How MBA-led startups kill their business
The Six Percent Entrepreneur
How MBA-led startups kill their business
June 29, 2021
In this episode, we talk about how over-engineering processes can take away focus from the most important aspect of a business.
Here's one of the ways that MBA founders typically end up killing their business. They end up killing their business because of the way that the MBA teaches them how to start and run a business. And what ends up happening is founders end up killing their startups by over-engineering their processes. 

So this is kind of how that works. First, now, in today's world, every single, every single company's product is customer experience. No matter what you're selling, it doesn't matter if it is shoes, gardens, or anything. Whatever you're selling, it could be a physical product, visual product, the service, and offer, whatever it is, what you're actually selling is that customer experience. Because in a highly commoditized world where everything is the same, where it's so easy to copy other people's products and business models through the main differentiator becomes that customer experience and customer experience that you build through your brand. 

And what ends up happening is that people who go through MBA programs, they end up ruining everything because they start over-engineering their systems without considering the variables that really matter, which is that customer experience. So, for example, in an operations class in an MBA program, you might learn to optimize your production process so you can decrease costs, increase your throughput and basically be able to offer some kind of product with a consistent amount of quality, which is great at a much faster rate. 

However, when you start optimizing these processes, what a lot of founders failed to do is because they're just using magazine articles that they read in the Harvard Business Review or something that they're professor mentioned in passing is they will just apply some kind of tool that was studied in isolation. So what I mean by this is the way business school professors work, business school professors, their PhDs, their scientists, right? And they study processes by isolating variables and studying the system and basically how the system works by isolating variables. 

However, when they're studying a system, there's a lot of variables out there that make up an even bigger system and that bigger system is related to customer experience. And this is usually where a lot of companies will fall short because they're trying to over-engineer the processes, which is ending up breaking this bigger system. So let me tell you what I mean. 

Zappos accompanied by Tony Hsieh actually figured this out. What they were doing is they had these production facilities where they were collecting inventory of shoes and to make everything as efficient as possible, the way that the warehouses work is you let the orders start piling up and as the orders pile up, when the orders start getting processed, they're processing batches, and this saves a lot of time on the production floor because you're not doing something one by one. 

However, what this ends up doing is it ends up pissing off the customer because now the customer has to wait for such a long time to be able to get a hold of their product. And Zappos did not want to optimize the production process and try to save costs in that way because they know that taking care of their customers is part of their marketing budget and spending a little bit more and not over-engineering all these other processes to make sure that they're delivering a great customer experience and actually delivering happiness was the title of Tony Hsieh's book. This is what their ideal is. This is what their goal is. And a lot of founders, they will actually kill their start-up by over-engineering their process. 

And I see this a lot of times, especially in the LTD space. Um, there are all these new copyrighting software that is utilizing artificial intelligence. So there's this tech called GPT3. And a lot of startup founders, they're using this technology to be able to filter information in a way where it's creating copy that converts and copy. That helps people write blog posts and all these different things. Well, this technology, it's open for everyone, anyone get a license. And the way you put a face on the technology is the product that you start selling. 

So the number of people that are actually in this market, this market is heavily saturated, even though artificial intelligence is a fairly relative thing, the amount of players out there that are creating copyrighting software that uses AI... it's unbelievable. I can probably if I sat down, I could probably name maybe 20 off my head right away. 

Well, some of these companies, what they're doing is to entice early adopters to come to check out there, their platform, they will entice early adopters with a lifetime deal or with a discount. And some of these companies are actually over-engineering their processes in such a way where they believe that they are trying to increase customer value and getting these early adopters into higher price plans. But what ends up really happening is they are pissing off the customer and they're creating an army of detractors. So, one of these companies, for example, is 

There is a huge uproar within that community of people who brought, Who bought into the early adopter price. The earlier adopter price was $99 per year. I'm sorry, $99 per month. And What conversion.a I ended up doing is getting a lot of people to sign up for this, $99 a month plan by creating a lot of FOMO. Oh saying that this plan is not going to be available anymore. However, what they're doing is they're not honoring the deals of this plan, they're not grandfathering and people into this plan, they are just enticing people with this plan, making people think that they're probably going to enjoy this price for life. However,, what they did is a lot of the new features that they're releasing is going into a much higher tier plan and this plan is at a much higher price and it, and it kind of makes people that were the early adopters of this platform. It makes them feel like they were shitted on. 

So here's the problem that conversion data is going to start eventually facing in the future is at the beginning, they made people happy. They had a pretty good net promoter score because they had a pretty good army of promoters promoting and I was actually one of these promoters and now here I am doing a podcast on how I don't believe in the team that's running this application anymore. This is one of them. There are other companies out there. I also did a Youtube video and CopySmith, which was pretty much doing the same thing. So I'm not gonna say is alone in this. There are other people that are doing it and they're doing it the wrong way because what they're doing is they are prioritizing short-term gains over long-term benefits. What they're not thinking about is the value of these early adopters that are coming into this community. 

What could have happened is they will have these early adopters that are paying $100 per month. So they're actually paying for the service they're grandfathered into this deal and this is going to, it's going to do two things. One, it will actually reduce churn. It's going to increase retention, reduce churn because more people are going to be wanting to keep this deal, hold onto this deal because they're grandfathered, I mean if you look at the T mobile unlimited plans or I think the AT&T unlimited plans, I don't have friends who will never cancel their phone deal because they were grandfathered into this unlimited deal. And even if there are all these other things that are coming out that might take away their attention, they're just kind of committed to this plan that they've always had. And it also spells out consistency for this company because this company is able to keep its word. 

And the signal that and CopySmith are giving to the market is that they are not reliable. They are not able to keep their word. They do not care about the early adopters, they're willing to shit on their early adopters so they can do what's right for them and not what's right for their people. At least their early adopters. 

The thing about the value of early adopters is not only would you be reducing turn and increasing retention, but you also have this army of promoters that will go promote your product because they feel so happy, they feel so proud that they were an early adopter. They believed in you and your product when no one else did and they took the risk and the chance to actually buy into your product and when they get rewarded for that, they're going to be evangelists for life. Every chance they get, they're gonna say no, definitely go check out these apps because they take care of their people, they took care of me, they're reliable from day one, they kept their word. 

What these companies are doing instead is all of these people that were hardcore evangelists and wanting to promote these companies, they are now leaving in drones and they are going to be detractors, not even neutral, but they're actually going to be detractors, they are going to say bad things about the company, negative things about the company and that is going to kill their growth. 

So I feel that the founding teams that both of these companies that I mentioned in any other company that's shitting on their early adopters, they're essentially shooting themselves in the foot and if they are, maybe they are savvy capitalists, maybe their whole intention is to exit right away and not create any value at all. However, what's going to happen is that when they move onto their next venture, assuming that they do move on to our next venture, people are going to remember this and people are not going to trust the next venture either. And if, you know, they're not creative and they don't have any other ideas and maybe they're not good founders, maybe this is the best way for them to make some money. Maybe they are planning on just making a quick run and taking everyone's money and they're just leaving and if that's what they're doing, then I guess they're doing things the right way. But if they are actually trying to stay in the market and have standing power and grow an army of promoters, then they are not doing the right things because they're shitting on their early adopters. And that is one thing that you don't want to do. 

And one of the reasons that people are doing this is because they are learning from the wrong people on how to over-engineer their business without thinking about the consequences of what's really going to happen and what's really going to happen is they are going to go towards failure because people will not trust doing business with them. 

So if you start a business and you are giving a special incentive to your early adopters, be transparent with them. These are your people, this is your community, take care of them, like your family. And if you take care of these people, they will take care of you and you will be able to grow something that's beautiful and that is very successful. This is Robin Copernicus. Boom bam. I'm out.

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