Tag: friction

Freelancing and transaction costs

In the six years of running my own consulting business, I’d forgotten about an essential part that you need to endure as part of a job – piecemeal work. It is fairly often when you’re working for someone else that you get work that is so tiny or insignificant that you can hardly take ownership of it. The best strategy for dealing with it is to quietly get it over with and hope you won’t get such stuff again.

However, sometimes you can get caught in a rut of continuously getting this kind of work, and start wondering what you actually signed up for. And this is one thing I hadn’t expected to encounter when I got back to full time working earlier this year.

Thinking about why I never had to encounter such stuff during my consulting life, I realised there’s a fairly simple explanation – transaction costs.

Being a consultant is high transaction cost business. Every time you need to take on a new piece of work, you need to go through the charade of negotiating specifics with the client, pricing and drawing up a contract. All put together, the effort is not insignificant.

Moreover, in the line of work that I used to do, there was this massive overhead cost of understanding, cleaning and getting comfortable with the client’s data  – the effort involved in that meant that after a particular point in time I stopped taking work that wasn’t chunky enough. For a while I started refusing such work, but then got smarter and started pricing myself out of such work (though some clients were generous enough to meet that price to get their little tasks done – effectively I’d passed on the transaction costs to them).

The downside of this, of course, was that there was a fair amount of money I could have made taking up small works which I didn’t since the transaction cost was too high – this can be thought of as potential lost revenues. The upside was that whatever work I did was of high quality and (hopefully) made a big impact on the client’s business.

In the nature of the firm, Ronald Coase wrote that the purpose of the corporation was that transaction cost of dealing with co-workers can be eliminated. But then, I realise that sometimes this transaction cost can also be a good thing!

Oh, and obligatory plug here – my book Between the buyer and the seller deals with transaction costs, among other things. It’s available for sale (both in print and digital) on Amazon.

 

Sensitivity

This post is not about any statistical analysis. Neither is it about people’s sensitivity about others, which is associated with empathy. This post is about what I can, incorrectly but more specifically, call “self-sensitivity”. About people who are really thin-skinned and who are likely to “feel bad” at the drop of a hat. I argue that as far as social impact goes, it is no better than arrogance. For purposes of the rest of this post, the word “sensitivity” is to be read in this context – about sensitivity towards one’s own feelings.

A number of people see sensitivity as a positive trait. “Oh, she’s such a sensitive person” is usually bandied about as a compliment to the sensitive person. One is supposed to feel some sort of sympathy to the sensitive people, and remain sensitive (!) to their feelings while interacting with them. It somehow so happens that, more often than not, sensitive people also happen to be nice, and it is as if in return for this niceness you need to take extra care of them.

Thinking about it, sensitivity arises thanks to some deep-rooted insecurity, or some kind of inferior complex. This insecurity means that the person is more likely to associate some kind of malevolent intent to the counterparty’s words or actions, leading to much disagreement and tears and loss of trust. While it is okay for a sensitive person to expect counterparties to be sensitive to their sensitiveness (!), it needs to be understood that over the long run, this could cause friction and be counterproductive to the cause of the relationship.

The problem with both sensitivity and arrogance is that it increases the effort involved in talking to a person. If you talk to an arrogant person, you need to put up with his/her arrogance and the possibility that he/she might put you down for no fault of yours. You need to be always prepared for the conversation to go unpleasant, and thus overall your costs of conversation go up, which as a student of economics, you will understand, decreases the total amount of conversation.

While arrogance is a well-known cause of friction in conversation, less understood is that sensitivity can also have a similar impact. While dealing with a sensitive person, you may not be required to be prepared to be humiliated, or for the conversation to go really bad. However, at all points during your conversation, you will need to keep in your head that the counterparty is extra-sensitive, and that means you have a constant background process that censors your speech, and makes sure you don’t hurt the counterparty. This can again have an adverse impact on the conversation itself, and might tire you out quickly. Again, simple economics tells us that it affects quantum of conversation adversely.

While in the short run, it is okay for sensitive people to ask people around them to be aware of their sensitivity, expecting similar support in the longer run, while making no effort on one’s own part to get rid of one’s insecurities or inferiority complex, is not fair on the part of the sensitive person. Like arrogant people, sensitive people need to understand that their sensitivity is a cause of friction and it can affect their relationships in the longer run; and they need to work on it.

Unfortunately, sensitivity is seen as a largely positive trait, mostly by people who are unaware of the friction it can cause. More importantly, how do you tell a sensitive person that he/she should be less sensitive while at the same time not hurting him/her? In that sense, dealing with arrogant people is simpler – you can speak your mind to them without much long-term impact, and the general understanding of arrogance in society means that it is easier for you to at least make an attempt to tell an arrogant person to be less arrogant.

But how does one deal with sensitive people? Who will bell the cat?