The Placebo Effect
By Hesh Reinfeld

Every salesman, consultant, and physician knows the credo: help your customer / patient identify his pain, eliminate it, and you have a client for life.

The challenge comes when the pain is difficult to pinpoint. Your prospect is complaining, profits are down, employee turnover is up, and his customers are reluctant to fork over any money.

As a management consultant, I would study the problem with the client. We would do the analysis, market research, customer interviews, and reverse engineer the product. The processes would usually unearth some valuable insights, but I often had no definitive strategy to recommend.

And yet within six months his business would turn around. Revenues and profits would increase, and I had a client for life.

What had I done? I call it, the placebo effect. Sometimes just going through the process will make a client feel better, and business actually improves.

Now I know this happens for about a third of my clients. The problem is that I never know in advance which third will be my placebo group. I can identify these clients only at the end of the consultation process, when I realize that I have no strategy to suggest.

I want to say to the client, "Don't do anything. Things will turn around. Maybe the real problem is, what they use to call in Economics 101, the business cycle." But I can't tell them do nothing; instead I offer my placebo strategy.

It looks like a real business plan, tastes like a real business plan, but it has no proven impact. Sure, there will be metrics to track, reports to complete, and weekly video conference calls with detailed agendas. However, the truth is that I have not offered them anything new.

Now this is not the Emperor's New Cloths version of consulting. I am not pulling the wool over their eyes. Rather, it is a proven fact that if the client thinks he has a new approach, even if there is nothing new happening, his situation will improve 33% of the time.

My CFO says that our "placebo clients" keep our profit margins high. Once in a while, I am troubled by the huge profits I make off of my placebo accounts. I will even ask myself, "Hesh shouldn't you charge these clients less?"

But then reality sinks in and I realize that if I tell the client that he is a placebo account, the magic of the process evaporates

And there are other times that I think I should keep only my placebo clients and subcontract out the other clients that require real work. Now that is really not a bad strategy. I know many consultants who hate the sales and marketing piece of their practice. They really just want to analyze spreadsheets and help solve problems. But I realize I need my "real" accounts to give my placebo clients a sense of authenticity.

A recent Harvard Business Review survey of consultants shows that 50% of the time, their recommendations have no impact. Either the client cannot implement the strategy or the consultant's advice was off-target.

So let's analyze the risk-reward ratio. If a company hires a consultant and spends $25K, he has a 50% chance of improving. If he does nothing, he still has a 33% chance of improving.

I don't know about you, but if I am the client and I am asked to pay $25K to increasing my chances of success by only 17%, I will keep my $25K and pray for the placebo effect.

Hesh Reinfeld is a professional business writer who focuses on the needs of independent financial planners. He writes marketing profiles for financial advisors that emphasize their passion and their values, all that ‘right brain’ stuff. He believes that business communications can be informative, interesting to read and even humorous (shhh… that a secret no one else knows).

Hesh is a regular contributor to The Register (the magazine of the International Association of Registered Financial Consultants) and frequently offers a humorous view of financial planning in Wealth Manager Magazine


Hesh Reinfeld
Business Writer for Financial Planners
& Humor Columnist
Tel #: 412 421 8379
cell: 412 680 2418
e-mail: hesh1@comcast.net
website: www.heshreinfeld.com
address: 6329 Crombie St .
Pittsburgh PA 15217