How - Dov Seidman [84]
Kottke is no economist, but it was immediately apparent to him “that Ralph trusts his customers, and that they both appreciate and return that sense of trust (I know I do).” He also noticed something that often eludes us. “When an environment of trust is created,” he writes, “good things start happening. Ralph can serve twice as many customers. People get their coffee in half the time. Due to this time-saving, people become regulars. Regulars provide Ralph’s business with stability, a good reputation, and with customers who have an interest in making correct change (to keep the line moving and keep Ralph in business). Lots of customers who make correct change increase Ralph’s profit margin. Etc. Etc.”
Kottke observed, in a firsthand anecdotal way, a quantification of trust in action. Because Ralph trusts his customers to make honest change, he is able to serve far more of them than his competitors serve. In economic terms, Ralph reduced his transaction costs by substituting trust for the labor of making change. A cost-benefit analysis would probably reveal that what he loses in dishonesty or error he more than makes up for in gross sales volume. Additionally, although increased volume results in less of the person-to-person service time that you would suspect is necessary to build customer loyalty, Ralph’s customer loyalty seems anecdotally to have increased. The introduction of trust had an unintended consequence for his business: It made customers more likely to get their daily doughnut fix from him rather than his competitor down the block.
Trust is a funny thing, one of those soft things that we often rush by. What’s not so funny is how often it lies at the center of our challenges and opportunities. “Trust is like the air we breathe,” Warren Buffett said. “When it’s present, nobody really notices. But when it’s absent, everybody notices.”2 That is because trust allows us to function in times of uncertainty. When the Certainty Gap—that space between the unpredictable nature of the world and our ideal vision of stability—grows, we look for something to fill it. That something is trust. Trust calms the fears that uncertainty breeds. In times of high uncertainty, therefore, we pay more attention to the source of trust: human conduct—HOW we do what we do. Trust becomes, more vitally than ever, the currency of human exchange.
Business has long known about the benefits of trust, but absent any real metrics or data found itself at a loss to be able to do anything about it. Similarly, we as individuals innately seek trusting environments and trusting relationships in order to enrich our lives, although we often don’t give much conscious thought to how to create them.
THE SOFT MADE HARD
We have two ways of calculating the value of trust: subjectively (how it makes us feel) and objectively (in dollars and cents). Subjectively, almost all of us would rather live and work in a world where the Certainty Gap is filled with trust, predictability is high, and we feel safe and secure. So we accept prima facie that trust plays an important role in the way we live our lives. Trust makes us feel safe. It allows us to function and thrive in an uncertain world. To fully understand the value of trust in business, however, we must begin to quantify it objectively, to move it from the realm of feelings to the realm of observable benefit. Trust, for instance, allows us to rely on each other, to divide up labor and form teams knowing that each will do his or her part, and to share confidences with others. Without trust, how could you send a confidential strategy e-mail to a partner and know that it will remain confidential? Business, for its part, has long suspected that trust could, in fact, be objectively quantified, but it is only recently that researchers have done so. Their findings reveal a startling truth: Trust, to use an old cliché, makes dollars and sense.
In a groundbreaking