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Pricing ahead

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This is an excerpt from the book Free by Chris Anderson. He's the one who coined the term Long Tail and wrote a book about it.

In the early 1960s, Fairchild Semiconductor was selling a specialized early transistor, called the 1211, to the military. Each transistor cost $100 to make. Fairchild wanted to sell the transistor to RCA for use in their new UHF television tuner. At the time RCA was using traditional vacuum tubes, which cost only $1.05

What they did was the unthinkable. They lowered their price to $1.05 from the start, banking on the fact that once production volume increases, the cost of each transistor will fall dramatically. Two years later they were able to sell the transistors at 50 cents a piece and still make a profit.

We were going to make the chips in a factory we hadn't built, using a process we hadn't yet developed, but the bottom line was: We were out there the next week quoting $1.05, we were selling into the future - Jerry Sanders

As stated by Moore's law, the number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years. This also applies to hard disk capacity and network bandwidth which both gets cheaper and cheaper in a faster rate than transistors.

Knowing this, it is not hard to see why Google paid 1.6 billion dollars for Youtube a few years ago. Even though, at that time the service was burning milions a month for bandwidth and lacks a proper business model. Google banked on the fact that eventually the cost of storage and bandwidth will get cheaper and cheaper.

The ability to price your product way ahead of the price decline curve can be extremely disruptive. This is the very nature of the web and software. After all, they are just bits of information and eventually the only factor that determines the price of your product is not its cost but the value it creates.

The rider and the elephant

Recently started reading Switch, a book about how we react to change, I learned about the The Happiness Hypothesis by Jonathan Haidt. He's a psychologist and his analogy about the 2 different aspects of  our behavior is very interesting. We have a logical/rational side which is known as the Rider, and emotional side dubbed the Elephant. As you might expect, the Rider is the one in control and guiding the Elephant. However, this is only an illusion because when both sides can't agree with each other, the Elephant is going to win most of the time. The Rider will be outmatched by the Elephant whenever there's a conflict between them.

This is a problem because the Elephant side of us is usually lazy and prefer instant gratifications. The Elephant is all about short term gain where the Rider prefer to analyze and plan for the future. But the Rider have it's own weakness where it usually spend too much time analyzing and end up doing nothing. The Rider gets analysis paralysis.

The book teaches you how to appeal to both the Elephant and the Rider to get change to happen. I think this applies to everything we do. Elephant is the source of energy where as the Rider is the one with the direction.

Passion without direction is useless. And so is direction without motivation. If you want to get things done, try your best to appeal to both the Elephant and the Rider.

Tomorrow

Surely at one point in your life, someone would have told you to live your life like there's no tomorrow. You got to enjoy the things you have and live in the moment. Do what you want right now because you might never get a chance later. On the other hand, don't you feel it's sad to assume that tomorrow may never come? There are goals and tasks that takes longer than a day to complete. We all need something to look forward to. After all, hope is one the strongest drive you can have in life.

I think we should do our best today to have a better tomorrow. We should push ourselves to the limit every single day not because you might not get another chance but to shape a happier and better tomorrow.

Time, money and quality

Everyone knows that time equals money. The more time you spend on doing something, the more it is going to cost you and vice versa. This means that you can manipulate one of these attributes by changing the other. The relationship between time and money isn't always linear. You can for example, spend more time on something to lower its cost. The simplest example would be to hire someone cheaper and have them work on something for a longer period of time compared to hiring an expert to finish it earlier.

This trade-off between speed and cost is something that we all are familiar with. If you are on a budget, you work around that. If you need something fast, you pay more. But things get complicated when you bring quality into the equation.

Unlike time and money, there's no reliable way to quantify quality. To make matters worse, everyone have their own definition of it. In the food industry, some diners might focus solely on the taste while the others take into account the atmosphere and service of the restaurant.

There are some cases where quality is ignored or at least of less importance. When choosing between which store to rent movies from, most of us would either choose the cheaper one or the nearer one to save time. This happens a lot when you are dealing with commodities.

When trying to differentiate your product from the rest of the market, it is best not to focus on making it cheaper or faster. The reason for this is simple. There is a limit on how fast you can do a haircut and how cheap you can charge for a meal.

Quality on the other hand, as stated before, is something more subjective. There are more ways for you to improve the quality of your products and services. You can appeal to the interest of your customers instead of their wallets and watches.

The best thing about focusing on quality is that when you are good enough, your customers will ignore the speed and cost of your product. Look at the line outside a famous restaurant. People are willing to trade their time for a chance to dine there and most of the time the bill isn't exactly cheap.

If you are starting a business or looking to revamp your product line, I think it's a good idea to look at how you can make it more attractive to your customer. Obviously you still need to keep tabs on the cost and time but it will definitely be worth your time to put a little more thoughts into the quality of your products.

Ideas about ideas

Once in a while, you'll get an idea to create or improve something. If you don't fear bad ideas, you'll probably have more. And if you gone through enough ideas, you might stumble upon one that you willing to go all out for. When you finally found the best idea (at that point in time), you would probably want to seek some validation. For example, when we had the idea for Ravejoint, we did some research and concluded that most food reviews sites out there isn't good enough. So we went ahead.

The research and validations are obviously prone to confirmation bias but we needed it to give us the confidence to stick with the idea. In other words, we are trying to come with reasons that the idea is a workable one. We had to believe in it and take the leap of faith.

Sometimes things work out but other times it doesn't. So when it's apparent the idea isn't the one that's going to solve all our problems, we start to look for reasons as to why it failed. This time, we are trying to convince ourselves that the idea isn't worth pursuing anymore.

It seems rather wasteful to go through the entire process just to find out if an idea works or not. But if you don't work on an idea, it will forever be just an idea. What a waste.

The convenient choice

How often to you buy something or choose a certain business because it's more convenient for you? Maybe it's nearer or maybe your friend works there. Some businesses benefit from being more convenient to their customers. People tend to go for lunch near their office as it saves them time and effort, as long as the food is decent.

The most common factor of convenience is the location. If you open an art supplies store right beside an art school, you give the students more reason to buy from you simply because you're the nearest one available.

Another way to be more convenient is to provide extra value-added services. I would order from a restaurant with free-delivery even though there's another one right downstairs assuming both serve equally good food.

I think it's worthwhile to try to improve your convenience factor of your business to attract more customer. It's also a great way to beat your competitors by being the more convenient choice.

Shortcuts

Given a choice, most of us would choose the shortest route to accomplish something. After all, you get to save time and effort. In fact we probably spend most of our time researching and coming up with technologies that allows us to be lazier. When you become too obsess with this shortcut mentality and start applying it in everything you do, you'll start to forget that some things should be done gradually on a firm foundation.

Nothing can replace the first-hand experience you gain doing things from the ground up. You wouldn't want to build a house without first laying the foundation especially if you plan to live there yourself.

Using a shortcut to get from one place to another is fine. But if your destination is a better career, you'll need to take a different route. Preferably one that focuses more on building your foundation and have the ability to keep you at finishing line once you get there.

Doing it for yourself

Many people envy those who are self-employed. The reason is that they are working for themselves and not for others. But that's not entirely true. Whether you are your own boss or working for someone else, you are still doing it for yourself.

Regardless who you are reporting to, every decision and action you make will first and foremost affect yourself. If you think you are playing it safe and just doing your job, then that's the path you chose for your career.

If you're doing it to serve others, ultimately you will get recognition and respect from others. You can't do something without affecting yourself.

You'll start to enjoy the things you do as soon as you realize that doing it for yourself. Given a choice, who wouldn't want the best for themselves?

Helping strangers

There are many ways you could make life better for others even for a moment. You could offer your seat to an old lady in the bus or give directions to a tourist on the street. But where do you draw the line? It's fine when someone asks for directions or help to move something. But if a stranger asks for cash, the answer is no. It might be mean but the real world isn't exactly that nice either.

If it's an emergency where he needed to get something, I'll rather buy the item than giving cash directly to him. But either way it's a tough call and I don't the right answer.

Sometimes your decision to help a stranger can be a matter of life and death, yet more often than not, they are probably just preying on your altruism. Under what circumstances are you willing to help a stranger?

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Pissed off Gene

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In Ignore Everybody, Hugh MacLeod talked about the Pissed off Gene that cause us to be dissatisfied no matter how well things are going. It's the urge that motivates us to create, improve and enhance our lives. He argues that we all have it in us. It's built-in since the caveman days.

The only people who can change the world are people who want to. And not everyone does.

Sadly, not everyone act on this urge and most will happily trade it for cash. If you are annoyed at how some things appear to be broken, use it as the drive to create something new. Apparently, it's okay to be pissed off sometimes.