What IKEA Can Teach You About Making Money

In an interview for “Popular Science” magazine, Nick Offerman, the guy who plays Ron Swanson on the series “Parks and Recreation”, talked about his love for building things with his own hands.

He is a guy who has enough money to buy whatever he wants, but he still keeps a small woodworking studio on the side and using traditional techniques (they won’t even use a cutter jig to cut their dovetail joints!), builds all kinds of stuff out of wood.

To quote Offerman:

Keeping whatever calluses I can on my hands is an important part of my personality.

If you think about it, you are probably not that different yourself and neither are the people you know. You (or many of your friends) still probably keep that crude “bird” you cut out of wood in 6th grade during your “I want to be an expert craftsman” phase or that model airplane you spent months building, almost giving up at certain points, but always returning again to glue one more piece.

I remember how proud I was when I finished a crappy Tic Tac Toe game in my QBasic class back in high school. It only had some basic functionalities, shitty graphics, and wasn’t very exciting, but the important thing was that I had programmed it myself and it worked!

It’s a psychological effect. People feel much more proud of something that they had built themselves, than of something that they bought off the shelf. There is a sense of accomplishment that fuels self-esteem.

The Ikea Effect

IKEA is a billion-dollar furniture company that has stores around the world. It sells furniture that you have to assemble yourself, and that is the secret of its success.

A study that came out in 2011, examined what it calls the “IKEA effect”.

The psychologists behind this study had people assemble IKEA boxes, fold origami and build Lego sets. What they found out was that at the end, after successfully finishing their products, these same people valued them as highly or even more so than the same products created by experts.

Basically, people had a preference for building things with their own hands, over getting everything done for them. And this is exactly the business model that IKEA has employed right from the beginning.

The psychology behind this is related to a cognitive bias called the endowment effect. Things that you own (and things that you create yourself) have a much bigger emotional value for you than ones you don’t:

“In one experiment a social psychologist found that people were more reluctant to give up a lottery ticket they had chosen themselves, than one selected at random for them. They wanted four times as much money for selling the chosen ones compared to what they wanted for the randomly selected ticket. But in random drawings it doesn’t make any difference if we choose a ticket or are assigned one. The probability of winning is the same. The lesson is, if you want to sell lottery tickets, let people choose their own numbers instead of randomly drawing them.” Peter Bevelin “Seeking Wisdom”

This is also why people often get attached to their houses or cars and have a sense of loss when they have to move out or give them away.

The lesson here is if you involve others in the making of a final product, whether that product is a project, a model airplane, or a piece of furniture, they will value the final product much more than if they were not involved at all.

That’s also the reason for the recent trend of some companies switching from mass production to co-creation. The idea here is to try to get the customers more involved in the process of design or construction of their products (even if it is just through customization).

The do-it-yourself trend seems to be on the rise again, especially among the younger generations. According to recent research, 1 in 4 Millennials is interested in co-creating products with brands.

And the popularity of do-it-yourself seems to be growing, even in things like home-building.

I guess, people are subconsciously longing to return to their ancient instincts and the way their ancestors used to do things. They like the modern comforts, but deep down inside something is missing.

You can exploit this in many different ways. Whether it’s a project you are working on at your work or a product you are trying to come out with, if you get potential users and decision-makers to be involved in the creation process, you are much more likely to ensure that they use it later.

Dr. Brainiac: “I heard chimps have some culture and can even create some primitive tools.

Smart Chimp is playing with a small stick, smoothing out all the rough edges and sharpening the tip. When done, he proudly looks at it.

Dr. Brainiac: “Mr. Chimp, can I have the stick?

Smart Chimp: “Fuck no! Create your own!

Dr. Brainiac: “What if I give you two bananas for it?

Smart Chimp tightly clutching his stick: “Hell NO!

Dr. Brainiac: “Three?

Smart Chimp: “OK!

Smart Chimp hands the stick over to Dr. Brainiac and gets three bananas in return.

Smart Chimp mumbles under his breath: “Sucker!


Read More:
Checklist to help you avoid cognitive biases and make better decisions

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