Second-order effect
What happens after what happens — the consequence of the consequence, which is usually where the real cost sits.
A second-order effect is the consequence of a consequence. The first-order effect of a discount is more sales this month. The second-order effect is that the customers who bought at full price last week now know your price is negotiable, and the ones who waited were rewarded for waiting.
Most bad business decisions are not first-order mistakes. They are decisions that were correct in the immediate frame and were never checked one step further out. Cutting the slowest-paying client improves cash and removes the referral source nobody had traced. Hiring to relieve pressure adds management work to the person who was already the constraint. Each is defensible on the day and expensive by the following quarter.
The habit that catches them costs about a minute: after deciding, ask "and then what?" twice. Not to predict everything — you cannot — but to notice the obvious downstream effect you would otherwise meet by surprise. Most of them are visible from where you are standing.
Worked: a 20% launch discount lifts sales 35% this month. Next launch, 40% of buyers wait for the discount, so full-price volume falls and the discount has to repeat. Margin over four launches is lower than doing none, and the pricing expectation now takes a year to reset.
Also known as
- knock-on effect
- downstream consequence
Relevant for
- Founders
- After a decision, ask "and then what?" twice — most costly calls were correct on the day and never checked one step further out.
- Business owners
- Hiring to relieve pressure adds management work to whoever is already the constraint; the relief is first-order and the load is second.