The Passion Economy – Adam Davidson
In the Passion Economy, Adam Davidson (the co-founder of NPR’s Planet Money) shares eight ground rules for everyone who wants to thrive in the twenty-first-century economy. Armed with these new rules, you can learn to identify opportunities hidden in plain sight while getting to do the things you enjoy in business and life.
The book examines the rise of freelancing, the gig economy, and the impact of technology on the way we work. It provides practical advice on how to develop and monetize passions in order to thrive in the new economy. It explores the importance of creativity and collaboration, and offers strategies for success in a world of ever-changing digital disruption
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The twentieth-century economy of ‘scale’ has given way to the twenty-first-century economy of ‘passion’.
Rule #2: Only create value that can’t be easily copied.
As a small company or individual, you don’t need to create value at scale. This is something only huge companies can do while staying profitable. Your value should be created slowly and thoughtfully for a relatively small and strongly opinionated customer base. And the moment you find your offering takes off and becomes widely copied, you should consider abandoning it and looking for the next hit.
The more stuff you make or the more clients you take on, the harder it is to maintain excellence in your profitable niche. Leave scale for the mass market. In the passion economy, quality trumps quantity.
Rule #3: The price you charge should match the value you provide
In a traditional way, you find your costs by calculating the amount of raw materials, plus the time and labor it takes for production. Add some margin for profit, and you get your final price. In the new way, you set a price first and then work backwards to find the costs.
Think of making a luxury car. It makes a lot more sense if you find out how much people will pay for your luxury before you begin choosing materials to go into your vehicle. In other words, you set the price point and then reverse engineer the vehicle in line with those costs that can justify the price.
Set the price
The passion price is whatever you and your customer agree is right. If your pricing doesn’t feel fair to you, you won’t be able to do your best job, and you’ll be letting your customer down.
A salary is a price. If you have a job in a company, you’re charging a price— it’s called your salary. All the pricing rules apply here, too. If you come into a job with a set salary, you’re defining yourself as a commodity, equal in value to everyone else who might qualify for that job.
Charge a lot and then earn it. This sounds counterintuitive, but it’s often the easiest way to double your income without losing much business. Double your charges and then live up to the new expectations by acquiring more skills, more education, or a better mix of your offerings.
Rule #4 Fewer passionate customers are better than a lot of indifferent ones.
At least once a year, go through your customer base and find about 10 percent of your clients who you feel are no longer appropriate for your firm. You can then point to a better firm that will better serve them.
There is no one solution for firing customers because it depends on your financial condition and other variables. A good rule of thumb is not to fire so fast that you end up bankrupt, but don’t move so slow that you get stuck spending your time serving people who don’t understand or don’t pay for your full value.
Rule #5 Your passion is your story. And it better be a true one
You can lie once to get a big deal, but you can’t continue building on that lie… unless you can maintain that lie with every new interaction with every new customer. If your business is built around lies, you can’t expect it to be sustainable and stable. Lying is bad for you and your business.
You can and must tell your story, especially if you’re bad at story-telling. More often than not, people who are shy and generally lousy at storytelling can sound far more authentic and convincing than slick and polished ones.
Rule #6 Technology should always support your business, not drive it.
Unless you happen to be a unicorn with billions of dollars and a game-changing innovation lying around, you shouldn’t bother going big. There is safety in smallness. Go big on a small niche in a way that no big company will think about competing with you.
This is not to say you shouldn’t pay attention to cutting-edge technology or innovation. Tech is changing quickly and impacting far more industrives than we can imagine.
A passion-based business person needs to pay attention to the tools available to the industry and at the same time aware that a product or service that was safe from competition yesterday may not be so safe tomorrow.
Rule #7 Know what business you are in… it’s probably not what you think
We’re going through a massive transformation created by globalization and automation. It’s now more important than ever to focus on the core value you add and not the package it comes in.
Take travel companies for example. It’s tempting to think that the value of these companies is in flight booking, hotel arrangements and car rentals. But the primary value is not in the services they provide. It’s in their knowledge.
They intimately know the particulars of a certain area and can steer customers toward all the best options, usually in the range of price points. They invest in their clients’ experiences in a way giant travel websites and booking sites cannot.
Rule #8 Never be in the commodity business. Even if you sell what other people consider a commodity
There’s hardly a line between commodity and passion. When Apple first introduced the iPod, people quickly dismissed it as an overpriced and commoditized MP3 player.
Likewise, Starbucks thrived because it was able to take its commodity (coffee) and sell it with a value-added experience (ambiance and customer service) that no other coffee chain could back then.
Commodification is like gravity, always pulling at everyone, always trying to get each product, service or worker to fall to a common level.
Commodities: Then and now
Workers in a twentieth-century business were largely commodities. They had a particular job with a title and a job description that whoever happened to hold that position could easily be replaced by someone else.
Today, it’s far easier to identify how each worker is contributing to the company’s bottom line. If you work long hours without adding extra value to the job you’re performing, you’re on your way to becoming a commodity.
Every once in a while, it’s important to stop what you’re doing and ask yourself “How can I set my business or products or even myself apart from the commodity version?”
The Bottom Line
For most of the twentieth century, the safest and most lucrative strategy was to be as much like others as possible. In the twenty-first century, the best strategy is to be yourself and to highlight your areas of difference from everyone else. That’s where the money is.
Very few entrepreneurs can make money from sameness – by offering the same product over and over again. Whether you’re an accountant or an entrepreneur, there’s a good chance that someone else or a robot can provide an approximate version of your product for far less.