The Dangers of Tribal Knowledge

One of the things that I find common across many organizations, small or large, new or established, are members who know things. And that is dangerous. I am not saying “knowing things” is wrong; let me rephrase that: the danger is they think they know things. By that, I mean it is not good when people know things because they heard it, or “everyone knows that…”. They usually know their “facts” when pushed on these points because someone told them. My guess is whoever told them also “knew” it because they had been told the same thing.

For example, working for a subscription-based company, I was told that customers with higher credit ratings had a higher customer lifetime value (CLV) than those with lower credit ratings. This made sense. As a subscription-based offering, those with higher credit ratings tend to be those who make their monthly payments, so they must have a higher CLV. I took that knowledge and moved on.

The problem was that a few months later, I was building cohorts to run some regression on trying to predict how long members of each group would stick around so that we could figure out the trigger for them leaving and hopefully fix the pain point, thus keeping them. One of the parameters I was using to slice up the different groups was credit rating. At some point in the process, I ran a high credit rating group and a low credit rating group one after another, and the results surprised me. The two groups were statistically no different.

This got me wondering, so I started eliminating variables until we got to rather large groups that had no real difference in credit. Lo and behold, their customer lifetime revenue (CLR) was statistically the same. I took this to the person on my team who had originally told me there was a difference. She ran a similar test and got basically the same results. We both took a different set of customers, though with similar profiles, to make sure our pulls were not anomalies and once again, basically the same CLR.

This mattered because we all “knew” that folks with a higher credit rating had a higher customer lifetime value (CLV), and we spent more to acquire them. But if our cost of acquisition was higher for those with higher credit ratings, and the CLR was the same, that meant the CLV for lower credit customers was actually higher.

We took our findings to our boss. He said to check them yet again. We did—same results. So, he had us put together a presentation summarizing our findings, loading the SQL we had used for the pulls into the back so higher-up analysts could pick holes in it, and he went and presented the finding to his boss and his boss’s boss. He was met with the same skepticism that he had greeted me and my co-worker with and that my co-worker had shown me when I first came to her.

The higher-ups took the report and had more analysts look at our data and do their own pulls—first with our queries, then with their own. Finally, weeks later, we got a reply that things needed to change. The math supported the fact that we were wasting money chasing the high-credit customers. So, we switched tactics, and instead of offering acquisition plan A for high-credit customers and plan B for low-credit customers, we would have one offer.

Initially, we offered everyone offer B. But then I got permission to create an offer C. Offer C was better than offer B but not as good as offer A. We tested the offer on a subset of potential customers, and the rise in take rates far exceeded additional costs, resulting in a very nice ROI. At the end of the year, our team looked very good as we were able to increase our customer base, lower our cost of acquisition, and show a very nice ROI for the team as a whole.

But what if I’d never stumbled across this?

And this is my challenge to all the entrepreneurs out there: challenge what you know. Look at how you know it. Did you get this information from a new article? Even if the article wasn’t trying to be biased, does it apply to your specific market? Did you get the information from a mentor or someone who has been doing something similar for a while? How did they come by the knowledge? Heck, even if you know this because you did some analysis at one point, markets, people, and buying habits all change over time. Have you looked again?

And don’t let my story put blinders on you. In my case, it was a credit rating. Challenge all aspects of your business. How do you attract customers? What might have worked at one time might not be your best option anymore. How do you do your distribution? Maybe going directly to the customer was good, but now there are better options or vice versa. How much does support cost you, and is there now a more efficient way, maybe through AI? Markets, products, consumer tastes, remote work, changes in technology, new competition, and media mix are all constantly changing. What was a truth at one time may not be now.

But also, do the math. Don’t just say, “I can lower support costs by using AI.” Figure out what that means and a measurable way to track results, and then….crazy here, track the results. And don’t forget end‑to‑end. Sure, you may lower support costs, but if people are now churning or dropping your product at a higher rate, do those losses offset any change in support costs? The math can be simple, but trying to understand what variables to measure and how to do so is often the tough part. But keep working at it. In the end, I believe it will pay off.

Speaking of paying off, my dad visited a year or so ago, and for some reason, he was going through my tool drawer of pliers and adjustable wrenches and commented that I needed to get some large adjustable wrenches and large channel lock pliers. I usually work on cars, and most things in cars aren’t that big; plus, I thought I had decent-sized wrenches and pliers.

He shook his head, and we headed down to Harbor Freight. There, we got some big wrenches and pliers. I can’t say these are the exact ones we bought, but something like this for the adjustable wrench (18″ Jumbo Adjustable Wrench (harborfreight.com)) and like this for the channel locks (12 in. High Performance Groove Joint Pliers (harborfreight.com)). I took them home, threw them in the drawer, and forgot about them.

That was until Tuesday of this week when I noticed water leading out of my garage. I tracked it back to the wall between the garage and the house. On the house side are the hot water heater and the washer. I checked both of those, but they were fine. I opened the panel to the water shut off for the house and found my issue. My pressure regulator valve burst. Well, let me admit, I did not know what it was and had to text a photo to my dad asking what it was, and he let me know. So, I found the water shut off to the house at the street, but I don’t have the exact tool you’re supposed to have to turn that but the large adjustable wrench I had bought worked well enough. Then I had to come in and get the PRV out and had to use both the adjustable wrench and the channel locks to get it removed. If I hadn’t had those, who knows how much damage the water could have caused and without the tools I couldn’t have removed it and would be paying a plumber which would have been way more expensive than invest in $60 worth of large tools. So, thanks dad, for the advice, identifying the PRV, and talking me through the removal and install. 

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