In reality, the business owner has the responsibility to make decisions, but without data, it is like driving a car with your eyes closed.
Whether you refer to them as the business owner, founder, CEO or by any other title or position, the common thread that unites them all is the shared responsibility of driving success for the organization. And, what does the success of business look like?
"Visualize the success of business by Data Story"
"High revenue or high profit than previous year is an example of business success."
Thoughtful decision making and meaning of Predictive Business
When operating a business, decision-making often involves three main options :
Seeking answers through observation
Formulating hypotheses and conducting tests to make decisions
Making decisions based on imagination
Which do you think is the worst decision-making option among those three? The answer is choice 3, making decisions based on imagination. While you may possess the same level of intelligence as Warren Buffet, deciding without data insights often results in incorrect decisions instead of the right ones. Even Warren Buffet once said "Pay attention to the fact, not emotions"
Therefore, I am eliminating option 3, as it is not a wise approach for achieving business success. Now, let's examine the remaining options in detail and consider how you can implement them in your business.
1. Seeking answers through observation
You may unknowingly use this approach, such as when searching for a location to establish your new coffee shop. Ensuring that the location is crowded and will attract customers is a good example of applying Predictive Business. If you are doing this, then well done, you are on the right track
In fact, if you further analyze Predictive Business, you will realize that it can be even more beneficial than you initially thought. This is because Predictive Business is capable of predicting future outcomes based on the historical data of your business.
To improve your chances of success in setting up a new coffee shop, it would be advisable to gather additional data on the local population's income, coffee preferences, peak hours of activity, and present it in the form of Data Visualization and Data Story. This will provide you with a deeper understanding of customer behavior.
E-commerce or online businesses are highly suitable for implementing Predictive Business strategies, as they can collect unbiased data directly from the source without any intermediary.
After collecting order data from our website for a certain period, we obtain a data story represented in picture 1. If we choose option 1 - making decisions based on observation, this data story highlights important factors to consider. As illustrated in the graph, the number of item views is approximately 18,000 times or 100% compared to the lower part of the graph, which shows around 14,000 purchases or 7.9% of the website visitors.
As a business owner, do you satisfy with this situation? Are there any methods to increase revenue? You can opt to improve the effectiveness of closing deals, increase the rate of item views or adding items to the cart, or pursue any other desired actions. The most straightforward approach to validate this is to create hypotheses and carry out tests, which I will explain in the next step.
2. Formulating hypotheses and conducting tests to make decisions
Based on my experience studying Data Science at the University of Texas at Austin (McCombs) and the Business Analytics course from Harvard Business School online, I have learned that the testing process can be quite complex. This complexity may discourage some entrepreneurs who are focused on solving their business problems, as it already consumes a significant amount of time. Mathematical terms like hypothesis testing or linear regression can be daunting and may disengage individuals. As a result, I will provide a brief explanation using this graph, as it contains crucial information that you shouldn't overlook.
Data Science is for solve the hypothesis that human set up
For example, If you do..., you will get...the prediction will be accurate...%
Are you satisfied with the accuracy of the prediction results you obtained?
This is the fundamental concept of Data Science, which aids in solving business problems. Let's take a look at the graph 2, at a cost of goods of $40,000 (horizontal axis), profits may vary between $780 and $900 (vertical axis). On the other hand, when the cost of goods is $80,000 (horizontal axis), the profit may reach $1,200 (vertical axis) in some instances.
When I draw a straight line connecting them, it will follow the pattern shown in Figure 2. I refer to this line as the prediction line. Until now, no matter what new product you introduce, you can confidently determine the expected profit. By now, you yourself may find it easy, right? You don't need to hire a Data Scientist. You can do it yourself easily.
If the result is as shown in this figure, which line would be better for drawing the prediction line : purple, green, or red ?
The answer is, when the data is scattered, which is something you will definitely encounter in real business life, the only way to solve this complex hypothesis is through Data Science. This will help you make more accurate decisions based on the results you receive. Because having too inaccurate data can lead to making wrong decisions, while having more accurate data is crucial.
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