Leveraging the Endowment Effect: A Case for Startups

It's common for people to value their own work above all else--here's how to put that to good use.

In business, the endowment effect means that someone thinks that his or her work, project, or deadline is what’s most important and must be resourced and prioritized as such. This is often discussed as a detriment, because it’s seen as over-valuing or inflating the significance of work, by those tasked with it--the implication being that, to those who don’t own the work in question, it’s moderately important at best, maybe even inconsequential.

This is wrong-headed and is actually a straw man, concealing a much more fundamental issue. The work being done is only trivial if there is either lack of direction or poor communication and alignment of company objectives.

Previously, I’ve laid the task of ensuring that people are moving in the same direction squarely on the shoulders of excellent operators. This accounts for the oversight necessary to leverage the prime advantages of the endowment effect. If a great leader (or team of leaders) is directing the daily activity at a company, getting buy-in and making clear what needs to be done, people believing that their work is of the utmost importance, is true.

In this environment, people will be inspired to hold themselves to high standards, because why would anyone ever do a really haphazard or crappy job at something that is wildly important? Want to be a first-rate leader? Ensure that your people and teams are doing the most important work consistently, and the endowment effect will undoubtedly amplify the output (if you’ve hired the right people, of course).

I’ve also made the case for centering corporate alignment around a mission, values, and clear company goals. In support of the points above (or in exchange for the above if you’ve hired an entire company of smart creatives and operators), continuously communicating and making known what the most important goals for the company are, will exploit the shiny side of the endowment effect.

To be abundantly clear, by communicate, I mean that this should be in the most direct, unambiguous, loud, and varied way possible. Do you have ten different vehicles for people to share information at your company? For this critical information, repeat it on every one of those ten mediums. It’s not the doing that’s hard, it’s understanding the scope of the issue and committing to it.

There you have it. Everyone’s work is absolutely the most important thing that’s being done at the company. Do this well and watch how many magnitudes greater the results are, and build an excellent company on the back of that.