Sunday, April 30, 2006

Confidence and the Unexpected Origins of Value

I was watching an old Simpsons episode on TV this afternoon, the one where Bart gets hit by Mr. Burns's car.  And there was a courtroom scene in it where the defense attorney is trying to set an appropriate value for Bart's pain and suffering ($5).  And that got me to thinking... how do you determine the value of something, anyway?  How much does something "really" cost?

My wife and I have been trying to decide on some more permanent hurricane protection than the plywood panels we've been using, and some of the options have involved doing things ourselves, which of course would be cheaper, but a lot less convenient.  And that, finally, let me to an interesting thought, which I soon summarized as "Confidence equals Cash".

You see, if I were confident in our ability to properly install hurricane panels, we would take that route and spend a lot less money.  By contrast, it's obvious that in many other areas of skill (like this site design, blogging software, book layout, etc.), I'm more than happy to do things myself and save a buck, because I have confidence in my skill.

Now, if that were all there was to it, it wouldn't be a particularly interesting thought.  But it's much more general than just "do it yourself saves money".  For example, if I were going to run a programming business, and assuming that technical merit made a difference, I would be a lot better at recruiting talent because I'd be confident in knowing which people to hire, and which people not to.  Most managers have no idea how to pick technical talent, which leads to the sorry state that most IT departments are in.

However, when it comes to hiring, say, salespeople, I would be far less confident, and would therefore have to go with a conservative approach, just as the non-programmer manager has to go with their best guess when hiring technical talent.

But the point I'm getting at here is not that it's good to know something about the thing you're hiring people to do, nor that it's good to be able to do things yourself.  Let me spin it another way: confidence lets you take bets that other people think are risky, thereby reaping you a disproportionate share of rewards.

Sure Thing Odds, Longshot Payoff

In other words, if you can bet on a long shot while knowing you're going to win, you effectively get the reward without the risk.  But the effects go much further than that:

  • Since other people think the thing is risky, you have fewer direct competitors
  • When people see you investing big, they are more willing to participate either as investors or customers, because they realize you're serious
  • You can sometimes get publicity just because of how "daring" you're being
  • Big investments let you substitute fixed costs for some variable costs; e.g. buying your own CD duplicator to save duplication costs

And all of these economic effects are direct spinoffs of a mental property: confidence.

Now it's true that you could be confident and incompetent at the same time, like certain people that I'm sure spring to mind.  If that's the case, then sooner or later, the things you don't know are going to hit you like a ton of bricks.

That's already happened to me once, in fact, when I made a brief foray into the mortgage business, back at the turn of the millenium.  I made the erroneous assumption that my long history of being able to help managers improve their businesses meant I could take any business and actually run it.  And indeed I could.... it's just that I ran it right into the ground in short order.

But that little mess didn't just take away my overconfidence, it took away my confidence that I could do well in any business.  In the long run, that has been a good thing, because it has motivated me to understand the part of business that's about making money, as opposed to the parts about having quality products, good operations, great morale, etc. etc.  You can in fact have all of those wonderful things and still not make any money if you don't:

And what do all of these things have in common?

You guessed it: confidence.  Specifically, yours.

If you aren't confident in what you're selling, you're not going to charge enough.  You're not going to be comfortable telling people why they should buy it, and do so right now.  You're not going to invest as much as you should in the trappings of business, the ones that say you're really in business for real and you should come buy from me.  You're not going to ask people to buy, and to do so now.

The True Nature of Business

For the longest time, it puzzled me what some "business" people brought to the table.  Why, I wondered, is it not the "best" companies that make money?  Why do companies like Microsoft rake in cash like it was raining thousand-dollar bills, while other companies with better technology fold left and right?

A lot of us in the tech field respond to this question with "marketing", by which we mean the mysterious process through which large companies bilk the ignorant out of money that could be better spent.  And few people in our field ever question that view.

What I began to discover about a year ago, however, was that marketing (properly defined) actually creates something like 80% of a product's real value.

Nowsome of you are probably translating what I just said as "80% of a product's price", which is not what I mean at all.  If you're thinking that way, it's because you're looking through the wrong end of the value telescope: the one that's on your side of the transaction.  You need to look at it from the customer's side, especially the customer who is not as much of an expert as you are, in whatever it is you do.  There will always be more of that kind of customer than any other kind, and that customer:

  • Doesn't know what he or she should get
  • Doesn't know what's important to look at when choosing whatever it is
  • Doesn't know what problems he's going to get if he doesn't buy yours
  • Doesn't know what wonderful things will happen if she does buy yours
  • Wants to get on with his or her life and stop worrying about his or her problems
  • Doesn't want to make a mistake

and on, and on, and on.  The solution to these problems is what people will pay money for, not whatever "intrinsic" value the thing might have.  And helping customers solve these problems is the domain of  marketing.

Beyond that, marketing can also create value where there would otherwise have been none.  For example, let's take the book I'm about to release.  I'm printing only a few copies (150), but they will be a numbered and signed limited edition.  That is not something that is actually increasing the book's cost significantly, but it does increase its real worth and value.  It has both intangible value (bragging rights) and scarcity value (limited number of copies, only one first printing ever).

And if you look even closer, the rest of the book's value is also being produced by marketing.  You can read everything but part 2 of the Refactored Self right here on my blog already.  So it's not the information alone that you'll be buying.  Rather, it's the packaging of that information in an easy-to-use, portable form, at a cost of roughly $1.25/article.  And packaging is also marketing.

And if I didn't have the confidence to realize that the book has that much value for convenience's sake alone, and the confidence to acknowledge that we all have needs that go beyond the intellectual value of information, I wouldn't be offering the extras like personalized inscriptions, and that means I would actually be depriving you of value that you could have had if only I was more confident in what I had to offer!

In other words, a quality approach to marketing encompasses the total package, including intangible values that may not be intrinsic to the product.  Some of this value may be reflected in the price (e.g. the convenience cost of the book), and some may not (the inscriptions).  But none of that value would exist without the marketing, and the confidence to care enough about your customers to actually sell them something that will be of value.

The Confidence to Care

It has taken me a very long time to understand all this.  Last year, in The Triumph of Evil, I told how Ty and I realized our product-development and business-operational skills were actually getting in the way of making money, and a few months later I was testing my initial insights into marketing communication and packaging convenience by dubbing my new open source project "Easy Install".

But even then the message hadn't fully sunk in yet.  I had to read lots of articles from the Creating Passionate Users blog, followed by the book Cash Copy: How to Offer Your Products and Services So Your Prospects Buy Them.

Boy was that book an eye-opener.  I used to think I knew what "customer-centered" meant, until I read it.  The author relentlessly pounds away at his message, which is basically that any value you don't sell, is a value your customer doesn't get to enjoy.  If they don't know it's there, how can they enjoy it?  Even if they do know it's there, but not why it's important to them, they're still not going to enjoy it -- even if they buy the product!  You can't enjoy what you don't know about, and if you're not enjoying it, you're not going to value it.

And so now we're back to confidence again.  Even though I've so far refrained from giving my book a "hard sell", I've been scared out of my wits just talking to you guys about how I might market it.  Indeed, before I understood that effective marketing is all about creating an experience for you, not talking people out of their money, I couldn't have done this at all.

And realistically speaking, I'm sure that talking so much about the book is going to annoy some of you, and perhaps a few will unsubscribe and not come back.  But until relatively recently, it hadn't been clear to me that trying to please everyone would be the same as depriving other people of real benefits.

So, with a bit more understanding, I'm finally overcoming my lifelong fear of S&M -- by which I mean Sales and Marketing, of course.  ;-)

Confidence Creates Value

Now, there isn't anything special about what particular kind of business you're in, because this intangible value concept is a human thing, so it applies to any kind of work that involves dealing with humans.  Which is to say, every kind of work, since unless you're a subsistence farmer, somebody is going to be paying you.  And even if you work for people who outwardly look down their noses at "user experience" stuff like Mr. Spock disdaining irrational human emotions, the truth is that everybody has intangibles that are important to them.

Finding out what those intangibles are, and how to deliver them, is your real job, whatever the content of your job might be.  Just remember that the benefits you don't remind people you're delivering, might as well not exist.

For example, I forgot to mention in my recent post on Zen that I wrote it in part because a reader asked me to.  The article you're currently reading, is also partly in response to another reader request, for how to avoid losing your soul in corporate work.  If I wasn't calling these things out, those readers would still be gettng the value of the information in the articles, but not the value of being paid attention to.  Do you get me?

So, if you're stuck in a corporate situation, it is not a good idea to just assume that you are being assigned "boring/useless activities specified by PHBs".  Instead, learn to search for the intangible needs these things fulfill, and see if you can meet them in ways that are even better from the PHB's point of view, for meeting those other values.

You see, if you are satisfying your bosses' real needs, you will have more freedom and more satisfaction with your work.  And you'll be laying the groundwork for any business you might do on your own in the future.  In a job, you can get away with being mediocre at this need-satisfying stuff if you also do work of high intrinsic quality, but you will not be especially satisfied.

And in the outside world, high intrinsic quality won't get you anywhere.  You'll end up working for somebody else who is creating customer value, and thinking that you're hot stuff because you are the one really making stuff work, meanwhile growing bitter at why your "true" worth seems to go unrecognized.

Been there, done that, got the t-shirt.  But I'll never do it again.

Confidence isn't Everything - It's the Only Thing

When I first started writing this article, it was going to be called "Clearest Vision Wins".  But as I got into the middle of it, the whole business angle just sort of took over the whole thing.  But that's okay, it just means I have another article I can write soon, about how clarity of vision influences both yourself and other people, and why it's a key part of developing confidence in all its forms.

For tonight though, I just want to remind you that confidence really is everything.  Because unless you're a hermit living in the woods (in which case, how the hell are you reading this article?), you're going to have to deal with other people.  And that means that your quality of life in interaction with others is going to be governed by your ability to be confident.

So how do you get confident, in what ways and for what situations?  Well, some of that will be the subject of another article, and perhaps even a course of some kind if enough people are interested.  Until then, you can always work to see through your fears by listening to them and trying to experience them fully.  Or talk them out, or even blog them out -- like I do.