Behavior by Design Part 1

Naz, a behavior consultant for Omanida, a blogger@new yorkhar.com and he's also a mentor and lecturer at 500 Startups Founders Institute and the Thiel Foundation. We're very excited to have you here today, and I'll let you introduce yourself.

A little bit better. Thank you. Thank you so much for having me. I appreciate it. I love how you Norwegians start right on time. It's great. I love it. So my presentation is about behavior by design, so let's just jump right in. I'll tell you more. So let's start with. By the way, can you see okay if I'm here? Yeah, I wonder. See if I can move this, actually. Okay, maybe I'll move it here just so I won't be. So maybe it's better than other. Yeah, maybe on the other side. Yeah, good idea. How's that? Good. Good. All right. Good for you too. Yes. Okay, so this presentation, let's start with. Who's this? To be perfectly honest, this presentation is for the frustrated creator. I've been frustrated many times as an entrepreneur. I've sold two companies, and this was me. Many, many times. When you have something that you want the user to do and they're not doing it, they're not clicking where you think they should click, and why does that happen? So if that's happened to you, then you are very much like me. So, thankfully, I had success in selling my last company in August, and the path was similar to a lot of entrepreneurs in the Valley, is that you see a lot of frameworks, and many of these added a ton of value to my startup. So we used business model, canvas and customer development and Lean UX processes, and we used a lot of different frameworks, and many of them were extremely helpful. But still, there were times when customers just weren't doing what we expected them to do. And so this frustrated me at times because I was at the intersection of two industries, gaming and advertising, that seemed. Seemed to somehow magically get people to do crazy things. This was back in 2007 when Farmville and these social games were just starting to take off and users were doing unbelievable behaviors. So that industry was starting to take off, and meanwhile, advertising. As we all know, hundreds of billions of dollars is spent on advertising every year. And what for? Right? It's for influencing us to buy things that maybe we normally wouldn't. So I became fascinated with that and I began to look for pattern. I wanted to see what it was that these companies were doing, if there were any patterns to creating behavior. And so I particularly became fascinated with what I call the OMG Businesses, right? The oh, my God. Businesses that maybe you've all seen them, right? You saw a company that you thought, okay, that's an interesting toy, it's a nice little product. And then with a blink of an eye, a couple years later, they're billion dollar companies. Right. Can anybody name a company like that? Yeah, please. Facebook. Facebook. Great example. Saw it. Okay. It's. And then it's a $100 million, give or take company. $100 billion company. Any other examples? What's that? Instagram. Instagram. Great example, Right. Very quickly became a billion dollar business. Zynga as well. Any other companies? Twitter. Right. So we all saw these. We said, okay, it's cute. And then they exploded. So that's what I really wanted to study. So the first question I posed was this question of are these businesses vitamins or painkillers? It's a question a lot of in the Valley, particularly from Stephen Blank, Eric Ries type of philosophy around. You can either sell a customer a vitamin or a painkiller, because as we know, selling a painkiller is all about obvious needs. It's about quantifiable markets. It's about monetizable solution. And this is where entrepreneurs like to sell products. Right? This is what most people say you should go out and build, as opposed to. A vitamin is a product that has an emotional need. It's not about efficacy. You don't really know exactly what the vitamin is doing, but you take it because you think it needs it. And it's typically an unknown market. So most entrepreneurs shy away from selling vitamins. And a lot of investors don't invest in vitamin businesses because it doesn't feel like you really need the product. So here's the question that I pose to myself. Were these companies selling vitamins or painkillers? They all became billion dollar business, multi billion dollar businesses. What were they selling? Who thinks they were selling vitamins? Who thinks they're selling painkillers? And about half of you didn't say you have to vote. Okay, let's try to get vitamins. Okay. Painkillers. Okay, so about 50. 50. Well, before you make up your mind, let me posit this thought. In order for a habit to be considered a habit, it's not a habit unless not doing it creates pain. So think about that for a minute. The habits in your life, not doing them causes pain. And with that in mind, I'll tell you, it was kind of a trick because it was both in my Opinion. The brilliance of these companies and why they became so big so quick, all under our noses is because they perfected the art of creating habit forming technology. And habit forming technology is characterized by a company that sells a vitamin at first. Think about the first time you saw Facebook or Twitter or Zynga or Instagram. Cute. Didn't need it. Wasn't fixing a burning need. But they sell us a vitamin at first out of a pleasure seeking behavior and they move us over time to a pain alleviating solution. They create the need, they create the pain, and they sell us the remedy. What's that? Can I just call a drug? I didn't say that. Is that not a drug? It has very similar properties. But how are we feeling now? I mean, how does this strike people? Is anybody feeling a little manipulated? Yeah, I see some heads nodding. Well, you should. And let me tell you why I'm. There's two reasons I'm here today. Number one is to help you understand your own behavior. I believe that there's three trends happening at once that are creating a new age of consumer technology where everything that's connected is becoming more addictive. Everything in the world around us that is connected is becoming more addictive for these three reasons. Greater access that we have to the world and the world has to us. Greater personalized data and at greater speeds than ever before. So we're living in a world in which everything is becoming more addictive. And we need to be on guard to not be manipulated by these products. Because behavior engineering and some of the techniques that I'm about to share with you are like any superpower. They can be used for good or evil. So the challenge for you, and the second reason I'm here today, is to help you build good stuff. We've had plenty of time for companies to use these techniques that I'm about to share with you for building at best time wasters and at worst nefarious products. And so I'm here to inspire people to use habit design and behavior design to do good. Because as Peter Thiel said, we wanted flying cars and all we got was 140 characters. It's time that we start using behavioral engineering to create products that save the planet, that improve people's lives. So here's my rule. Your interests have to be the user's interests. Because the downside of habit forming technology is that can be used to manipulate people. So here's kind of the oath. You have to create products where the user's interests are your interests as well. They have to Be aligned. But even if you do that, here's your challenge. We live in an age where there are more distractions than ever before. The digital world is becoming more and more cluttered. It's harder to find new users. And finally, the viral channels are dying. So because more platforms are gaining more and more power in the equation, iPhone, Facebook, Android, they're clamping down on the viral growth mechanisms that used to be available in 2007, 2008, you could grow an app to a million users with no problem at all. And today it's Facebook that's dialing who wins and loses based on those equations because they don't want too much spammy apps on their platform. So let's see the trade off here. So if you think about what used to be all the vogue in terms of viral growth, it was all about getting big, fast. And then there was kind of a hangover from that era because if you look over here, you know, the businesses that had a high viral coefficient that got really big, but weren't able to sustain that growth because they didn't have strong habits. I call those leaky buckets. Users came in and they left because they couldn't. There weren't habits built that would keep them around. Of course, if you have a low habit score and a low viral coefficient, well, that's just a product nobody wants. And of course, on the other end of the spectrum, if you create a high growth product that creates habits, that's fantastic. But you know, that's really a once a decade type business like a Facebook or a PayPal. Pinterest shows similar properties. But the real takeaway from this slide is that even if you create a product with a low viral score, you can still get big, slow by creating very sticky habits. So if you think about an Evernote, a Pandora, an Amazon, by creating very strong habits and users, and by creating products that got better the more customers used it, they created very good businesses. And here's an example of one of them. Evernote, for example. Has anybody seen this Smile graph? Evernote kind of got famous for this because they were. This doesn't happen, right? Usually when a product comes out to market, you get a lot of users in the beginning. This is a percentage of monthly returning users. You get a lot of users in the beginning and they fall off. But what Evernote saw was that as users started to use the product more and start developing habits, they increase their usage. And this is called the Smile graph. And this is, I think, the graph of the future that companies that can Effectively create habits will create bigger businesses. Another point to leave you with is that too many great ideas die before their time. Friendster and MySpace nailed 80% of what social networking was about, but they didn't become Facebook because they didn't understand human behavior as well as I believe Facebook Facebook did. They didn't understand how to create habits as well. And so what I want to help you do is to create the next Facebook and not be the next Friendster. So let's get started. But before we do, let me pause for any questions so far. Jump in anytime. By the way, you don't have to wait for me, but so far, so good. Everybody excited to learn what's next? Yeah, Good. Good. Okay, so what are habits? What is automaticity? Automaticity is about instant response, a nearly instant response to stimuli. Just a quick bit of brain science. It lives pretty much in the center of your brain in the basal ganglia, and it's closely connected to the dopamine pathways. So reward is very much connected to habits. So habits and automaticity are about the brain's ability to not think, but still act. Okay, and why do we do this? Why do we have this reaction to think quickly, to act quickly without thinking? We, in fact, put the behavior into the special part of our brain to let us act faster. Well, there's a few reasons. One, it helps us learn. Every time we have to think about something to act upon it, we don't actually learn. We don't codify those behaviors. It saves us the energy and the effort of having to think through things. It speeds decision making. It keeps us safe. You can imagine when we evolved as a species on the plains of Africa, we need to make decisions quickly, not to think about, oh, is this a threat? Is this not a threat? We need to act right away. It allows us to multitask. So some behaviors are on autopilot, while other behaviors require quick thinking. And finally, it lets us have smaller heads. So, as a species, it turns out we can decrease the size of our brain by having this one specialized area of the brain that did repeat habitual tasks. So. So we need this for good reasons, right? Habitual behaviors serve us very well. So how do we create it? How do you create habits? And particularly in terms of product design, how do you create products that make habits? Well, there's two ways. The long way is through repetition. So when you were in school, you just learned the Alphabet again and again through repetition. And it wasn't fun. It was pretty boring. But that's one way to learn to create Habits, and you used to be able to do that on the web. So new products in the space, customers will just, they'll be okay with terrible user experiences, they'll be okay with badly designed products, and they'll do them over and over again. They'll create habits around them. And there's several legacy products that still exist. You know, we were just talking about Craigslist, I think is a good example. Not the best design product, but it was one of the first. And so people are habituated to using it. The other way to create habits is through desire. So desire is the shortcut. And you think about in your life, when did you learn the most? It's probably when you were most excited. It's probably when you had a desire to do something. And the shortcut to creating desire is by using what I call the desire engine. So the desire engine is a four step process which we're going to walk through in a second. And if you put these desire engines in series from the time the customer first comes to the product, going through these series of desire engines will lead them to an automatic response. You will create a habit. And this maps to the pleasure seeking behavior, to the pain avoiding behavior. So let's walk through those four steps. The desire engine has four components. So there's the trigger, the action, the variable reward, and the commitment. And we're going to walk through all four of these. But before we do, let me just make two quick points. I get this question quite a bit. Can anything become a habit? Anything can become a habit. But there's some things that are more likely to become a habit than others. And so there's two components to products that have a very high likelihood of becoming a habit. First is if there are fast cycles. So the faster you can go through the desire engine, the more likely you are to form a habit. That means you need to complete the all four steps when someone comes to the product. So that's something to keep in mind. You want to make sure that every time the customer visits, they go through all four of these steps. Second is frequent revolutions. So not only do they go through each cycle quickly, but they go through many designer engines in a shorter period of time. So if there's a product, sometimes I get clients that I work with where the behavior only happens once or twice a year. That is very difficult to form a habit of. Whereas products, if you think about all those products we talked about earlier, these are products that are used multiple times per day. And that's one of the key reasons why it's easy to form habits around these products. Okay, so let's get started. Triggers. Can anybody name some examples of triggers? Things that cue you to do a behavior, things in your life that make you do something. Next. Anybody think of anything in their life? Fear. Fear. Okay, that's an emotion. Great. Anything else? Ice cream. Ice cream. What does ice cream make you do? Bite. Okay, so that's something in the physical world. Right. What else? What do you mean by connecting? Social. Uh huh. So you see another person and you see someone, a friend, and the behavior is to go out and connect with them or talk with them. Okay, great. What about in our world in the tech space? What kind of triggers do we put in front of users to get them to act? Deals, buttons, advertising. Yep. Calls to action, emails. Right. So all triggers can be broken down into two types of triggers, external and internal. So external triggers are things in the world around us, like alarms and advertising, calls to actions, email. These are physical things, physical stimulus in the world around us. Then there's this other category of internal stimulus. So these are things that the trigger is within the user. These are things like emotions, routines, situations. There isn't an ad or some kind of external stimulus that happens within the user's own brain. And this is the process of the desire engine. Going from external stimulus, needing an ad to say, hey, use my product, to the user just doing it by themselves, taking out their phone and hey, I'm bored, I'm gonna check what's going on on Facebook. Okay. That's the process from external to internal triggers. The most powerful of those internal triggers is emotion, and specifically negative emotion, because negative emotion is associated with pain and we want to satiate pain quickly. And so when it comes to a lot of the products that you use daily, be conscious of this in the next few days. Think about how many things you do instinctively to alleviate pain. And somebody said drugs earlier, cigarettes, for example, create an urge. They create a desire which is actually physically painful. Neuroscience has proven it's actually physically painful. And the response of having that cigarette alleviates the pain. And it's many times the same way with the products in our lives. Whatever. We have a habit to email. I have a problem with email in many ways. Not doing it. If I think, okay, don't look at the email right now, it's a little bit painful, there's a desire there. Okay, so that's triggers. Now let's look at action. Action is about when doing something is. I'm sorry, when doing is easier than thinking. And that's where you get an action when doing something is easier than thinking. So how many of you have seen this framework, the BJ Fogg behavior model? Has anybody seen this before? This is a great framework which illustrates very simply how to get a behavior, a one time behavior. Let me explain this real quickly. So BJ Fogg is a researcher at Stanford and he posits that for any behavior to happen, so B is a behavior, you need three things. You need motivation, ability, and trigger. And they happen at the same time. And you'll see this once you start looking at the world through this lens. You'll see it everywhere around you. So let's think of a telephone. A telephone is ringing and you don't pick it up. So imagine that happening in your life. Why aren't you picking up the phone? Give me some reasons why you might not pick up the phone. Yeah, yeah. You don't want to talk to the person. You don't want to talk to the person. Okay, so that might be motivation. Okay, maybe it's a telemarketer. And so I have low motivation to talk to that person because I know who it is. What else? What are some other reasons you don't pick up up the phone? What's that? Haven't got time to pick up the phone. You don't have time. Okay, so that's another motivator, right? I don't want to talk to that person right now. You don't see it or hear it. Okay, great. So you don't see it or hear it. So that's a trigger, right? If the volume is on mute, there was no trigger. There's nothing to tell you that the phone requires action. What else? Listening to you. I'm sorry? Listening to you. Oh, okay. So you're in my presentation and the phone's ringing. So it's a difficult ability, right? You're, you can't talk right now because there's social mores against talking on the phone during a presentation. So your ability is impaired. So it's kind of like when you're, maybe you're in the shower, right? And getting out of the shower is too difficult and so you don't pick it up. So motivation, we all know what motivation is. Ability is about how difficult something is. Difficult or easy something is. And trigger is.