We are all motivated by “free.” But free is more than just a low price. In a new book Predictably Irrational , behavioral economist Dan Ariely of MIT tests how humans respond to free. In discussing free, he uses the example of how Amazon’s sales really took off when they began offering free shipping for orders over a certain level. Everywhere but France. On investigation, Amazon management found that in France, the country manager decided to do the promotion a little differently by offering shipping for one franc (in the US, it might be the same as offering shipping for 50 cents. ) But one franc did not elicit the same irrational response as free. When they changed the offer to free, they had the same response as everywhere else – spectacular sales growth. The bulk of the book is actual experiments that he performs with different age groups to understand how we all behave.
Responding to free is only one of several irrational behaviors he investigates. He looks at how honest we all are, how we react to irrelevant environmental clues, even how adolescent boys change their behavior when they are excited and many others.
This is my new favorite book. It defies categorization. The bookstore where I found it had it categorized in Self Help. For me, it belongs in the Business, except that many books in this section are (forgive me) boring. This book is anything but boring. It is an easy read. The author has a dry sense of humor and playfulness that makes the science of his investigations seem like fun. I think it is really a science book … the science of Behavioral Economics. I suspect most bookstores do not have a section for behavioral economics, so you might have to ask.
I believe any small business owner who reads this book will find plenty of ides for their business. This is a must read.
A dog trainer once told me that the perfectly trained dog is one that is always looking to you for permission to do the next thing, whatever that is. You want the dog’s eyes on you, waiting for your next command. The way you get a dog to act this way is to always discourage initiative on the part of the dog. If they are going to run out the door as soon as you open it, slam the door in their face. They will quickly learn to look to you for permission to go out the door.
Some managers do a similar thing when working with employees. Whenever the employee takes any initiative, the manager responds with a criticism or correction or a question, “Why did you do that…” The employee quickly learns that they need to check with the manager before they do anything. The manager may feel more in control but can’t figure out why they are so stressed and working so hard. This management style is one that is focused on control instead of employee empowerment. The manager needs to feel involved in every decision. While this may be gratifying to the manager, it makes for weak organizations. The manager’s efforts are divided by the number of employees and the growth of the organization is limited by that fact.
If the manager, instead, supports the employee by complementing the initiative and embracing ideas that are not the manager’s own, the employee will develop the confidence to act independently and think for themselves. Obviously, this only works in an environment where the employee has clear boundaries to their authority and responsibility. But the goal here is an organization made up of employees who know and do their job without needing to check in to the manager for every decision. The employee knows when they need their manager’s input. In this kind of organization, the manager’s efforts are multiplied by the number of employees instead of being divided by it.
Best of all, employees in this kind of environment enjoy their work more and have much better job satisfaction. No one likes to be treated like a dog.
Over 30 years ago, we had our first small business. Some friends recommended that we see a professional tax person, and they recommended the guy they used. I had always believed that with my engineering degree and an ability to do calculus, differential equations and analytic geometry, I did not need any help with my taxes. After all, I had the pamphlet from the IRS and tax preparation is just simple addition and subtraction. To prove them all wrong, I did my taxes myself, then we had our first appointment with Peter.
It’s an understatement to say that I learned a lot that night. Not only did Peter do our taxes competently and conservatively, but he saved us considerably more money than his fee. He educated me about how much more a tax accountant learns each year to be able to prepare taxes and understand the finer points of tax law. Let me state clearly, Peter never did anything shady or marginal; but he knew how to do his job well. And he was current with the latest regulations and tax court decisions.
After that night, I looked forward to my annual visit to Peter. He was not merely filling out forms, he was documenting my life in a way that not only fulfilled my obligations but saved me money every time. At times, it seemed more like he was painting a picture than filling out forms. He was truly an artist.
Peter’s daughter, who grew up working for him in the office, is now a CPA and took over his practice about 10 years ago when her father retired. She still does my taxes with the same artistry of her father. I still look forward to my tax appointment every year, and every year I learn more about our obscure tax code.
The lesson for any small business is that unless you are a tax accountant, get professional help with your taxes. This is a very specialized profession and a good tax accountant will save you more than their fee.