Why It’s Important to Invest in Waste

Written by on December 1, 2009 in Entrepreneurship, Featured, Strategy - 9 Comments

Time is Money

You’re at the grocery store with a good friend when she realizes she forget her billfold. She asks you if she can borrow $50 and pay you back tomorrow. How do you respond?

Do you ask for her social security number so you can pull her credit rating? Do you require that she post collateral before you’ll extend her credit? Perhaps you agree to lend her the money, but only if she agrees to pay interest to compensate you for your risk.

Unless you’re a sociopath, you do none of those things. You just give her the money and assume she’s good for it!

Building Trust By Wasting Time

But why? Maybe it seems absurd to ask the question, but think about it. Chances are both of you have invested a huge amount in the relationship.  Not so much in terms of money, but in terms of time spent getting to know one another. So, if your friend disappears without paying you, you may be out $50, but you’ve both just lost all the time you’ve invested in the friendship. And that’s time that 1) can’t be recouped and 2) will have to be invested again in order to befriend someone else. In other words, she’s got a lot at stake, too, and so she’ll most likely honor her commitment.

According to Bergstrom, Kerr, and Lachmann in their chapter seven of the book “Moral Markets,” much of the time we spend investing in relationships indeed represents, from a purely economic standpoint, time wasted. It offers little benefit except to make cheating and betrayal expensive; in other words, to build a foundation for trust. That trust, in turn, lowers future “transaction costs.”  It makes it safe for you to lend that $50 to your friend without interest or guarantees.

Waste and Trust in Markets

This idea is particularly meaningful when it comes to interactions in the world of organizations and business. As consumers, we like to purchase products from companies who have “wasted” lots of money in advertising and branding, as such expenditures signal to us that they intend to stick around and that they value their reputation.  We like companies who waste money to invest in conveying trustworthiness.

Likewise, as managers and entrepreneurs, we often engage in “wasteful” interactions in order to ensure the commitment, good intentions, and trustworthiness of our business partners. Contract negotiations are a great example of “waste” well-spent, since contracts are never air-tight but the process of negotiating them requires that both parties first be serious about the relationship. In addition, these negotiations almost always bring to light previously unstated expectations, intentions, and constraints, ultimately making the success of the partnership more likely.

So what’s the lesson here?  There are two, I think:

1. Don’t be afraid of waste that builds trust. Advertising and branding can often be seen as “waste” and overhead to social entrepreneurs, particularly those coming from the non-profit sector. They’d prefer to see money go to serving customers more affordably.  However, when companies like Samasource and Charity Water advertise during Glee episodes on Hulu (as I recently witnessed), they convey a certain professionalism and trustworthiness that is bound to boost people’s willingness to invest in them.

2. Be patient, even if it feels like you’re wasting time. In interactions with business partners, customers, or the communities you serve, don’t be in such a hurry to make things happen that you forget to waste time getting to know people. The trust you build by wasting time will create the foundation for more successful interactions long-term.

Mike Shoemaker

Mike is a graduate of St. Olaf College in Minnesota and a former Fulbright Scholar at the Universidad de los Andes in Bogota, Colombia. Mike currently manages strategic alliances for a global consulting firm, is a volunteer and advisor to The Ayllu Initiative, and blogs at Human Ventures.

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  • http://bit.ly/6BNaft Jessica Margolin

    Great job! Very approachable article! Yes, I am glad to hear others propagating this message: Social Capital (and other intangible assets) are about risk management. You can see a post I just put up on that at: http://bit.ly/6BNaft

    One thing, though – it's not truly “wasted” time, because actually bonds are formed through shared adversity and shared play, and not by standing near others talking about the weather. Oh wait – in Minnesota, the weather IS shared adversity! :)

  • http://twitter.com/soccapital Mike Shoemaker

    Thanks, Jessica! Now you know why all Minnesotans are so friendly, at least with each other!

    Your comment is spot on. I use the word “waste” more rhetorically than literally here. I absolutely agree that the bonds created by spending time together are hugely valuable – just hard to quantify.

    Also, loved your linked post. I just left a comment on your blog. Look out for a few more posts from me on this topic in the next couple of days. I would really appreciate your thoughts.

  • http://www.socialearth.org Erikeliason

    I think developing trust a an entrepreneur or company is critical to success. Here is an interesting presentation on creating a brand on trust:

    http://www.slideshare.net/coolstuff/the-brand-gap

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  • http://twitter.com/soccapital Mike Shoemaker

    Awesome slideshow. Thanks, Erik.

  • http://twitter.com/soccapital Mike Shoemaker

    Awesome slideshow. Thanks, Erik.

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