The Honor System in Business

As a company, Punchbowl owns a bunch of domains. Some of them we acquired when we first launched the company and were testing various URLs, and others we’ve acquired from our acquisitions of GroupGo (I’m in) and Socializr.

A few times a week, I get a random request from someone who wants to buy one of our domains. Most of the time I respond telling the person to make an offer. And most of the time, the offer is way too low-ball to make it worth the time or effort. However a few weeks ago, I got a nice email from a guy named Mitch who was interested in one of the domains: “My wife is looking at opening a small business, and liked the domain name xxxx. I see that you own it, but it’s not in use. Would you be willing to sell it?”

I liked his email because I’m a sucker for entrepreneurs, and I also liked that his motivation was to make his wife happy. So I wrote him a quick email back. In his response, his tone was down-to-earth and friendly — and he even mentioned that the domain purchase was going to be a surprise for his wife. Now, he had me hooked.

Fast forward a few weeks, and we negotiated a price. In one of the back and forth emails, I added one provision to the deal: “Also, no deal if you insist on escrow. If we can’t do it on trust, then forget it…” I didn’t want the extra hassle and fees of an escrow agent. To my surprise, Mitch accepted the deal and he agreed to work on the honor system. And you know what? The transaction was a breeze.

Are there other transactions that the business world could accomplish using the honor system? Here’s an example: let’s say that we decided to sell memberships on Punchbowl.com based on the honor system: if the user chose to use a Premium asset, the expectation would be that you would pay for the upgrade. However, you wouldn’t be forced to pay for an upgrade to get the asset. It would be based on the honor system. Would you pay? What percentage of people would use a Premium asset without paying? It’s some interesting food for thought. Do you know of any businesses that use the honor system? (please leave your thoughts in the comments)

I love it when two smart people get together, agree not to be jerks, and work out any differences with a conversation. I wonder how much time, effort, and money is wasted everyday because people insist on documentation to cover every last provision. Perhaps we could get rid of a lot of paperwork if more business transactions were done the way Mitch and I got our deal done. Your thoughts?

Congratulations to Mitch and his wife on the purchase of a great domain!