Why carrots motivate donkeys and whips drive racehorses
In my role as an advisor to a number of app developers and service providers, I am regularly quizzed on the question of speeding up sales to SMBs.
“We have the best _________[insert product/service offering] on the market. Our existing SMB customers love us/it. Everyone we talk to loves it. But the challenge is getting new customers to act in a timely way, en masse… how do we speed up adoption?”.
In this article, I share my thoughts on how to compete effectively with Status Quo, as a key success factor in accelerating growth, particularly within the SMB space.
Let’s start with understanding growth.
What is growth?
For modern business, growth is a simple formula:
Growth = Acquisition + Retention + Attachment
- Acquisition: acquiring new paying customers
- Retention: keeping paying customers
- Attachment: growing the revenue generated from existing customers
And whilst your product/service offering is an enabler of all three factors in growth, it is NOT the only driver.
Unfortunately, too many entrepreneurs/managers have seen the movie Field of Dreams: “If you Build It They Will Come”
Sorry, with very few exceptions, this just isn’t true.
It’s a hackneyed example, but stories abound that Betamax was a superior technology to VHS.
I have my own, perhaps controversial, opinion, that a modern day example is Salesforce – IMO there are better CRMs than Salesforce (certainly there are CRMs with better reporting engines…), but wow, none come close to SFs’ ability to scale their sales…the point is, growth is rarely built on the product/service alone, nor do you need the absolute best product/service to grow at scale.
Status Quo as competitor #1
The main competitor to scaling adoption, particularly in my domain of app developers and service providers, is rarely a competitive alternative / a comparative product or service, it is sticking with status quo.
Status quo is not just 70s rock band, it is a Latin phrase meaning:
“the existing state of affairs”
I recall the days before SuperStream. I did a lot of payroll software consulting and worked closely with the team at ClickSuper. They had identified the effort and stress involved in superannuation lodgements for employers and built a very effective solution. It seemed a “no brainer” for all employers. Clients loved it. They spoke to the benefits at user conferences, unprompted and with absolute passion. Logic would see that all clients would just jump at it. It was literally the difference between seconds and days each month or quarter…and it was cheap…But for some reason it was a hard slog to elicit en masse adoption. The value proposition was obvious, but what was the blocker?
Why, in general, in spite of all logical reasoning for adoption, do SMBs tend to delay making obvious buying decisions?
Decisions are made by people and people will make decisions based on flawed, biased thinking, not just pure logic.
I recently read “The Art Of Thinking Clearly” by Rolf Dobelli. It covers off 99 cognitive errors that all people make during decision processing. I also recently completed the Australian Institute of Company Directors course, which dedicated a significant module on governance to Decision Making and the ways to deal with our own flawed thinking.
On top of 16 years selling technology and services to SMB, these recent readings have helped me better understand the way in which decisions are made and thus the blockers to SMBs committing to a product or service offering.
Many people talk in terms of the flawed logic of SMBs around “if it ain’t broke why fix it”. When you drill in on it, this thinking is actually underpinned by several factors. Perhaps all 99 of Dobelli’s apply, but I wanted to highlight 5 interconnected, key factors I see that lead SMBs to choosing status quo over a better product or service:
- A perceived lack of value in the outcome;
- Default effect;
- Sunk cost fallacy;
- Fear of failure;
- Decision fatigue
Perceived lack of value
Many will argue that growth is about quantifying your value proposition, full-stop, end of story. They would argue that SMBs will make a decision when there is sufficient value in the outcome that can be demonstrated by the seller. Logically, this is correct and it is certainly a factor, no doubt, but unfortunately human-made decisions are not always logic based.
Sunk Cost Fallacy
A classic example of flawed thinking is Sunk Cost Fallacy. We’ve all seen it and suffer from it. In spite of the fact that past costs should be irrelevant in assessing future cost/benefit, too many people are influenced in their thinking by the time and cost of establishing status quo. Regardless of the future value proposition, often SMBs will consider “cost to date” and influence otherwise logical thinking on a decision to change, with a leaning toward persisting with the existing system/process “because we’ve invested too much to dump it now”.
Fear of failure
Decisions not to proceed are often made because of an inherent fear of failure, whether logical or not. Often in the technology and service provider space, SMBs will have a horror story of a failed engagement OR probably know someone who has. This will impact their ability to logically assess value and make decisions to proceed. Sticking with what they have, becomes the default choice, which leads me to:
In simple terms, making an option a default increases the likelihood that it is chosen. If the default option for the prospective customer is sticking with status quo (as it often is), it is most likely to be chosen. The classic example is organ donation. In countries that require opt-in, the rate of organ donation is a fraction of those countries where choosing not to donate requires opting-out.
Part of the reason for the Default Effect, might be Decision Fatigue.
Long before I happened across the idea of Decision Fatigue, I longed for a restaurant with no menu. Come in, sit down and start talking. The waiter checks your food allergies/preference (gluten free, vegetarian, nut allergy etc) and takes your drinks order (from a limited, top level choice of beer, white wine, red wine, still or sparkling water). Then the food starts to arrive. Limited decisions. Enjoy your meal and your company. I experienced this recently and it was everything I thought it would be – I LOVED IT – I loved the absence of decision making!
Once I learned about the theory of decision fatigue, I felt an overwhelming sense of “abso-bloody-lately!”. If you haven’t happened across it, the concept is simple:
“Every decision we make weakens the brain’s capacity for reasoning and paying attention.”
In a famous study, Israeli parole judges were more likely to decide to grant parole early in the day (70 percent) and almost never late in the day (less than 10 percent) after controlling for all other factors (simply, the judges find it harder to decide as the day wears on, so are far more likely to stick with status quo – rather than decide to grant parole).
I contend, that Decision Fatigue is one of the main blockers to adoption among SMBs. Maintaining status quo is as much about the entrepreneur NOT making a decision as it is about deciding NOT to change, sticking with the Default or NOT understanding the value proposition. Entrepreneurs are people and they are forced to make decisions on their company and personal lives all day, every day. I reiterate, making decisions is scientifically proven to exhaust us and thus not making decisions is a defence against being worn out.
How to use flawed decision making process to your advantage
Once you start to understand the thinking that leads to retaining status quo over investing in the better alternative, you can start to strategise ways to use that thinking to your advantage.
For me a key strategy to achieving scaled growth, is to try to reverse the decision making for the SMB. Go from where the act of not making a decision leads to falling-back to status quo, to one where choosing (or avoiding) status quo actually becomes the decision.
One strategy I like to employ is based on the idea of “carrots and stick”. I extended the idea to:
Which animal would win in a race? Stating the obvious underpinning of the analogy, what motivates an SMB to act faster…?
This idea of “reversing the decision making (from purely focusing on the carrots of perceived value), to highlighting the consequences (the whip) of maintaining status quo”, works for a few reasons:
Loss Aversion is encapsulated in the expression
“losses loom larger than gains”
Kahneman & Tversky, 1979
It has been shown that the pain of losing is psychologically about twice as powerful as the pleasure of gaining, and since people are more willing to take risks to avoid a loss, loss aversion can explain differences in risk-seeking versus aversion.
Encourage SMBs to make a decision by highlighting the risk of loss in maintaining status quo. Certainly, you need to build the value proposition of your offering, but you will encourage a faster, easier decision if you also highlight the potential loss of not deciding to change.
Compliance and enforcement plays to Loss Aversion. SMBs rarely, intentionally do the wrong thing. Having a solution that helps them avoid punishment is powerful driver of adoption.
With reference to my earlier anecdote on ClickSuper, it was the introduction of SuperStream and laws enforcing compliance with electronic super lodgement, that really accelerated adoption.
If you aren’t lucky enough to have a legislated compliance whip (though corporate governance is always a good reason for directors to do anything better), you need to focus on why status quo isn’t an options for competitive, stress, cost or other reasons.
Leveraging Decision Fatigue and Default Effect
By switching the decision making from deciding to change to framing the decision around whether to NOT change, you subtlety reverse Decision Fatigue and Default Effect to work for you, rather than against. That’s what governments do in making organ donation opt-out.
How can you make your product an opt-out, rather than opt-in? Focusing on the idea that status quo requires a conscious opt-in helps frame your solution as the default, opt-out option.
Fear Of Missing Out (FOMO)
FOMO is real, not just the reason my beautiful 4 year old daughter has never liked sleeping, but a fundamental part of all human psychology that can influence decision making. FOMO works actively against maintaining status quo. Its why “limited time offers” actually work.
Where possible, put a time limit on your offer. Be confident without being arrogant. You’ve got something they need, but it won’t be something they can put off for 6 months.
They need to act now because __________[insert reason here – e.g. avoid the price rise, avoid missing the special window of opportunity…].
In order to scale adoption of products and services targeting SMBs, put significant focus on the cost and pain (the whip) of persisting with Status Quo, don’t just focus on the benefits (the carrots).
- Staying with your existing manual processes will end up costing your company $x more over the next 3 years.
- If you don’t implement ________[your service], you will waste around X hours over the next 12 months manually…
- You risk losing your best staff in the coming months, unless you adopt a new product/service, like the one we are offering…
- In the absence of our product/service, you will continue to risk prosecution under the XYZ act of 2013, which empowers _______[the enforcement agency] to issue fines of $X for non-compliance.
- Our diaries are filling fast with bookings for this limited offer on our services. You have until next Friday to take up this awesome deal, else you will miss out….
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