Random Thoughts from a Restless Mind

Dr. Darrell White's Personal Blog

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Service, Creative Destruction, and the Cost Curve

We hear an awful lot about the cost of medical care in the U.S. No, no, this isn’t going to be a post about Healthcare Reform, whatever the hell that is. Rather this is just a bit of thinking out loud about cost in general, and the cost of CrossFit in a roundabout way.

“Bending the cost curve” is a fancy-shmancy term that essentially means that someone thinks they’re smarter than you are, and definitely smarter than that guy you wanna buy something from, and they (the smarty pants one) are gonna somehow affect the cost of something or other. Top-down, command and control economic planning kind of stuff. Healthcare, airline travel, farm production, you name it–someone who is in a seat marked “Director” thinks they know what that thing you want to buy should cost.

Now, there’s lots and lots of economic theory with adherents who line up on either side of this issue, and for better or worse there are an equal number of adherents who populate the halls of governments of all shapes and sizes who hue to one call or another. But if you break it down to a very simple level, the cost of something at the transaction level is determined by the investment by the seller and the perceived value by the buyer. I know, I know, there’s the whole power thing, and what constitutes want or need, but if you are reading this post the chances are that you have more “first-world problems” than real ones, and most of your transactions can be fairly described thusly.

How does this relate to CrossFit? Some guy coined the phrase “Creative Disruption” (his name as lost to me as that Andy what’s-his-name whose own 15:00 of fame has come and gone) to describe the phenomenon of something dramatically new and different that enters a market and essentially bl0ws it up. I was reminded of this as I read an article on a new Smartphone equipped with a camera sporting a massive amount of pixels (80? 180?) that was surrounded on the page by advertisements for stand-alone digital cameras. Ironic, eh? Supporting the publication of the article is an industry that is on the cusp of being destroyed by the subject of the article.

How come? Ah, now we start to close in on the intersection of CrossFit and cost. You see, in technology of all sorts there is an inexorable progression to lower cost (what’s that guy’s name who stated that processor speed doubles every 18 months?), and with lower cost comes disruption. Indeed, any THING is subject to this phenomenon. One only needs to think of the calculator or the digital watch, once terrifically expensive non-essentials now so inexpensive that they are incorporated into pretty much every single electronic anything.

The Cost Curve need not be bent for things; “Creative Disruption” has forever had the watch there.

It is in the realm of services, thought-intensive “products” provided by people, that this relationship is turned on its head. Can you think of any other phenomenon in fitness that more fits the description of Creative Disruption than the Affiliate model of CrossFit? I can’t. Individuals choosing to pay MORE for training in return for the facility, programming, and coaching of a CrossFit Box. In order to provide value for this cost the Owner/Trainer must demonstrate superiority to lower cost options (YMCA, Globo-gym, garage) like any other service. Value must be driven here by the over-arching quality of the product, the service, such that a higher cost still looks like a bargain. (As an aside, Affiliate owners, and for that matter everyone who works in the healthcare industry, ¬†should be ever aware that the provision of quality is the table stake in this game.)

On a global level, though, the CrossFit gym illustrates the one area that pushes back against the whole “Bending the Curve” desires of the command and control adherents: people who actually do something, make something or perform a service, represent an ever INCREASED cost. It is the WORTH of the product to the purchaser that drives the sale, drives the value, more so than the cost. The people who run a CrossFit gym determine what their service is worth and then go out to prove it; the people who join a CrossFit gym perceive the value there.

Therein lies the problem when one looks at any economic sector in which essentially people are the product and one tries to lower cost. Everyone is underpaid. Well, maybe not Larry Ellison or Asht0n Kutcher, but pretty much everyone else. How do you “Bend the Cost” of an industry when doing so necessitates lowering the value of the contributions of people, reduces how much they are paid no matter where they fall on the food chain?

My bid, for whatever it’s worth, is that it’s better to seek some form of “Creative Destruction”, like CrossFit in the fitness world, in which buyers see the value in the offerings of the sellers and are allowed to act accordingly.

 

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