If you seek profits, focus on the advantage of others
Giving a gift to a friend or helping the needy is a good way to generate positive feelings. It’s only natural and pleasing to ponder over how to make your spouse and children happy, how to improve their lives. Over the course of history, giving your life for your country was a risk that many voluntarily and consciously took upon themselves. On the other hand, the idea of investing considerable time and effort to help a complete stranger gain some advantage would appear to be an eccentric or, at best, misguided whim.
Gaining energy through transactions, however, is based precisely on this approach – if our goal is to optimize the process. Superficially, emotion doesn’t seem to play much of a role in the shoe I manufacture and in the customer who ultimately buys it (to use an example from previous chapters). In fact, customer satisfaction is the key point. Although this stranger may leave me cold or even be quite disagreeable, he or she ultimately decides whether I can buy that gift for a friend or whether I can treat my spouse and children to something special.
The psychosplit is behind the fact that instincts detrimental to business emphatically urge us: “Think only of yourself and your advantage! This is the only way you can profit and increase your power and security! This is the only way to stay ahead of the competition!” The eye-opening phrase “business is business” says it all. In the USA, the fortified version is “business is business is business”. In his comprehensive “History of Materialism”, the philosopher and socio-political expert F.A. Lange wrote that business experience through the ages had “unmistakably shown that the individual can achieve material wealth only by ruthlessly pursuing his or her own interests.” In parentheses he further noted, “Virtue can then be shown in other areas, as far as the means allow.”
Nonetheless, there were always some who did adhere to the principles behind this transaction process and therefore behind the “optimal bartering/business strategy” (OBS). Over the last 100 years, a slew of important entrepreneurs took this road. To the disconcertment of their competitors they lowered their prices, improved the quality of their products, increased salaries, bettered working conditions… and still earned more than the competition. Examples include Ford I, Duttweiler, Bosch, Batá, Benz, Siemens, Woolworth, Zeiss, just to name a few.
Over the course of history, numerous schools of thought have advocated this strategy, at least in certain sectors. In business management, it was the marketing sector (Fig. 11)32. I am not aware of any approach that studied the problem more deeply or that more successfully applied the results than that of the Energo-Cybernetic Management Strategy (EKS) published by Wolfgang Mewes in 197233. It enabled several thousand persons and businesses to achieve unprecedented success. This puts me in the enviable position of being able to present a number of practical examples that vividly illustrate the effect of the psychosplit and how it can be counteracted in practice. One of the many EKS case studies that Mewes published is an eye-opening example of how to neutralize the “semi-predator” in us.
Fig. 11. The development of marketing. Large businesses in the
U.S.A. only very gradually focused on the special wishes and problems of
customers. Initially, marketing was given equal rank with functions such
as production, financial planning, and personnel. Gradually (b-e), marketing
became the decisive integration between businesses and customer interests
(albeit more in economic theory than in practice). After Ph. Kotler 1980.
Compare footnotes 32 and 34.
(a) Marketing ist eine ebenbürtige Funtion...Marketing is an equally ranked function, b) Marketing ist eine vorrangige Funktion...Marketing is a priority function, c) Marketing ist die Hauptfunktion...Marketing is the main function, d) Der Kunde als der entscheidende Faktor...The customer is the decisive factor, e) Der Kunde als der entscheidende Faktor und Marketing als die integrierende Funktion...The customer is the decisive factor and marketing is the integrating function,
Produktion...production, Finanzierung...Financing, Personal...personnel, Marketing...marketing)
The case involves a small business, much like thousands of others, that found itself in a situation typical of our times. The Werner Kürner laundry business was located on the outskirts of a large city and was at the verge of declaring bankruptcy: turnover had stagnated, costs were increasing, employee morale was sagging, and the losses began to mount.
Kürner completed the EKS program and tried desperately to apply the EKS strategy to his situation. How could he survive the brutal competitive atmosphere in his branch of business? His profits had sunk to zero and he had trouble paying his employees: If he couldn’t meet the payroll, he knew he was finished.
The EKS message was: “Don’t run with the crowd, look for a niche in demand. Don’t simply follow suit, but develop your own, highly tuned specialization. Catering to a narrowly defined target group more successfully than the competition opens greater opportunities than spreading yourself thin with the full range of customers.” Kürner posed the crucial question, “Which type of customer can I cater to best? What burning need cries out for a better solution? Where is there a problem – regardless of whether the customer consciously recognizes it as such – that I can categorically solve?”
Kürner organized his thoughts and jotted down a whole range of possibilities. After a long thought process, he hit upon the idea of office curtains. Many offices attached great importance to having clean curtains, but had little time to devote to such matters. Cleaning them had become quite expensive and they also had to be taken down, brought to the cleaners, and put back up again – an annoying process. This was clearly a problem that many were bound to have.
Kürner calculated the going price for washing a square meter of curtain and how much it would cost him if he washed three times that many curtains every month. The calculation showed that he could deliver 30% cheaper. The prerequisite was that he actually received orders for this larger volume.
The EKS had taught him that it was better to give something a try than to brood over seemingly intractable problems. It also taught him that it was best to try every idea out on a small but representative subgroup. This doesn’t cost much and minimizes risk. Kürner concluded that one such “subgroup” would consist of those offices in which the proprietor or the proprietor’s spouse personally decided who received the curtain cleaning contracts. Such offices react the quickest to cheap prices. Kürner selected a conveniently located office district in the nearby city. And he selected the most favorable season for his offer, namely directly after Easter, when dirty curtains are most conspicuous.
He targeted this subgroup with a direct mailing campaign and offered to solve their curtain problem at 30% below the standard rate. His package included pick up and delivery, along with taking down and putting the curtains back up.
The result exceeded all expectations. Twice as many customers responded as would have been necessary to justify the reduced price. He decided to enter the fray and to undercut the competition. And new ideas kept rolling in. What about a subscription price for curtain cleaning? The customers receive an offer to have their curtains cleaned automatically and rapidly, even during holidays, so that they no longer have to devote any attention to this problem. Tailor-made to their needs: cleaning once, twice, three times or four times per year. The pitch was that the office would always look its best, fully automatically, and at a further price reduction of 10%.
The advantage that Kürner saw lay in increased volume. This enabled him to work 40% cheaper than others. He plowed the profits back into winning new customers. His bargain price attracted whole series of offices in the business district, enabling him to rationalize his operations. The system had further improvement potential. The hourly rate for the pick up and delivery service, including taking down, washing and putting the curtains back up, provided only minimal incentive to his employees. The new approach allowed him to offer the employees piece rates or even group rates, which led to higher salaries, considerably better performance, and reduced control costs.
The gamble paid off. Indeed, it exceeded all expectations. The more profit Kürner made, the more he reduced prices and increased salaries. Although he had originally calculated a 30 to 40% reduction, he was ultimately able to offer a 70% degression. He expanded his promotional offer to one city district and one target group after the other. His emphasis on high quality and reliability drew ever more customers. He soon hired a sales representative to attract new clients. This agent earned a commission of over $3000 in the first month.
Clearly, competition was a factor that Kürner no longer had to fear. No one could match his price. His service was perfect. His costs per square meter (minus the agent’s commission) ultimately amounted to only 15% of the original costs. His business, which was once only a step away from bankruptcy, was not only saved but began to flourish.
How did the story end? Did Kürner expand his business to include other items? In keeping with EKS rules he did not. Rather, he sought partners in other cities and helped them to achieve similar success by specializing in cleaning curtains. The approach he chose was franchising, i.e. providing his experience in exchange for an interest in the business. Kürner hired a business consultant to certify the method and its success, which gave him a bona fide written certification of the process and its potential. He was thus able to offer his franchising partners a secure source of income, and he remained in constant contact with them. This again proved to be mutually advantageous. The experience gained at one location could be used to benefit all other partners. Rather than investing in new production capacity, Kürner made his living from his know-how and its ongoing improvement.
How does this amazing success relate to the topic of this chapter, i.e. the notion that you need to think about the advantage of others rather than your own advantage?
First of all, this case study has nothing to do with handing out friendly gifts. Kürner by no means acted “altruistically” in the classic sense of the word. Rather, he was fighting for his life. Nor was his behavior influenced by religious or moral concepts that exhort us to do good to our fellow human beings. His situation more closely resembled that of a plant that is being relentlessly overgrown and slowly withers away. Or of an animal that is starving and desperately seeks food in order to survive. Kürner merely applied his last ounce of strength in a novel manner. A different strategy – the product of human intelligence – showed him the way.
The “social instincts” developed by group-forming animals, including our early ancestors, help ensure internal cohesion. Whether this be a pack of wolves or an ant colony, they behave as predatory units and bitterly fight others (even members of their own species). Within the group, however, these same individuals show a division of labor and a readiness to cooperate and lend assistance. Social mammals exhibit behaviors that closely parallel what we know as camaraderie, friendship and compassion. One of the key tenets of this book, however, is that the attitude we need to optimize our business transactions is not derived from our highly developed social instincts or associated emotions.
Human beings are unique in that they construct additional, “artificial” organs. This helps explain why conflicts between different human groups (from gangs to nations) have escalated so severely. In animals, conspecific conflicts (i.e. between members of the same species) typically involve food resources or, more broadly, the control of specific territories that serve as a habitat. Of course, humans also engage in struggles to snatch food and habitat away from others. Since the additional organs can empower any owner, this creates a powerful incentive to “gain” the possessions of others: the stolen goods can equally effectively boost the thief’s capabilities and power. This may be one reason why, within our own clan or group, we have honed and differentiated our social instincts in the form of morals, traditions, lifestyles, and art, but retain a distrustful, often hostile and predatory stance toward outside groups.
Among monkeys, for example, it is not unusual for one animal to quarrel over or take an object away from another member of the group. Most of these cases simply involve food, a sleeping place, or some “personal object” – there is not much else to steal here. In this sense, our additional organs have raised the stakes considerably. Our social instincts and the strong individual bonds created by language and intellectual development were apparently insufficient to stem thievery and murder, which were commonplace. This necessitated establishing a system of laws and a set of institutions charged with upholding them.
The above simply represents a logical chain of development. Producing and selling additional organs, however, created a new constellation, one that cannot simply be derived from interactions within ancestral clans. The relationship between a producer and an anonymous customer contrasts starkly with our innate friendliness and cooperativeness toward group members or acquaintances. Since we still need to put food on the table (even if indirectly), it is understandable and even logical that we applied somewhat moderated predatory strategies – namely what I refer to as semi-predatory behavior – to the new situation. Our instincts make us ill prepared for partnerships with an anonymous clientele. We must apply our intellect rather than predatory behavior to obtain the best long-term results in this new form of co-existence34. This leads us back to our case study with Mr. Kürner.
Just like any other businessperson, Kürner sought success in the form of profit and money. Once he realized, with the help of the EKS program, the benefit of helping himself by helping others, he was able to cast off the chains of the evolutionary past.
In itself, the search for a market niche, as taught by the EKS, is not equivalent to the optimal business strategy. Even the semi-predator, influenced by the psychosplit, seeks and then occupies or exploits market niches. The key is therefore not “niche-oriented behavior” alone, but rather the intent with which those market niches are sought and then the behavior exhibited there35. The crucial turning point for Kürner was when he switched from focusing on his own problems. If, from the economic standpoint, his customer-oriented behavior can be interpreted to promote the common good, then this is a positive side effect, but not the motive for the action. Whereas feelings have no place in the predator-prey relationship, the situation is completely reversed in business transactions. Here, one transaction decisively influences the next. A fully satisfied customer will considerably simplify and promote future business dealings.
The Kürner case study demonstrates a principle whose validity transcends small cleaning businesses to encompass virtually every profession and every business sector. Whenever the competition becomes stifling, whether you are a baker, an insurance agency or an engineering conglomerate, the question you need to ask is: can I obtain significantly better results by more intensively focusing on a particular subsector?
The emphasis must shift from boosting sales, better rationalizing production, or merely improving packaging. The answer is not to extract ever greater profits from the customer, charge higher fees for services rendered, or fuel demand. Rather, the task is to put yourself in the customers’ position and determine what needs, desires and ideas they harbor, which aversions, fears and problems influence their decisions. Kürner’s realignment was only achieved after he left his tangle of problems behind him and refocused on his clientele36.
In the business world, this all reflects the first consequence for optimal transactional strategy. The Kürner case study clearly reveals how the psychosplit distracts our focus. Through conditioning, obsolete predatory instincts caused his thoughts to circle only around his own interests and the problems his business faced. This almost caused his downfall in the highly competitive business environment. The solution required a radical realignment of his thinking.
Another instinct control mechanism anchored in our predatory past is effective here, negatively influencing our business considerations via the psychosplit. When confronted with an opportunity to earn money, this misguided program not only whispers, “your advantage is all that counts”, but an inner voice also adds, “use this opportunity to the hilt.”
Such instinctive commands are useful and effective in most animal species. After all, times of plenty alternate with times of want in almost every habitat, and food reserves can often decide between life and death. Animals store energy in the form of sugars and fats. Or they store energy outside their bodies by creating depots, for example the caches of nuts that a squirrel buries. Some specialists have highly distensible mouths or stomachs, such as deep-sea fishes and giant constrictor snakes. A python, for example, can devour a pig weighing 20 kilograms and then go for a year without feeding.
In general, most animals instinctively exploit the opportunities they encounter to the fullest. In humans, this may well be responsible for the impulse we term “greed”, which goes beyond food to become “avarice” for objects that empower or in some way please us. “Money” as the universal mediator again plays a crucial role here. Because it can be “saved” and converted into a wide variety of goods, its pursuit becomes a goal in itself. This makes almost every person a competitor with the rest of the world. In business, this instinctive mechanism, mediated by the psychosplit, leads us to over-exploit opportunities beyond the optimal level. If the goal is to develop a solid clientele, it is clearly a mistake to coax customers who happen to be in a spending mood into purchasing additional items they never wanted in the first place. This can undermine or terminate mutual trust, which is far more important than any one-time windfall. Equally, if you take on a job simply because it offers the highest pay, then your obsolete predatory instincts may have tricked you into making a serious mistake, namely if the lower paying job offered a considerably better career ladder.
In business, this negative influence leads many of us to take the bait and accept some convenient side job even though it diverts precious energies from the professional core activity and is therefore ultimately negative. The same influence causes businesses to overextend their product ranges. Having a finger in every pie inevitably dilutes your energies. Optimally responding to customer demand requires steadfast preoccupation with customer concerns. While grabbing an opportunity when it comes along may land a big deal or even open the door to a better job, it more often than not leads to setbacks.
Competition has always played a crucial role in evolution. The less fit fell by the wayside and the more fit were successful. Partnerships and synergies are also subject to selection. Such symbioses only survive when their combined structures bestow greater capability, better fitness. In business, the reduced competition in monopolies or in countries with centrally administrated economic plans inevitably stifles progress in key sectors. If improved goods, services or approaches can never reach the market, then it is not worth the effort inventing or manufacturing them.
At the same time, brutal competition does little to promote progress. The competitors in the individual sectors tend to drive each other out of business. While price wars may initially benefit consumers, both the consumer and the economy ultimately suffer. If a city has 30 bookshops that all offer the latest bestseller, then each shop must fend for itself as best it can. If, on the other hand, each bookseller specializes on a different focus group and tailors his or her selection to different types of readers – one on fiction and poetry, the other on children’s books and on young readers, on antiquarian books, gardening, paperbacks, etc. – then the city’s overall selection and individual customer service will have been considerably improved and the competition defused. Market economies yield an increasingly differentiated selection of products, leading to increasing specialization. The explosive speciation of animal and plants during evolution turns out to be a trend that perpetuates itself in the business environment as well.
We currently find ourselves in an evolutionary transition
from energy gain through predation to energy gain through transaction.
The behavioral programs that we inherited from our long chain of early
ancestors impede this transition. Recognizing their underlying mechanisms
can help us eliminate their negative impacts. The motto, “If you seek profits,
focus on the advantage of others” is one of the key consequences arising
from this approach. This is an egotistical affair and has nothing to do
with “altruism” in the traditional sense, which makes the mental “about-face”
we are called upon to perform all the more difficult. On the other hand,
if the OBS rule forges partnerships and human respect better than do our
social instincts, then we should be willing to accept that it is driven
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