Think data mining—the practice of searching stores of data to discover patterns and trends that go beyond simple analysis—is only for the big dogs?
Think again, says Isaiah Goodall, director of business development for Elder Research Inc., a Charlottesville, Virginia-based consulting company that focuses on data mining, predictive analytics and text mining.
Sure, "it probably will not make sense for every small business owner to begin applying data analytics on a large scale, but basic data analysis should be foundational to any business and can be done low-cost through open source or free tools" such as Google Analytics, he says.
Why You Should Care
Even then, though, why should small business owners pay this often-overused buzz word any mind? The main reasons are that data mining can help them “understand customer behavior, predict future trends, and identify potential fraud,” among other things, says Gregory Piatetsky-Shapiro, PhD, president of Brookline, Massachusetts-based KDnuggets, which provides analytics and data mining consulting. “Think of it as having an intelligent assistant who knows a lot about each customer and can help your business make decisions” about them.
"Of course, data mining does not make perfect predictions...but on average, data mining predictions are significantly better than random and contribute to the bottom line."
How to Get Started with Data Mining
If Goodall’s and Piatetsky-Shapiro’s words have swayed you to consider giving data mining a try, here’s how to start.
Begin by conducting an audit of your current data environment "to see what types of data [you] have internally and what types of free or low-cost external data [you] can get," suggests Goodall. "Then, evaluate your internal skill sets and decide if you need to hire training or consultants to help you get going."
Once you’ve done that, Goodall says you should “work with your business leaders from either marketing or operations to brainstorm areas of low-hanging fruit for a quick pilot project. This pilot project can help you quickly test the value of using data analytics without having to make a large investment of time or money in purchasing software or consulting services."
Although "collecting data about your employees and their productivity or performance could also be a valuable use of data analysis," Goodall recommends sticking to operations and marketing at the start.
In regards to employee data, "try to measure your efficiency in the data and keep track of this over time. It could be tracking your inventory, shipments or billable hours," he offers.
When it comes to operations and marketing, testing the waters of web analytics may be a worthwhile venture if you sell online. "Google Analytics is a free service to help you monitor your website traffic and sales that could be a very effective place for small businesses to begin applying data analytics if they haven't already," Goodall says.
Before you dive headfirst into any of the above-mentioned endeavors, though, you may want to take Piatetsky-Shapiro’s advice and "consider what questions you have about your customer behavior, and whether having good predictions about the future would help you."
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