People are unpredictable. And they are animals.
These two tenets are often overlooked by startups trying to appeal to customers based on rational assumptions. Remember, people buy expensive wine they know nothing about. They place value on what their peers value whether they want it or not. They won’t shell out $2 for a useful app, but will take a $30 cab ride to get to work. And this behavior is only intensifying as more options become available faster.
In this environment, companies can’t rely on customers to make straightforward decisions based on clear triggers. And they can’t rely on themselves to understand what will motivate people to buy, download and use their products. To fix this, they need to dig a level deeper, into territory most aptly defined as ‘behavioral economics.’ Luckily, this is Cindy Alvarez’s jam. As a master customer-base rainmaker at Yammer and now Microsoft, she has rare insight into why people do what they do and want what they want — and she’s willing to share.
THE INTERSECTION OF BEHAVIOR + ECONOMICS + FINDING CUSTOMERS
“So back in the day, a bunch of economists were trying to predict how people and markets would behave assuming they’d use rational criteria. What they found is that it basically never happened,” says Alvarez. “Instead, people were being driven by what researchers considered ‘supposedly irrelevant factors’ (or SIFS). It turns out these 'irrelevant' factors are everything.”
Most of them tie back to cognitive psychology. It turns out our brain's default is to protect us from the rest of the world. That’s why dozens of tiny things can be going on around us, and we're able to focus in on a few. Our minds have evolved to take short cuts and react almost instantaneously to what we deem important. This is great news for someone trying to escape a sabertooth tiger. Not so great for making nuanced product decisions. Fortunately, if we know our brains have this handicap, we can devise a way around it. That’s where things get interesting for startups.
Customer development is the science of establishing a market that is willing to buy the thing you’re building. Ideally, this happens before you quit your day job, raise money or spend months developing a product. “For almost all startups, the greatest risk isn’t technical,” Alvarez says. “It’s whether or not someone will care and buy.”
Cognitive psychology influences both sides of the customer development equation. It shapes what customers actually want (and think they want), and it strongly affects how companies try (and often fail) to get this information
“If you’re really looking to understand what people’s pain points are and what drives their decisions, you have to approach them in an indirect way, because people are (frankly) not very good at predicting what they’ll do,” she says. “You have to be aware of the inherent biases most people have and frame questions to counteract them. Otherwise, people will think they’re answering honestly. If you take them at face value, you'll end up creating the wrong company.”
Then, you have to be really honest with yourself about whether the problem you’ve identified really exists, and if so, whether you have the tools and opportunity to solve it.
CONFIRMATION BIAS — YOUR NO. 1 ENEMY
Confirmation bias manifests in a few ways:
Only talking to people we think will agree with us.
Writing off people who don’t agree with us as idiots or haters.
Asking questions designed to support our hypothesis.
Take a note taker with you into every customer development conversation. That way you can focus on interviewing a customer without splitting your attention, and you’re much more likely to capture everything — including the contradictions. Take this one step further by making sure your note taker isn’t invested in the same things as you.
HACK YOUR BEHAVIOR
Recognizing common customer biases and knowing the quick fixes described above is one thing. But the most successful startups will use this information to change behavior in their favor from the start. It’s hard to do when you’re running a million miles a minute with limited resources, but there are simple, systemic things you can do early.
One of the most impactful things you can do is capture data from customer interviews the right way. It all boils down to the power of storytelling and making it a tradition on your team.
When you’re interviewing customers, you tend to summarize what they said in a few bullet points. You can do that for brevity, but to make it stick, think of how you’d present this information as a story.
What details would you include to make it interesting or non-obvious or entertaining? Those are the helpful tidbits that slip by when you prioritize brevity. In a story, you’re more likely to include the questions you asked and if you changed them and why. You can better frame your findings in terms of, “We used to believe the world was this way, and now we have new information that tells us that it’s this way instead, so as a result we’re going to do this...”
"For example, we used to believe that it was really important for C-level executives to participate on Yammer," says Alvarez. "If the CEO posts, then that sends the message that this is a credible and valuable tool. And that’s not wrong, but we’ve talked to so many employees at large companies that are many levels away from the CEO. If the CEO loves Yammer but Jane’s boss thinks it’s a waste of time, Jane isn't going to use Yammer. So we need to make sure the product works at the small team level — and make sure all of the Jane’s-bosses of the world understand the value of it."
Putting your customer research into this framework makes it stickier and more memorable. Especially when your company grows out of the “everyone sits at one table” phase, it’s easy for a lot of the detail to get lost. As a result, your product team might seem like they’re changing their mind all the time. This isn’t a small thing. When people don’t understand the company's vision or how and why the product is being built a certain way, they leave.
Stories are shareable and lend clarity. They contextualize data in a way everyone can understand and rally behind. Generally, people are okay with pivots if they understand the impetus.
This is where it becomes very helpful to have a dedicated point person managing your customer development workflow. In a perfect world, you’re doing this so early on that it’s 'all hands on deck' and everyone is making calls to interview customers, but it's still handy to have a point person who's responsible for converting notes into stories, among other things.
SCALE YOUR ADVANTAGE
Understanding how behavioral economics influences your customers and your team is a significant competitive advantage. Given that it’s much easier to apply these tactics early when your company is small, it requires considerable effort to scale them as you grow. The best thing you can do is make these lessons part of onboarding process when hiring employees and even bringing new clients on board.