Evolution and the brain (mostly the limbic system) are the enemies of startups. Why? Loss aversion, risk aversion, status quo bias, etc. There are many behavioral studies done in this area. Here is a synopsis of one.
Bottom line – We just hate to lose!
For those who do not know, these neurological phenomena fight against change at the cellular level. We are hard-wired to choose risk of loss over hope of gain by about 2 to 1 in some studies.
However, in order to survive, change is what most startups need their customers to embrace.
Check out this link for more info on loss aversion.
Real-Life Example (1 of 16 startups I worked at or advise(d))
A few years ago, I joined a great team of young entrepreneurs who had used phenomenal technology to address a problem that was over 100 years in the making. Over several months, the team created a very cool and easy to use tool based upon this proven underlying technology. In many cases, in about an hour, this was the process:
- We would take existing data from our clients
- Run it through our system
- Show them how inefficient their current systems and processes were.
- They could slice and dice the data to show them from many angles how they could get the most of out of their business based upon their own market needs.
- > 85% of the time, we were saving them significant amounts of money.
We were going to save the planet!
At one point, I stood in front of some of the largest companies in the industry and showed them based upon the work we did with some of their peers that their group alone which represented about 10% of the industry had about $300 million of waste/year. Holy cow! You do the math.
We could show them with their own data! They could do “what if” scenarios in real-time. What more could you need? One would think that they would be writing us checks right then and there as we were looking to receive only a small fraction of the savings realized as our fee.
Sadly that is not what happened.
We found out later after dozens of interviews that they just did not care enough to make the changes necessary to realize the savings. Here were their reasons:
- There too many other players in the ecosystem affected. (We found out later that some were working against us.)
- The inertia of doing it (basically) the same way for over 100 years prevented them from going through the effort to realize the savings.
- They felt they had bigger problems to address first.
We should have done the interviews first and looked from the outside in versus the inside out. We might have built something the entire ecosystem needed and taken some of the burden of change away from our main customer.
They were much more concerned about the risk of perceived loss vs. the prospect of unrealized gains. It is a basic human condition and one every startup founder should be aware of.
The human brain does not like startups!
Sad truth: You can have the best idea in the world, prove its value without question and still go out of business. People do not always make rational decisions – Misbehaving is a great book on this topic.
However, there is hope as some have gotten through this knothole. Here is what I have observed. (Please note these are based primarily on B2B companies but some have broad applicability.)
- They are out to solve a need.
- They truly care to make things better for their customers.
- They check their ego and all pre-conceived notions at the door every day.
- They make their customers/prospects part of the process.
- They do not ask the customer what to build
- They find out if there is a problem and discover how it is solved today.
- They find out if there are any weaknesses in the current solution.
- They ask The Magic Wand question among many others.
- They make sure the founder and one other person are integral and devoted to this process (at least one of you should be innately and relentlessly curious).
- Once they have some consistent feedback, they work with a narrow set of folks first that seem representative of the whole.
- They build (or re-build), test, fail, build again, test again, fail some more…(you know the drill)
If you finally come out with something that gains wide enough acceptance and you get enough momentum or a few with sway to endorse you, you can leverage the same general neurological biases already mentioned – one aspect of loss aversion which is sometimes referred to as FOMO (Fear of Missing Out).
Most folks do not like to be left behind but few want to be first. Weird, huh?
This process never stops as the proverbial hockey stick doesn’t last forever and eventually looks more like an “S” over time as the market and your business grow. Growth means continuing to innovate and focusing on four main decisions in the business – People, Strategy, Execution and Cash. Please see my previous post for more on this topic.