Matt Lerner, speaking at the Business of Software Conference, delved into the topic of funnel conversion optimization, emphasizing the shift from an optimization mindset to a discovery mindset for organizations to unlock their full potential.

Lerner began by drawing an analogy to the debunked myth that humans use only 10% of their brains, suggesting that companies similarly fail to utilize much of their potential. He recounted his experience at PayPal, where despite launching a card processing API, 90% of customers who signed up never processed a transaction. After addressing obvious issues and still facing challenges, Lerner realized that many customers did not have actual businesses. This led to a breakthrough where they focused on high-value customers using a predictive model, significantly improving their outcomes.

Lerner highlighted the misuse of statistics in business, particularly the pitfalls of relying on averages in skewed distributions. He argued that companies should prioritize understanding the distribution of value and focus on high-impact activities instead of optimizing for average performance.

A key theme of Lerner’s talk was the need to shift from optimization to discovery in situations of high uncertainty. He stressed the importance of acknowledging unknowns, experimenting, and learning from failures. This shift requires a cultural change within organizations, encouraging employees to be curious, admit they don’t have all the answers, and embrace experimentation.

Lerner outlined a practical approach for this shift: mapping out the growth model to identify rate-limiting steps, conducting jobs-to-be-done interviews with customers, generating hypotheses, making predictions, and running experiments. He emphasized the importance of writing well-formed hypotheses and making public predictions to clarify thinking and eliminate hindsight bias.

To sustain a discovery mindset, Lerner stressed aligning incentives with learning. Traditional incentives, such as revenue targets, may not be suitable in high uncertainty domains. Instead, incentivizing learning and experimentation can drive better outcomes.

Lerner acknowledged the difficulty in changing an organization's mindset. This involves creating an environment where employees are comfortable with uncertainty and willing to take risks. He shared personal experiences, including his struggle with imposter syndrome, to illustrate that success often comes from recognizing and addressing fundamental misunderstandings rather than being inherently smarter.

Ultimately, Lerner advocated for a balanced approach, blending optimization and discovery. While mature parts of the business may benefit from optimization, new or struggling areas require a discovery approach. This dynamic strategy can help organizations unlock their full potential and achieve sustainable growth.

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