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The Scientific Approach to Business

By Andy Morris
CentSense


Scientific advancement over the past century has been phenomenal.
To it we owe the ubiquitous automobile, the convenience of air
travel, our modern appliances, and our computers. Science,
applied to technology, has put a man on the moon and microwave
ovens in our kitchens.

Science, or to be more precise, the scientific method, is also
being applied to business. Product development and testing are
often the direct result of scientific developments. Inventory
management, production methods, and other aspects of business
often follow scientifically developed techniques. Test marketing,
consumer surveys and statistical measurements of advertising
effectiveness are examples of the scientific method applied to
marketing.

Traditionally, it has been big businesses, the mega-corporations,
which have had the resources to apply scientific methodology to
their businesses. The computer and Internet have evened out the
playing field however, so that now even a micro-business can
benefit from taking a scientific approach.

Just what is the scientific method and how can it be applied by a
small business?

Science is simply the process of testing hypothesis. It follows a
three-step feedback-loop:

1. Formulate a hypotheses
2. Test the correctness of that hypotheses (experiment)
3. Measure and evaluate results
1. Formulate another hypotheses, or modify the original
hypotheses, etc.

In business we often apply this process in an ad-hoc manner,
formulating vague hypothesis, trying one thing or another, and
then keeping what works and discarding the failures. By making
the process more formal and systematic we can avoid pitfalls and
get better results.

First we need to get in the habit of stating our hypotheses in
specific detail. Not 'Advertising would be good for my business'
but 'An ad in XY eZine would bring me ## sales per month
initially, at a cost of $$, but results will diminish over time.'

The Internet is the perfect laboratory to test our hypothesis.
First we can look at what others have to say about the
effectiveness of eZine advertising, then look at the extent of
distribution eZine XY has for our target audience. This may lead
us to modify our hypotheses - we have gone once through the
feedback loop - before we finally place an ad with traceable
results. After a month we measure the results and modify our
hypotheses accordingly. After a few months we can see if the
latter part of the hypotheses is correct, and measure to what
extent it is true (if it is true), so we know when that
particular ad ceases to be cost effective.

Repeating similar experiments with other eZines will soon allow
us to evaluate the effectiveness of eZine advertising in general
for our specific business, and determine the diminishing
effectiveness rate overall. Or perhaps we will find that ad
effectiveness increases with repeated exposure. Whatever the
specific results, we will know they are reliable if we have
arrived at them through the scientific process.

Another important aspect of the scientific method is that you can
not measure two inter-related properties in one experiment. This
can get tricky, as you have to consider carefully how seemingly
independent properties might influence one another.

In our example, we looked at both ad effectiveness, and changes
to the response rate over time. This is simply two measures of
the same property. We could not, however, hypothesize that sales
would diminish over time, but increasing ad size would compensate
for that. We don't know for sure that the original ad would have
diminishing effectiveness. 'Compensating' for that with larger
ads would yield ambiguous results - if sales increased they could
be attributed either to repeated exposure or the increased ad
size.

If we FIRST test the response rate over time, then in ANOTHER
experiment measure the effects of ad size, we can have confidence
in the results. We can even run these two experiments
concurrently using different eZines, if we are sure the eZines
are similar enough that their results will be comparable (which
we may KNOW if we compared the effectiveness of the two eZines in
an earlier experiment!)

Applying the scientific method to our small business marketing
allows us to DO WHAT WORKS by providing PROOF (to our own
satisfaction) that some particular technique works. Keeping track
of both our successes and failures will provide us with concrete
evidence of our progress, and turn our intuitive knowledge of our
business into specific, measurable, repeatable formulas.

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About the author: Andy Morris runs the CentSense small business
resources web site:  http://CentSense.bravepages.com/