Specialists

Thanks to Jason Kottke for this (http://kottke.org/13/05/the-three-types-of-specialist):

From a passage of Kurt Vonnegut’s Bluebeard, the three types of specialists needed for the success of any revolution.

Slazinger claims to have learned from history that most people cannot open their minds to new ideas unless a mind-opening teams with a peculiar membership goes to work on them. Otherwise, life will go on exactly as before, no matter how painful, unrealistic, unjust, ludicrous, or downright dumb that life may be.

The team must consist of three sorts of specialists, he says. Otherwise the revolution, whether in politics or the arts or the sciences or whatever, is sure to fail.

The rarest of these specialists, he says, is an authentic genius — a person capable of having seemingly good ideas not in in general circulation. “A genius working alone,” he says, “is invariably ignored as a lunatic.”

The second sort of specialist is a lot easier to find: a highly intelligent citizen in good standing in his or her community, who understands and admires the fresh ideas of the genius, and who testifies that the genius is far from mad. “A person like this working alone,” says Slazinger, “can only yearn loud for changes, but fail to say what their shapes should be.”

The third sort of specialist is a person who can explain everything, no matter how complicated, to the satisfaction of most people, no matter how stupid or pigheaded they may be. “He will say almost anything in order to be interesting and exciting,” says Slazinger. “Working alone, depending solely on his own shallow ideas, he would be regarded as being as full of shit as a Christmas turkey.”

Slazinger, high as a kite, says that every successful revolution, including Abstract Expressionism, the one I took part in, had that cast of characters at the top — Pollock being the genius in our case, Lenin being the one in Russia’s, Christ being the one in Christianity’s.

He says that if you can’t get a cast like that together, you can forget changing anything in a great big way.

Part 2: Entrepreneurs, Macroeconomics, Transaction Costs, and eBay

The last post ended with the teaser: “It turns out that transaction costs are one of the factors that can have a huge impact on entrepreneurial projects, marketing, sales channels, and major strategic decisions.” One of the reasons eBay has become so successful is because it is one of the biggest and most effective environments for reducing something called “transaction costs.” In macroeconomics, these are the financial and emotional costs associated with the time and work needed to find, negotiate, and close a sale on both sides of the transaction. The person who bought my microphone out of the hundreds who looked at it associated the most value with my offering and had the most desire to take a little risk to save a few dollars. He saw my great feedback rating, the clear photos of a pristine used microphone, the complete set of accessories, and a fair shipping price so he kept bidding to $81 to win it. On the other side of the transaction, I found the eBay bidding audience the largest, the selling prices reasonable, the effort to create the microphone auction low, and the payment logistics fast and secure.

Many entrepreneurial startups have created thriving businesses based on even slightly reducing transaction costs. For example, Square (http://squareup.com) created a way for anybody with a smartphone and a bank account to accept credit / debit cards for a minimal fee and no monthly recurring costs. They even provide a free credit card reader. The transaction cost for a “merchant account” (as it is official called) was reduced dramatically for both the sellers and the buyers who could now use their cards at tiny merchants such as street vendors, farmers’ markets, etc.

For the rest of us, transaction costs are a way of thinking that can lead to better sales and marketing techniques. How hard is it for a customer to find you (online or otherwise), ask a question, buy an item, process a return, or get service? There are some companies that have such “annoying” salespeople that I never want to call them, the transaction cost of interacting with these people is too high. Car dealerships are a perfect example of this. There are other companies that I rarely call, like Southwest Airlines. I book, change, cancel reservations online, manage my mileage plan, check-in for flights, get flight status, but once in a while I call and amazingly, I look forward to it. They have great running jokes as their “music on hold” and every person that I talk to can solve my problem immediately. Remember, I only call them for the really messy problems, so this is a great compliment.

Take a moment and think about your entire customer relationship in terms of transactions costs. Next post will discuss more specific techniques to improve and provide a better experience based on this framework, both externally and internally.

Part 1: Entrepreneurs, Macroeconomics, Transaction Costs, and eBay

A couple years ago, I finally made the switch and moved from a big desktop computer to a shiny new MacBook Pro. Apple sold a powerful model with a 17″ screen so I thought “Great, almost the size of my old screen, fast, great battery life, what’s not to love?” After a couple dozen trips taken over the next year, love faded: 6.6 pounds felt like 36.6 pounds. So I decided to sell it on eBay and boom, it sold for more than 80% of the purchase price. Other pieces of electronics have sold for similar prices. Most electronics, even if returned within 30 days, have a 15% restocking fee, so how can eBay perform so well?

Since I am very familiar with microphones, here’s an example of a “commodity” microphone, the Shure SM57. Rockers for the past few decades have relied on this model consistently and Shure, true to their name, has made sure that it always sells for $99 new so it is a good example. So what are people willing to buy this for on eBay? One lucky seller (me) got $81.

This made me think about macroeconomics. I had a wonderful economics professor while doing my MBA who is an entrepreneur at heart, but was slumming it for awhile between startups as a professor. We definitely lucked out with her. During one session, she gave a great lecture on transaction costs using eBay as an example. It turns out that transaction costs are one of the factors that can have a huge impact on entrepreneurial projects, marketing, sales channels, and major strategic decisions. More to come in the next post.