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 ( 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.

On The Deck – Where the Beautiful Websites Hang Out

Writing about Jason Kottke yesterday got me to dig a little deeper into his creative corner of the Internet. So many sites are covered in ads, his has only one with the tag line “Ads by The Deck.” Ok, to be completely fair, he has a little box with three items from Amazon that is he supporting, but I see that as more of a personal creative suggestion from Jason that a set of automated ads from Google. It turns out that The Deck is fascinating. They bill themselves as “the ad network of creative, web, and design culture” and state right on their homepage “we won’t take an ad unless we have paid for and/or used the product or service.” Wow! So I took a few minutes to look at their customers. Wow again! Each product is beautiful and creative and website after website says things like “beautiful newsletters, creative emails, XYZ for the rest of us, beautiful numbers (accounting for creatives), easiest website builder, and so on.” There are only 26 companies in the ad rotation for May and I have used probably half of them (with great results). This is incredibly targeted and effective advertising. So there is a place on the Internet where “the beautiful people” hang out. Creative solutions for creative professionals, not a mass of dozens of ads on a page, just one. So Zen and so compelling that the half that I didn’t know I bookmarked to look at later. After all, even in the world of high tech, form follows function, so take a moment and hang on The Deck, they are promoting the creative web “one impression at a time.” The Deck –

Sales, Engineering, and Sales Engineering

A couple weeks ago while driving from Phoenix to Santa Fe, we stopped to visit the Very Large Array. I wrote a post on this topic on April 26th because it was fascinating to see how the scientists were directly involved in explaining this complex facility to the public. Their excitement got me excited to learn more and write that post. This is similar to the experience I have had hundreds of times talking to technology creators, their passion gets others excited about their work. So why does almost every company have product managers, account managers, sales managers, sales engineers, application engineers, sales people, and sometimes all these (or more)? There are a few contrarians, companies who eliminate the “necessary evil” of sales people and have engineers do it all. These people get titles like “forward deployed engineers,” but aren’t they now just highly trained sales people? In my experience as a sales manager, it comes down to what excites people. Those engineers explaining the VLA probably would not be excited after a couple weeks of traveling around “pitching” the VLA to others, that’s why the videos were genius, it transmitted their excitement and they only had to do it once. Then they could go back to what really excited them, making a better orthomode transducer or correlator.

Great sales people also get excited about technologies they sell and have the ability to transmit that excitement, but they love the sales process itself. They love finding the customer, developing the relationship through helping them solve their problem, and getting the “reward” of the successful sale. They don’t mind the repetition because the rewards (financial and psychological) are so compelling.

So can this gap be bridged with today’s technologies? Could the sales process be replaced with technology? I will leave you with a few links and the teaser that every step in this direction could have a major impact on your organization (obviously!). To be continued.

Are Sales People About to Become Extinct –

Want Your Company to Grow, Fire Your Managers –

No Sales People, Just Forward Deployed Engineers –

Doing What You Love Part 1

I got curious one day about Halo 4, one of the most popular first person shooter games of 2012. After enjoying video games for certain periods in my life, it seemed like a fun idea to try a modern one. It was fun at first, but long, really long. Did I really want to sit for a couple months of weekends in front of a game, blowing up one thing after another, hour after hour? Not really, I have much more interesting projects at this stage in life, but the scifi art in Halo was incredible and the story was intriguing. So after a quick search on YouTube, I found “TheRadBrad.” Here was the solution: have an expert play the game for me so I could enjoy the parts I loved without the time commitment and all that messy killing. TheRadBrad is Bradley Colburn of Kennesaw, GA and he has turned what he loves into a career. His YouTube channel has anywhere from 50K to 1.5M views per video, 862K subscribers, and 355M total video views, so Brad is certainly popular. He plays through major game titles in a couple of weeks and narrates the gameplay in a stream of consciousness style that is interesting and amusing. You can find his YouTube channel at

So how much does the 25 year old make? He is probably generating about $70K per year in advertising revenue which is not bad for playing video games all day. If you are still interested in more information about Brad, there is a good interview of him here and take a moment to read the comments, his fans just LOVE him. How’s that for brand loyalty?