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5 Business Secrets You Probably Never Thought Of

2014 May 14
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Everybody in business is looking for the “secret sauce.” Some gain insights through experience.  Others receive wisdom passed down from a mentor and still others simply learn from experience.

Yet however we come by our ideas, we rarely revisit them. Accepted wisdoms have a way of  becoming second nature. Before you know it they are “how we do things around here” and aren’t subjected to further scrutiny.  That’s where things often go awry.

More than we would like to admit, we manage by myth.  We tend to take conventional wisdom at face value and then blame ourselves when things don’t go well.  Yet the truth is that many widely accepted business practices aren’t based on evidence, but conjecture.  Here are five ideas that you probably never heard of, but are based on fact.

1. Make The First Offer And Limit Your Options

It is commonly accepted in business circles that it’s better to let the other person make the first move.  In fact, it’s so thoroughly ingrained that I’ve seen business deals get held up for weeks—or not happen at all—because no one is willing to make an offer.

The truth is that game theorists have long known that making the first offer is usually an advantage.  It allows you to choose the parameters and set the rules.  For many of the same reasons, it’s better to constrain your options, but to expand those available to the other side.

As unnatural as it may feel, constraints can work to your advantage.  A man with a gun to his head is in an especially strong negotiating position (with everyone except the gunman, of course).

Think about what happens when you go to buy a car.  The salesman always says he has a great deal for you and gives you plenty of options.  Yet once you make a counteroffer, he brings his manager in.  That credibly limits his flexibility and you start to narrow down a price.  If you hit an impasse, the manager walks away and new options magically appear.

2. Fire Nasty People

Years ago, I made the decision to fire nasty people—even if they were good performers—and never looked back.  Once I did, I was amazed at how much it improved results.  Later, I read Bob Sutton’s book, The No Asshole Rule and found that there was a wealth of academic evidence that nasty people are much more trouble than they’re worth.

As it turns out nasty, aggressive people are usually much better at taking credit than they are at producing results.  At the same time, they wreak havoc with internal culture and cause other people to leave.  Further research by Sandy Pentland finds that social interaction, even in low-skilled jobs, is essential to performance.

So when it comes down to the deciding whether to keep a prickly employee on staff, don’t just look at individual performance, think about the effect their behavior is having on everybody else.  Once you start seeing it in those terms, the right decision becomes a very easy one to make.  Remember, you hire people to solve problems, not create them.

3. Build An Experience

Bob Sutton’s new book, Scaling Up Excellence, written with Huggy Rao, tells the story of a firm that sought to deemphasize short term results and inspire greater cooperation and information sharing.  Yet when Sutton and Rao visited the company, they found that the firm’s top executives all had the company’s stock price as their screen savers.

The rabidly successful founders of Basecamp go to great lengths in their book, Rework, to explain why it’s better to leave off features that many customers say they want.  In much the same way, restaurant consultants often recommend paring down the menu to offer less items.

These are all examples of what Sutton and Rao call “dissonant details.”  While marketers often want to offer more, user experience professionals know that it’s usually better to offer less and focus on creating a distinct experience that keeps people coming back.  Even a small detail that’s out of place can throw people off.

So instead of thinking about what your customers might buy or what you want your employees to do, start by thinking about the experience you really want to build.

4. Influence Isn’t What You Think It Is

In the year 2000, Malcolm Gladwell published his breakaway bestseller The Tipping Point. Probably the most intriguing concept he presented was his “Law of the Few,” which he defined as:

The success of any kind of social epidemic is heavily dependent on the involvement of people with a particular and rare set of social gifts.

He went on to break these so-called “Influentials” into three categories: Connectors, Mavens and Salesmen.   The corporate world was so enthralled with the idea that a cottage industry of “influence marketers” emerged that claimed to be able to identify, target and exploit these magical people.

Unfortunately, influentials are a myth.  The idea isn’t exactly new either.  It originated with Katz and Lazarsfeld’s concept of opinion leaders developed in the 1940’s and 1950’s.  Even then, it was clear that influence is highly contextual and not dependent on innate personal characteristics.

That doesn’t mean that influence doesn’t exist, but its a function of networks, not the people in them.  The NSA, quite famously, uses network mapping techniques to identify the leadership of terrorist cells, but only by deploying vast computational resources.

There are strategies that can help exploit network centrality.  If you want to spread a rumor in an office, tell a smoker, they’re one step away from everybody.  Some shortcuts, like the friendship paradox—your friends are more influential than you are—have been identified and can be exploited.

But if you expect to find people with magical powers of influence, you’re wasting your time.

5. Alignment Can Be A Dangerous Illusion

Managers often seek to build alignment.  Building a consensus on your team helps you move the ball forward, accomplish objectives and build a cohesive team unit.  Unfortunately, alignment can be a dangerous illusion that creates an atmosphere of group-think and squelches innovation.

A large body of research shows the benefits of having a diversity of views.  One study of currency traders found that the most successful performers made an effort to get their information from a variety of sources.  Even more interesting was an analysis of Broadway plays.  It found that when the cast and crew knew each other too well, results suffered.

So while it may be more comfortable when your team reaches consensus easily, it usually means that they either don’t have all the information they need or that they are hiding their real views in order not to cause a stir.  Whatever the reason, excessive alignment is something to be extremely cautious about.

– Greg
 

6 Responses leave one →
  1. May 14, 2014

    Liked your post Greg. On “fire nasty people” everyone who has done that has subsequently heard from customers and/or employees saying “I can’t believe it took you that long” It takes me less time now.

    On making the first offer, do you have other things I can read to investigate the game theory behind this further?

    [Reply]

    Greg Reply:

    Hi Frank,

    On nasty people, I’ve had the same experience sometimes, but other times the complete opposite, especially with salespeople. Often, people really do think that a salesperson has some time up magical power to bring in revenues, when actually they either have been around long enough to hog all the good accounts or just got lucky. So there’s initially a bit of resistance, but it quickly fades away when it becomes clear that the clients stayed. Sales usually increase from there.

    On game theory. I linked in a game theory post above and you’ll see a few more in the “related posts” section there.

    Although I don’t remember where I’ve seen that particular recommendation phrased that way, two great books on game theory are Thinking Strategically (easy) and Thomas Schelling’s classic, The Strategy of Conflict (a bit more challenging).

    There is one caveat to making the first offer: It only works if you have roughly the same information. If you are at a substantial informational disadvantage, you are usually better off letting the other person making the first offer. But if you have roughly equal or greater information, the advantage you gain by framing the negotiation will greatly exceed any information you might give away by making the first move.

    If you think about it, that’s how car dealerships make money. The list price is always competitive. They make money by structuring the deal to include margin on things like financing and service, which are much harder to research online.

    – Greg

    [Reply]

    Frank Traylor Reply:

    Thanks Greg, that’s very helpful.

    [Reply]

    Greg Reply:

    Also, I just saw this in Business Insider: http://www.businessinsider.com/how-to-negotiate-make-first-offer-2014-5

    In my view, it’s incomplete because anchoring is only part of it. By making the first offer, you’re not just putting forth a number, but also a structure. That benefits from anchoring, but also from the fact that it’s much easier to haggle over a number than it is over a structure and, as anybody who’s been involved in significant negotiations knows, structure is often far more important.

    – Greg

  2. May 16, 2014

    Thanks for the additional information. This is in line with my experience but I tend to default to the traditional axiom. I’ll not only stick with my instincts of high but not outrageous, make it a suggestion as opposed to offer, and include what I hadn’t thought of, set the dimensions of the negotiation by including a structure. Thx, this has been very helpful.

    BTW, I posted your “Why your business model will fail” on my Linkedin and it has the best traction of anything I’ve posted.

    Frank

    [Reply]

    Greg Reply:

    That’s great to hear. Thanks Frank.

    – Greg

    [Reply]

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