A few months ago, I wrote a post about how people tend to over-complicate things in all aspects of their lives. The main point I was trying to make in that post was that problem solving in your business/personal life is greatly complicated by the human tendency to make things more complicated than they really are.
The proverbial ‘mountain out of a molehill.‘
Alas, it is often said in budding or troubled relationships that “sex will just make things more complicated,” and there aren’t many times where this is not true. Yet, people do it (no pun intended) anyway and the web of complexities is spun. I find this to be true in many other aspects of life.
This doesn’t affect just a few people, it affects virtually every one every day. In fact, it often goes to the next level.
I routinely come across situations that are made with the malicious intent to deceive people through over-complicating what is essentially a simple situation or simple problem. You are wondering: why are you surprised by this? The fact is that I am not surprised by this myself (usually) but I am surprised how insidious and prevalent this problem is.
Through a brief reflection, I drummed up a few instances where over-complexity might be affecting you.
1. Wording in contracts/agreements, financial statements, warranties, etc.
Here’s a little experiment: go to Bank of America’s website and download their annual report. Read through it for a few minutes and let me know how far you get into the footnotes before you drift off into never-never land. This stuff is nearly impossible for the above average intelligence level person to read, let alone understand. You might wonder why anyone that wasn’t a financial analyst or regulator would want to read this stuff, but that would be missing the point. The point is, that the annual report is supposed to communicate business results and other relevant information to stakeholders (not just shareholders) to make decisions. Decisions are impeded when the information needed to make them is clouded in a secret code of accountant and legal speak.
Take a look at the last legal contract you signed. Maybe it was a lease for an apartment. Maybe it was a contract for work to be done to your home. Either way, I bet that if you compared the length and language to that of 20 years ago, you would be offended at the amount of trees killed and ink spilled in the modern creation. There aren’t many things that really require a lawyer, if you get right down to it. Our society has just created enormous complexities because a select few realize that by creating the complexity they can pull the wool over everyone else’s eyes for their own benefit.
Have you looked at your extended vehicle or iPod warranty lately? If you haven’t, let me save you some time: if anything goes wrong with it, it’s probably your fault and not covered in the warranty. In the rare, cataclysmic event that the thing that went wrong is really the fault of the manufacturer, it is your responsibility to prove it and if you do, you have to wait 8-12 weeks for your situation to be remedied.
You might discern that from reading the indefinite small print that we have all the product liability lawyers out there over the years for coming up with it to justify their billing.
2. Business Compliance with Government Regulators
Those of you that are business owners or managers will definitely know what I mean on this. I know that “we don’t have it as bad in America as other countries” when it comes to Big Brother looking over our shoulder, however, there is a difference between smart regulation (a registered oxymoron) and ribbons of red tape that do nothing but confuse and dillute value. The last time I tried to set up a payroll (before I started outsourcing virtually all administrative tasks for my business), it took me several hours to weed through all of the paperwork necessary to get it started. Once I got it started, it took several more hours each week to keep it up. Then, to top it all off, when I ended it (sold business), it took at least a dozen more hours to shut it off. I contined to get notices of delinquent taxes due from both federal and state regulatory bodies.
The million dollar question here is: why can’t the damn payroll form be ONE PAGE? Instead, it’s got to be maze of “check this box, then go here, check that box, go there, etc.” I don’t here anything being talked about in this enormous waste of taxpayer money (aka the Stimulus Bill) that will go toward making things easier and less complicated for business owners and managers to deal with the government.
If you’ve ever raised outside capital for a business (outside of family and friends), than you have likely come into contact with the securities law. While raising capital for my real estate business several months ago, I became ensnared in the vagaries of how the federal and state governments intertwine, overlap and promulgate the Securities Act of 1933 and the Uniform Securites Act.
Now, don’t get me wrong: I see and understand that we need measures in place to protect the average person from the Charles Ponzi’s and Bernie Madoff’s of the world. However, in the process of this the baby is often thrown out with the bath water. There is enough language in all of these laws to virtually scare anyone but a securities lawyer away from doing anything with securities. In case you didn’t notice, securities lawyers are some of the most expensive ones to hire. Billable rates of the 600+ per hour are routine. It is almost to the point where if you aren’t raising over $10,000,000 at once that it isn’t worth it to raise capital from non-family and friends. Is this really what we need in America to encourage entrepreneurship, creativity and innovation? That no small businesses should raise small amounts of capital from outsiders? What if there was a $500 per person limit? Or, increase the regulations in accordace with the amount of capital raised, etc?
I think that the over-complexities in this area create absolutely zero net economic benefit and, in fact, deduct from the creative capacities of American entrepreneurs. Once again, a few people over-complicate to pull the wool over the eyes of the layman so that they may extract dollars from the layman’s pocket.
3. Dealing with Incentives and Incentive Clauses
Have you ever hired a commission sales person? Have you ever tried to work with an employee or independent contractor who had ‘performance-based’ incentives? If so, this will hit close to home.
Many moons ago, I worked as a sales person at GNC (General Nutrition Center) while in college. It was the perfect job. I got to make money, get a discount on vitamin supplements and read weightlifting and nutrition magazines in between customers. On top of all of this, I was paid minimum wage plus commission. Commissions were paid a set dollar amount for certain products sold. At that time, GNC’s private label brands received higher commissions than the other brands and selling a ‘Gold Card’ (what was then a first Tuesday of the month 20% discount) was a high commission earner ($5 per card sold).
Now, let’s take a breath for a second and look at the incentive here. What would a young guy do that was hungry to make a few bucks? Sell the multi-vitamin that was $5 less to the customer or sell the product that was $5 more but has a $2 commission? You probably guessed right. Sell the GNC brand multi-vitamin I did - boatloads of them. I could have probably saved some of the customers more money, but that wouldn’t have made me any money. The customers, most of them, were none the wiser. They assumed that the suggestions I gave them were the ones that were best for them.
Ok, now, lets take a a look at a very famous and close-to-home example of a similar situation of incentives and the problems they can cause in your every day life: selling your home.
When most people sell their home, they hire a real estate agent. The agent lists the house on the MLS, tells a bunch of people about it, shows it to prospective buyers, and so on. Finally, they get an interested buyer. You are asking $200,000 for your house. The buyer offers $180,000. What to do?
Your first inclination as seller might be to make a counter-offer or to pass and wait for an offer closer to your asking price. But, your agent has other ideas. The agent encourages you to take the offer, they mention that a better one might not come along for a while. Here is what is going on in your agent’s mind:
Selling Price: $180,000
Commission (6%): $10,800
or…
Selling Price: $190,000
Commission (6%): $11,400
Unless the market is RED HOT, the agent is probably not going to want to jeopardize a sure-fire payday of $10,800 for a measly $600 gain. However, the difference to you (the seller) is a $9,400 ($10,000 higher selling price less 6% commission). This is the power of underestimating the complexities that come with incentives. The agent has a strong vested interest in selling at $180,000 - and urges you to do the same. Just like the GNC employee.
When you look at or encounter incentive-based situations in your everyday business or personal life, it would benefit you to slash through all the B.S. and look at the alignment of incentives. If you are running into a problem with an employee, take a look at their incentives. Most employees get paid to show up, do the job, and go home. The business owner gets frustrated when the employee doesn’t go the extra mile, stay late, make the additional customer call. The business owner further thinks that there may be some sort of moral problem or other issue. The business owner spends valuable time thinking about the causes of the employees acting ‘at the margin’ when they need look no further than the incentive.
How about the issue causing the current ‘credit market crunch?’ Is is really a problem of indefinite causes (housing for everyone from the Clinton presidency, bad mortgage brokers, bad underwriters, shady appraisers, shady title companies, crooks, politicians, cheap money, etc.)? I think it is simply a matter of what people were incentivized to do. They were incentivized, at every level, to do exactly what they did. There were no incentives for the behavior that would have led to an orderly market correction. The guys on one side made billions while the guys paid to prevent it made thousands. The Wall St. guy goes home at 10:00 at night. The Fed. regulator goes home at 5:00- do the math.
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As I descend from my soapbox. I feel a bit lighter of burden but strongly galvanized in a quest to seek simplicity when situations seem overly complex. It has worked for me many times to strip as much of the B.S. away as I can and focus on the bare bones of the issue. For example, when looking at a recent real estate deal, I found myself getting caught up in the probabilities of certain scenarios playing out; caught up with the variables in play and what would happen if A, B or C. Suddenly, I stopped for a moment, shut off my computer, pulled out some scratch paper and a pencil, remembered some second grade math, came up with my number for the deal and my sanity promptly returned. Like magic.
Give SIMPLE a shot.
