Fire For Effect – An Example

Last week, you may recall, I wrote on how adjusting fires in Artillery before firing for effect can be useful. First experiment broadly and then fire for effect once you have clarified the best target. Check out that blog here.

I once ran an organization making market priced loans to micro-business people who have only an outside stall or a piece of the sidewalk.

Our goal was to make money available to the smallest businesses who usually have no access to bank financing and make money doing it. To protect the capital, we had stringent requirements like small amounts and requirement to make small payments every other week.

In Africa, this is huge as no one saves. Everyone lines up for the loans. You could have tens of thousands of applicants within a week in Africa.  We worked for years and only had 800 active loans in China. Chinese people borrow from their friends and relatives, who have money.   We were highly profitable however.  African programs usually lose money though they have many loans.

Just the same, we needed to expand our market and preserve our capital.  We had ten offices, and each office had it’s own profit and loss to manage within our system.

The office managers were always trying to get me to make changes to increase the market.  I felt most of their ideas would never work or lose money though I did not say that. They wanted to lower the price, or allow single people more broadly, or make bigger loan amounts or longer terms.

Experiments

So I had a system of adjusting fires.  Any manager who was hot to convince me to try something, would get my guidance. “You do it here within these constraints.”  They gave price discounts for 3 months to try the elasticicity of demand in price for example.

I can think of many such experiments that I formally allowed in one office or another.  Often, there were 6 or more experiments of different types on at one time.  Most proved that our base model was excellent.

One salesman in an office took me to an indoor market. We always served outdoor stalls. The businesses inside were bigger, but our loans were small. The people laughed at us and made fun of us when we told them what we wanted to do.  I felt the salesman had made fools of us, but I allowed him to pursue this if he wanted to as a kind of experiment.

30 days later, one person from that market walked in to get a loan and every day, till today I hear, one or more people came in and borrowed. People who had made fun of us sheepishly came in and got loans.  We tried in some other similar markets in other places. The results were the same, so we put more resources there.  It grew until all offices everywhere were focusing on similar markets.  That path grew to be over half our market.

At least a dozen experiments proved to be no use. However, our thinking to allow small experiments led to a discovery that made us much more profitable when we fired for effect.

Thoughts?

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Posted in: Decision Making, Leadership, Market Entry, Motivating Workers

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