Last year Howard Stern earned more than any other radio personality. U2 topped the list of highest-paid musicians. Leonardo DiCaprio made $77 million, more than any other actor. Tiger Woods, in spite of all his, um, problems, still made $62 million to head the list of highest-paid athletes. (Tom Brady came in 9th at $30 million, but his earnings are definitely understated if you add his Bundchen bonus.)
It may seem odd to focus on individual earnings in a business-focused article, but there’s a reason: Successful businesses, no matter how large, are based on people. People, not products, make the long-term difference.
And that’s why the ability for businesses to earn incredible sums over a long period of time is based in large part on the Theory of Replaceability: The more difficult your company—and you and your employees—is to replace, the more money your company can make.
An accountant friend is a great example of replaceability. Online tax preparation services like TurboTax destroyed the minimum input-maximum billing portion of his business. His firm’s “gravy” work dried up when the average American began to see tax preparation not as a mysterious alchemy of accounting wizardry but as a commodity.
The same has happened with legal services, health care, and other professions—not because those providers aren't highly skilled but because consumers have access to relatively similar levels of quality and service from a variety of sources.
Some companies are definitely better than others, but consumers won’t pay more for great service when good service is all they need.
Neither will your customers. To make more money you first have to make your business indispensible.
Here are a few ways:
Infiltrate. High switching costs create long-term customer relationships. One way is to be the low-cost provider, but a better strategy is to find ways to make the customer rely on you… and struggle to imagine business life without you. Identify a customer’s problem and solve it for them on an ongoing basis: Streamlined invoice processing, seamless inventory management, handling both core functions and associated administrative tasks, etc. Simple example: Say you’re a writer and you write blog posts for a customer. If you also create the post, add photos, and take care of social media messaging related to the post, you solve a further problem and become a lot harder to replace. Identify a customer’s pain and then ease that pain and they will need you for more than the basics of what you provide—and you’ll differentiate yourself from inevitable competition.
Add a service. While even complex skills are often commodities, that’s less true when you add a skill outside your company’s primary competency. A Web designer who also can write well is much more valuable, especially since most companies increasingly rely on social media to interact with customers. Even though video and multimedia are important, the majority of social media messaging is text-based. When you are “the Web designer who also writes our blog and coordinates our social media marketing efforts,” you’re a lot harder to replace.
Forget position. Add value. Some companies keep the trains running on time; others generate a significant return on their customer’s investment. The greater the return you generate the less replaceable you become. See your initial contract or scope of work as a list of basic responsibilities, then take the next step and determine how you can add value by cutting costs or increasing revenues. And don’t think, “I’m not doing that unless I get paid for it.” Think, “I will do that, because in time I will get paid for it.” Look past the basic client relationship and find ways to add value to what your customers receive. Indispensability doesn’t happen overnight; it’s earned, not given.
Truly be the best. Go ahead and begrudge the success of others, but remember: No one reaches the top through luck alone. Successful people work incredibly hard. Love him or hate him, there’s only one Howard Stern—in terms of audience and influence he’s the best broadcaster alive. He cannot be replaced, and his earnings reflect that fact. The greater your expertise, the harder it is for customers to replace you.
And the more you excel, the more you earn.
It may take time, but excellence always pays off.