Marginal Thinking and Long term effects on your business.

What is Marginal Thinking ?

The choices which bring the most progress toward the chosen objectives (for individuals , families, and businesses) are marginal decisions. Small decisions which will take you towards your goals. A lot of entreprenuers I know work that way - one step at a time.

The wisdom of thinking marginally - of breaking down the big choices into lots of little choices - is not new. Some 200 years ago Benjamin Franklin told us that we should take care of our pennies – that if we did, our dollars would take care of themselves. You can see that the whole idea of “marginal thinking” is just good common sense, anyway. Still, it’s a very important concept. Every day small businesses fail and people do foolish things just because they don’t know how (or don’t bother) to “think marginally.”

Flip side of the coin

That is very good advice from one of the Founding Fathers of the United States. What he didn’t realize is how many entreprenuers took this advice to the extreme and have accumulated debt which in many cases should have been dealt with upfront.

Quoting from Clayton Christensen’s article on Harvard Business School’s website.

The marginal cost of doing something “just this once” always seems to be negligible, but the full cost will typically be much higher. Yet unconsciously, we will naturally employ the marginal-cost doctrine in our personal lives. A voice in our head says, “Look, I know that as a general rule, most people shouldn’t do this. But in this particular extenuating circumstance, just this once, it’s okay.” And the voice in our head seems to be right; the price of doing something wrong “just this once” usually appears alluringly low. It suckers you in, and you don’t see where that path is ultimately headed or the full cost that the choice entails.

There are 3 things to ensure that Marginal thinking does not accumulate to large scale debt which hurts your business (or for that matter your personal life) :

1.Keep track of these “just this once” decisions

Use a Google spreadsheet or Evernote or your personal notebook for decisions you make which you consider to be a “just this once” type decision. Assign the area which it has affected. For example - not responding to a customer complaint on time because you thought somebody else would pick it up. The area that affects is “Customers”. A font which is not correct on a page on your website affects “Marketing”.

2.See if there are repeated occurences of these decisions

Once you have the areas where these “just this once” decisions are made, you can see which areas these decisions affect the most. You can look at the impact this area has on your business by looking at how it affects revenues or how it affects customer’s perception of your services or products. I use a simple formulae which looks like this.

Impact ($) * Occurences * Likelihood of reoccuring

The Impact ($) could be substituted for Impact (Negative Perception) depending on the type of decision which was made.

3.Assess and make changes

Assess the damage caused if there was any. Typically you work on cleaning up areas which has impact to your revenue or customers. See if you or your team can fix it. In some cases you might need a crew from the outside. Use a go forward approach and communicate the reason why these marginal decisions do not help the business long term and support the process or business unit owners to make changes which reduces overall debt. Quoting Clayton again -“Decide what you stand for. And then stand for it all the time.”

Published: July 11 2015

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