Business Rule No. 1


Folks snicker when I say this because it seems obvious.

But, for those unlucky enough to hang out with me for awhile, they come to appreciate that it’s not as obvious as it sounds.

One reason is that it’s not often clear what customers really want. Customers, themselves, do not know.

What’s worse is that they do not know that they do not know.

If you ask them what they want, they won’t say, “I don’t know.” They will tell you something. They often can’t articulate the many dimensions they’ve come to value or not value certain products.

Giving customers what they want can cost too much

Food Network personality and Chef Alex Guarnaschelli was a recent guest on the EconTalk podcast. In it, she explained a rule for her restaurant’s kitchen:

It closes when the last person who would like to eat here finishes ordering. You know? That’s when my kitchen closes.

That’s a great example of giving customers what they want.

Most restaurants have a set closing time and for good reason. It would cost too much to keep the kitchen open as long as Alex. A set closing time might cost some late night sales, but over time saves more in keeping the restaurant staffed longer and may be easier to keep workers who know when they will be able to go home.

As economist Thomas Sowell says, “There are no solutions. Only trade-offs.”

Giving customers what they want can cost too much, so business managers make decisions that might disappoint some customers and try to balance the right trade-offs to satisfy enough customers to stay in business.

Companies often give you what they want to give you, instead of what you want

This is my personal favorite, because I’ve seen so many managers over the years who thought they were ‘customer-focused’ fall into this trap.

Sometimes this works. Steve Jobs might be a good example of coming up with things that he wanted and it just so happened the folks who cherish Apple products agreed. He was a good representative of the tastes of Apple faithful.

But, I’ve also seen this backfire miserably, when executives of companies that served us common folk tried reshaping the company’s products into something they (affluent business executives) wanted. The problem was, unlike Jobs, they did not well represent the company’s customers.

Their initiatives would attract some people like them. Success would be claimed!

But, it normally cost them more than enough existing customers to make the net impact dreadful to the company’s top-line.

Many more reasons 

These a just a few main reasons companies don’t give customers what they want. There are many more — many are very subtle.

Business Rule No. 1 isn’t as obvious as it seems. Keep that in mind the next time you are not satisfied as a customer or your company is struggling to determine why it’s losing ground to competition.


“Some Say…” II

Lately, the media has reminded me this blog post of mine from 2013.

When reporting stories, especially politically-charged ones, they often present an opposing viewpoint under the guise, “but some say…”

Journalists use this trick to present their own viewpoints without appearing biased.

Lots of people say lots of things, especially on Twitter. It’s easy for journalists to find folks on it who have expressed opinions they agree with. They can weave that into the story to get their viewpoint into it and still claim to be unbiased…”but some say that isn’t right!

How often do they let us know who those people are?

Since lots of people say lots of things, why did the journalist pick that viewpoint to add to the story over dozens of others?

Just how many is ‘some’?

Keep that in mind the next time you hear a reporter say, “Some say…”

Space and time in soccer

Here’s an interesting soccer podcast from with Raymond Verheijen.

Here’s a good tidbit from Raymond (about 50 minutes in):

The difference between levels of the game is the speed of the game. At a higher level, you have less space and less time to make football actions. As a result, at a higher level you need a higher speed of actions.

So, football is a ‘speed of actions’ sport, in other words, it’s an intensity sport.

What you are developing as a nation is slow football players, that is, one tempo football players. That is also what you can see in your national team…they are big…strong…fast, but the are one tempo football players.

What you need are players who are able to deal with less and less space and time.

As long as you don’t solve this fundamental problem in youth football, you will not develop as a nation…

In the US, the game of soccer is typically played with a high space to player ratio. Either in this podcast or another one (I’m trying to find it), it was said that when kids move to the full 11v11 field at age 12, that’d be like adults playing on a field that is 200 yards by 150 yards. Too soon!

The players who rise to the top in the U.S. tend to be players who can run into that space quicker so they have more time on the ball.

Yet, what we need, is the opposite, players who can make quick decisions with less space and time.

How do you get that?

Stop playing shrunken versions of field soccer with high space to player ratios and introduce more small-ptich futsal and street soccer in to the mix that have low space to player ratios.

That’s exactly what happens in countries that top the list of the FIFA world rankings.

Quit virtue signaling and put your money where your mouth is

In this EconTalk podcast, Russ Roberts discusses several interesting topics with guest Nassim Nicholas Taleb.

In one part of the conversation, they discuss the idea that some folks want to raise minimum wage, but they don’t tip current minimum wage workers more now. Here’s that part of their conversation. Read to the end.

Nassim Nicholas Taleb: …the person who advocates a minimum wage, you see, in case there are adverse consequences, will not be paying for it. So it’s much better to let people who have skin in the game decide on whether there should be minimum wage. And if you ask unemployed people making currently $0 whether there should be making a theoretical a theoretical $15 or $25, whatever minimum wage you want to set–if you ask the unemployed, okay–then you should take their answer seriously, because they have skin in the game. Where currently you have intellectuals, who have a job, who just want, because of the virtue signaling or maybe to feel better, maybe to feel, to give themselves that aura of feeling good because they did something good. And so you have a lot of fakes–true fakes or confused people–advocating actions, you know, that feel good to them. Because hey, of course, they think that it improves society, or on the surface it doesn’t[?] improve society. Like, you, I believe that a minimum wage would definitely, is a cause of more employments or robots or jobs going to places where the wages are lower. So, you have to have–see unemployed who should decide, or unemployed, or people who are subjected to these minimum wage or wages close to the minimum who should decide. Not some intellectual at CUNY (City University New York) making $250,000 a year.

Russ Roberts: Well, I think some of them are motivated for good reasons. I like to think they are. So, I’m going to give them the benefit of the doubt, at least in the short run.

Nassim Nicholas Taleb: Okay, but let me tell you one thing here. If you think that there should be a minimum wage, then you should pay–people who think there should be minimum wages should voluntarily pay everybody around them the difference between whatever they are getting and that minimum wage. And, when you go to McDonald’s, you should leave a $3 tip or $4 tip to the person. If that’s really what they want to do, they should do it themselves. I’ve discussed in a book that the behavior on the part of people who always have ideas of how things should be but in fact don’t pay for it themselves. Like, they argue about privilege, class privilege, but they themselves privileged; and they don’t pass their wealth to others. They want higher taxes on others but not–they don’t want to give more to charity.

Russ Roberts: I think their defense would be–I don’t find it, I’m not sure I find it compelling, but they’ll argue, ‘Well, I’m willing to chip in as long as other people are forced to, and then I’ll be happy doing it.’ So, that would be their claim.

Nassim Nicholas Taleb: Yeah, but that’s a weird argument. Virtue should be unconditional. It should not be conditional. In other words, ‘I’m going to save people from drowning only if other people save people from drowning.’ That’s not an argument that I can stand on. I don’t know any ethical system that is based on something like that.

Great Grandma’s Wisdom: The power of making priorities

In this episode of Freakonomics podcast, they talk personal finance.

One guest, Harold Pollack, believes everything you need to know about personal finance should fit on an index card.

One rule he wrote on that index card is to save 20% of your income.

He said he received letters about that rule that went something like:

“Dear Professor Pollack: I’m a 28-year-old single mom and I work as a cashier. You have just told me to save 20 percent of my money. F*&k you!”  

In the podcast, Pollack admitted 20% is ‘too hard’ for folks on the low-end of the income spectrum and his advice was more for the middle class.

My Great Grandma had similar advice as Pollack’s:

No matter how much money you make, save something, even it’s just $5 a month.

She understood the power of compound interest, like Professor Pollack.

Unlike Pollack, she understood the true power of her savings rule was about making a priority to have a consistent habit.

If you let circumstances keep you from saving $5 a month when you’re a 28-year-old single-mom cashier, you will let circumstances keep you from saving 20% when you are in a better position and you won’t ever make progress.

It’s not so much about the $5 a month or 20%, it’s about learning to make a priority and then making the tough choices to stick with it.

Doing that is even more powerful than compound interest. A consistent savings habit, no matter how small, can accumulate to substantial sums over years and decades, and put you in a position where the choices you make are much less dependent on the income you happen to be making at the moment.

Why has alcoholism increased?

Alcohol use is up from the early 00’s.  The quoted article states:

There’s no single explanation for the increase. Researchers point to economic stress in the aftermath of the Great Recession; more easily available alcohol at restaurants and retailers; and the diminished impact of alcohol taxes. As a percentage of average income, than at any point since at least 1950.

Not mentioned: changing social norms and things go in cycles, especially things where there’s a significant time lag between the act and its most harmful effects.

In the past 10 years, I’ve been surprised at how outwardly alcohol abuse has been embraced and glorified compared to the relative tee totaling 80s and 90s.

This has all happened before and will happen again. I believe alcohol consumption at the beginning of the last century was also a thing, until the movement led by Carrie Nation tried to abolish it.

Smoking goes through similar cycles.

Part of this may be generational. The kids of the alcoholics see the harmful effects with their parents and abuse alcohol less when they grow up.

Their kids don’t see the long-term harmful effects, so they abuse it when they grow up. And so on.

Freedom is evil?

OMG. Conservative billionaires are profiting from Hollywood? LOL. Why is this worth writing an article about?

For those who think of the Koch brothers as the evil power twins, I encourage you to listen to the two part Freakonomics podcast where Stephen Dubner interviews Charles Koch.

It amazes me how much good these guys do for the little guy and how vilified they are for it by people who say they are for the little guy.

These guys are so much for the little that they even openly support things that will help the little guy, but hurt their business. Here’s Dubner and Koch:

Stephen J. DUBNER: Now the public line on you is that, “Everything that Charles Koch or the Koch Brothers advocate societally or politically is just an effort to protect or extend their business interests.” Make your best case how and why that’s not so.

KOCH: We opposed extenders, the tax bill, which are tax exemptions. And we make a lot of money from those. We opposed this border-adjustment fee that would make us over a billion dollars a year. Do you want me to go on?

Now, I gotta check times to go see Wonder Woman.