How much will you pay?

If you run a business or do some gigs on the side, this is probably a question that you wish you could ask your client and get a honest response. Your customer will perceive the quality, value, demand, speed and other attributes of your product or service from the amount you charge them. Airlines charges a business traveler that needs to travel on the same day higher than a leisure traveler who booked his ticket 6 months ahead in time. Book publishers provide hardcovers and paperbacks to target different readers. Offering different pricing to different customers allows you to profit from those who are willing to pay more.

Restaurants will often list some high margin items on their menu to take advantage of anchoring. Not only will this convey the quality of the meal but also help make other items on menu look cheaper in comparison.

Freemium is another way to price your product. Web services like Flickr provide a free plan for the majority of users and a premium plan for those who need more features and disk space for their photos. You make money as long as the cost of each user is small enough that your paying customers is able to absorb it.

New companies and freelancers tend to charge less than the competition in order to strike the deal. This is not a long term strategy because if your only advantage over the competition is price, eventually someone will undercut you. You should strive to be the Apple of your industry, not the next Walmart.

If you are interested in knowing more about cost, price, margin and options you have in managing them, you should check out this free ebook, Fixed to Flexible from Todd Sattersen.

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Evolution of spam

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What happens when you can broadcast to thousands and thousands of people at virtually zero cost? Some use it to organize flash mob, while some decide to spam us indiscriminately to sell us products we don't need. The most familiar form of spam would be the email-spam. However, the recent rise of social networking sites gave spammers a whole new playground to harvest contact information and a new way to grab our attention.

Facebook (largest social networking site on the planet) has a really convenient feature that allows you to tag faces in your photos. If you have a hard time remembering faces like me, this is god-send. Surprisingly, some really creative people found it to be the easiest and most effective way to start a conversation on a photo.

Because you can tag anyone on any photo, you can if you are motivated enough, tag every single one of your friends on a picture of a tree. Your friends will then be notified while the photo shows up on their news-feed. This is great for greeting cards, group photos and of course, spam.

Luckily, there's a bunch of ways to block your spammer friends and Facebook being a closed platform helps reduce the amount of tag-spam. Anyway, I now have a valid excuse to be anti-social as less friends means less spam.

How do you define success?

When we were a baby, success was the moment you took your first step by yourself. Then in school, kids that scored higher and ran faster were the successful ones. And if you somehow made it through all that, you enter a world where you are judged by the position written on your card and how much money you make. As we get older and older, the bar we set for success goes higher and higher. This is only natural because as we age, we are able to perform task that are more sophisticated and complex.

The result is that some of us are paralyzed by the high expectations required to succeed. Compounded with the fact that it is harder to get noticed in this era of social media, many unsurprisingly decided that success is reserved to the talented and elite.

The solution to this, I believe is to redefine what success means. Success isn't just those life-changing breakthroughs or grand accomplishments. Those baby steps you take towards your goal are successes too.

You have to envision that the path to success is like a staircase and each step you climb is in itself a victory. Success is built-on other smaller successes. This means that you can accumulate these victories and slowly make your way up towards your goal.

The reason we do this is to harness the momentum and feedback we get from each step. We are hard-wired to expect results from our actions. So by breaking down your goal into smaller more achievable bits, you get constant feedback that you are heading the right way.

Success is something you want to do again. Failure is something you don't. - Jason Fried (37signals)

So as a reponse to John's post, my eureka moment was when I realized success also comes in bite-sized form. Remember to celebrate every small victory and let the momentum of succeeding get you up the stairs.

Want more? Wait

In the 60s, Walter Mischel conducted the well known marshmallow experiment to study the effects of delayed gratification. He gathered a bunch of 4 year olds and gave them a marshmallow while promising to give another if they waited 20 minutes before eating the first. He then tracked their progress till adolescence and discovered that those who were able to wait were better adjusted, more dependable and scored higher in tests. The results seem to support the conventional wisdom that willpower and good impulse control are important to succeed in life.

Good things do in fact come to those who wait. Maybe if I wait long enough, I can get an iPad?

We are brainwashed!

Seth Godin says that everything, our education, society and corporations brainwashed us into compliant cogs that worship the status quo. His advice is that we do stuff that matters and break free from the norm. He wrote a manifesto on what you need to do to reinvent yourself. Pass this to all your friends, everyone must read this. He also just released his latest book, Linchpin. Can't wait for it to get here.

Getting the order right

In any business, ultimately the aim is to be profitable. You need to figure out how to make money so that you can break even, expand and keep it running. At the beginning, the order of the day is to save money. Why? You need to figure out how to use less and get more. A trader will buy goods at a lower price and sell for profit to consumers. A barber will charge an amount that he will be able to pay his rent and have some left over for food.

Once you figured out how to make money, the next step is how to spend the money to grow the business. Investing in more goods and a bigger warehouse will allow the trader to increase revenue and generate more profit. The barber can hire helpers to increase the amount of haircuts per hour.

Some businesses (e.g. funded companies) seem to have the order reversed. These companies start with a bunch of cash in the bank normally from investors and venture capitalist. They will hire more people than they need and spend on things simply because they can. To make matters worse, most of them don't really know how they will generate income.

After a few years (if lucky), money will start to run out and the management panics. They will frantically attempt to save money by cutting costs, firing employees and scaling down operations. All this happens because they thought, with the money given to them, they can somehow skip the first step and ignore the whole point of doing business, which is to generate wealth not consume it.

This don't only apply in business. You need to get the order right in things you do. As they say, you can't run until you can walk. And most importantly, don't forget the bottom line.

Will it work?

Everyone has some idea of their own, be it a brilliant business plan or an ingenious way to turn off the lights from their bed. If you have problems coming out with ideas, you should read this post from Seth Godin about fear of bad ideas. You need to come up with lots of bad ideas before you find one that's good. Having an idea is the first and last step for many. Some people are so protective of their ideas that they miss the chance to improve and get feedback on it. An idea is nothing until you turn it to reality.

To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions. - Derek Sivers

Knowing all that, working on an idea takes enormous effort and often requires an unhealthy dose of optimism. If your friends, family and cat start questioning your sanity, you are probably on the right track. No one knows if it will work out or not, so the best way to find out is to try it.

Every really new idea looks crazy at first. - Alfred North Whitehead

If you have some ideas you been wanting to try, stop worrying if they will work out or not and start focusing on their execution.

Altruism

Are we inherently altruistic? Philanthropists donate millions of dollars every year to charity. To understand this behavior, economists designed an experimental game named Ultimatum to see how 2 parties interact when asked to divide a sum of money. There are also variations of the game called Dictator and Trust Game.

Ultimatum - Alice is given $10 to decide how much to split with Ben. Ben can either accept or reject the offer. If he rejects, neither of them get anything.

Dictator - Similar to ultimatum but this time Ben can't reject the offer. This is puts Alice in control hence the name.

Trust Game - Variation of Dictator game. An additional step is introduce before the 2 parties proceed with the Dictator game. Ben will offer an initial gift in hopes of getting more back.

All three games show that we consistently prefer fairness and mostly offer a portion of the initial sum to the other party. But things start to get confusing when an economist named John List tweaked the experiments a little.

Dictator 2.0 - Alice can additionally choose to take a dollar from Ben. This shouldn't matter since most of the time Alice decides to share some with Ben.

It turns out that in this variation, less dictator decide to share and one out of five took money from Ben. What John List has discovered is that, with a little variation to the game rules, he can influence the behavior of the participants.

He didn't stop there and did a bunch of other experiments to illustrate that the results of the experiment is affected by its set-up. You can read more about it in Superfreakonomics. I honestly do not know if we innately altruistic but I do hope you will donate to help the earthquake victims in Haiti.