Please learn from our mistakes

No-bullshit lessons in business and careers. One mail every day. 5k+ readers love it. Join in?

Oops! Something went wrong while submitting the form.
TODAY’S STORY
3 May
,
2022

Trust is inefficient.

In this newsletter, and at Stoa in general, we talk a lot about systems and systems thinking.

One big aspect of systems is fragility or brittleness — something I have written about here and here.

To counter brittleness and be prepared to deal with uncertainty requires redundancy. And redundancy feels inefficient and sub-optimal.

Why do I need to carry a power bank when my phone and laptop are fully charged and the place where I'm going to has electricity? The power bank feels redundant, doesn't it?

Redundancy always feels opposed to being optimised, it feels like wasting resources.

But that is true only in the short term. In the long term, you will be in situations with no electricity due to a storm outage, i.e., volatility. And during these situations, the resources you invested in creating useful redundancy — buying that power bank and carrying it around — will help you survive.

Even biological systems have a lot of redundancy. We have two eyes instead of one, two ears instead of one, two hands, two kidneys, two lungs, and two of anything evolution thought of as exposed to more risk and volatility than others. So even when you lose an eye, you can still see with the other one.

As a business, being generous to your customers, employees, partners, and vendors even when not forced to law or by market incentives seems like leaving money on the table. The generosity hurts the total profit you can make and feels sub-optimal when you think about business goals.

In fact, the opposite is true.

Going out of your way to treat people right creates reciprocity and trust.

And trust is a reserve currency that can be drawn on in time of need.

Employees who have been treated fairly are more likely to be flexible when the business needs them to be. They are more likely to feel more invested, work harder, and absorb volatility and market shocks that may need them to take a pay cut or work overtime.

Customers who have been treated fairly are more likely to buy out of loyalty even when they have no need to or be early adopters of your new product.

Vendors who have been treated fairly are more likely to extend credit, supply at short notice, accept longer delays in payments, or deliver on priority.

Trust is a buffer that offers system-level flexibility.

But trust is costly to obtain, precisely because it needs you to leave some money on the table, literally or metaphorically. And you earn it by going out of your way and doing things and engaging in generous acts that are inefficient and come at a cost.

But this buffer of trust you build usually repays the favour by aligning people to do what a business needs at the moment, even if the changes occur at really short notice.

In the world of machines, redundancy is built by creating copies or having an inventory of spare parts ready to use.

In the world of humans and human relationships, redundancy is built by random unasked acts of generosity that show investment in a long term game versus optimising for profits in the short term.

Applies to biological systems. Applies to businesses. Applies to careers. Applies to relationships.

So, the next time you feel something is redundant, think about how that redundancy may prove useful in times of volatility.

Feeling Lucky?
Subscribe to get new posts emailed to you, daily. No spam.
Oops! Something went wrong while submitting the form.
2k+ business professionals act on our advice every day. You should too.
Subscribe to get new posts emailed to you, daily. No spam.
Oops! Something went wrong while submitting the form.
2k+ business professionals act on our advice every day. You should too.