Belief formation process – Example

Beliefs are what we believe we can do to move closer to the Strategic intent. As we discussed in the last post, left to our own devices, humans are very prone to create false beliefs. Therefore a data driven process for creating Beliefs is needed. In this post we will go thought an example case of how such a process can work, starting with the strategic intent of the company and then going through a Belief formation process, concretizing the Strategic intent to Beliefs. This post and the example is inspired by the Melissa Perri book “The build trap” and her discussion of the fictitious company Marquetly. However I have changed the example to better match my own experience.

The company in question is a two sided marketplace which means that its a platform where sellers can meet buyers. The company focuses on used goods and makes money when a buyer and seller performs a transaction on the marketplace. The company was in a pre IPO phase and needed to show strong growth to its investors. Their strategic intents were therefore focused on revenue growth and one Strategic intent specifically targeting the private individuals.

Strategic intent: “We want to grow by increasing revenues from private individuals by 30% per year”

These statements are a type of interface between the management team that sets strategy and in the product organization where the work needed to reach the goals are defined. 

The first job in breaking down the targets is an analysis of current revenue streams. In the case of our company, the revenues from private individuals were made when a buyer and seller performs a successful transaction. The way to increase revenues are therefore to increase the number of transactions happening on the marketplace. 

There are three general ways to increase the number of transactions:

  1. Increase the number of sellers on the site
  2. Increase the number of listings per seller
  3. Increase the average success-rate of listings (listings resulting in a transaction)

Given that this is likely the company’s core business, this type of breakdown should already exist but it’s good to do the exercise of breaking down the goals all the way from the top even if we already know the answers for some of the early break-downs.

The next step is to analyze the current performance of the three potential drivers. In our example the success rate stood out with very low. The Belief owners decided to focus in on the success rate and stated the first iteration of their Belief.

First iteration Belief: “We believe that if we can increase the success rate from 20% to 30% we can increase our revenue by 50%”

To be honest, the data above is also nothing that should come as a surprise to the company as it is likely a metric they are already tracking. The management team could have likely created this first iteration Belief themselves. The next step is where it starts to get interesting since we have now unbundled the Strategic intent enough to start doing user research.

This exploratory user research can be done in many ways, in our example the company opted for sending out simple questions to all sellers that had received at least one message but that were not successful. The feedback they received were mixed but some patterns emerged. For example, the company learned that 20% of the sellers perceived that they had received many leads but that they were irrelevant and felt unstructured so they had chosen to sell the item on another platform. The Belief owners chose then to narrow down and focus on this problem and formulated their second iteration.

Second iteration Belief: “We believe that we can increase revenues by increasing the success rate through improving the quality of leads to sellers”

Depending on the maturity of the development teams and the time constraint of the Belief owners the Belief could potentially be handed over and start doing Bets. More likely though is that the Belief owners will take this Belief through more iterations understanding why the leads were not good.

Fast forward and the Belief owners had done five iterations and combined analysis of their data with user research. Their fifth iteration was much more specific.

Fifth iteration Belief: “We believe we can increase revenues by 6% through a more helpful ad insertion funnel and therefore creating more clear item descriptions that will in turn increase success-rate to 50% of the 20% of users that have identified this problem”

Now this is a Belief that was not obvious for the organization when the process started. This much more sharp formulation is also a much better foundation for teams to define Bets for since it has clearly created a bridge between user problems and our strategic intents.

Next week we will look at how teams create Bets around these Beliefs