The Psychology Behind Lean Startups

PSYCHOLOGY

 

A major movement in the startup world is the “Lean Startup” movement. Essentially, this movement boils down to 2 things: getting out of the building and talking to potential customers, and taking advantage of agile development methods to rapidly iterate based on customer feedback. From this focus on lean comes a whole host of lean books, conferences, talks and thought leaders, all who advocate lean methodology as the most effective and efficient way of bringing a new product to market. While the process of talking to customers and getting rapid feedback is certainly beneficial, I believe that one of the things that makes Lean methodology so effective is its use of psychological triggers.

The main precept of Lean is that a company needs to get out of the building and talk with potential customers. They need to talk to customers to understand their pain points, the scope and extent of the problem the  startup is trying to solve, and the key individuals involved with the problem. To execute this process, a startup needs to find as many customers as they can and talk with them. This requires a time commitment and a small buy-in from the potential customers a startup is contacting, which often leads to larger time commitments and (hopefully) early users of the product down the road. This process of obtaining a small buy-in early in a relationship complies with a psychological phenomenon known as the Foot-In-The-Door technique.

Studies around the FITD technique show that if an individual agrees to a small request, they are far more likely to agree to a later, larger request. From Wikipedia:

In an early study, a team of psychologists telephoned housewives in California and asked if the women would answer a few questions about the household products they used. Three days later, the psychologists called again. This time, they asked if they could send five or six men into the house to go through cupboards and storage places as part of a 2-hr enumeration of household products. The investigators found these women were more than twice as likely to agree to the 2-hr request than a group of housewives asked only the larger request.

The research suggests that obtaining early conversational buy-in from potential customers likely influences the number of potential customers who will later try other iterations of the product, and eventually be among the startup’s first customers. When I was talking with housing administrators at 90+ universities, I know that those individuals who spoke at length with me about their problems were eventually the ones who agreed to pilot our roommate-matching software. Obviously the FITD technique does not account for 100% of the reason customers agree to adopt a product early on – after all, they still need to have a problem the startup can solve – but it certainly has an effect.

Another bit of psychology that Lean utilizes is the fact that people value things they have made an investment in (time, money, energy, etc.) more highly than objects or things they have no stake in. As Dan Ariely shows in his fantastic book Predictably Irrational, students who had received a Duke basketball ticket after investing time waiting in line valued that ticket about 20x more than those who had waited in line and not received a ticket. As you can imagine, those who have invested their time and energy in speaking with a startup about the problems they face, and who have invested mental energy in thinking about how this startup could solve that problem for them, would have a vested interest in helping that startup succeed, and would be more likely to become early customers.

It would be interesting to measure the strength of these effects by comparing the conversion rates of customers who went through the “customer development” process against those customers who were reached purely via marketing means. I know at RoommateFit we have not yet begun marketing to customers we had no interactions with in the development phase, but it should be an interesting discovery process over the next few months.

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  • Elrick2000

    The fact that Duke tickets are valued 20x more by someone who waited in line vs. someone who was just given the tickets isn’t surprising.  Studies – perhaps non-scientific – have found that winners of large lotteries generally tend to manage the money poorly and don’t understand or appreciate what it means compared to someone who built a company from scratch.  Same argument for kids who inherit fortunes from parents/grandparents (e.g., Paris Hilton and any number of non-celebrity celebrities) and don’t appreciate what it means or took to built that fortune.

    The lesson for a startup is, you will appreciate the customer more if you do the hard work to engage them and solve a real problem for them.  You will also appreciate the initial investment/funding if you bootstrap and learn the value of a dollar and how hard it is to earn.