THE CEO OF YOU, INC.

What is the ROI of you? ROI stands for return on investment, and it’s used throughout the business world as a way to peel back the layers of financial decision making to see if what you’re investing your time, your money, your social capital, in essence, your resources on is paying off. If your ROI is negative, meaning your return on any investment of any kind of resource is less than what you’re investing, in most cases you’d deem that investment to be failing and time to make some changes. Of course, if you’re a businessperson, or an investor in the stock market, you know that many investments don’t pay off right away, so short-term views of that investment, at least in terms of expectations of a nice return, might not always look so great. And that is the view from the side of the person or company who is making the investment. You’re putting something out there and you’re watching it to see what the return might be over time. The hope, of course, is that the return will be greater than the sum of what has been invested.

All investments are viewed through the lens of something called opportunity cost, and the principle of substitution. Opportunity cost is the return or benefits one would miss out on by picking one option over another. If you pick one restaurant over another, the opportunity cost is the one not chosen. It’s the cost you’ve accepted as a foregone conclusion when you collapse all decision-making opportunities down to one. “I choose this one over that one!” If I choose Ruth’s Chris Steakhouse over Morton’s, the opportunity cost is everything I can’t order at Morton’s because I’m not there, that’s what I’ve given up when I chose Ruth’s Chris. Hopefully, when we make that decision, we end up happy with our decision and we think, ‘I had a great experience, an amazing dinner, and got an awesome return on my investment!’ No, we likely wouldn’t say the last part after eating out, but the idea of opportunity cost is an important consideration when making important choices because, when we say yes to one thing, we are ultimately say no to the whole universe of possibilities associated with choosing all the things we didn’t choose. That’s opportunity cost.

The principle of substitution says that the upper limit of value of almost anything tends to be set by the cost of acquiring an equally desirable substitute, assuming no untimely delays or hassles in acquiring the less expensive version. For example, a good investor would pay no more for an income-producing property than it would cost to build or purchase a similar property, assuming the less expensive version is equally attainable, isn’t tied up in probate, and there are no bigger hassles associated with buying the cheaper one as that would cost time, and time is money and, therefore, the cheaper one may not actually be cheaper due to the loss of time and income potential. As an appraiser, I use the principle of substitution on every appraisal as we’re always looking at what else a buyer could buy that might be considered a suitable or reasonable alternative to the subject property should the subject property not be available. We end up calling those determinations, ‘comparable sales’, but they could just easily be referred to as suitable substitutes for the subject.

Why is it important to understand opportunity cost and the principle of substitution? It’s not just so that we can be better appraisers, better investors, and make better decisions, although understanding those two principles goes a long way in those efforts. No, the reason I wanted to lay those two principles before you in this episode is because I want to encourage you to use those two principles, but not from the standard position of looking outward at the world and asking the question, ‘what will the world return to me for my investment of time and money?’, but, instead, looking inward and asking the question, ‘what kind of return will the world receive from ME today for its investment of time, money, trust, endorsement, faith, promotion, and whatever else it decides to invest into me today?’

People who care about value view themselves through the lens of return on investment and opportunity cost, but from the view of the world investors who are investing in them, not just from their own outward view of the kind of return they’re getting on their own investments. We all invest our time and resources into things. Sometimes we consciously expect a return on that investment, other times we don’t even think about it. But how many times do you consciously ask the question, ‘what kind of return on investment are my investors getting on me?’. This idea transcends business owners, by the way. We’ve been teaching this idea to our own employees for years now because we believe it should be the mindset of every employee of an organization as well. When you see yourself as a business of one, so to speak, and you’re the CEO of that company of one, those are the questions you would ask of yourself, and you’d be asked by your investors.

“But Blaine, I’m an independent fee appraiser who’s bootstrapped my business from the ground up with no investors! I’ve never taken a dime from anybody else!” This is an equivocation on the word ‘investor’. When I use the word investor in this context, I’m referring to everybody in your life who is, or has, invested in you with their trust, their faith, their time, their emotions, their money, their endorsement of you, and any other resource they might invest in you. If you work for somebody else, your boss is your investor, your customers and clients are your investors, your co-workers and colleagues are your investors, your family has invested in you in some way, and, although not all of those people are specifically seeking a return on their investment in you, the question isn’t who is seeking a return, the question you should always be asking is, are they getting one? When you can begin to see yourself in terms of opportunity cost for your investors, you go to another level in value creation.

The author, Donald Miller, the man who wrote the book on how to market your business using the Storybrand method, calls this idea ‘viewing yourself as an economic product on the open market and being obsessed with getting people a strong return on their investment in them’. I’m not a fan of the Donald Miller’s use of the words ‘economic product’ in his explanation, but I am a big fan and believer of the philosophy of everyone viewing themselves from the viewpoint of the people investing in them. When you get up each morning and get prepared for your day at work, if you’re thinking in terms of how much return on investment you’re going to deliver to your clients, customers, and investors that day, you’re automatically in a completely different category than any competing businesses, any other employees, and any of your colleagues. Most people wake up in the morning and prepare for the day by thinking about all the things they have to get done, all the stuff on their to-do list, who they might have to deal with that day, how they’re going to handle that awkward conversation, how they’re going to avoid Barb at lunch, or Stew in the breakroom.

If you’re a one-person business, like most appraisers are, you’re not thinking about how much value you can add for your investors tomorrow, and what kind of return on their investment of time, money, faith, trust, endorsement, referral, and manpower they might have invested to do business with you. You’re thinking about how many houses you have to walk through today, which files are sitting on your desk screaming at you to finish and upload, which revisions to get done so that pesky client will stop bothering you, and so on. However, my encouragement is that, as soon as you make that shift into thinking in terms of return on investment for my investors, something wonderful happens. When you make that subtle shift in thinking, you shift from burden to gratitude. When you make that shift in thinking you shift from ‘me’ thinking to ‘them’ thinking. It’s not about you and your schedule, it’s about them and their investment in you and people who focus on being a good investment will attract more investment into them.

If you learn about, study on, and become awakened to what good investments look and feel like, you tend to attract more good investment opportunities. Why does this happen? It happens because of your reticular activation system in your brain. It’s that part of your brain that is constantly surveying your surroundings for threats and opportunities for survival. However, the interesting thing about the RAS is that it only knows what to look for in terms of threats and opportunities based on what you tell it to look for. How do you teach it what to look for regarding threats and opportunities? What you read, what you watch, what kinds of information you consume, what kinds of things you study and research, who you hang out with, what kinds of conversations you’re having, and so on. Your RAS is the mechanism in your brain that makes you see tons of green cars on the road right after you buy a green car. Now that your brain is finely attuned to seeing green cars, your brain picks them up everywhere. Before that, you may have seen the occasional green car, but your brain filtered out all of the other ones. Were the green cars always there? Of course! Your brain just wasn’t tuned in to that frequency so they didn’t stand out in your world.

To activate the RAS, you have to study up on a particular thing so that your brain knows to look for it in it’s environment. The more you study up good investments you learn to recognize what a good investment looks like, and what makes it a good investment. Knowing what makes something a good investment typically comes down to knowing what the potential for a return on your investment into that thing is relative to all of the other investments you could make into other things. That’s opportunity cost and the principle of substitution we talked about earlier. Once that knowledge is firmly in your brain, it can know turn on the reticular activation system to be on the lookout for good investments. I used the phrase ‘attract more good investments’ earlier implying that they just fall in your lap, but that can be misleading. Attracting something typically just means that you’re in tune with that thing and your brain is on the lookout for it where before it wouldn’t have recognized that thing if it was knocking on the front door. When you become attuned to what good investments look like, you now tend to see more opportunities all around you. And those who focus on being a good investment will attract more investment into them as a result.

When you offer greater value and ROI than what is being paid, you are eventually paid more, you’re referred and endorsed more, you attract greater opportunity, you’re given greater responsibility, you’re promoted more, and you’re sought after in the marketplace. If you’re not delivering more value than what you’re paid for, you’ll always be viewed, to a large degree, as a commodity. Your clients and customers may not leave you today or tomorrow, but they will not go out of their way to refer, endorse, send more, and lift you up financially. You’ll always just be used for the commodity value you offer, which is essentially your value as compared to whatever the next cheapest version of that thing is. And, by the way, the market loves to pay more for people, products, and services that deliver more value than their cost to acquire. The way one of the greatest marketing teachers in history, the great Jay Abraham, refers to this is that customers will stay, say, and pay more for products and services that give you more than what they cost. Stay, say, and pay is a fun way to say that your clients and customers will be loyal, they’ll talk about you, refer you, and endorse you more, and they’ll pay more for your product or service than they will for a competing product or service that doesn’t deliver as much value.

When you start the day with the question, ‘what type of return on investment can I deliver to my investors today?’, you’re starting from a completely different position than almost every other competing product or service, guaranteed. The message for listeners who are working for somebody else is maybe even more powerful, in my opinion, because it’s a powerful shift in mindset from paid employee to CEO of You, Incorporated. If every employee of every company came to work with the mindset of, ‘what kind of return on their investment of me can I deliver to the company?’, there would be a revolution. But here’s the good news: very few people think in terms of being the CEO of You, Inc. They think in terms of how much they’re being paid, what’s the minimum needed to deliver on the job description, maybe they do a little more and maybe they don’t, but rarely do employees think in terms of ROI for their investors.

Businesses are not just looking for $1 in investment to return $1 in work. If they did, they would never get ahead in the world and, eventually, they’d go out of business. All businesses look for $2, $3, $5, maybe $10 of return for every $1 invested into their people, products, and services. For every $50,000 per year employee, a company is typically looking to get a return of $150,000 to $250,000, which would be a 3X to 5X return on their investment (not counting a fully burdened labor cost). How many employees of businesses know this and think in terms of getting a decent financial return for the investment that is being made in them? Most likely very few. Part of the fault can be placed on the employer, part on our education system, part of upbringing, and so on, but blame gets us nowhere. Again, the good news is that, because so few think this way, the market of opportunity for businesses, and for employees of businesses is massive!

How much return are you creating for your investors right now? How much return could you be creating? How much more return could you create with just a subtle shift in mindset? How much ROI are you creating for your employer? How much more return could you create for them? What would the cost of acquiring another one just like you be on the open market? Do you deliver more value than what it costs the market to hire you? And, if so, how much more value? Are your investors getting a one-to-one return? Are they getting a 3X or 5X return? If you don’t know, how could you find out? For business owners, could this be a valuable conversation to have with your top 2 or 3 clients and customers for the purposes of learning what they consider to be valuable and a good ROI? For employees of businesses, do you think this would be a good conversation to have with your boss? Do you think they’d be impressed with somebody wanting to know how they could help produce and deliver 3 times their cost in profitability to the company? As horribly reductionist and utilitarian as this will sound, you are only as valuable to your investors as what it would cost them to acquire something similar. Make that gap between cost and value so vast that nobody would ever consider leaving you, losing you, or not referring and endorsing you. What would the CEO of You, Inc. do?

Until next week, my friends, I’m out…