Dan Ariely Shows Us How We're Predictably Irrational
We think we make logical decisions when purchasing products, choosing a mate or deciding whether or not to cheat. Dan Ariely has some experiments that will make you question just how rational you are.
Ariely makes no bones about turning long-held beliefs on their head. For example, the Law of Supply and Demand, is a principle as important to economics as Newtonian physics. But, it turns out that we are heavily influenced by "anchors," or prices that arbitrarily influence how much we would pay for an item. Ariely tells us about an experiment he conducts in which the last two numbers of the test subjects' Social Security Number -- a truly arbitrary number -- establish the value of items when bidding in an auction.
Brian questions Dan about the value of "free" in influencing behavior. Dan demonstrates that "free" is the Kryptonite that cripples our decision-making no matter how rational we think we are. It turns out that the difference between $.01 and $.02 is small, but the difference between $.01 and free is huge to us.
This discussion of "free" leads us to talk about the "freemium" models that many Web 2.0 entrepreneurs are using to grow their online audience. Ariely recommends discounted trials instead of these free + premium service levels. Once free is introduced, he argues, that's its perceived value.
Ariely discusses his experiments on how we value what we own over what we don't, demonstrates that our level of satisfaction with a purchase is directly tied to our expectations, and uncovers how an expensive brand of aspirin will make us feel better than the same aspirin at a lower price.
There are no sacred cows in Ariely's presentation. He takes on our tendency to cheat when money is involved and the way we our decisions change when we're sexually aroused.
If your curiosity is aroused, expect to be satisfied by the audio of this interview, especially since the price is right: free.
At the Bootstrap Growth Subgroup meeting Monday, NeelanChoksi delivered an inspiring discussion for business leaders about characteristics and decision-making strategies when their company is in growth. Having founded a company with two partners, taken it through growth and then joining the company that acquired it, coupled with his C-level employment in another start-up and moving them through their first round of funding, Neelan has a special perspective and experience, coming from different sides.
He outlined three characteristics that are present when a business is in the Growth stage. The leader:
starts saying "no" to business
is more concerned about marketing and less about sales
begins leveraging people and resources
To begin with, the Bootstrap leader finds themselves starting to say "no" to certain business that comes along. This essentially is when we find that we are being more choosy about what business we're taking. Our visual shift also moves from focusing on the sales to the marketing we're doing. What's more, we start thinking about what we can outsource and delegate. With all these characteristics, our focus is changing from what it was during the Valley of Death (VoD).
In making good decisions, particularly regarding the opportunities to pursue, the leader of a business in the Growth stage is well-served with these three strategies:
make decisions quickly and listen to your gut
employ stages and gates to protect the business
limit the amount of time researching and deliberating
In these strategies, we keep the business swiftly moving and keep the momentum of growth, take advantage of opportunities that can generate greater success and take small risks toward that success without sinking too many resources into the unproven.
A mind shift necessarily occurs for the leader when the company is in growth. As our focus shifts to building the company, there is a "letting go" of some old strategies and practices that must occur. However, as we go forward, we need to keep some of what we were doing because these are the features that indeed brought us to our success. The process is akin to adding a new ingredient to the mix rather than discarding old ones.
The kernels of wisdom shared at this meeting were vast, but all generally held the themes that there is a right action for the right time. Additionally, what we learn from the experiences we gain taking our business through Ideation, Valley of Death, and Growth can teach and prepare us to make bigger, better, and more efficient decisions leading to greater success for ourselves and our business.
Nancy Schillis the founder of Executive Intelligent Coaching, a company that works alongside business leaders and their teams in the growth stage of business to achieve the vision, strengthen influence and employ an inspiring culture. She can be reached at nschill AT executiveintelligentcoaching DOT com
Last year I was approached by a local consulting group to create an Innovation Practice for them. Because I have so many inventions and created so many things of value they, and I, wrongly thought that we could build a practice of it.What a crock of, well, you know.I tried to apply myself to it for a couple of months, followed all the popular stuff, got into it, and found that it could only be a scam which could go nowhere.Sure it could make the consultants and me some money, but there is no honor in fooling stupid people.So I bailed out.
It became increasingly clear to me that the term innovation is about hindsight.I have done many 'innovative' things, but at the time I didn't think about innovation.Later, when there was a bandwagon going down the street, others, who I see in hindsight didn't have a [Censored] clue, celebrated the 'innovation,' patted me on the back, and tried to run around and get in front of the parade.I always felt humiliated inside and did my usual orthogonal turn and headed off somewhere else leaving it all to them.
To innovate is to introduce something new.To create something new is to invent, which is really to find or discover, to devise by thinking.And in that process what you think about is not an innovation; it is a solution.It is a solution that is good - the best solution.It comes from a love of work and taking risks, a drive to do it well, to see a need and understand it, and to being very, very, attentive to the details.It is the goodness of the result that gets people's attention.It is the satisfaction of their needs and wants that creates real value.It is their discovery that there is more than they thought in the world.It is making something that is great.
So when you listen to someone talk about innovation consider that you are really listing to someone with 'has been' thoughts trying to sound hip and on top of it.
Just do it right, do it well, think it out, and take the step forward.If your idea changes the way people do or perceive things and they pat you on the back for being innovative, it is time to run for you are in the presence of the 21st Century's version of the unwashed masses and their hunger to touch creativity will eat you alive.
What does all this mean to the entrepreneur?Simple, don't think about innovating; just come up with a great answer to someone's needs and sell it to them.Keep it that simple and the rest will be history. Leave the talking about innovation to the non-creative, you don't have time to be with them, you are on the way to your next great thought!
Copyright 2008 Barry W Thornton all rights reserved
(Note: this post is geared towards the cautious entrepreneur stuck in the Preideation Phase)
Don't get me wrong, a business plan is a very useful tool and having one increases your likelihood of success. However, there is a risk of spending too much time in the Ideation 'lab,' and occasionally I advise entrepreneurs to stop work on their business plan and try starting their business in 'pilot' mode. I do this when they are putting a lot of effort into a business plan at the expense of actually getting hands-on experience, especially when the business has low startup costs. The larger the investment required to open for business, the more investment in planning is appropriate before opening for business. (Consider a restaurant vs a home-based pie business). In a nutshell, some real-life hands-on experience can be worth as much or more than all the academic research done in a vacuum. And the ideal is usually a combination of both. (Side note: An analogous dilemma is when to go to market. Consider the tech-boom trend of the vaporware software company that went to market long before the product was production ready or even coded, most of the time with a bad ending, but occasionally the right move. Release too early, and your product may flop, release too late and you've missed the market.)
Why do I really need a business plan? As I see it, a business plan serves two purposes:
A repository to store and refine all of the ideas and information that is in your head, helping you organize and recall everything related to your business and make sure you have addressed everything
A tool for communicating with others - partners, investors, lenders, landlords, vendors, clients, etc.
I divide a business plan into two parts: the written description of the business typically done in Microsoft Word and the quantitative part, which primarily consists of the financial forecast or pro formas, typically done in a spreadsheet. The latter is in my opinion the more critical of the two although it is dependent upon the information in the former. For example, I've seen small business lenders spend as much or more time with a five page financial forecast than they will on a forty page written business plan.
Let's compare two pie entrepreneurs (to borrow from Michael Gerber's E-Myth series), both of whom started working on their business a year ago. The first has spent the past year continuing her Dell day job while working on her business plan, and now she knows a lot about the national pie/food industry, the local market, and general entrepreneurship, and she has a business plan that is forty pages long and very professional. Meanwhile, the second has also kept her Dell job, but she has also started making pies, and selling them starting with her friends while occasionally working on her business plan. A year later, she has:
A number of market-tested recipes
A small but loyal and growing customer base and other contacts and a growing reputation
A year's worth of financials (albeit small and in the red) which can be more helpful in securing capital than a business plan
A net financial investment that is probably slightly higher than what the first pie maker has spent on classes, books, etc. but still small, and she has only a few more hours per week
Oh, and of course, she has a much better idea of how much she likes the pie business and how good she is at it than the first pie maker has. Which of these two would you bet on?
Isn't it risky to start my business without a business plan? Yes, and you should definitely consider the risks. Above and beyond the financial investment that is at risk, there are many pitfalls, such as rolling out a product that isn't well thought out or over committing and under-delivering. However, a business plan doesn't eliminate these risks, it only reduces them. These risks are in line with the risks (and rewards) of taking the third way instead of starting a cookie-cutter business.
One other thing to keep in mind, a business plan isn't static, it becomes outdated as soon as you put it down, so I recommend writing your plan iteratively with research and/or operations in between iterations and revisiting the plan periodically even after its initial completion.
In summary, balance timing and effort between the business plan and operating the business, but first weighing the costs and risks of moving ahead without a complete plan. If the costs and risks of 'piloting' your business are low, than I'd recommend opening or starting the business earlier and working on your business plan later or in parallel.
The bootstrap filmmakers share their stories of bootstrapping their films, leveraging social capital with an effective value 10x more than the cash budget, how constraint creates innovation, demo/sell/build, the difference between a "bootstrapper who makes films" vs a "filmmaker who bootstraps," bootstrap vs indie filmmaking, stages of bootstrap, and distribution.
Boy, this ones going to get me in trouble - but here we go.
IP ain't worth crap.
I just finished a bunch of work-arounds, that is I looked at several different patents and for each figured a way to do the same thing that didn't violate the original patent's claims. In a couple of them I came up with novel and unique ways to do the same thing that weren't covered so I created new IP. In effect I rendered the original patents useless. So with guys like me around what good are patents, especially to the entrepreneur?
In fact they have tremendous value, but not as patents. The most powerful patent is a Provisional Patent. Provisionals are vague and indeterminate; no one gets to see them (unless you are so foolish as to show them to someone, in which case you deserve what you get) so no one knows what you are doing. You have a year to turn them into a real patent so you can say patent pending immediately on your product or process and even I can't do a work-around because you have not been granted any claims for me to work with. After you file no one really knows what claims the USPTO will give you, and your original claims may be modified, so it is still a minefield.
Patents take years to be granted, you can hassle with office actions for 4 or 5 years if you want (look up submarine patents (nothing to do with underwater boats)). If you are an entrepreneur in a hot field the real value, by the time you get the claims granted the technology or process will probably have been obsoleted by the market and not used in your product anyway.
IP does impress investors, gives them lots of security. IP impresses corporate folks because they live in fear anyway. IP impresses acquisition folks, IP is a great vanity device, for you personally and the company in general. IP's value is intellectual and emotional security more than technological reality. It gives you an asset out of nothing in the early stages of your business. It is a rallying point for everyone who doesn't understand its reality.
This truth should give you confidence. It's like the Emperor's Clothes, knowing truth you can then use it to your advantage and not be taken in by others.
Oh yeah, watch out for all those patent professionals and consultants, their views are self motivated, use them to your drive your goals but don't be taken in. You and your patent attorney must scheme to use everyone else's beliefs to your end. It's the idea of the IP that's what makes it so valuable. Like most things, it's the illusion as it appears in everyone else's mind that is the real power.
copyright Barry W Thornton 2008 all rights reserved
So, I'll admit it. I have absolutely no idea what I'm doing.
The idea of Celeb 4 A Day began years ago when I was at photography school (a very serious school with very serious future/career promises). The thought occurred to me at that time that as celebrity obsession grew, there were sure to be people that wondered what it was like to actually BE famous. In fact, I was pretty sure that's where all this celebrity obsession (not to mention people becoming actual celebrities) was coming from in the first place.
The important part of all this "thinking" came when I realized that I was a photographer and could most probably provide people with that experience.
I thought it was a great idea, but I was at school - life was happening. And so that idea, like a few others I have, was stored away into the furthest recesses of my mind as I went about finishing school, moving from Santa Barbara back to Austin, finding design and photography work, in general trying to accomplish those pre-set goals (boxes) that I had learned and created for myself.
Fast forward to five years later, November 2007; I'm taking a break from my daily design grind (including the BD Tech Daily, ha!), listening to some great tunes and wondering what I should do with my lunch break. My thoughts pretty much went like this:
"Well, Tania, you've designed fliers, brochures, collateral, magazines, but you've never designed a website. I wonder if you could do that." "Let's see, what would be a fun thing to work on to test your design skills? Something that has no real deadline and isn't something that is so serious that the world as we know it would end if it turns out that you suck at web design."
Insert picture of me staring at a blank screen here.
"Oh, I know! How about that crazy idea you had in school about providing people with...let's see...what should we call it? Personal Paparazzi!"
Two hours later I had created a name, a website and had thought through and posted to the site 3 different packages that I could provide people with. What now? Well, I called a few friends ("Oh, how nice. That's cute.") and was just happy to have produced something that was online and looked pretty good. I had no plans to build a business on this, no idea if anything would ever come of it - I was content to have just made something out of an idea. I spent a total of $10 on my "test of skills." And to this day, that's about what I've spent on actual marketing.
What happened next taught me that even though I had no idea what I was doing - no real plan, no real path, no intricately designed goals for the future of this product - that not knowing what you are doing, but just taking action and doing something, is where the magic really happens.
Two weeks after I launched the Celeb 4 A Day site, Time Magazine called to say they had Googled 'personal paparazzi' out of curiosity and wanted to do a story on the company. A month later, The Today Show was in my living room interviewing me. I used that coverage in those following months to bootstrap even more coverage on the radio, local and international news outlets, and eventually was even flown to New York to be on the Rachael Ray Show. Do I have a degree in PR or marketing? Nope. I pretty much just used the same principles as I established that one day at lunch: do what I could and not necessarily what I knew how to do (in the media's case it was to send out previous coverage via email suggesting they might like to be in on the action too - hey, it was cheap and it worked!).
Here I am now, a few months shy of Celeb 4 A Day's one year anniversary, and I've got virtual offices in Austin, Los Angeles, San Francisco and New York with more expansion plans (slowly, I say, slowly) in the future. I've redesigned the website, added some really exciting packages including an all-inclusive paparazzi vacation, and I'm currently in talks with a major television network to star in a reality show based on my life and my company. The company itself is growing remarkably and we are getting busier and busier (happily, lunch breaks are pretty much out of the question now).
Have I made mistakes? Sure. But, better than that I still don't know what I'm doing. To be clear, what that means to me is that I do not have some big white board hanging above my life with an exact outline of what I should do, what direction I absolutely have to take, or even where I'll be in the coming months. I have no box inside of which all things must lie, function or even make sense. If I had limited myself - and the company - to that box, I wouldn't have been open to all the exciting adventures and possibilities that have arisen since last November.
Although I could tell you about things like how everything I've experienced and learned has brought me to where I am today, how to talk/deal with the media and go into various details of my business, the Bootstrap Blog is only so long...so, for now, let me just reiterate the point I'm trying to make here today:
Don't try to convince yourself to "Think Outside The Box," because by default you are creating a box for yourself by admitting that it exists. There isn't a box. There is only the Right Action at the Right Time and anything beyond that limits you solely to the paths that you create for yourself and you miss out on all the unknown possibilities.
Tania Cowher is the owner of Celeb 4 A Day, providing the every day person with their very own personal paparazzi experience. Currently, she enjoys walking with her dogs, running the company and watching really bad reality television - which she justifies to her bewildered husband as "research."
# posted by Tania Cowher - Celeb 4 A Day @ 4:05 PM 1 comments
Beyond art, a bootstrap analogy was uncovered: Galenson's old masters/experimentalists correspond to bootstrappers, while young geniuses/conceptualists are similar to funding-driven entrepreneurs.
The BootRap Podcast is available on HearThis.com and iTunes.
