Hello friends, and welcome to this edition of The 20 Percent.
Last week I was reading The War on Normal People, a book by Andrew Yang about the effects of automation, artificial intelligence, and software on the jobs of working-class Americans.
A parallel theme of the book is the contrast brought to society by the market economy. Whereas those who command wealth (created or inherited) live in an environment of abundance, working-class people operate in a perpetual state of scarcity.
How Scarcity Influences Decision Making
Although I always took a connection between the scarcity mindset and mental performance for granted, I was shocked to read about the extent to which this is true. Quoting from the book (with bold are my annotations):
Scarcity has a profound impact on one’s worldview. Eldar Shafir, a Princeton psychologist, and Sendhil Mullainathan, a Harvard economist, conducted a series of studies on the effects of various forms of scarcity on the poor. They found that poor people and well-off people perform very similarly on tests of fluid intelligence, a generalized measurement that corresponds to IQ.
But if each group was forced to consider how to pay an unexpected car repair bill of $3,000 just before taking the test, the poor group would underperform by the equivalent of 13 IQ points, almost one full standard deviation.
Just having to think about how to pay a hypothetical expense was enough to derail their performance on a general IQ test and send them from “superior” to “average” or from “average” to “borderline deficient.”Andrew Yang, The War on Normal People: The Truth About America’s Disappearing Jobs and Why Universal Basic Income Is Our Future
This premise can be equally applied to business and marketing scenarios and is why famine periods are so dangerous. As an entrepreneur, feast and famine cycles don’t just force you to act reactively and off-balance. Being repeatedly exposed to a scarcity environment affects the quality of your judgment.
Marketing Under Conditions of Scarcity
Effective marketing requires consistency and smart decisions. This is challenging to keep doing when you are facing a scarcity environment. In such situations, our brain focuses our attention on the problem we have, making it difficult to think creatively and overcome obstacles.
From my personal experience, it usually goes like this:
Situation: “Oh my God, 🙀 I have money for another 30 days in the bank; I need to do something immediately to save my business”.
Perceived solution: “Let’s put everything we have left on Facebook Ads to bring new clients fast.”
Outcome: Burn rate is now 10x. People on Facebook won’t buy something they heard about for the first time.
This mode of thinking is a panic reflex similar to target fixation, an attentional phenomenon in which an individual becomes so focused on an observed object (be it a target or hazard) that they inadvertently increase their risk of colliding with the object.
I recently came across this video from Simon Sinek giving some examples of this phenomenon and how to overcome it. In a nutshell:
Observe the situation to form a clear picture without making any decisions.
Convert things into the affirmative and focus on what you want to do instead of thinking about the scarcity situation
My own addition: Make a minimum viable marketing plan (MVMP) that you can follow every week and stick to it. Your panic reflex will push you towards frantic action. Your MVMP will keep that at bay.
Applying this framework, the above example now looks like this:
Situation: “We don’t have much money left for next month. There’s space to cut some expenses. We have an extensive business network. Our social channels are robust. Our Google My Business has good reviews and generates some traffic. Our Blog is bringing some traffic as well.”
Perceived solution: “Let’s focus on reducing our burn rate and prioritize putting together a small offer for our blog readers. We should also reach out to 50 people from our business network this week. We keep up our minimum viable marketing on social media according to plan.”
Outcome: The business now builds further on its marketing strengths. There’s a concrete plan for fast results (reaching out to business network) and a plan B (reducing burn rate).
Marketing under conditions of scarcity is a big topic, and I’ve personally met entrepreneurs who were scarred by it. The Facebook Ads example from above is real. I hope that you find the above framework useful and bring clarity of thought in these situations.