Fooled by the Law of Diminishing Returns

diminishingreturns.jpg

At some point, the effort and cost are not worth it anymore. The Law of Diminishing Returns kicks in when building a business or even building a life. More investment of your time, money and attention may initially have high returns, but then at some point, the rewards taper.

Will more efficiency make a large impact on your revenue?

How many more relationships start to become a liability to manage rather than pure enjoyment?

Does more money create more happiness after a certain point? They say $75K is that point of diminishing return from research studies.

Sometimes, I can’t find the motivation to do more. Perhaps, that law of diminishing return is instinctive and I’m only responding. Or experience simply shows me that more does not equal better. In fact, more may mean cost.

I see it with business owners that add more headcount and find more headaches or layers of management to deal with. More cost, not less, for more effort and investment.

I see diminishing returns when we sign up for more activities for the kids. Fun can turn to drudgery when the calendar is packed to the brim. It’s different than getting good and focusing on just a few things done well. Less headache and more results.

I think the key is to ramp up specific parts to that inflection point of diminishing returns and leave it alone. Then move on to other areas and invest time, energy, money and emotion to get that working to a point of producing returns.

Much like the story of The Golden Goose, we can get greedy with seeking more output and choke the goose or cut its head off only to find our hopes shattered from overreaching.

Greed and perfectionism can compel us to push too hard in a direction and lose sight of that reality principal we are all facing in business and life that more stops being better at some point.

So, some things I try to do to fight this tendency:

  1. Ask myself, “Does this matter?” and “How much?” It keeps me from pushing into areas that are not going to have a return.
  2. Test the concept on a small scale. If I have an idea, I like to see it in play and work out the kinks before overinvesting time and resources.
  3. Watch my enthusiasm. If I am losing motivation, that’s a sign that something is not worth it anymore. I try and step back to figure out why I may have lost enthusiasm and get as honest as I can.
  4. Look at the numbers. You can simplify most goals and results by looking at inputs and outputs. How much is going in and what is coming out as a result? Typically, you get a boost initially. Later, it’s not so great.

It’s hard to detach and do a gut check on work and projects we become vested in. My emotions can keep me trapped on a path that may otherwise not make as much sense.

Yes, I like excellence. But it makes sense to a point. Then wisdom and business acumen have to kick in to avoid wasting time and energy.

Where might you be spending too much and not getting a better return?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s