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Essays

Desire Path
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Maybe you remember from going to University.. or on your daily commute when you’re on your way to catch a train...

That man-made trail.

The grass worn down from the people who, rather than continuing to walk on the street, took a shortcut.

These paths are known as desire paths.

They illustrate the paths humans prefer rather than the paths which were created by humans.

In an ideal world, desire paths wouldn’t exist. We’d just “get it right” the first time.

Desire paths show us a kind of ‘mistake in logic’ we made.

Logically, our designed paths are the most optimal... maybe because of cost or safety.

But psychology, they’re clearly suboptimal. So much so, that vast amounts of people break from the status quo.

Which is usually difficult to get humans to do.

In Finland, post snowing, city planners study the desire paths made by people in order to study human behavior without them being influenced by temporarily unavailable stimuli.

Can you do a similar reset in your business, to get a fresh look at how your customers prefer to interact with you and how you can best serve them?

“A path should be laid where people walk, instead of walking where paths are laid.”

-John Barth, The End Of The Road.

Are your processes serving your customers, or are you trying to force your customers to serve your processes?

There’s a subreddit about desire paths should you be interested: r/desirepath

RJ Youngling
Eliminating False Positives: A Counterintuitive Mistake
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I recently had 2 bad experiences in a row with 2 different companies.

The first one is ReplaceDirect.nl where I ordered some PC parts which broke just days after the lawfully required minimum guarantee period of 6 months.

In my astonishment, they decided to hide behind the law giving the standard boilerplate: ‘’We gotta draw the line somewhere.’’

Okay, and it just so happens that that line is identical to the minimum period the law states? Me thinks not!

There’s no better way to communicate to your customers: ‘‘If we could scam you with broken parts and zero guarantee we would, but unfortunately that’s illegal so we’ll do the bare minimum to comply with the law. Not because we want to, but because it’s illegal not to.’’

This is an example of bad faith.

A deliberate strategy by the company designed to maximize profit.

(Based on the Friedman Doctrine, you do everything you can to maximize revenue no matter how unethical as long as it’s not illegal. That last part, illegal, is a threshold that’s all too often crossed by companies adhering to the FD. It’s a slippery slope.)

You ship shitty products and rely on the hope that they stay functioning for at least that 6 month period. When they break, your customer is shit outta luck.

If they do break within that 6 month period, we know from behavioral psychology that people prefer inaction so most people will default to doing nothing.

Out of that small subset that bothers you, you deny them a refund until you’re left with an even smaller subset who threatens to sue at which point you grant them the refund.

It’s a deeply unethical, immoral way to run a business…

But a way it is (unfortunately) none the less.

For our perspective, this isn’t that interesting of a case to investigate as it only offers the banal conclusion… don’t run your business like this because if you subscribe to Youngling Feynman theory then our obligation is two-fold:

i. Make your revenue engine work. (So the business does well for the owners, employees, and shareholders.)

ii. Aim for deep user love. (So that a slice of the world will be better off because your company exists.)

I build out this thesis in the essay series: Do You Have Customers Who Deeply Love You?

This company obviously breaks our second axiom. But it also breaks the first because by screwing over people, you will have negative word of mouth and low or negative organic growth.

Eventually, you’ll exhaust the finite pool of customers who you haven’t screwed over.

The second case is actually more interesting for our purpose of learning.

This was a takeaway restaurant that gave me an incomplete order.

When I got home I noticed it and called them, however since they were closing up they couldn’t help me and told me to call back the day after.

The call itself was very confrontational and made a lousy situation worse.

Bad stuff happens… However, if you’re lucky to have a sympathizing customer like me then you should be extra empathic and apologetic for your (excuse the french) fuck up.

The irony is that the more ownership you take of the problem the more understanding your customer will be.

If you become confrontational, especially if you’re in the wrong, your customer will become defensive.

The next day I went back and I felt the onus was on me to prove that they had messed up.

By chance, an employee with whom I talked recognized me and could confirm that there was food left at the end of the shift which validated my story.

They remade the entire order and that was that.

However it did made me wonder what they would’ve done had that girl not been there.

I wanted to share this story so you don’t make the same mistake because this was handled extremely poorly.

My time is valuable and had I known about this whole song and dance I had to perform I wouldn’t have even bothered.

The contrast with ReplaceDirect.nl is that this wasn’t bad faith.

They were subject to their biological drives.

Specifically, loss aversion.

If you’re 100% sure you messed up, you’ll want to fix it (unless it’s part of your immoral business model not to.)

Let’s call that a true positive: You give a refund to someone who deserves a refund.

However, this company is so mortified of a false positive: giving someone a refund who doesn’t deserve it, that they harm the ones who do.

Creating a policy which eliminates any possibility of false positives will make your accountant very happy.

But it will come with the collateral damage of denying people refunds who actually deserved it. (Let’s call that false negatives.)

So by eliminating the possibility of a false positive, you increase the number of false negatives.

In the end, they gave me ‘’a refund’’ they gave me what they forgot plus the rest of the order, but the damage had already been done since the negative experience left a (no pun intended) bad taste in my mouth.

And also, it didn’t feel like a fair exchange. I had to put in so much time and emotional labor only to receive my complete original order.

So what should they have done?

They should’ve been biased towards assuming it’s them who messed up (and use this situation as a profit center which I’ll cover at the end.)

Instead of preventing the possibility of a false positive (which is about you, the business, selfish) they should try to minimize the possibility of a false negative (which is about the user experience).

Because a false negative is the worst kind of word of mouth a company can get because you’re punishing an innocent person.

You can’t get this perfect because you’ll make mistakes and there are people who’ll take advantage.

However, you can’t base your policy on those 0.1% bad apples and thereby harm 99.9% of normal or even cool customers.

So, while you should take steps to minimize false positives, trying to eliminate them altogether is a mistake.

In the world of retail, theft is factored in as shrinkage. And while they do take some steps to prevent the extreme cases, they’ve (over time) realized that having no shrinkage and having no customers show up anymore is missing the forest through the trees.

Have you noticed that Apple is one of the few companies who display their hardware openly in their Apple stores?

What you might not know is that theft is a much bigger problem for them because of it.

Just click this link: https://www.youtube.com/results?search_query=apple+store+theft

However, they’ve made the right call that the anomalous behavior of a few, shouldn’t dictate policy.

One final lightbulb I want to turn on in your brain is that it’s possible to view customer service when something goes wrong as a profit center and not a cost center.

The behavior of ReplaceDirect shocked me because it’s rare to come across companies that immoral.

However, the behavior of that restaurant is what I expected to a degree.

There was some doubt that it might not suck which is why I called, but I did have that voice in my head going ‘’Is this worth it.. it might be a whole ordeal’’.

I didn’t expect it to turn out like it did, with me on ‘’trial’’ but I wasn’t expecting roses either.

If you can do that (roses) for your customers you’ll damn near give them a heart attack.

They’re so used to the very worst.

So when all of a sudden you show up, and your company is super apologetic and compassionate and you go above and beyond doing way more than necessary to fix it… well, then you’ll get a much higher ROI then you could get on any advertising campaign.

Don’t stress about the people who’ll abuse your kindness, if it’s super obvious then kick them out but when in doubt, decide in their favor!

RJ Youngling
The Unseen Pitfall Of Extrapolation In Entrepreneurship
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Why we can’t always trust the past to inform our decision-making process for the future.

Probability theory teaches us that when you flip a coin you have two outcomes: heads or tails.

It lands on one of the two, giving the probability of heads 0.5 and P(tails) = 0.5 as well.

But how do you know that?

How did you know there are only two possibilities?

How did you know that when you flipped it, it wouldn’t turn into a fire breathing dragon, burn your house down and fly away?

You didn’t.

A gifted hypothetical baby who can speak perfect English but isn’t familiar with gravity, angular momentum, and basic Newtonian physics has no idea what will happen until you either tell him or he empirically experiences it.

To certain people, this seems like a profoundly stupid example, but it’s not.

It illustrates that (some of) the logic we have created is an extension of what we’ve observed empirically.

No one has ever seen a coin toss change into a dragon mid-toss, it always bounces and lands heads or tails, therefore we can assume it’ll always keep doing that and our physics* equations are based on that assumption.

Now such an assumption is reasonable under the laws of nature.

After all, I have experienced gravity every day of my life so it’s reasonable to assume it’ll continue.

I think we‘d’ all be surprised if tomorrow, there’s no gravity.

However, business doesn’t always work like this.

You have to be cautious with assumptions in business.

It is possible ‘’for the coin to change into a dragon mid-toss’’ because unlike the static laws of nature, ours are dynamic.

Why? Because the environment shifts, causing things that were true in 1 business climate to be false in another.

Pretty much all disruptive innovation is created this way.

You have an industry which has operated a certain way for decades and all of a sudden some tiny startup sees a way to do things differently.

‘’Nonsense’’, says the incumbent.

‘’That’ll never work! After all, it has never worked in the past.’’

Sometimes they’re right. Sometimes they’re wrong. 

And when they’re wrong, that tiny startup disrupts an entire industry.

How can they be wrong? With so much expertise?

Because just like our coin example, their laws, their intuition, their equations, are extrapolations based on how the world used to be.

And as long as it continues to be like that it works.

But when the world changes, which it often does, they’re screwed.

This means you create a severe dependency on the absence of technological- and market evolution, for the status quo to remain the status quo.

(This is why the taxi industry sued Uber, why the RIAA sued Napster and so on…)

So what enables an incumbent to be disrupted when their way of doing things becomes misaligned with reality, is specifically the pace of technological- and market evolution.

Said in other words, the faster technology evolves and the faster the market evolves, the more they will have to change with it.

Refusing to do so means you’ll be stuck with a product that people don’t want.

And then it’s only a matter of time before selective evolution yields a startup ‘fit’ to survive in the new environment.

Ford made this mistake in the early 1920s.

His dream was to take the car from expensive toy for the rich to affordable to the everyday person… to put America on wheels.

However, as he started reaching that goal and the market became saturated with Model T’s, it created an appetite for cars that weren’t utilities *2. 

Which Alfred Sloan capitalized on when he overhauled GM and launched the ‘’A car for every purse and purpose’’ thesis.

I talk about this in the essay: Why Do You Want A Faster Horse?

*Notice I said physics not mathematics. Mathematics is the only science which starts under perfect conditions.

We create axioms and reason from there. The only constraint that we have is that it doesn’t create an internal contradiction with the axioms.

All other sciences don’t function like that. 

Richard Feynman once said: ‘’It doesn’t matter how beautiful your theory is, it doesn’t matter how smart you are, if it doesn’t agree with experiment, it’s wrong.’’

That’s not how math works. It doesn’t have that obligation. In the purest form of math, mathematicians are just creating and it’s up to people in other fields to see if and how they can apply it to the real world.

*2 Notice that fashion and nutrition went through similar evolution cycles going from mere utility to being more about the experience and being a means to express oneself.

RJ Youngling
Goodwill Culture
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Establishing a culture of goodwill early is important for 2 reasons:

1: Generally, you make your money when you offer to sell something.

In order to offer something, it helps if the reception is warm.

You get a warm reception to your offer if you’ve got goodwill. Therefore more goodwill = more money

2: It’s incredibly hard to change ex post facto.

For two reasons: the intangibles and the tangibles.

Intangibles: 

Once the culture is set it becomes near impossible to change. Behavior gets ingrained and everyone around you is reinforcing that behavior.

Going against an environment is exceedingly hard. 

Any good cognitive therapist or behavioral psychologist will point out that it’s much more effective to change the environment when trying to change behavior vs. trying to use will power.

The branding and positioning in the minds of the consumers will also need to be changed.. hard to do. So you have both internal (company) and external (customers) forces working against you.

The second reason is the tangibles:

So not only do you have to fight intangible reasons like culture, branding, and positioning.. but the entire way the business model is structured.

If goodwill isn’t a priority but revenue is, you can bet your ass, customer support will be viewed as a cost center and, by extension, suck.

Materials will be cheap and of poor quality in order to drive revenue vs. good and long-lasting.

Guarantees will be non-existent or the minimum lawfully required period.

When stuff breaks even a minute out of warranty, the company will collectively do a celebratory dance because they aren’t required by law to replace your exploding battery or broken fan.

The overall UX will be poor in order to maximize short term revenue.

So changing this will mean restructuring the entire business model.

This is akin to buying a big moving van and trying to rebuild it into a sports car.

You can reuse like 1%, meaning 99% will be thrown away.. it’s much easier to just build the damn thing from scratch.*

So the time to incorporate goodwill into the DNA of your organization is from the start.

And it starts with the founder.

*This is exactly what happened with the first Tesla Roadsters. They were built on a Lotus Elise framework but making it electric turned out to be much harder than anticipated.. resulting in this ‘’99% rebuild, keep 1%’’ thing… Elon has said it would’ve been much better had they just build it from scratch, in a talk at Vanity Fair.

When he’d originally promised a 2006 delivery date, Eberhard said, the Roadster was a lower-risk proposition. The original plan was simple: Tesla would supply the drivetrain components for Lotus to build. Production would be low cost and low friction. As Smith remembers, the idea was to reduce cost and headcount by sourcing as complete a vehicle as possible, then adding a few pieces of swank technology and finishing the car. They’d throw on a few body panels and make sure it didn’t look like a Lotus.

But that didn’t happen, thanks to what Smith called “elegance creep.” They could keep making the car a little nicer, so they did.

“Musk wasn’t the CEO, and he wasn’t the president,” Malcolm Smith, the VP of vehicle engineering, told Business Insider. He would “sweep in every few weeks” to see the development, learn the details, then want changes for a variety of reasons. And disrupt the workflow.

You can read more about Tesla’s origin in:

Elon Musk: Converting Lotus’ Elise To Build The Tesla Roadster Was A Super Dumb Strategy

and, The Making Of Tesla: Invention, Betrayal, And The Birth Of The Roadster

RJ Youngling
You’re In Charge
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As he becomes more concious of the infinite deterministic forces of his life, he becomes more free. Freedom is thus not the opposite to determinism. Freedom is the individual’s capacity to know that he is the determined one, to pause between stimulus and response and thus to throw his weight, however slight it may be, on the side of one particular response among several possible ones. (May, 1963)

The biggest problem in the 21st century is that we’re reactionary.

We don’t stop and think because there’s no stillness in our mind. 

In a world full of gadgets: iPhones, iPads, social media apps and so on.. the most complex gadget of all, our mind, is constantly overlooked.

We’re human. And we think that means we’re not animals. However, the delta between us and animals is significantly smaller than us and our idealized version of what humans are.

We’re incredibly reactionary because we don’t practice not being reactionary.

From the moment we wake up till the moment we go to bed, most of us are on complete autopilot. We think about something bad that happened which makes us think about another thing, and another thing, and we get caught up in this endless string of mental associations.

We constantly miss the present because we’re lost in the past… or the future.

Just try to let the mind relax for a second.. just observe what’s going on around you and inside of you…

Notice how quickly you get lost in another thought. The getting of the thought isn’t the problem.. it’s specifically the difficulty we have with not recognizing that we’re lost in thought and our inability to bring our awareness back to the present.

I have many friends who do Yoga and like most western people, they’re unfortunately clueless about its purpose. Yoga isn’t stretching, it’s specifically to train this ‘’noticing’’ of thoughts so you can bring your mind back to the present.

There are many disciplines but all of them have the same aim. Practicing to relax the mind by recognizing when you’re thinking and consciously letting that thought go vs. being carried away by it.

This is incredibly important for humanity because it allows you to use your prefrontal cortex to make a conscious decision about how to move forward vs. being reactionary because of our amygdala and regretting it later.

As the opening quote says.. there’s a space between stimulus and response, and in that space, we get to choose how we proceed.

References

Lloyd-Jones, E. McDonald., Westervelt, E. M. (1963). Behavioral science and guidance: proposals and perspectives. Freedom and Responsibility Re-Examined by Rollo May (p.103). New York: Bureau of Publications, Teachers College, Columbia University. Retrieved from https://babel.hathitrust.org/cgi/pt?id=mdp.39015062958189&view=1up&seq=119

RJ Youngling
Slow Is Steady, Steady Is Smooth, Smooth Is Fast.
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After decades of running marathons, what have we established is the most effective way of running one, both empirically and scientifically?

Sprinting as hard as you can, followed by a recuperation period, followed by a sprint again?

I’d have a hard time finding anyone who’d feel like this would be a plausible hypothesis.

Simply because of the law of diminishing returns.

You sprint distance X and rest time Y. The second sprint is distance X-20 and rest time is Y+25.

Intuitively we all know this.

Then why do we treat business so differently? What’s up with expectation employees to work 16hr days and constant sprints for deadlines.

No professional athlete trains like that yet we expect ourselves and the average Joe employee to magically pull that if.

Here’s a radical idea.. what if.. just what if.. we could actually achieve much more not by constant sprinting but by having a significantly slower BUT sustainable pace instead?

Perhaps succesful business is a marathon and not a sprint.

RJ Youngling
The Non-Linear Returns Of Edges
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If you’re anything like me you probably severely underestimate the importance of sleep.

Every major disease in the developed world — Alzheimer’s, cancer, obesity, diabetes — has very strong causal links to deficient sleep.

It’s not possible to collect a sleep debt (during the week for example) and pay it off later (during the weekend).

Lost sleep hours will be lost forever.

What you probably know is that we have REM sleep and non-REM sleep.

What you probably did not know is that the majority of nREM sleep occurs in the first few cycles of sleep and the majority of REM sleep in the last few cycles.

This means that if you go to bed at 00:00 and wake up at 06:00 instead of 08:00, you lose the last two hours, meaning, you’ve missed out on almost all of your REM sleep.

Which makes you more prone to mental health illness in the long term (like depression, anxiety, and suicidality) and lack of creativity (connecting the dots) and resetting the emotional network in the brain (controlling your impulses and emotions).

So by missing the last 2 hours of sleep, you don’t miss 25% but 90+%.

The person who works an extra half an hour every single day also experiences disproportionate results in the opposite direction.

The U.S. Bureau of Labor Statistics reports that the average person working 45 hours per week earns 44% more pay — that is, 44% more pay for 13% more work. Put another way, she or he gets more than triple pay during those extra hours. (Farrell, 2005)

By consistently staying half an hour to an hour longer, people start to notice you… This includes the right (influential) people.

You stand out in a positive way as that person who takes ownership and is willing to go the extra mile and has all kinds of ripple effects.

The same holds true for our customers.

A ‘’thank you’’ or an ‘’anything else?’’ is what we expect of you… Some companies think they deserve a medal for doing what’s expected..

Unfortunately, it doesn’t work that way.

However, doing that little bit more, the unexpected, the surprisingly generous… That’s a form of costly signaling.

Doing things on the edges yields disproportionate ROI.

It gives birth to alchemy.

In the essay: Science + Alchemy = Predictable Magic we discuss the dichotomy of science and alchemy in business.

References

Farrell, W. (2005). Why men earn more (1st ed., p. 78). New York: American Management Association.


RJ Youngling
Ten
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The way you grow is to serve fewer people, better.

Not more people, worse.

There are almost no companies giving people an extraordinary experience.

Thus, the bar is set low. If you go above and beyond, you’ll instantly stand out.

That will attract not only more customers, but the right customers.

Don’t just attract anyone.

The haggler, the complainer, the divas, the stress spreaders, the ones who don’t understand where your value lies..

Attract the right people.

And that starts with 10.

10 members of your tribe. 10 raving fans. 10 evangelists who spread the word.

Getting 10 people like that is very, very hard.

But in the process of getting those 10, you’ll do an order of magnitude more good for your company than if you try to 10X the traffic you get in the hopes of converting some small percentage of them.

Bottom-up vs. top-down. Read the essay Which Side Is Up? for more on that.

RJ Youngling
All Perfectionists Are Liars
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In order for something to be perfect, it needs to meet the criteria of perfection.

How can something be perfect if it’s never been shown to the marketplace?

If it’s not shown to the marketplace, it can not be judged and it’s impossible to conclude whether or not it meets the criteria necessary to be perfect.

Therefore, perfectionism is a lie.

It’s a warm blanket we wrap around ourselves to shield us from the uncomfortable truth…

That we’re refusing to ship not because we’re perfectionists, but because we’re cowards.

It hurts when you pour your soul into something and the marketplace doesn’t like it.

So we hear those voices in our heads before we ship and keep tinkering with it in the hopes of having not a single negative remark upon launch.

Which deep down we realize is a fallacy which is why we get stuck in this loop.

The key is two-fold.

One part is to give yourself constraints. I.e. You ship daily.

You do the best you can within those constraints and you ship.

Not because it’s ready but because it’s time.

We don’t expect you to be perfect, we expect you to try your hardest.

Do that, and the right people will be completely understanding and root for you.

The second part is to realize you’re being selfish.

The reason why you’re working on the thing you’re working on is because deep down, you got this seed, this drive, this desire to get whatever it is you have out into the world.

There are people who need what you have to offer.

And in your never-ending journey to improve it before you ship, you still haven’t launched it.

That means the people you seek to serve aren’t being served.

You’re robbing them from the very experience you’re trying to create.

Imagine if Steve Jobs, when he and his team at Apple, envisioned the iPhone had said.. we can’t ship until it’s perfect.

We’re at iPhone X now and it’s still not perfect… That means all this time.. still no iPhone.

And since they were the first ones to create the industry, who knows how many years that would have set us back, not to think about the entire app ecosystem us as users benefit from and the thousands of entrepreneurs who made a living off of that.

So ship. Do the best you can within your constraints. Serve the people you seek to serve and give their needs precedence over your angst of shipping something imperfect.

Work with your tribe and invite them onto your journey of better.

We don’t want perfect. We want Kaizen.*

Remarks

*Kaizen is based on the belief that continuous, incremental improvement adds up to substantial change over time. Sometimes referred to as ‘’1% better every day’’.

During World War II the US government enlisted business process experts to make various industries more productive in support of the war effort.

The American industry had 2 problems: They needed to get better in a hurry to keep up with the demands of the war effort and they were on a shoestring budget. This combination of dire need and little capital led to the concept of small steps and continuous improvement. 

The US couldn’t afford (both time and money wise) to radically revolutionize its industries from first principles. 

Instead, proponents of the Kaizen approach implored floor managers and line workers alike to make small improvements, wherever possible, whenever possible for as long as possible.

Post-war, those US experts were brought to Japan to help rebuild their economy.

The Japan industry, led by Toyota, full embraced Kaizen as what would later be known as their Lean Manufacturing approach. Propelling the Japanese car industry to prominence in the 80s.

Ironically, the US forget their own lessons and Japan had to teach the US what they had originally invented.

During the 80s, American auto executives visited Toyota manufacturing plants in Japan to examine how the company was able to produce so many vehicles so quickly, and this fleshed out Kaizen approach was the answer.

In the early 2000s, this philosophy of being lean and continuous improvements started getting applied beyond the auto industry into many industries including software engineering and building startups.

RJ Youngling
The Third Chair
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How does a hair salon grow?

More advertising?

More giveaway campaigns?

SEO?

Social media marketing?

Content marketing?

How do we get, get, get!

It’s all about us.

The way you get more customers, more revenue, more growth…

is by focussing all of your attention on chair 3.

Making the experience for the person in chair 3 so ridiculously over the top that they’ll tell their friends.

And then when their friends come, you do the same.

Two things that need pointing out:

  1. It doesn’t have to be expensive. ‘’Ridiculously over the top’’, means the experience is extraordinary. You can achieve that with astonishing emotional labor.. and guess what.. that’s free. Free from capital, but not from consideration, empathy, compassion, and humanity.

  2. It’s a tempting mistake to focus on all the people who aren’t in chair 3. The people who’re on the app, who’re searching for a barber on Google and the people who might not like it. In an effort to not upset them, we’ll water down our service. And by focussing on the people not in chair 3, you’re stealing attention from the person in chair 3.

We don’t have that right. Our job is to make the world a little better for a few of our users. And in order to keep doing that our revenue engine needs to function well.

However, when we start optimizing the revenue engine we lose sight of the fact that the purpose of our company is to make the lives of the people who buy from us a little better in some way.

Said more eloquently and succinctly:

The purpose of our company is to serve our users, the purpose of our users is not to serve our company.

This one simple sentence is, unfortunately, one that 99% of companies don’t seem to understand.

You can read more about the dichotomy between science (the revenue engine) and alchemy ( the irrational things) in order to create an extraordinary business in Science + Alchemy = Predictable Magic.

So it’s our duty to give the people who came here, specifically for us, our undivided attention.

RJ Youngling
The Art Of Business, Where Science And Business Depart.
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Today’s essay is a long one as well, so in case you’re pressed for time, I’ll give you the TLDR here.

If you want to read the essay just skip this section.

TLDR: Science relies in large part on replicability. Business does not. Copying is a zero-sum game and all participating players will compete profits away until they reach a Nash-equilibrium, where a further lowering of price and thus margins is unsustainable. Innovation is always new and therefore never formulaic. There are certain guidelines successful businesses seem to use but in the end, you’ll still have to go with your gut and make a judgment call according to your own ethical values.


Arguably, replicating findings is one of the best tools we have in our scientific arsenal in order to test the validity of a conclusion.


Which is why the psychology community was not amused when the methodological crisis now known as the Replication crisis started, where it was discovered that many studies weren’t replicable (Nosek et al., 2015).

Even some of the most cited and well-known studies such as the study that power posing makes you act bolder (Carney, Cuddy & Yap, 2010).

Which, incidentally, is why it’s so important to not just reference research (instead of parroting some YouTube influencer or blogger) but to also carefully analyze the literature and its limitations yourself.*

This doesn’t guarantee perfection, but it does decrease obvious and preventable mistakes.

JP Ioannidis pointed out serious problems with published research in ‘’Why most published research findings are false.’’

‘’ Simulations show that for most study designs and settings, it is more likely for a research claim to be false than true. Moreover, for many current scientific fields, claimed research findings may often be simply accurate measures of the prevailing bias.’’ (Ioannidis, 2005).

Methodological issues aside, replication matters.


Well, that’s all fine and dandy weren’t it for the pesky fact that our field relies on innovation.


Even if you extract all the knowledge from the brains of Kevin Systrom and Mike Krieger and build Instagram, you’d get the completely opposite result because Instagram already exists.

Even Kevin and Mike can’t replicate it because the variables have changed.

The entire environment and current social climate (regarding privacy, advertising, users as the product and social media addiction) are different, and even if it weren’t, no user is gonna switch to an IG clone when IG already exists.


So what makes business so complex is that it’s both art and science.


There are some guidelines that most successful companies seem to follow, however, you can’t formulate a step-by-step plan for the reasons laid out above.

Peter Thiel was one of the first to point out this distinction between companies that go from 0 to 1, innovation, and companies that go from 1 to n (copying), in his book Zero to One.

Companies that do copy and thus employ a formula they copied from another company open themselves up to fierce competition.

As more players participate in this zero-sum game, the fixed pie of users and profits will get competed away because there are too many mouths to feed with finite resources.

If you copy each other with no (or no meaningful) distinctions than price will be the only thing you can compete on, which is exactly what we see in commodity markets.

Player B will lower prices in order to steal market share from Player A. Player A lowers them still. Player C lowers it below both of them. Player D goes too low and goes bankrupt.

Over time, price will collapse into a Nash-equilibrium (no player can do better by unilaterally changing her strategy).

A point where no player can go below the current price point without going out of business, or above the current price point without attracting too few customers and going out of business as well.

(Unless one player, usually a new one, sufficiently innovates and thus creates a whole new business model. In effect, changing the game.)


This problem is further exacerbated by the fact that we go through traditional education by default.


A system that’s not designed to teach independent thinking but rather to reward obedience and implementing rules.

If you think that’s my opinion vs. facts then watch this to get a better understanding of how our modern education system was formed:

In mathematical set theory, there’s something called the axiom of choice (AoC).


Without making AoC too complex, picture this:

Suppose you have 3 jars: Jar 1, Jar 2, Jar 3.

Each jar contains a piece of paper with a few whole numbers written on it.

Jar 1: 4, 8, 45

Jar 2: 646, 23

Jar 3: 894, 7, 45649, 54, 76

Now I can make a new jar: Jar 4, which contains one element from each of the jars.

Taking one element out of each indexed Jar and using that to create a new Jar (set) with those elements.

Taking one element out of each indexed Jar and using that to create a new Jar (set) with those elements.

Okay… in order to do that we need to build some machine where we can put something in and it spits something out (a function).

Let’s create a function that just ‘’chooses’’ the smallest element in each jar.

So it picks: 4 from Jar 1, 23 from Jar 2 and 7 from Jar 3.

So now we can put a piece of paper in Jar 4 with 4, 23, 7 on it.

We’ve created a choice function ‘’pick smallest element out of each jar’’ that creates a new set (Jar 4) with the chosen elements.

Even if we had infinite jars, this function always works.

Because with natural numbers (whole numbers 1 and up), you can always pick a smallest.

But what if we have an interval in Jar 2 such as (3,5].

The symbol ( means 3 is not included.

This creates a problem because what’s the smallest element we should pick now?

3.1? Well, what about half that 3.05?

Well, what about half of that again 3.25?

No matter how close we get to 3 we can always choose a smaller element so our choice function doesn’t work here.

When you invoke the AoC you claim that even though we don’t know what the choice function is, you’re going to assume there is one. 

(That there is a way to pick one element out of each jar and create a new jar with those elements.)

An analogy Bertrand Russell came up with is that if you have an infinite pair of shoes you can create a choice function: Pick the left shoe from every pair.

But if you have an infinite pair of identical socks, there’s no such thing as right or left, so you can’t create a choice function to pick one sock from each pair and therefore have to invoke the AoC.

The AoC is something that can not be proven or disproven, you either invoke it or you don’t.

If you use it, it allows you to do certain kinds of mathematics but also creates paradoxes such as the Banach-Tarski paradox. 

(Hard to explain without mathematics but a sketchy way to think about it is that it’s possible to break a sphere into pieces, rotated them and you get your sphere back, rotate them differently and you have two spheres with the same volume as the original.)

And if you don’t invoke the AoC, there’s certain mathematics you can’t do.

Just like not knowing the existence of a choice function and invoking the Axiom of choice, we often can’t know the best way to proceed in business…


under the current market and technology circumstances.

We often can’t prove or disprove our hypotheses, especially when you’re innovating, so reason fails us.

We talked about the limitations of reason and the upside of using a more evolution based approach in the essay series: ‘‘Why Your Business Needs More Weird Ideas.’’

In essence, you’re saying: ‘‘It’s fundamentally impossible to determine what the best way to innovate is, but I’m just gonna assume there is a way.’’

It’s an enigmatic problem so you just have to take a stance and make a decision according to your ethical values.

I want to end with an excerpt from the interview with Andrew Mason, the Founder and early CEO of Groupon.


The Quick Rise and Even Faster Fall of Groupon, Through the Eyes of Its CEO.

There was one other part of the letter that says your biggest regrets are the moments that you let a lack of data override your intuition of what’s best for the customers. What did you mean by that?


Groupon started out with these really tight principles about how the site was going to work, really being pro-customer. And as we expanded people in the company would say, “Hey, why don’t we try running two deals a day?” “Why don’t we start sending two emails a day?” And I’d think, That sounds awful. Who wants to get two emails every single day from a company. And they’d be like, Sure, it sounds awful to you. But we’re a data-driven company, so why don’t we let the data decide? Why don’t we do a test? And we’d do a test, and it would show that maybe people would unsubscribe at a slightly higher rate, but the increase in purchasing would more than make up for it. You’d get in a situation where it doesn’t feel right, but it does seem like a rational decision.

The problem was when you’re in hypergrowth like this, you don’t have time to see what is going to happen to the data in the long term. The churn would catch up with you. People would unsubscribe at higher rates, and then, before you know it, the service has just turned into something — if you look at Groupon now, it’s just this vestige of what it once was. There’s no real copywriting. It’s a marketplace of coupons. It’s still a service that a lot of people get a lot of value out of, but it doesn’t have the spirit it once did.

There are certain things you have to be religious about in the company. That’s what I’ve taken away from that: There are some things where you have to say, “I’m sorry. I’m not going to look at the data on that. This is just what we’re going to do. We know that it’s right, and there’s nothing that’s going to shake us from that.” (Blumberg, 2018).

Remarks

*The fact that almost everyone is lazy and assume others have done their homework vs. doing the hard work of checking it themselves is a cognitive error known as diffusion of responsibility. ‘’The individual assumes that others either are responsible for taking action or have already done so.’’

References

Nosek, BA et al. (2015). Estimating the reproducibility of psychological science. Science, 349(6251). doi: 10.1126/science.aac4716. Retrieved from https://www.researchgate.net/publication/281286234_Estimating_the_Reproducibility_of_Psychological_Science

Carney, D. R., Cuddy, A. J. C., & Yap, A. J. (2010). Power Posing: Brief Nonverbal Displays Affect Neuroendocrine Levels and Risk Tolerance. Psychological Science, 21(10), 1363–1368. https://doi.org/10.1177/0956797610383437

Ioannidis JP. Why most published research findings are false. PLoS Med. 2005;2(8):e124. doi:10.1371/journal.pmed.0020124

Blumberg, A. (2018). The Quick Rise and Even Faster Fall of Groupon, Through the Eyes of Its CEO. Retrieved from http://nymag.com/intelligencer/2018/10/andrew-mason-on-groupon.html

RJ Youngling
Working Less: Why You Can Do More Meaningful Work In 4 Hours Than 4 Days
architectural-design-architecture-building-2404055.jpg

The headline, hyperbolic as it may be, points out the necessity of focussed work.

Too many of us are merely present but not fully focused and engaged.

We overestimate what we can do in a day and we underestimate what we can do in a year.

We cram our days so full that we end up being unproductive.

You look back at the end of the day and what did you do? Not that much.

All those super important tasks at the end of your todo list? Still undone because you only got half way through your todo’s.


The problem is that these unproductive days become unproductive weeks, months, years.


It doesn’t matter who you are.. it will never be possible to run a marathon in half an hour (short of some kind of biological manipulation.)

It’s just not possible.

But traveling the distance of a marathon in a year? That’s child’s play... You don’t even have to try.

So many entrepreneurs recommend working extremely hard.

But to me, that seems like sprinting during a marathon.

Eventually, you’ll have to stop because it’s not sustainable.

Then you sprint again and stop again until you lose motivation.

I think a much better approach is just to do less in the short term, so you can do more over the long run.

Burning yourself out by going extremely hard Jan 1st — 7th is the best way to guarantee you’ll quit until you make the same New Year’s resolution to start exercising next year.

Whereas, the guy who exercises a shorter amount of time but with full focus has a much better chance of turning that into a daily habit.

And ultimately, it’s not the total amount of work done over the course of a day we’re trying to optimize but rather the total amount of work done over the course of decades or even our life in some cases.


Intellectual Giants’ Thoughts On The Ideal Number Of Hours Worked Per Day:


Anthony Trollope said:

“A small daily task, if it be really daily, will beat the labours of a spasmodic Hercules.”

And I think that’s exactly right. There are so many extraordinary people who ‘’only’’ worked 3–4 hours a day.

But they NEVER missed a day.

Henri Poincaré (The famous mathematician who coined the Poincaré conjecture and worked on mathematics, philosophy and theoretical physics, publishing over 30 books and 500 papers.) worked from 10 am to noon and then in the evening from 5 pm to 7 pm (Toulouse, 1865).

The time Charles Darwin spent doing scientific work usually consisted of just three 90-minute periods a day (Freeman, 2019).

If you go here, you can see Francis Darwin describing his dad’s entire routine.

After a morning walk and breakfast, Darwin worked in his study from 8 AM to 9:30 AM, at which point he’d take a break.

At 10:30 AM, returned to study, which period he considered the end of his working day.

4:30–5:30 PM, he worked in the study, clearing up matters of the day.

I left all the non-work related activities out for brevity’s sake but I recommend checking his schedule out using the reference below.

Stephen King, one of the best and most productive writers, ‘’only’’ writes 6 pages a day. But he too never misses a day. 

That consistency adds up.

The pioneer of capitalism, Adam Smith (Smith, 1776), wrote: “The man who works so moderately as to be able to work constantly not only preserves his health the largest but, in the course of the year, executes the greatest quantity of work.”

One of 20th century Britain’s most eminent mathematicians, G.H. Hardy, began his day with a solid breakfast and learning cricket scores, followed by work from 9 am to 1 pm. “Four hours creative work a day is about the limit for a mathematician,” he told his friend and fellow Oxford professor C.P. Snow (Pang, 2016).



I wonder what would happen if we only worked 4 hours a day in companies where that’s possible.



But you never miss a day.

That’s 28 hours a week. I have a strong suspicion that we’d be insanely more effective for a few reasons:

1) 4 hours is so short, you’ll be much more likely to enter a flow state and get near 100% productivity and focus 

(vs. burning time which is what most employees are doing during an 8hr period and certainly during a 16hr period).

2) You’ll think about work outside of work and you’ll spend that 4 hours better vs. when you have unlimited time. Then you’re much less picky about what you do and how effective you are, and as a result, you’ll make mistakes and have to re-do work.

3) It’s much easier to build sustainability vs. the up and down of those Herculean sprints.

4) I think people will get more done because they’re less overwhelmed which leads to inaction. People also likely won’t burn out anymore. Work becomes a pulling force vs. a pushing force.



I see this phenomenon in the gym too.



People who kill themselves sporadically vs. people who’re there daily. 

Continuously improving but not killing themselves so they don’t have to take time off.

In scientific terms, they call this Maximum Recoverable Volume. What’s the most you can do such that you can still recover from it?

What if we applied that concept to business?

What’s the most we (and our employees) can work, still recover from, and be pumped to work again tomorrow.

Here’s a clip from the coach of GSP, a famous MMA fighter:

In it, his coach Firas Zahabi, explains how they use ‘’flow’’’. 

A concept coined by Hungarian-American psychologist Mihaly Csikszentmihalyi.

The idea is if you can go to 10 twice a week, you need to rest on the other days. (Provided that’s your absolute max! There’s no higher level.) (Say 10 represents 10 pull ups with 50Kg added.)

Resulting in a total output of 20. (20 weighted pullups.)

Whereas, if you only go to 6 every day, you don’t need rest, and you decrease the probability of injury and burn out.

Resulting in a total output of 42 (weighted pullups). That’s over 200% total output compared to the first situation.

I think work should be a pulling force. You should want to work. If you consistently get into a state of flow it’ll become addictive.

But that’s not gonna happen if we kill ourselves every time we show up.

If we have the discipline to choose to do less, we’ll end up doing more and better.


References

Toulouse, E. (1865). Henri Poincaré par le Dr Toulouse. English version: https://www.bookdepository.com/Henri-Poincare-Edouard-Toulouse/9781418165062. Original version: https://quod.lib.umich.edu/u/umhistmath/AAS9989.0001.001/48?rgn=full+text;view=pdf

Freeman, R. (2019). Charles Darwin: A companion. Retrieved from http://darwin-online.org.uk/content/frameset?pageseq=95&itemID=A27&viewtype=side

Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations[Ebook] (pp. Book 1, Chapter 8 Of the Wages of Labour). Retrieved from http://geolib.com/smith.adam/won1-08.html

Pang, A. (2016). REST: Why You Get More Done When You Work Less [Ebook] (1st ed.). Basic Books. Retrieved from https://bit.ly/2Ii1WkS

RJ Youngling
Making Your Stuff Cheaper Without Making Your Stuff Cheaper
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Economic Theory operates on a basic set of premises.

We’ve discussed those premises in:

Price/Value Conundrum

‘’But Where Is The Value’’ Part 2

Why Your Business Needs More Weird Ideas — Part 2

and Resources In Short Supply: ‘How’ you say > ‘What’ you say

The problem is that those premises are flawed. Meaning that all logic that flows from those assumptions collapse like a house of cards built on a wobbly table.

Pricing is no exception.

How do you make your stuff cheaper so more people will buy?

Ask an economist and he’ll answer ‘‘You lower prices, idiot’’ before hurling Keynes’ The General Theory of Employment, Interest and Money, towards your head.*

But humans aren’t objective machines operating in environments of perfect trust and information.

They use heuristics.

Heuristics that we must exploit because it’s our ethical duty to make experiences that add the most value to their lives possible.

We work with the human body, we don’t make steering wheels for people’s noses, so we should work with the human mind too.

(I wrote about this in I Need Your Help…)

Offering choices:

If you make the customer choose between buying your product for $10.000, then he’s got a binary choice to make. Yes, no.

If you offer that same customer 3 choices: Your product for $10.000, your product plus implementation for $15.000, your product plus implementation plus your consulting on standby for $25.000,

you’ll take their mind off of price and force it to consider which choice is better for them.

This is also referred to as framing.

It’s the difference between asking your wife: ‘‘Honey, do you want to go out for dinner?’’ vs ‘‘Honey, would you rather eat sushi at restaurant X or Indian food at Y tonight?’’.

People need autonomy. Giving them a choice (even if it’s a ‘‘false choice’’) will always feel better (and therefore be better cuz you’ll have their buy-in) than forcing them into a binary choice.

(I don’t have children but I’ve been told by parents that it’s much more effective to ask your kids which book they wanna be read for bedtime (choice) vs. telling them to go to bed (binary).

Change the choice architecture:

I’ve written an entire series of essays on this very topic so in order to avoid redundancy you can read it here:

Why Spend Less When You Can Spend More? Part 1

Allow cashless payments:

Paying with a card feels about 15% cheaper. So that’s an extra 15% of pure profit that you can use to invest in R&D, customer support, better staff, and training.

In fact, willingness-to-pay can be increased when customers are instructed to use a credit card rather than cash. The effect can be as large as 100% (Prelec & Simester, 2001).

Multi-stage payments:

$500 =/ $325 + $50+ $100 + $25

Multi-stage pricing feels cheaper.

Which is why so many industries use loss leaders. From your local grocery store who loses money on their chocolate bars but makes a profit on all the other things you buy while there, to the retail industry that sells clothing at a loss in order to sell you bags, shoes, and perfume at much higher margins.

(This is incidentally why Calvin Klein and won’t ax their clothing line.)

Hotels tend to do this too. You prepay a $325 room for a night. Once there, you buy some drinks and food and use the mini bar or room service. You also get breakfast in the morning cuz well… you’re already there. And of course parking and fuel.

But when customers compare this to some all-in place that has everything included for $450 it feels cheaper even though it’s not.

There are a lot of hidden costs (such as fuel, parking, cost of time spent, etc.) and other expenses that we as humans forget to factor in when comparing.

We’ve all had that moment where we set out to spend $500 and when we got back we spent $1225 and we wondered what happened. This escalation is what sets multi-stage pricing apart.

Pay after:

Disney implemented this beautifully by removing friction with their magical bracelet.

Express users can board a park-bound shuttle, and check into the hotel. They don't have to mind their luggage, because each piece gets tagged at your home airport, so that it can follow you to your hotel, then your room. Once you arrive at the park, there are no tickets to hand over. Just tap your MagicBand at the gate and swipe onto the rides you’ve already reserved. If you've opted in on the web, the MagicBand is the only thing you need.

We see this much more with our current app culture.

Take Uber for example and how much better it feels to get in an Uber and get out, vs the experience with the taxi which felt much more transactional.

By implementing some of these, you’ll construct value out of thin air and create a much better user experience at almost zero cost.

Economic alchemy, my friends.

*Longtime readers of The YF Daily will probably have picked up where I stand in the debate of the Keynesian model of economics which favors government interference and bailouts to stabilize the market vs. the Hayekian school of economics which sees government intervention as pernicious and advocates that the market should sort itself out with minimal government regulation.


References

Prelec, D., & Simester, D. (2001). Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay. Marketing Letters12(1), 5-12.

Cristobal, M., Malayang, J., Sampan, M., & Solina, M. (2018). A Research Study on the Effects of Cashless Transactions on People’s Spending Behavior. Retrieved from https://www.academia.edu/36409929/A_Research_Study_on_the_Effects_of_Cashless_Transactions_on_Peoples_Spending_Behavior.docx

RJ Youngling
The Bread Machine
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There was a supermarket on the other side of the city I live in.

In it, there was this epic bread cutting machine.

You’d grab an incredible looking loaf of bread from the bakery section and put it in the machine.

Slide it between two ‘’walls’’ so it’s nice and tight.

Close the lid of the machine by sliding it left.

Select the thickness of the slices you want.

And then watch a circular blade go up and down slicing the entire loaf into slices.

It wasn’t one of those old, dusty machines. It was a huge, futuristic, metallic machine.

It’s silly but the whole experience was always fun so I often went to that store just for that machine.

When I went back to that supermarket after being abroad for a while, It had become a new supermarket.

I asked if they still had the bread machine, they didn’t.

I had a feeling I wasn’t the only one who’d specifically go to that store for that machine so my next question was if other people had asked the same question.

He told me he gets asked that at least twice a day.

Now keep in mind, he’s only 1 dude, he only works part-time and most people would be too shy to ask.

So the total number of people who’re wondering is far higher. 

We often believe big outcomes imply that there was a big change preceding it.

But that’s often not the case. 

Small changes can, in fact, lead to big outcomes!

As we discussed in the essay: ‘’Why Your Business Needs More Weird Ideas- Part 3'’

I’m willing to bet there were more people like me for whom that bread machine, consciously or unconsciously, was the reason why they went to that store.

Once you go to the same store a few times you’ll like it more and tend to stick with it.

We talked about the Mere-Expose Effect in the essay: ‘’How To Make People Love Your Stuff or The Science Of Awesomeness’’.

An accountant would consider it a waste because seemingly irrational things often don’t show up on the balance sheet.

But as I’ve said many times before:

Just because something makes logical sense doesn’t mean it’s true.

Just because something seems irrational doesn’t mean it’s false.


RJ Youngling
Do You Have Customers Who Deeply Love You? Final Part
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This is the final part of this series.

Read Part 1 here.

Read Part 2 here.

Read Part 3 here.

In Part 1, I laid the foundation for my thesis that the smallest possible set one can condense business into contains two minimal elements.

i. Build a revenue engine.

ii. Get users to deeply love you.

In Part 2, we learned about the most essential part of a revenue engine for a new product or company (validating demand).

In Part 3, we examined why it’s so vital to get users to deeply love you and how to achieve that.

Today, we’ll discuss the problems of a blind focus on revenue maximization.

Let’s get into it.

Guided solely by revenue you’ll make two types of mistakes.

The obvious first class is ethical mistakes.

McDonald's who targets children with ads for the sole purpose of maximizing revenue at their expense.

Tobacco companies that both targeted kids and used them in ads.


Oil companies who bribed academics to lie about lead in fuel, which was known to be incredibly harmful to people (Nriagu, 1990) in order to buy a few extra years of profit before the law caught up. (They knew there were safe alternatives but they weren’t patentable.)

“This was one of the first times that the authority of science was used to cloak a threat to public health and the environment,”

- Neil deGrasse Tyson


‘‘America’s leading corporations–General Motors, Du Pont and Standard Oil of New Jersey (known nowadays as Exxon)–were that somebody. They got together and put lead, a known poison, into gasoline, for profit.’’

-The Secret History Of Lead

And more modern examples include companies like Facebook, Instagram etc. who started with noble ambitions but guided by growth and revenue, purposefully engineered their platforms to be as addictive as possible.

Hiring so-called ‘’attention engineers’’ which is just a euphemism for addiction specialists.

“The inventors, creators — it’s me, it’s Mark [Zuckerberg], it’s Kevin Systrom on Instagram, it’s all of these people — understood this consciously. And we did it anyway,”

-Sean Parker

This IMO is the direct and obvious outcome of the Friedman doctrine.

‘’ a company should have no “social responsibility” to the public or society because its only concern is to increase profits for itself and for its shareholders…’’

-Milton Friedman, Nobel prize winning economist

If we solely maximized for growth we quickly find ourselves running a heroin startup. 

Think about it. 

CAC (cost of acquisition) is incredibly low because word of mouth is so high (positive viral coefficient). Churn (customers stop using you) is near zero, once addicted you’re a customer for life which means high LTV (lifetime value). 

Margins are solid because once they’re addicted, price is pretty much arbitrary*.

The only thing stopping us is that it’s illegal.

This is not good.

We should have better reasons for not starting a heroin company besides that it’s illegal.

The bar is set way too low if our best argument is ‘’Well, what we’re doing is not illegal.’’, which is exactly how most companies seem to operate.

However, perhaps more surprisingly, is that the second class of mistakes is business oriented.

Meaning, it’s bad business sense to solely maximize revenue because working off of that axiom, when presented with a choice between what’s best for the user and what’s best for profit, we pick profit.

This opens us up to disruptive innovation.

Kodak was actually the first to invent digital photography but because they had such an extraordinary business model (extremely high margins, stick rate and CLTV etc.) they sat on it and were disrupted by others. *2

It’s bad business to not act out your fiduciary duty because if you won’t someone else will.

The reason a company won’t do what’s in the best interest of the user is that they’ve got more to gain (in the short term) by maintaining the status quo, however, there are many more people who’ll financially benefit from improving that status quo.

So eventually someone will. 

IBM should’ve dominated operating systems instead of Microsoft. 

Microsoft should’ve dominated search instead of Google.

Google should’ve dominated social instead of Facebook.

eBay should’ve dominated payments instead of PayPal.

And Nokia should’ve dominated smartphones instead of Apple.

Boiling down this entire series gives us two questions we must ponder:

If I put a dollar in the revenue engine how much do I get out and when?

If we disappeared tomorrow, would our users be deeply sad?


*A perceptive observation here is that such a business would invite competition due to the forces of capitalism. This would drive price down and lower margins until a Nash equilibrium is reached unless we could find a way to escape the commodity market or use violence to prevent competition. This is essentially why we see violence in the drug business.. to avoid the collapse of a commodity market into a Nash equilibrium by keeping other players out.

*2 This is a bit oversimplified. I will write an essay about Kodak’s disruption in the future. But for now, the more accurate TLDR is: The saw the disruption coming (and invested in it) but didn’t shift their business model. Instead, they tried to use digital to grow their business model (print business).


References

Nriagu, J. (1990). The rise and fall of leaded gasoline. Science Of The Total Environment, 92, 13–28. doi: 10.1016/0048–9697(90)90318-o

RJ Youngling
Do You Have Customers Who Deeply Love You? Part 3
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This is Part 3 of this series.

Read Part 1 here.

Read Part 2 here.

In Part 1, I laid the foundation for my thesis that the smallest possible set one can condense business into contains two minimal elements.

i. Build a revenue engine.

ii. Get users to deeply love you.

In Part 2, we learned about the most essential part of a revenue engine for a new product or company (validating demand).

And we ended on why it’s so important to focus on getting users to deeply love you and how to achieve that.

We’ll answer both of those today.

Let’s get into it.

I’ll start with The How because it’s significantly easier to answer.

The How:

In order to know if you’re on the right track or answer this question:

‘’If we disappeared tomorrow, how many of our customers would be incredibly sad?’’

That needs to be your benchmark to measure how well you’re doing in the ‘’deep user love’’ department.

The Why: 

If you try extraordinarily hard to get 100 users to deeply love you, then naturally, what will happen is that you’ll achieve that with maybe 5 of them.

But those 5 won’t be the only ones who’ll benefit.

Because in order to get those 5, you have to treat 80 amazingly, 15 neutral and 5 badly.

So this automatically creates a type of forcing function where you start trying to get closer to 100/100 who you give an amazing experience, in order to increase the number of people who’ll deeply love you.

On paper, with infinite time and capital, the side at which you start is irrelevant. 

You’ll reach the same goal.

Starting with a ton of people who like you and boiling that down to people who love you. (Typical funnel approach, albeit a little bit upgraded by this love concept.)

However, you don’t have unlimited resources. 

So what ends up happening is you get stuck with a lot of people who don’t really care about you or maybe even despise you. 

Even though the total area of user love is the same:

100 users * 10 on the ‘user love scale’ = 500 users * 2 on the ‘user love scale’

It’s much easier to increase total ‘love’ by having a small group of raving fans and get more fans than it is to have a large group of people who kinda like you and get more ‘’user love’’.

Especially once you grow bigger, your company will get slower. 

Ingrained habits are harder to change for your employees (culture) and the perception of your users (branding) will get increasingly harder to change as well.

So in the first scenario:

Churn (Losing customers) will be low.

NPS (Net Promoter Score) will be high (How much customers love you and if they’ll recommend you).

And you’ll see good organic growth, so once you start advertising and investing in marketing, you’ll throw gas on the fire.

In the second scenario:

Churn will be high

NPS will be low

Organic growth will be negative (meaning, if you don’t do anything growth declines cuz people tell their friends to avoid you).

The business is extremely dependent on advertising and marketing, but the fact that churn is so high is a huge red flag.

They’ll eventually exhaust their lead pool (place where you find new customers), or CAC (customer acquisition cost) will outgrow LTV (lifetime value of a customer).

When CAC exceeds LTV, you’re in deep shit.

I wrote an entire essay about flipping the funnel in ‘’Which Side Is Up?’’

Many startups have gone out of business this way because you don’t measure CAC and LTV in real time. 

You use proxies.. so it’s difficult to get an accurate reading of reality. And heavy ad and marketing spend can cover up fundamental problems.

You see this in small companies too. When Groupon was popular, many entrepreneurs who ran a lousy company got a huge influx of customers because of 50% discounts. (Usually in an effort to save a failing business.)

It all seemed good cuz you get a ton of revenue, however, because the business sucked no one came back. (Then they blamed Groupon.)

They had to serve all those people (cost is high) then Groupon paid them (taking a 50% cut) so they have <25% of their normal price now to cover the cost of serving all those people.

The margins of a small business don’t support that, so if people don’t come back you lost money (CAC > LTV).

What those companies didn’t understand is that Groupon isn’t a tool where you buy customers (spend a dollar, make two) but rather, it’s a tool to increase traffic to your business.

Meaning, you lose money in the short term but hopefully by making the experience amazing a subset of them will spend enough in future visits (LTV) to offset the cost of the Groupon campaign (CAC).

Read The Final Part here.

RJ Youngling
Do You Have Customers Who Deeply Love You? Part 2
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This is Part 2 of this series.

Read Part 1 here.

In Part 1, I laid the foundation for my thesis that the smallest possible set one can condense business into contains two minimal elements.

i. Build a revenue engine.

ii. Get users to deeply love you.

Today we’ll build on that foundation.

Say, you want to create a protein bar with caffeine in it.

I believe the wrong way to do it is to invest heavily in infrastructure, marketing, websites, design and business cards.

The right way IMO (in order to decrease risk) is to see if you can pre-sell your caffeinated protein bars before you make a single one.

That way you can see if there’s a revenue engine there.

If you can get 3 customers in 48 hours, you actually have real problems you can then solve, like making the bars and getting more sales.

Vs. imaginary ones, like optimizing a website even though you have no customers yet.

Surprisingly, many established companies make this mistake.

They don’t validate. They just assume all their assumptions are true.

If you’re incrementally innovating, that might play out. But if you’re doing something truly innovative, the chances that your assumptions are wrong are very high.

So you wanna test early and often, and use an iterative approach.

What you wanna avoid is spending a ton of money and time, only to find out that no one wanted what you created.

It’s important to focus less on ‘‘how you can build it’’ and more on ‘‘should you build it’’.

Without a good revenue engine, in the best case, you invite unpredictability. 

In the worse case, you won’t be in business very long because the economics don’t work.

Which brings us to ii. Getting users to deeply love you.

The word ‘deeply’ is intentional.

It’s an extremely high bar to clear which serves as a function to make you try harder.

Shoot for the stars, reach the moon situation.

Two important questions here: why and how.

This will take a while, especially the why, so we’ll examine those 2 questions tomorrow.

Read Part 3 here.

RJ Youngling
Do You Have Customers Who Deeply Love You? Part 1
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The answer is probably no.

I mean.. that's a pretty high bar.

However, if the answer is ''No, we don't have ANY such customers.'', then I believe, not only that you're doing it wrong, but also that your business has a fundamental design flaw.

Because it seems quite obvious to me that revenue maximization is a function of the longevity of a company. 

Hence, architecting the systems and processes which enable your business to be sustainable does not seem optional to me.

For the past decade, I've been thinking about condensing the most important elements of business into a single focal point to make it easier for founders and the companies with whom I work.

Identifying a least element of sorts.

But no matter how I chose to define a goal, I always ran into limitations or even serious problems when played out to its natural conclusion.

(Unless you caveat it with intentional vagueness which is what most people do. ''Maximize revenue but use common sense.'' The problem with that is that everyone runs on different operating systems (values/morals) which can create unpredictable and undesirable outcomes.)

I’ve come to the conclusion that the smallest possible set one can create to condense business into contains two minimal elements.

i. Build a revenue engine.

ii. Get users to deeply love you.

Probably in that order, however, there are many entrepreneurs who started with 'love' and then turned that into a business.

(Almost all early day YouTube content creators for example. But it's riskier and not recommend unless you're okay with it not working (aka you're doing it for fun) and/or overhead is pretty low.)

I wrote about MVP’s in ‘’How To Launch?’’.

The revenue engine is the business model the company employs. The machine you've created such that for every dollar spent you get two plus back.

The better your understanding of the revenue engine, the easier it is to scale.

Read Part 2 here.

RJ Youngling
Price/Value Conundrum
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Economical thinking (aka wishful thinking): People pay a lot for the things they love.

Behavioral psychological thinking (aka real world thinking): People love the things they’ve paid a lot for.

The more we can get people to invest, the more they love it.

Research literature (Doss et. al., 2019) shows that unhappiness declines when couples have children and a possible explanation for the self-reported high levels of happiness (even though it’s demonstrably false) is the investment.

We’re investing so much time and money, and we’re sacrificing so much that we need to rationalize that somehow.

Otherwise, we’d have cognitive dissonance on our hands.

If we obsess about how to make our products cheaper, we might be robbing our users of happiness.


References

Doss, B. D., Rhoades, G. K., Stanley, S. M., & Markman, H. J. (2009). The effect of the transition to parenthood on relationship quality: An 8-year prospective study. Journal of Personality and Social Psychology, 96(3), 601–619

RJ Youngling
Comparing vs. Calculating Value
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If you have 5 and subtract 3 you now have 2.

So if you never subtract anything you’ll have more than if you subtract a natural number.

Happiness researches often make the assumption that if good stuff happens and you have a quantity of happiness, then when bad stuff happens that quantity is now lower.

The implication that follows from that is that in the same arithmetical way 5–3 < 5–0, if nothing bad happens the quantity of happiness should be higher.

But empirically, this is clearly not the case.

In fact, if nothing bad ever happens we’ll get bored and create bad things.

You see this often in relationships where one partner is okay with everything and there’s never any tension.

Often times the other partner gets restless and starts sabotaging to stir up some drama.

I think this is ordinal (used for ranking, 1st, 2nd) and not cardinal (used for counting 1,2).

You can say this creates more happiness than that, but you can’t say it creates 2.47 times more happiness.

The same things hold true for value.

You can talk about it ordinally, this his more value compared to that.

But not cardinally, this has 154.8 points worth of value and that 143.7, therefore this is more valuable to people.

It’s a mistake when we over optimize things that can be reduced to a number with a decimal point because the most important things might not be.

Try and quantify the love for your mom.

Just as happiness works in non-arithmetic ways, so does value creation.

I wrote about the difference in marketing that’s easy to measure vs. marketing that’s hard to measure in Direct Marketing vs. Tribe Building.

RJ Youngling