The Norman Transcript

Columns

April 16, 2013

There’s a way to break rules the right way

NORMAN — “Smoking in the boys’ room

Smoking in the boys’ room

Now, teacher, don’t you fill me up with your rules”

— Brownsville Station

For nearly 20 years, our leaders decided traditional economic rules didn’t apply. It got us into a financial crisis.

Washington and Wall Street rewarded bad behavior instead of giving incentives for doing things right.

I had two relatives who were chain smokers and I offered them an incentive to quit. I agreed to give them $1,000 if they could quit for a year. If they started smoking any time during that year, they had to give me $50.

It worked. Both quit. It has been 20 years and neither took it back up.

It was a great exercise in psychology. I don’t think the $1,000 jackpot by itself would have worked. The reward was too far out in the future. The $50 penalty by itself would not have given enough incentive.

It took an unusual combination to make it happen.

Chris Anderson has written two influential books, The Long Tail and Free. Both are on how technology and the future meet. One of the most fascinating points he covers is a topic called, “Reversible Business Models.” He credits the term to Derek Strivers, the founder of CD Baby.

The idea is to reverse a traditional business model, such as a bar hiring a band to play for its customers.

Anderson talked about bars in Los Angeles who make bands pay a fee to play for its customers. It works. The band gets exposure, the patrons get entertained and the bar makes a profit on an item that used to be a cost.

Anderson hit on a topic that has plagued professionals and service providers: how to charge for their time and effort.

Pricing for professional services isn’t easy. You can charge too little, charge too much or charge for the wrong thing. I’ve done all three.

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