Analytics

Sunday, February 12, 2012

Rule of three

There are many different rules of three in the world.  In writing, the rule of three states that anything that comes in threes is always funnier.  In economics, the rule of three is an assertion that there will always be at least three major competitors in any given industry, no matter how mature and consolidated.  Throughout my experience working closely with a brilliant and well renown entrepreneur, I have uncovered another rule of three.  I am willing to share this information despite the fact that it may be used against me at some point in the future because I am so sure that it will make you both a better businessman and investor.

My rule of three, pilfered directly from the founder of a 2 billion pound sterling enterprise, is partly business and partly universal.  It's simple, as most great things are, and when you begin to apply it you will see its subtle magic.

Always source everything in threes.

What do I mean by this.

Okay, suppose you want to buy a toaster.  You're probably in a hurry, so you run to the store and pick up a toaster.  This rule of threes states that you should find quotes for three of that toaster from three different sources.  If you want to apply for a mortgage, talk to three different sources about the mortgage.  If you want to buy a small business, use at least three different business brokers.  If you want to analyze a company for investment, look at at least two highly comparable businesses in the same industry.  If you want to get your plumbing fixed, talk to at least three different plumbers.

When I say that this is applicable for everything, I mean it truly is.  The wise businessman will apply this to every single facet in his life.

What is the deal with this?  Why would you waste your time?

The rule of threes, here, puts you squarely in power.  It is now your business that three separate people are vying for, and you can use offers from one of the three to counter-offer the other two.  This puts them into a bidding war over you business.  You will get, if not the best price available in the whole universe, a damn, damn good price.  A better price than anyone else that just bothers to go with one.

Why not more than three?  If three is good, then four would be better?

True, very true.  But do we have the time for this in our lives?  Three quotes is the magic number because it is the perfect blend of time efficiency and pricing accuracy.  If you're looking to deploy say, £20 million into an investment, you may want to look at more than two other competitors.  In fact, you may want to hire an analyst to look at all the competitors in that industry along with painstakingly reviewing every single line item in the financial statement.  But other than that, the successful businessman must use his time wisely.  When one is young and money is scarce, one doesn't fully appreciate that time is a much, much scarcer commodity than money.

So three is the sweet spot here.  Four is better, but three is sufficient.

Try applying this and see the effects and get back to me.  Your life becomes a lot sweeter when you are in the position of power- place yourself there always.

Til next time!

3 comments:

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