Gary North's REALITY CHECK
Issue 375 September 3, 2004
THE CURSE OF THE COMFORT ZONE
I regard the comfort zone as the most important single
factor in keeping people from success in this life. It is the
crucial restraining factor that keeps people from becoming more
productive.
I am speaking here of producers' comfort zones. I am not
speaking of consumers' comfort zones, which I recommend.
Familiarity should not breed contempt for consumers. Old ways,
like old dogs, are our friends. But only as consumers. You
can't teach an old dog new tricks, which is a major problem for
producers.
The producer's comfort zone is the way of life that we fall
into but rarely choose for ourselves. It is the day-to-day world
that provides us with a sense of order. It is that array of
habits and daily assignments that lets us function without giving
much thought to what we are doing with our lives. And then, one
fine day, we are on our deathbeds thinking, "Where did the time
go? What have I accomplished that will still make a difference a
week after I'm buried?"
It is this legacy that testifies to our success, if any.
For some people, it's a pile of money. That legacy is rarely put
to good use by our heirs, whether biological or institutional.
But even our non-monetary legacies are at risk. Three thousand
years ago, an unnamed philosopher wrote:
Yea, I hated all my labour which I had taken under the
sun: because I should leave it unto the man that shall
be after me. And who knoweth whether he shall be a wise
man or a fool? yet shall he have rule over all my
labour wherein I have laboured, and wherein I have
shewed myself wise under the sun. This is also vanity.
Therefore I went about to cause my heart to despair of
all the labour which I took under the sun. For there is
a man whose labour is in wisdom, and in knowledge, and
in equity [justice]; yet to a man that hath not
laboured therein shall he leave it for his portion.
This also is vanity and a great evil (Ecclesiastes
2:18-21).
We are not trained early in life to think carefully about
our personal legacy -- what it could be, how it can be achieved,
and who will inherit it. If we were taught, we would probably
not pay much attention. That is the curse of youth. When we
possess more of the crucial asset -- time -- we fritter it away.
We all have about the same amount of time: eight decades.
Rich or poor, smart or dim-witted, we get on average about eight
decades to do with what we will. So, in this sense, there is
something like equality. Funerals testify to the only democratic
institution that really works as promised. "One man, one
funeral."
THE RULE BY THUMB
We know the phrase, "rule of thumb." But "rule by thumb" is
closer to the truth. There are five digits on a hand. One of
them is crucial: the thumb. Better to lose two fingers than lose
your thumb. Here we see Pareto's law in operation once again:
the 20-80 rule.
In every institution, every society, 20% of the people
provide 80% of the productivity. It works the other way, too:
20% of the people provide 80% of the problems.
The correct goal is to be in the first group. A secondary
goal is to try to avoid dealing with the other group.
In any profession, 20% of the participants provide the
leadership. They make most of the money. They are the least
likely ones to be fired. Within that group, 20% are the dominant
ones. That triumphant 4% enforce the rules. I suppose there is
a third layer of Insiders: the 0.8% who make the rules. But I
can't prove it.
If I were to give advice to a young person, I would tell him
to identify that area of service in life in which he is
especially gifted, and from which he derives a sense of
satisfaction, and pursue it relentlessly. This need not be his
occupation. How you put food on the table is far less important
than the performance of whatever skill you have that makes the
world a better place to live in.
What does it take to become part of the top 20%? It takes a
basic skill or affinity. This is usually difficult to identify
early in life. I was fortunate. I knew by 16 what my skill was:
public speaking. But I have not pursued it relentlessly because,
by age 26, I had developed a more important skill: the ability to
write.
I have no other skills worth mentioning. I have pursued
writing relentlessly ever since I was in my mid-twenties.
Each normal person has such a skill. I am convinced of
this. His innate abilities may not be sufficient to make him a
leader, but his dedication to self-improvement over decades is
worth the equivalent of at least 20 IQ points.
In every area of life, rule by thumb will manifest itself.
The 20% who are the most dedicated will lead. Then there are two
other layers of 20%. Membership in these may be based on brains
or unique circumstances that give people an edge. These
advantages are unpredictable. It is like being a great athlete
or famous performer. This edge cannot be imitated or produced
through special techniques. It is what made the Beatles and the
Beach Boys and the Rolling Stones dominant, and a thousand top-40
performers forgotten. Nobody knew in advance.
In contrast, membership in the top 20% is open to those who
adopt a particular pattern of living. The most important single
characteristic is a person's unwillingness to remain in a comfort
zone.
PUSHING YOUR LIMITS
The comfort zone is our area in which we function, if not
effortlessly, then at least predictably. In our jobs, in our
hobbies, in our relationships, we go through the motions. We
have an advantage over our competitors. We assume that we will
always retain this advantage. We think the market is on our side
because we deserve risk-free living. We think past performance
is a guarantee of future success. It isn't.
The free market is relentless in spotting weaknesses in
existing systems of production. Entrepreneurs are alert to poor
performance. They are always on the lookout for opportunities to
serve customers better and extract more money from them. They
are hungry. Or maybe they are merely in the competition for the
joy of winning. It doesn't matter what their psychological
motivation is. They are on the prowl, looking for ways to do
things cheaper, better, and faster.
The best way to gain a monopoly is to price your product in
such a way that it does not call forth competition. Let me
provide my favorite example. This company controls at least 95%
of the market. It has controlled it for at least eighty years.
Everyone uses the product. Yet only one brand name is known to
95% of the buyers. The company has squeezed out competitors to
such a degree that you can't name a competitor. Yet no special
legislation has granted the company this monopoly.
I can name the product. You will know the company. I can
name the company. You will know the product. The company is
functionally identified with the product.
The product is baking soda. Name the company. What color
is the box?
Arm & Hammer has a lock on the industry. Why? Because
buyers can't tell the difference, one brand to the next, and the
price is so low that it isn't worth the advertising budget to
differentiate a rival brand's product. If Arm & Hammer doubled
or tripled the price, rivals might enter the market. But the
company keeps prices low.
There are very few Arm & Hammers in this world. Like the
Queen of Hearts in Wonderland, everyone else has to run fast just
to keep in the same relative position.
The thumbs of this world are suspicious of any comfort zone.
They correctly regard it as an illusion. They are unwilling to
assume that someone is not gunning for them. This is another way
of saying they assume that there is a customer out there with an
unsatisfied desire. Offer him a better deal, and he will abandon
his present comfort zone for a new one.
DISCONTENT IS TO BE AVOIDED
Here comes the hard part. We are not to be discontented
with our condition. Yet we are not to be comfortable, either.
Let me use an example from another area. Once married, we
are supposed to be content with our decision. We are not to have
roving eyes. A man is supposed to trust his wife, but not take
her for granted. The same is true for the wife. Everyone wants
to be trusted. Nobody wants to be taken for granted.
The distinction between contentment and the comfort zone is
analogous. We are to be content with whatever we have. We are
not to be content with our level of service. As consumers, a
comfort zone is wise. As producers, it isn't.
But what if our level of service is dependent on what we
have? That is a paradox. We must solve it.
R. C. Sproul is a widely published theologian. His 1980
book, "Stronger Than Steel," is not a theological treatise but
the story of a strange kind of religious revival. It is the
story of a small steel fabricating company that was facing
bankruptcy in the early 1970s. The union leaders hated
management. The union went on strike. But management and labor
faced a problem: bankruptcy. The banks would lend no more money.
The bills were coming due. Something had to change.
The parent company, Textron, dismissed a large chunk of
senior management of the subsidiary. That made change possible.
Enter Wayne Alderson. He had survived the purge. He thought he
could solve the problem.
He saw the problem in terms of human capital, not physical
capital. It was the breakdown in cooperation that was killing
the company. Desperate, management allowed him to do anything he
wanted. Desperate, the union leaders decided to give him a
chance to prove his point.
He adopted a totally new human relationships program. He
called it "The Value of the Person." There were to be prayer
meetings before the work day, which managers and workers attended
voluntarily each week. Meetings were held in the most dismal part
of the foundry. Managers were to slacken their heavy-handed
enforcement of rules. Workers were encouraged to show up on
time. Families were brought together for company-wide parties.
It was a program of love that was implemented only because
of the initial presence of fear. The company was not going to
survive unless everyone agreed to change and unless the system of
management -- leadership -- was also changed. Results:
The scorecard for Operation Turnaround's twenty-
one month history went like this: (1) sales went up 400
percent; (2) profits rose 30 percent; employment went
up 300 percent (the work force grew to over one
thousand employees); (4) productivity rose 64%; (5)
labor grievances declined from as many as twelve per
week to one per year; (6) chronic absenteeism virtually
disappeared; and (7) quality of the product became the
best in the history of the plant (pp. 72-73).
Discontent had been basic to everyone's life in the company,
from top to bottom. Discontent did no good. The company was on
the verge of bankruptcy. What was needed was a change in
attitude, from top to bottom. It had to come from the top. The
leaders had the responsibility to initiate change.
As the turnaround took root, people's attitudes changed.
There were reserves of productivity that had been bottled up and
buried because of resentment. When Alderson's new policies were
implemented, people dug up those bottles and opened them. There
was a massive infusion of capital -- just no extra money.
Alderson began outside of his comfort zone. When he was
brought in to settle the strike, violence was expected. It was
physically risky for him to serve as management's deal-breaker.
But his internal sense of contentment enabled him to deal with
his discomfort zone. He knew what had to be done, and he also
knew that everyone had run out of answers. Workers didn't want
the plant to close, and neither did management. But each side
wase willing to have the plant close to get its way over the
other. Alderson's program transformed the mutual resentment into
productivity: overcoming the bottlenecks.
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DISCOMFORT CANNOT BE AVOIDED
Because we as consumers are always shopping for a better
deal, we as producers can never sit still. Because we as
consumers are always ready to consider making a decision to
improve our lives at the margin, we as producers are under
pressure to come up with new opportunities to make consumers'
lives better.
If we understand ourselves as consumers, we can understand
ourselves as producers. But, as consumers, our decisions affect
lots of people in little ways. As producers, lots of people's
little decisions can affect us in big ways. Usually, these ways
are negative.
Why? Because consumers think what they have now is merely a
temporary negotiating position. They want more. They are in a
comfort zone for as long as a better deal doesn't come along.
There is some entrepreneur out there trying to make them a better
deal.
As consumers, our comfort zones change. Therefore, as
producers, our comfort zones must change. But we don't want our
comfort zones to change as producers. We want stability. We
want predictability. We don't want to be pressured by those
thoughtless consumers to keep improving our output.
Producers regard complaining customers as a liability. But
if complaining customers are complaining because someone else has
just made them a better deal, or they think that it's worth their
time to go looking for a better deal, we had better take
seriously the complaints.
Most consumers would prefer to stick with existing
suppliers. Most consumers are in a comfort zone. They don't
want to have to run searches for better deals. But discontent
with bad service can force consumers to go shopping.
I have found that consumers who are short-changed are blamed
by producers if they complain. The specialist producer assumes
that his product is the best and complainers are short-sighted.
The victimized consumer becomes the bad guy. I have seen this so
often that I regard it as normal -- with the 80% who are not the
leaders in their industry.
The top 20% are open to suggestions, which is the main
reason they are in the top 20%. They see their comfort zones as
temporary. They know that they are under the gun of rivals, who
seek to take advantage of any weakness in order to lure away
their customers. They are content with the consumers' discomfort
zones. They have come to grips with this in their operations.
They have re-structured their thinking and their institutions to
keep ahead of the consumers' ever-arising discomfort zones.
Producers look at their comfort zones and think, "This is
mine. I deserve it." But in a free market, the customer alone
is entitled to maintain his comfort zone. If he doesn't want to
change, he doesn't have to change. If he decides it's not worth
his time seeking for a better deal, no one can tell him otherwise.
This is what freedom means.
When we as producers seek the comfort zone that we enjoy as
consumers, we are on the road to bankruptcy. We have put up a
neon sign that announces, "Come and Get Us." As consumers,
nobody is shooting at us. Someone new is slapping us on the back
and telling us how great we are. As producers, lots of people
are shooting at us. Someone familiar is shouting in our ear,
"What have you done for me lately?"
What we seek for ourselves as consumers -- a place of our
own where we can be comfortable -- we must constantly accept as
producers. This is why producers want to find a way to escape
our fickleness.
It boils down to this: our comfort zones as consumers can be
secured only by our discomfort zones as producers. If producers
seek to create comfort zones for themselves, the only way they
can do this is by creating discomfort zones for consumers --
zones in which no one is hustling to serve consumers well.
So, discomfort cannot be avoided. Either we forfeit our
comfort as consumers by ceasing to impose pressure on producers
to meet our demands, or else we forfeit our comfort as producers
by ceasing to offer better deals to consumers. But then the
discomfort of falling revenue intrudes.
STIFLING CONSUMERS
Producers are always ready to reduce pressure on them from
newcomers who cater to the whims of consumers. They create
cartels, trade associations, and other institutions to keep out
competition. Such agreements always fail. Newcomers enter the
market and make better deals. Even that most venerable of
cartels, the diamond cartel, is breaking down because of new
sources of supply and distribution.
So, producers turn to government to keep out newcomers.
They send lobbyists to the capital city. They persuade
legislators to pass laws to "protect the consumers." From whom?
>From scurrilous producers whose products do not meet industry
standards. What the producers really mean by "industry
standards" is "today's high prices."
Consumer legislation is in fact producer legislation. It is
designed to restrict markets and thereby reduce the discomfort
zones of existing producers.
Producers are specialists. They specialize in whatever is
profitable for producers in their industry. They are alert to
shifting consumer demand. They do not want consumers to exercise
their shifting tastes by spending money with new companies. They
want to keep consumers' discomfort zones under control. They
seek out a "business-government partnership" to keep consumers'
discomfort zones under control. The government puts a gun in the
belly of a new producer and says, "You aren't meeting industry
standards. Cease and desist." This is bad for consumers. But
consumers are not well organized. They also trust politicians
who call for consumer protection, which is in fact producer
protection from consumers.
CONCLUSION
Your job as a producer is to become content with your
consumer-imposed discomfort zone. This means that you must
constantly seek to improve your productivity.
The way to a comfort zone as a consumer is to become content
with what you possess. But if you continue to increase your
productivity, this will produce a surplus: income over
expenditures. In other words, you will have to become a saver
or an active investor. You must become a capitalist.
Thrift. This is the way to wealth. This is the road out of
personal poverty. This is the means of improving the output of
other workers and therefore the means of overcoming their
poverty. It's a win-win deal.
To the extent that you create a permanent comfort zone as a
consumer -- contentment with most of what you already possess --
you create the means of dealing with your discomfort zone as a
producer. You build up a nest egg of savings. You invest in
your education. You improve your productivity. You acknowledge
that you are not entitled to a comfort zone as a producer. You
must become content with life in a discomfort zone.
When most producers accept this, freedom is secured.
Whenever they refuse to accept this, freedom is at risk. A
nation of comfort zone-seeking producers will provide money to
elect politicians who see their task as putting consumers into
the straitjacket of the status quo.
When the consumer is in a straitjacket, he is in a
discomfort zone. So is liberty.
*************
APPENDIX 99
Abraham Case Study #427 comes from a marketer. He admits
that he had spent years with heavyweight marketing manuals with
lots of statistics. But nothing much happened. Then he
discovered some elementary principles. Everything changed.
He learned that a successful company rarely tells its own
story well. It may tell the story it is proud of, but it does
not tell it in a way that customers spend money for.
He was advising a company that was at the top of a niche
market. Like most niche markets, potential competitors are
unaware of its existence. This is good for existing producers.
This niche market was simulated racing. The company produces
steering wheels and pedals. You never thought of that, did you?
You never thought someone could get rich this way, did you?
Let's hear it for niche markets!
The company sells replica cockpits that are integrated with
computers: "feedback steering, roaring sound and smoke included!"
However, as is the way with many engineering firms,
they were caught up with the product development, but
fell down on the marketing. That's where we came in.
The priority was to generate sales, quickly, of the new
line of pedals they had just finished (they retail at
about -- 400 pounds ($600). We immediately identified
the past customers as a key resource, wrote a
compelling letter that offered them a special upgrade
deal, and sent it out. It got a 100% response!. Not all
of these were sales, but every person written to came
back for more information and to make contact.
Companies that do not pay attention to their existing client
bases are throwing away money. The easiest sale is to an
existing customer.
Then we got them to reverse the risk. What these guys
didn't realise is that they were already supplying
fantastic back-end support, they would customize kit
for clients, and take it back if at the end of the day
if it did not work out. But they were not telling anyone
about it!
Here it is again. The seller did not recognize the benefit
he was selling. The seller assumed that "everyone" knew all
about the benefit. Well, everyone didn't.
So, we identified three types of guarantee that they
could offer. First was the fairly ordinary warranty,
nothing special there, all the competition offered
this. Beyond that we encouraged them to offer a full
satisfaction guarantee, and they could get hold of
that. But we pushed it even further -- to give a
performance guarantee -- and this took some convincing,
but we got there -- if the equipment did not improve
the laptimes of the user (and this is everything to the
online racer) then that would be excuse enough to
return it for a full refund.
In other words, he offered a money-back guarantee with
specific performance criteria -- in this case, laptimes. Vroom,
vroom.
The racing community loved it, we announced it through
a host/beneficiary relationship we set up with a key
online racing magazine. The guarantee got around past
quality problems our client had when they outsourced
production a few years back, and it went so much
further than any of their competitors.
For the top-end F1 cockpit products we set up some
arrangements with the leading F1 racing magazines, and
organised a competition to give away an old cockpit
that had been used for rental for a couple of years.
Its age was no problem as the magazine paid for it to
be reliveried in their colours, along with the logos of
the computer company who provided free hardware in
return for the exposure.
So, here was "dead inventory" that could be turned into a
bonus: a prize. They even got a third party to spruce it up at
its expense.
The magazine featured the competition on the front
cover, and over a hundred thousand readers discovered
our client for the first time. Coverage in other major
publications has fallen out of this and sales of
cockpits are growing well. All for the price of a
secondhand cockpit that was sitting around unused.
All in all, our client is now being recognised and
praised as the world's leading manufacturer in this
specialist field, their products are now perceived as
being at the cutting edge of developments and, most
importantly, they sold all of the stock they had of the
new pedals, and are now pushed to make more to meet
demand. They are pleased!
All this sounds obvious. You would think that the company
and its competitors would have done all this from the beginning.
Not so. The principles seem so intuitive, but they are not
intuitive. The idea of offering a money-back guarantee for a
buyer's failure to improve his laptimes was not intuitive.
Neither was offering an old cockpit, restored at the promoter's
expense.
Think through your own product line. Where are you
providing a benefit that you are not featuring in your ads? What
performance can you guarantee?
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