On November 1, 2006 we invested $50,000 of our company’s money into a fund consisting of 10 companies we felt did a great a job at user experience. We wanted to test a hypothesis that companies who focus on UX will see it reflected in their stock price. The premise was to invest $5,000 in each company and hold the stock for 1 year. We called it the UX Fund.
The idea to do this comes from 2 sources that we need to credit. The first is the Design Council study from 2005 which tracked the 5 year performance of companies who win design awards compared to the FTSE 100 Index. The second was from Jeneanne Rae who did a similar regression analysis of companies that met her criteria for great customer experience.
We struggle with the notion of ROI of UX. In our industry there is a lot of talk about getting the ROI of UX proven to the C-level executive. In my opinion, these attempts try to draw cause and effect relationships between activities and value. These micro-measurements are ineffective and are often non-existent. Instead, the ROI of UX comes at macro levels. Companies that internalize the values of doing great UX will see it permeate in their performance. This fund is an attempt to illustrate that.
Our difference was we were going to bias to companies who could offer great customer and user experiences and we were going to actually invest in them. We put actual money on the line.
Our investment strategy focussed around 4 criteria
- A demonstrated care in the design of their products and Web site
- A history of innovation
- They inspire loyalty in their customer base
- Doing business with them is a positive experience
Notice we looked at no financial criteria. We were not looking for value stocks nor did we look at EPS or any real quantitative or technical measures. We invested entirely on subjective criteria.
In the 365 days we owned our stocks the value of the portfolio increased 39.37%. This outperformed the major indexes (NASDAQ 18.09%, S+P 9.47%, NASDAQ 100 26.81%, NYSE 14.67%).
6 of our 10 stocks gained in value while 4 declined.
What we learned
In the one year period of our test, our UX investment philosophy trounced the markets. We believe we could have done even better if we had allowed ourselves to…
- Time the market — We bought and sold on predefined dates not allowing for us to buy on dips in value. Several of the companies were at 52 week highs when we bought and took several months to begin performing positively.
- Rebalance the portfolio — We set out a buy and hold strategy which did not allow us to sell under performing stocks. We also couldn’t sell companies that had stopped meeting our criteria. Netflix is a good example of this. A company that stopped innovating in 2007 and focussed on price as a core business value. They no longer met our investment philosophy and we had no ability to remove them from the fund.
- UX isn’t everything — JetBlue and Progressive showed us that a great UX doesn’t protect you from the harsh realities of business. A winter storm on Valentine’s Day unravelled JetBlue and Progressive just couldn’t get past fundamental claims and underwriting issues no matter how many customer innovations they made.
- Innovate and win — Our strongest performers and the engine of our fund were Apple and RIM. They were also the companies who best embodied our investment values.
It was a great experiment to undertake both from our learnings, the case study we got and the financial gains. We are still debating what to do with the fund and the money, so any ideas are welcomed.
I hope people in the industry can use this as a tool to sell the importance of UX into companies. Show them that there is a business value in being great at UX.
More detailed charts and analysis can be found here.