The Coolness Premium

There is an area of your brain that lights up on a functional MRI scan whenever you consider buying something cool.  It's called Brodmann Area 10.  So if you're a guy who's just won the lottery and you're perusing new Ferraris for a test drive, that area of your brain is going nuts.  If you were buying say, mousetraps or toilet paper, then it would be comparatively inactive.





Some researchers believe that Brodmann Area 10 contains the part of the brain that is focused on making us interesting to potential mates.  That certainly correlates to our common sense notion of coolness.  And it makes sense that there is a part of our brain's real estate dedicated to such endeavors.

In case you are wondering, many areas of the brain are highly consistent between people.  So consistent in fact that you can show one group of people a set of images (say a hammer, apartment building, etc) while scanning their brains and then extrapolate from that set onto a whole new set of people to predict what they are seeing.  Funny huh?  When you look at a hammer your brain is doing about the same thing that mine is doing-- and we can see it in an fMRI brain scan and even predict when I'm looking at a hammer.  Wow, that activates Brodmann Area 10 in my brain (okay that statement officially rebuts itself).

If you are a huge nerd like I am and you have an hour to kill, and you want to hear more about this topic of fMRI mapping to the brain, check out the Google Tech Talks video below.  Google is doing a lot more than you might think.



So would you rather own a high-tech company or a pest control service?  Without more information, your answer depends largely on which one of these activates Brodmann Area 10 the most.  But even when you have more information... say the profit and loss statements for these hypothetical companies... I believe that things are not all equal.  Let's say, for instance, that you could make $500,000 per year running a high-tech company and $500,000.01 per year running a pest control service working the exact same number of hours, putting forth the same effort, and both companies have the same prospects for growth.

You would likely choose the one you think is cooler even without knowing the details of your day to day job.  At some point, of course, the monetary spread becomes wide enough to tip the balance.  I call this the Coolness Premium.  It is the monetary penalty you assume when you choose to engage in something cool.  I think every company in existence and also every available job has a Coolness Premium.  The spread may be small in some cases, but it is still there.  Most people want to spend their lives doing something interesting.  And what do we find interesting?  Cool stuff.

I think most people underestimate both the size of The Coolness Premium and the impact it has.  Did you know that the airline industry in the United States has lost money on aggregate since its inception?  All of the revenues flowing into every airline in existence for the last 100 years have not offset the cost of running those companies. 

Why?  It's simple.  Because it's cool to own planes.  Every magnate that was worth his salt wanted to have something to do with airplanes back in the day.  I'm certain that many otherwise nice dinners were ruined by some aristocrat regaling the table with stories of how he and his comrades were changing the world with these new flying machines.  And it's still true to a certain extent today in the airline industry. 

Of course, making money is cool too, so it can work in reverse.  The computer industry went through this.  It really wasn't cool at all to be a computer nerd in the 80s.  Then, in the 90s, those nerds were suddenly called CEOs and the money they made caused Brodmann Area 10 to activate in many people at the mere mention of tech.  Then, the market crashed and people's anterior insular cortex became activated when the term 'dotcom' was mentioned-- that's the brain's area for disgust.

Do you remember LBO (leveraged buyouts) from the 80s?  Junk bonds, Ivan Bosky, Michael Milken, Barbarians at the Gate, and all that.  After the public learned that most of the buyouts (53%) led to bankruptcies, lost jobs, and hundreds of millions in profits to the LBO firms such as KKR, Forstmann Little and later Clayton, Dubilier & Rice, it was no longer cool to be involved in LBOs.  So they went away, right? 

Hardly.  Making money is still really cool.  They underwent a marketing makeover and starting calling themselves Private Equity Companies.  Then they were cool again.  In a few years, you'll probably feel disgust for that name too, but that's another topic.

Nevertheless, I think it is important for the entrepreneur to come to terms with the fact that he or she has to pay a premium to work on something cool.  So if you're working on the next social networking site, you need to know that competition is fierce and customer loyalty is zero.  Just ask Friendster, the pre-Facebook Facebook.  Sun says there are 6 million Java programmers.  I'd estimate that at least 1/3rd of these spend time thinking about some way to parlay their knowledge into a new tech start-up.  That's 2 million really smart people looking at tech in every way they can think of and maybe 200 people looking at new and innovative ways to run a pest control service.

WEDNESDAY, DECEMBER 23, 2009

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