It’s one of the first questions we ask almost every client – “What is the value of a customer to you?” Only a small percentage of otherwise sophisticated clients can muster an answer. Most of even those who do answer are simply estimating based on a guessing game in which our team plays game show host. Would you consider an acquisition cost of $X to be a win? Why? If you don’t groom your clients at all, what is their spend rate per year? If you do communicate with them, does it increase? By how much? What can you tell me about the different kinds of customers you service and their impact on your profitability? How has this changed over time? The list of questions can go on forever.

It’s not just an issue for e-commerce marketers. All marketing has the ultimate goal of finding, securing, retaining, defending, or growing the value of customers. This holds true whether or not you get the immediate feedback of an online sale or are tracking leads from a long-term, considered purchase online or off. It seems self-evident that you would need to know what an average customer and a good customer are worth to your business to have any hope of logically planning your marketing strategy and expenditures toward increasing that value. With all the talk of metrics and ROI in digital marketing, this basic but critical information seems to be missing far too often, resulting in lots of measurement and little logic in the decision-making those metrics are intended to support.

Let’s take a look at the impact of marketing informed by lifetime value (LTV) across a spectrum of marketing goals.

Finding Customers

New customer acquisition is not about gaining new customers at any cost. It is about finding those customer segments that bring long-term value and profit to your business and that can scale sufficiently to support your short- and long-term goals. Certain channels, messaging approaches, and media plans return those right customers. Knowing how to define them is the starting point for a deliberate, sustained testing program that will continue to refine your approach and results.

Securing Customers

For most categories (that aren’t insanely loyalty bound), you can create trial with new potential customers if you offer a new or intriguing experience or if you discount deeply enough. Sure, some customers will never pan out or will only buy on promotion, but some may become good customers if you continue to offer them a good value and a good experience. You need to be able to model out the expected long-term return on that discount-driven customer in order to justify the investment in what could be a negative margin initial sale. A key input in that calculation is the value that the customer is likely to provide over their life.

Retaining Customers

Long-term customer relationships are about brand-building and relationship-building activities that reinforce the value you provide customers and remind them you exist and can fill a need for them. More valuable customers should be provided with more value, more often. That value can be delivered in many forms including increased or priority access, special content or tools, or many other perks such as price incentives or rebates. All of the monetary and non-monetary value that you provide costs money and it’s impossible to know how much it makes sense to invest if you don’t know the value of your customers.

Defending Customers

The flip side of retaining customers is competitive defense. All customers have a choice and will be presented with other attractive options unless you are in a monopoly business. Stay focused on retaining those customers, especially the more valuable customers that were so hard-won. Knowing the lifetime value of your customers will help you plan your response should an aggressive competitor come into your territory. Are they after your prime customers or the marginal ones? You won’t know what to counter with or what level of spend makes sense in response unless you know your customers’ value, preferences, and responsive areas.

Growing Customers

The definition of a good customer is going to vary widely by company, category, industry, segment, maturity, and many other factors, but all other things being equal, we definitely want customers who buy in greater quantity or more frequently. We also want those customers who spread positive news about us. Through social media and other digital measurements, we can track how frequently customers engage or interact with the brand, how often they recommend the brand, or the scale of their sphere of influence.

Growing customers across any of these measures takes time, resources, and investment and can shift the way you might determine the LTV of a customer. Should you invest in growing a customer from a once-a-month buyer to a twice-a-month buyer or instead invest in grooming all buyers who have broad influence and/or are strong advocates in social media? The power of social media has changed the metrics that define LTV forever.

Despite all our cross-channel tracking capabilities and optimization proficiencies, LTV remains an elusive, if critical data point on which vital decisions depend. It’s not easy and it’s not a one-and-done proposition, but if you can’t articulate what your customer is worth to your business today, then you won’t know how to build, defend, or grow your business.

Article source: ClickZ

 

“The way I think about it is, you know, this is, uh, you know, a great, uh, great country that had gotten a little soft, and you know, we didn’t have that same competitive edge that we needed over the last, uh, couple of decades. We need to get back on track.” — President Barack Obama.

The gall is breathtaking, even from a man who as a presidential candidate said, “We are the ones we’ve been waiting for.”

This from a President who, in chastising the rich, said, “I do think at a certain point you’ve made enough money.”

This from a man who, during the brief time he actually worked in the private sector, represented a black woman who accused a bank of redlining her out of a loan. The proximate cause of the housing bubble and meltdown is the notion that the “underrepresented” deserve a home, whether or not they qualified under traditional lending criteria.

This from a man who told a Toledo plumber that government should “spread the wealth around” by taxing “the rich” and giving the money to others, because “it’s good for everybody.”

This from a man who blasts any suggestion that young people just might be capable of investing a portion of their Social Security contribution into an account that they manage. Former Congresswoman and vice presidential candidate Geraldine Ferraro, in opposing the idea, fretted for those who lack “the knowledge and the wherewithal” to handle the responsibility.

This from a flip-flopper who initially opposed the 1996 welfare reform — legislation that resulted in a 50 percent reduction in the welfare rolls, and without a corresponding increase in teen pregnancy. Then-state Sen. Obama called President Bill Clinton’s support of the federal bill “disturbing,” and a year later — on the Illinois state Senate floor — he said, “I probably would not have supported the federal legislation.” A decade later, when presidential candidate Obama was asked if he would have signed or vetoed the ’96 reform bill, he repeatedly dodged the question, insisting that he looked to the next 10 years, not the past 10 years. Then his campaign began running ads touting the reduction of welfare cases made possible by the 1996 reforms.

This from a man who blames corporations for “shipping jobs overseas,” yet shows no concern for the high corporate tax rates — rates that would be unnecessary were the federal government to actually stick to the handful of duties permitted by the Constitution.

This from a man who thinks it’s the government’s job to “invest” in “green jobs of the future” because the private sector cannot be trusted to take risks.

To the extent America has gotten “soft,” Obama can’t mean working hours.

The average American works longer hours than other people in the industrialized world, including the Japanese, the Germans and the British.

Nor does Obama, by “soft,” mean the growing and unsustainable reliance on government. In 1900, government, at all three levels — federal, state and local — took about 10 percent of the American workers’ pay. Today, if one assigns a price to unfunded federal mandates imposed on the states, government’s take approaches 50 percent. Obama and his party encourage government growth and expect Americans to depend on it for health, welfare and retirement. These are, they tell us, “human rights.”

So, let’s recap the President’s playbook.

Step one: Pursue a three-year course of extracting higher taxes; mandating costly new regulations, not least of which — in ObamaCare — represents a breathtaking expansion of federal power; and pass an FDR-like nearly trillion-dollar “stimulus” package.

Step two: Enact “look, we’ve done something!” regulations to “rein in Wall Street greed” — regulations that have nothing to do with the Freddie/Fannie/Community Reinvestment Act housing meltdown. Sign “credit card reform” laws that prevent bankers from raising fees on “the defenseless.” Never mind that banks roll their eyes and find other ways of keeping profits up. Funny how these bankers and other businesspeople seem not to consider their actions crooked. They think they operate in a competitive marketplace and owe a fiduciary obligation to shareholders to maximize shareholder return.

Step three: Let the investment community know that — because they represent the enemy — they’re a piggy bank from which government can extract more and more without, of course, eroding the business community’s willingness to risk capital. Expect the “greedy,” “taxed-too-lightly” business community to absorb the higher taxes and costly regulation — and yet continue to make the same hiring and investment decisions even as the White House vows to impose even more regulations and raise taxes even higher.

Step four: After succeeding in undermining economic growth through left-wing, redistributionist, government-can-capably-invest-in-green-jobs-of-the-future policies, accuse the business community of engaging in risk avoidance. Hammer them for “sitting” on “$2 trillion” in money. Tell them they should “get off the sidelines and expand. … Get in the game.”

Step five: Finally, accuse the American people of failing him, not the other way around.

We end with another quote from then-newly elected Barack Obama: “I will be held accountable. … If I don’t have this done in three years, then there’s going to be a one-term proposition.”

Larry Elder is a best-selling author and radio talk-show host. To find out more about Larry Elder, or become an “Elderado,” visit www.LarryElder.com. To read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2011 LAURENCE A. ELDER

DISTRIBUTED BY CREATORS.COM

Article source: Creators.com

 

So, we’re assuming you’re on time and you know why you’re there and you know exactly what you want from the people in the room and you’ve Googled them and found out where they went to school and that according to LinkedIn they made a couple of questionable professional moves in the early ’90s and at least two of them tweet. What we’re interested in is that pregnant series of moments that lasts for around a minute and is ostensibly about introductions and handshakes and the offering of beverages and, if you’re lucky, a Danish or something, but is really about the beginning of potentially important relationships.

The main problem with entering an unfamiliar meeting room is that it’s like leaving a bar when it’s still light outside. Things seem a little too bright, a little overwhelming, a little disconcerting. Yet no matter how thrown off you feel, the guiding principle is: It’s your room. For the next, oh, 30 seconds to a minute, you’re in charge. Even if it’s their room, you’re in charge. Even if your earnings are a 10th of the salary of that guy you’re about to shake hands with, you’re in charge. You’re not the only one determining the mood of the room, but you have to take responsibility for it.

Consider a lesson from the forest. “Pretend everyone’s a bear in the woods,” says Robbie Pickard, a Santa Monica, Calif.-based comedian who spends his career entering rooms full of people he needs to impress. “If you look scared, the bear is going to attack you.” Which we always thought involved yelling and waving your arms and stomping the earth and throwing a Coleman lantern. But what he’s saying is, offer no apologies or expressions of trepidation or false humility. Protect yourself with confidence. Confidence makes you look comfortable.

It should seem like there’s no other place in the world you’d rather be.

1. WHEN people introduce themselves, say their names back to them or take a mental note. But try to keep their names in your head. Saying a person’s name back to them 20 or 30 minutes after you’ve met them suggests graciousness and respect, and it will endear you to them.

2. DO NOT give out business cards before the meeting begins. Because it makes you look like a blackjack dealer.

3. LOOK everyone in the eye for, like, a millisecond longer than is comfortable.

4. Don’t carry yourself in a way that could be described as “jaunty.”

5. IF there are fewer than six other people in the room, shake everyone’s hand. If there are six or more, shake approximately five hands, and then nod amiably to the rest. The shaking of hands can get out of hand.

6. At no time say, “Let’s do this!”

7. NO fist bumps.

8. DON’T talk about anything that isn’t pleasant, such as how much traffic you were just in or how hot it is or how you have a cold.

At this moment, more than any other moment in the meeting, you’re your own agent. You’re saying, “I’d like you to meet myself.” (Note: Do not under any circumstances actually say, “I’d like you to meet myself.”)

Bill Clinton is a useful example. The man knows how to enter a room. He might not know how to leave, but he knows how to enter. Two out of the two former press secretaries we called for help with this column (we figured they might know something about the subject of entering meetings, since they’ve seen people enter the most important rooms in the world) mentioned Clinton as the best room-enterer they’ve ever seen. Which is pretty easy to do when you’re the president of the United States, but still, there are lessons in his approach.

“When Bill Clinton entered a room, he owned the room from the second he walked in,” says Dee Dee Myers, Clinton’s first press secretary and now a managing director at The Glover Park Group, a D.C. communications firm. “Because he was curious, he wanted to talk to people and would totally engage them. And pretty soon all the energy in the room was running in one direction.”

Marlin Fitzwater, press secretary for Ronald Reagan and George H.W. Bush, says, “Bill Clinton was probably the best I’ve ever seen. He walked in and demanded the attention of everyone. The lessons of Clinton are: Don’t be aimless, don’t be casual, don’t be flippant. Let your audience know they’re important and that you’re there because you have a message to give them.”

So, it’s an act, yes. But it’s not entirely an act. The act is supported by an important psychological underpinning: actual curiosity. “You have to be curious,” says Thomas Huseby, managing partner at Seattle VC firm SeaPoint Ventures. “Most entrepreneurs are thinking about what they want to teach or what they want to convey, and everybody would much rather talk to someone who is curious. It’s amazing what that attitude does.”

That’s how to enter a room. With curiosity. But not necessarily about the business at hand. Meetings at Esquire often start off with questions about the view from our conference room on the 21st floor of the Hearst Corporation tower in Midtown Manhattan. If the person we’re meeting with asks anything at all about the city, we take them over to the window and give them a quick tour: the Empire State Building, the exact location in the Hudson where Captain Sully landed the plane, that statue of Ronald McDonald that somehow ended up on the roof of a four-floor walk-up on Eighth Avenue, how New Jersey looks vaguely bucolic if you squint. It’s a rich, interesting conversation.

Who wouldn’t want to be in a room with you now? You’re amiable and confident and pleased with the way things are going. You’re ready to talk and to listen. You haven’t given them any reason why they couldn’t see themselves giving you a lot of money or offering you a contract or partnering with you in some way. You’re someone they could see themselves doing business with, is what we’re trying to say.

All that, and you haven’t even sat down yet.

Article source: Entrepreneur.com

 

When Donald Rumsfeld was Secretary of Defense, he coined some phrases about knowledge that apply far beyond military matters.

Secretary Rumsfeld pointed out that there are some things that we know that we know. He called those “known knowns.” We may, for example, know how many aircraft carriers some other country has. We may also know that they have troops and tanks, without knowing how many. In Rumsfeld’s phrase, that would be an “unknown known” — a gap in our knowledge that we at least know exists.

Finally, there are things we don’t even know exist, much less anything about them. These are “unknown unknowns” — and they are the most dangerous. We had no clue, for example, when dawn broke on September 11, 2001, that somebody was going to fly two commercial airliners into the World Trade Center that day.

There are similar kinds of gaps in our knowledge in the economy. Unfortunately, our own government creates uncertainties that can paralyze the economy, especially when these uncertainties take the form of “unknown unknowns.”

The short-run quick fixes that seem so attractive to so many politicians, and to many in the media, create many unknowns that make investors reluctant to invest and employers reluctant to employ. Politicians may only look as far ahead as the next election, but investors have to look ahead for as many years as it will take for their investments to start bringing in some money.

The net result is that both our financial institutions and our businesses have had record amounts of cash sitting idle while millions of people can’t find jobs. Ordinarily these institutions make money by investing money and hiring workers. Why not now?

Because numerous and unpredictable government interventions create many unknowns, including “unknown unknowns.”

The quick fix that got both Democrats and Republicans off the hook with a temporary bipartisan tax compromise, several months ago, leaves investors uncertain as to what the tax rate will be when any money they invest today starts bringing in a return in another two or three or ten years.

It is known that there will be taxes but nobody knows what the tax rate will be then.

Some investors can send their investment money to foreign countries, where the tax rate is already known, is often lower than the tax rate in the United States and — perhaps even more important — is not some temporary, quick-fix compromise that is going to expire before their investments start earning a return.

Although more foreign investments were coming into the United States, a few years ago, than there were American investments going to foreign countries, today it is just the reverse. American investors are sending more of their money out of the country than foreign investors are sending here.

Since 2009, according to the Wall Street Journal, “the U.S. has lost more than $200 billion in investment capital.” They add: “That is the equivalent of about two million jobs that don’t exist on these shores and are now located in places like China, Germany and India.”

President Obama’s rhetoric deplores such “outsourcing,” but his administration’s policies make outsourcing an ever more attractive alternative to investing in the United States and creating American jobs.

Blithely piling onto American businesses both known costs like more taxes and unknowable costs — such as the massive ObamaCare mandates that are still evolving — provides more incentives for investors to send their money elsewhere to escape the hassles.

Hardly a month goes by without this administration coming up with a new anti-business policy — whether directed against Boeing, banks or other private enterprises. Neither investors nor employers can know when the next one is coming or what it will be. These are unknown unknowns.

Such anti-business policies would just be business’ problem, except that it is businesses that create jobs.

The biggest losers from creating an adverse business climate may not be businesses themselves — especially not big businesses, which can readily invest more of their money overseas. The biggest losers are likely to be working people in America, who cannot just relocate to Europe or Asia to take the jobs created there by American multinational corporations.

To find out more about Thomas Sowell and read features by other Creators Syndicate columnists and cartoonists, visit the Creators Syndicate Web page at www.creators.com. Thomas Sowell is a senior fellow at the Hoover Institution, Stanford University, Stanford, CA 94305. His website is www.tsowell.com.

COPYRIGHT 2011 CREATORS.COM

Article source: Creators.com

 

If The Godfather taught us anything about business, it was this: It’s personal. So when the news is bad–and for risk-chasing entrepreneurs, at some point it will be–a good communication strategy will save you the drama of becoming the enemy.

Take it from Dr. Robert Buckman, a medical oncologist and professor at the University of Toronto who’s been breaking bad news professionally for decades. “Do it poorly,” he says, “and people will never forgive you. Do it well, and they’ll never forget you.”

Buckman developed a protocol called SPIKES to teach physicians, along with businesspeople from the likes of IBM, Pepsi and PricewaterhouseCoopers, a better way to communicate bad news. Study up so no one gets (too) hurt.

Setting: Have the exchange in person. Sit less than four feet away, keep your eyes on the same level and show interest by leaning forward. If it has to be done by phone or video, acknowledge that the medium is lame. Avoid text or e-mail unless you’re trying to be a bosshole.

Perception: Find out what people already know or suspect; it’ll ease them into the situation. If you’re about to lay someone off, you might ask, “How do you think things are going?”

Invitation: Prepare them for what’s coming. Say you’d like to talk about the situation so they know you’re about to talk about “something big.”

Knowledge: Your delivery should be straightforward and chronological. (“The economy is bad and the budget is down, so we have to cut staff.”) Never use jargon.

Empathy: Acknowledge the person’s emotions appropriately. Be attentive and supportive, but don’t say “I know how you feel,” because you don’t. Buckman suggests something more along the lines of: “This is a terrible shock to you” or even “This feels awful to both of us.”

Summary: Don’t end the conversation until you’ve addressed their emotions and talked about the next steps.

Article source: Entrepreneur.com

 

The current world is one where information abounds.  The flow of information moves so fast and increases so quickly that many have led themselves to believe that this extreme amount of information means that we have greater mastery over chance and uncertainty.  However, the financial collapse of 2008 demonstrated quite aptly that there is a prolific difference between “Know What” and “Know How” when it comes to situations of volatility or uncertainty.

For those who have not been living in a cave for the last few years, volatility and uncertainty are an inextricable part of life that cannot be controlled with mathematic algorithms.  This is where ‘know what’ has become woefully inept.  By attempting to force reality into mathematical models, the purveyors of self-proclaimed intelligence place the entire world at the mercy of their algorithms.  The pseudo-intellectual class has attempted to make itself “master of the universe” by publishing highly detailed forecasts built on nothing more than subjective assumptions that have been rolled into a quantitative model.  The problem compounds even more when people demand that public policy be based on the output of these models.

This phenomenon results in a form of “Scientism” that emerges from a combination of mathematical techniques that are used as a justification for pushing subjective views or beliefs.  The method for holding up these forecasts that border on religion are to use the ‘credentials’ of people who form the predictions as a method of insulating them from criticism.  The implicit belief of “Know What” or “Scientism” religion is that only the elite possess the necessary intelligence for creating forecasts.

In contrast to this view, we have an emphasis on “Know How” or the viewpoint that nobody possesses the necessary knowledge to accurately predict the future.  In this worldview, future trends represent the emergence of many people making independent decisions, and success is less about knowing what will happen and more about knowing how to make astute decisions.

The net effect of recent focus on “Know What” and econometric forecasts has been a de-facto regression toward medieval religion where the edicts of leaders are to be obeyed without any thought or question.  In the current environment, just like the middle ages this phenomenon creates a tremendous opening for graft and corruption by those who construct the edicts that are handed down to the ‘little people’ who are expected to obey.

The challenge that most people face in the face of this conflict between “Know What” and “Know How” is that the promises of comfortable retirement made by the “Know What” apostles are quickly becoming revealed as vacuous and empty.  The pension funds, trust accounts, and other means that politicians have used to purchase votes with public funds are not sufficiently capitalized to support the promises made to future retirees.

Ultimately, the only financial security available to regular people is to “Know What” is necessary for building a portfolio that is completely owned by them and free from the prying fingers of politicians, union bosses, and corporate executives.  This stands contrary to the “Know What” religion, since it involves a departure from dependence on the pseudo-intellectual elite for people’s wellbeing.  The unfortunate reality is that political power comes from influence, and dependence on the government places a tremendous amount of influence in the hands of those who run the government.

When going throughout your life, resist the temptations from hucksters and shysters who claim to have a ‘secret’ to financial success that they will reveal only if you purchase their $6,000 system.  These people are simply peddling false hope to people who are desperate for a way to improve their financial situation.  Similarly, resist temptations to believe people who try to tell you that a particular pension fund will completely take care of your retirement needs, and that no other investment is necessary.  These people are also playing on a desire to believe in financial security.  In both cases, false hope is being sold to exercise influence over large groups of people.

Actively seek knowledge about the principles of success that will help you “Know How” to achieve your goals.  Much of this information is available for a very low cost through your library, the internet, or other methods of distribution.  The rub is that very few people will actively market the principles of success.  Most people marketing information are trying to sell a ‘system’ that is based on some form of ill-conceived prediction model.  In the end, your best alternative for creating a strong financial future is to build it yourself by practicing the principles of success.

 

By now you have already heard of paid advertising, or pay-per-click (PPC). It’s a way to advertise on the search engines and drive traffic to a specific landing page on your website with the click. What you may not know, is that PPC is substantially different that organic ranking in the search engines. Paid listings typically show up on the top or side-bar of the search results page when a specific string of text is input (shown below).

Organic rankings are a direct result of your on-page SEO efforts, link-building strategies and other SEM methods. Pay-per-click on the other hand, is a direct result of bidding for specific keywords.

I have often found myself wondering why some people would pay for a keyword that they already rank organically for. Simply stated, I don’t have the answer, but I would imagine it has something to do with complete domination of a keyword and aligning a brand with the keyword. Some people may have more trust in your brand if you rank high for their search query and at the same time, you have a paid-listing. I do agree that it enhances the chance of a click-through.

There are three key players in the pay-per-click industry, you may already know of them for obvious reasons, but you need to know why they are what they are.

Google:

The Google Adwords tool dominates keywords. When setting up a PPC account, nearly everything is keyword driven minus the fact that you are able to geo-target based on IP address. This certainly helps if the intention is local search.

Bing/Yahoo:

Yes, I said Bing and Yahoo. Their PPC tools, AdCenter, are combined to give you one location to position your ads for both search engines. Bing and Yahoo are keyword and demographic driven. I will put a disclaimer on the “demographic” piece of that statement. It’s only demographic driven if the searcher is signed into Live or Yahoo, which takes into account their personal information to make assumptions of age, location, etc. It would be silly to neglect Bing/Yahoo as they account for 34% of all searches.

Facebook:

Facebook is demographic targeting on crack. An advertiser is able to take into account nearly everything in one’s profile, even their ‘likes.’ This is a tremendous opportunity for those that know exactly who is in their target market. I have heard some no-so-good things about Facebook that I thought I would mention, and that’s the fact that it may be hard to set a daily maximum, so it’s forced advertisers to monitor closely. Another issue is not toggling ads frequently, but this is not a Facebook thing, it’s an advertiser issue, but one they need to take into consideration as the same ad may show up too often for one person.

You should know that I have never actively had any live ads for any of these tools, although I have signed up for all of these tools and have gone through the process of setting up an ad to the very end. The reason I mention this is because PPC is worthless unless you have a great landing page to send your prospects to. If your website isn’t ready for the world, work on that before you waste your resources on PPC. Which is why I have held off on any of my previous websites, personal and work-related.

 

One of the more difficult things that each of us will encounter in our lives is the juxtaposition of what we know against what we think we know.  The reason why this creates difficulty is because our own perception of our own knowledge (i.e. what we think we know) frequently exceeds what we really know by a significant margin.  Furthermore, this phenomenon seems to expand as our knowledge base increases.  This produces the unfortunate effect of creating an intellectual elite that over-estimates the depth and scope of their own knowledge by many orders of magnitude.

This present an extreme amount of danger when decisions for large amounts of resources are controlled by a small number of people through the government, or through a financial institution.  The reason for this is because when people over estimate their knowledge of the market, they under estimate the chances of failure and frequently over expose themselves, their investors, and the taxpayers to catastrophic losses.

While it is pleasing to the vanity of those in power to make claims about how intelligent people should be in charge of everything, it may be better if people were in charge of themselves.  The reason for this is because I can only destroy my own resources if I over estimate my knowledge.  When a small regime in the government is in charge of vast resources, there is a tremendous risk of unfathomable, catastrophic failure if their estimates are incorrect.

Recently, this effect has compounded upon itself many times over.  The unfortunate set of events precipitating this consolidation of power was triggered by the massive financial sector bailout engineered in lieu of allowing the banks to go into liquidation.  This action created two destructive outcomes . . . the first is that it rewarded the irresponsible risk taking of the banks that were bailed out and the second was that it prevented the banks assets from being liquidated to responsible companies that did not engage in high risk lending practices and massively leveraged derivatives.

Furthermore, the financial sector bailout served as a precedent for an automotive sector bailout that still resulted in bankruptcy for two of the ‘big three’ US auto manufacturers.  In the end, the government is now a principal player in the automotive industry and either approves or purchases the overwhelming majority of all home mortgages.  With this amount of power and control, there is tremendous risk of economic damage by even a slight mistake in estimating the cost or effect of a program or decision.

In the end, each of us should be aware of what we ‘really’ know, and seek to maintain perspective when estimating the extent of our abilities.  When we are making decisions and constructing strategies, it is always wise to ask what happens if I am wrong?  By understanding the extent and limits of our knowledge, it will help each of us to minimize the impact if our decisions are wrong and maximize the benefit if our decisions are right.

 

Many “overweight smokers” know what they need to do in order to become healthy, but do not do it.  Most people that are smokers don’t suffer from a lack of knowledge that smoking is bad for them.  Most people that are overweight already know that there are health risks associated with being overweight.  In both of these cases, a lack of knowledge is not the issue.  Similarly, beating overweight smokers over the head with ‘information’ about the health risks of their lifestyle isn’t very likely to make them change.

It is the same with most people and their finances.  Why do we avoid making what we know is the right decision?  This apparent paradox is further complicated by the fact that the majority of financial literature is focused on trying to intellectually determine the right financial decision.  The unique twist that this revelation uncovers is the surprisingly small share of financial literature that is devoted to helping people actually do what we already know is the right decision.

Thus, the critical element is not necessarily information.  We already have more information than we can use.  What we need is more discipline to actually do the things that we already know to be the right decision.  We need the discipline to delay the purchase of that plasma TV so that we can fund our 401k.  We need the discipline to keep our old car for a few more years instead of taking on a new string of ‘low payments.’  We need the discipline to save for a vacation, instead of using a credit card because I feel like I ‘deserve’ a vacation.

So where does discipline come from?  Ultimately, it must always come from you.  In the end, we all must answer to ourselves.  However, there must be something that we can do to help build the self discipline necessary to be successful financially.  It is my belief that the best way to learn about building discipline is to study the different ways that people build discipline and stay accountable to their goals.

The example that jumps off the page most poignantly is Alcoholics Anonymous.  The hallmark of their success is that they keep each other accountable for meeting their goals.  There is literally strength in numbers when we are trying to build the discipline to change our lives.  Most of us can live with letting ourselves down, but are much more sensitive about letting everybody else know that we have failed to reach our goals.  Thus, the best way to build that financial discipline is to find other people that are also working on the same goal and hold each other accountable.

I believe the basis for this phenomenon is rooted in the fact that many of us are not afraid to let ourselves down because we have low self respect.  In the beginning, it is more shameful for us to let down other people until we have built-up our self respect to the point where we hold ourselves to a higher standard than anybody else holds us to.  Thus, the seeds of discipline are sown.