The Two Business Principles That Govern Life

For as much as we try to complicated it with heady notions such as meaning, purpose and lasting significance, life essentially can be boiled down to two principles with roots in economics.

Strip away all the not-unworthy teachings from self-help books, leadership seminars and religious institutions, and what you’ll find is that humans act as they do in any given situation because of how these two principles are at work in their lives at the time. Understanding this will help you not only be more successful in business but also will lead you to greater depth in your relationships outside of work.

So what are these two principles? Let’s take a look at each one of them and how they shape us from the time we’re born.


Principle No. 1: Scarcity

Human beings at their core operate on the same principle that moves prices in our economy. I’m talking about supply and demand. In its simplest form, scarcity is the absence of stuff to meet the demand for stuff, which causes the value of the stuff to increase.

Take the Cabbage Patch Kid craze of the early 1980s. People — mostly suburban housewives — beat the crap out of other suburban housewives just to get their hands on one of these well-marketed dolls to give to their children for Christmas.

There, the demand outstripped the supply, so people willingly spent more than a hundred dollars to get their hands on one and acted extremely out of character during the pursuit.

Today, you’re seeing the scarcity principle play itself out with gasoline and microchips, though no one is throwing haymakers at the pump or car dealership just yet. In both cases, the rebound of demand surprised producers who had backed down supply during Covid, and so we’re paying higher prices to fill up our tanks and having to wait to buy cars that aren’t on the production line yet for lack of important computer parts.

The same principle plays out in the working world with employees. For a variety of easily understandable reasons — chief among them the change of societal values during the pandemic and the Trump administration’s isolationist and anti-immigration policies — there’s a shortage of people willing to do a variety of jobs. Not only has this led to higher wages, it’s also shifted the power dynamic in the workplace. Gone for many businesses are the days when employers could expect 80-hour weeks in a dimly lit office from their employees whom they believed needed to suck it up and deal with it because if they didn’t there were 10 other people waiting in line for the same version of hell. Here is an era where good employees can push back against out-of-whack work/life balance and seek more friendly situations at higher pay if you don’t give them some damn good reasons to stick around.

Thus, what you’re seeing is increasing tension between employers and employees. Old-school managers are salivating at the thought of getting their workers back into the office and under their thumbs once again in an environment in which their presence at their desks is the first measurement of employee dedication. Workers, given a taste of better balance in which they don’t have to get dressed up in uncomfortable clothes to slog through traffic just for the pleasure of toiling in a communal space designed for the success of only a small minority of employees who, after enduring that, have to battle idiot drivers on the way home just so they can do it again the next day.

But scarcity also governs the more intangible parts of an employee’s life. Let’s take job security. If an employee knows her contribution to the business’s cause are valuable and valued and she is given access to the information that shows her that the business is not only stable but thriving, all of her future actions are going to come from a place of abundance. Translation: She’s going to be a better employee.

If, on the other hand, she does her thing and does it well but it is not honored and appreciated, and that is compounded by a corporate structure that leaves employees wondering about the business’s condition, she’s going to be operating out of feelings of scarcity. What exactly is scarce? Appreciation, validation and information. Employees acting from scarcity aren’t able to work up to their potential, and though they are ultimately responsible for their own thoughts, feelings and actions, management isn’t helping the situation.

So then we take this principle into our personal lives. It’s extremely similar. Take the husband who feels his contributions to the family are not appreciated by his wife or his kids. Add to that a spouse who fails to communicate with him and whose time is overly devoted to pursuits outside her marriage and family. The supply of what that man needs to thrive is scarce, which means the value he places on finding appreciation and validation goes up. And this, my friends, is the recipe for a troubled marriage. (Go ahead and flip the genders. The dynamic is the same)

Let’s look at our kids. Children who are nurtured, encouraged and valued no matter their intellectual abilities, athletic prowess or physical attributes have love in abundance. Thus, they (and as with anything human, we have to add the caveat “in general) do not act out of lack in seeking the things that fill the soul and create the best chance to turn out a healthy, well-balanced adult.

Now, let’s look at the flip side in reverse order. A child who is consistently praised for every little thing she does, a child who receives a trophy for simply showing up, a child who is overly glorified for those things that are merely part of existence, is going to have a lack of appreciation for the value of love and nurturing. The term for this is “spoiled.” The supply of all these things that are really good when they’re offered in balance with demand is far outstripping what’s needed in the marketplace of life, and so the consumer — in this case, the child — eventually sees these things as something they could get at the dollar store any time he wants to.

When the market — in this case, the parent — tries to correct itself and, say, the child doesn’t get a trophy or isn’t overly praised for what is actually a pretty average drawing, he wonders where the hell his supply just went and acts as the child equivalent of the suburban housewife in a Cabbage Patch Kid brawl.

The husband whose wife does nothing but gush over his taking the garbage out and buying her gifts and mowing the yard is bound to become an egomaniac. These are the couples who sit on the same side of the booth when they’re dining out without anyone else. The overabundance of love creates the adult equivalent of the spoiled child — a man who believes he is more than any human being ever should be to any one person.

And the employee who constantly receives praise for her work is more likely to start producing average work. The overabundance of positive feedback undercuts drive, ambition and the motivation for continued improvement. These are your prima donna employees, and they are rightfully scorned by others whose world is not built on other people’s opinions.

So as you can see, scarcity and the supply/demand curve governs everything in life. And it is assisted by …


Principle No. 2: Incentives

As geeky as this is to admit, I have been a fan of professional wrestling since I was a little boy who, on one Saturday morning, was flipping the dial (look it up, kids) and landed upon the old American Wrestling Association. I happened to turn it on just as this guy with a mohawk and his face painted like some post-apocalyptic barbarian was jamming a spike into another guy’s eye, an act that, not surprisingly, was causing him to bleed profusely.

Thankfully, my father was walking by at that moment and said, “You know that’s not real, right?” And I did, because I assumed that were it real, police would be rushing into the ring to stop the barbarian from killing the dude and that the TV cameras wouldn’t necessarily be broadcasting it just before The Smurfs, but I was instantly hooked.

For whatever reason, I eschewed the characters I was supposed to like — the Hulk Hogan’s of the genre…

… with all his talk about training, saying your prayers and taking your vitamins. Me? I was more into this guy…

The Million Dollar Man had a simple motto: “Everybody’s got a price.” Week after week after week, he would bring some poor shlub into the ring and ask him to do something humiliating — kiss his feet, eat dog food… that sort of thing. And of course, at first, the guy would refuse.

Then The Million Dollar Man would take out a fat wad of cash, and before you could say “Show me the money!” the guy was on all fours devouring Alpo out of a dog dish.

The Million Dollar Man was demonstrating how the proper incentive can motivate people to do anything. This trope has played out over and over again in Hollywood. The movie Indecent Proposal is based on it. What if a really rich dude (Robert Redford) thought your wife was so hot (Demi Moore) that he was willing to give you (Woody Harrelson) $1 million for one night with her? And what if you just so happened to be in a dire financial condition when the offer arrived?

Now, I understand how these examples are about the use of money to get people to do things that are, at best, questionable and, as with the Cabbage Patch Kid thing, against their better judgment. But the theory behind it is true: Humanity operates on incentives.

Let’s talk about the business world. The fact the employers have employees is because of incentives. How many of us would show up for our jobs tomorrow if there wasn’t the promise of money in return? That’s called “volunteering,” which is noble and needed, but it’s not going to pay your mortgage. Thus, our employers are incentivizing us to show up. We’re incentivized to try to do a good job, too, because employers are incentivizing us with the promise of continued employment for a job well done — or perhaps the lack of employment for a job regularly not well done.

But it’s more than that. Employers can incentivize their employees to stay (and, thus, reduce the immense cost of turnover), by treating their workforce well. Some people are incentivized by positive feedback. Some are jazzed by little perks like work-from-home days or company cars. Smart employers find what each individual employee’s biggest motivator is and then, if the employee is valuable to the organization and it would hurt to lose her, feed that motivation with the right incentives.

Most people have multiple things that incentivize them in the workplace. Me? I’m a sucker for positive feedback judiciously given out so that, when it’s said, it has value. But I’m also all about getting paid well. I love what I do, but I can definitively say I would not do it for free, and as I wrote about previously in this space, I will not do it for a rate far below market value such that I cannot support my family as we want to live. A well-timed bonus or gift that shows you see me as an employee (read: cigars, whiskey, luxury hotel stay with my wife, the freedom to work different hours every so often so I can attend my kid’s weekday cross country meet, etc.) also goes a long way to incentivize me to think my employer rocks and to keep myself off the job boards or from entertaining conversations with recruiters.

Just as with scarcity, incentives cross over from the business world into our leisure life. It starts when we are tiny children. What is the most common word a new parent says to his child when the little one suddenly discovers her ability to move? “No-no! Don’t touch that!” A child learns extremely quickly that those words said with no follow-through mean absolutely nothing. But if it is said with a stern voice that is unlike Happy Daddy, most children are at least temporarily incentivized by an innate desire to please their parents to not touch what Dad doesn’t want touched. What are timeouts other than an incentive for what the parent believes to be proper behavior that keeps the child safe (or, at least, safer)?

By the time we’re adults, we are immersed in incentives. We put some cap on how fast we’re willing to drive because there is an incentive to not get caught speeding (lower insurance rates, for examle). And while we’re talking about driving, we choose the accepted side of the road on which to drive because we’re incentivized by our desire not to die. Red lights cause the most rebellious among us to stop, even in the most illogical situations (2 a.m. on a deserted country road in which you can see for miles each way and are absolutely certain no one is going to T-bone you should you proceed through the intersection).

And it’s not just driving. Our spouses incentivize us all the time. Good husbands will do things that make their wives feel good, whether that be taking the garbage out or changing the kid’s diaper or buying her a just-because gift. Why? The cynic would say that it’s to receive favorable treatment in return, but I’d prefer to think that the love of another human being is perhaps the most powerful incentive. J.K. Rowling is right now rolling around in an unfathomable pile of cash because she wrote a book series based on that exact theme.

A word of warning about incentives: Make sure you’re incentivizing the behavior you’re actually trying to incentivize.

As the story goes, when the Brits colonized (read: took over) India, they had themselves a cobra problem. No one wants a cobra problem. So the Brits provided an incentive for the people of India to go out and kill cobras. Money would be given for each dead cobra a person brought in.

Fabulous idea! People started to bring in dead cobras by the cartful. Ahhh, but then there’s this little thing called entrepreneurship. Enterprising young Indians realized that riches could be found through cobra bodies, so why not breed cobras? The cobra farm was born.

As if this weren’t bad enough, it actually got worse. Once the Brits realized they were paying out large sums of money to people who seemed to be extremely lucky in catching even larger numbers of cobras, they scrapped the incentive plan. So what did the cobra farmers do? Why, they released their suddenly not-profitable cobras into the wild.

The cobra effect was a term coined by economist Horst Seibert. He pointed to a similar situation in which the French incentivized the eradication of rats in its newly colonized city of Hanoi by offering a bounty. All you had to do to get paid was deliver the tail of the rat to the right person. This incentive ended after the French noticed a bunch of tail-less rats scurrying around Hanoi. The French erroneously incentivized rat tails, not dead rats.

Sometimes, poorly though-through incentives affect actual human beings. Between 1945 and 1960, the federal government of Canada was paying orphanages 70 cents per day per orphan for their care. They also were paying psychiatric hospitals $2.25 a day per patient. The result? Up to 20,000 children — dubbed the Duplessis Orphans — were falsely certified as mentally ill so the province of Quebec could receive the larger payment.

Ouch.

In other words, parents, don’t incentive your kid to do every little thing you would want him to do around the house as the member of the family by offering him money if you’re trying to teach him that sometimes we do things for other people just because we love them. And similarly, business leaders, don’t incentivize your people to do things that leave your business vulnerable to massive fraud.

That’s what Wells Fargo did. They incentivized their employees by offering up bonuses based on the number of new accounts they opened. What Wells Fargo really wanted was customers. What they got were thousands of accounts opened in fictitious people’s names and fraudulent cross-selling in which employees set customers’ passwords when they opened new accounts so they then could go back after the customer left and put them in a variety of other programs and accounts that counted toward the incentive but that cost the customer money they did not authorize to be spent.

The result was a $3 billion-with-a-B fine against the bank.


So there you have it, the two business principles that govern not only the working world but also life as a human being. Take a look around at your business relationships, as well as your interactions with your friends and family. Then let me know how you see these principles playing out in everyday life.


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