Well, hello, and welcome to lesson two of the Data Science Essentials Masterclass. What I want to do in this lesson is still focus on the business understanding phase, the first phase of CRISP-DM.

Now I’ve broken up the second lesson into three parts. The first will be about problem-solving; I want you to understand the two main ways that human beings reason. And I want you to see precisely how you can utilize these two different ways of reasoning when you’re trying to understand a business and trying to come up with a plan. Second, soft skills. Soft skills are more critical than even technical skills for getting things done. And that should be good news for some of you that are maybe not comfortable with the technical side, but you’re more comfortable with the people side. And then finally, I want to take a concept from economics and apply it to data science projects.

So as mentioned, we humans’ reason in two main ways: we reason by analogy and reason by first principles; reasoning by analogy is way more common. And the reason is that it’s just much easier mentally; we can’t reason by first principles all the time. It’s not realistic. It just drains too much energy and takes too much effort. And I’ll explain a little bit why that is the case.

But whenever we say that x is kind of like y, so, if we have this phone, and we say, oh, it’s kind of like the iPhone, we’re using reasoning by analogy. So, we’re saying that in some way, this new phone has some characteristics or features that make it seem kind of like the iPhone. So, the idea here is that much of our reasoning and ideas for new products result from interacting and having experience with a whole range of different kinds of products. And then we do slight variations. So, our new product is a slight variation of the old thing; it might combine different features from various kinds of phones that we’ve experienced. Maybe we like one thing from one of the phones, but we want something else from another phone, and we come up with this new, fantastic phone design.

Another strength is that reasoning by analogy tends to be less risky. And that’s just because instead of making this whole new change, we are just doing slight variations to something that probably already works well in the market. And it’s appropriate when things are going well. Or when there is little time to think of something unique or new.

And I think a minor weakness is that it’s not a great way to think for yourself; it’s not a great way to think novelly. It doesn’t mean you can’t come up with excellent products, and even somewhat unique products, I would say. But is it going to be the most innovative? Probably not. And this is where first principles reasoning comes into play.

First-principles reasoning is about figuring out the fundamental truth, of course, as sure as we can be about anything, and then reason up from there. Now one of the current figures in our world, Elon Musk, is well known for this kind of reasoning. That’s how he’s made SpaceX so successful. Musk broke down all the materials that made up a rocket. And what he realized was that the rocket booster, this engine that essentially provides thrust so that the rocket can go up, was by far the most expensive thing in that rocket. So, he thought, is there some way to reuse this? So, then he came up with ways to bring that booster back down to Earth safely so that he could reuse it.

And really, there are two main elements to reasoning by the first principle. The first is to break down the problem. In this case, you have a rocket. What are all the materials that make up the rocket? The second is to question assumptions about that thing. So, question everything about how a rocket is supposed to work. Because if your idea of a rocket is based only on what you’ve seen in the past, you can never really come up with an innovative concept where a part of the rocket could be brought down back to Earth safely and reused.

So, if innovation is the goal, you want to try to push yourself more towards first principles reasoning, or if you’re troubleshooting or not doing well, you might need to get down to the fundamentals.

If things are going well, some slight variation or almost no change makes more sense.

I would say that company culture has a significant role in the type of reasoning in that business environment. So, I was reading a while back that one of the cofounders of Netflix had the philosophy of not giving almost any directions to Netflix employees; essentially, the advice was very broad/general; he told them to do what is best for the company.

So, the employee can interpret it how they choose; it’s certainly an environment that leads to more out-of-the-box thinking, more innovation. On the other hand, if you are at a business with particular values and principles and want to stick to those, I think it’s much harder to be innovative. But there are also benefits to having specific values and principles and sticking to them. I’ll talk more about this near the end of the lesson.

The other thing is small details do matter. So, what do I mean by that? Well, let’s use social media as an example. If you don’t work inside of social media, or you don’t take part in social media (maybe you only have one of the great social media apps, perhaps you’ve got Facebook, or you’ve got Instagram), it may look like all social channels are the same.

So, let me use Facebook and Myspace as an example for this. So, Myspace came out in 2003, and Facebook in 2004. Their ascent happened during my university days I was taking my first bachelor’s degree. So, I do have and remember the experience of Facebook, where I had to use my university email to sign up for Facebook. If you didn’t have a university email for Facebook, you could not sign up because it discriminated in that kind of way. Its purpose was to connect people to their university community. And that is really what made it unique. This exclusivity factor allowed it to become bigger and bigger. These are called network effects, which are very common in technology. So, the idea here, very simply, is we won’t talk in detail about this now. Still, the idea essentially is that with many technologies, the more people you bring into the app, the better experience for everybody. So that is in large part why Facebook started to spread and become more inclusive. Suddenly, your mom was on Facebook as well. And that wasn’t initially the case; only university students could get on.

But I would also argue that when it became this big thing where everybody was on it, it also made it kind of less unique as well. And, the younger kids, the university students all suddenly started to flee Facebook, and it became a bit more of an older audience, at least in North America; maybe not so in the rest of the world. But one point being that I think a large part of Facebook’s success was that they were more niche initially, and then they opened things up. I’m not sure they would be all that relevant if they were very general, right at the beginning.

But I remember people comparing Facebook and Myspace at that time, and people were saying it’s the same. But if you look deeper into it, they indeed weren’t. And it’s due to these small details. So, for example, you used your real name on Facebook, the fact that it was only open to university/college students, you would use your university or college email to sign up. So, I remember that Facebook felt a lot more personal, and you felt connected, while Myspace felt more like a mall where you could hang out with other teenagers but not necessarily teenagers that you knew. So, they weren’t necessarily your real-life friends. So just that one little thing created such a difference when it comes to the environment. So, it’s essential to keep these things in mind. Often slight differences, going back to reasoning by analogy, can work very well because small details can make a significant difference.

Okay, so let’s turn to the soft skills useful for this first phase. But they will, of course, be helpful for the future steps as well. But I’m going to be also adding additional soft skills. One thing I want you to realize right off the top is that the best or most innovative answer to a business problem wins. Often, this is not the case. Some people who have a technical background and are very interested in the best solutions often believe they only need good ideas. And if they bring the best ideas forward, if they’re the most intelligent person in the room, things are going to work out. And, and in my experience, this is often not the case. I’ve experienced situations where brilliant people who can develop ideas and problem-solve often fail to realize the importance of diplomatic communication.

So, they think if I have the best idea and I’m the one that solves the problem, nothing else really matters because that gives the business value. And that is true when it comes to the raw numbers. But if you’re not very tactful in presenting your ideas and the way you come across, that will get very frustrating both for you and everybody involved. And in my view, if you can have this balance, you are, on the one hand, the best problem solver and the person with great ideas, but you can also communicate in a tactful and careful kind of way, you’re the MVP (Most Valuable Player). No company is going to want to lose you. You’re going to make a lot of money because this is rarely true.

In my experience, and as some of you know, psychology is my background, I spent some time in graduate school and doing clinical work, and it is challenging to find a combination like that. But I think sometimes it’s just a lack of awareness, people do believe, you know, at the end of the day, people are just going to judge me on the objective facts, which is, I’m the one that’s coming up with the ideas. I’m the problem-solving one, so what’s the problem here?

And I think if you have this awareness that for a lot of people, for a lot of employers, it’s going to be fine for a while, but then it’s going to get stressful for everybody. And heck, people might even put up with it, long term, but you don’t want that awkward, stressful situation that will take a lot of years off you at the end of the day. So please keep this first soft skill tip in mind.

Next, you cannot forget the importance of negotiation skills, especially for this business understanding phase, and a lot of negotiation has to do with being practical. Is the solution you’re offering realistic for that company based on their timeline and resources.? Is it realistic or reasonable? The more this is true, the better chance that the project will go ahead, the better chance that you’re going to be able to persuade other people, the more trust you’re going to have from them. And if you can say it in a friendly way. So going back to the first point, the tactical communication, you’re going to be a superstar.

And finally, building rapport. This skill is essential, especially when you’re around new people and starting a new project. Building rapport is about building trust with somebody else. So, you can have open communication and good communication. If you feel awkward with somebody, one of you is afraid or shy or anxious; you’re not going to communicate appropriately. So, this is maybe the most important.

 And there are three main things I want to mention about it. First, the easiest way to build rapport is to know a little about that person ahead of time so you can start a conversation about it. Whenever you are conversing, and somebody is new to you, you want to ask open-ended questions. The worst thing that happens is when you meet somebody new, and you’re both kind of anxious about it or shy; what happens is that you ask questions that are often yes or no. So, you end up going back and forth with these yes or no kinds of answers or one-word answers, and it becomes very awkward quickly. So, ask open-ended questions, don’t say, do you like working here? You will likely get a “yes” or “kind of” response from that question.

So as an example, if you were meeting somebody from a different department, you might say, I’m curious to know, what’s a typical day like for you? So, for example, what kind of stuff did you get down to today? So, they would run down a whole list of things that they do, and you would be able to get a conversation going much easier that way. On the other hand, if you ask something like, so what is the position that you hold, you’d get, you know, one- or two-word answer.

Another critical aspect of building rapport is to listen actively. And active listening is about giving full attention when someone else is speaking; it encourages openness and honesty. It’s going to foster a more conversational atmosphere. And that’s what you want, as that leads to effective communication. And that other person will trust you more. Because if someone feels that you are hearing them, that you’re listening, that you’re interested in what they’re saying, you’re going to establish a good relationship. And that’s all that building a rapport is all about.

The final thing to keep in mind about building rapport is your body language. So, this is your body posture. Are you making eye contact? What kind of facial expressions are you making? So first, you want to make sure that you face somebody when speaking to you. So, imagine if you’re turned off to the side while you’re having a conversation with somebody. So turn your whole body towards them, as you’re speaking, maintain eye contact, you know, for three, four, or five seconds, and then sort of look away a little bit. And then establish eye contact. Once again, you don’t want to keep eye contact the whole time; that also gets weird or awkward, but you want to maintain eye contact; that is undoubtedly a sign that you’re comfortable with somebody,

You also want to mirror their expressions as they speak. So, if they’re smiling, you’re smiling back. So, you know, if they’re having a good time, and they’re smiling, and they’re expressive, and you’ve just got a blank face, that’s going to make things quite awkward for both of you. And the final thing to mention is, don’t look at your phone or the clock because this shows disinterest. People will have hurt feelings. If they think you don’t care what they say, you don’t want work relationships or personal relationships to start that way.

And finally, I want to share with you how you can apply knowledge from economics to this data science process. I want to get across that whatever field you’re coming from, whether it’s software engineering, law, accounting, chances are, you have a lesson or concept, or theory, that’s going to be helpful in data science.

And that ability to apply what you’ve learned in your prior field to data science is one of the ways that you’re going to build credibility. That’s one of the ways that you’re going to be able to show people that you’re ideal for this career, assuming you’re not already doing data science work. So, quickly I want to cover Goodhart’s law. He’s an economist, and his law states that: “when a measure becomes a target, it ceases to be a good measure.” In other words, when we set one specific goal, people will tend to optimize for that objective, regardless of the consequences.

So, remember, back to lesson one, where I used the retail example, Dedicated Supply the retail chain, and we had a goal. And then we had objectives and remembered that the plan had to do with profit. And the idea here is NOT that profit should not be a goal. It’s just that there are sometimes unintended consequences if that is the only focus.

So, let’s say that we went ahead, and we segment our customers, and we did find out that women of a certain age who make an income of 100k or more are our most valuable customers. It turns out that we only break even with the rest of the segments. But with this group, we kill it. Suppose we had values or principles about access to health and beauty products and food for everybody. But we just started focusing on this segment and the profit. And as a result, maybe we decided to rearrange the store and change everything about it. And now it’s essentially just a store for that one segment. Now, there’s nothing wrong with that, you know, many businesses are niche businesses. But if that’s not your goal, you could very quickly start having these unintended consequences. All of a sudden, the business is not in any way aligned with your principles.

So, there are two main ways to ensure that this is less likely to happen. The first is to have both quantitative and qualitative measures of success. So, it’s not just about increasing profit 10 or 20%, or 30%. It’s also about your customers’ comments and conversations (feedback). If your customers say positive things about your store, that should count for something, not just the objective things.

And if you are getting 99.9% positive feedback, is there a specific theme? Is customer service always being brought up? Are they always saying how you give the best customer service from any other retailer? That matters, especially if that aligns with your values and principles.

And the second point is that if your target outcome is profit-based, make sure that you have a combination of variables you are tracking. How are they (the variables) influencing profit, not just one variable, but four or five, six essential variables for your company? So, if the outcome is profit, but one of those variables, let’s say, you’re tracking customer service in some way, that goes way down, well, does it matter that the profit went up? Well, it shouldn’t. If customer service is valuable to you, it’s part of your values.

But these indicators are valuable because they give you the bigger picture. They tell you, yes, we improved in the outcome that we care about the most, the result that we needed to work because we’re not making enough profit, and now we’re making a profit. Still, it gives you an indication if other variables in your company are maybe on a downward trend, and those might be very, very important as well for your long-term success. So that will conclude lesson number two and the first phase of CRISP-DM. I’ll talk to you soon.