Tuesday, December 4, 2018

Sort By Price

Seth Godin had a pretty interesting bit about sort by price. He was saying that in the age of the internet, we now more than ever before have a way to sort by price (or any other single metric). However, if you are trying to sell a good or service. You want to avoid the sort by price game.

If you are a freelancer, you don't want to say. Hey, I'll do it for $5 cheaper than my competitors. It's a race to the bottom. There is always someone willing to do it for cheaper. Instead, you want to build trust and value. You want them to say "we need Jerry for this project, go get him". You can charge a fair price to people who value your service and thus you can afford to better serve them. For those that don't value what you bring to the table and only want you if you are the cheapest you can pass and say "sorry, its not for you".

On a similar note I've been browsing the IndieHackers forums and one very common advice is to charge more money, often saying you can probably double your price as it is, or at least experiment with doing it. It flips the script of sort by price: instead of creating the product and setting what you think it should be priced at, set the price high first and then raise the value of the product or service until it matches the price. If you do it this way then you know you are not selling yourself short.

Sunday, December 2, 2018

It's All About Expectatins

The reason we are angry or sad about something is not because something happened. It is about our expectation of what should happen. I believe it was Tony Robbins who said this but not 100% sure. But its such a good insight.

So let's say your coworker says something to offend you. You react by saying "how dare you say something like that to me". You can see that it is not the fact that she said what she said but rather that you didn't expect her to say it.

Or another example is if you are a manager and your team makes a mistake and the website goes down. You get angry at them because, not because of what they did, but because you expect this to not happen. You might say "I can't believe they didn't test properly" or "If they had followed my instructions this wouldn't have happened".

It turns out that your expectations and reality are not the same. You didn't expect that driver to swerve in front of you, but they did! You didn't expect your team to screw up causing your manager to yell at you, but it happened! You didn't expect your kid to misbehave, but she did! And so you get angry or mad or sad as a way to cope.

If you find yourself reacting negatively. You may need to adjust your expectations. It is YOU that is unreasonable, not reality. This thinking will actually empower you and lower your stress. If you change your expectations to people are human and make mistakes, then if your actions change. Instead when your team makes a mistake, you won't get angry or frustrated, instead you will think "what system can I put in place to make sure this doesn't happen again". If your kid misbehaves you might ask yourself why and provide more teaching, or encouragement.

Its not reality that's that problem. It is what it is. Instead ask yourself if your expectations match reality.

Saturday, December 1, 2018

Is It Worth it to Buy a Warranty?

I used to work at a company that sold extended warranties for electronics such as phones & tablets so I'll share a way of thinking about warranties.

A warranty is just a form of insurance. It is insurance for if your product breaks. It protects you from the negative experience of that event. Most people buy warranties because they fear what they would do if their device breaks. If you drop your phone or one day your phone fails to turn on for some reason that can be a hearbreaking and costly event.

Is it worth it to buy a warranty for your phone? One great way to think about it is to take  step back from the situation. Let's say you don't have one phone anymore but instead you own an entire factory of phones. So, now you have to ask if you would buy a warranty for every phone. This pulls one away from the emotional thinking of covering their specific phone because one phone does not have more meaning than another phone. This turns it more from an emotional question into a profitability question.

And now you are looking at expected value. Over the long run would you come out ahead when the warranty pays out vs the amount you spent to buy the phone?

Even before making estimates, you could ask your intuition and it'd probably be right. An insurance company makes money by paying out less money than the risk of insuring the thing. In order to do that it has to win the information game. It needs to properly access the risk of the payout event to happen. And they don't have to be exactly right because they can limit their risk by charging a little bit more for the insurance. And if getting this information is the core of the business, you can be that there are some pretty intelligent people working on that problem.

So you have to ask yourself if you have an information advantage over this insurance company. You don't have more information than the warranty company on the risk of the product malfunctioning for the average person. But you do have more information on your self and if you are average! Do you have a dog or kid that will chew up your phone if left unattended? Are you highly emotional and throw your phone whenever you are angry? In this case you might be in a category where it would be more profitable to own the warranty than to not. *Although if this is true you still have a net loss as you pay deductibles on phones and buying warranties. You may want to adjust your habits and protect your phone more*

And the last part of having a warranty is peace of mind. Even if a warranty is -Expected Value, a lot of people dread the fact of paying $500 or more for a new phone and they would sleep better if they bought that warranty. This would be a valid reason to buy. Back to the example of the factory of phones. If I was the owner I'd be fine not buying the -EV warranty for my thousands of phones where but I'd certainly get fire insurance for my factory burning down and losing it all.