That has been the standard refrain from the economists, strategists and pundits who were caught unprepared by the financial crisis of 2008. Not only did the majority of professional prognosticators not anticipate the recession, they also failed to recognize the severity of the credit crunch before it was a full-scale meltdown. Rest assured the stock market collapse blind-sided them as well.
While they might not have seen it coming, there were plenty of people who did. In fact, one group in particular not only saw the crisis in advance, they were able to do so using very simple and inexpensive tools – just a spreadsheet, and their own firm’s data.
Some of those who had advanced warning before the storm hit were small and mid-sized businesses who “data-mine” – those who analyzed their own figures in different ways to identify anomalies. They used their own sales data to not only check on the health of their business, but much more than that. Using spreadsheets to sift through subtle changes in client behavior led some to spot broader trends in the economy. And, many did so in real time – and were able to adjust their spending and hiring plans – before it was too late.
You too, can be a small business data miner. It only takes a spreadsheet, a few hours a week, and a curiosity about what might be hidden within your own data.
What is data mining?
Generally, data mining is a process of identifying and extracting hidden patterns from within data. Identifying unusual patterns or behavioral anomalies is the key goal of this process. By analyzing the numbers your business produces, you can see what the normal ups and downs of your business look like on a chart. When something out of the ordinary occurs, it will stand out like a sore thumb.
Data mining has found enthusiastic supporters in many areas. It has been used by employers to determine what makes some workers more productive than others; Insurance companies have successfully detected medical fraud and assessed automobile accidents with it; Even Police departments have used data mining to identify new crime waves by what is filed in Police Reports.
Large companies spend millions of dollars to install expensive software that automates much of the process. Wal-Mart, the world’s biggest retailer, has famously spent billions of dollars on their own approach to business intelligence and data-mining. Management has admitted it is the secret to their great success.
But small or midsize businesses need not spend millions – and certainly not billions – developing such systems. All you need is a spreadsheet and the willingness to enter your own sales data on a regular basis. You can use Microsoft Excel or Sun OpenOffice; If you have consistent net connectivity, than Google Docs will also work fine. Mac owners can use any of the above programs, plus Apple Works.
The Goal: Spot Economic Changes before the Professionals Do
How can you see when things head south — or improve — before the professionals do? As it turns out, fairly easily. You are on the front lines of the economy, and the changes in your business, whatever they are, will be visible to you before the government data gets folded, spindled and mutilated by the pros.
The main idea behind data mining is that your business might show stresses or improvement in the economy before the official data picks it up. After all, what the Bureau of Economic analysis puts together is data from 1000s of businesses like yours.
Even though every firm is different, you can attack the data the same way. You need to be a little creative in your approach, whether you are selling widgets, plastic surgery or accounting services. Your goal is to find typical and aberrational patterns in your sales and other data.
Next time: setting up a basic data base and what to look for.