Bob Phillips, a legend in revenue management and pricing circles, guest-lectured to my MIT Sloan analytics class last week. It was a treat for the students to listen to and interact with someone who I think of as the quintessential “Analytic Entrepreneur”.
As I listened to him, it occurred to me that it would be great to share his ideas and perspectives with the readers of this blog. More generally, there are great Analytic Entrepreneurs like him out there and it would be wonderful to hear about how they view the world.
So, that brings us to … drumroll, please …. the Analytic Entrepreneur Series! Every so often, I will chat with an Analytic Entrepreneur and share the highlights of the conversation here. I am delighted to kickoff the series with Bob Phillips.
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First, some background on Bob (detailed bio).
Bob is currently Founder and Chief Science Officer of Nomis Solutions, a company that’s applying price optimization analytics to consumer financial services. In parallel, he is Professor of Professional Practice at Columbia University Graduate School of Business.
Before founding Nomis in 2002…
Bob Phillips, a legend in revenue management and pricing circles, guest-lectured to my MIT Sloan analytics class last week. It was a treat for the students to listen to and interact with someone who I think of as the quintessential “Analytic Entrepreneur”.
As I listened to him, it occurred to me that it would be great to share his ideas and perspectives with the readers of this blog. More generally, there are great Analytic Entrepreneurs like him out there and it would be wonderful to hear about how they view the world.
So, that brings us to … drumroll, please …. the Analytic Entrepreneur Series! Every so often, I will chat with an Analytic Entrepreneur and share the highlights of the conversation here. I am delighted to kickoff the series with Bob Phillips.
First, some background on Bob (detailed bio).
Bob is currently Founder and Chief Science Officer of Nomis Solutions, a company that’s applying price optimization analytics to consumer financial services. In parallel, he is Professor of Professional Practice at Columbia University Graduate School of Business.
Before founding Nomis in 2002, Bob served as CTO of Manugistics and prior to that, he was Founder and CEO of Talus Solutions (I still remember reading the news reports when Manugistics announced its acquisition of Talus for $366m in the Fall of 2000).
Over the past 15 years, he has helped optimize price and revenue across a dizzying variety of industries including airlines, rental cars, hotels, automotive, electric power, freight transportation, and manufacturing. His 2005 book, Pricing and Revenue Optimization, is a model of clear writing and would be my hands-down first choice of textbook if I teach an MBA course on pricing.
Bob has a Ph.D. in Engineering-Economic Systems from Stanford and holds undergraduate degrees in Mathematics and Economics from Washington State.
OK, on to the Q&A.
What led you to the idea for Nomis?
When I was working at Manugistics, we did a small pilot project on pricing optimization for a bank. While this did not turn into a full-fledged sale, it convinced me that there was an opportunity in this industry. After I left Manugistics, I partnered with Simon Caufield, who had an extensive background in financial services. We did some research, talked to a number of different banks and convinced ourselves that there was a major opportunity in helping banks set and adjust rates for loans and deposits better.
If you were starting a new analytics-powered business today, which industries would you target?
It depends upon what you are trying to sell, but the short answer is industries that need what you are selling and do not have either large internal analytics groups or competitors who are trying to sell them similar things. Of course, if you have something truly great and compelling, you can probably find a way to sell it anywhere. But some industries, such as the major airlines, tend to have large internal analytic groups already as well as many analytic consultants and software vendors focusing on them, so it is harder to get “mindshare” from them. Some of the best industries to sell can be those that aren’t “sexy” or obvious. Many manufacturing and distribution companies have tremendous logistical, pricing, and marketing challenges and do not have the internal capabilities to address them. If you can find ways to help them with these issues, they can provide real opportunity.
If an entrepreneur approaches you with an idea for an analytics business, what would you look for in the idea?
That’s easy — how big is the potential market? Is this a million dollar idea, a ten million dollar idea, a hundred million dollar idea or a billion dollar idea? To answer that question, the entrepreneur needs to answer a number of prior questions, namely – who in an organization would be the buyer for my product — is it the VP of IT, the VP of Marketing, the VP of Operations, or … ? What would they be willing to pay for it? What is the business case that I will present to them — will it save them money or increase revenues? What industry or industries would constitute the market? Given the price I plan to charge, how many companies in those industries are big enough to pay that price? The answers to these questions will determine the best strategy for the entrepreneur to pursue.
What was your most fulfilling moment in applying analytics to business?
There have been many of them but they all have the same characteristic — they involved a situation in which I was part of a team that delivered a solution that was put into practice and delivered benefits that were recognized by the customer. As one example, we built a revenue management system in conjunction with the Scandinavian Airlines System (SAS). We piloted the system initially on a handful of routes. At the end of the first week of the pilot, the yields on the flights covered by the pilot had increased to the level that we had forecast. I think that seeing something, that is based in part on your ideas, deliver real and recognized benefits to a customer is easily the most fulfilling part of the business.
What have you found most frustrating about applying analytics to business?
That’s easy too — the cases in which a company believes that implementing an analytic solution would make them money well beyond the investment, but they don’t do it. This happens more often than many people might believe where an executive will say “I believe that implementing your solution would make us lots of money and pay for itself many times over but we are not going to do it.” The potential reasons include budget, organizational bandwidth, politics, or sheer inertia. Somehow I find that more frustrating than the cases in which I have not been able to persuade companies of the benefits.
What are your favorite analytics tools/software?
I am not a great programmer so I am a big fan of spreadsheets as a way of prototyping ideas. I use Excel plus Solver and Crystal Ball a lot.
Analytics books you’d want to take with you to the proverbial desert island?
Probably Elements of Statistical Learning by Hastie, Tibshirani and Friedman (Rama: This is one of my favorite books too. Amazingly, this fantastic book is available as a free download from the authors – PDF).
Final words of advice for “analytic entrepreneurs” out there?
Just have fun – don’t lose sight of what got you excited about “analytics” in the first place. And stay close to the market — the more time you spend with companies helping them solve their real problems, the better your ultimate offering will be.