How To Benefit From The Unseen Margins

5 Key Tips For Success

These Unseen Margins Can Have A Very Dramatic Impact On Your Life

To understand how to benefit from the unseen margins we need to start by understanding what they are and where we find them.

These unseen margins contain hidden value that can have a very dramatic impact on your health, wealth and overall well-being.

But to realise these benefits does require a different way of thinking. In this article I am going to explain:

• What Unseen Margin  Is And How To Measure It
  
• Where To Find Unseen Margin In An Environment Of Complexity
• 5 Key Tips To Benefit From Unseen Margin
  
• Guiding Principles To Benefit From Unseen Margin

You will see that some of the illustrations and quotes I have used in the first section are heavily business oriented.

This is partly because much of the literature on this subject has come from the business world and partly because I am a businessman and that is my world!

I have broadened the scope as the article progresses to explore how to benefit from the unseen hidden margins in any area of life and to provide real life illustrations of this in practice.

How To Benefit From The Unseen Margins - Defining Our Terms

A margin is the gap or space between 2 things.

In the business sense, margin is the difference between the acquisition cost or the production cost of an  item or activity and the price at which you can sell it.

But in the wider interpretation, margin can be expressed in a number of different ways; here is my working model for how to benefit from the hidden margins.

Tangible and Intangible Margin

[a] Margin can be tangible and refers to things that can be easily seen and quantified.

• Examples of tangible margin can include things such as: how much money you can save on your household expenditure measured against a fixed income; or how much time you allow when setting off to catch a flight; or how much time and flexibility you allow in your day between scheduled tasks and activities.
• Tangible margin is easy to quantify and express and is objective. 
• Tangible margin is measured in facts and figures.
  

[b] Margin can be intangible and refers to things that are not immediately obvious or visible and are hard to quantify.

• Examples of intangible margin are: perceptions and expectations, feelings and experiences, slack and space.
• Intangible margin is hard to quantify and express, and is subjective.
• Intangible margin is measured in value - the value that someone or some group place upon it.
  

Primary and Secondary Currency

The next point to consider as we explore how to benefit from the unseen margins is how we measure these margins - what currency do we use?

Currency is the metric of the value of a margin and is determined by:

• Tangibility
• Measurability
• Visibility 

Currency is the expression of the value of a margin

By way of analogy think of this in terms of power.

Think of the hard power exercised by politicians and organisational leaders which is objective in the sense that is visible, tangible and measurable in terms of facts, figures and money.

Think of hard power as an analogy for primary currency.

The currency or expression of hard power is coercive and based on the rule of law and threat of punishment for non-compliance.

In contrast, consider soft power. At time of writing, here in the UK we have spent the past 10 days mourning the death of our queen,  Queen Elizabeth II.

One of the many strengths that many commentators attributed to her majesty was the exercising of soft power both within the British political system and on the global stage.

The measure of soft power is value and the currency or expression of soft power is relational and based on a high level of inter-connectivity and subtle indirect persuasion.

We can think of this as an example of secondary currency.

The benefits of soft power can be hard to quantify and express in the short to term. It is often only visible over the medium to long term, or after the person exercising it has moved into another role or has died.

For the purposes of this article, and to clarify our understanding of how to benefit from the unseen margins, we will think of how we measure and express the value of margins as follows:

• Primary currency =  facts, figures and money, and is an objective measure.
  
• Primary currency can only be applied to tangible margins i.e. that which can be seen and measured.
  
• Secondary Currency = anything that has high perceived non-monetary value and importance to a specific individual or group of individuals, and therefore is subjective.
  
• Secondary currency is applied to intangible margins and is hard, and often impossible, to see and can only be measured by those in receipt or possession of it. Because it is based on value, it is subjective.
  

Examples of secondary currency are:

• Reputation
• Trust
• Honour
• Recognition
• Respect
• Influence
• Space
• Freedom
• Peace of mind
  
• Transfer of intangible assets such as skills, knowledge and intelligence/information

There is a very interesting and profitable interplay between primary and secondary currency and how one can be leveraged to greatly increase the other. We will go into this in more depth below and I will share some personal illustrations.

As a brief example for now, consider this quote from Warren Buffet about how Costco take  primary currency in the form of profits and transmute it into secondary currency in the form of trust - which in turn will generate enhanced primary currency/profits in future.

Kris Abdelmessih in "Working For Free" talks about CostCo's strategy and comments:

'It’s not as hokey as it sounds. Think of it this way. They are hiding profits in the customer’s own pockets. They will be return customers. That profit is hidden from competitors’ wandering eyes and the IRS. The strategy commits Costco to keeping the customers happy because the profit is realized over the long-term. It’s simple but requires rare discipline.

The profit that “sits in your client’s pockets” has a bookkeeping entry called “trust”. The fact that it doesn’t capitalize as an asset on your personal balance sheet is a shortcoming of accounting. You can’t let it fool you from the reality that you have stored your future income with your clients and in their word of mouth.'

[3] Visibility = Margin Type + Currency

Visibility of margins is inextricably linked to measurability.

Tangible margins are measured in primary currency and have high visibility.

The unseen margins that we are seeking to identify and benefit from are intangible and hard to measure because value is subjective.

To reframe the popular Platonic phrase:

"Value is in the eye of the beholder."

We have to know:

• What to look for
• Where to look for it
• How to benefit from it

I want to wrap up this first section with this wonderful quote from Charlie Munger expressing his frustration at trying to do this:

How To Benefit From The Unseen Margins In An Environment Of Complexity

[1] Gaps Between The Map And The Territory

We live in a very complex world and the scale of it all is beyond human cognitive capacity.

There is just way too much of it for us to hold it all in our heads so we create maps of all this complex territory and use heuristics and mental models to understand and apply some of the principles of how things work.

But the maps [or models] that we create can become disconnected from the on the ground reality. This is illustrated in point two below.

Sometimes a gap emerges between the map and the territory.

This also leads to the converse being true. Because those things that are not seen and measured are overlooked two other important factors come into play, and these are inter-related: [a] the passage of time and  [b] second order consequences.

In this example, after the passage of a few years, the second order consequences kicked in as teachers and doctors retire early and/or leave the professions.

# A German example of not seeing the wood for the trees

Taylor Pearson gives a wonderful example of this with the true story of how in the late 18th Century the German government decided to modernise its forestry.

Applying the principle that margin existed where you could see it and measure it they transformed their forests with typical Germanic efficiency.

One of the major side effects of all this was the removal of all the foliage and underbrush from the forest floor.

The results, over the decades following these improvements, was a significant uplift in revenues and the German state looked on what it had created and decided that it was good... until the next generation of plantations came to fruition and the yield was appalling.

To cut a long story short they discovered that the removal of all the underbrush and associated detritus had deprived the soil of all its nutrients.

As Taylor Pearson explains:

"The forestry example is useful because it contains all the elements critical for understanding legibility/visibility:

Well-intentioned outsiders looks at a complex system, finds it confusing (because it’s illegible/unseen), and thinks they can improve it. They come up with an idealized way that the system should work, and then use their power and authority to impose that simple, idealized vision on a complex reality.

In the short term, everything seems to get better as a result, they are widely praised, and then down the line catastrophe strikes and everything comes crashing down."

James Clear has spoken in depth and detail about the importance of what he calls atomic habits which are comprised of small and seemingly insignificant changes that will compound into remarkable results if you persist with them consistently over many years.

Clear also makes the point that in the modern world  we live in a "delayed return environment" where the ability to accept deferred gratification is critical, but we are hard wired for instant gratification.

This is one area where any of us can learn how to benefit from the unseen margins of good habits.

When it comes to other people pay very close attention to their behaviour and their actions.

I have learned the hard way over many years in business to listen to what people say and watch very carefully how they behave over a period of time and then and pay close attention to the disconnects.

In summary this is about paying attention to those with serious skin in the game. This is an  important subject and I have covered this in depth in the article "Skin In The Game".

[4] Human Laziness, Need and Greed

In my experience of life in general and business in particular so many people follow their hard-wiring and take the line of least resistance to where they think the money is, and their motivation is a combination of need and greed.

I accept that I may have a particularly jaundiced view because in my line of work in the fuel industry the rewards can be huge. As a consequence so many brokers that I know chase the deals and play the numbers game and largely fail because they do not know how to benefit from the unseen margins.

5 Key Tips On How To Benefit From The Unseen Margins

The common theme in each of the following tips is to ask questions and be curious.

The following tips are questions that I have found to be useful in my ongoing quest to learn more about how to benefit from the unseen margins and positioning myself to be take advantage of them.

This list is not exhaustive, and I suggest you use this as basis for developing a few key questions of your own.

The goal here is to be clear on those few questions and hold them in mind so often that they become second nature to you, and then you will catch yourself identifying unseen hidden value in everyday encounters and interactions in your personal and working life.

If you want to take this seriously, you need to make this a habit.

OK, so here we go, these are 5 questions that I use:

[1] How Can I add Value To This Person Or This Situation?

The subtitle to this point is:

What does the other person really want and how can I help them get it?

As with each of these points, this is all about adopting a different mindset. 

If you do this consistently, and over time, you will surprise yourself as you discover how to benefit from the unseen margins in many different and unexpected ways.

This is absolutely not about manipulating other people or taking any form of unfair advantage. This is all about getting what we want by helping other people get what they want.

There are various ways you can look at this:

• Karma - you can think of it as generating "good karma". You don't have to be a Buddhist to think this way, this all about framing and is a positive and resourceful mindset promoted by stoics, existentialists and many other practical approaches to living.
  
• Mirrored Reciprocation - you can think of this as using the principle of mirrored reciprocation  whereby you get what you really want out of life by giving other people what they really want. This goes beyond the transactional and is about building a "win-win" that addresses our deepest needs as human beings. If you do this for long enough there is a compounding effect which is where the really big unseen margins are to be enjoyed.
  
• Reputation - you can see it as way of building a reputation for trust and integrity, expertise and preparedness to share knowledge and experience. As noted above, and to quote Cal Newport, you can become so good they can't ignore you.
• The Lollapalooza Effect - these points are not mutually exclusive and you can adopt all three  perspectives at the same time and enjoy what Charlie Munger refers to as the lollapalooza effect which occurs when two or more forces are all operating in the same direction and you reach an inflection point where you get an explosion of benefit - in which ever currency you seek.
  

These principles also work equally well if you are seeking secondary currency in any form that is important to you.

# A public service example of someone trading in secondary currency for its own sake

As mentioned earlier our late Queen was a wonderful exponent of the use of secondary currency. Her personal mission in life was one of duty and service and not the pursuit of primary currency - she was one of wealthiest women on the planet - but she wanted to make a difference in the lives of all the people with whom she had interactions.

This manifested in countless small and very personal kindnesses that she extended to very large numbers of ordinary people that she met throughout her very long life.

At the other end of the spectrum and when dealing with the rich and powerful she exercised very considerable soft power.

All of her actions and interactions were based on values of service and making small and subtle differences in other people's lives.

Her personal reward for all of this was the secondary currency of the satisfaction that she had served her country and her God, and fulfilled her duty.

[2] How Can I Leverage This Situation For Future Advantage?

This tip is an extension of the first point. I have found in my work that as I have made it a continuous practice to always seek to add value and help my contacts and associates get what they want I invariably find myself reflecting on these interactions and keeping my mind open to ways in which I can share, help or exploit the substance of that interaction with someone else.

Put simply I ask myself:

Who else do I know who could benefit from this?

In fact because I have trained myself to think like this I now get ideas more or less automatically.

Another aspect of leverage is taking the long view and building up a large balance of secondary currency with the other person or party such that when a suitable opportunity arises for them to reciprocate, they do so on a far bigger scale than they might otherwise have done.

The leverage can also occur because I am building up my knowledge bank to such an extent that I can benefit from it by identifying and developing other new business opportunities.

This is a practical example of Cal Newport's point about "being so good they can't ignore you".

[3] Who Is This Affecting And How Is It Affecting Them?

This tip is particularly useful when interacting with people who are being impacted by change.

Some change in life is chosen but much of it isn't and is imposed, and there are a number of articles on this site that address this theme. [If you are interested you can either use the index tabs in the left hand column or use the search feature in the site map and index.]

Times of change and transition bring many opportunities and these will often emerge through engaging with those who are being impacted, and asking questions.

# A business example of exploiting a secondary currency opportunity to generate lots of primary currency

Because I am a businessman I automatically seek primary currency in many of my interactions with people - and especially other business people.

One of the ways I do this is by focusing on and meeting the personal needs of my client or counter-party, in addition to focusing on their business and organisational needs.

I look closely at how they are being impacted by the situation, and I  try to find out their secondary currency needs and requirements.

Addressing their secondary currency needs inevitably unlocks the primary currency that I seek.

On one major IT programme that I helped run, I discovered that my client - the programme director had a very personal agenda, he was project managing the building of a large house for himself and his family.

This was time consuming and demanding for him. I ensured that I and my team took much of the hassle and stress of the IT programme away from him, and also made sure that all of the projects' milestones were hit. This enabled him to do what he really wanted to do - which was build his house.

This symbiotic relationship became very beneficial. He built his big house and I made hundred of thousands of dollars.

[4] What Are They Measuring, Where Are The Gaps And What Are They Missing?

This question is one I always ask myself when I encounter any form of request for data or I see some form of information gathering exercise going on, whether initiated by a central or local authority or a third party organisation.

I am always curious and always like to ask questions because as with the German forest example noted above, many official information gathering or measuring exercises are based on a simplified view of a high level map and there are often gaps.

It is these gaps that can yield the unseen margins.

25 years years my family and I were planning to move to a new area. At that time our children were aged 10 and 13 so clearly their schooling was an  important consideration. I undertook an exercise to analyse the Ofsted reports for all the schools in the catchment area we were considering.

I had been warned that all of the state funded schools in the city were poor performers with low ratings.

But on closer examination I discovered that the performance figures and the metrics used did not take account of the single biggest issue that affected the performance and rating of a school in the league tables.

This real big issue was the demographic of the catchment area for the school.

The quality of head teachers and staff performance, and the level of "value added" [i.e. improvement in rating of leavers compared with the rating of intake] was universally the same as non-city schools in higher placings on the league tables. All the schools, whether city non-city, added 2 levels of value [or improvement].

What was not measured or discussed were the demographic  profiles and attendant issues of social deprivation, poverty, criminality and broken families. The effect of these social issues was to reduce the academic performance quality of the intake from primary schools [for pupils aged under 11].

This was the sole and obvious reason for the ostensibly poor performance of leavers [at aged 16+] from the city schools.

This was, and probably still is, such a sensitive and contentious issue that it is not discussed in public and political debate about schools' performance.

The focus is always on the league tables which measure how schools score against Government/Ofsted standards and it is the head teachers and staff who are blamed.

There is no broader and societal happy ending to this anecdote.

At the personal level this analysis shaped our decision about where we chose to live, and we played very close attention to the demographics of the catchment neighbourhood for the local schools.

[5] What Is The Bigger Picture Here - Who Stands To Gain/Lose And Why?

This is a question I always ask myself when I encounter any proposed or enacted policy change, or major organisational, market or systemic change.

# Business examples of major gains from systemic change and turbulent events

At time of writing, a current example of this is the fuel market - in which I work. With the impact of Covid and the Russian-Ukraine war there are major primary currency opportunities for those of us who sell fuel and especially natural gas and liquid natural gas.

A further consequence of these factors is the 20% slide of the British pound against the US dollar in recent months. Getting paid in dollars and investing in pounds yields a huge tax free advantage of 20%.

In this example clearly many, many people stand to lose a lot, and in some cases everything. But others stand to gain. This is always the case.

By playing the long game and preparing and positioning yourself for these large, unexpected and often cataclysmic events there can be very large primary currency rewards.

Guiding Principles On How To Benefit From The Unseen Margins

[1] Understand Your Currencies And The Relationship Between Them

Just to recap, we are focused on intangible margins which are expressed as secondary currency and are hard to see and measure because they are value based and thus entirely subjective.

# Secondary currency into primary currency

Once we understand these margins in our personal areas of work and special interest we can develop a good idea of how this secondary currency can be transmuted into primary currency - and especially money.

With practice this can be an extremely valuable means of enhancing your income, capital and net worth.

# Secondary currency into secondary currency

As we noted above with the example of the Queen, there are many ways in which we can trade in values based actions and activities with the purpose of creating further and additional secondary currency.

This can, as in Queen's example, be entirely altruistic and an act of selfless service;  or it can be solely for personal or organisational gain as expressed in the value of enhanced image, honour, reputation or glorification.

# Primary currency into secondary currency

This is an interesting one and it falls into 2 quite different categories:

[a] Primary into secondary currency to create further primary currency.

This is illustrated in the Costco example above where they pass on the cost savings they make to their customers [rather than their bottom line] and in so doing build a secondary currency value of trust.

This is in leads to customer retention and enhanced life time value of a customer which in turn transmute back into higher sales and profits

[b] Primary into secondary currency in order to avoid dilution of primary currency [at someone else's expense].

I have a business interest in the hospitality sector in the UK and I have done many case studies to investigate what happens when small owner managed companies expand and become multi-site operations with the financial assistance of private equity companies.

What I see from the outside looking in is strong branding and major investment in the intangible assets of the business, all leading to the opening of new sites and positive PR in the trade press and popular press.

But when I look at the accounts, balance sheets and shareholding structures I so often find that the private equity investors have loaded these business with high interest payments to themselves and have diluted [taken away] most of the founding owners' shares in favour of themselves.

Sure these "owners" have industry profile and prestige and a certain amount of glamour  which all amounts to secondary currency, but they have deluded themselves into accepting the very considerable reduction in cashflow and profits with the high interest payments and they have given away most of their capital. [I have seen instances where owners have ended up with as little of 3 to 5% of their original 50-100% stake in the business.]

This principle works fine when you have a small and reduced share of something that is massive, but in these cases it isn't massive. These are early stage investments.

So these guys have allowed the investor companies to retain their capital and profits in exchange for what often  proves to be very transitory secondary currency.

Always be very careful when someone offers you lots of secondary currency in return for your income and net worth. It happens more often than you may think.

---

[2] Prepare For The Unexpected

Nassim Taleb  has covered this whole subject very thoroughly and I have featured his work on this site.

Antifragile is a term that he coined to represent things [or people] that benefit from disorder.

He explains how antifragility allows us to deal with the unknown, to do things without understanding them - and do them well.

Recent global events with the pandemic, the Ukraine-Russia war and the consequent fuel crisis are powerful reminders of just how uncertain life can be, and especially the unforseen side-efects of these events.

He has covered this subject well and I recommend you take a look at Antifragile.

[3] Work With Probability

I am sure you are familiar with the Pareto Principle aka the 80/20 rule.

But you may not be so aware of the The Fat Tail Fractal Factor which is where the 80/20 rule can be applied to itself. 

So 20% of your 20% best efforts [i.e. 4%] will deliver 64% of your best results. And the 80/20 rule can be applied to this 4% so 20% of that 4% [i.e. 0.8%] will deliver 51.2% of your best results.

In summary means less than 1% of your efforts and resources can deliver over 50% of your results.

If you can master the dynamics of making this happen you can take a quantum leap in your personal effectiveness in any area of life that really matters to you.

[4] Play The Long Game [And Be prepared To Pay The Price]

The long game describes an approach to any area of life that sacrifices short term gains for long-term wins.

It is about having a long term goal and taking the necessary steps now to set yourself up for long term success.

• If you play the long game you delay gratification now to get more later, you stop focusing on the short term and you think ahead.
• To do this requires you to ask hard questions and to consider the second-order consequences of your decisions and the key question you will be asking is: "...and then what?"
• The immediate effect of this is that you will be less efficient in the short term in order to be much more effective in the long term.

Please see: The Long Game

How To Benefit From The Unseen Margins - Key Point Summary

How To Benefit From The Unseen Margins - Defining Our Terms

1. Margin - Types: Tangible & Intangible
2. Metrics - Primary and Secondary Currency
3. Visibility = Margin Type + Currency

How To Benefit From The Unseen Margins In An Environment Of Complexity

1. Gaps Between The Map And The Territory
2. Top-Down Over-Simplification
3. Cause And Effect in The Passage Of Time
4. Human Laziness, Need and Greed

5 Key Tips On How To Benefit From The Unseen Margins

1. How Can I add Value To This Person Or This Situation?
2. How Can I Leverage This Situation For Future Advantage?
3. Who Is This Affecting And How Is It Affecting Them?
4. What Are They Measuring, Where Are The Gaps And What Are They Missing?
5. What Is The Bigger Picture Here - Who Stands To Gain/Lose And Why?

Guiding Principles On How To Benefit From The Unseen Margins

1. Understand Your Currencies And The Relationship Between Them
2. Prepare For The Unexpected
3. Work With Probability
4. Play The Long Game [And Be prepared To Pay The Price]

Download this summary

Further Reading:

Understanding Complex Systems Thinking - It's Not Complicated

How to Get What You Value by Changing What You Measure

How To Be A Winner - The Incredible Benefits Of Selective Attention

The Metagame Approach To Life - How To Achieve Your Biggest Objectives

The Fat Tail Fractal Factor

Why Understanding Ergodicity Is Critical To Your Long Term Survival

How Positive Asymmetry Can Transform Your Life

Finding Signal In The Noise

Next Article: 

The Art Of Thinking Clearly - How To Do More Than Just Survive And Reproduce

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