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Twenty-five Percent Better

I have something that I call my Golden Rule. It goes something like this: “Do unto others twenty-five percent better than you expect them to do unto you.” … The twenty-five percent is for error.
– Linus Pauling

Nice quote; seems legit to most. Do better to others than you expect them to do to you. Add it to the to-do list, like eat better and save more money. Now imagine that you’re a small business owner. What should you do? Should you ignore it? Nice guys finish last or something like that, but let’s take a closer look. What may appear on the surface to spell your undoing may hide the secret to your success.

Why twenty-five percent better? Fair is fair, so why would you need to do twenty-five percent better? It’s masochistic, almost un-American. As Pauling says, it’s for error or subjective error as others have said. From a psychological view, it’s a self-serving bias. We don’t always agree on what is fair. Isn’t that why we make compromises? Don’t we call it price discovery? Imagine you have P&L responsibility and all of your customers are demanding a 20% discount and all of your suppliers, including labor, are demanding a 20% premium, probably not hard to imagine.

A customer once told me how much he hated it when salespeople used the phrase “value added.” I thought sure, it’s a cliché, nobody likes clichés, but looking back I think there was more to it. For him as a manufacturer, “value added” has a specific economic meaning; namely, price minus cost. For the typical salesperson, it refers to extra features that go beyond standard expectations. Without specifics, the phrase is abstract and irrelevant. “Enjoy a free steak taco dinner with every purchase!”

As a thought experiment, let’s suppose that you could somehow deliver 25% more value to your customers than they were expecting. In addition, suppose that you could also pay 25% more to your suppliers. Ta-da! You are now giving all your customers a 20% discount and all of your suppliers a 20% premium. Neat trick if you could pull it off. Well, as a small business owner, this is what you should be thinking about every day; otherwise, you may soon find yourself looking for a job.

There’s nothing wrong with that. There are plenty of self-respecting professionals who do well for themselves this way, but that’s not your way. You create value that others fail to notice. You are an entrepreneur. You combine the factors of production in such a way that you can honestly say that you did to others twenty-five percent better than you expected them to do to you. You understand the economics of “value added” as well as the benefits to your customers and suppliers alike. While others may say you’re doing it wrong, I say at least you’re doing it.

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