190: 🐍 How the Cobra Effect Creates Perverse Incentives and Metrics Tyranny

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What are all the ways that we might be measuring activity or killing time and we're not actually moving our goals forward? That's the thing about time or money based targets and numerical goals, they don't always serve the purpose we intend.

This is your time. How can we earn twice as much in half the time with joy and ease while serving the highest good? That is our guiding question here at the Freetime Cafe, your home for heart based business. I'm your host Jenny Blake. Join me for conversations with authors, friends and fellow business owners as we explore ways to free your mind, time and team to do your best work. Now onto today's show.

I'll never forget the moment that cemented the way that time and work were supposed to interact for the for the first 10 years of my career, I was 19 years old, brand new to the working world, save for an internship at a local newspaper in high school and rocked the vote. During my time at ucla. I had left school early to work at a startup company in downtown Palo Alto. This was 2004. Google search was still a small local startup that had just moved out of Susan Wojcicki's garage five years prior. I was the only employee. It was just me and the founder, this brilliant, intimidating Stanford economics professor, and we were both working in this little house converted into an office to start right off of University Avenue. So I needed to do some searching. I literally typed into Google what are normal working hours? And the Internet came back with a typical 40 hour workweek at 9 to 5. Cue Dolly Parton. Working 9 to 5. What a way to make living. I approached my boss and I said I just wanted to clarify expectations. What hours should I be working? I was thinking I would come in at 9 and leave at around 5pm I said it all with a question mark with no confidence in my voice whatsoever. I'm sure of it. He kind of turned his head, looked at me quizzically, a little disapprovingly and he goes, well, this is a startup. He was as awkward in this moment as I was and he had this sense of consternation in his voice, he said, so I'm thinking more like eight to six. Well, that settled it. From that moment forward, being the rule follower that I am, those were my hours. It was now about getting work done. Yes, and trying to impress my boss at my first full time job. But even more so, it was about butt in seats time. No matter if I was bored, zapped, done for the day, maxed out there I sat every day, on some days, literally killing time just to meet this hourly input expectation. You've probably heard about row results oriented work environments that some companies like Best Buy back in the day experimented with as a replacement for this button seat time. Knowing that, as my friend Julie says in her book the Work Revolution Impact Trump's Activity what are all the ways that we might be measuring activity or killing time and we're not actually moving our goals forward? That's the thing about time or money based targets and numerical goals, they don't always serve the purpose we intend. Today we're going to go on an adventure. We're going to talk about a few related principles that I've been geeking out on lately, including Goodhart's Law, the Cobra Effect, and why vanity metrics are often no more than a hungry ghost lurking in the walls and shadows of your business. I couldn't resist sprinkling some pop culture clips throughout this episode to illustrate these concepts, so I hope you enjoy the ride. Time to buckle up. Let's begin.

Let's start by flying over to the Florida Everglades.

A 1.5 million acre tropical wetlands preserve on the tip of southern Florida, home to the endangered leatherback turtle, Florida panther, West Indian manatee, and you've got about 200,000 alligators that call the Everglades home. The Everglades are also home to an invasive species, one smuggled in from a different tropical country on the other side of the world. Do you know which one I'm talking about? More on that in a minute. But first, consider how would you engage locals to help find and remove an invasive species? Let's say the job is way too big for any one person or department, so you're going to need a lot of help. How would you motivate people in these collective eradication efforts? Before I answer that, let's talk about vanity metrics. Vanity metrics are figures that might look impressive from the outside or on paper. They might even make you look impressive to other people, but they don't actually positively impact your business in any material way, nor do they help you understand the impact that you're making in a way that might inform future moves you want to make. You've probably heard me talk about this with different guests. Where sometimes top line revenue itself is a vanity metric because if somebody's waving a flag saying look at me, I'm so fancy, I run a seven figure or an eight figure or a ten figure business that doesn't tell you anything about their actual profit or take home owner pay or the time required from the owner or the team members to yield those financial results. It doesn't talk about the owner's happiness in any way. Don't ask me why I've seen this series, but take a listen to a clip from a Netflix reality TV show that takes place in Australia called Byron Bayes. Spelled B A E S In this typical stir the pot scene. An influencer manager suspects that the newest addition to their community who is a relative outsider, he suspects that he's buying followers. Here we go.

As a talent manager, I spend my days checking on influencers and there's something about Jade's Instagram that just doesn't add up when it comes to social media. I know what I'm talking about. There are programs which allow brands to type in anyone's username and see where their audience lives, what interests the audience have the game is up, we can see everything.

Okay, so his top audience, so where he has the most followers is Turkey with 451,000 of 1.2 million. So 37% of his audience live in Turkey. The other sus one is Iran. What infuriates me is there's so many online creators who are building their audience the right way that it takes time and effort and creativity. You can't buy your way in. So I know I'm going to have to confront him about this. The reckoning has begun.

I gotta say, there is just something about turning my mind off completely while watching shows like this that appeals to me. I also love observing human behavior. I mean, it's also kind of human behavior affected by cameras that are around and their desire to be seen, how they want to be seen and social dynamics. Some of the vanity metrics that are illustrated in this clip are number of followers because what if they're the wrong ones? What if you have a million followers but the majority of them are bots or people who are just there to troll you, or people who don't respect you? What if you attract an audience of mean people? I would never want that. I've always preferred to be smaller, but have people who are warm and kind and generous in my orbit and my broader community. You could think about your newsletter the size of your list versus the actual open rate let's say one person has 100,000 subscribers and a 10% open rate, but another person has 20,000 subscribers and a 50% open rate. The size of the list alone is a vanity metric. Looking at the actual open rate is a step closer in the right direction to meaningful metrics. But even within that, you could look at open rate versus Click through Rate or Click through rate of when people open your message, do they click on any of the links that you've shared? It doesn't matter if 50% of your list opens a message if nobody clicked to learn more about a book or a course or something else that you're launching. And then what about sharing the newsletter, forwarding it to a friend or two? There's all kinds of software nowadays that encourages people to share the newsletter and get referral points and then earn prizes. I haven't set any of these up yet, but I'll try to find a few and put them in the show Notes what happens when vanity metrics are taken to the extreme? You end up with people pleasing so toxic that it becomes a social death spiral, as illustrated in the Nosedive episode of the Netflix show Black Mirror. I hope you've seen this episode. If not, it's a must watch. Bryce Dallas Howard plays Laci Pound, a woman desperate to boost her social score. It's this dystopian rating system where everybody rates each other on every micro interaction, from buying your morning coffee to riding in the elevator with somebody. And she meets with a consultant to improve her social scores so she can land a coveted spot in Paradise Cove, an idyllic gated community.

If we drill down into the numbers, you have got a solid popularity arc here. Strong overall trajectory. Let's just look at the last 24 hours. You see even. What's that, 8:40am you're working hard on your socials. Great little uptake there. Couple of minor dings there. You cut someone off in traffic?

Oh, just a workplace thing.

Okay, let's check on your sphere of influence. Let me zoom out here. Great peripherals. Strangers like you, that's a plus. Healthy inner circle. Most of your interactions are confined to your inner circle, and they're largely, pardon the term, mid to low range folks. Same with your outer circle. You've got a ton of reciprocal five stars from service industry workers, but there's not much else, at least as far as I can see. So in terms of Quality. You could use a punch up right there. Ideally, that's upvotes from quality people.

Quality people, High fours. Impress those upscale folks. You'll gain velocity on your arc. And there's your boost.

As Lucy becomes increasingly worried and desperate as the episode continues to unfold, it initiates this vicious cycle and self fulfilling prophecy toward her biggest fear, which is complete social ostracization if her score drops too low. What does all this have to do with the Florida Everglades? First, we have to travel back in time. In the early 1900s, an economist, Horst Siebert, coined the term Cobra effect. When India was under British colonial rule, the city of Delhi was infested with venomous cobras. The government was growing increasingly concerned about this, so they implemented a bounty program to encourage citizens to catch and kill cobras. But what happened next was unexpected. Can you guess? People began breeding cobras to collect the bounty, leading to an increase in the number of cobras in the city. And even worse, when the government discovered that people were doing this and withdrew the bounty, all the people who were breeding cobras and farming them set their cobras free. So it exacerbated the problem even more. The cobra effect refers to a perverse incentive because it unintentionally rewards people for making the issue worse. It also relates to an adage, no loophole goes unpunished because when you create incentives like this, it opens loopholes. People will discover them and exploit those flaws or weaknesses.

We'll be right back just after this.

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Zooming ahead now 100 plus years to present day, back to South Florida. We have another sticky, serpentine situation on our hands. Something about this whole scene absolutely fascinates me. Burmese pythons. And although they're native to Southeast Asia, in jungles and grassy marshes of Countries like Myanmar, Thailand and Indonesia. They were introduced to Florida as a result of the exotic pet trade. Some say the earliest python sighting in Florida was in 1930. But the problem really became bad in the 80s when the breeding facility was destroyed by Hurricane Andrew. So imagine that people are taking these as exotic pets, which I can't even fathom. But of course, Burmese pythons are dangerous and difficult to care for. The longest one captured in Florida measured over 18ft in length. They're capable of growing at most to 23ft, weighing up to 200 pounds, with a girth as big as a telephone pole. So imagine somebody buys a Burmese python as an exotic pet, and when they can no longer care for them, they release it into the wild. These snakes have been wreaking havoc on the Everglades ecosystem. And that's where I first got really interested in this, because I heard a wild statistic that they were decimating up to 90% of the mammalian population in the Everglades. Some say as much as 88% to 100% in the frequency of raccoon, opossum, bobcat, rabbit, fox and other mammal species, directly concordant with the spatial geography of the python spread. Part of this is made worse from the fact that they live long lives and they have lots of babies. A typical lifespan is 20 years long and females breed every other year, producing a clutch of between 20 and 50 eggs at a time. So not only are they hard to find, they're hard to catch and kill. They're also reproducing quite rapidly. So we're at a point now where some estimates range on the very low end of 100,000 Burmese Pythons in the Everglades to, to more than 1 million. Florida now has a huge problem on its hands. I remember talking about this with Jim McKelvey. I'll link to those episodes in the show Notes. We, for some reason we were recording in person, we just right off the bat started talking about this issue. And he said, you can almost no longer classify them as an invasive species because they're there to stay. They are an apex predator. There's very few species that will hunt them and eat them. So the government in Florida has to do all kinds of things to eradicate the problem. In an example of the cobra effect, while talking about Burmese pythons, there's a modern day show on Peacock called Killing it featuring Craig Robinson from the Office. I love this actor and I want to play you a clip because his character Manny is trying to make it in the world of entrepreneurship. He wants to start a business. But he encounters all these obstacles and dilemmas every episode. Part of what the show explores are the dangers of perverse incentives and short term thinking and needing to be mindful of unintended consequences. The clip you're about to hear is from a scene where a few competitors team up because they realize that they're up against someone. That they have no clue how this new competitor is so successful in what he's doing. Turns out he's a janitor for a mini golf course and he's taken the lead by a strategy that you have heard about earlier in this episode. Here's the scene where they discover what he's up to.

It's so hot in here because of.

All these space heaters.

Oh my gosh.

They said that Carl killed that python in the castle. Why is a snake living in a putt putt castle?

He was laying eggs, found a nest.

He must have known about the contest. He kept the eggs, hatched them, raised them.

The full grown snakes never even stepped.

Foot in the swamp.

We should take pictures. We can bring proof to the water management guys and get him disqualified.

I'm going to kill these snakes and take them in ourselves. Split it 50 50. Make it a two team race. And he won't be able to prove we did anything wrong without admitting what he was doing himself.

But that's not fair.

Oh no.

This scene illustrates the cobra effect of perverse incentives, leading this golf course janitor to breed Burmese pythons just so that he can try to win the contest and collect the bounty. What started this whole exploration for me was that my brother and I were talking about as business owners. Sometimes it's easy to obsess over money as the main metric. And yet, as people running our own businesses, we have to remember that money does not buy happiness. These two things are the paradox of running a business. That the business survives on cash and cash flow and profit. And yet, if we overly obsess as people, not just as the business owner, but as the person running the business, then it can lead to misery. My brother mentioned that another term for this is Goodhart's Law. It's named after British economist Charles Goodhart, who in a 1975 article on UK monetary policy, stated, this is Goodart's Law. When a measure becomes a target, it ceases to be a good measure.

In other words, if you set a metric as the goal, people will sometimes start optimizing for that metric while neglecting other important things. If you set a sales target for your team, they might prioritize making quick low value sales or bringing in customers who aren't a good fit for you, rather than building strong long term relationships and trust. Good example of this the Wells Fargo scandal in 2016 where the bank was found to have opened millions of fake accounts for customers without their knowledge in order for the reps to meet very aggressive sales targets. That's a prime example of how sometimes aiming directly at a metric like number of new accounts opened can incentivize the wrong things and lead to negative behavior and outcomes. If you're still with me after this vast journey exploring the Cobra Effect, vanity metrics, the problem of Burmese Pythons in South Florida Goodart's Law Unintended Consequences let's talk now about five ways that you can apply these to running a small business. Number one, be mindful when you are implementing incentives or targets. Really think through and make sure that it doesn't incentivize behavior that goes against your goals. Perverse incentives happen when incentives that are designed to encourage positive behavior actually end up encouraging negative behavior. In the Byron Bayes clip, it's inflating your social followers by buying them. So let's say you want to get paid to promote products true influencer style. So you buy 100,000 followers. But then the next year software comes out where those companies can just look and see. Did you have a spike in the number of followers? Or as the clip showed, are they all from a region that's not even where you live? So you wouldn't want to grow your social following if it's not growing it in the right way? Number two, think about the unintended consequences of your actions. Will the actions that you're taking day to day lead to unintended outcomes that might actually harm you and your business? On a macro scale, look at the mortgage crisis of 2008. Giving mortgages to people who didn't actually qualify, giving them 0% APR interest rates, but they were adjustable five years in. That led to the mortgage crisis and so many people losing their homes. There's a smaller example of the unintended consequences. It's a meme about dog poop. Let's say an adult says to a child, I'll pay you $1 per bag, and this little cartoon illustrates that. The kid then splits the poo into 50 tiny bags. So that made me laugh. Yes, I'll pay you $1 per bag, but you don't want to incentivize the wrong thing. Number three, clarify your values. This is so important. In order to do any of this, make it clear to yourself, to your team, what you value, what you prioritize in free time. I share the Agile Development Manifesto, how they inspired so many businesses to write even overstatements, because sometimes you can't value the same two things at once. The example I give in the book is generosity and frugality. There may come a time where one of your team members is deciding whether to offer a refund to a customer and they need to decide do you value generosity more even over frugality, or do you value frugality? That's one of Amazon's values, even over generosity or abundance. Here's a clip that I loved of Jason Fried answering Guy Raz's question on Wisdom from the Top about how he resisted taking venture capital investment while building Basecamp.

You might be principled, but you're going to be out of business. I mean, people said that to you, right? Sure, yeah.

And over the long term they might be right, but so far they're not.

And how do you resist that? What do you say back to them?

I value independence more than a billion dollars.

For Jason Fried and his co founder David Hanemeyer Hansen, they value independence and freedom even over vast sums of VC money, even over being a billionaire. They do not value trying to become billionaires. I highly recommend their book it doesn't have to Be Crazy at Work. That was one that I loved. I love all the books that they've written, but especially how they talk about their values and practices that they've implemented into the day to day of how they run the business. Number four, Instead of focusing on a single metric, consider a more holistic approach to measuring success with your team. You might want to encourage them to look at an assembly of metrics around their activity. So for example, if you're counting or measuring or rewarding a team member on the number of emails they process in a day or in a week, or the speed of their turnaround time, that might not necessarily be what you're going for. This happened to me where I had a virtual assistant several years ago. It seemed like maybe she thought the goal was just quantity of emails processed. And so when I went into Help Scout, the software that we use and I checked the recent closed messages, oh my goodness, this person had auto archived with no response. Things like listener audio submissions. That's like pure gold in my inbox when one of you who's listening decides to leave me a voice memo thank you notes. There were tickets that were closed that I was mortified got closed because her goal seemed to be quantity or maybe even if I'm confused, go ahead and mark the ticket closed. I don't really know what the logic was. I just remember so vividly digging back through the closed tickets and reopening them and I felt so bad for the people that we were about to completely ignore. That is definitely not a value I have in my business. I've always valued trying to be warm and personal and responsive, even if not quickly, at least responding in a warm quality over quantity sort of way. My creative coach, Jay Okunzo, he has a metric called CPP cackles per piece. How many times does he crack himself up when working on one of his podcast episodes or word of mouth shares? That's something I always appreciate. When you finish reading one of my books, do you tell a friend or buy it as a gift for someone else? Another one of my more meaningful metrics than just money or numbers are little love notes. If you listen to a podcast episode and it resonates and it makes a difference in your life, in your day, in your business, and you send me a little note, it just completely lights me up. That is what lets me know I'm doing well with the podcast. It's not just about pure downloads. Last but not least, number five Be open to feedback and be willing to adjust as needed. Stay flexible Again, going back to that example of aiming for money as the main driving metric, on some level, that's what it means to run a business. If there's no money, there's really no business unless you are a venture backed startup that is allowed to bleed money for 10 years before becoming profitable in some kind of winner take all scenario. But when money is the sole focus, it can lead to prioritizing short term. Over the long term it could lead to sacrificing your health. It might even cause you to prioritize material wealth over relationships or personal growth which can slowly start to eat away at you until one day you wake up and you go I can't do this anymore. Even aiming for time and time alone might not be effective now. I loved when Steven Shapiro challenged us and challenged himself to work one hour a day. And he did that. For years, much has been derided about the four hour work week. People took it so literally. Even Tim Ferriss said it's not meant to be taken so literally. It's a thought exercise. What if you could only work two hours a day? What would you do? What if you could only work two hours a week? What would you do? On another level, if the only goal of the business was to work no more than 10 hours a week. That doesn't necessarily mean that we're succeeding or that we're making an impact. It most likely won't work to have any one of these as the sole driving metric. It's really making a delicious meal where the most important values are expressed and operationalized in your business. And yes, you are measuring what's important to you, like impact Profit owner pay I talk in free time about the time to revenue ratio. Let's measure and see if we can improve how much time and reduce the amount of time that our teammates and ourselves put into the business in order to achieve those same results. In free time. I talk about optimizing for revenue, ease and joy. Those are some of my values. So it's meaningless to me if I increase my revenue while increasing my misery. That does nothing for me. That's not the goal. It's how do we optimize for all of these at once? And you get to choose what's most important to you. But I just wanted to highlight some of these ideas like the Cobra effect, how it relates to vanity metrics, perverse incentives, unintended consequences, Goodaert's Law as it relates to what we're aiming at or what we think we're aiming at. And just raise your awareness so that the next time you find yourself obsessing over something that isn't actually serving you or serving your business, you can take a step back and recalibrate and reorient yourself and your team. With that, you hereby have permission to stop chasing the hungry ghost of vanity metrics in your business. Get your more meaningful metrics down, get clear on what those are, and aim for those instead. Thank you so much for listening. I hope you have a beautiful rest of your day.

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