When Larry Page and Sergey Brin were students at Stanford they developed technology that was designed to search Stanford University’s Web pages, which immediately became popular among the students and faculty. This was 1996, and everyone thought that Yahoo! was the dominant search engine, and there could never be another one. Larry and Sergey did not think their technological innovation was the basis for the company they wanted to start, so they put it on the market—at a price of approximately $1 million.
Fortunately for the rest of us, there were no takers. Had they found a buyer, Google probably never would have been born. It is an excellent example of how overpricing can have salutary effects.
Unfortunately, most professionals under price their intellectual capital. They justify this with a variety of excuses:
We do not have enough quality customers.
Customers view what we do as a commodity.
Customers do not understand the value we provide.
Our people do not understand their worth.
When customers engage in hardball negotiation tactics, we capitulate.
Our profession has too much capacity, which drives prices down.
Most of these are nothing but excuses to explain away a lack of purpose, strategy, marketing effectiveness, and poor customer selection. But I believe there is a deeper reason, which I truly did not understand until I began teaching value pricing to my colleagues.
Many participants of my courses have commented that they would “feel guilty” about charging a substantial multiple of their hourly rate. The epiphany for me was that this was not a strategic, or even a pricing competency issue, but rather a low self-esteem issue.
Low self-esteem (or self-respect) does go right to the heart of why professionals question the value of the service they provide. Do you truly believe the benchmark of your value is the hours you spend? What about the years of experience that stand behind that $1 million marketing idea that took 15-minutes to create? Is the value really one-quarter your hourly rate?
You Are Your First Sale
The lesson is vital, and it is this: Before you can charge a premium price, you first have to believe, internally, that you are worth it. If you do not think you are worth multiples of your hourly rate, your customers never will believe it either.
Have you ever dealt with a professional, such as a doctor or a consultant, who came highly recommended? When you learned of the price, did you try to negotiate it downward?
Most highly recommended professionals will not budge on their pricing, because they know they deserve it and are worth it. They are secure and confident in their worth, and they price above the market as a result. Obviously, not everyone can do this. But the ones who do all possess a common characteristic: high self-esteem.
Psychologist Nathaniel Branden has done extensive work on self-esteem. His treatise on the subject is The Six Pillars of Self-Esteem, wherein he defines it as:
Confidence in our ability to think, confidence in our ability to cope with the basic challenges of life; and
Confidence in our right to be successful and happy, the feeling of being worthy, deserving, entitled to assert our needs and wants, achieve our values, and enjoy the fruits of our efforts.
In his book Self-Esteem at Work, Branden discusses the critical role self-esteem has in the success of enterprise:
A simple example is the fact that analyses of business failure tell us that a common cause is executives’ fear of making decisions. What is fear of making decisions but lack of confidence in one’s mind and judgment? In other words, a problem of self-esteem."
Branden says “Self-esteem is the reputation we acquire with ourselves.” That is profound. Professionals are deeply concerned, and rightfully so, with their reputations: They care what their customers think of them, of their firm, of their integrity. But what about their reputation with themselves? Most professionals were never taught even to ask the question. According to Branden:
If low self-esteem correlates with resistance to change and clinging to the known and familiar then never in the history of the world has low self-esteem been as economically disadvantageous as it is today. If high self-esteem correlates with comfort in managing change and in letting go of yesterday’s attachments, then high self-esteem confers a competitive edge."
There is no Standard Price for Intellectual Capital
In today’s world, intellectual capital is the chief source of all wealth. Shelly Lazarus, former chairman and CEO, Ogilvy & Mather Worldwide, explained what advertising agencies are really selling:
Advertising is an idea business: That’s all we are. And ideas don’t come from the air, they come from human beings.”
According to the New York Times, Merv Griffin (and his estate) has made between to $70-80 million in royalties from the “Jeopardy!” theme song, which he wrote in less than one minute.
In 1935, Edgar Kaufman, the German-American businessman and philanthropist who owned Kaufmann’s department store, asked Frank Lloyd Wright to design a small summer home for him near Mill Run (75 miles southeast of Pittsburgh).
Wright surveyed the site but procrastinated on the design. When Kaufman telephoned him one day saying he was nearby and would like to stop by to see the design, Wright replied, “Come on Edgar, we’re ready.”
Two of Wright’s draftsmen who heard the call could not believe it, since no one had drawn a single line. Draftsmen Edgar Tafel explains what happened next in his book about Wright:
Wright hung up the phone, walked to the drafting room and started to draw, talking in a calm voice. ‘They will have tea on the balcony…they’ll cross the bridge to walk into the woods,’ Wright said. Pencils were used up as fast as we could sharpen them. He erased, overdrew, modified, flipping sheets back and forth. Then he titled it across the bottom: Fallingwater.
Two hours later, when Kaufmann arrived, Wright greeted him and showed him the front elevation. ‘We’ve been waiting for you,’ Wright said.
They went to lunch, and we drew up the other two elevations. When they came back, Wright showed Kaufmann the added elevations.
This is why intellectual capital, expertise, wisdom, judgment, ability to synthesize information, along with all the other characteristics of knowledge work, cannot be denominated in hours, efforts and costs to produce.
Napoleon Hill wrote in Think and Grow Rich:
There is no standard price on ideas. The creator of ideas makes his own price, and, if he is smart, gets it.
Do not feel guilty or ashamed of your success, and do not let low self-esteem interfere with being paid what your worth.
Other references:
Paul Potts Video
Emotional Intelligence by Daniel Goleman
Working with Emotional Intelligence by Daniel Goleman
Simon Sinek - Start with Why
