Pen, Price Tag, Flashlight

The pen, pricetag, and flashlight are three go-to tools for managing messy marketplace-y businesses.

When I was in business school I learned a deterministic model of management. If management could only create the correct strategy and the correct organization structure and, of course, a correct go-to-market plan customers would buy stuff and we’d have a business. It was kind of like learning how to operate a machine where crank X was attached to gearbox Y which was turning wheel Z. But then I went to work at eBay.

Unfortunately, the marketplace is not as simple as turning a gear

It wasn’t a machine at all, it was a chaotic, messy, marketplace. I got to manage that chaotic, messy, marketplace in a bunch of different roles. In each case, I saw the marketplace was like a living system. You could encourage and influence, you could work with probabilities and maybe even tip them one way or the other, but you couldn’t control. You couldn’t turn the crank attached to the gearbox and make the wheels go round. Instead, it was millions of individuals repeatedly making short-term commitments to do business with each other.

When I left eBay six and a half years later, I took my tool bag with me. It’s a tool bag for managing chaotic, messy marketplaces where lots of individuals repeatedly make short-term commitments to do business with each other. What’s in the bag? A pen, a price tag, and flashlight.

The pen is for writing rules that serve as guidelines

The pen is for writing rules. I think the pen is best at capturing the big picture stuff, kind of like the US Constitution when the rules are simple affirmations of first principles. Rules can put structure and basic plumbing in place for that messy marketplace.

But the pen breaks down if you take it too far. When overused, the pen can sometimes make your market smaller, it can criminalize human nature, and sometimes it can create extraordinarily high policing costs. The pen is most damaging when you try to use it to legislate human judgment. I think of the pen as in important tool, but one to be used very sparingly.

The price tag lets you charge someone in exchange for a benefit. There are a whole bunch of things people like to do: decorate their listings, advertise their business, or get some extra help. Prices on these activities signaled value to the customer and gave us a mechanism to fund new ideas.

The pricetag simplifies the messy market by signalling value

You see price tags used in all kinds of places to manage messy marketplaces. Google lets you have that top spot on search — but only if you pay. The city of London lets you drive a car into the city center but they charge you for it. Price tags are a great way to channel, to sort, and to manage the activity in a marketplace. The sensitivity to price is a built in feature of human operating systems and you can use it to influence the messy marketplace.

Now, price tags are great but flashlights are even better. Flashlights makes things visible. You use it to shed light on behavior and it helps everyone make better decisions. Flashlight thinking relies heavily on the built in human ability to observe and make considered judgments. That’s why member feedback is so important on AirBnB and why services like Yelp and LinkedIn endorsements are so powerful. (BTW this is the best way for social media to “regulate” fake news: show where it comes from or who created it.)

The flashlight allows users to see important facts so they can steer their behavior

Just by making something visible, you steer and influence the messy marketplace. Flashlights don’t solve all the problems, especially when there’s too much information hitting the customer square in the face. Used in the right combination with price tags and the pen you have some pretty handy and powerful tools to manage that messy marketplace.

Here’s one way to think about these tools that helps me a lot. Imagine a spectrum with chaotic but self-regulating markets on one end, and a command and control economy on the other. (I am speaking here about companies, not economies or countries.) Traditional management thinking, that deterministic idea that management is running a machine, that would be way at the command and control end of the spectrum. But many of our jobs are actually over in the messy marketplace where individuals — employees, customers, suppliers, shareholders alike — make repeated short-term commitments to work together.

Management has to decide if they are managing tightly (left) or trusting the operating system of human brains (right) to self-regulate the repeated interactions between employees, customers, suppliers, and shareholders.

The pen, the price tag, and the flashlight all play a role in managing the messy marketplace. Picking the right combination of tools depends on how much command and control you want versus how much you want to tap into human nature to do the steering for you. Try it for 30 days. If you’re not completely satisfied, keep it to yourself.