In the Passion Economy, Adam Davidson (the co-founder of NPR’s Planet Money) shares eight ground rules for everyone who wants to thrive in the twenty-first-century economy. Armed with these new rules, you can learn to identify opportunities hidden in plain sight while getting to do the things you enjoy in business and life.
The twentieth-century economy of ‘scale’ has given way to the twenty-first-century economy of ‘passion’.
Rule #1 Pursue intimacy at scale.
The advice ‘follow your passion’ is only half good until you match your passion to the people who most need it. If you put your passions and abilities together with the right kind of customers, you’ll be amazed by how easy it can be to carve out a profitable niche in this economy.
Once you have matched your passion with the people, it’s important to look out for customers who are trying desperately to adjust your offering to fit their needs. On the other hand, you also don’t want to spend all your time looking for the ‘perfect’ customer while it would have been better to listen to near matches and adjust your offering.
Rule #2 Only create value that can’t be easily copied.
As a small company or individual, you don’t need to create value at scale. This is something only huge companies can do while staying profitable. Your value should be created slowly and thoughtfully for a relatively small and strongly opinionated customer base. And the moment you find your offering takes off and becomes widely copied, you should consider abandoning it and looking for the next hit.
The more stuff you make or the more clients you take on, the harder it is to maintain excellence for your profitable niche. Leave scale for the mass market. In the passion economy, quality trumps quantity.
Rule #3 The price you charge should match the value you provide.
In a traditional way, you find your costs by calculating the amount of raw materials, plus the time and labor it takes for production. Add some margin for profits and you get your final price. In the new way, you set a price first and then work backwards to find the costs.
Think of making a luxury car. It makes a lot more sense if you find out how much people would pay for your luxury before you begin choosing materials to go into your vehicle. In other words, you set the price point and then you reverse engineer the vehicle in line with those costs that can justify the price.
It’s also important not to charge the market prices. Market prices are based on commodities that are no better and no worse than what everyone else is selling. Your price should come from frequent discussions with your client, not from the market as a whole.
The passion price is whatever you and your customer agree is right. If your pricing doesn’t feel fair to you, you won’t be able to do your best job and you’ll be letting your customer down.
A salary is a price. If you have a job in a company, you’re charging a price – it’s called your salary. All the pricing rules apply here, too. If you come into a job with a set salary, you’re defining yourself as a commodity, equal in value to everyone else who might qualify for that job.
Charge a lot and then earn it. This sounds counterintuitive but it’s often the easiest way to double your income without losing much business. Double your charges and then live up to the new expectations by acquiring more skills, more education or a better mix of your offerings.
Rule #4 Fewer passionate customers are better than a lot of indifferent ones.
At least once a year, go through your customer base and find about 10 percent of your clients who you feel are no longer appropriate for your firm. You can then point to a better firm that will better serve them.
There is no one size fits all for firing customers because it depends on your financial condition and other variables. A good rule of thumb is not to fire so fast that you end up bankrupt, but don’t move so slow that you get stuck spending your time serving people who don’t understand or don’t pay for your full value.
Rule #5 Your passion is your story. And it better be a true one.
You can lie once to get a big deal, but you can’t continue building on that lie… unless you can maintain that lie with every new interaction with every new customer. If your business is built around lies, you can’t expect it to be sustainable and stable. Lying is bad for you and your business.
You can and must tell your story, especially if you’re bad at story-telling. More often than not, people who are shy and generally lousy at storytelling can sound far more authentic and convincing than slick and polished ones.
Adam recalls hiring a lawyer who told him that he would not charge by the hour but would, instead, charge a fixed fee for the work they’re going to do together. The lawyer then added charging by the hour contradicted his core values of serving his clients. It would create an incentive to spend more time even if it’s unnecessary. He preferred not to think about time at all but the focus on providing Adam with the greatest service.
Rule #6 Technology should always support your business, not drive it.
Unless you happen to be a unicorn with billions of dollars and a game-changing innovation lying around, you shouldn’t bother going big. There is safety in smallness. Go big on a small niche in a way that no big company will think about competing with you.
This is not to say you shouldn’t pay attention to cutting-edge technology or innovation. Tech is changing quickly and impacting far more industrives than we can imagine. A passion-based business person needs to pay attention to the tools available to the industry and at the same time aware that a product or service that was safe from competition yesterday may not be so safe tomorrow.
Rule #7 Know what business you are in… it’s probably not what you think.
We’re going through a massive transformation created by globalization and automation. It’s now more important than ever to focus on the core value you add and not the package it comes in.
Take travel companies for example. It’s tempting to think that the value of these companies is in flight booking, hotel arrangements and car rentals. But the primary value is not in the services they provide. It’s in their knowledge. They intimately know the particulars of a certain area and can steer customers toward all the best options, usually in the range of price points. They invest in their clients’ experiences in a way giant travel websites and booking sites cannot.
Change your value capture constantly, but change your value creation slowly. In just a decade, we went from physically purchasing things in stores to checking out online with credit cards and a range of payment options from Venmo to PayPal to Bitcoin. Value capture is just a tool, and you should use whichever tool is quickest and easiest. Value creation, on the other hand, is the core of your business. Treasure it. Tend it. Change it only quite slowly and purposefully.
Rule #8 Never be in the commodity business. Even if you sell what other people consider a commodity.
There’s hardly a line between commodity and passion. When Apple first introduced the iPod, people quickly dismissed it as an overpriced and commoditized MP3 player. Likewise, Starbucks thrived because it was able to take its commodity (coffee) and sell it with a value-added experience (ambiance and customer service) that no other coffee chain could back then.
Commodification is like gravity, always pulling at everyone, always trying to get each product, service or worker to fall to a common level.
Workers in a twentieth-century business were largely commodities. They had a particular job with a title and a job description that whoever happened to hold that position could easily be replaced by someone else. Today, it’s far easier to identify how each worker is contributing to the company’s bottom line. If you work long hours without adding extra value to the job you’re performing, you’re on your way to becoming a commodity. Every once in a while, it’s important to stop what you’re doing and ask yourself “How can I set my business or products or even myself apart from the commodity version?”
Key Takeaway of the Passion Economy
For most of the twentieth century, the safest and most lucrative strategy was to be as much like others as possible. In the twenty-first century, the best strategy is to be yourself and to highlight your areas of difference from everyone else. That’s where the money is.
Very few entrepreneurs can make money from sameness – by offering the same product over and over again. Whether you’re an accountant or an entrepreneur, there’s a good chance that someone else or a robot can provide an approximate version of your product for far less.