Real People, Real Trust: Our Magnificent Seven

Over the past year, I’ve offered an insider view into the challenges, successes, and make-it-or-break-it moments of seven men and women who are making their mark by leading with trust—every day. In case you missed any of them, or want a fresh dose of practical advice (not to mention inspiration), here’s a recap.

  •  “I asked him what would make him feel like we addressed the situation to his satisfaction.” Learn how Chip Grizzard’s nonprofit marketing and fundraising agency retained a long-term client even after mistiming their direct mail campaign.
  • “I have never had someone say, ‘I wish you hadn’t told me that.’” Find out how Anna Dutton, Sales Operations Director, finds the courage at her educational tech company to be genuine, tell the truth, and say things that others might not agree with.
  • “My life philosophy is there’s plenty of everything—customers, money, everything.” Take a tip from entrepreneur and former bed and breakfast owner John Dunn on collaboration…and learn how he joined forces with other B&Bs.

The themes across these stories: transparency, humility, courage, and true customer focus.

Many thanks, once again, to these magnificent role models.

Good Things Happen When you Swing the Bat

At a talk last week, new friend Petter Østberg told me an old story with a new twist. It takes a great sports metaphor for achievement – and steps it up a notch to leadership.

First, the metaphor at Level One.

If You Don’t Do A, You Can’t Get B

You’ve heard this one before as, “If you leave the putt short, you are 100% guaranteed to miss the putt; never leave it short of the hole.”

Or maybe you know The Great One, Wayne Gretzky: “You miss 100% of the shots you never take.”  It’s not just about scoring percentage, in other words, it’s also – very much – about shots on goal.

You also know, “No pain, no gain.” “You’ve got to pay to play.” One of my favorites is the thundering voice from heaven that comes down to the whining loser who is kvetching about never winning the lottery: “Do me a favor – first, buy a ticket.”

All these metaphors remind us of the need to take risks. In our misguided efforts to avoid the risk of doing the wrong thing (call that Type 1 error), we end up not doing the right thing (call that Type 2 error). And in life, as in nearly every sport, it is that Type 2 error that ends up being the Big Bomb.

To not take a risk is the biggest risk of all.

Petter’s story started out this way. A deceased dear friend of his helped run the Little League programs in their town. One of the lessons he taught kids was, “Good things happen when you swing the bat.” If all you do is “take” the pitch, you’re likely to end up striking out.

(Apologies to the non-baseball countries out there, but you get the idea).

Good, good. The youngsters are being taught this Big Truth as well, all’s joy in Mudville.

Getting People to Take Risks

But as David Maister points out powerfully in Strategy and the Fat Smoker, the trick is not cognitive. Just realizing you’re fat and shouldn’t smoke doesn’t mean you’re going to stop gorging and emulating a chimney. Would that it were that simple.

The failure of most corporate training programs (not to mention the people who take them) is to believe that cognition implies action. Entire classes of professions (lawyers come to mind) believe that if they can simply understand something, they have acquired the only thing they need to act upon it.

When it comes to algebra, fair enough.  Maybe even learning a foreign language.

But when it comes to altering substantive human behavior, that belief is So – Not – True.

So it is with golf, hockey, baseball, and I’m sure with cricket and futbol. Armchair athletes from the business world nod sagely as they receive this wisdom from Tiger, the Great One, His Airness, you name it.

“Yup,” they say, “that’s just how it is in my world; you gotta take that risk.”

But they don’t. They really, really don’t.

So: how do you get people to take risks?

Leadership and Role Modeling are Key to Change

Answer: you do it through role-modeling, and you do it young.

Back to Petter’s story.

The Little League coach didn’t just encourage his team to swing the bat. He told the kids’ coaches and the kids’ parents to tell their kids to swing the bat, and with the passing of this dedicated coach just before this year’s baseball season, you now hear his mantra – “Good things happen when you swing the bat” – echoed on every playing field in his town.

The kids got the message, but here’s what he told the coaches:

Look, guys. I know you all mean well. But when a kid swings at a pitch a foot over his head, what do I hear you tell him?  “Lay off the high cheese,” you yell, gesturing with your hand high above your head, “wait for a good one – wait for your pitch. ”

And that is just wrong. These kids look up to you. You’re their leader. This is one of the few remaining times in their lives they’re going to listen to someone, and it’s you they’re listening to now.

These players are very young, and they’ll get more coordinated, that’s nature, but they won’t become better batters unless they swing the bat. There are plenty of other people who will teach them over and over the dangers of taking a swing; don’t you add to that.

Because if they wait for life to serve them up “their” pitch, they’ll lead wasted lives, waiting for that pitch. In life, that pitch rarely comes.

Don’t do that to them. Instead, teach them that if you swing, all things are possible. If you don’t, nothing is. Don’t you wish someone had taught you that?

I know I do. Thanks Petter for that story, and lesson.

Greed, Love, and a Portrait for Sale

The news is much about greed. Greed dominates the headlines, not to mention the content, of what we read in all media. Are we perhaps at the point where the truly sensational stories are ones of generosity and relationship-building?

You be the judge.

Love and Life

Phil and Sue met in 1969 – on Valentine’s Day.  They were near-instant soul mates, marrying 4 years later.  They hired a photographer to shoot a photo of Sue for the newspaper wedding section.

It was a good photo. The photographer enlarged it and hung it as an example in his studio. But being young and broke, Phil and Sue couldn’t buy a portrait-sized version for themselves.

Life ensued. Phil and Sue moved away, and lived a full life around the world. Sadly, after 38 years of marriage, Sue succumbed to cancer.

A few months later, in 2012 – on Valentines Day – Phil returned to their old town, and to that studio, hoping to find the wedding portrait of Sue, and to buy it.

The portrait was still on the wall.  Next to it was a portrait of man who was the Bishop at the time Phil and Sue married.  The shop had a new owner, whom Phil recognized from high school as the original photographer’s daughter.  She was willing to sell the portrait to Phil –but only with her 95 year-old father’s permission.  She agreed to ask him.

A Signpost?

While Phil waited to hear the decision, he went for lunch at one of his and Sue’s old haunts. As he ate, he wondered whether the Bishop was still alive. And as he wondered – the Bishop himself walked into the luncheonette.

Phil was moved. After all these years, it was wonderful to see the bishop. At the same time, it reminded him of the loss of his wife.

A coincidence? A sign?  Whatever, it gave Phil hope that he’d be able to get the portrait.

The Portrait and the Loss

When Phil returned to the store, the old photographer had given his permission. The photographers – both generations – knew Phil’s story.  She could have charged him anything for the portrait and he would have paid it. Instead, she charged him almost nothing.

Lessons Learned

There was no greed in this story, only generosity.  There were relationships that transcended years.  There was the empathy – that of the store owner, and the others in his life – and now me.

I first met Phil about 25 years when we worked together at Hills Department Stores. He was the risk manager, I was a staff lawyer. We haven’t seen each other in over 15 years, though we reconnected on LinkedIn, and now stay in touch a couple of times a year. Yet he shared his story with me without hesitation.

There are lots of Phils in our lives. They each have stories. They can be colleagues, friends, clients, even family. Taking the time to listen can strengthen the relationship and bring people closer. And yes, it can also lead to deeper friendships and business opportunities. Because often people like to help those they feel close to.

I am touched that Phil shared his story with me, and that he allowed me to share it even further. Among other things, we are also enhancing our business relationship.  Phil is now a senior executive at a large company and has been a valuable resource for my own clients and friends.

Funny how that works. When there’s no greed about it.

Chemical Trust and the Science of Explanation

The Wall Street Journal this weekend scored a lot of views with an article on Oxytocin titled, “The Trust Molecule,” by Dr. Paul Zak.

Dr. Zak makes one critical, powerful point about trust – its reciprocal nature.  Unfortunately, the article is seriously flawed in its approach to what it calls “the new science of morality.”

Science, schmience.

But let’s start with that one good point.

Reciprocal Trust

In discussions about trust, people frequently forget a very simple fact: like tango, it takes two to trust. One party does the trusting, the other party is the one trusted. Risk is taken by the one doing the trusting, and the one who is trusted is the source of that risk.

Critically, the interaction between the trustor and the trustee is reciprocal. One influences the other.

Dr. Zak says, about how to trigger this reaction:

…all you have to do is give someone a sign of trust. When one person extends himself to another in a trusting way—by, say, giving money—the person being trusted experiences a surge in oxytocin that makes her less likely to hold back and less likely to cheat. Which is another way of saying that the feeling of being trusted makes a person more…trustworthy. Which, over time, makes other people more inclined to trust, which in turn…

So right! But where Zak goes wrong is in thinking that by identifying the role of oxytocin, he’s actually explained something.

Chemistry as Explanation

Zak says flat out in the article that oxytocin is an explanation for a variety of human phenomena:

“Research that I have done over the past decade suggests that a chemical messenger called oxytocin accounts for why some people give freely of themselves and others are coldhearted louts, why some people cheat and steal and others you can trust with your life, why some husbands are more faithful than others, and why women tend to be nicer and more generous than men.” (italics mine)

It is no such thing.

For example, Zak hardly discovered the reciprocal nature of trust.

More than half a century ago, Henry Stimson said, “The only way to make a man trustworthy is to trust him.” Before that, Ralpho Waldo Emerson said, “Trust men and they will be true to you.” I doubt either knew of oxytocin.

Much more importantly, calling oxytocin an explanation for trust is like saying you can explain water by translating the word into the French eau.

What Makes For an Explanation

Philosophers (and good scientists) have for millennia suggested that good explanations fit certain criteria. A good explanation might put things in a larger context, as Darwin did with evolution. Or it might suggest a causal link, like tying cigarette smoking to cancer, or lack of hand-washing to sepsis in hospitals. Or, it might shed light on motives, as does the ending of any good TV crime drama.

What Mr. Zak has done is nothing of the kind. He has merely “translated” pieces of wisdom that humans have known for ages into the language of chemistry.

There is a nearly infinite number of ways we can describe any particular phenomenon. I can use the “languages” of poetry, reporting, drama, song, chemistry, and Freudian psychology – all different ways to describe the same underlying phenomena. None have a monopoly on telling the “why” – they are only variations on “how?”

The only relevant question to be asked among these choices is – which is more useful for the task at hand?

Yet Dr. Zak seems to believe he’s on to something. As he puts it:

“After centuries of speculation about human nature and how we decide what is the right thing to do, we at last have some news we can use…many group activities—singing, dancing, praying—cause the release of oxytocin and promote connection and caring.”

The idea that prayer can promote connection and caring, for example, is hardly new.

I fear that Dr. Zak is but one example of the current faddish approach to things neurological. Putting “neuro-” in front of a topic seems to generate groupie-like behavior in business. Hence we have neuro-marketing, neuro-advertising, neuro-leadership – the list is endless.

But like the Emperor’s new clothes, there’s not much ‘there’ there. Not all description deserves to be called an “explanation.”

Though whatever language you say it in, trusting someone does cause them to be more trustworthy

Trust Me, I’m Your Doctor

We all hear about health care. Usually it’s through the microcosm of someone’s illness, or the macro-view of dueling pundits and politicians. Frequently it’s adversarial, or negative.

Thanks to long-time Trust Matters’ own trusted advisor Shaula Evans, I met Dr. Craig Koniver. He brings a fascinating perspective to the topic, as you’ll see.

——————————–

Charlie Green: Craig, you’re a doctor in South Carolina. Are you a native?

Craig Koniver: No. I grew up in Delaware, went to one year of undergrad at Johns Hopkins, hated it, and transferred to Brown. I then went on to medical school at Jefferson Medical College in Philadelphia. So I did end up being a doctor, mostly in Arizona, and recently moved here.

Charlie: You say you practice “organic medicine.” How did you come to that?

Craig: First of all, I am a “regular” doctor, board-certified and all that, but I also came to believe in a certain approach to medicine. The transformative event in my life was when our daughter was colicky.

The pediatrician said what I’d been trained to say, but since it was our daughter this time, we were wholly unsatisfied. We went out and found unconventional approaches to the issue. And once you’ve seen behind the curtain, it’s hard to stop.

Charlie: What is behind the curtain?

Craig: The standard routine is label, diagnose, prescribe medicine or surgery. Repeat, repeat, repeat. The paradigm of modern medicine is medicine-based, which is to say, pharmaceutical – pills and chemicals.

100 years ago this was not the case; the doctor had a relationship with the patient. But today, the doctor is trained to see the patient as a series of chemical pathologies.

Charlie: So, on a practical level, what do you do differently than other doctors?

Craig: I am interested in helping the patient reach optimal health through natural means. I am not against prescription medicine, but I think they are highly over-utilized by doctors not interested in pursuing alternative/ natural modalities.

So with my patients we look for the root cause of disease by running specialty lab tests and then use herbs and vitamins and nutrients to get their health back on track. I am a firm believer that there is a natural option for everything–we just have to look in the right place and be willing to try any different options.

Charlie: What’s the effect on patient health?

Craig: One telling study suggested that as many as 1/3 of prescriptions get tossed away on the patient’s way out of the doctor’s building. They want more than a prescription, they want a relationship and they want options.

Charlie: What did you do as this became apparent to you?

Craig: I finally decided to move to a holistic practice. That entailed moving away from insurance, and cutting my patient load from about 4,000 to about 400.

Charlie: Wow. Now, hang on a minute; that raises all kinds of interesting issues. What does that say for coverage?

Craig: It affects many people differently. First, there are a large number of people who are quite willing to pay for personalized, holistic healthcare. It is quite valuable to them!

In addition, remember that existing health insurance policies don’t generally cover doctors suggesting things like exercise and nutritional changes; as well, procedures like bypass surgery are reimbursed while time-tested acupuncture is not.

And I now get to spend real, quality time with my patients. I take as much time as I want and they want, and they leave satisfied feeling that I’m concerned about their whole life.  Which I am! A lot of people find this hugely valuable.

Charlie: What about those who can’t afford it?

Craig: Before we get there, there are number of people who may or may not be able to afford it, but don’t see the value in it. They’re used to thinking that a doctor visit should cost the amount of a co-pay. They can’t get past a more cost-based model.

Are there those who are left out by this? Absolutely there are and it’s a real tragedy because they continue to get the acute-based, chemical-and-surgery, impersonal kind of medicine that doesn’t help them.

Charlie: Ah, interesting. You’re not a selfish doc going off to serve well-heeled patients, there really is no choice.

Craig: That’s true. I’m not abandoning poor people, I’m abandoning bad medicine. And the existing insurance system simply cannot support the kind of medicine I like to practice. Is it tragic? Yes, and a real shame.

You pretty much cannot have a holistic medicine practice that operates within the existing high-volume insurance-based delivery method we have today. The choice is not which clientele to go after – it’s which kind of medicine I want to practice.

Charlie: Does the patient-physician relationship of trust affect health?

Craig: Yes. Again, if the relationship is pill-based, then it’s not personal; that is not a good basis for trust. Before too long, patients will stop trusting a physician because there is only that basis for the relationship.

In a holistic practice, where by definition the doctor is concerned about the whole patient, you have the basis for a personal relationship. That means you have the basis for trust. And with trust, patients share more with you, they take your advice, and there is probably even the positive placebo effect.

Charlie: One implication of what you’re saying is that our existing approach, based on insurance reimbursement of pills and surgery, is basically built to minimize trust.

Craig: Yes, I think that’s an accurate statement of the current situation. The health care delivery system is tied to the doctor-patient trust level. And not in a good way just now.

Charlie: Well, this has been enlightening indeed; thanks so much for spending time with us.

Craig: Thank you, Charlie.

A Separation: a Cinematic Tale of Truth and Lies

This past weekend I saw A Separation, an Iranian movie with more awards to its credit than a dictator’s military jacket. It deserves every one of them.

You’ll never find better screenwriting. Rolling Stone rightly calls it “a landmark film.” Filmcritic calls it a brilliant political metaphor. Roger Ebert praises it as a critique of religion. The Irish Times calls it “a thoughtful film that also works as a crackling melodrama.”

It is all those, and something else. It’s a poster child for the corrosive influence of lying and the power of truth-telling.

Relationships in Disarray

I’ve often quoted (and will again here) Phil McGee’s brilliant insight that “all business problems flow from a tendency to blame, and an inability to confront.”

In A Separation, we see a couple struggling with their relationship. The wife wants to leave Iran; the husband refuses to leave his ailing father. The wife goes to stay with her parents. Their daughter is caught in between.

A woman, hired as a caregiver to the ailing father, brings her volatile husband into the mix. A small set of events trigger a progressive breakdown of relationships among these five key characters.

It is the breakdown that is portrayed so brilliantly. All five are shown as partly sympathetic, and the incidents are so trivial that it doesn’t feel like a deus ex machina. And so the plot feels inevitable – the situation falls into disarray like water forming a funnel down the sink.  How could it be otherwise?

The Truth Shall Set You Free

Until, that is, you realize that every one of these people is fundamentally, deeply, living a lie. One’s lie is about honor; another’s about God; a third about loyalty to family. All the lies seem trivial, and understandable. But they all collide; irresistible forces meeting immovable objects.

And I realized, walking out of the theater, that every single one of those characters held the power within them to change everything – simply by being willing to tell the truth. And the power they held was not just to change themselves, but to change everyone else as well – the entire situation.

A Tendency to Blame, and an Inability to Confront

Back to McGee’s thesis. Dysfunction in groups is rarely about one stubborn person gumming up the works. That is the blame game. The one bad apple spoiling the barrel.

More often, it’s a group conspiracy that’s at fault; the entire organization opting to point fingers, rather than engaging in confronting the true issue at hand. And as the movie reminded me, a conspiracy doesn’t need to be undone by everyone – a single defector can do the job.

All it takes is one person to Speak the Truth, to point out the emperor’s new non-clothes. If that can be done, everyone else immediately recognizes that truth has been spoken. Then, whether from shame or from gratitude at someone else having taken the first step, the healing can begin.

Is this too abstract? What about you? What tangled webs are you a part of? What truth might be spoken by others caught up in the web that would set everyone free?

What truth might be spoken by you?

Trusted Advisor Inflation

The term “trusted advisor” has undergone some changes since I first co-wrote the book by that title 11 years ago.  Three changes, to be precise:

  1. It’s amazing how many more people claim to be one;
  2. It’s becoming clear that not every industry needs one;
  3. In the industries and functions that matter, the concept is gaining headway.

It’s the third point that’s most important, and most promising.

1. Grade Inflation, Title Inflation, Trusted Advisor Inflation

The United States has taken to heart Garrison Keillor’s fictional Lake Wobegon, where “all the children are above average.” That’s got to be the only sensible conclusion from the data, which show in-your-face grade inflation at the college and university level.

A couple of years ago, the Economist proclaimed that “Inflation in Job Titles is Approaching Weimar Levels.” (In case you’re not down with economist jokes, read here, and I won’t tell anyone).

So I guess it’s no wonder that we have “Trusted Advisor inflation.” I’ve sat in on several corporate training programs lately where generally mid-level attendees were asked to indicate whether they were operating at the “trusted advisor” level with their clients.

About 70% said they were. That may not be Weimar territory, but it’s Lake Wobegon for sure. I will tell you from experience: that was not the case 12 years ago, even in the same industries.

My conclusion? Not much, actually. We live in a post-Warholian age of hyperbole. “Friend” doesn’t mean what it used to, nor do “authenticity,” “talent,” or “good audio,” for that matter.  But it’s OK: it means what it means, namely how people actually use the term. Definitions are living things, captured only momentarily in dictionaries.

2. Not Every Industry Needs a Trusted Advisor

I had dinner the other day with an old classmate, a very senior advisor to a Very Big private equity fund, who keeps tabs on a dozen global retail clients. “So Charlie, tell me what’s up with Trusted Advisor Associates these days,” he said.

It was clear from his tone that he was skeptical about the relevance of the concept to his businesses – mainly B2C consumer-level chains in things like pet foods, electronics and sundries.

I could tell that because he visibly relaxed when I said, “Gary, I don’t need a trusted advisor relationship with the counter-guy at Dunkin’ Donuts. I love that he knows my order when he sees me come in – but that’s quite enough. It would ruin everything if we ever got past, ‘hi guy, the usual?’ And ditto for Starbucks.”

It’s true. There are whole bunches of roles and industries that don’t need to have trusted advisor relationships. Most B2C retail doesn’t need it. Traders don’t need it. Marketers don’t generally need it. Most non-client-facing roles don’t need it. Manufacturing roles don’t generally need it.

That’s not to say all those roles can’t benefit from the basics of curiosity, good values and manners. But, as per point 1 – let’s not inflate that into Trusted Advisor Status.

3. Those That Do Need It – Are Starting To See It

The term “trusted advisor” originated in high-end professional services and wealth management relationships and it’s still valid and well-understood there.

The biggest shifts I’ve seen since the original The Trusted Advisor in 2001 have come in four areas: sales, internal staff functions, leadership and the financial industry. (One industry that’s still a work-in-progress – pharma).

Sales. In the last decade or so, the field of sales has undergone a number of changes. Some – like Salesforce.com, Sales 2.0, Google clicks – have often made the function less personal, and arguably less trustworthy.

But others – like inbound marketing, complex sales, and the amazing transparency machine called the Internet – have made selling more personal, and often more trustworthy.

I like to think my own book, Trust-based Selling, published by McGraw-Hill in 2005, played a little role in that too.

Internal Staff Functions. The Big 5 staff functions – HR, IT, Legal, Marketing, and Finance ­– have made large jumps in many companies to realizing that their internal client relationships have exactly the same needs. How to get invited in before problems arise; how to get your advice taken; how to add value – these are all critical functions for an internal staff function. More about those functions here.

Leadership. Tons of things have changed with leadership. Let’s sum it up by saying leadership has become more horizontal, less vertical. That moves influence, persuasion and trust way up the required skills list for leaders.  Rob Galford wrote about that in 2003 in The Trusted Leader; Andrea Howe and I wrote about it in last year’s The Trusted Advisor Fieldbook: A Comprehensive Toolkit for Leading with Trust.

Financial Industry. Something is happening in the financial planning and wealth management industries. The line between brokers and fiduciaries is finally getting defined, and the balance of power seems to be shifting toward trusted advisor, client-focused relationships. (Some of you know this issue as fiduciary vs. suitability).

The issue is delightfully defined in a YouTube video about the difference between your butcher and your dietitian.  For more on this issue, read Michael Kitces, who writes well and often about it.

Just around the industry corner is Wall Street, investment banking, and the flap about Michael Smith’s Goldman resignation. Investment banking used to be a pure trusted advisor kind of business. People like Epicurean Dealmaker still speak eloquently about that part of the business.

But investment banks have more complex business models these days, and it’s far from clear (to me anyway) that all of those businesses should be built on the long-term, client-centric models required by true trusted advisors.

Conclusions:

1. Just because you think you’re a trusted advisor doesn’t mean you are one – Lake Wobegon is mythical, after all.

2. But neither does it necessarily mean you should be one. We don’t need trusted advisors on every street corner.

Sometimes a cigar is just a cigar, and we should leave it at that.

Trust and the Sharing Economy

What if everyone could be trusted? And everyone became willing to trust?

Unrealistic? Sure, if you insist on all or nothing.

But if we moved directionally toward those goals, it’s not hard to envision significant improvement. Increased trustworthiness, and increased propensity to trust, would most likely lead to:

  • Fewer and simpler contracts
  • Fewer lawyers and lawsuits
  • Less transaction complexity
  • Lower insurance costs

This is not pie in the sky. There is an emerging part of the economy that does precisely this: it’s called the Sharing Economy, or Collaborative Consumption.

The Sharing Economy

The Sharing Economy is composed of assets which were previously owned by single entities (either persons or corporations), but which have been freed up to be used by many. Perhaps the best-known example of the concept is ZipCar.

In principle, the concept can apply to any asset used at less than its full capacity. That includes all manner of goods.  Airbnb has made a business of helping people rent out their homes. Couchsurfing is just what it sounds like.

This can sound like pure 20-something left coast social experimentation, but it’s also gotten the attention of General Motors. It’s not fundamentally different than when McDonalds figured out it could use its under-utilized real estate to serve breakfast.

In fact, the Sharing Economy is resurrecting some 19th century ideas like the Grange Movement that helped stimulate the Great Plains agricultural economy.

For that matter – remember libraries?

Trust: the Backbone of the Sharing Economy

The Sharing Economy is, pure and simple, about trusting strangers. How, in an age of global markets and internet-based communication, can we do that?  Or to make it more personal: what would it take for you to rent your house or apartment for a week to someone from France you met online?  And how, finally, can you make that answer scalable?

That, it turns out, is one of the fascinating aspects of the Sharing Economy.  It doesn’t make sense for each sharing business model to develop its own proprietary database, any more than it makes sense for every mortgage lender to develop its own creditworthiness database.

Hence, the race is on to determine who will develop the FICO score of trustworthiness, the most dependable metric, the database that will provide the underpinnings of a potentially considerable amount of economic activity.

Trust Metrics

I have written a White Paper on this subject: Trust and the Sharing Economy: A New Business Model. [I should add here – full disclosure – I am an advisor to and have a financial interest in one of those players, TrustCloud.]

The Sharing Economy is a microcosm for observing trust concepts I’ve been writing about for years. For example:

  1. Trusting vs. being trusted: If you have an apartment you’d like to rent out, you are the one doing most of the trusting; your question is about potential renters – are they trustworthy? So often missing in general discussions of trust (“trust in banking is down…”), the distinction is obvious and vital here.  What’s needed is trustworthiness ratings of the potential renters.
  2. Reputation vs. trustworthiness: It’s easy to mistake reputation for trustworthiness, and some previous online trust metrics have done so. The result is data that suggest Perez Hilton and Justin Bieber lead the pack in trustworthiness.  Does not compute.
  3. Trust comes in several flavors, and is all about context. Unlike digital recordings, some forms of trust don’t travel well (remember the game of “telephone?”). Or as I’m fond of saying, I trust my dog with my life – but not with my ham sandwich.

In the race to build trust metrics, it’s tempting to over-emphasize the technical aspects of the problem. But in the case of trust (as with knowledge management), the more important problem to solve is to correctly define trust and its indicators.

I’ll be writing more about this in future.

—————————————————————————

Many Trusted Advisor programs now offer CPE credits.  Please call Tracey DelCamp for more information at 856-981-5268–or drop us a note @ [email protected].

For continued reading check out: Trust Is Not Reputation

Trust and the Sharing Economy: A New Business Model

 

White Paper

Trust and the Sharing Economy: A New Business Model

by Charles H. Green

 

 

About Charles H. Green

Charles H. Green is co-author of The Trusted Advisor and The Trusted Advisor Fieldbook, author of Trust-based Selling, and founder of Trusted Advisor Associates.  Based on the trust equation introduced in 2000 in the first book, the Trust Quotient (TQ) is a self-assessment test that has been taken by over 25,000 people, validated by University of Chicago PhD psychometricians, and field-tested over the years in work by clients like Accenture and Deloitte. It is aimed at describing the level of trustworthiness of individuals.

Preface: After many years consulting on trust to major corporations and other organizations, I was asked by an angel investor to look into the sharing economy. More specifically, I was asked by angel investor Miles Spencer and his firm, Vaux les Ventures, to look into the bottlenecks in the sharing economy.

Obviously, Spencer had connected Trust and Sharing long before I had ever heard of the developments in Web 2.0 that were empowering that new eco-system. What followed was a deep dive into many of the participants, and eventually a summary of my findings in this white paper. Full disclosure: I have been engaged by, and have a deep belief in the benefits of TrustCloud, mentioned below. TrustCloud is a portfolio company of Vaux les Ventures.

I. The Economic Context of Trust
“Trust” plays many roles in society, one of them being economic.  As the Sharing Economy has emerged, so have attempts to address the prime friction in the market: how can one take real-world risks with real human assets, based solely upon information found online?

This paper will examine ways to solve that problem from several angles, and propose a path forward for the market.

The Sharing Economy, in my view, stands at the edge of some fundamental economic shifts, with Trust at the center. I start by articulating those shifts, and then describe implications for business models.

A. Trust and Economic Progress

Over the past few centuries, the bulk of economic progress has come from the combination of scale economies and division of labor, relentlessly driving down the cost of everything.

In the 1930s, economist Ronald Coase defined another part of the equation: transaction costs. These are costs which are, by themselves, unproductive, but which enable scale economies: contracts, cost accounting, safety inspectors, for example. As long as transaction costs are exceeded by the savings they create, they’re worthwhile.

By 2005, one study estimated that transaction costs had grown considerably over the 20th century to a level of “from 35 to 60%” of total costs.

Also in 2005, the Boston Consulting Group’s Philip Evans and Bob Wolf wrote an HBR article titled Collaboration Rules, one of the first mainstream business publications to highlight the critical role of trust in lowering transaction costs.

Time-share condominiums lowered the transaction costs of taking vacations – they replaced buying your own property. They are not a new idea, but the transaction costs required to make them work are still large: sales staff, legal contracting, marketing.

By contrast, the next level of transaction cost reduction, Airbnb, lets everyone get into the time-share business, without the transaction costs once deemed necessary.

Rental cars have also been around for decades, but the transaction costs of renting with Hertz are enormous.  Conversely, ZipCar stripped costs radically, making for far greater car utilization.

In both cases, Trust is at the heart of the matter.

B. Trust and the Sharing Economy

The early stages of a future Trust Economy are being seen in today’s Sharing Economy, where early adopters meet low-hanging fruit, offering up massive economic improvements.

The Sharing Economy matches under-utilized assets with potential users. As McDonalds realized in the 70s that it could increase its real estate productivity by 50% just by adding breakfast , so have ZipCar and Airbnb also transformed idle assets (inventory) into economic value – with one difference.

McDonald’s didn’t need to drastically change social behavior or replace transaction costs in order to open for breakfast. But in the Sharing Economy, those are precisely the changes that must take place: people must become comfortable enough trusting others that they will forego the expense of insurance contracts, police, lawyers, security systems and even private ownership, to enjoy the benefits of sharing assets.

As trust mechanisms develop, the first “transaction costs” to disappear will be the redundant ownership of assets. As the mechanisms develop further, other opportunities will arise.

The Sharing Economy is itself a play in a much grander fundamental shift. It is a shift from an infrastructure that protects people from each other, to an infrastructure that helps people trust each other. Getting the fundamentals of trust right will make it easier to navigate a series of reinforcing positive economic waves.

C. Trust Beyond the Sharing Economy

Airbnb and asset rental companies are, in many ways, still working off the paradigm of scale economies, the low-hanging economic fruit of our time.

Trust metrics will offer even greater economic value down the road, when massive economic gains can be reaped by applying them to things like:

  • Improving actuarial science for auto insurance companies
  • Improving management control systems for corporate organizations
  • Changing parole policies for sentencing guidelines in the prison system
  • Altering bonding requirements for positions of responsibility
  • Lowering default rates on credit cards and mortgage lending

At the same time, the Sharing Economy represents a significant and exploding business opportunity here and now, apart from any future developments. 

II. Modeling Trust
The Sharing Economy involves the most accessible examples of transaction cost reductions – situations where players have actually replicated assets in order to prevent the risk of working with others (Airbnb, RelayRides), or where an individual is to be given access to owned assets (TaskRabbit).

In such cases, the transformative event is from sole to shared ownership of (or access to) a previously private asset.

In trust terms, this is a straightforward case. There is a clear trustor, a clear trustee, and the burden of trust rests on the trustee to show trustworthiness. A successful trust model will address this clear archetypal trust opportunity, but with an eye at the same time to future applications of Trust that require more nuance.

A. Near-Misses in the Trust Game

There have been some attempts to quantify social relationships, but these have not precisely addressed Trust.  For example, Reputation.com is really about a person’s bona fides, about what others are saying.  But what people say about someone is at least one step removed the attributes of that person, and at best, only a part of what people consider when deciding to trust someone.

Klout, another popular tool, measures a person’s influence. Being trustworthy may increase someone’s influence – but so can notoriety, publicity, popularity or visibility. None of these are precisely Trust.

Neither reputation nor influence account for all the subtleties that accumulate into trustworthiness, or that help the decision to trust. Trust, reputation and influence are not subcategories of each other, though they all overlap.

There have also been several attempts to create trust-based business, but these have failed. While I can’t comment on the technical merits of those ventures, it’s clear they were doomed on substantive grounds.  Along with the financing and technical, a successful business model must get the Trust aspect right or it will fail.

Here are four potential pitfalls for a Trust business model:

  1. Trust is only weakly transitive. If A trusts B and B trusts C, it follows only weakly that A trusts C. Business models that focus on testimonials (e.g. early RapLeaf) are inherently weak. Behavioral indicators are far superior.
  1. Trust requires context. It makes no sense that say that “Joe is trustworthy” without specifying “to do what?” I may trust my dog with my life – but not with my ham sandwich. Business models that treat Trust as a single attribute will be unable to migrate across multiple business cases.
  2. It takes two to trust. Trust happens when one person (the trustor) trusts, and another (the trustee) is trusted. To say “trust in banks is down” doesn’t tell you whether banks have become less trustworthy, or that customers have become less inclined to trust. Business models that do not clearly distinguish metrics for each role will be erratic.
  3. Trust is risk mitigation. Ronald Reagan famously said, “Trust but verify,” but that’s an obfuscation. Trusting means you don’t verify. Trust itself is risk mitigation. Risk is borne by the trustor, and is largely mitigated by the trustee. Business models that do not clearly identify the risks and the risk-takers will be vague and confusing.   

B. Getting the Trust Model Right

In the Sharing Economy, a good Trust model must take the following points into account:

  • It is the trustor (the owner of the apartment to be rented, the owner of the tools to be shared) that bears the risk of an asset-sharing transaction;
  • It is behavioral data about the trustworthiness of the trustee that is needed to mitigate risk to the trustor;
  • Sharing Economy trust metrics will be context-meaningful. The traits of reliability and integrity to deliver on a commitment will be more relevant for rental businesses; there will be situations, however, where other attributes, like credibility or familiarity, will be more desirable.

C. Examining TrustCloud’s Trust Model

There are many models of Trust. For example, the General Social Survey has massive amounts of data gathered over time, but it’s largely data about the propensity to trust – not about trustworthiness.  In his excellent book, The Decision to Trust , Fordham professor Bob Hurley lists 10 factors affecting trust, ranging from trustworthiness to trusting-ness to environmental factors.

For reasons articulated above, the Sharing Economy needs a clearly defined model of personal (not organizational or environmental) trustworthiness (not trusting-ness). It needs to be behavioral in nature, and offer enough flexibility to be contextually relevant.

This model has been at work in my book, The Trusted Advisor, and within my firm, Trusted Advisor Associates.  Since the 2000 publication of The Trusted Advisor, we have articulated the Trust Equation: a four-factor model of personal trustworthiness. An online version of the equation called the Trust Quotient has been taken by over 25,000 people, validated by University of Chicago PhD psychometricians, and field-tested over the years by clients including Accenture and Deloitte.

In its original form, the model is:
T = (Credibility) + (Reliability) + (Intimacy)

(Self-Orientation)

Where:
T = Trustworthiness
C = Credibility: truthfulness, competence, credentials, transparency
R = Reliability: dependability, track record, integrity, predictability
I = Intimacy: others feel secure sharing information, empathetic, discreet
S = Self-Orientation: focus of attention (self vs. others), selfishness, self-absorption, self-preoccupation

To make the equation more accessible to retail audiences, I suggest restating the equation as four positively-stated variables, with less psychological jargon.

Credibility + Reliability + Familiarity + Sociability
Between these four concepts, nearly all common forms of ‘trustworthiness’ are covered.

D. Trust Players in the Sharing Economy

In the capacity-shifting examples of the Sharing Economy, one person or entity is the owner of the asset – that person is the trustor. The other person is the potential renter/user of the asset – that person is the trustee.

The Trust Question for the trustee is, “How likely is it that the asset I rent will meet my expectations?” It is not a high-risk question, and it can be answered through conventional marketing and media channels.

The Trust Question for the trustor is far more important:  “How likely am I to get my asset returned in good condition?” The inability to answer that question is what’s kept people from inviting strangers into their homes, from lending tools to others, and in general placing their personal belongings and properties at risk to people they don’t know.

The ability to answer this question is critical, and TrustCloud™ is an early leader in the space. To serve the Sharing Economy, data must be provided to the trustor about the trustee. Using the model above, the ideal data will be:

  • About the trustee, not the trustor
  • About the individual’s behavior in context of a transaction
  • Behavioral, not just reputational
  • Indicators that mitigate risk of property damage: primarily reliability and sociability (credibility and familiarity skills are less relevant)

D. TrustCloud’s Value Proposition

Trust metrics productively scale far beyond the capability of any one application. For Airbnb, TaskRabbit and RelayRides to source their own trustworthiness data makes no more sense than for them to build their own tablet computers.

TrustCloud aims to be the FICO Scores of Trust, offering custom-designed metrics to fit a range of trust-improvable segments.

This value proposition is straightforward within the Sharing Economy. It’s also valid for the broader Trust Economy of lowered transaction costs on the horizon – though the particular data relevant for an auto insurance company may well be different from those needed by Airbnb.

TrustCloud’s intent is to build a data collection and translation model capable of scaling through both economies; this offers the flexibility to offer customized Trust metrics to customers with differing needs, within the Sharing Economy and beyond.

III. Managing Two Parties: Trustors and Trustees
Some businesses only have one set of customers to worry about. Others – real estate brokers, executive search firms – must manage relationships with both parties in a transaction. TrustCloud falls into this group.

Selling Trust metrics to Sharing Economy buyers is, like selling market research, not complex. By contrast, the trustee side – the people about whom trustworthiness data will be collected – presents some unique and challenging issues.

A. Selling Data to Trustor Communities

Trustor communities are “in business.” They may be companies looking to rent owned assets; they may be broker businesses looking to facilitate transactions between retail customers; or they may be individuals, acting not as companies but still as economically self-interested parties.

It’s not conceptually difficult to sell to such businesses. It boils down to a simple statement of value: how much economic improvement will the trustor get from the ability to use trustworthiness data about buyers, and what would it cost the trustor to get that data on their own. It may or may not be a simple sale, but the concept is not complex.

A good example of this is the Trust-E website product and how it got acceptance from website owners who desired their “stamp of approval.”

B. Getting Data from Trustee Communities

Getting data from the trustee community is a different matter. The communities are acting almost always not as “businesses,” but as individual consumers. Individual consumers may be economically motivated, but that’s far from the whole story.
Some trustworthiness data is available from publicly available sources. Much, however, requires the tacit, or explicit, permission of those whose behavior is being described. The issues here fall into two types: privacy and motivation.

Privacy Issues.
The highly-public nature of the social web means that plenty of data is available for analysis – and people know that.  It’s critical, however, to respect the privacy settings of sites like Google, LinkedIn and Twitter.  Working within the privacy boundaries of source networks for data and then emphasizing strict privacy safeguards for both the process and the information gleaned should provide some reassurance in this area.

Motivational issues.

 

How will people come to willingly give up information about their own personal behaviors? There are three possible answers:

  1. Financial. The Sharing Economy, and the broader Trust Economy outside it, are based on fundamental economic value shifts, and typically customers as well as sellers will benefit from such savings. As the Sharing Economy develops, trustor businesses can offer discounts or coupons for customers with TrustCloud-certified information. However, that’s a position that must be earned.
  2. Status. Klout has done well following this strategy. It’s a uniquely valid strategy for “influence,” but not for Trust. While there may be status associated with credit FICO scores, it’s the kind of status that is talked about quietly. A status strategy a la platinum credit cards is ultimately not a good fit with Trust; people will want to feel they can improve their trust ratings, not be focused on the appearance of being ‘low-trust, low-status.’ The Status strategy doesn’t feel appropriate.
  3. Gamification. FourSquare and others have succeeded with gamification. Trust actually fits well with game-playing, because of the collaborative aspects of both; hence there is a psychological appropriateness of this strategy. Also, Sharing Economy trustees will be made up heavily of early adopter, techno-savvy people. Given that badges and the like are well-known to the market, and given that this strategy requires the least capital, it’s the most sensible starting gate strategy.

Yahoo’s Developer Network has a useful classification scheme that outlines differing types of motivation.

IV. TrustCloud: the Data
As per the opening of this White Paper, TrustCloud should approach Trust data strategically: mindful of the nature of trust, and the nature of the issues the communities are facing.

TrustCloud’s data collection effort follows three principles:

  1. High volumes of data in low-risk situations, to get started
  2. A wide range of data elements
  3. Clearly defined taxonomies of trust to organize that data.

A. High Volumes of Data for Low Risk Situations
The alternative to high volumes of data is to rely on very precise definitions of data. Yet this approach has two problems. First, the nature of Trust is so situational that it’s better to custom-construct trust definitions to represent specific client situations than to ‘bake in’ a particular definition.

Secondly, becoming a market leader in trust metrics is best accomplished through sheer volume of data collection; in the data business, more is better.

The recommended strategy is to start with “low-risk” transactional situations to build up a track record, and to ensure against highly motivated data attacks. (An example of the opposite is FICO scores, which are aimed at a very few, high-risk transactions, like defaulting on mortgages).

An example of high-volume, low-risk situations is the track record someone develops online in setting appointments, and then meeting them. A track record of meeting stated commitments over time demonstrates a pattern of reliability. For someone to “hack” such metrics would require them to, in effect, change their life, to a life of greater reliability. In such a case, the metrics could not be gamed without “gaming” the life itself – and it would no longer be ‘gaming.’

B. Taxonomy of Data Elements: Internal and External Uses

TrustCloud should use an over-arching taxonomy of Credibility, Reliability, Familiarity and Sociability as a guide to organizing, defining and collecting data.  All of the data collection would fall under one or more of those categories, or combinations of those categories.

Trust Metrics to Trustor Communities.

Trustor communities vary. The trust metrics that Airbnb requires will differ from those that TaskRabbit would require. A vendor stuck in a data policy based on tight definitions, or on reputational rather than behavioral metrics, is unable to respond appropriately.

TrustCloud should have an ability to fine-tune metrics to fit almost any customer need. As a practical matter, it could offer basic “packages” of data which can be further refined.

For example, to an Airbnb-like customer, an “Integrity” package of trust metrics might fit.  It would draw heavily from the Reliability and Sociability metrics.

Besides the ability to develop customized packages, this approach to data allows for recursive learning. One can track performance at the individual indicator level, and tweak definitions to suit the learnings from the actual data.

Such a recursive capability will be difficult to emulate by competitors who focus on fixed definitions, fewer datapoints, and rely more heavily on transitive or reputational metrics.

Trust Metrics to Trustee Communities.

The situation is entirely different for trustee communities. Given this gamification strategy, the creative use of badges is critical. Unlike the trustor community, the trustees have little if any interest in understanding the underlying taxonomy.

As the market matures, the trustor and trustee communities may come into alignment around definitions, a la the FICO score metaphor, but I do not see this happening at the outset.  The industry should evolve by generating infectious enthusiasm among users, while educating them about the economic value of their Trust scores at the same time.

V. Conclusions: Trust Infrastructure to the Sharing Economy
A highly viable potential market exists for the player(s) who can offer a powerful  “trust infrastructure” to the sharing economy. There are three rationales for that statement – economic, competitive, and strategic.

Economic. There exist significant opportunities to release business value that has been trapped by excess capacity and unnecessary transaction costs.  This can be freed by matching trustors and trustees through valid data. Those opportunities exist in cases of dedicated-usage real estate, and of single-owner properties that are used infrequently. Cars, bikes and apartments are only the beginning.

Competitive. Trust metrics, like most data businesses, are highly scalable; it doesn’t make sense to have more than a very few competitors. The rush for scale and market share will be fast, and heated.

Strategic. Defining Trust metrics correctly will be critical. Players who confuse Trust with reputation (thus basing their approaches too heavily on testimonials) will not have a trustable product. Players without contextual definitions of trust will not have a usable product.

The player who can articulate contextual definitions of Trust and back them up with behavioral data will drive the market.

Layers. While a fragmented market is not likely (due to scale issues noted above), there may be room for several layers of players in the market. Someone could play a standards role, or a privacy role (think ICANN, or Trustee); these do not have to be the same player as the provider of trust data.  It would be in the best interests of the trust data provider to collaborate strongly with other such layers, as they can make trust data more viable and widespread.

Long Term. As I argued earlier, the Sharing Economy may be an early phase in a longer-term, and much larger, Trust Economy.  If so, it will be through evolution, not revolution.  The trust data collection efforts of the Sharing Economy are not going to be rendered outdated by a new technology.

To the contrary, success built in the Sharing Economy will probably form the foundation of broader applications of Trust data.  The winner here-now has a much greater chance at longer-term success as well.

For continued reading check out: Trust Is Not A Reputation

The Ugly Truth Behind Goldman Director’s Resignation

A few hours ago, the New York Times published a blistering Op Ed by Greg Smith, a Goldman Sachs director, titled Why I Am Leaving Goldman Sachs. It is getting remarkable coverage in the twittersphere, blogosphere and conventional press.

And no wonder! It is a scathing indictment by a privileged insider of one of the great Wall Street firms. It’s Matt Taibbi’s Vampire Squid story all over again – but this time from the Inner Circle.

I’m going to let everyone else revel in the spectacle of moral outrage, and focus on one statement Mr. Smith makes:

If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.

This is true: but occasionally clients will need a little help from their friends.

Trust or Money?

The public dialogue about trust in business is polarized. One side says, “Trustworthy behavior ultimately pays off.” The other side says, “Get real, only suckers believe that.”

I’m a believer in free markets. I also believe free markets are relatively rare. Here’s how trust plays out in them.

Personal Trust

The market for trust at the most basic level – interpersonal relationships – is very free. If you behave in an untrustworthy manner, you will lose the trust of others, quickly and surely. If you betray a co-worker or a boss, you’ll get your come-uppance quickly. Ditto for one-on-one retail businesses.

It is also at that level – the deeply personal – that trust is strongest. The difficulty always comes in scaling trust.

Scaling Trust

The easiest form of social trust is tribal, clan-based. Think of the Mafia, think Chinese family culture, think sports fans. The way to operate a really successful clan is through culture. Read Francis Fukuyama on national cultures of trust.

Now read Epicurean Dealmaker on Goldman Sachs’ culture, The Fish Stinks from the Head, written three years ago. This movie has been playing for some time now.

When corporations achieve great internal trust through strong culture, they can accomplish great things. They can also accomplish terrible things.

The market for trust at the corporate level is far, far from a free market. The power of tribal trust alone is enough to crush dissenting individuals. Whistle-blowers rarely fare well; and the stronger the culture, the worse they are treated.

We hear too often the debate about whether trust is profitable or not. In the long run, across enough organizations, the answer is yes.  (See Trust Across America for some data to this effect).

The question is: is there a linkage in the shorter term, in fewer interactions? If Greg Smith is right that customers eventually leave untrustworthy companies – how come it takes them so long?

The Wheels of Justice Grind Exceeding Slow

There is no iron-clad “law” of social justice that says high trust will yield high returns, or that good will be returned for good, etc. Despite the best efforts of trust proponents and new-order-capitalism theorists, the trustworthy behavior of one individual or one company is not guaranteed to be rewarded in this lifetime, this market, this quarter.

Worse yet, downright villainous bad behavior can be rewarded very, very handsomely.  Greg Smith quit Goldman today after 12 years; but those 12 years have been astronomically profitable for Goldman. Markets these days are far from free and trust doesn’t pay off quickly.

So let’s not be naïve about the inherent power of trust to vanquish all evil.

The challenge for all of us is to get above tribal trust and climb to a higher level of societal trust.

Can the GOP stop its circular firing squad? Can the US Congress ever serve its broader constituency? Can organizations like Goldman re-learn how to transfer internal trust to external clients? Can salespeople learn to trust, and entrust, their customers? Can the Chamber of Commerce stop fighting regulators?

Goldman can’t be relied on to fix itself. It has failed to do so. The question is not how evil they are or how many more public resignations it will take. It is how long will society wait for corrections to happen?

The Invisible Hand is not all-seeing when it comes to trust. In fact, it can be downright blind. Occasionally, clients need a little help.

What is To Be Done?

You can find your own battle in this framing of the war. Ask yourself: whom do you trust? Who’s your clan? Who do you throw in with?

Then ask yourself: whom am I fighting? Who is the enemy? Who don’t I trust? And challenge yourself to take it to another level.

Don’t be a voyeur watching the Goldman saga turned into TMZ gossip television.  Use it. Do something about it. Up the stakes.

Trust one-on-one is easy. Even tribes and corporate culture aren’t all that hard. The challenge is to remember that we no longer live in a tribal world.

The Ugly Truth in the Goldman story is that it’s not self-correcting. This is not a Greek tragedy with the gods pulling the strings. It’s not even a Hollywood comedy, with script-writers pulling us to a natural resolution.

Social trust is a choice, not an inevitable law of nature. And this is not a dress rehearsal.