TMBA 438: The Knowledge Gap vs. The Efficiency Gap

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On this week’s show, Dan and Ian are revisiting a subject that they haven’t spoken about in four years.

Truthfully, it’s the number one recurring topic that listeners of this podcast bring up with them in conversation, so we thought it was high time to take another look at it.

Today we are talking about the “Knowledge Gap” and the “Efficiency Gap”.

Too often, entrepreneurs are selling their product or service by trying to solve a “Knowledge Gap” for their customer. Nearly every entrepreneur does this. We try to be the expert in our line of work and teach people why they need to work with us.

But we’ve found that businesses that learn how to focus on “Efficiency Gaps” and solve them properly tend to be more profitable, successful, and fulfilling for their owners to run.

In this episode, we’ll be sharing reasons why people get caught up in this differential and what we, as entrepreneurs, can do to ensure that our businesses are successful.

Transcript

Listen to this week’s show and learn:

  • What the “Knowledge Gap” is and why entrepreneurs tend to focus on it so heavily. (2:32)
  • Why solving the “Efficiency Gap” means having a deeper understanding of the problems of your clientele. (6:02)
  • What happens when you lack the competence to solve the problems in your market. (10:47)
  • Why the fact that no one is doing something yet doesn’t mean that you should be. (24:58)
  • Why you shouldn’t bet the success of your business on your clients’ not gaining knowledge. (30:24)

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Published on 04.26.18
  • Whoa nelly do I have some thoughts about this.

    To begin with, I was trying to parse the things that knowledge vs efficiency gaps captures as a mental model that aren’t captured by other mental models.

    Listening to your examples from the show, I heard two:

    Legibility vs differentiation
    Augmenting existing KPIs vs “educating the market”

    Ian has it exactly right when he says “I’m going to let You educate the market for three years, then I’m going to come in and sell a slightly better solution to the problem you’ve educated everybody about.”

    So this plays into legibility. Two years ago, I was trying to sell sales funnels to small business. The problem was, nobody who knew what copywriting or conversion optimization was thought it was particularly valuable (with the exception of some awesome DCers who gave me a chance), and most SMBs had no idea they needed it.

    So I was suffering a legibility problem.

    As I began focusing on paid traffic, the conversations changed. Everybody wanted more customers, but they all wanted to know why they should hire Me, instead of one of the incumbent players in the market.

    It’s fair to say I had an authority problem, but more urgently I had a Differentiation problem.

    Three months later google banned 85% of the keywords in my niche, and I partnered with someone who knew Facebook ads. The fact that I was Differentiated – I was now the Only consultant with a “proven” paid traffic solution for my market – gave me a little more traction.

    My solution was Legible, but Differentiated.

    Dan hinted at this, but imho two great ways to differentiate are by niching and (nice work if you can get it) authority.

    The example dan and Ian use to speak about knowledge/efficiency, SEO vs…I think it was blade sharpening?…seems to me an example of augmenting an existing kpi as opposed to asking the biz owner to learn a new one from scratch.

    Here’s where my extremely limited experience might diverge slightly: When it comes to knowledge – “we’re better at this than you” – vs efficiency – “we’ll take this thing off your plate and do a Good Enough job with it”, I’ve found Pure Efficiency a little bit fragile to competition from in-house hires.

    As an example, “we’ll sharpen that blade for you because it’ll save you time” might be more likely to meet the objection “well why don’t I just hire mike from across the street, because I can teach him, he’ll work for cheap, and he’ll always be here in case we need him.”

    Whereas “we have a proprietary system that will extend the life of blades 35%, and a bad sharpener can actually Cost you money” is less likely to raise that objection.

    Dan basically nailed this when he said there’s no substitute for real expertise.

    Fill an efficiency gap until you have the knowledge to give you a competitive advantage?

    Hope this is coherent:p

  • Very interesting to think about this episode and to read Nate’s comments. Looking forward to seeing what other people say.

    I’m struggling to understand why efficiency is better. Knowledge seems to be at the core of consulting, to some degree.

    Perhaps a real-life example would explain my confusion on this one: Thanks to the encouragement of this podcast, I started an SEO agency. I happened upon what seems like a good niche in assisted living.

    Let me just say, the knowledge gap in the senior living space is intense so far, compared to my other clients. Multiple owners, CEOs and COOs of multi-million dollar companies in the industry have asked me, “What’s the difference between a browser and a search engine?” Actually, when I asked them what search engine they use, they said Safari or Internet Explorer. (Everyone seems to actually be using MSN/Bing, because those are the default on Windows machines. So Google isn’t really a thing in their average day, if they use it at all.) One community director told me she only used the internet once, and that was to apply for her job. Seriously.

    So squeezing more efficiency out of my client’s existing assisted living units would be one thing, but increasing their occupancy 11.8% (which we did) made them something on the order of $3.9M in new revenue, much of which was profit because their fixed costs were already covered by the occupants they already had. The owner then sold the company, I’m guessing on a decent multiple of those now higher annual profits.

    Could they have squeezed that much value out of their existing operations? Maybe.

    Was it a slam dunk to instead fill their vacant units and make more money at each location? I would think so.

    Were they ever going to handle this in-house? I can quite confidently say no. The COO learned about SEO the same week she hired my agency.

    Could they have found someone who would have charged them less to get similar results? Yes, but if they saw a multifold ROI, do they really care?

  • hey thanks for your comment and congrats on the account and business! let me start by saying that this rule simply might not apply in many situations, but let’s suppose it does. your comment makes me think that like the word ‘efficiency’ can be confusing perhaps it’s better said:

    “selling them more of something they already value” vs. “convincing them to value something new”

    In the case of the client above it didn’t seem to matter to them weather it’s SEO or carnival barking, you were selling them occupancy, which is a concept their organization values and was built around and a result you can deliver and they can tie to you. So insofar as you could tie your services to occupancy you were selling them more of what they valued. One could argue that positioning and qualification are simply a part of any good sales process, and I’d generally agree with that. For me having an idea of this distinction is simply one rubric of many I’d consider before investing in a new client.

  • hey Nate great to read your thoughts, certainly coherent. It’s also not diverging much from how this conversation can go in-person, that I find many who are selling services to be highly engaged in this distinction to some degree and have a lot of thoughts on it it.

    That fragility is interesting one and one that (in my experience at least) is often levied by very small companies, but yeah your positioning “extend the life of glades 35%” out to be such that it’s simply a no-brainer to engage in a contract. If your point of comparison is one salary, you’re making the sales process to difficult on yourself. Your second value prop “cost you money” could be pushed to an extreme to see what it looks like: is there a (no)risk service pays back the customer in time/profits within months?

    I think you nailed it with “augmenting existing KPIs” Based on the previous comment, that’s a clearer way to express what I was pointing to with “efficiency” . Legibility is a great one: I’ve been thinking a lot about that recently. Storytelling is such an important part of the entrepreneurial process. I was working a chapter/blog post on exactly that topic yesterday. Hopefully more soon! Thanks for listening and for your comment

  • Jane Beresford

    Hi Nate .. we’re planning a follow-up to this episode and wondered if you’d be interested in contributing. I couldn’t find an email for you (damn!) so – if you are – get in touch with me at jane@tropicalmba.com

  • Jane Beresford

    ps. Dan’s just messaged me to say he has it. Our team communication is just great … ;) Emailing you now.

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