Business profits and human nature; how to increase the first by a knowledge of the second

Front matter

Business Profits

and Human Nature

5?eui fork

Foreword

The author is indebted to The Saturday Evening Post, The American Magazine, McClure's Magazine, and other publications for permission to reprint in this book matter that originally appeared in magazine form.

He is indebted also, for valuable information and suggestions, to Jay Lee Cross and John O. Sproul, of Cleveland, Ohio; officials of the United Cigar Stores Company; Louis K. Liggett, and various others.

Chevy Chase, Maryland.

Contents

:hapter page

I. — The Law of Averages . . i

II. — The Little Law at Work . . 7

Chapter I The Law Of Averages

Human beings, when you average them up, are surprisingly alike. And human impulses are a fairly constant quantity. If an Average Man does one thing to-day and something else week after next, it is not necessarily because he has changed, but probably because there has been some kind of shift in conditions. As Robert W. Service observes :

The thistledown that flits and flies Could drift no hair-breadth otherwise.

That is, the thistledown blows just the way it does because of the various physical conditions that control it — the topography of the earth, the altitude, barometric pressure- temperature, and velocity of the wind. If one were familiar enough with all these factors, and also happened to be clever enough at mathematics, it might be possible to figure the thing out, and place one's finger on the exact spot where the thistledown eventually would alight. Everything is Cause and Effect!

So it is with people. Equipped with a knowledge of all items entering into the situation, we could forecast precisely how a man would react under a given set of circumstances.

If it should be noted that ten persons a day slip and fall on the pavement in a congested area of a big city, and then some day twenty-five persons should fall, it would not mean that people on the average were becoming less steady on their feet, but more likely that the pavements had become more slippery. A newsboy starts over a route shouting his Sunday papers. He has two hundred papers with him, let us say, and can sell only one hundred and forty. To his disgust he has the rest left on his hands. On the following Sunday, therefore, he buys only one hundred and forty papers. And on that day, perhaps, he could easily have sold two hundred and fifty. He decides that man is an erratic animal about his Sabbath-day reading, and that there is no use trying to predict what he will want. But the chances are that on the day the demand was for two hundred and fifty papers, there was either bad weather to keep men indoors, or something in the papers of greater news importance than on the Sunday previous.

With a record at hand of past performances and all present influences, it should be easier to tell in advance about an average man than about an

The Law of Averages 3

average race horse ; for, inasmuch as there are more men than race horses, it is possible to get the average a little closer. To know all the motives and whims that enter into the actions of an individual is practically impossible ; but when we consider a crowd the task is less difficult. Individual peculiarities average up and are lost sight of in a big mass of persons. And the larger the crowd, the more definitely can we predict what an average person in the crowd will do.

If fifty women walked along a certain street, and one of them paused to tie her shoestring, it would hardly be justifiable to say that one out of fifty, day after day, would do so. But if it were found that ten women out of every one hundred thousand, on that street, fastened their shoestrings, the chances are that about the same proportion would stop to perform the same little chore, on an average, every day in the year.

A definite number of women out of every ten thousand will stop to buy candy, or soda water, or dotted veils. This number may vary according to climate, weather, season, or day of the week ; but there will, nevertheless, be a constant relation between the number who buy, and the surrounding influences.

Insurance companies know with uncanny accuracy the average man's chances for a long life or a short one. They know that under certain conditions— age, climate, occupation, and so on — so many men out of every thousand will die before the end of the year. So many men out of every thousand will be careless and accidentally set their houses on fire. A certain number will run into guileless pedestrians with expensive, high-powered automobiles, and be sued for damages. A known nvunber of automobiles out of every thousand will be stolen every year. And the older the machine the more likely it is to be stolen, even though it is not so valuable, because it is less under the cautious, watchful eye of the owner. Of every thousand bams insured against fire a definite number are sure, as the insurance companies have found out, to be struck by lightning.

If one were to stop a thousand men, at random on the street, and ask them what size shoes they wear — and then go to another street and ask a second thousand men the same question, the chances are that almost exactly the same percentage out of each thousand would be found to have on number nines.

Army quartermasters know that two hundred and thirty men out of every thousand must have their hats size 6^ , but only one man in a thousand wears size 6^. One man out of every three wears a fifteen collar, but size fourteen does not fit even one man in ten.

Every retail dealer is obliged to depend somewhat on the law of averages. The ready-made clothing dealer knows that there will be a certain number of fat men to be fitted in his establishment for a certain volume of business. If he is selling

The Law of Averages 5

hats or shoes, he knows in advance what percentage of his customers will require any one particular size.

Count the number of times the letter E is used in a thousand words in the Bible, and then count that letter in a thousand words in your favorite newspaper, and you will find the number in each place to be substantially the same. This fact is made frequent use of in the translation of secret codes. No matter what letter, or number, or character we decide to use in place of any letter of the alphabet, its real identity may be quickly established simply by counting the number of times it is used.

One often wonders at a hotel clerk when he says : "I have no room for you now, but I can give you something at about half -past eight."

How does he know that there will be a ntunber of four-dollar rooms available a little later ? The occupants haven't said they were going away, have they? Unconsciously the clerk utilizes the law of averages. Experience has proved that of each hundred guests in a transient hotel, a fairly definite number of those in four-dollar rooms will check out each evening.

Another striking illustration of the possibilities in harnessing the law of averages may be seen in any big newspaper office on election night. When the returns are in from half a dozen representative precincts, — some in the country, others in the city, — a clever political editor can forecast within a few hundred votes of the plurality in his State for the winning candidate. He simply makes comparison with the vote in those precincts in previous years. If one third of the people in two country precincts shift from the Republican to the Democratic column, there is a fair chance that about the same proportion of the voters have changed over in the country voting places yet to be heard from.

So it goes. There is almost no limit to the things one could tell accurately in advance about human proclivities, if only one had a detailed record of the past as a basis for such predictions. A concern operating chain stores, with its twelve hundred or more retail establishments, has made a tremendous business success because it is able to tell beforehand just how many men will come into a shop at a given location each day, and how much money they will spend. One man out of every so many passing along the street is certain to stop and buy.

Chapter II

On the morning of April 3, 1917, men smoked more cigars than usual. All that day they smoked more cigars than usual. Tuesday, April 3d, was a record-breaking day for cigar sales all over the country This was all the more surprising when we consider that Tuesday is ordinarily the dullest day of the week for selling cigars. Men stock up Saturday, to make sure of plenty of smokes over Sunday, and they replenish their stock again Monday morning. This supply usually carries them over Tuesday. But Tuesday, April 3d, was different . In N ew York City, for example, there were vastly more cigars sold than on any other Tuesday in the city's history. I have no doubt that this, was true in practically every other American city.

Why were men more inclined to consume cigars on Tuesday, April 3d, than on any other day? Simply because, on the night previous, the President of the United States had appeared before a. joint session of the two houses of Congress and delivered a message asking for a declaration of war against Germany. When people read the papers

S Human Nature

the next morning it made them extremely thoughtful. It was a day of tenseness. Men were rather unfitted for ordinary business, but were inclined to gather in groups and talk — and smoke. Those who were in the habit of smoking at all smoked that day more than was their custom.

Now the point to all this is that men, in the long run, react about alike. A situation that makes one smoker use up more cigars than usual makes nearly all smokers do the same thing. On the other hand there are conditions that cut down the amount of smoking. A big parade or carnival on the main street of a town always reduces the cigar sales for that day. Men get interested in watching the goings-on about them and forget to smoke.

Not every individual does exactly the same thing under the same circumstances, it is true, but the average man does. In the restaurant of a famous department store in an Eastern city, the manager knows exactly how much food of each kind to prepare, because he has figures at hand to show what the average man has ordered in the past. He knows from previous experience how many people are likely to eat luncheon in the store restaurant on a certain day of the week at a certain season of the year. And he knows that only one person out of every hundred will order shellfish. A trifle more than one out of every five is reasonably sure to desire some kind of salad. Here are the percentages of customers that order various other items :

Relishes 1.7

Soups 6.7

Fish 5.2

Boiled Meats 2.0

Entries [made dishes) 6.0

Roasts 5.6

Vegetables 7.4

Sandwiches 6.2

Ice Cream 14.4

Cooked to order 5.3

Club Luncheons [75c.] 33.5

Fruit 2.4

Cold Dishes 2.6

Specials for the day 8.8

The list given is the average for both winter and summer. By keeping records of food eaten on different days under various conditions of weather and temperature and general business it would be possible to lay down figures so definite that the chef could look at the sky and the calendar and the thermometer and the newspaper, and cook exactly enough, but no more than enough. Waste is thus eliminated. The old way was to cook up things at random and trust to luck. There was always too much of one article and not enough of another.

Every year business men learn new ways to derive benefits from the law of averages. It is one of the most potent forces in the business world for the cutting out of lost motion. The largest mail order concern in the world, located in Chicago, can tell within five minutes after a wagon-load of mail has arrived, exactly how much money the mail contains. How? Simply by shoving the mail upon a scales and weighing it. That is where the law of averages is of great assistance. With a knowledge of what has happened in the past, it is possible to tell what will happen again — so far as the daily mail is concerned. A certain percentage of the mail will be mere chaff — inquiries of one kind or another, and circulars. But for every pound there will be a definite number of letters containing money orders ; and these will average in the neighborhood of five dollars apiece.

Thus, the company, knowing almost to the penny what the mail has brought, can adjust itself either for a big rush of order-filling, or for a comparatively light day, as the case may be.

The company knows, too, from past experience, just how many orders it should get from each catalogue sent into a State, and it also knows which States excel in the average size of orders. In one State the average order per catalogue is only about $2.50, while in another it is more than $6.

In St. Louis is a famous hardware concern that probably makes more different uses of the law of averages than any other business enterprise in existence. For instance, they take, each day, stacks of little sales slips that come in by mail from men on the road, and weigh them. Then they

The Little Law at Work n

know, without further ado, just how much money the sales for that day represent. Each ounce of the little slips means so many dollars. One slip may be for a bill of goods amounting to thousands, and the next may cover only a dime's worth of nails. But a stack of the slips always average a certain amount. It never varies more than a few pennies.

This concern collects facts about various subjects that might seem to have only a scant relation to the hardware business. The reason is that their experience has taught them this great lesson: There is scarcely any fact that cannot be utilized in one's business if one only knows how.

For instance, this company lays great stress on getting all possible information in advance on the political situation . In every presidential campaign for many years back they have invariably known in advance what the result would be. They instruct their salesmen to take a straw vote of all the people they meet. As their salesmen go to the principal cities of every State in the Union they are able to get in touch with a wide range of opinion. Moreover, the people they deal with — hardware merchants — because of the very nature of their business, come in contact mostly with men. A hardware merchant usually can sense the political leaning of his immediate community. The salesmen, meeting the hardware merchants of a whole State, therefore, can arrive pretty definitely at the facts regarding what is going to happen politically in that State.

These reports from salesmen about political conditions are sent to the head office of the big company, where they are handled by only two men, who guard them with the strictest secrecy. While rival concerns are preparing by guesswork to meet after-election conditions this one acts with definite knowledge In 1896, when Bryan ran against McKinley on the free-silver platform, there was uncertainty about what monetary values would be after election, and hardware merchants everywhere allowed their stocks to run down. They did not wish to invest a penny more than was actually necessary in merchandise until they knew whether a dollar was to be worth a dollar or only fifty cents. So effective had been the advertising of the Republican National Committee, however, in associating the election of McKinley with the return of prosperity, that business men agreed on this point : A big buying wave to replenish stocks would sweep the country in the event of Republican success.

Everybody had his opinion, but the big hardware company had more than mere opinion. They knew. They were so certain of McKinley's election that they provided the biggest stock of goods in their history, ready to supply the demands of retailers when the buying wave got under way. Sure enough, after the election was over people began to buy. Prices of raw materials went up. Most wholesalers were unable to make prompt delivery. But the company that had found out about the election, even before it happened, was ready. They could promise immediate delivery, and they had bought their goods while the articles were still cheap. They had a big advantage over their competitors; and yet the nation-wide poll that gave them this information cost practically nothing, for their men would have been talking politics and learning the same facts anyhow.

This company is equally careful to have its men turn in daily reports of weather — temperature, rainfall, and so on — and also information regarding conditions of crops. They even arrange to get information about the weather in England. And how does English weather enter into the situation ? Here is the idea : An unusually warm, rainy spring in England will mean a demand earlier than usual on English manufacturers for pruning shears, scythes, and such articles. This in turn will mean that the manufacturers will be less able than usual to make prompt shipments of such goods to America. Wholesalers in this country, therefore, must either get their orders in early or arrange to get the goods elsewhere.

Likewise a rainy March and April in any section of the United States means that there will be a big demand for haying scythes and sickles and lawn mowers there in June. Under the law of averages a certain number of men out of every thousand who need lawn mowers buy new ones each year. But the number of those who decide to get new ones, instead of making the old ones do, depends on the luxuriance of the grass. So, too, there is a definite relation between a dry spring and the number of persons who will buy new lengths of garden hose.

Throughout the wheat-growing sections of the Northwest, this hardware company has found, there is an almost exact relation between the size of the wheat crop and the purchasing propensity of the average man on the street. It matters not whether a man in that section is a farmer or a journeyman plumber. He may not know it, but he spends his money according to the amount of wheat his neighbors have in their bams. When the wheat is sold a sum of money is placed in circulation. A certain definite ratio of this money goes to hardware merchants. These merchants, of course, buy new stock according to the amount of business they do. Hence the advantage to a big wholesale-hardware concern of knowing the size of the wheat crop without waiting until it is threshed to find out. They can tell almost to the penny how much they will sell in any small hamlet, as soon as they get enough facts about the weather in that section to enable them to forecast the size of the wheat harvest.

In the Treasury Department at Washington is a man by the name of Joseph S. McCoy, who, though he works in comparative obscurity, is one of the most notably useful men connected with the Government. He deals with statistics, and is by education an expert mathematician ; but much more important than his knowledge of figures is his knowledge of the average man. It is the knack he possesses for translating human nature into figures that makes his work so valuable. Without McCoy the legislative committees that deal with the subject of taxation and the raising of revenue would feel practically helpless

One of McCoy's tasks is to tell the Ways and Means Committee how much money a given taxation measure will bring in. That doesn't seem so difficult until you pause to think the proposition over. When a big revenue bill, such as the Underwood Tariff Bill, is drawn, the men who prepare it would have to work entirely in the dark unless they were able to get fairly accurate information on how much each item will provide. If the entire bill were estimated to bring in a billion dollars more than it does in actual practice the Government would be seriously embarrassed. There was a certain item of goods on which the import tax was ten per cent. It was planned to increase this tax to thirty per cent. Now it does not follow that the tripling of the tax would triple the revenue ; for as a thing becomes more expensive fewer persons buy it. For example, if we charge ten cents admission to a picture theater we can get a big crowd and thus derive considerable revenue, but if we charged two dollars we might not get any paid admissions at all.

So it fell to McCoy to figure out what the income would be after various new revenue features of the

Underwood Bill were placed in operation. And in almost every instance he estimated with uncanny precision. He was able to tell in advance about what the returns of the income tax would be. In 1913 he estimated that the corporation tax for the year ending June 30, 1915, would be in the neighborhood of thirty-nine million dollars. I do not now recall the exact figures, except that he came within a mere $144,000 of complete accuracy.

It was desirable, for revenue reasons, to know,- in 1901, what the census of the United States would be in 1910. McCoy came within a fraction of one per cent, of the figures that the Census Bureau obtained from an actual count of the population ; in fact, McCoy was perhaps nearer to absolute accuracy than the Census Bureau itself was, for even in making a count there is an inevitable element of error. And yet he made his estimate nine years in advance !

How does he do these things ? Simply by utilizing his knowledge of everyday human nature — and the law of averages. When he sought to know how much the population of the entire United States would grow in nine years I'll venture to say that he first examined the rate of growth along the street where he lived. Then he took other streets and compared them — and rural communities, picked at random. He probably figured that what would be true of these sample streets and localities would be true all over, for human nature is practically alike everywhere. He found out what kind of m en were having large families, and how numerous such men were in the average community. And he looked into the conditions that might increase immigration to this country.

One afternoon McCoy might have been seen standing on a street corner counting the number of automobiles and pedestrians that went by. Then he took a pad and pencil and did a little figuring. In a few minutes he had an estimate of the number of automobiles in Washington. He afterward got the actual figures from the District government and found that his estimate was practically correct. How could he tell that after seeing only the autos that passed one corner? Simply by comparing the number of autos and pedestrians with the total population of Washington . Later he went further and made a guess as to the number of autos in use in the United States. And he was not far off on either — as a more complete investigation proved. His figures were used as a tentative basis for a proposed war tax on automobiles. Think of a man's standing on a street corner and telling, just by means of what he can see there with his own eyes, how many automobiles there are in the whole United States !

Of course I do not wish to be understood as saying that he could make an accurate guess without taking various factors into consideration. He gave not a little thought to the relative purchasing powers of people in the city and in the country, the kinds of roads in different parts of the continent, and the amount of gasoline annually constomed in the United States. But always his chief guide toward accuracy was the simple law of averages, and the fact that human nature is much the same no matter where found.

When there was talk of a war tax on club dues and admissions to moving-picture theaters McCoy was asked to submit estimates of the number of persons who belong to clubs and attend the movies. He had the figures the next day, and they were fairly accurate. In arriving at the number of clubs men belong to he simply made inquiry of every man he met. He found that one man out of every so many is a member of some kind of club. There are a great many more clubs, by the way, than people realize. It is not uncommon for one man to belong to several clubs, which brings up the average.

In trying to tell how many persons each day go to see the celluloid drama McCoy started his inquiry simply by asking his wife how often she went to a movie. Then he asked her how often her friends went. He happened to see a comic strip in an evening paper about a woman who went down town ostensibly to do shopping, but who attended three picture shows, one after another. That set him thinking, and he made inquiry as to the number of women who go to more than one show each day, thus boosting the average.

He didn't have to ask in Kansas or California, but right in his own neighborhood — among people he knew. For he was wiUing to assume that if there are men or women in Washington who can't get enough movies to satisfy their craving there must be just such men and women out in Idaho and elsewhere. Well, McCoy figured it out that twelve million people each day in the United States witness the moving pictures. Some of the big picture producers and officers of their organizations were at first inclined to dispute McCoy's figures. But after they had examined into the thing thoroughly, checking up every available record, they gave it as their opinion that McCoy had somehow or other contrived to hit the nail on the head. And he had found all this out, mind you, just by casual conversation. He let the law of averages do most of his work for him.

Circus men havfe long observed that there are definite relations between the things people do and the size of the crowd. A number of men and women out of every thousand are sure to forget their change at the ticket window. The "walkaways," as they are called, who forget their change, but do not know they have done so, and never return for it, are worth about twenty dollars to the ticket-seller in an average big circus crowd. When the crowd grows bigger, the amount of change thus left not only becomes larger, but at an increasing rate, as the mathematicians say — because people are more tense and nervous in a big crowd, and consequently, more likely to be absent-minded and forgetful.

An amusing thing about a circus crowd is this: Fully nine out of every ten persons, on the average, who talk to a circus man at the show grounds, are certain to ask him exactly the same question, to wit: "Where do you go from here?" Mind you, they do not say, "Where does the circus appear to-morrow ? " or " What is yotir next town ? " or any of the other numerous possible variations of the query. Always it is: "Where do you go from here?" And, as I say, the question is asked by nine out of ten of all the people who chance to engage a circus man in casual conversation.

Those who sold Liberty Bonds in theaters discovered many interesting things about crowds. It soon became an established fact, even in the earlier bond campaigns, that the subscriptions bore a direct relation to the contributing factors at any one particular theater. That is, it all depended on the kind of crowd, the size of the crowd, the personality of the speaker, and the sort of speech he made. The audience at a ten-cent moving-picture theater would not respojid in the same way as the audience at a fifty-cent picture theater, or at a $2.50 drama. Because of the sheep instinct in people, a number of large subscriptions "planted" in the audience nearly always give a big impetus to other bond sales. If the speaker had a pleasing personality and injected a little humor into his talk — and the humor actually made the audience laugh good naturedly — he sold more bonds than if he adhered strictly to ponderous argument. Indeed, too much argument about so obvious a fact as the patriotic necessity and wisdom of buying Liberty Bonds had a tendency to check the sale. People regarded it as presumptuous on the part of the speaker, almost as an insult, if he essayed to tell them their duty. They preferred to have him say: "I appreciate that you know your duty and that you will be equal to the situation. "