November 22, 2017

Rethinking the “knowing where to tap it” story

There’s an apocryphal story I’ve seen circulated widely that goes something this:

Alice’s nuclear power plant is offline. She stands to lose millions per day in revenue, and it puts her lucrative government subsidies at risk.

So Alice asks around finds Bob. Bob is the foremost expert on nuclear reactors, and as luck would have it, he’s in town for a conference. So Alice contacts Bob, and pleads with him to come by to take a look. Bob agrees.

Once onsite, Bob looks around for ten minutes. Then he pulls a hammer out of his bag, gently taps the wall with it just one time, and says to Alice, “Okay, try it now.”

Sure enough, the reactor comes to life! Alice is ecstatic.

The next day, Alice receives an invoice from Bob for $500,000. Outraged, she phones Bob and yells, “Do you seriously expect me to pay you half a million dollars for tapping the wall with a hammer?!?!” To which Bob replied, “No. It’s $1 for tapping the wall, and $499,999 for knowing where to tap it.”

This story made me laugh pretty hard when I first saw it. But over time, it started to tick me off.

Here’s why...

Bob did the work without presenting Alice with a price first.

It’s the surprise that makes it feel unfair.

It would be a very different ending if instead Bob had said, “I can have this fixed for you today for $500k, or I can come back in six months and do it for $250k. Which would you prefer?”

In this case, Alice would have a sense of control in the situation. She can weigh all of the many factors and make a value judgement about how much it’s worth to her to get this done and when.

Providing a price up-front with options gives the client control and allows them to make a value based pricing decision.

In the power plant scenario (and every variation I’ve ever seen), the seller doesn’t give the buyer an opportunity to say “no” before doing the work. So it’s perfectly natural for the buyer to feel taken advantage of. The buyer hasn’t had the opportunity to “buy into” the value of the intervention. It’s too late.

Any time a buyer is retroactively given a price for work that has already been done, the risk of them resenting it is high. (Not incidentally, this is the dynamic that exists when billing hourly in arrears for project work.)