We’ve all heard stories about the workaholic corporate-type with no personal life, or the driven entrepreneur with a singular focus on business. But in reality, there’s a lot we can learn from the business world – ideas, practices, and philosophies that can be applied to lead an easier, more fulfilling, and more productive life.
I have a few favorites that I’ve raided from my entrepreneurial war chest and implemented successfully in my day-to-day routine. Follow along as we transform boring corporate jargon into Zen-like awesomeness.
1. Sunk Costs and the Irrational Escalation of Commitment
In business, you learn about the concept of sunk costs. I’m amazed at how few people outside of the business world are aware of this idea, let alone apply it to their personal lives. A sunk cost is a cost that has already been spent and is unrecoverable. When planning for the future and deciding the fate of a project, you must look only at the additional costs required to complete it.
People tend to make decisions based on what they’ve already spent (time/money/effort), instead of deciding if it still makes sense to continue moving forward (“I’ve already paid the deposit for the wedding reception, I can’t back out now” comes to mind). The phrase “irrational escalation of commitment” describes this phenomenon.
- Reading. “I’ve already read this far, I may as well finish the blog post.” Wait…keep reading. Seriously.
- Relationships. “I’m miserable, but I have 3 years invested in this – I can’t leave.”
- Cars. “I can’t buy a new car now, I just paid $1,000 to have it fixed. I’ll just pay to fix this one again.”
- Career. “I hate my job, but I’ve spent 5 years here. If I spend another 5, I’ll make manager.”
I recently booked a weekend trip through a travel agency. A few days before I was scheduled to leave, a good friend/chef extraordinaire invited me to a very special dinner event that I really didn’t want to miss. I had already paid for the trip in advance, so the money I spent on the trip was a sunk cost – regardless of whether I went on the trip or went to the dinner party, the money was gone.
Ignoring that sunk cost, I was able to look only at the two options: go on the trip or go to the dinner party. That made the decision to go to the dinner party much easier. As a bonus, I was able to get a partial refund on the trip. Score!
2. Core Competencies and Outsourcing
If you work for a corporation or went to business school, these two words probably make you want to throw up. They’re endlessly drilled into your head.
Each company needs to identify and focus on its core competencies. For Apple, that’s creating consumer electronics that people love. Apple is not an expert in manufacturing – in fact, Apple doesn’t make a thing. They outsource most of their manufacturing to a company called Foxconn. Outsourcing allows them to spend more time focusing on their strengths.
I believe that you should outsource everything possible that you don’t love to do – then, you’re left with a schedule full of things that you love doing. What better way to live?
I absolutely hate dealing with medical bills. Whenever I go to the ER, which seems to happen at least once a year, I end up with a mountain of absurdly confusing medical bills. They make them confusing for a reason – so people like me (without a core competency in screwing over patients) get confused and pay bills that they shouldn’t be paying.
I fight fire with fire and arm myself with an expert. For $16.50 an hour, I hired a medical billing specialist on Elance.com (a website for freelancers). She wrapped up a years worth of bills in a matter of hours, and the money I’ll save with her appeals will pay for her wages and then some. Plus, sticking it to the insurance companies is insanely satisfying.
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3. First In, First Out (FIFO)
This refers to an accounting principle for allocating inventory costs (exciting stuff, I know). Let’s look at the example of my kettlebell company.
Say I have 10 units in stock, and I receive another 10 from my factory. If I get an order for one kettlebell, do I ship out one of the 10 that I had in stock, or one of the 10 that I just received? If you operate with the FIFO principle, you’ll ship out the oldest inventory first (i.e. the first inventory shipment to come in is the first shipment to go out). Grocery stores use FIFO – if you ran a grocery store with LIFO (newest inventory goes out first), you’d have a mountain of spoiled milk and rotten eggs. This is why the freshest milk is placed at the back of the grocery shelf – they’re trying to push out old inventory.
In your life, you may be tempted to work on the latest tasks to come up – the newest email in your inbox, for example. This leaves you with a backlog of old, unfinished work that lingers in procrastination purgatory. Go back into the figurative warehouse, dig out the old, ugly inventory tasks, and ship them out the door. You’ll feel better having a clean, fresh, uncluttered mind.
4. The 80/20 Principle and Firing People
Successful companies routinely perform 80/20 analyses on all aspects of their business – which 20% of our customers account for 80% of our revenue? Which 20% of our customers are responsible for 80% of our headaches? Once these questions are answered, they seek out more customers like the former, and cut loose the latter.
Use this lens to evaluate your life. Which 20% of your activities deliver 80% of your satisfaction? Which 20% of your friends give you 80% of your problems?
The benefit of being the boss is that I can fire people. Well, if I had any employees, I could (everything I do is outsourced or automated, so I’m a company of one). But I can fire contractors, I can fire suppliers, and I can fire customers at my own discretion. Guess what – you’re the boss of your own life and have absolute control over with who or what you associate yourself.
Fire at will.
5. Be Lean.
In business, there’s lean manufacturing, lean enterprise, lean production, lean leadership – it’s all collectively referred to as “Lean.” This is a school of thought that encourages businesses to eliminate any production practice that does not add value to the end customer. Examples of Lean can be found in almost any field – Toyota used Lean principles to transform from a small nobody to the world’s largest automaker. In medicine, it’s called the “minimum effective dose” – the least amount of a medication required to have the desired effect.
Peter Drucker famously said, “[t]here is nothing so useless as doing efficiently that which should not be done at all,” and that quote has stuck with me. It’s belief in this principle that separates the smart worker (you) from hard worker (everyone else).
Here’s how you can be Lean:
a. Define the “end customer” of your life. This will usually be yourself and your loved ones. Make a list.
b. Eliminate unnecessary processes. That means you should cut out any activity that doesn’t add value to the end customer – these are tasks that you’ve undertaken out of guilt or habit, but you don’t really enjoy doing at all.
c. Reduce production time. For any activity that does add value, reduce the amount of time it takes to complete that activity. We all need to make money, but that doesn’t mean you have to work eight hours a day. In order to reduce my time spent earning money, I started and automated two companies – now I work a few hours a week and make more money than I did before.
d. Decrease inventory. You can interpret this how you like – but I look at it as eliminating excess baggage that doesn’t add to your happiness. That includes people who don’t add to your life, lingering anger or resentment that you haven’t dealt with, or even clothes that you don’t wear anymore.
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Do you have any other business concepts that you’ve applied to improve your life? Tell me about them below!