A Sample of One
Hughism: Most people take a sample of one.
I once knew an older gentleman who had been fairly successful in real estate. He had bought apartment buildings over the years, leveraged them well, used the rents to pay down the mortgage and now had a large income stream every month that surpassed his needs by a considerable amount.
The excess he put in a safe in his office until he had enough for his next down payment. I am not kidding. He put it in his safe. At any given time, he might have had $25-30,000 in the safe. Earning NO interest whatsoever.
I recommended he put the excess cash in laddered CD’s so he could have the safety of the bank plus relative liquidity. He said no.
Why?
It seems his father had his life savings in bank CD’s and lost everything…in 1933. Thus, this guy had told himself that because of this experience, he was never going to trust a bank with his cash.
Never mind FDIC insurance, never mind the Great Depression. None of that mattered to him.
Based on a sample of exactly one.
While this is admittedly an extreme example, the same thing happens all the time.
A customer comes in your store and writes a check for $12; it bounces. The bank charges you $10 for the trouble and worst case, you never see this guy again. Thus, you put up a sign saying NO CHECKS and offend other customers and lose sales. Over $22.
A teenager comes into your shop and slips a candy bar in his knapsack; you see him as he runs away. Now you have instituted a NO knapsack policy, requiring customers to check their bags at the door. Over a candy bar.
I sell a lot on eBay. In any given year, some 40-70% of my income comes from eBay. I have performed thousands of transactions over the years. I have been stiffed by customers maybe 4 times, for a total loss of less than $50. All the fees of which I have been reimbursed by eBay when I filed non-payer bidder. So I am out zero cash, right?
This is why I laugh when I see warnings like this in an auction listing.
You MUST pay me within 5 days or I will leave you negative feedback. These prices are NOT negotiable, do not ask. I only take PayPal, so don’t ask for anything else. I ship every Tuesday and Thursday, so pay quick to get in the next shipment. If you don’t want to pay extra for the insurance then I am not responsible if your item gets lost in the mail. Thanks for looking and Good Luck Bidding!
When you read this, do you feel like the seller is hoping you have a great experience? I don’t. I think the seller is convinced I am a thief who is going to try to wheedle them down on price and then make a false insurance claim. Then they tell me “Good Luck Bidding!” More like, Good Luck Buying.
More than likely, this seller once had a check from a customer bounce, so they went to a NO CHECK policy. Then they heard that their friend Joe had heard about a fake money order someone on eBay got ripped off with, so now NO money orders either. Now they only take PayPal, leaving huge amounts of money on the table and scaring potential bidders off.
The sample of one. Most people make decisions based upon it.
It is why customers do not come back.
It is why bad decisions get made.
Can you think of any more examples where bad decisions are made based on radically insufficient data?
Category: Hughisms, eBay 14 comments »
August 11th, 2007 at 3:44 pm
Excellent post. It has been a while since I last visited, but then it looks like it has been a while since you last posted. I hope things are going well in your other endeavors.
Our natural human tendency is to use our own experience first, and often it is not a bad thing, but when we have little experience it is usually worse to rely on it. Gladwell discussed this in Blink. I really found it to be true.
August 11th, 2007 at 8:15 pm
Hi Hugh, Welcome back. I sell on eBay a lot as well, and I’ve never been stiffed. Once I never got a shippment sent, but paypal refunded my money eventually. I’ve got some great deals and made some money and most of the people are good guys. The point is, I’d rather live in a world of trust. And because that is my reality, it mostly is. a circle. I trust, most of the time it works.
August 13th, 2007 at 6:17 am
Roger- Yes, I took a few weeks off. I talked a bit more about it on my post “True blogger confessions”.
I had actually forgotten the Blink reference. Off to check my copy now.
Thanks.
August 13th, 2007 at 6:18 am
Michelle-
I agree wholeheartedly.
I think, in the long run, most people get the sort of customer they deserve.
August 13th, 2007 at 2:36 pm
News Presentation – Too Much Above the Fold – Information Overload
At the risk of being a sample of one – Hugh has a great observation about that on his blog: A Politically Incorrect Entrepreneur – I noticed something about news outlets that has started to make me wonder: How much…
August 13th, 2007 at 6:12 pm
Sadly, this is entirely too true…I guess it just goes to show that despite the brains we were all given, most of us behave irrationally from time to time. This is a good reminder that everything needs to be put into perspective!
August 18th, 2007 at 11:42 am
To play the devil’s advocate, although FDIC is a valid form of protection, it often takes months if not years to recover the money when a bank fails.
For someone where liquidity could mean the success or failure of a business, having cash on hand is not a bad idea. I can think of many more reasons why cash is superior such as making a cash offer over the weekend and completing a deal before anyone can even get to a bank.
As far as retail goes, if it is a smaller mom&pop store, the policy is there so they can say they don’t accept checks. However, if it is a long time customer, they will sometimes bend the rules. I’ve seen it so many times. Some will even give credit to frequent customer. (Pay me back next time).
August 19th, 2007 at 10:53 pm
Wow, great post. I can’t tell you how many people I know that have fallen into this. In fact, I think I have done this once or twice, but I tend to give people a second chance after a while. Still, this encapsulates the main reason businesses lose a lot of customers.
August 20th, 2007 at 6:42 pm
Wow, I’d do anything to have $30,000 in a safe, ready to go, except apparently get a property loan, leverage property and deal with pissy tenants. Oops, I think I’ve been reading too many of your posts.
August 20th, 2007 at 6:46 pm
Really great story. We’re going to post about it on the ole’ blog.
August 20th, 2007 at 7:19 pm
[...] wouldn’t do that to you folks! A Politically Incorrect Entrepreneur has a great post about a gentleman who refused to keep his money in the bank! At times he had up [...]
August 22nd, 2007 at 6:53 am
[...] I mentioned in my last post I made a large portion of my income from eBay I received several emails and phone calls wanting to know both how they could make money from home [...]
October 14th, 2007 at 8:47 am
I still don’t understand why so many people keep their money in their safe (under their mattress) for a rainy day. It is so easy now to even earn 6% with an ING Direct account or other large savings accounts.
October 17th, 2007 at 4:26 am
Sounds like this guy was making a bucket load though. $30,000 in the safe would be nothing for him. What would that make in ING? – peanuts… for him anyway
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Jerry