Cancer Surgery Formula
Coined by Charlie Munger, this is one of my favourite models.
I consistently use it while evaluating product features & making marketing decisions.
Essentially, it is the practice of looking through a mess and separating things that can run well independently and then discarding the rest.
Here is a quote by Charlie Munger on the model:
“I’ve had many friends in the sick-business-fix-up-game over a long lifetime. And they practically all use the following formula — I call it the cancer surgery formula. They look at this mess and they figure out if there’s anything sound left that can live on its own if they cut away everything else. And if they find anything sound, they just cut away everything else. Of course, if that doesn’t work, they liquidate the business. But it frequently does work.”
Munger looked at it primarily from an investing point of view but it does have wider applications.
The Smart Marketing Tribe
The whole idea behind the smart marketing tribe is to remove anything that isn’t adding to a positive outcome and keep things that can basically fund itself.
Let’s say that you are handling marketing for your SaaS business and you raise a funding round. Like a lot of companies that get funded, you start pushing budgets on various channels.
People say Google Ads - You allocate some budget for it.
Experts say LinkedIn Ads have a high ROI - You allocate some budget for it.
Colleagues say podcast ads are in trend - You allocate some budget for it.
Soon you figure out that your budgets are getting depleted but the returns are diminishing.
Going by the Cancer Surgery Formula, you first start figuring out channels that can fund themselves.
Maybe Google Ads gives you $10 in revenue in the first year for every $8 you spend, so you keep it. LinkedIn Ads might be eating up $20 for every $10 they bring in every year, so you axe it.
The next sensible thing to do would be to push the budget from the now discarded channels (LinkedIn & Podcasts Ads) to the self-funding channels (Google Ads).
Essentially doubling down on what works.
Product Feature Prioritisation
A good rule of thumb to developing viable products is to focus on the necessities first and the “Good-to-have” features later.
It is very common for companies to start shipping features that they think their customers might want. However, it is important to understand what core features are non-negotiable with your customers without which they will leave your product for another one.
Let’s take the example of Slack. The product is for members of a team(s) to communicate & collaborate with each other.
Slack would be better off trying to work on their core features like messaging, document collaboration, meeting scheduling & task tracking than trying to become an in-office social network.
By focussing on these key features, the development will pay for itself through continued subscriptions. The “Good-to-have” features can be experimented with but they should not hold up significant resources from the main areas of focus.
So, let’s say you are building an app that is meant to be a competition to Slack. You’ll have to build these non-negotiable items first and then if you want to add more value, you should prioritise Slack’s most popular integrations that are simply too critical to teams like Google Drive, Trello, Drift etc.
You are essentially cutting away features that will fund themselves from the ones that are just draining away precious resources.
So that’s it! What are your thoughts on this model? Let me know by replying to this email.
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