a global engineering company, almost 12 per cent more women said they aspire to leadership positions when they learned that their employer provides incentive pay to executives for meeting female representation goals, compared to when an employer merely says the goal exists.
Harvey Schachter is a Kingston-based writer specializing in management issues. He, along with Sheelagh Whittaker, former CEO of both EDS Canada and Cancom, are the authors of When Harvey Didn’t Meet Sheelagh: Emails on Leadership.