Economically-minded behaviors, Part 1

I’ve mentioned before that personal finance is more about a person’s behaviors than it is a function of their ability with crunching numbers. Taking this to its logical conclusion, a corollary would become that emotions and poor judgment lead a lot of people, exceptionally bright or not, to make, simply put, dumb financial moves. Historically, psychology has played an integral role in economics. For example, when Adam Smith wrote The Theory of Moral Sentiments it included “the ethical, philosophical, psychological and methodological underpinnings to Smith's later works, including The Wealth of Nations (1776), A Treatise on Public Opulence (1764) (first published in 1937), Essays on Philosophical Subjects (1795), and Lectures on Justice, Police, Revenue, and Arms (1763) (first published in 1896).”

Hersh Shefrin, in his 2002 work “Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing,” listed three main themes for behavioral economics:

· Heuristics: Using “rules of thumb” that are, at best, approximated, instead of strict rational analyses, people tend to make bad decisions.

· Framing: The context of the problem or the way it is presented to the decision maker will often affect his or her action; which can result in a bad decision.

· Market inefficiencies: Examples such as mis-pricings, return anomalies, and non-rational decision-making can explained observed market outcomes that are contrary to otherwise rational expectations of market dynamics.

College macroeconomics courses teach a concept of “utility,” a fundamental concept in neoclassical economics which depicts perceived value in a good or service. Prospect theory, as part of behavioral economics, describes decision processes as consisting of two stages: Editing and evaluation. Editing consists of possible outcomes of the decision are ordered following some heuristic. Specifically, people decide which outcomes they see as basically identical, setting a reference point and consider lower outcomes as losses and larger as gains. In the evaluation phase, people behave as if they would compute a value, or utility, based on the potential outcomes and their respective probabilities, and then choose the alternative having a higher utility.

Keep in mind, however, while all this theory is good for a foundation of understanding the basis for the mistakes—and successes—we will inevitably have when it comes to our finances, note that these models can fail to predict outcomes in real world contexts for one reason or another. As in the science of profiling, establishing patterns and trends are keys in determining if a particular model will accurately predict a desired outcome. On the other side of the token, it is argued that while behavioral insights can be used to update economic and financial theories that we’ve come to rely upon, they also offer greater depth into these two disciplines: Not only reaching the same (correct) predictions as traditional models, but also correctly predicting outcomes where traditional models have failed in the past.

The World’s Affluent

By standardized accounts, in order to be considered a “millionaire,” you must have more than one million dollars not counting their primary residence or private collections of objects such as art, antiques or coins. This can, however, include cash, equities, bonds, funds, or other real assets. How many of these High Net Worth Individuals (HNWIs) are there out there? How about their bigger, wealthier brother, the Ultra High Net Worth Individuals (UHNWIs) around the world?

Financial services group Capgemini and U.S. investment bank Merrill Lynch recently conducted a study about the slowing global economy and a consolidating and increasingly wealthy class of “super-rich” individuals around the world. Their findings shed some interesting light on the evolving face of wealth across the globe.

· The financial assets owned by the group totaled 37.2 trillion dollars (27.7 trillion Euros)

· Financial assets owned by this group increased by 11.4 percent from 2005

· Singapore, India, Indonesia and Russia produced the greatest number of new millionaires in this category

Why did this group grow so much, with the cumulative wealth of their combined whole increasing at such a strong magnitude? Increased production the world over increased real GDP and market capitalization rates drove and accelerated this growth through 2006.

· UHNWIs also increased their standing in recent years:

• Increased by 11.3 percent in 2006
• Global population of this extremely affluent group now estimated at 94,970 people
• UHNWIs now account for 1.43 percent of the global population
• Assets of Ultra-HNWIs increased by 16.8 percent compared with 2005

So, where does all their money go?

• More than 25 percent of investments were in private jets, sports teams, yachts or race horses
• Art investments accounted for 20 percent of the HNWIs’ investments
• The remainder went into fine wine and jewelry, and alternative investments such as real estate

What to expect in the future? The report indicates that the collective fortune of the HNWI population is forecast to hit 51.6 trillion dollars in 2011, compared with 37.2 trillion in 2006.

…With the Blood of Patriots

The day was quickly ending that evening when ships outside Baltimore Harbor started bombarding the American Fort McHenry. It was sundown on September 13, 1814 when the British started bombarding the fort and the lights in Baltimore went out. Shells burst over the Fort for 25 solid hours: It was the only illumination in the entire area, allowing the flag to be seen by all—and that it was still standing through the night.

An American attorney and poet could be found on one of the British ships in the harbor along with a military officer, Colonel John Stuart Skinner. The two were meeting for a prisoner exchange with two British Flag Officers and a British General for the release of one Dr. William Beanes. Because they had knowledge of British military unit locations and strengths, they were not allowed to return to Baltimore that evening. Instead, the aforementioned attorney found himself without anything else to do but watch the bombardment of the beloved Fort at the mouth of Baltimore Harbor. Inspired, he penned the poem “The Defense of Fort McHenry,” using the rhythm of the piece “To Anacreon in Heaven.”

The man was Francis Scott Key and the song that resulted from his words would become the American National Anthem in the early 20^TH century: “The Star-Spangled Banner.”

Years earlier, at the conception of the American Union, the thought of revolting against the British Empire was only supported by less than 1 in 3 people, even though the colonists were being taxed without proper representation within the British Parliament. The beginning of the Revolutionary Era is recognized as being 1763, with a declaration of the independence of the 13 colonies being posed 13 years later. It wasn’t until 1783, however, that Britain recognized the independence of the United States of America and hostilities between the two nations—at least until the War of 1812—ceased.

The right thing is rarely the easiest, or even the quickest in coming. Change brings destruction, often obliterating one paradigm to be replaced with another. This paradigm change may be brought about by the sweat and tears of a few or the blood of many patriots. On this day, the birthday of the United States of America, reflect on the values of your freedom, regardless of where in the world you find yourself or under whichever flag you choose to fly—for the ideals that formed our nation are also those that make many other nations and peoples great. It has been said that those who forget history are doomed to repeat it. On this day, remember the ideals that bind us all together and the blood that has been shed by the patriots that have been willing to fight for those ideals.

Dollars and Sense

Financial success does not happen overnight; money is not something to be had instantly. Rather, financial success is the manifestation of a specific behavior set.

Once upon a time there was a boy born in the Midwest; for the purposes of this story, we’ll simply call him W. A bookworm with a natural ability in math, he went to work at his father’s brokerage in 1941. During his first year working there, W purchased a couple shares of stock, just for kicks. Purchasing them for a bit more than $38, he sold them for $40, not making much money from them: The Cities Services stock would soar to $200 months later. In 1944, at the age of 14, he started installing pinball machines in barber shops. Earning $1,400 from the deal, he purchased 40 acres of land and rented it to tenant farmers. A good student, his love of being an entrepreneur came before his desire to attend college. By the time he graduated high school at the age of 16, he had done so in the top 20 of his class and had saved nearly $5,000. His father coaxed him into attending university; yielding to his advice and matriculating at the Wharton School for three years and transferring in the last year. In 1951 he would earn his Masters degree in Economics. By 1956, he founded his first investment partnership with $100 out of his own pocket (and several thousand from multiple limited partners, family and friends). Spending much time learning, from multiple sources, the art of investing, he would run his investment partnership from his bedroom making an excess of 30% compounded returns in a market (1956 to 1969) when 7%-11% is the norm.

In 1962 W would start purchasing shares of a failing textile company, leaving his partnerships to operate it full-time in 1969. Turning it into a holding company, he began purchasing other companies with an emphasis in insurance concerns due to their large cash reserves that they must keep. Over the years, W fashioned himself a “capital allocator,” putting significant sums of money into high-value companies and keeping existing management.

How does such a man perceive his wealth?

“I don't have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It's like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GNP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don't do that though. I don't use very many of those claim checks. There's nothing material I want very much. And I'm going to give virtually all of those claim checks to charity when my wife and I die.”

The man? Warren E. Buffet, worth $52.4 billion as of 2007.

What can his rise to power tell the rest of us in the rise to ours?

1. Wealth-building decisions are long-term ones. Studies have shown that wealthy people made decisions for the long-term; usually doing a cost-benefit analysis for a 20-year period. Those on the opposite end of the wealth spectrum, on the other hand, make decisions for the short-term, “what will make me happy now?” In fact, you are more apt to make your own million than to inherit it from someone else: 86 percent of millionaires are first generation; the money is not inherited. Your wealth is the sum total of your decisions to date.

2. Wealth relates more to behaviors and less to number crunching. Think that there is something special about the affluent, like getting an inheritance or maybe that you have “bad luck” over other people? Research has found that wealth disparity couldn’t be explained by income—differences by income only accounted for a 5 percent dispersion. Furthermore the researchers noticed that “’chance events’—inheritances, medical bills, marital status, number of children— explained about 4% of the dispersion.”

3. Don’t spend more than you earn. This is a simple axiom: If your net income is negative over a long enough period of time, no matter what your financial goals are, you will not be able to achieve them.

4. Pay off debts. The less debts you have, the more your cash flow will increase. Your income is the most powerful wealth-building tool that you have, and the less strain it has to provide for you, the more ability you will have to become financially successful.

5. Have a clear plan laid out—financial and otherwise. Dream big, but fashion it with rationality. If you plan to be a millionaire in 5 years and you’re currently making $30,000 per year…something drastic will need to happen to get to where you want to be.

6. Find opportunities and learn how exploit them. Success is when opportunity meets preparation. This means everything from being able to spot something that could be profitable in the stock market to knowing when to make a move at your job that could be advantageous to you.

7. Persevere. History is riddled with stories of the greats that kept on doing something “just a bit longer” than everyone else. Their determination and purpose to achieve their desired result allowed them to achieve their goal, which often led to financial success of some fashion.

8. Invest in yourself. If your income is your most valuable wealth-building tool, you are the reason that your income is such a valuable tool. Investing in yourself means sharpening and expanding your skill set through self-directed study and formal education. It also means doing those things to enhance the positive aspects of your life and minimize—or get rid of—the negatives.

9. Help others achieve. Success begets success. Helping others achieve not only helps them, it also helps you: Mentoring offers a different perspective that many people don’t realize and, therefore, don’t care to tap into. Humans are a creature that relies on community; we each have a symbiotic relationship with one another in the sense that what comes around goes around. Just s your success relies on the choices of other people; the success of other people will rely on the choices which you make.

10. Become an entrepreneur. Take an attorney, for example: With about 10 years experience, they have a median salary of about $100,000; considering a conservative 2,000 billable hours each year (for about 2,800 hours worked) at $250 per hour that the client is being charged, you are only realizing 20 percent of the business you are bringing into your law firm. All “blue sky value” aside, you could still make more doing that—albeit with more work—than the alternative of working for someone else. In the greater scheme of things where the affluent are separated from the economically (behaviorally) disadvantaged, having employees that earn you money is what sets the financially successful apart from the rest.

Lastly, think of earning money in this fashion: Split the day into 24 hours and divide your daily earnings by 24. How much money are you making per hour? If you’re working at McDonalds, chances are that you are making, what, about $3 per hour? If you’re the lawyer above, you’re earning significantly more than that. Determine ways to be creative and raise that “hourly earnings” rate that you have.

Money is almost entirely about the decisions that we make from day to day about tomorrow. To repeat something I mentioned earlier: Your wealth is the sum total of your decisions to date.

Ode to the iPhone

Quote: The Appreciated Staff

"An underappreciated employee is an unhappy employee. An unhappy employee is an unproductive employee. When your staff knows they are valued, they will value the company."
—Unknown

Thanks go out to Jennifer for the quote. Thanks, Jen!

The Value of Money

Money: It’s the root of all evil, right? Not necessarily. Actually, the original quote from The Bible (King James Version) comes from 1 Timothy 6:10—“For the love of money is the root of all evil.” Money, finances, and all which they entail intermittently come up in conversation. Prior to discussing money as a quantitative entity, let’s look at it from a qualitative perspective.

I have seen, over the course of my years, so many people who have seen examples of people whom they do not want to become, exhibiting traits which they do not care to exhibit. For every person who is financially successful, a person can point out an example of someone who they’d ridicule for their actions—because of their wealth. Using this fear as a crutch, they limit themselves from seeking true financial success—often for very irrational reasons.

A culture has developed in this country—something that has been around the world for longer—steeped in the tradition that the various people in their various income classes throughout society have been dealt an unfair hand. Politicians with agendas have long engrained into people of the inequality of income and that it should be re-distributed among the different economic classes of individuals: Transfer payments derived from taxes on the affluent become welfare payments for the poor. Sure, there is a time and place for everything, but when the public is constantly being told that one person’s success over another’s complacency is unfair and that one should be punished to subsidize the other, a perception becomes commonplace amongst people that money can be a bad thing.

I’m a die-hard free enterprise capitalist at heart: In a generally unregulated economy (other than central banks and select industries) that each person is free to lawfully pursue making a dollar either by selling his or her labors to another in return for a salary or hourly wage or going into business and producing and/or selling a product or service to someone willing to purchase it, we are all free to earn as much for as much work and/or innovation which we are willing to put into something. Left and right there are examples of people becoming successful either way, even if you choose to work for someone else. Some statistics from About.com show:

· In 1999, average annual earnings ranged from $18,900 for high school dropouts to $25,900 for high school graduates, $45,400 for college graduates and $99,300 for the holders of professional degrees (medical doctors, dentists, veterinarians and lawyers).

· Over a work life, earnings for a worker with a bachelor's degree compared with one who had just a high school diploma increase by about $1 million.

Additionally, there are fluctuations within degree field & occupation (courtesy of the Royal Society of Chemists):

“The average earnings premium of having a degree relative to those with 2 or more A Levels was approximately £129,000 [about $257,500 USD]. The figure represents the difference in lifetime earnings after tax. Graduates in chemistry or physics on average earn well above this value, with a £185,000 - £190,000 [$370,000 to $380,000 USD] premium above those with no degree…Year-on-year statistics show that these subject differentials start to become apparent in the mid-career years: it is beyond the age of 30 that chemists and physicists start to pull away from their contemporaries in their earning power…For any graduate, the average rate of return is about 12% per annum but rises to 15% per annum for chemistry graduates. Psychology graduates will enjoy only a 10% rate of return.”

Regardless of how much working for someone else will gain you, the hallmark of the great American economy is the stalwart of entrepreneurism fueled with a hefty amount of innovativeness, is the best path to financial success and affluence, even if it can be the most difficult.

At any rate, people often equate money with power. People also tend to equate money—in a financial inequity sense—with greed.

Power: “Possessing or exercising power or influence or authority” or “possession of the qualities (especially mental qualities) required to do something or get something done.”

Greed: “excessive desire to acquire or possess more (especially more material wealth) than one needs or deserves,” or, more generally, “avarice.”

Paul Johnson, British journalist, historian, and author, recently wrote a column published in Forbes Magazine entitled “Greed is Safer Than Power-Seeking” in which he begins, beautifully, by stating:

“Able, industrious, imaginative and creative people— the top 5% of mankind—divide into two broad categories: those who make money and those who make trouble.”

The stage is certainly set for a tour de force comparing and contrasting a potential effect on an individual with wealth versus one with simple enthusiasm, zeal, and an agenda. “It is striking that the hugely wicked are quite innocent of avarice,” Johnson writes, showing that tyrants and dictators such as Adolf Hitler, Joseph Stalin, and Mao Zedong weren’t oriented towards the accumulation of wealth; rather, they were obsessed with the accumulation of power. In people that you and I come across each day, he goes on to categorize groups of individuals which exemplify “troublemaking” through their activities. Among them: Attorneys who are concerned more with their interpretation of justice and fairness than an enriched society; Politicians who exist solely to translate their agendas into legislation; and the self-proclaimed environmentalists who, “buoyed by a sense of mission and high-principled idealism that often make them a little careless about the accuracy of their assertions,” have helped push the world into a shortage of energy supply by zealously convincing anyone they can that alternative sources such as atomic energy should not be pursued.

Oddly enough, he closes his column with the thought that “Of course, we need troublemakers,” in the sense that they have, historically, been the impetus for societal changes in civilizations throughout history. Whereas greed—the excessive desire to acquire wealth—can be a bad thing—the net result can always be reflected through the character of the individual in the sense that money only fuels the flames of character traits, be them good, bad, or ugly.

I once worked with a staff sergeant in the South Dakota Army National Guard who had the saying: “Money is like oxygen—the more you have, the easier it is to breathe.” Try this thought on for size: Money, wealth, does not accomplish things—people do. Money is a tool for accomplishing those things which the individual wants done; in doing so, it accentuates character traits that are already present in the individual: If you are predisposed to be greedy and love to acquire “things,” money will only make it worse; if you are predisposed to not like a certain race of people and believe that your land is home to a “master race,” then chances are that wealth will only fuel your need for power, manifesting itself as genocide and a world war.

If you have a predisposition, however, of trying to benefit humankind, no amount of riches will stand in your way of filling the shoes of purpose, desire, and motivation to accomplish something. However, with wealth as a tool, you might be able to accomplish great things.

Monkey Mondays: The Endangered Monkey

Scientists find endangered monkey in Vietnam!

It's a grey-shanked douc. Funny name, serious monkey.

The picture to the left is a red-shanked douc, courtesy arkive.com

Quote: Chances

“Use the formulae P=40 to 70, in which P stands for the possibility of success and the numbers indicate the percentage of information acquired. Once the information is in the 40 to 70 range, go with your gut.”
—General Colin Powell, U.S. Army (Retired), Former United States Secretary of State

The Chief Executive, the Leader

In the latter half of the 1990s an issue that would often enter conversation in larger circles was the compensation gap between members of the military and their civilian counterparts. At this time, for instance, anyone that worked with information technology was making next to nothing in the military compared to their counterparts in the civilian world. Those in career fields such as infantry, however, it was rumored, often had problems finding jobs in the private sector outside of police or security: Not a lot of demand for advancing on an enemy and holding ground in the free market. Something that arose from this discussion was the compensation of the Army’s top general: The Chairman of the Joint Chiefs of Staff earned somewhere in the neighborhood of $100,000 to $150,000 after benefits as opposed to a chief executive officer of a private corporation of equivalent size for, conservatively, $1.5 million.

This was during the same time when my military career was progressing from its earliest phases of learning the ropes of a private to determining that I did, in fact, wish to train to become the general on the cover of the Army magazine that had General Dennis Reimer’s picture on it. I began to develop a mental list of skill sets of leaders of organizations—mostly larger ones, like the Army and major commands that I belonged to—and work on finding application of them in daily life.

· Selecting a team: It is about the people. People are the key in any organization; no matter how much the leader is a superman or superwoman, you need to have people to “do the stuff” of the organization. Things like character and ethics is nearly impossible to teach; when bringing people onto your team ensure that their ideals fall in line with your expectations and the culture of the organization. Skills can be learned, character cannot.

It has been shown, from the smallest start-ups to the largest multi-national corporations, that no product or service is of more value than the people that produce it or the people that receive the service or purchase the good. Employees are everywhere, but good employees are worth their weight in gold. On the same token, while customers are important…any decent demographic analysis ensures sustainability in said demographic: Good and/or loyal customers are worth their weight in platinum.

· The ability to make immediate decisions, often without “perfect” information or not enough of it. Leaders are constantly being called upon to make decisions about the direction of their organization. Sometimes you will be right and others you will be wrong: An imperfect decision (or plan, for that matter) today is better than a perfect one tomorrow: People can always adapt and conquer tasks along the way in regards to the goals of the mission, especially for those mindful of the first tip.

· Develop a skilled team. As leaders rise on the organizational chart they’ll find their role shifting from technical or artisan to mentor and administrator. As a leader of an organizational unit, you understand the requirements for your team, what it must do, what the end result must be. Understanding where you are right now, the dynamics of your team, and the goal where you and your team must reach allows you to develop the skills and talents of those on your team and enhance their dynamics. If you’ve chosen your people well enough this will be much easier and much more fruitful. This can often be the most dynamic, most important, and most rewarding role that a leader undertakes.

· Awareness. Aside from the general awareness of your organization, the people in your charge, and the markets and industry in which you operate, being able to shift your focus between critical matters, strategic opportunities for success, or some other action step is essential in the skill set of the chief executive officer or other organizational leader. This awareness extends, also, to the financial situations such as cash flows and financial reports. Awareness makes a leader and a lack of it is the quickest way to becoming a loser.

· Communication. Each of the stakeholders in your organization—employees, stockholders, creditors, suppliers, and customers—rely on proper communication to ensure peak efficiency of operations. Regular, accurate, and effective communication strategies need to be established by leaders of any organization of any size.

· Handling success, handling failure. If something fails to succeed along the path to your organization’s goals you need to be able to adequately deal with that failure: If that means something as simple as getting back up, dusting yourself off, and continue running or acquiring proper bankruptcy counsel handling this failure is critical. Handling success, though, is also critical. Success changes the entire paradigm of your team: It can cause “growing pains” or change individual perspectives of your team members to change. You must be there to set the culture and the direction for the good times and the bad.

· Back up opinions with facts. Everyone has an opinion about something, but many people are apt to simply regurgitate information without giving it much thoughtful consideration; like the gray matter between their ears is simply a sieve whereas information, whichever quality it is, leaves the same way it arrives. When you hear something, do not believe it unless it either is congruent with your thoughts, beliefs, and ideologies as they stand or you have done adequate research and believe what is said to be true. Most people, see, are content issuing opinions without the requisite facts with which to corroborate or substantiate them: It takes a higher class of intellect to back up that which you say with facts.

· Handling change. Everything changes; if it hasn’t, it will. Change can be a destructive thing in which there are losers, winners, enablers, and detractors. As a leader you will be expected to see the change through to its inevitable conclusion with your head held high. Things might be good, things might not be as good as you had planned—but people will look to you either way.

· Walk the talk. For one reason or another you are a leader and you have either gained that station because of traits that you have or in spite of them. When you are charged with the professional well-being of employees or adding value to the organization you will constantly be looked at by subordinates, peers, superiors, and anyone looking in from the outside to show integrity, honesty, and other values that you should reflect belonging to your organization’s core belief structure. People will expect you to walk the talk and live true to those things which you say. If you say, for instance, that you have an open door policy and you do not live up to it, people will see that. A story is told of Wal-Mart CEO H. Lee Scott tells of a Wal-Mart employee that needed to speak with Mr. Scott. Calling his residence, though, Mrs. Scott informed the individual that Mr. Scott was out of town on business, and gave the person the information with which to contact the CEO. Although Mr. Scott had been traveling all day he made time to talk on the phone with the gentleman having issues. The quickest way to gain respect is to make promises and keep them; the quickest way to lose it is to not stay true to your word.

· Will the real leader please stand up? The persona of many leaders is one who joins all the right clubs, knows the right people, and attends highly visible community functions. However, this veneer is something that can be peeled off, the real person beneath the persona can be any sort of person; sometimes those highly successful individuals are completely different people: Their persona is someone that you like to know, someone that you like to be around. Their person, on the other hand, is someone that you would normally shy away from in your group of friends.

These are just a slice of the “soft” leadership skills necessary for any successful chief executive officer. By far, the larger base of skills necessary for the role of chief of an organization is something that many people strive for and only a few people achieve.

Sales and Marketing in Everyday Life

Leaders, in my worldview, are those that practice the same ideals and principles in and out of the boardroom. They also practice economies of scope in such a fashion as to gain efficiencies in their daily lives:

“[Economics of scope is] the condition where fewer inputs such as effort and time are needed to produce a greater variety of outputs. Greater business value is achieved by jointly producing different outputs. Producing each output independently fails to leverage commonalities that affect costs. Economies of scope occur when it is less costly to combine two or more products in one production system than to produce them separately.”

To this end, I often find that applying business principles to daily life. Sales and marketing is a great field to derive principles in showing the people in your life the value which you have in the world around you. These principles can supplement your deeds in showing others perceived value.

1. Offer of yourself. Make promises, and be certain to keep them. By offering of yourself, you open yourself up to be offered to, as it is said in The Bible: ““Give, and it shall be given to you. For whatever measure you deal out to others, it will be dealt to you in return.”

2. Seek first to understand. A “Covey Classic,” this principle goes to the emphatic understanding of what you’re being told. Instead of giving someone your autobiography then seeking to bring them to your point of view, try looking at the world from their point of view by thoroughly seeing to their concerns then seeking for your own to be understood. This will help assure that a working communication is developed.

“How can you expect a man who's warm to understand one who's cold?”
—Aleksandr I. Solzhenitsyn

3. Adapt your message. Each person sees the world how they want to see it, through myriad filters and perceptions, in accordance with their worldview. Because of this, you need to be able to speak in terms of the other person’s perceptions, try to see the world through their eyes and adapt what you are saying to how they see the world. Just as a typical basketball player wouldn’t much understand the technical jargon of physics, people will have a tendency of listening with intent to respond rather than listening to absorb if we choose the wrong way to send our message.

“The wise adapt themselves to circumstances, as water moulds itself to the pitcher.”

—Chinese Proverb

4. You are a product providing a service to the world; make yourself great. People look up to others who with traits that they hold in high regard; while the specifics will vary between individuals, there are culturally-held and universally held traits that can be displayed which can influence others to see you as great.

5. Up-sell. One of the times that I was in college I was not your typical college student, just traipsing from class to class, taking tests, and moving on. Instead, I decided to go above and beyond (something forged from my military experience): This became my trademark. Everything that I would do, I would take it one step further, going above and beyond a person’s expectations of me in that situation.

6. Closing. When you’ve gone through the steps and wish to “close the deal” on influencing someone to do something, it is most effective to close in a fashion that matches the situation’s requirements most closely.

7. Audience targeting. Although there are supposedly people out there that can do it, why would you want to sell ice to an Eskimo? You end up putting more effort into something to an audience that doesn’t need it. Why would you offer something to someone that doesn’t need it?

“The odds of hitting your target go up dramatically when you aim at it.”
—Mal Pancoast

8. Be persistent about being persistent. Everyone does things that fail, just as we all do things that occasionally work. History has shown over and over again that the victory doesn’t necessarily go to the superiorly skilled or equipped, but rather the most persistent.

“Success is almost totally dependent upon drive and persistence. The extra energy required to make another effort or try another approach is the secret of winning.”
—Denis Waitley

9. You, the Brand. The image which you present to the world is your brand. Everything you put into yourself, your actions, and the world around you is noticed. If you make due on your word, people will add more repute to your brand; just as the opposite is true.

“Your premium brand had better be delivering something special, or it's not going to get the business.”
—Warren Buffett

Sales, Marketing, and the Exotic Dancer

In my constant search for information around the Internet, I occasionally stumble on something that is as equally profound as it is strange. “10 Sales and Marketing Tips I learned from Strippers” looks at the intricacies of good sales and marketing—two business disciplines that go hand-in-hand—from the eyes of a man that frequents gentlemen’s clubs and, just as frequently, leaves with an empty wallet. He posits that this phenomenon has its core in the greater dynamic of commerce and not merely in the fact that there were scantily-clad or nude women performing for aroused men.

1. Something for nothing. An exotic dancer begins the exchange, the transaction if you will, by flirting with you; doing something to raise your excitement level. This free sample, just like the product demonstrator at Sam’s Club or Wal-Mart, entices you to purchase their good or service. The exotic dancer attains buy-in; your desire to purchase the good increases from a probability to a distinct possibility. If the sample is good enough, your likelihood of patronizing the product or service increases because you perceived utility and outcome are positive.

2. Customer understanding. A good salesperson learns their customers through questions and observations; allowing them to adapt their “sales pitch” and build a better rapport with their customer. The “sales soldiers” in the thickest of sale-and-marketing combat are the used car salespeople of the world: They instantly are working towards building a rapport with you in order to feel out your needs and desires for purchasing a car—that is something that is a bit more than a convenience purchase for most of us.

3. Adapt the sales pitch. The sales pitch is something that can make a potential customer into a paying one. If one sales pitch does not work, then the salesperson will try another one. The right sales pitch is the one that gets the person to reach buy-in; achieved by applying the knowledge of the questions and observations the salesperson translates into likes and dislikes of the person to which he or she is trying to sell.

4. Have a great product or service. Chances are that whatever you are selling can be had somewhere else; in all but a minority of situations there is a substitution product or service—in other words, if what you’re selling doesn’t stand out in some fashion, there is a good chance that the person you’re trying to sell will patronize the product or service from a substitute that offers an advantage to the product or service better than you can. This uniqueness of product or service that you have to offer better than other competitors is called your differential advantage. Certainly, if something is unappealing to you, and the salesperson is unable or unwilling to make it more appealing, then an impasse is often arrived at.

5. Good customer service. Once you are “in the zone” and servicing the customer, it is the duty of the good salesperson to provide good customer service so the patron will offer repeat business opportunities for the salesperson. The more satisfaction, happiness, or euphoria, the better because the stronger emotional attachment will be built into the mind of the person being sold. Good customer service also allows the salesperson an opportunity to up-sell.

6. The up-sell. Standard customer services are where “bread-and-butter” is at—or simply “just making it.” Real profitability relies upon going past the ordinary and into the extraordinary services that you can offer as a salesperson to your client. In the analogy of the exotic dancer, they will sell you the initial lap dance and work towards up-selling you on a trip to the “champagne room” where they have the opportunity to sell you a premium service from her repertoire.

7. Close, close, close. In classic Zig Ziglar fashion, the good salesperson knows how to “close the sale” with different techniques. The analogy of the exotic dancer shows that they like to use the complimentary close (most likely via flirting) and the companion close (by getting your friends to help push you into making the sale).

8. Target the right audience. Salespeople sell things to people who are in need or desire their service. The salesperson is always “pre-qualifying the buyer” by gathering information from those in their environment to find people who are more likely to purchase their goods or services than the average person. Good marketing consists of determining, as detailed and accurately as possible, the traits of your target audience.

9. Persistence, persistence, persistence. No matter how qualified an audience is, rejections will always happen. The good salesperson can either overcome rejections or overcome the fear of them and move on to another qualified buyer. An application of the Law of Large Numbers is that the more people you ask, the likelihood of making a sale is also increased.

10. Branding. When you think of waffles, you probably think of Eggo or Bisquick; when you think of personal media players, you probably think iPod; when you think of purchasing a personal computer, you probably think of Dell or Gateway. The emotional or logical connection that you make between these names, their images, and their place in your categorical view of the world is the essence of branding:

“In marketing, a brand is the symbolic embodiment of all the information connected with a product or service. A brand typically includes a name, logo, and other visual elements such as images or symbols. It also encompasses the set of expectations associated with a product or service which typicaly arise in the minds of people. Such people include employees of the brand owner, people involved with distribution, sale or supply of the product or service, and ultimate [sic] consumers.”

In a future post I will take the above principles and illustrate how we can apply them in everyday life ala authentic assessment.

Quote: Leadership

“Leadership is the art of accomplishing more than the science says is possible.”
—Oren Harari, author, talking about retired U.S. Army General Colin Powell

What to Do With the Communications Model

With the understanding how the communication model fundamentally works…let’s explore some of the uses of it. Long the field of interrogators and intelligence agents, the art of lie detection is a relatively simple thing with all but the most trained in telling them. Being a leader means getting the right information, at the right time. The “right information” is often the truth; and when you need the truth, you look for patterns in a person’s behavior to determine whether he or she is telling it to you.

1. Are they sweating? Are they fidgeting? Can they make eye contact? Obvious physical, behavioral cues like this offer the most correlative insight that the teller of the lie might be less than truthful at that moment. Changes in posture, distancing themselves from you, becoming belligerent, overly apologetic, pleasant, or defensive—in such that they deviate from a baseline behavior—are all signs of a liar.

2. The devil is in the details. The idiom aside, real events require real details. When you’re being told something that your instincts tell you might be too vague…be wary. If you are uncertain, try asking the potential liar about details. If the details they can or cannot muster can’t pass the reasonable person test, then you’re probably being swindled.

3. An inconvenient attitude. Liars can be the whiners and complainers that are less cooperative than the reasonable person that is telling the truth might be. Liars will also have a tendency to protest and use such ironic phrases as “to be honest.” This sort of thing cracks me up. Unnatural silences and repetition of questions—either by themselves or asking the person they are confronting to do so—are also things to look for. Verbal-vocal cues, however, have a lower correlation with lying than the other behavioral traits.

4. Human lie detection. Lie detectors essentially work by picking out abnormal fluctuations in metrics that can be read of the human body such as pulse rate and pupil dilation because psychologists have found that both increase when a person is lying. They might also experience an increased pitch in voice or pauses in their monologue to come up with details at a moment’s notice, indicating their untruthful nature. Our own personal biases might enter into the equation, too: How many times have you seen people hear what they want to hear; they are not being honest with themselves about what they really want and instead can be lied to more easily. Don’t be one of them. Vocal cues, again, are less likely to in and of themselves be the sign of a liar: Instead they need to be analyzed alongside behavioral cues to make an accurate determination.

5. The world is full of dumb liars. A police interrogation trick, as we’ve all seen in the movies and on television, is to have the perpetrator repeat their story multiple times. In this case you are looking for the person to have inconsistencies. More intelligent individuals can offer stories that keep their consistencies, but the less intelligent liars have trouble doing so. I find this as an interesting quandary: People who are intelligent enough should understand that lying is a situation that might offer short-term gain, rarely offers solid long-term gains while those who are not intelligent enough will look for the easy way out, rationalize excuses on why they tell lies, but have more difficulty keeping up the appearance of propriety when they are not actually practicing it.

Anyone teaching the art of lie detection will offer a couple caveats: All of these behavioral traits work in patterns and we need to have an understanding of the baseline psychology of the individual in which we’re trying to determine this behavior. Lying is a deviation from the norm for all people short of the psychopathic sort, but that’s an entirely different subject completely. Once you’ve determined these two things we need to refine our theories through observation of the individual until we’re ready to make our decision about their truthful nature—or lack of it.

Quote: Defeat

“Once we have a war there is only one thing to do. It must be won. For defeat brings worse things than any that can ever happen in war.”
—Ernest Hemmingway, Author

Quote: Listening

“When people talk, listen completely. Most people never listen.”
—Ernest Hemingway

Communications Model

Have you ever walked into a room and talked to someone, only to walk away and not certain if you got your point across? Communication is more than just the words that are said between two people: It is an intricate dance of verbal and non-verbal communication between the sender and receiver in the environment in which it is taking place. Few people understand the true mechanics of communication, even though it is likely the most important thing that we do on a daily basis.

1. In normal circumstances, less than 35 percent of communication is verbal. We’ve all heard this before: What you say is not as important as how you say it. In many languages, what a person says isn’t necessarily what they mean. Take the hundreds of expressions in the English language alone that have an entirely different meaning than that which they say—or idioms.
“Fit as a fiddle,” for instance. Are you referring to a violin-like instrument that is well-tuned, or does it just mean that you’re as healthy as you could possibly be?

2. Vocal communication can comprise more than a third of the meaning of the message. In the movie “Ferris Bueller's Day Off” Ben Stein plays the character of the monotone teacher renowned for his famous “Bueller…Bueller…Bueller” line. Or, take Gary Busey who is known to put too much tone into normal interactions. When I was in the call center business the common catch-phrase was “tone and demeanor:” Anyone that was routinely on the phones knew that tone and demeanor, regardless of what was said, could make or break the call. Voice quality, pitch, and inflection are all factors in proper tone and demeanor.

3. Nonverbal communication is where most of the message lies.

This one makes for a deeper discussion: The importance of non-verbal cues in communication is imperative to communications. First, however, the “basic model for communications:”

Source à Encoding à Message à Medium àDecoding à Receiver

As the source of something you want to get across to another person you craft a message by taking ideas and concepts and fitting it into language that is appropriate for the situation in which you find yourself.

The message then passes through whatever medium—from simple, short sentences to PowerPoint presentations—you choose. The medium also includes your non-verbal and vocal components of this model.

At the receiver’s end, they translate the message you have delivered to them through the medium which you have. The most important things to remember about this end of the communication spectrum, so to speak, is that the receiver receives the message through “noise” that can be found in the environment and the decoding process of the receiver passing it through their “filters” of personal biases.

Keep in mind that any communication exchange is an extremely complex thing: People speak about 75 to 100 words each minute and short-term, sensory memory of the other person can take in about 7 bits of information (give or take 2) before needing to commit it to long-term memory all the while there is the background noise of your situation and the receiver is likely listening with the intent to respond rather than solidly take in the information.

Monkey Mondays: Maryland Woman 'Miserable' After Pet Monkey Seized By State

Wouldn't you be miserable too?

Quote: Plans

"The greatest enemy of a good plan is the dream of a perfect plan."
-- Karl von Clauswitz, Prussian General

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The Truth

“Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.”
—Marcus Aurelius