Every business has to balance things that its customers like with things that its customers don’t like.  Someone might buy my product in spite of its high price because of its superior quality.  Other people might buy something from Wal-Mart in spite of its lack of social prestige because of its low price.  Sometimes, these relationships are counterintuitive.  That $100 designer T-shirt?  People may buy it in spite of the fact that it is just a T-shirt because of its high price.  In these situations, managers can get confused as to which is which.

Last week, I went to Otto Enoteca Pizzeria down in Greenwich Village.  This is a busy place where the menu consists of three pages of wines and one page of food.  While one of my fellow diners consulted with the sommelier on our wine, I perused the food possibilities.  The food selections consisted of a variety of elaborate pizzas and pastas.  Although there were a few things on the menu that caught my eye, what I really had a hankering for was a basic pizza with sweet Italian sausage.  There was no such thing on the menu, so I asked if I could get a pizza margherita with some sausage added on.  Sadly, the answer was no.  The chef did not permit any substitutions.  After we ordered, my three fellow diners commented on how the place had a good vibe.  I allowed as to how that was the case, but then caused a bit of a stir when I added, “but I will probably never come here again because the chef thinks he is more important than the customers.”

The chef probably thinks that people come there because of his ability to mix ingredients into sublime pizzas, so he thinks that it is important that no one else gets to choose how to combine the ingredients.  In reality, his customers come in spite of his unnecessary restrictions because of any number of other things, not the least of which is that they don’t care as much as I do about being able to order exactly what they want.  If the chef were to relax this policy, he wouldn’t lose any of them, and he would gain all of the people like me.

As it turns out, I might go back to Otto in spite of the no substitutions policy because of the outstanding job our sommelier, Krista, did with our wine selection.  The more in spite ofs that you have, the more because ofs you need to have to compensate.  In this case, Otto has just enough because ofs to compensate for its in spite ofs.  Logically, you should eliminate unnecessary in spite ofs whenever possible so no compensation is necessary.  You should also ask yourself whether any of your because ofs might actually be in spite ofs.  The answer might surprise you.

Last week, I was able to attend a session with Seth Godin in New York.  While Seth had some prepared remarks, most of the time was spent reacting to real-life business situations that members of the audience brought up.  The audience consisted of about 50 people from as far away as Australia.  Anyone who reads Seth’s blog (you do read his blog, don’t you?) knows that he has an incredible ability to convey valuable insights in remarkably little prose.  If you think that you get a lot from two paragraphs of his writing, you can imagine what I got out of spending seven hours listening to him talk.  If you ever have the opportunity to see Seth speak, I highly recommend taking advantage of it.

One of my favorite observations that Seth made was that people have specific “worldviews.”  You can either try to change these worldviews or leverage them.  Needless to say, changing them is very difficult.  One example he brought up was advertising.  When he was in the business, he presumed that people wanted to buy advertising in order to create awareness, inspire trial usage, generate revenue, etc.  In other words, he thought people bought advertising because it worked.  What he found out was that people bought advertising for many reasons, many of which had little or nothing to do with whether it “worked.”.  As an example, how many Super Bowl commercials really make sense as an economic proposition?  Still. there are plenty of people making lots of money leveraging the worldviews of advertisers who feel they have to be part of the big game.

It seems to me that one of the challenges about worldviews is that our own so often get in the way.  We fall in love with what we are selling and how we are selling it.  If it doesn’t sell, it is because the customer doesn’t “get it.”  The best mousetrap won’t sell well if using it does not fit in with the worldviews of the customers.  Acknowledge this and don’t let your own worldview cloud your judgment.

Thanks Seth and the members of the audience for a remarkable day.

My friend Tom Corddry recommended Connected: The Surprising Power of Our Social Networks and How They Shape Our Lives.  Since Tom knows more about this stuff than anyone else I know, I expected great things, and I was not disappointed.  Note that this is a book about social networks, not social media.  While much of the information can be applied to on-line communities, the book is not about them in isolation.  If you are looking for something about Facebook, keep going.

This fascinating book provides a lot of insight into phenomena that are otherwise difficult to understand.  For instance, the authors demonstrate that the motivation to vote derives from social networks.  From a purely rational, economic perspective, it does not make any sense to vote.  Let’s say you would pay $1,000 to be the only person who chooses the winner in an election.  An economist would say that by voting you are buying a lottery ticket with a potential payoff to you of $1,000.  You “win” the lottery only if there is a tie between the candidates and your vote becomes the deciding vote.  Guess how often that happens?  Given situations like Florida 2000, you might think it happens from time to time.  Well,  it has never happened even once in any election, Federal, State or local, during the entire history of the United States.  This is a lottery that you have no chance of winning.  Economically, it is literally not worth the gas to drive to the polling place.  So why do people vote?  The authors suggest that citizens know something instinctively that economists do not.  They know that by voting, they will influence others to vote as well.  As a result, there does not have to be a tie in order to win the lottery.  Voting is, to some degree, contagious.  It turns out that this is the case with most things, whether it is the urge to yawn, one’s emotional state, disease, weight gain or loss, attitudes, information or an idea.

The authors call the likelihood that the act of one person will influence others “amplification.”  In the case of voting, a conservative voting might inspire a liberal friend to vote because the liberal friend might want to “balance” his conservative friend.  Not surprisingly though, amplification works best in networks of relatively similar people.  A single liberal voting will influence many more liberals to vote than conservatives.  The distance and rate at which things spread through a network are a function of the network’s structure — how “transitive” the network is.  In networks with high transitivity, most of the members know most of the other members.  In networks with low transitivity, most of the members only know a few of the other members, but all are still connected — just in a more linear way.  You might think that things travel farther and faster through networks with high transitivity, but the authors state that is not the case.  Highly transitive networks can have insular clusters where individual participants can’t influence individuals in other clusters of the network.  People who are more moderately transitive are more likely to act as bridges between clusters in a network.  In other words, transitivity needs to be just right.  When you have the right mix of amplification and transitivity, the results can be dramatic.  The authors talk of voting “cascades” where one voter influences hundreds and ultimately perhaps thousands of others to vote.  This is possible because you can be influenced by people in your network that you don’t even know.  You may have a friend A who in turn has a friend B whom you do not know.  Friend A is apathetic about voting, but friend B votes and, as a result, friend A feels that the act of voting is more important than before.  Friend A communicates this new attitude to you, and you run down to the polling place to vote because of the influence friend B exerted upon you.

The potential applications are many.  Consider this recent Bloomberg story on how the SEC is deploying novel techniques to identify insider trading:

[T]he SEC began using computer software about two years ago to sift hundreds of millions of electronic trading records, known as blue sheets, attached to the stock exchange reports about suspicious incidents, according to people familiar with the project. By looking for patterns in the library of data, they identified groups of traders who repeatedly made similar well-timed bets.

Once investigators find a cluster of correlated trades, they tap other sources of information to unravel how its members obtain and share tips, the people said. For example, if a group profits on trades before a series of corporate takeovers, the SEC may check so-called league tables listing which investment banks or law firms advised the deals. If one firm was involved in all of them, an employee there may be the source of the leak.

Can you find more customers the way the SEC is finding inside traders — using their social networks to detect them?  Even better, can you create a cascade of new customers voting for your product or service by finding more effective ways to influence them by understanding the structure of their social networks?

Seth Godin has a great post this morning called True believers (and the truth).  At some point in every young company’s life, it must make the transition from selling to early-adopter customers who “get it” to the much larger group of prospects who don’t.  This also applies to certain product launches by more established companies.  I have been working on a post or two about this theme, so Seth’s post resonated with me immediately.  More to come on this topic.