The Law of Diminishing Returns and Me
by Jake Block
“The tendency for a continuing application of effort or skill toward a particular project or goal to decline in effectiveness after a certain level of result has been achieved.”
This is a basic principle in economics and in a nutshell tells us that throwing resources at something isn’t always the answer to productivity and growth. “Ceteris paribus, collocationes declinet in efficacia.” (All things being equal, investments decline in effectiveness.) You get less bang for your buck.
I’ve applied this to various business models, and have found it to be an effective tool in managing costs and a good indicator of when it is time to “get rid of the dog” and move on, allowing someone else to see what they can do with the business, but protecting your assets to apply to a project with a greater chance of success. And you’ll find that quite often these “laws” that we have in business and in math and in science also apply to life as well. One can look at one’s intellectual and emotional resources much the same as his cash resources, but in a different form of currency.
As people we are like millions and billions of tiny countries, each with our own monetary system. Here in the Kingdom of Jake, we use Jakian Dollars. Now, Jakian Dollars are good, strong dollars that I can use to invest in others, or I can save to do other things with. If I want to do business with you, you have a choice. You can either accept the transaction in Jakian Dollars, be it for friendship, for services or for advice, or as your own little country, you can negotiate for another form of currency. Let’s call it the Sectarian Mark.
In the Realm of the Sectarians, the Sectarian Mark is a good, strong currency, and like the Jakian Dollar, can be used as exchange for goods and services. A deal is made and the Kingdom of Jake and the Realm of Sectarians agree to trade equal for equal in value. My time, support and intellectual input for their time, support and intellectual input. Quid pro quo (this for that). It’s a fair and equitable exchange and the crowds all cheer HUZZAH!!!!
This same kind of commitment is made between people every day. They agree to support and enrich each other’s lives, sometimes with little more than a smile or a handshake. They assume that their dollars and Marks or Zlotkys or Fazoozas are all equal and each will contribute equally to the wellbeing of the other. It’s a great system. It works.
Now, we come to a different transaction, where one feels that their little country is interested in another. They share some commonalities, and those are good, but there are other things that country A has that country B might be lacking in, and country B wants to make a deal to take some of country A’s assets (be they physical or emotional), but country A sees that what country B has to offer is less than they feel their assets, either in time, energy or emotional support is worth.
In this case, one party feels that there is no equity in the exchange, so they feel that in order for them to honor the request of the other, they will need something added to their side of the bargain to make it more fair and balanced. For example, my country has a large supply of grain and your country barely produces enough for the needs of your ever growing population. You want my grain… thanks, pal! WHOA, bucko… I appreciate being appreciated, and while I LIKE you, I have to ask, “What’s in it for ME?” You want my grain… I worked for it. It has value and I need that value to be met in one way or another. In essence we ask, “who stands to gain from this transaction?”
As individuals we all have the right to determine our personal currency for emotional, intellectual or materiel support of another, be it in kind or in services, but no one gives for free. It doesn’t happen. If you go to the bank and you take the check, you pay interest and you thereby support the dealings and growth of the bank. And like it or not, the bank then has an interest in YOU… you owe. You pay them back and the deal is over… you regain that amount of autonomy you surrendered in the economic exchange. Same thing applies in interpersonal reactions. In investing my time and my intellectual or emotional capital in YOU, I will naturally expect something in return, either in YOUR intellectual or emotional support, or if you are unable to provide that… perhaps in loyalty or in some other method of reciprocal support.
Now… the law of diminishing returns. There comes a time when we can invest in someone or something and support that entity to the best of our ability, but things change. They begin to need more and more of our intellectual, emotional or time assets, but we see less and less in return for that investment. You can try to get things back on track and use your leverage to suggest ways to change this situation that could be mutually beneficial. You can look to see the weaknesses in a friendship or cooperative exchange that are somehow inequitable. You can even make your displeasure known… tough love. But if things remain the same, the inequity you feel will continue and the dissatisfaction with the partnership will eventually fester and cause its demise.
The key to mastering the Law of Diminished Returns in business and in people is to learn to recognize the tipping point at which things fall into negative gain. Mostly it’s a gut feel, but the gut feeling is there for a reason, part of an ancient “cybernetic response system” that is a holdover from, and a throwback, to times when our senses needed to be keener and our self defense shields always up. Todays threats are seldom as deadly, but can be financially and emotionally devastating if left unchecked. And I know the feeling that one gets when you realize that it’s time to cut your losses, because we all hate to think that we have wasted our time and/or energies on a person or project we felt such hope for, but realities have to prevail.
I once bought a stock called the WWW.FUND when the internet was just taking off, and I sunk a thousand dollars into it, because like most people I could see that the internet was going to boom, and there could be a lot of money to be made on this type of fund. Well… my stocks DOUBLED in three days. Not bad. So I sunk in another grand and watched as the stock prices slowly slipped away with the dreaded insolvency level getting ever closer. But I held out hope… and the prices dropped. I figured, just another two days. I probably could have gotten more bang for my buck in Reno. The moral… invest in whatever you feel is right, but don’t be a sucker, and don’t let them take you down with them when the thing or person you supported goes bankrupt.
When the returns on any investment show steady decline and nothing changes to turn that around, chances are, it’s a sinking ship. Wish them well and protect your emotional or financial assets. Be there with a shoulder to cry on if you have to, but at least you’ll still have it after the fall.