Tag Archive for: Business

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Dude, Where’s My Geometry?

Let me tell you how it will be/There’s one for you, nineteen for me
The Beatles, Taxman

Hypernomics loves geometry. It touches markets in many ways, including the Demand Frontiers, notably as they mature. Ignoring market geometry can lead to unwelcome multimillion-dollar surprises.

In 2014, CO and WA legalized recreational marijuana. CO taxed it 30%. Seeking vast riches from this new revenue source, WA taxed it about 108% (it varied by county). At years-end, WA, with a third more people than CO, made $51.7M in recreational pot tax monies. CO made $375.4M.

What WA didn’t understand because they didn’t study it was the cannabis demand curve slope. While we don’t have the WA pot data on hand (they do), we have a like curve for cars. If we apply another 100% tax on vehicles, the number sold, given the demand slope, falls by about 70%-80%. As steep as these reductions are, they still don’t match the WA experience in 2014, suggesting the actual slope for recreational cannabis in that year was even flatter than that for automobiles.

But there is no need to guess about this. If you study it, within statistical bounds, market geometry will “tell you how it will be.”

#innovation #hypernomics #business #technology #management

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Problem? What Problem?

A mathematical problem should be difficult to entice us, yet not completely inaccessible. It should be a guidepost on the mazy paths to hidden truths. – David Hilbert

In a space-limited outdoor diner we visited a while ago, we observed the seating arrangement in A. They had two tables for two and ten for four. Seven of the four-place tables had parties of two. So, I wondered – is the setup they had the best for the crowd they faced?

A report I found (see below) noted that restaurant parties of two outnumber four-person parties by over two to one. On average, there should be more tables set up for couples than for larger groups.

But the average condition may not be the usual one. Or the one they faced.

What to do?

Suppose the four left-most tables were modular. The establishment could separate them into eight two-place setups. Then they could seat all seven of their two-person parties and put a two-top in storage. Their capacity would go down by two (at least temporarily), but, in the case shown, occupancy could go up by 30%, as we see in B.

Restaurants make money through occupancy, not capacity. It’s important to know what problem you need to solve.

#sales #demand #restaurants #business #success #management #problemsolving

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Restaurant Math – Thin Odds

You spend your life waiting for a moment that just don’t come/Well, don’t waste your time waiting – Bruce Springsteen, Badlands

You know the feeling you get when you walk up to a roulette wheel in a casino, place a $100 on 00, it comes up, you win $3,500, and then you let it ride on 00, hit it again, and walk out with $122,500? No? Me either.

The reason I don’t is that while it’s possible to come up with that combination, the chance of that happening on a 38-pocket wheel is 1/38 * 1/38 = 1/1,444 = 0.00069, about 7 times in 10,000 tries.

But that is more than twice as likely as the probability of a restaurant result I recently witnessed.

As we left a brewery, it had four open tables; each sat eight, B. Four parties waited, C, held in place by their policy not to seat parties of four or fewer in tables for eight. But, the chance of filling them up according to their plan and the data, A, is 0.13^4 = 0.00028, less than half that of our roulette gambit.

Meanwhile, those people stayed hungry. They and the restaurant both suffered.

We are, all of us, always playing games of chance. It pays to know the odds. Anybody up for blackjack?

#business #success #management #probability #sales #restaurant

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A Sufficient Condition

For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled
Richard P. Feynman

Feynman’s observation about truth is one that can move past physics, where he won the Nobel prize.

It happens that in all markets, we collectively form relationships about how we respond to product features and prices. It is our Nature.

As we build, say, a helicopter for the President of the United States (A), we might be inclined to keep adding to it: unprecedented speed, a larger cabin, extra defensive systems. After all, we might tell ourselves; there won’t be a more important thing in the sky. It is a necessary condition to protect it and everyone inside.

The bonus features drive an increase in Value – and Price.
But at a group-induced limit we call the Demand Frontier, sales stop. We do not have any more monies to buy more of the product in question past the points on that line. Trying to exceed the Demand Frontier is a sufficient condition to stop any program.

In the case of the VH-71, USG requirements creep let it become untenable. All of that could have been avoided by analyzing the market as in B.

Doing a market analysis is hard.

Losing $4.2 billion is harder.

#innovation #demand #marketanalysis #business

 

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Finding Your Niche

Wee Willie Keeler knew a thing or two about baseball. The Hall of Famer still holds the National League hitting streak record, 45 games over two seasons. He summed up his approach with “Hit ‘em where they ain’t.” It turns out that’s sound advice for entering a market, too.

In the early 1970s, the airline industry embraced the then-new Boeing 747 wide-body. Lockheed and McDonnell Douglas both wanted some twin-aisle profits as well. They came up with the L-1011 and DC-10, respectively. While they had obvious design differences, from the standpoint of their customer airlines, they were virtually identical, with highly similar specifications and prices. Neither had a corner in the market – they shared the same spot, and would have to split the sales.

Lockheed only sold 250 L-1011s; its break-even point was 500 units. With a lower target, McDonnell-Douglas managed to squeak past its break-even value of 438 planes, as it sold 446 DC-10s, eventually offering engine options and added range to distinguish it from the L-1011.

But neither model was a financial triumph.

Nothing guarantees success in the market.

But mimicking the competition reduces your chances.

#innovation #newproduct #business #success #branding #competition #entrepreneurship

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Bounding Problems

In countless games, the parameters, once set, never vary. There are only a given number of spaces on the chessboard. American football always uses an elliptical spheroid built to strict specifications. All NBA basketball rims are the same diameter, ten feet in the air.

Markets seem different. They don’t have instruction manuals. At first glance, it would seem you could do anything you want in them.

Still, they have rules. Not understanding them can sink a project.

In addition to DeLorean not understanding the value of horsepower (see the last post), they also failed to appreciate the Demand Frontier they faced in 1981. As A shows us, DeLorean thought they could exceed that limit by nearly two standard deviations, despite no one else beating it by half that much.

In this and many other markets, Product Market Demand Curves form. Always flatter than the overall Demand Frontier they build, they describe the product price limits as quantities sold increase. These curves set boundaries producers must consider before they enter any market. Ignoring them can have disastrous consequences.

How do Product Market Demand Curves compare to their Learning Curves? Look to the next post for answers.

#markets #demand #pricing #boundary #innovation #business

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Electrifying

Helicopters are highly versatile machines able to take off and land in tiny areas. They’re perfect for landing on buildings in dense urban areas. But since they beat the air to death with thunderous rotors turned by noisy jet fuel turboshaft engines, they’ve been banned from many a city. What to do?

Let’s go electric.

Nine years since the first manned all-electric helicopter flew, https://lnkd.in/eXi3bV8, there’s a race to build versions that can take passengers. With battery energy densities tripling since 2010 and prices falling simultaneously, there’s a vast potential market. Several firms are in it.

Perhaps the one closest to putting an electric rotorcraft up for sale is newcomer Volocopter, with its 2X (in A). It uses 16 motors, one to a rotor, and carries a pilot and one passenger.

Longtime manufacturer Bell offers its Nexus 4EX (B). More capable, it transports four passengers and a pilot. An entirely different configuration, it has four ducted, rotating propellers mounted atop wings.

If flights in these new machines are substitutes for cab rides, given Yellow Cab data for NYC in January 2017 (C & D), which part of the market would you address first?

#innovation #technology #entrepreneurship #travel #business

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Visualizing Value

In Multidimensional Economics, Value is a sustainable product price based on its features.  Producers set Prices.  Customers determine Value.  When they don’t match, problems arise.  Buyers pay no mind to cost when considering Value.  If you paid $1000 for a laptop, you don’t care if its cost was $1900, $900, or $90.  You just know it satisfied your Value proposition.  How do markets establish Value?

Value is whatever the market says it is.  For business jets, Fig. A shows us there is a positive correlation between speed and price.  The faster the planes go, the more buyers who can are willing to pay.  Note, though; there is high variation in A near 560 MPH, reflected in the Mean Absolute Percentage Error in D.  Fliers like to be able to take people along with them; thus, it makes sense in B that buyers pay for added capacity.  No one wants to be cramped, either, so observe in C that taller cabins fetch more money than shorter ones.  As we add features B & C, we lower errors in D.

Aircraft speed, capacity, and comfort value terms are analogous to those for computers. Laptop buyers want processor speed, short- and long-term memory, and easy to read screens.

Analysts should consider all features markets find useful.

#business #value #marketanalysis #price #innovation