How will you measure your life?
A classic piece on the trap of marginal thinking
Original source: Clayton Christensen’s “How Will You Measure Your Life?” - HBS Working Knowledge
Clayton Christensen is a Harvard Business School professor who, every year, teaches students well-tested academic theories to help them excel in business and life. He put all those lessons in a book called “How will you measure your life?” he co-authored with James Allworth and Karen Dillon.
The Trap of Marginal Thinking
In this piece, the main idea discussed is the trap of marginal thinking. How if you cheap out your resources or compromise your principles, it can lead to drastic negative effects down the road.
It starts off with a very interesting story many business graduates read about: Netflix vs. Blockbuster.
In the late 1990s, Blockbuster dominated the movie rental industry in the United States. It had stores all over the country, a significant size advantage, and what appeared to be a stranglehold on the market. Blockbuster had made huge investments in its inventory for all its stores. But, obviously, it didn't make money from movies sitting on the shelves; it was only when a customer rented a movie that Blockbuster made anything. It therefore needed to get the customer to watch the movie quickly, and then return it quickly, so that the clerk could rent the same DVD to different customers again and again. It wasn't long before Blockbuster realized that people didn't like returning movies quickly, so it increased late fees so much that analysts estimated that 70 percent of Blockbuster's profits were from these fees.
Set against this backdrop, a little upstart called Netflix emerged in the 1990s with a novel idea: rather than make people go to the video store, why don't we mail DVDs to them? Netflix's business model made profit in just the opposite way to Blockbuster's. Netflix customers paid a monthly fee-and the company made money when customers didn't watch the DVDs that they had ordered. As long as the DVDs sat unwatched at customers' homes, Netflix did not have to pay return postage-or send out the next batch of movies that the customer had already paid the monthly fee to get.
We now know how the story ends, but back then, no one saw it coming and it wasn’t this straightforward. It unfolded in a classic David vs. Goliath fashion.
“As Blockbuster learned the hard way, we end up paying for the full cost of our decisions, not the marginal costs, whether we like it or not.”
Blockbuster had the means, the motive, the resources - everything. If they’d decided to go after this little venture, they could’ve killed the startup before it could even find its legs.
But they didn’t.
Blockbuster responded by saying, “We have not seen a business model that is financially viable in the long term in this arena. Online rental services are ‘serving a niche market.’”
By 2011, Netflix had almost 24 million customers, and Blockbuster had declared bankruptcy the year before.
I stumbled upon this article from a Henry Ford quote on how much it can cost you to be cheap with your tools.
"If you need a machine and don't buy it, then you will ultimately find that you have paid for it and don't have it." - Henry Ford
The 80/20 rule checks out that the marginal thinking and decisions might be 20% of your current daily thinking, but in the long term, it'll account for 80% of the misery and problems in life.
Buying a new pen won’t make you a better writer. But once you’ve reached a certain level, investing in better resources will make a difference in your work. People who’re stubborn with this quickly become irrelevant.
I’ll do it “just this one time“
Another idea worth discussing here is trying to compromise your principles “just this once.” No one is going to notice if I did this *just once*. So thought Nick Leeson, a 26-year-old trader who brought down a 233-year-old British merchant bank Barrings and racked up $1.3 billion in trading losses before being detected.
In hindsight, it all started with one small step: a relatively small error. But he didn't want to admit to it. Instead, he covered it up by hiding the loss in a little-scrutinized trading account. It led him deeper and deeper down a path of deception.
Barrings was sold to ING for 1 pound, Neeson was imprisoned and his marriage failed.
It's almost impossible to see where Leeson would end up from the vantage point of where he started—but that's the danger of marginal thinking.
The next step is always a small one, and given what you've already done, why stop now?
From Netflix’s ‘The Crown’ S01E07:
"Just this once" is *always* a slippery slope. Do one wrong thing, and it becomes easier to do the next wrong thing again. Fortunately, this also applies to doing good, productive things.
The famous 2-minute rule to cure procrastination also works on this idea. If you can get yourself to work on something for 2 minutes, it becomes easier to work on it for another 2 minutes, then another 2 hours and so on.
This is also what happens when you say, 'I'll just check my Instagram quickly and get back to work,' but by the time you're done, half the day is too. This is also how almost all affairs start.
"A journey of thousand miles begins with a single step" - Chinese Proverb
That’s it for now. Check out the complete list of 100 Ideas or subscribe below to get 1 highlighted and annotated piece in your inbox every week.