Be Different - Flawed Assumptions (Part 1)

Although I have read my share of real estate books, at some point you get it. Hence, most of my reading is now focused more on non-real estate related books and mostly non-fiction. As I’m building my private equity business and looking to continue to fine tune it I enjoy gaining perspective from writers on a wide variety of topics. I’m currently reading a book entitled “Starting with Why” by Simon Sinek. I wanted to share some perspectives from this book as it resonated with me as I think about my real estate business and specifically my customers (investors). I’ll put this out in two parts over two consecutive blog posts. This blog (part 1) discusses what’s really going on in the business world today and why so few companies inspire employees and customers. Part II – in two weeks, I’ll share his alternative perspective.

Sinek states that our behavior is affected by our assumptions. The world is flat was a simple flawed assumption that prevented much innovation and exploration during that time. Flawed assumptions are everywhere today and is more the norm. The author shares an example of American automotive executives visiting a Japanese automotive assembly line in the 1990s. There was a step in the process that was missing from the American’s perspective and that was when the final doors were put on hinges and there was no one doing the final step of using a mallet to tap the door seam to ensure the door fit correctly. The Japanese executives stated they don’t have this step because the door fits by design. Companies that understand why the doors need to fit by design and not by default will have better long term outcomes.

For Sinek, companies today have no clue why their customers are their customers. If you don’t know why, how do you attract more customers and encourage loyalty among those you already have? Decisions are made largely on flawed assumptions. He goes on to say that there are two ways to influence human behavior, you can manipulate it or you can inspire it. Manipulation is everywhere and is the underlying problem today not only for companies but employees and customers. It’s in all forms of marketing and sales. Such strategies as price reductions, running promotions, peer pressure, even aspirational messages to influence behavior to purchase, vote or support permeates all aspects of our society today. Manipulation is not necessarily a bad thing but it’s very short term sighted. Manipulation works very effectively for one time decisions but not for loyal customers you are seeking. It also is at the core of business strategies today because our whys are lacking or fuzzy. Walmart for many years was sighted as an exception to the rule but even Walmart stumbled by focusing solely on the lowest price strategy. Eventually it suffered scandals in recent years with the “low cost at all cost” approach and has tarnished its reputation.

Promotions have short term impact but long term are not sustainable. The U.S. automakers in the 1990s were impacted by a competitive foreign automaker that imported better quality and lower priced vehicles. GM started offering cash back incentives from $500 to $7,000 per vehicle. It worked at first but wasn’t sustainable, eventually creating consumer cash back junkies. Profit margins eroded and by 2007, GM lost $729 per vehicle sold, in large part due to incentives.

Other common manipulations include rebates that are so time consuming and confusing for consumers to register that companies actually track what’s called breakage or slippage. Companies are obsessed with tracking these metrics because they are betting that a certain percentage of folks will just pay full price because they don’t bother to apply for the rebate, or the application process is so complex and time consuming folks just forget it in our time crunched day. Hence, companies expect you to pay full price and lure you in with the rebate expecting you not to comply.

Sinek states that fear is probably the most powerful manipulator. When fear is deployed, facts are incidental which is exactly how terrorism works. We use fear to motivate people to obey laws and it’s also widely used in public service announcements about health and security risks.

Aspirational messages tempt us toward desirable outcomes. Tempting us with things we want to have or towards something we want to be. Think new year’s resolution gym membership ads that tempt us with the person we wish we were. Aspirational messages according to the author are most effective with those lacking confidence or those with a nagging fear or insecurity that they don’t have the ability to achieve their dreams on their own. Sinek’s favorite line is “you can get someone to buy a gym membership with an aspirational message but to get them to go there three days a week requires more inspiration”. Aspirational messages spur short term action but for most it doesn’t last. It’s usually not the systems that fail us but the ability to sustain them.

Short term responses to longer term ambitions are the norm in the corporate world. No matter the issue, management consultants often find that leadership is always looking for the fastest, cheapest option over the better long term solution. Peer pressure and celebrity endorsements are also an interesting manipulator. I remember as a kid growing up Trident gum commercials touting four out of five dentists recommend Trident. I also recall ads such as “be like Mike” for kids consuming more Gatorade to be like their heroes (Michael Jordan).

Novelty is often mistaken for innovation. When I was working for Dell, the PC industry historically a highly competitive industry, was challenged with Apple as an innovator. Companies would come out with more options, features, and colors (novelty) instead of real innovation. These choices we thought would be good for our customers. It made the supply chain I was working in much more complex and costly to manage. Eventually, we learned it also confused our customers. Folks when faced with too many choices just say no and give up. After many years, we learned that fewer choices for the mainstream was much better. Make simpler more elegant solutions and our customers will be stickier. Try to be everything to everybody generates more stress for employees and the customers.

Real innovation changes the course of industries and society. Apple is not only leading how mobile phones are designed, but how the industry functions. Before Apple the phone companies (service providers) would tell the mobile phone manufacturers what to design, focusing on features and benefits. Then Apple showed up and announced they would tell the service providers what the phone would do, not the other way around. That’s true innovation.

On leadership and loyalty, Sinek suggests that business today has largely become a series of quick fixes added on one after the other. We are addicted to short term results. Southwest Airlines is mentioned as a company that gets it when it comes to leadership and loyalty. Southwest has such a loyal following that during 9/11, customers sent in checks to show their support. The checks were largely symbolic but it’s been these types of behaviors that have made Southwest Airlines the most profitable airline in history. Knowing that you have a loyal customer base not only reduces costs, it provides massive peace of mind. Like loyal friends, it’s a true partnership, knowing customers and employees will be there when you need them most. The feeling of “we’re in this together” shared between customer and company, voter and candidate, boss and employee that defines great leaders.

In contrast, relying on manipulations creates massive stress. For the buyer, too many choices, too many decisions, complex processes are driving this stress. Stress levels within organizations are exacerbated as well. Every day the competition is doing something new, maybe something better creating more and more choices but not really innovative. When manipulations are the norm, no one wins long term. In his book “American Mania: When More Is Not Enough” author Peter Whybrow states that we are literally making ourselves sick, overloading our brain circuitry and causing everything from an increase in ulcers, depression, high blood pressure, anxiety and cancer.

In sum, manipulation works likes a drug, it’s a short term high but at a longer-term cost. It has also become the norm. Our organizations and society at large becomes weaker as a result. We the manipulators have been manipulated by the system, what an irony. Sinek concludes this section by offering up the example of the 2008 financial crisis as an extreme example of flawed assumptions if allowed to carry on too long. The collapse of the housing market and banking industry were caused by decisions made inside banks to manipulate consumers. Employees of banks were manipulated with bonuses that encouraged short term decision making. A free flow of loans encouraged home buyers to buy more than they could afford. There was very little loyalty. A series of transactional decisions at best. Few were working for the good of the whole. There was no cause or belief beyond instant gratification. Buckling or collapse is the only logical conclusion when manipulations are the main course of action. There is an alternative, check back in two weeks to see another way to design a better outcome for business, your employees, customers and society.