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Episode 19, the average age of an infantryman in Vietnam, nope, that's a myth, it was 22.


However, you can legally drink in Canada, you can smoke cigarettes in New Jersey and you can legally gamble in Alabama and Nebraska. Let's roll up to the craps table with the dog and a canary yellow blazer. Why? Because baby dog needs new shoes. What does any of this mean? I don't know. Go, go, go.


Welcome to the 19th episode of The Property Show and today's episode, we speak with Katherine Milkman, a behavioral scientist and professor of operations, information and decisions at the Wharton School at Penn. She joins us to discuss our crises, including the pandemic affect our behavior and how to use behavioral science to build productive habits. A quick note before we get into the business of the week. We've been speaking a lot and writing a lot about the future of higher ed.


And we receive half a dozen or a dozen emails each day from parents and kids about for college or lack thereof. So we've decided we're going to host a panel. The property is going live with a panelists town hall on the future of education in the U.S. You can submit your own questions for a chance to be answered. Live on air by the panel. Head to Chickamauga Town Hall for more information and to sign up again. That's protg town hall for our Live Stream, our panel on higher education.


OK, so the big news this Monday, July 27th, the House Judiciary Antitrust Subcommittee will hold a hearing with the CEOs of Amazon, Apple, Facebook and Google who will testify as part of the committee's ongoing investigation regarding competition in the digital marketplace.


So this really isn't how the government should be holding these types of hearings. They should be going one company at a time. Issues facing Apple are not antitrust. They're in fact regulation specifically. They should regulate the App Store or potentially as it relates to antitrust, they could split off their microchip unit, kind of a little business became a big business that people don't talk about as Apple now makes microchips, processors that are as good or better than the big guys.


And does that provide them with an unfair advantage? Could you split it up? That's sort of the only place I think you could go after antitrust, because Elegante antitrust is essentially decreasing their monopoly power, but also offering the opportunity for economic growth and increasing shareholder value. But mostly this is about regulating the App Store, which charges superior technologies, i.e. Spotify, a 30 percent tax because they own the rails. It's totally different, totally different than, say, Amazon that can be broken up into several different companies or uses dumping or predatory pricing versus a company like Facebook, which you can't accuse of predatory pricing because it's free but has done so much damage that may be a way to increase.


Competition would be to break them up into several units. And again, that is much different than the issues facing our surrounding Google. But instead they decided to all speak together because there's safety in numbers and there'll be some dynamics to play out. One of the winners here are really cook Bezos and send a picture because everyone is going to focus their eyes on the guy with too much sunblock, specifically Zuckerberg, the person who will get off the users here will be Jeff Bezos, because everyone questioning him is going to want to be featured positively in his new plaything, The Washington Post, and also invited to what will be the coolest parties in D.C., fairly low bar, fairly low bar.


It's very difficult to be that reductionist and talk about big tech. These four companies have different issues as it relates to antitrust. It's going to be more spectacle in a store, more bullshit they'll employ. Answer the question slowly beat the clock over a five minute period and then they will move on.


Discouraging and disappointing. And other news and other news to Chinese hackers are accused of stealing hundreds of millions of dollars of trade secrets from companies and targeting firms developing a vaccine for the coronavirus in a new U.S. indictment. This is from a business insider. So any economy that's growing greater than seven or eight percent a year is likely employing as a core competence theft. We did it in the 18th and 19th centuries where we literally kidnapped our citizens and took textile manufacturing technology and littered the Eastern Seaboard with factories largely based on the IP that we stole from Europe.


That's when we were growing. Our fastest in China has been employing theft as a core competence for the last several decades. And it is the gangster business strategy. Or simply put, if you're in the business, there is a learning here and that is just below outright theft is what in consulting we call benchmarking, and that is the true innovators. And Peter Goldar from Dartmouth has done great research around this. It's the innovator actually isn't the one that creates a lot of shareholder value.


Case in point, Facebook is remarkably non innovative. What they're great at is stealing other people's ideas. I snap has basically been their R&D lab and then they will copy those features or features of another app and then put it on. They're much more scalable platform. And there's a lesson here and that is the second mouse oftentimes gets the cheese and at the best companies. And this is true for small and medium sized companies as well. And this is the learning this.


The insight, look around, have your antennae out, really trying to understand the best practices out there and see if and what best practices you could benchmark, i.e. steal and improve or would fit your culture, your competencies, your assets, the real innovators, the ones that are ahead of the curve usually aren't the winner. Xerox PARC and object oriented computing didn't recognize the shareholder value was Steve Jobs, who basically saw the garage door was open and stole object oriented computing.


I would speculate that if you took all the covert spy versus spy stuff in the world and you added it up, it would be a fraction of the amount of people and resources that are devoted to corporate espionage on behalf of the Chinese government. And now they're going after trying to steal intellectual property as relates to the probably the most innovative or most important product release of two thousand and twenty. We hope we hope it's not a product release of two thousand twenty one, a new product release, and that is the novel coronavirus vaccine.


And whatever nation gets there first and distributes it will buttress their notion as an innovator, get political power. If China gets the vaccine and then decides to give it to Thailand or nations in Africa for free, they'll be the good guys will gain leverage and obviously huge economic advantage. So this is kind of the ultimate spy versus spy theft going on. And I think companies are waking up to that in the US.


What else is going on? I made a terrible prediction that Netflix stock would be up 10 percent post earnings last Thursday. And in fact, it did make a big move. I got that right. But it was to the downside. It was down six percent. I made a rookie mistake and thought that the decline or the inability to continue production would result in a massive decline in their expenses. And one of my colleagues at Stern reminded me that they capitalize US expenses.


So the cost of production that they incur, they amortized over the life of the piece of IP so it wouldn't make sense that they would have that kind of extreme drop in expenses they beat on the top line. And they actually would have been on the bottom line. But they took a charge related to the way they accounted for certain R&D credits in California. The other thing, the reason why I think the market reacted and took it down beyond the fact some people think the stock has just gotten out over its skis, is that Reed Hastings announced a kosko when you announced a co CEO.


That's sort of beginning to take your hand out of your pocket and look thoughtfully at the audience and begin to wave goodbye. When you're planning to be the CEO for the next ten years, you don't appoint a CEO. This is sort of an elegant way of beginning to leave, if you will. And I think the market did not like that. Reed Hastings is arguably one of the better, if not the best CEO in big tech. When you think about creativity, the ultimate pivot from going from DVDs mailed to the US post to streaming to his ability at a time broadband visionary story that gets access to cheap capital going after the long tail, I think the marketplace is in fact very, very upset about the prospect of him leaving.


Another news, ex Google CEO Eric Schmidt is talking about launching a university that would focus on artificial intelligence and cybersecurity. This is long overdue. This is something we've talked about for a long time. He and his association with Google have the credibility to do this. The primary ROIC on education isn't the education itself, it's certification. And if you had someone like Eric Schmidt put together a curriculum that certified individuals in these categories where they're desperate or there's huge need for additional human capital, you can begin to see how education is, in fact, disrupted.


One of the things I've been writing about and wrote about this in last week's numbers in emails and I got a huge amount of feedback, both positive and negative, was we attempted to look at who is most vulnerable across the university system in higher ed. In some, I think September is when the disruption that has been overdue shows up on the shores of universities, specifically universities that have the vulnerability or the comorbidities of high tuition, high percent of international students, because these folks may, in fact, decide not to show up low endowment, weak experience, and then fairly modest or anemic brand equity rank.


You take all these things together. And the bottom line is these organizations just aren't offering a good value. And when you see the kind of demand destruction I think we're going to see in the fall as people decide to take a gap year or keep their kid at home, it's just going to trickle down to these sort of No-Name universities to charge Mercedes's like prices for what is effectively a Yugo in terms of its offering. And we could see other people step into the void, step into the vacuum here, including Mr Schmidt and his offering.


But this could be the great disruption that's coming.


Also on a public health level. I wonder if when 11 million freshman show up or don't show up or a certain proportion of them or the twenty four million people that are in class and the four million people who teach them what happens when we turn many small towns into. The next Wu Hunter could return small college towns in the next on when their population swells by tens of thousands of who have proven to be super spreaders, and that as young people and all these protocols and these task forces that universities are spending a massive amount of time on failed to realize one thing, and that is on campus protocols are only as effective as off campus protocols.


And let's be clear, let's not conflate the discussion around reopening K through 12 through reopening universities K through 12 is an entirely different calculus because a nine year old at home, we're talking about developmental disability. We're talking about a huge economic strain on the household. A 19 year old at home is a nuisance. And I realize it's a tragedy that I don't get to go to football games. And it is the 19 year olds have been asked to do much worse throughout our history and.


Freshmen who are asked to stay at home for the fall semester and not show up or do all of their learning remotely. That is a meaningful disappointment, but it's not a profound tragedy.


And the risks we're going to introduce on campus, where we essentially start inviting young people to see go to a movie five times a week or 10 times a week. That's that just seems like we're inviting disaster. So the next few weeks are going to be very interesting. My prediction is that as soon as all of the deposits are not in, universities will begin one by one to start to announce that they are going all remote and we're already beginning to see it.


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We're back, here's our conversation with Katherine Milkman, a behavioral scientist and professor of operations, information and decisions at the Wharton School of the University of Pennsylvania. Professor Milkman. Where does this podcast find you?


This podcast finds me in my home in Philadelphia, sheltering in place, if you will.


Let's bust right into it. You're so let's break down how crises impact our behavior and decision making. You've done a lot of research regarding how individuals systematically deviate from making good choices and how our choices can be improved. What tell us about the moment we're in and how it impacts our behavior.


Let me start with just the problem of stress for decision making, which we have very helpful sort of general model that Danny Kahneman popularized of a system one in a system two where system one is like your gut instinct. Your immediate reaction tends to be fast, furious and often biased. And system two is you're sort of slower response. That's more thoughtful, deeper, careful. That's where you do long division. Essentially, it's a metaphor. It's not a perfect it's not exactly how your brain works, but it's a nice metaphor.


It's largely a helpful description. And what the problem is with stress is stress really takes up system to resources, meaning it saps our strength to weigh in rationally, our ability to think carefully and deeply, and it brings online the fight or flight system one gut intuition, which is where we make mistakes. So it's not great to be living under stress. It's just not great for our decision making.


And how is that manifested in terms of bad decisions, specifically during a pandemic?


I actually think a bigger societal issue than maybe the use of system one more than we typically would is actually related to some really interesting research that's been done by Ido Erev. He has studied differences in the way that we think about making decisions when we are given information about risk in the form of a description or from experience. And actually he's Israeli and he was influenced by the way he saw Israelis thinking about risks from terrorism. So getting on a bus every day during the intifada and not being terrified was interesting to him because he knew when people would have the small risk of some sort of attack described, they had panic.


But once you're living in a society where there's a small risk, but you're just going to work every day and not having most days, anything happen or anything go wrong, you kind of get used to it and you stop feeling so scared. And I think actually that research is incredibly important to keep in mind at this very moment, because what I think has happened in the US is that we first got a description. There's this terrible disease, this epidemic.


Oh, my God, things are going to be really bad. We were terrified. We stayed home. We followed instructions, but then some time passed. And if you're living, say, in the south or in the west, maybe no one, you know, actually was affected. And New York seemed an awfully long way away. And you saw that the people who are going about their regular lives, everything was sort of OK for them. And maybe you started taking fewer precautions and things continued to go OK for the most part.


And here we have this situation where people got pretty comfortable because they were experiencing low risk, but still real risk. And they get comfortable with risk when they're experiencing it. And they they keep rolling the the dice are and nothing goes wrong. So I actually think that's one of the most interesting things that the decision making literature has to say about what's happening right now.


I think the fact that we are experiencing this risk, but it's not enormous and we're getting acclimated to it is really dangerous.


Doing a lot of it have to do with because this enemy is one for hundredth the width of a human hair. It's hard for us to wrap our heads around visualizing the enemy and as as a result, it feels as if our responses fragmented, irrational. Not appropriate. It's almost as if the enemy has taken on a shape that inspires an irrational reaction. Any thoughts around the perception of threats?


It's a really interesting point. I mean, vividness is something that leads us to overweight risk. You know, right after September 11th, a lot of people stop flying. And actually there's been some interesting research showed everyone was afraid of flying. But it turns out even with one terrorist attack a decade or what would it pick your rate even many more than that? Actually, it's much safer to fly than to drive. But people switch to driving because they were terrified of this very vivid risk.


Oh, my God, what if my planes hijacked and actually fatalities from transport went up dramatically that year? So if you sort of people don't make the most rational cost benefit decisions about risk, we are very attuned to what's vivid. So I think your hypothesis is a really interesting one. It's certainly the case that there isn't like a vivid invading force. On the other hand, I mean, there's been some pretty vivid images coming from hospitals, refrigeration trucks.


It's pretty vivid to think about somebody whose life is being threatened by the fact that there's not enough medical care and someone has to make a decision. You know, who do I put on a ventilator? But it may be that it would have been we were more tied together if it were even more vivid.


Talk to talk to me about when you when you have a class in front of you, what are sort of two or three basic techniques for improving your decision process? How do you what are some behavioral modifications that most people could adopt that would improve their ability around making good choices?


So I'm going to Segway actually away from risk, which isn't what I study to what I am an expert on, which is how to achieve more in terms of hitting your goals. And I think there is a few tools that are really helpful there. So I want to talk about those. One is breaking big challenges into bite size pieces and sort of figuring out how can you make this much more attainable, like I know what I'm going to do today and this week, not I know what I hope to do over the next year.


One of my favorite days we just came out this year showed that if you ask someone, do you want to start saving for retirement or for emergencies, is a lot of people who should might not be jumping to do it. And part of the reason is that, gosh, that feels like big and daunting. And these researchers, how Hirschfeld Shlomo BNC ran a study with acorns, a small like investing app that you can work with. And what they found is if you said, hey, try saving five dollars a day, you can sign up to, say, five dollars a day.


That dramatically increase the savings rates for a population that they were studying compared to inviting people to save one hundred and fifty for the month. So it's exactly the same rate if you do the multiplication. But when I break it down and say five dollars a day, all of a sudden it's much more appealing. I've done some similar research with a volunteering company where we found that a company that relied on a volunteer labor force and they found that when instead of asking people to commit to, say, two hundred hours of volunteering a year, they asked people to do four hours a week.


That produced a huge increase. So it's the same psychology when we think about how to create our own best plans for achieving our goals, we want to break things down. What's the concrete bite sized step that you can take each day that really helps tremendously.


My mom used to say to me, how do you eat an elephant one bite at a time? Right. So I have a colleague who's one of the top scholars in the world of artificial intelligence machine learning, which is and everyone in the world wants to write a book. And he keeps calling me and saying, what about this name? What about this idea, boss? You got to just start writing it. Just write a chapter, for God's sakes.


And I find people become stuck. They feel like they've got to wait till the entire book is in their mind and it's perfect. And they can just expectorate it in over a week. And I'm like, no, it doesn't work that way. Just start to start going.


It's a great I love that you bring this up, because one of the other things that I would have said and that I've done a lot of research on is about how do you find the moment to start? So certainly you got to psych yourself up. And one of the ways you set yourself up is by making a bite size. But actually, I've done some research on something I call the fresh start effect, which shows that there are moments when we're more willing to start new things than others.


And we can capitalize on those moments both to encourage other people and to encourage ourselves to bite off new projects. And so what we've shown in our research is actually and this is work with Hengjun Di and Jason Reese, we've shown that there are lots of moments actually in our lives that feel like new beginnings. It's not just New Year's. That's sort of the famous one that we all talk about, but we can capitalize on other fresh start. Moments to give ourselves the motivation we need to start towards our goal, so Monday is actually a pretty good fresh start that helps people the beginning of spring, celebrating a birthday.


So there are all these different moments that feel like fresh starts. You know, you can even think about times when there's a transition in your life. We actually think about time, as you mentioned, not really completely linearly. We do these weird things with it. The way we remember time is as if our life were a novel and there are chapters. So the beginning of the college years and the, you know, the years I was in Boston or what have you and those chapter breaks in our lives, give us the sense that, well, in the last chapter, you know, last year that was the old me and I had all these Golia.


I wanted to start writing that book and I meant to quit smoking and I didn't get around you, but that was the old me. And you get the sense that you have a clean slate and a fresh start and that makes you feel more willing to OK, the old me didn't start writing the book, but the new me can do it. And so when we can capitalize on those fresh starts, it can help us achieve more.


Your research at the Behavior Change for Good initiative talks about why behavioral science will be needed for a vaccine to have a real impact. Can you expand on that?


Yeah, well, one thing I'm really worried about when I look forward is that we're planning well, not we, but our society is planning and working furiously to develop a vaccine to solve the problem. And everyone's saying everything will be great once we have this vaccine. And then people came along and said, well, we don't just need the vaccine, we need to scale it. So huge amounts of money are being invested in scaling technologies to make sure we can bring it to market and distribute it.


But no one is talking about the fact that people have to line up to take it. I think that's a major challenge. And actually, there was a poll done about a month ago that is just I was literally listening to the daily the New York Times podcast this morning, and I was like, thank you for covering. This is finally starting to get attention. But the poll said only 50 percent of Americans are absolutely certain they will get this vaccine.


The other 50 percent are between maybe and definitely not. And if we don't have seventy five to eighty five percent getting the vaccine, it actually won't solve the coronavirus problem because you need to actually establish herd immunity. So basically, it can't bounce from habitable host to habitable host before a vaccine is really solving the problem. Now, certainly it's better if 50 percent get it than zero, but it is not enough. And so we need to be thinking, how do we convince people who are skeptical to get a vaccine in there?


That's a behavioral science problems. They're just as we have these huge efforts underway around the world, collaborations to develop the vaccine, to scale it, we need collaborations to figure out how do we make it palatable to people. There's all sorts of problems ranging from, well, it just doesn't feel like that big of a threat to me personally. And so I'm not going to waste my time getting the vaccine to not trusting that the vaccine has been vetted properly and thinking it's unsafe.


We need to address all those challenges. And again, that really requires understanding the decision making process. And I think we should be doing massive studies to figure out how to fix this right now, just as massive studies are underway to figure out how to actually develop an efficacious vaccine.


Yeah, it's an interesting point that it seems like a decent chunk of humanity is focused on figuring out a vaccine. But you're right, if nobody wants to take it, I mean, you can just see it. You can just see what's going to happen. Right. It's going to make the politicization of masks look like right now relative to what's going to happen to the vaccine. Right.


And we need to be thinking those steps ahead.


And I'm worried that we aren't manipulating talking about the power of vaccines and how it linking it to citizenship, linking it to some sort of American mocho or something. We've got to it's got to be a status symbol.


It has to be. Everybody's doing it all the best behavioral science needs to be aimed at this. And I've been working with collaborators actually on some big projects that we hope will be helpful. It's a different problem and so it won't solve it completely. But we think a really important test bed is looking at flu shot uptake, which is also, by the way, hovers around. Forty five percent of the population in the US is getting a flu shot.


And again, it's an incredibly valuable vaccine. It's been around for a long time. So there aren't as many safety concerns, although certainly there's people who are just skeptical of all vaccines. But even so, there's a lot of similar psychology around flu where people think, oh, I'm young and healthy, I don't need it, or like I have so many other priorities in my life. Why is this the one that rises to the top? Like, am I really going to take the time?


Those are going to come up for covid-19 to believe it or not. I mean, they are we're seeing twenty somethings in the way. They're not wearing masks and out on the beaches and it's going to be similar psychology. And so if we can test messaging in flu season, which is coming up and try to really do a thorough job of understanding what are the best techniques for nudging flu take up? I think that would have big implications for what we can do when covid comes along, so I'm working on a major project there in the hopes that it can be informative.


I find comfort and data when I get scared, you know, similar to what you were saying about what are really the statistics around flying. And, you know, I was telling myself on the way to the airport that this is the most dangerous part of the trip because I'm a nervous I'm a nervous flyer.


But it's not the takeoff and landing. It's the drive to the airport. 100 percent. Yeah. Are there other when you when you talk to your students about are there other kind of tricks of the trade in terms of, you know, I've started doing this kind of Scott Harrison taught me to do this kind of gratitude practice where I write down things I'm grateful for every night.


And I find it actually does help me extend my time horizon in terms of evaluating decisions and, you know, little tricks.


I write angry emails all the time, but I don't send them right away. Yeah, yeah. And I usually end up sending them because I'm fundamentally an angry person and that's why I want to be.


But I occasionally go to wait and let system to weigh in and say fine. And I find a system to just doesn't show up most of the time or listen to disagrees with system one sometimes that they aren't always in conflict.


Yeah, sometimes, quite frankly, sometimes it's good to have an emotional reaction.


Yeah, there's a reason for them. Right. But are there other are there other things you tell your students, just kind of simple things to say, OK, this is how you tap into that system to. A big trick is this sort of planning in advance, trying to make pre commitments even, which means you're going to want to try to plan in advance thinking in advance about what's your objective function. That's like a nerd term for like what are the things you value and care about and what's the outcome you're looking to achieve and try to make those decisions, write them down, tell someone else about them so that you're accountable if you flip in the heat of the moment and you would feel awkward doing it.


And so that will help tie your hands so you won't make a bad choice.


Yeah, it's sort of I think about that. And again, that's sort of common trick or not trick, but best practice of when you say something and then write it down, it's just more likely to happen or you're more likely to stick to it. And I think of what Professor Jeffrey Miller said on a previous podcast from you. And the virtue signalling is cast in a negative light. But he thinks it's a positive because if you brag about certain behaviors or controlled boast about certain behaviors, which I do all the time, you're more inclined to be that person.


And that is if you're talking to your identity.


Yeah, that's right.


If you link your identity, if you all of a sudden start talking about, well, you know, I spend a lot of time donating my time at the food bank. And you're saying it's such that other people realize what a great, great guy or gal you are, but then you are actually more inclined to try and walk the walk and spend more time at the food bank that the you know, the virtue signalling plays an important role.


There's this wonderful research on cognitive dissonance from Leon Festinger, like back in the fifties, the nineteen fifties is showing that it's really uncomfortable to hold conflicting beliefs or to like act one way and think of yourself in another way. And so if you act one way, you're going to try to change your attitudes and your mindset to be consistent with that. So exactly. This is part of why making commitments is so powerful in advance, because if you if you make that commitment, it'll feel dissonant to not act consistently with the person you thought you intended to be.


We were just talking about vaccinations. I should make a little plug for the power of planning and cognitive dissonance there. I did a study roughly a decade ago where we showed this could actually really help with encouraging vaccination. We just let people know that they had a free flu shot clinic at their workplace. Coming up, we let them know the dates and the times that it was free and we randomly assigned some people to be given a simple prompt in a piece of mail to write down the date and time when they intended to get their flu shot.


They're not sending it back. It's not appointment. They're not telling anyone. They're just prompted to think through that plan. And we thought for the reasons we've just been talking through that in advance, I'm planning I'm going to want to do the right thing. If I write down a date and time, it becomes more concrete. I might think through the obstacles. I may put it on my calendar. Now, it's going to feel weird if I procrastinate and miss it because I actually thought about it.


And it's a real commitment. Not doing it feels dissonant with my plans. And we saw that that actually, as you would expect, zero cost substantially increase the rate at which people fall through and got vaccinated. So that was really exciting. I think there's a lot of power in these kinds of tools to improve decisions both for ourselves, but also we can nudge others towards better decisions by encouraging them to use these kinds of tools.


So talk a little bit about it. Strikes me that you have a very interesting and rewarding career. A lot of young people listen to the podcast. Can you can you talk a little bit about how you got into your field and any advice you might give to your call it your twenty five year old self?


One thing we haven't talked about is how important to goal achievement it is to be having fun. So it turns out for the same reason. Present bias, we down wait for future awards. We care so much about the present. We do better when we align what's fun with our goals, like much better. Vastly better. And people weirdly don't get that. They think like, oh, if I just, you know, just do it. Like Nike says, if I just grind through, I'll achieve more.


But if we take a different approach and try to wrap whatever it is we're trying to achieve and find better results. And Sue. And I think my advice to my twenty five year old self would be like the things that are really, really unfun if they have to be done, find a way to make them fun, but also lean into the things that you love. Yeah, you know, I'm not saying like everybody should quit their day job and become a musician.


That's not my advice, but rather like find what it is you love in your day job, something practical that you're most enjoying and do more of that. And you will be great at it because you will be motivated to pursue your goals day and night and you will have that drive. But within your career, what do you love most and how can you make that more central to what you're doing?


Katherine Milkman is a behavioral scientist and professor of operations, information and decisions at the Wharton School of the University of Pennsylvania. She's also president of the Society for Judgment and Decision making, host of the podcast Choice OLogy and Co-Director. The Behavior Change for Good initiative, she joins us from Philadelphia. Professor Milkman's Dosso, thank you. You too. And thanks for having me. We'll be right back. Small businesses have unique needs, and despite the current uncertainty, one thing that remains unchanged is the importance of having the right people on your team when your business is ready to make that next are linked.


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Welcome back. It's time for office hours, the part of the show or answer your questions about the business, world trends, career advice and more. If you'd like to submit a question, please email a voice recording to office hours at Section four. Question one. Hi, Scott.


This is Ryan from Chicago. I love listening to you on property and with Kara on Pivot. Your thoughts and commentary are always insightful and educational. And yes, I think you and Anderson Cooper would make a power couple. I hear you talk a lot about having access to cheap capital, but I'm not sure I understand what you mean. Can you explain this in greater detail? Also, I'd be curious to understand how you funded profit while in business school, that you find this with your own money.


But did you take out a loan and passionate about entrepreneurship? I would love to go out on my own, but the biggest barrier to entry seems to be raising capital. And those who have started companies say that the most frequent killer of startups is running out of money. Voices seem to be unwilling to invest in the company at the idea stage, but those who don't have a product, so with that door closed, the other options seem to be taking out a loan bootstrapping, reaching out to friends and family or crowdfunding.


But which of these seems best to you? Thanks and stay safe. Thanks for the question, Ryan. So a lot there around funding a startup. Revenues make a business, not expenses. Don't fall into the rookie mistake of believing that if you hire people, build infrastructure. And I continue to make this mistake over and over. Oh, I have a great idea. Let's go least ten thousand square feet and let's hire a much people. And I'll give us the illusion that we're actually getting shit done.


No revenues make a business, not expenses. And when I started profit, I was very fortunate. My partner had a job, so we had the rent paid and I could focus on a business even though I was making money. And profit was a consulting firm. Services companies shouldn't require funding.


You just need a client and then throw nickels around like their manhole covers. And then if the services company begins to scale and you can build in some IP or some sort of if you can productize it, then think about raising money at a tech company usually requires some sort of funding upfront. And if you have a track record and you can raise money, great. If you can. It's a friends and family around. I would not take a loan.


I just don't think you need that sort of stress in your life at a young age, especially if it's a loan against the business. Great. But usually can't get those friends and family, angel investors, they're investing in something they hope becomes the next Google. Very risky. Make sure they know the risks and spend their money wisely in terms of access to cheap capital. Your ability to tell a story, to tell or paint a great vision for the company, your ability to raise money, quite frankly, is become or has become the new core competence.


Jeff Bezos core competence is storytelling. You read his nineteen ninety seven investor newsletter. You see the deck and you just want to buy stock. So your ability to articulate a vision, be confident, be aggressive, bang on doors, talk to people. Raising money is never easy. It just goes from being hard to less hard and even environments where everyone looks back and says it was so easy to raise capital. I thought, well, it was never that easy.


I've raised and depending on how you account for it, somewhere between two hundred million and a billion dollars, whether it's for my own companies or raising money for different investment ideas. And I think your ability to articulate a vision and ask people for capital and then develop a track record is kind of unfortunate, one of the keys to success right now. So there's just no getting around it. But a services company, a startup, don't borrow money. Put yourself in a position where your burn is low.


That's why starting a business when you're young is so much easier because you don't have dogs and kids you have to support. Also, crowdfunding or equity crowdfunding are now viable options. That wasn't around when I was starting businesses. If you have the right product, there's also bootstrapping is the way to go. If you can do. It's very hard. Some companies that bootstrap Tough Mudder, GitHub, GoPro, Wayfair, even Airbnb bootstrap for a while. Small business loans, the total in two thousand and nineteen was twenty eight billion with more than sixty three thousand approve loans.


The reason why, quite frankly, I don't like these loans is I think you have to sign a personal guarantee. I'm more a fan of finding other grown ups who are willing to take the risk and if they lose their money, they lose their money and you get to start over. I just hate to see people under the age of 30 that not only have student debt, but have SBA debt. I just don't think you want that pressure on your shoulders coming out of your twenties because most businesses don't work.


And that's OK. You'll learn from it. I've had a lot of businesses fail. All you need is really just one to work. There is a lot more vehicles for opportunities for getting out there and talking about your business and raising money. But the same attributes apply in any small business, and that is revenues make a business, not expenses. Focus on getting the revenues as quickly as possible. Thanks for the question. Next question.


Scott Dalton from Memphis, Tennessee. Here's my question, something I've been thinking a lot about lately regarding the potential role that community colleges could have in our higher education system during a pandemic and beyond, with the move of some classes entirely online or into some type of hybrid model, I imagine we're going to see a diminished quality of education. I know you yourself touched on this point several times. So let's say I'm an incoming freshman or sophomore at a public university in my home state and the bulk of my courses are consisting of general core courses that are pretty easily transferable both into and out of my university.


Wouldn't it make more sense to just knock these classes out through my local community college, save myself a book, especially if they're transferable credits back to the public university? I was attending this, especially if I'm not getting the full college campus experience. This makes a ton of sense in my mind, but I'm curious what your thoughts are and if community colleges could leverage this and postcode world to, albeit if they themselves don't go under like you predict, many universities will.


Thanks a lot, Don.


This is such a great point. And you articulated this point better than I could have. And that is there's a big opportunity here to bring down costs substantially. And that is my roommate, my junior year at UCLA. I had spent 10 years at a junior college that I think cost him about two or three hundred dollars, of course, versus the four or five thousand dollars you have to pay for a course now, especially if you're an out-of-state student at UCLA or Berkeley, thereby bringing down the cost of his education dramatically.


In addition, it gives you a chance to marinate a bit. Most 18 year olds or a lot of 18 year olds, including myself, were not ready for the academic rigor of UCLA. So there's an opportunity here. I'm actually talking to the regents or several other regions of the University of California about creative solutions to bring costs down. And one of those solutions might be a U.S. campus or a few designated University of California campuses where they basically just offer the junior and senior year and use community colleges as a feeder.


And so it's a great idea. It's just a great idea. Now, there's some downside. You don't develop sort of the same leadership positions. You can't run for student government. You're only in school for two years. So you don't develop, I think, the same level of collegiality. But it is an interesting idea to bring dramatically down the cost. What do you want to think about it? You want to think about, first off, looking at the university where you want to potentially transfer credits into and make sure that the transfer credit policies align with your plans.


Also, your major is also determining factors. You'll need to get a rundown of specific credits, classes needed to transfer as close to the junior as possible.


And then a 20 19 report from the Ohio Department of Higher Education found that in twenty nineteen fifty one thousand, Ohio students save seventy one million by transferring work from lower cost schools to more expensive institutions. And some, the arbitrage that you are referencing is a really good idea. There's some downside. You don't get to spend four years in Michigan. But when you look at the cost of education, I think what you're proposing in that is a thoughtful, elegant two years at a much lower cost institution where you then transfer you get the last two years and a name Brown University, and you graduate with that certification in that brand equity.


I think it's a great idea. I think we need to be more thoughtful about it and also maybe even develop some universities or some feeder's where we have specific name brand universities that are just there is kind of your junior and senior year finishing school. What a great question. Thanks very much. Next question.


Hey, Professor Galloway, this is Alex. And my question comes to you from the Rocky Mountains up here in Colorado. I started a property management business a few years ago and had a question in regards to our branding strategy. As a property manager. You essentially have two sets of clients. The first one is the homeowners and investors who hand over their properties for us to rent on platforms like Airbnb and HomeAway, essentially the supply side of our business. The second set of clients is the guests and the people who actually rent these homes on Airbnb and HomeAway.


My question to you is, as we're growing fast, as we're starting our social media presence and really developing our brand, which client segment would you focus on? Would it be that the homeowners and supply side or would it be the guest and the demand side? Really appreciate your work. Thanks so much for taking my question and I look forward to hearing your answer.


Alex thinks it's an interesting question and that is I think of it as B2B marketing versus B2C versus demand versus supply. And let's use your business as an example. Do you try and build brand equity among the owners of properties or the end consumer that might be running the properties, thinking that over time they begin to differentiate different properties based on your brand as the property manager, which creates greater demand for the properties you manage, which results in additional margin to you because the owner of the property sees they can get more money if you're managing it.


OK, so the analog here is Intel and that is Intel in the 80s and 90s recognized that there were fewer and fewer buyers and that is there were three or four computer manufacturers that represented 70, 80 percent of the market. And so their negotiations were really difficult when they were selling chips into one of the three or four customers. So they decided to do was go for an end, run around the B2B, around the manufacturers, and try and create some differentiation to, as you put it, on the demand side amongst consumers with their intel inside campaign, trying to convince consumers that if you saw the Intel logo on a Gateway computer.


Meant that there was an Intel microprocessor inside and that that differentiated the computer and as a result, manufacturers found in their research that when they had that Intel plastic sticker on the piece of hardware, they could get another 70, 80 dollars in additional price premium for that box, if you will. And so it was worth paying an additional 20 or 30 dollars per chip to Intel. So they did it in Enron and try to create consumer demand or brand equity at the consumer level.


Now, that sounds great in theory, ingredient branding, creating equity at the consumer level, that trickles back up to you. It makes all the sense in the world, theoretically, practically, it's probably not possible. The demand side, if you will, or the consumer side of Airbnb is tens, if not hundreds of millions of people spread across the globe. So your ability to create any sort of equity across that cohort would just be inordinately expensive.


Unless you are known for property management, a certain area, and you were able to communicate that point of differentiation to the renters and they began requesting it. Just that's a really big ask for you to try and build that equity. So at the end of the day, the consumer base is just so broad and would be so difficult to reach on a consistent basis and build that kind of reputation. And I don't think you have that option. I think you have to be known to homeowners as a fantastic place for them to trust to put your property into.


So, for example, in other examples in Esperanto, focus's or goes to homeowners and says, if you have a second home, we'll take care of it and we'll literally we'll put your furniture in storage and when you stop leasing it to us, will replace everything. And you won't even know we were there. And as a result, they're able to lease properties for long, get real long term rentals from the owners at better rates because they're so turnkey.


So they've established a very strong brand, if you will, with the with the supplier. Now, they also have a brand on the front end, but they spent several hundred million dollars doing that anyways. A thoughtful question, Alex, but at the end of the day, I don't think you have the market power of the budget to do anything but establish a strong reputation and brand with the owners of the property. Sorry for the long winded answer, but thanks for the question.


Alex, keep sending your questions again. If you'd like to submit one, please. Email. Voice recording to officers at Section four Dotcom.


Aware of happiness. It's a nice moment to take pause and celebrate the life of Representative John Lewis, a civil rights legend and longtime Georgia congressman, and and there's a few things to take away, both both as it relates to the progress we've made in the US.


It's easy. It's easy to be very down on the United States right now, mostly around our incompetence and arrogance around the handling of the coronavirus. But his life mimics or I think largely mimics the arc of progress around civil rights in the United States. And that is when John Lewis was born one of 12 kids to a sharecropper. You had segregated lunch counters and schools. And we have made tremendous progress. And when you think about how what were his forces of progress and his determined dignity or generosity, but this is an individual had his skull fractured at the hands of the U.S. government and law enforcement, but never gave up an appreciation or devotion to peaceful protest and saw that as his superpower and the super power of the movement and never gave up on that idea.


And despite being abused at the hands of elected officials, forgave Governor Wallace in a very public display of empathy. There's so much we can take from that. And this just feels like an individual who would not engage in council culture. So anyone who is willing to join the fight as his allies was willing to forgive past grievances did not take every opportunity to rub his victories in people's faces or to embarrass them, which is sort of bigger than himself, bigger than petty grievances, bigger than the opportunity to score Virtu points by calling out others, brought forgiveness, brought empathy, brought a sense of grace.


Recognizing that life is messy, recognizing decisions made in a certain context and a certain era, it's important to understand how we can gather as much momentum and allies as opposed to just defeating an enemy and then trying to embarrass them over and over. I think that there's a lot to be learned here. You know, it's so easy to enter into a transactional relationship with your or a transactional viewpoint with your relationships when people are wrong, highlighting that they were wrong and that you were right and that the really successful relationships are the ones where you decide who you want to be in that relationship.


You decide what is the character you want to demonstrate and your ability to forgive. The past is in many ways going to dictate your ability to live a happy, rewarding life with a lot of more wonderful relationships, as opposed to canceling anybody who you feel has slighted you in some way. Representative John Lewis, an incredible role model, an incredible beacon of hope. We have made a lot of progress. The struggle continues. But how can each of us bring a sense of empathy and forgiveness to our lives and just get on with fighting what really ails us in our own lives, professionally and as a society?


Our producers are Caroline Chagrinned and Drew Barrows, if you like what you heard, please follow, download and subscribe. Thanks for listening.


We'll catch you next week with another episode of the property show from Section four in the Westwood One podcast network.