[ Interview ] Lean UX Co-Author Jeff Gothelf on How Product Teams Should Do Product Discovery in 2020

A few weeks back, I spoke to Lean UX co-author Jeff Gothelf for The Lean B2B Podcast. We talked about UX, product management, innovation, experiment design, and the importance of doing effective product discovery.

You can watch the full interview below, or access it on iTunes, Google Play or Spotify.

Interview Transcript

Jeff Gothelf – Product Discovery

Etienne Garbugli: My guest today is Jeff Gothelf. Jeff is the co-author of the books Lean UX: Design Great Products with Agile Teams and Sense & Respond. He’s also the author of Lean vs Agile vs Design Thinking. Along with Josh Seiden, Jeff co-founded Sense & Respond Press, a publishing house focused on bringing innovation, digital transformation, product management, and design books to market.

Jeff is also a coach, speaker, and consultant helping organizations build better products. Jeff, welcome to the podcast.

Jeff Gothelf: Thanks so much for having me on, Etienne.

Etienne Garbugli: Maybe as a first question, so when you’re working with product teams, and when you speak with product teams, do you feel that, teams are generally sufficiently user or customer-driven?

Jeff Gothelf: Um, I think that most organizations pay a lot of lip service to being customer centric and, and customer driven. I think a significantly smaller percentage of those organizations actually work that way. That’s not to say that the product managers, the designers, the engineers, the QA folks on those teams are not customer centric or don’t want to be.

I just have seen that many organizations say they are or say they aspire to be, but don’t actually. The majority of them don’t put the effort into actually be that way, despite, despite having really smart customer-centric designers, product managers and engineers on staff.

Etienne Garbugli: Well. So, in that case, what do you feel are the biggest challenges, or the biggest hurdles that these teams or these people within organizations face in attempting to be more user or customer-driven?

Jeff Gothelf: I mean there, there are lots, not the least of which is there’s, especially in successful companies, even high-growth companies, they don’t have to be old companies, but companies that have found product-market fit and that are scaling quickly, there’s a belief that we know what’s best for the customer, right?

Look, we’re big. We’re successful. We’ve been around a hundred years or 20 years, or you know, where we, we’re a hundred-million-dollar company. We’re a $500 million company. We know what customers want. I don’t need to talk to them. I don’t need to ask them. Um, because look, look at what we’ve done on our own without that so far.

So, there’s, there’s a lot of that. Um, the other thing is that being customer centric means that your measure of success changes significantly. It changes from outputs to outcomes. Now that’s an easy thing to say. So, I’m going to unpack it for just a second. Outputs are the things that we make, the features, the products, the services, the apps, the devices, those types of things.

Um, most organizations manage to output for a variety of legacy reasons, but really, most of all, because it is a binary measure. You’ve shipped the product or you did not ship the product. And because it’s binary, it’s easy to measure and because it’s easy to measure, it’s easy to manage and easy to incentivize and reward.

If you’re truly being customer centric, you should be managing to outcomes. Outcomes are the customer behaviors that we see once we give our customers the product, the service, the app, the system, whatever it is. And if their behavior doesn’t change in a way that makes them more successful and then ultimately us more successful, then we have to update that system.

And so, the measure of success changes dramatically from a feature-centric one. We built a thing. To a customer-centric one when you manage to outcomes, which is we positively impacted the lives of our customers. And we know that because now they’re doing things differently that benefit them more and that benefit us more.

Uh, and so that’s, that’s, that’s really the biggest, the biggest obstacle to being customer centric.

Etienne Garbugli: And so, working with a lot of organizations or interacting with a lot of organizations, like how do you see that trend evolving?

Jeff Gothelf: Again, I see a lot of really smart people in the trenches, in the individual contributor roles, in the team manager roles, in the discipline leadership roles, the design leader, the product leader, that type of thing.

But I rarely see that conversation elevated to a leadership or an executive level outside of customer satisfaction or Net Promoter Score. Which again is, uh, not, uh, we should absolutely be worried about the satisfaction of our customers, but they’re using that one metric as a sole measure of that is incredibly risky and not terribly valuable.

Um, and so that’s the trend is. I think you’d be hard pressed, so I think you’d be hard pressed to find a designer who doesn’t believe they are customer centric. I mean, sure, there’s going to be some, some genius designers out there who believe they know best, but for the most part, I think the overwhelming majority of interaction designers, UX designers, those kinds of folks are customer centric by default as part of the profession.

I think product managers, modern product managers, people who subscribe to kind of the modern process of software development and delivery and understanding the market (product discovery). I think many of those folks believe they are and are customer centric. So, you’ll be hard pressed to, to find somebody who says, no, I’m not, I’m not customer centric.

There are, they exist. There are some sort of inward-facing product owners or product managers who don’t really believe in customer centricity. I think there’s probably more of those than there are UX designers. Um, and so I think the trends there are positive at the individual contributor level.

I think even engineers really get it. I mean, there’s still, again, I think, you know, there’s probably more engineers than product managers, than designers who don’t really care about the customer that much. But nevertheless, I think modern software developers really do understand that customer centricity is key.

So, I think those trends are headed in the right direction. I think at the C-suite and the leadership level, there is a belief in maintaining competitiveness, maintaining competitive advantage. And they see organizations like Apple, Netflix, Facebook, Google, Amazon, really sort of dominating not only their own spaces, but expanding fairly broadly into other domains. And they want to be like them. And unfortunately, the only real takeaways they get from those organizations is faster time to market, right?

How can we get more stuff to market more quickly? And I think where they fail to see, and this is not true across the board for those big five tech organizations, but what they fail to take away is how customer centric Amazon is. Netflix is.

How focused on the user experience they are. Um, sadly, Facebook is too to their own ends. They’re not really focused on optimizing the customer’s experience with more of their bottom line. But, um, and I think that that is, uh, that’s something that’s missing.

So, they’ll focus on things like agile, for example. Right? Agile is what makes these companies successful. We need agile. And they see it as a, as a recipe for delivering more software more quickly, which again, is managing the outputs, not managing the outcomes.

Etienne Garbugli: All right. So, going in that direction, so say I just got hired by an organization, how would you recommend I go about diagnosing the product organization?

So, how we work and what’s the current situation in terms of how things get delivered? Are we output, are we outcome? Is it, is it working in terms of agile? Is it working as an organization? And then maybe how would you recommend someone within an organization to shift that mindset towards more of a learning, more of an, uh, an output discussion?

Jeff Gothelf: I think how you have that conversation will vary by where in the organization you got hired, right? So what level in the organization. But the conversation you’re trying to have, generally speaking, is the same. It’s a conversation that asks the question, why? Why are we working on this? Right?

What customer is it for? Um, what benefit does it bring to the customer? If the customer is successful, how does that translate into business success for us? How does that fit into the broader product portfolio that we’re building into the strategic plans for the organization for the next year or two years, or whatever it is?

That’s the conversation you want to have. Now, again, asking why is increasingly risky to your career, the lower in the organization you are typically speaking in larger organizations, right? And so, we want to build the conversation to ask why in a way that doesn’t limit your career in that organization.

But that’s the conversation you’re trying to have. So, I think that, you know, at the individual contributor level, it’s about asking, what are the assumptions that went into making the decision to build X, right? Or to design it in this particular way? Who’s the target audience? Right?

When’s the last time we talked to anybody from that target audience? Can I go talk to somebody from that target audience? Right? And then to, as you start to collect more customer feedback, more quantitative data, and as you bring that back into the team. Really seeing how the team, the product manager, the business lead, the business line leader, the executives, the stakeholders, react to that data because that data is never going to be 100% reflective in a positive way of everything that you’re doing, right?

There’s always going to be some contradiction. Hey, we’re making it blue. Everyone says they like red and, whatever. Right? So, how people react to that becomes really interesting, right? It’s a good indicator of the culture of an organization if they’re like, oh yeah, yeah, that’s what the customers say, but we know better. Right?

Or that kind of builds up a better understanding of our, of our customer. Let’s explore and see why that is, and maybe through the next iterations, we can make some improvements, right? It’s two very different conversations.

Etienne Garbugli: So, I saw, I think last week or a couple of weeks back, you released the hypothesis canvas, which I really like.

So, when you’re working on a project, when you’re working as part of a team, so how do you pick which questions to address and how do you figure out what the most important things to learn are?

Jeff Gothelf: Yeah. So, um. The Hypothesis Prioritization Canvas is a tool that I use with every team that I work with to help them determine where to focus their customer discovery work.

There is sadly, not enough time in every sprint to do all the discovery work that we want, and frankly, we don’t need to be doing product discovery on everything. Right there, there. And that’s the purpose of the canvas. The canvas is to say, here are all the things that we’re looking at for the next iteration, two iterations, quarter, whatever it is, whatever the timeframe is.

Where should we focus our learning activities? Our discovery work, our research, our, uh, customer conversations? And, the matrix in that canvas is based on risk of the idea, risk of the hypothesis, low to high, and the perceived value or the perceived impact that we believe that this hypothesis will have on the customer, on the business, etc., again, from low to high.

It’s perceived value because we’re assuming that this will have big impact, right? We, uh, our educated guest tells us that, but we don’t really know. And then risk is contextual to the hypothesis or the idea itself. So, it might be technical risk, it might be design risk, might be brand risk or market risk. The hypotheses that end up being high risk, but also high potential value or high perceived value.

Those are the ones where we should spend our product discovery work on. That’s where we should, if we, if we’ve got, you know, those precious few hours, every sprint that we can build experiments, talk to customers, do research, you know, prototyping, whatever, whatever the activity is. Um, focus on the hypotheses that are high perceived value and high risk.

Because if you get those wrong, you stand to do a lot of damage. But if you get those right. You stand to have a good impact on the customer and on the organization. So that’s, that’s what the canvas is for, is to really help you kind of think through your ideas and where to focus your product discovery efforts.

As far as determining, uh, risky assumptions and that type of thing. The really interesting thing is there’s two key questions that I teach every team that I work with. Um, and the questions are boxes seven and eight in the Lean UX canvas, the first canvas that we did a couple of years ago.

What’s the most important thing that we need to learn first and what’s the least amount of work we need to do to learn that? Now, the focus of your question was box seven, which is what’s the most important thing we need to learn first? And that’s the question that I ask every team at the beginning of a new iteration, right?

What is, you know, uh, the, what is, it’s a conversation about risk and it’s a conversation about the risks that will derail the thing that we’re currently working on. Now, the interesting thing is, is that in a truly cross-functional setting, product managers, designers, engineers, sitting together, you will get at least as many answers to that question as there are disciplines in the room, right?

The designers will talk about some designer challenges, some customer challenges. The product managers will talk about, you know, product-market fit or scalability or business model or business rules or whatever it is, right? The engineers will talk about feasibility, scalability, performance, security, and all of those are valid concerns.
They’re all valid risks to the success of the project. The question is, what do you need to learn right now? What’s the most important thing you need to learn right now? The thing that if we get it wrong today, tomorrow, in this sprint breaks the whole initiative or breaks the whole hypothesis. And that is an interesting conversation to have with your team.

At the beginning of an initiative that’s going to be related to value, the value of the idea. Will people look for it? Will they find it? Will they try it? Will they sign up for it? That type of thing. Do they understand what it is? Right? Um, if you’re in kind of a more mature version of the product, we’re going to move away from value into feasibility, scalability, security, performance. Business viability, those types of things.

Um, and so really thinking about the, where in the lifecycle of your initiative, uh, where in the lifecycle of your idea is helps you to understand the biggest risks, but always at the earlier stages, focus on value. Because if nobody wants it, nobody will find it. Nobody will look for it. Nobody will try it. Uh, it doesn’t matter if you can build it.

Etienne Garbugli: But so, if we talk about that specifically, like one of the things I love about the Sense & Response framework is that agility, but not focused on how you ship, it’s more of that corporate agility where you know when to adapt and change course and, and change your direction.

So, in that case, when do you know, like what are the. So, for example, the trigger points that tell you that it’s no longer about the value. Now we should be learning about that next other thing afterwards. Maybe feasibility or whatever it is. Like how do you know when to transition between say one, a learning goal versus another learning goal?

Jeff Gothelf: It’s a great question. Look, I mean, the interesting thing about all this stuff is that we are inspired by science. We’re inspired by scientific method. You hear us talk about assumptions and hypotheses and experiments, right? Collecting data and all that stuff, and we do all of that stuff and we are inspired by scientific method, but we’re not doing science. Right.

In science, there are more or less absolute truths, right? We fed the bacteria X and they mutated into a monster. That happened or it didn’t happen, right? Uh, in our world, the answers are rarely black or white. They’re usually in, in some shade of gray in between. And so. How you decide when to kind of move on to the next set of assumptions, the next set of risks to say, Hey, you know what that was good data, so we’re going to continue, we’re going to persevere with this hypothesis versus pivoting or killing the idea.

There is, there’s a level of evidence that you want to use, but at some point, you’re going to need to augment that with some level of gut feeling or really confidence, right?

It’s confidence that that is, is the true test. So, my, my friend and colleague Jeff Patton talks about this concept of confidence in terms of bets, right? So, you, you ran an experiment, you learn something and you say, okay, great. Um, what are you willing to bet me. That that this is a good idea that we should keep working on, right?

Are you willing to bet me your lunch? Right? Most teams will say, yeah, are you willing to bet me a week’s vacation? Right? Maybe are you willing to bet me your retirement savings, right? Uh, your house? Are you willing to bet me your left arm? Like, you know, and so and so if you’re, when you, you know, when you collect the data, you know, qualitative and quantitative and you still can’t get to a, you know, it’s going to be in that gray area and you still can’t get to that really kind of definitive, yes, we should move forward. No, we should not. Um, that’s a good conversation to have.

What are we willing to bet that this is still a good idea? And that really gives you a sense, if people are saying, look, I’m not willing to bet you lunch that we should keep moving. That’s a good indication that. We got to change course, right?

If, and if people are saying, I’m willing to bet you my left arm, that this is a good idea. And that’s kind of the collective sentiment, that’s a good indication that the team’s got enough data to move forward. And that’s, that’s, that’s the non-scientific part of this, right? That’s the shades of gray part of this.

Etienne Garbugli: Well, so in that direction, so in one of your talk, you’re talking about, uh, say for example, the team is focused on improving the conversion rate. So, you hit 15%. Maybe you can get to 20%, but the effort between 15% and 20%, will that’d be worth your time?

Obviously, if you were able to always make the right decisions and always be, be changing, uh, to the next assumption at the right time, there would be a lot of value there cause you would probably be growing faster. Are there telltale signs that tell you, so we’ve, we’ve probably milked that objective enough for now, let’s try and, and, and address the next thing?

Jeff Gothelf: Yeah. It’s interesting, right? So, there’s theory of the local maxima is always an interesting one, right? We keep putting, we keep putting effort into this, and, um, we we’re not seeing the kind of returns on it. Um, again, this is, uh. There’s no, I mean, as far as I know, there’s no formula that says that you have now tried squeezing more out of this five times, and that’s enough, right?

There might be a formula. I just, I’m not aware of one. Um. And so, it’s really a thing of like, Hey, we ran this experiment and we couldn’t get this to move forward. Hey, we tried this week. We really got up, you know, we’ve got a 1% lift out of this. We did this, we got a 0.2% lift out of this.

Okay, we’ve been at this for a month, we can’t seem to budge off of a 15% conversion rate, 16% conversion rate. That’s a good conversation to come back to your stakeholders, your clients, whoever it is, and say, look, we spent a month trying to move this. We got to 15 pretty quickly. Getting beyond 15 has proven a challenge.

There are some big things we could try and kind of pick up and move over, but we don’t believe that we, you know, the, the, the return is worth the investment here at this point. So, I think that that, um, again, is one of those sort of gut feelings. Um, but it’s tough. It’s tough because remember, we all love our ideas and letting them go is difficult.

Etienne Garbugli: All right. So, within this like, so what’s the role of experimentation and what’s the role of maybe more in depth research on product when you’re doing product discovery? So how do you see them best working together?

Jeff Gothelf: Well, I mean this, this is how we learn, right? Experimentation and product discovery is how we learn.

Now, experiments, for me, it’s an umbrella term for anything that we do to build learning into our product. Discovering delivery process. Right? So, it can be anything from a customer interview to a paper prototype, to a live data prototype, to beta testing, price testing, A/B tests. All these things are, are experiments.

They’re learning activities to help us determine if we should continue investing in a particular direction. Um, and so to me, they are a crucial part of “the work”. In other words, these are not disposable elements of product development, modern product development that we can not do when we’re tight on time. Right?

The, the work, sadly, it’s primarily perceived the software engineering in most organizations, but in reality, “the work”, capital T capital W, right, is, uh, is software engineering, design, right? Product discovery, research, product management. Uh, uh, you know, all of these things are part of “the work”.

And I think that that’s, to me, if, if I feel successful when an organization understands that. They understand that the work can’t be done without, uh, uh, without all of those components. And so that’s to me is it’s a crucial role. It’s as crucial of a role as software engineering because, and people say, well, that’s not true because the software engineering is the actual making of the thing.

And while I agree with that, right, if you make the wrong thing or an unusable thing, then who cares? Right? And so, informing what work needs to get done is equally as important as, as expertly crafting the experience, both in a design and a development way.

Etienne Garbugli: So, in that case, if you, uh, if you use experiments as an umbrella term like that, so do you always recommend setting exit criteria, for example, you’re doing interviews or you’re doing other product discovery activities that are more, um, customer development or user research. Would you always say that there needs to be an exit criteria to these activities as well?

Jeff Gothelf: Define what you mean exit criteria.

Etienne Garbugli: More like you have an experiment, you’re running a test, so like you would have an evaluation criteria. If this passes, if we reach this certain threshold, would you do the same thing with interviews as well or with other activities like that?

Jeff Gothelf: Yeah. I mean, yes, you need to go in with a sense of what success looks like and what failure looks like. Right? So, um, there needs to be some kind of a threshold with the team that says, we’re going to talk to 10 people today. If less than three of them tell us that there’s any value in this thing, then we’ve got to go refigure, we’ve got to figure this out.

Now look, you may end up with like two and a half, right? Which is again, where this kind of like two people said they hated it, and one person said, you know, I don’t love it. I’m not sure I’d use like, you know, you don’t get that, that perfectly clear answer.

Um, and that’s where the challenges begin with all of this is, is because if you don’t get the, those very clear responses, you don’t get that very clear, you know, black or white, yes, it’s a pass or it’s a fail, but you absolutely need to go in with some kind of success threshold. That, as a team, kind of back to our conversation about bets and confidence gives you enough confidence to move forward. Right?

So, for example, let’s say you’re doing a feature fake. Right where there’s a link, kind of a button to nowhere, right? So, it looks like a feature on your site, but when you click it, you get nothing, or a 404 page or a coming soon message, right? Um, and 10,000 people come through that workflow on a daily basis, right?

As a team, how many people are going to have to click on that to give you the confidence to move forward? Right? And there’s, you know, you start off with a ridiculous. You can get teams to, to conclude, you can say, look, two people out of 10,000 and they’d be like, no way. Right? 9,000 out of 10,000 no way.

Okay, so it’s between two and 9,000 right? You kind of start to narrow that down. Is it a thousand is it 500 is it 2,500 right? That becomes the kind of conversation that you want to have and be very clear that if we hit this, we feel confident enough to move forward. That’s it.

Etienne Garbugli: So, it’s about increasing the level of confidence you have to move forward to the next step?

Jeff Gothelf: Yeah. Because I told you like, this is not, it’s not science. I mean, you will, every now and again you’ll get lucky, right. And nine out of 10 people will find the thing, tell you they love it, pay you for it. Right. Awesome. Right? But, uh. Well, I’ll give you a real life example. I was working with a team that was building a new subscription-based business for an organization that never had subscription-based businesses before.

So, they didn’t have, they didn’t even have a sense of what success looks like for subscription, but they knew how much money they needed to make and how much they’re going to charge for this service, what they thought they were going to charge for the service, and so they knew how much money they needed to make in order to build this into a viable business.

And so, they did some quick, you know, scaling or some spreadsheets for scaling this up and scaling this down. And they got a sense that about 75% retention rate month over month was what they needed, right? And so they ran this experiment with this new subscription model. A a. Idea, and as long as people converted at or around 75% continuously on a month to month to month basis for three months, that was a good indication that they were delivering value.

So, for them, that number was 75% and it may not be the number for your organization, but that’s what they needed to hit to be able to make a business case for further investment in this idea.

Etienne Garbugli: That’s super interesting. I don’t want to take too much of your time, but thanks for taking the time, Jeff.

It’s really appreciated. Where can people go to learn more about your work?

Jeff Gothelf: Absolutely. It’s my pleasure to be here. Um, so, uh, so I’m super easy to find. That’s by design. If you go to jeffgothelf.com, you’ll find everything there. My blog, What I do, how I do it, links to upcoming events.

I’ve got lots of in-person and online classes available as well as links to Sense & Respond Press. And so that’s a great place to go. Jeffgothelf.com, start there.

Etienne Garbugli: I’ll make sure to share the hypothesis canvas, and as well the revised Lean UX Canvas that you guys have.

Jeff Gothelf: Perfect.

Etienne Garbugli: Thank you very much. That’s really appreciated.

Jeff Gothelf: Thank you, Etienne. That was great.

More on Product Discovery

[ Interview ] Bestselling Author Nir Eyal on Using the Hook Model to Improve Product Engagement

A few weeks back, I spoke to bestselling author Nir Eyal for The Lean B2B Podcast. We talked about product design, retention, growth, and how the Hook Model can help improve product engagement.

You can watch the full interview below, or access it on iTunes, Google Play or Spotify.

Interview Transcript

Nir Eyal – Hook Model

Etienne Garbugli: So, my guest today is Nir Eyal, Nir is the bestselling author of Hooked: How to Build Habit-Forming Products, and Indistractable: How to Control your Attention and Choose Your Life, which was published earlier this fall.

Nir’s work focuses on the intersection between psychology, technology, and business. Nir has taught at the Stanford Graduate School of Business, and prior to teaching and writing bestselling books, Nir was the CEO and cofounder of two businesses Ad Nectar and Sunshine Business Development, both of which were acquired here.

Nir, welcome to the podcast.

Nir Eyal: Thank you. Great to be here.

Etienne Garbugli: Great. So maybe a first question, so maybe at a meta level, why did you decide to explore or move forward the thinking around behavioral design specifically?

Nir Eyal: Yeah. So the idea behind behavioral design is that we can use consumer psychology and product design to help people live better lives and help them form good habits.

And so that’s really what Hooked was about. Hooked, what I wanted to do with Hooked was to steal the secrets of companies like Facebook and Instagram and WhatsApp and Slack, and all these companies that are so good at changing user behavior so that we can take these tactics and not just leave them to the big social media companies and the gaming companies, but that we can use the same exact techniques to help people use all of our products.

You know, anyone out there who’s building a product or service. The idea here is that we can use these same exact tactics to help people form good habits with our products and services. So, you know, whether that’s enterprise software, whether that’s a financial services software, whether it’s, consumer web or fitness software.

The idea is that we can use the very same tactics that these companies use to make their products so engaging and habit-forming. We can use those same tactics for good.

Etienne Garbugli: And as you were doing your research, when you were writing Hooked, did you realize that some of these organizations were already using Hooked-like frameworks within their, their organizations?

Nir Eyal: Sure. I mean, that’s where I learned this stuff. You know, these companies were around much before my book came out, and my book took those tactics that I learned. You know, I looked for the commonalities and that’s where the Hook Model came from. This four-step framework that I talk about in my book is directly pulled from the examples of what we see is common to all of these very habit-forming products.

So, it’s the same four steps, whether you’re looking at YouTube or Facebook or, Slack, uh, you know, all sorts of products and services that are designed this way, have these four basic elements of the Hook Model embedded in them.

Etienne Garbugli: Okay, great. So, within a company’s lifecycle, let’s say from company formation to growth, and maturity, when do you think is the right time to start really thinking about habit-forming designs and functionalities?

Nir Eyal: As soon as possible. So, there’s, there’s two places that my work tends to get used. The first is in the very early ideation paper napkin sketch timeframe when the idea is just germinating and we haven’t committed any code, we haven’t even done any wireframes.

The best time to use the Hook Model is to ask yourself, first and foremost, does your business model even need a habit? Not every product has to be habit-forming, but every product that needs to be habit-forming has to have a hook. And so, if your business model requires people to come back on their own, requires unprompted user engagement, well then you have to understand and design those four steps of the Hook Model.

So, that’s the best place to use this stuff is in the early stages. The other place that I find that a lot of people utilize the Hook Model is, in the later stages when something’s not working. Uh, so many times I’m called the plumber, you know, they call the plumber to stop the leaks. And so many times a company will call me or a venture capitalist will call me and say, we’ve just sunk millions of dollars in this company.

They had amazing growth rates. It looked like everything was going in the right direction, and they acquired all these customers, but then they leaked out, right? We call this a leaky-bucket business; businesses that have high growth, and low retention. And of course, the problem here is that you’re wasting tons of money buying growth, but you can’t buy engagement.

You can’t buy consumer habits. You have to design that into your product. Growth you can always buy, you can just buy a bunch of ads on Google or Facebook or television commercials. Doesn’t really matter. You can buy growth, you cannot buy consumer engagement that has to be designed into the product.

Etienne Garbugli: Okay. So, in that case, the trigger would that they’re realizing that there’s a lack of retention based on their expectations and they’re pouring money into the organization without getting the, the engagement that they’re looking for.

Nir Eyal: That’s right.

Etienne Garbugli: So, how would recommend that a product team or an entrepreneur evaluates how habit-forming their product currently is? So, in that situation, how can they get a clear picture of how habit-forming the product currently is?

Nir Eyal: So, that’s where the Hook Model can be a very good diagnostic tool that if you find that consumers are not sticking around, that they’re not being retained in the way that you’d hoped.

Then that’s when you can take out the Hook Model and figure out what part of your user experience is broken. Does it conform to the four basic steps of the Hook Model that we see in all sorts of habit-forming products? That becomes a central question. Now in terms of a metric that you’d want to look at.

You, you, you want to look at the, what the metric I like best. You know, there’s been a lot of debate whether we want to look at MAU over DAU or, you know, there’s all kinds of metrics out there. My favorite metric is to first define what a habituated user looks like, and that’s going to be contextually-specific to your product.

So, if you’re building a social network. A habituated user is probably someone who checks in every day. If you’re building a enterprise software, same thing, right? It’s probably something that needs to be used every day.

Certainly, needs to be used at least once a week. That’s kind of the critical cutoff for a habit-forming product.

And the product isn’t used within a week’s time or less. Very difficult to change a consumer habit. So, we really want to make sure that we define what would a habituated user look like, if you’re building a fitness app, okay, well that’s gotta be, you know, two or three times a week. If you’re building, you know, a marketing automation software or something that maybe it’s a little less frequent.

It depends on what you think should be the regular cadence of someone using that software. So, you define that number and then you want to ask yourself what percentage of your user base is using that product with that level of frequency. And typically, what we see is that 5% or less is a problem.

If 5% or less of your, of your user base is not habituated and your business model requires them to be habituated for your product to succeed, then you probably need to go back to the drawing board in the early stages. Once we start seeing about 5, 10% of the user base, people who come in through the top of the funnel actually stick around and become habituated. Now we can start innovating. We can start, uh, you know, uh, playing with the different parts of the Hook Model to make them better.

But it’s a good chance that we have some fundamental elements in place already.

Etienne Garbugli: So, if you’re, you’re looking at the data and you see that it’s either 5 or less, does that tell you something more about whether the expectations are maybe wrong, or that the business just does not have product-market fit, for example?

Nir Eyal: Probably doesn’t have product-market fit. So probably, you know, if there’s either, either your Hook Model is horrible, you know, in most cases, when I, when I work with companies. You know, even though the book Hooked sold 250,000 copies, a lot of people still haven’t heard about it. And so, you know, they just think, Oh, well, if I just design a product that is awesome, that’s good enough, right?

If I just give people what they want, then they’ll love it. And of course, that almost never happens. We have to be a bit more deliberate around how we design these products for habit and make sure we have all four elements. So, when I work with a company that is trying to build a product, and yet users aren’t sticking around, right?

They’re leaking out, what I will do is come in with the Hook Model and ask them, okay, what part of the Hooked model is deficient here? Is there not a clear trigger? Have we identified the wrong internal trigger? Is the action easy enough to do? Is there a clear reward, and does it scratch the user’s itch?

And then finally, and probably the most overlooked of the four steps of the Hook Model is are we asking for a user investment that improves the product with use? And so, we can use it as a diagnostic tool. And of course, every single time we do, we always find at least one, if not more, of those four steps of the Hook Model that’s deficient in some way.

Etienne Garbugli: And do you have like an idea of like based on the engagement that you do, of which elements tend to be more problematic when you come in?

Nir Eyal: It tends to be, it tends to be either the internal trigger, meaning they haven’t figured out what the customer pain point really is that occurs with sufficient frequency to form a habit.

Or typically it’s the investment phase is, is, you know, you can get problems in any of the four steps. I mean, I’ve, you know, it’s, it’s, it’s. A pretty even distribution, but I think if, if there’s, if there’s two areas that I tend to see more problems, it’s that either the company hasn’t identified the right internal trigger, the reward isn’t rewarding enough, or they’re not asking for a proper investment.

And many many companies don’t, you know, they forget about this investment phase. They don’t figure out a way to make the product better and better with use. But of course, if you look at every of those, everyone of those products I talked about earlier.

They all have some kind of investment that you put into the product in a form of data, content, followers, reputation, something that improves the product with use. Most companies out there today don’t do that. And it’s a huge, huge missed opportunity.

Etienne Garbugli: So, say in that direction, like how would you recommend an entrepreneur or a product team figures out what the right triggers should be for the product?

Nir Eyal: Yeah. So, what you want to do is to look for nascent behaviors. So, you know, many times I’ll talk to entrepreneurs, uh, and they’ll, there’ll be bright-eyed and bushy-tailed, and they’ll tell me, you know, ask them the question, how does the user currently solve this problem? And they’ll tell me, no, no, no Nir, you don’t understand.

This problem has never been solved before. There’s nothing like what we have for the market. It’s never been tackled. And they think that’s a good thing. And of course, I’m very skeptical because if you can’t tell me how the customer currently solves the problem, it probably means it isn’t a problem.

And so that’s the, that’s the first step is to ask yourself, how is the customer or the user currently solving this problem? And so why does it need a new solution? And I, don’t mind if the solution is terrible. That’s actually a very good sign. So, if they’re, you know, using Google Docs and stitching together data sources from a bunch of different places and they had to, you know, use Scotch Tape and Bubblegum to figure out their own solution to this problem.

That’s great. That’s a wonderful sign. But many times, when I ask companies, you know, how is the person currently solving this problem? They say, well, we don’t know, but they should, and that’s usually a bad sign. So, that’s how we start looking for these internal triggers. Another technique that came out of the Toyota production system is to ask ourselves the five why’s, which is we keep asking why five times until we get to a feeling. Until we get to some kind of emotion that the user is looking to escape, not just the functional needs, but the deep-down emotional needs that they are trying to satiate. Because only when we ask why five times do we open the aperture of a potential solution. So, if you just stop with the functional needs, you know, why does our company, a customer need this?

Oh, because they need to send messages from places, but whatever. It might be like a very, you know, typically teams will, will come up with very functional type needs. You know, this data needs to go over here or whatever it might be. But the aperture is very narrow in terms of what the possible solutions might be when we so narrowly define the problem of why the user needs this.

But when we really back it up and start with an emotion, with an internal trigger, fear, loneliness, uncertainty, fatigue, anxiety. When we back it up all the way back to the emotion. Then the option set for how we can scratch that itch, how we can design for that discomfort opens up and we have much more flexibility and much more opportunity to fix the problem in a creative new way.

Etienne Garbugli: But that does mean that there might be multiple answers to the same questions. How do you go about iterating on the effectiveness of the habit-forming loop, like how do you figure out that this is the one we’re trying, then this one might work better?

Nir Eyal: Yeah. So, then it becomes an issue of segmentation. So, let’s take the internal trigger of boredom. Okay. If we really get down to it, one of the reasons why we use many products and services is because we are trying to alleviate boredom, we do not like that sensation. That is an uncomfortable internal trigger that drives us to check the news, look at stock prices, sport scores, YouTube, Reddit, Pinterest, all of these things.

Fundamentally, let’s be honest, cater to this uncomfortable, emotional itch, maybe even email for many people. So, even though the internal trigger is the same, how the user scratch that itch might change. So, when you feel bored, maybe you go watch sports on ESPN, but when I feel bored, I read the news and that scratches my itch differently then your itch, even though the itch is the same, it’s boredom.

And so that’s where it comes down to customer segmentation, right? But fundamentally, we have to understand the user’s itch so that we can design the solution and the reward phase, the third step of the hook, the variable reward phase, to make sure that it satiates that particular consumer’s problem.

Etienne Garbugli: So, in, in that end, the, the trigger would need to be more precise for the segment that we’re thinking about specifically?

Nir Eyal: Well, the the, the internal trigger is the same, but the reward changes. So, the purpose of the variable reward phase is to scratch the user’s itch, but leave them wanting more.

So, if you said, Hey, we have a product that’s going to satiate your boredom. I mean, you wouldn’t say that out loud, but that’s the subtext of, of how you design the product, right? You wouldn’t want to put that on a on a banner ad. But if we have a product that’s all about, you know, come watch sports on our website.

You know, for one person that’s really not going to scratch their itch, but to another person that’s wonderful, that’s incredibly entertaining. So, even though the internal trigger is the same, the reward is different. The way it is satiated might change based on a particular person’s demographic, life experience, interests, all those other things.

Etienne Garbugli: So, based on that, how would you make sure that you’re actually making progress as you work with that organization or work on your product?

Nir Eyal: Yeah. So, remember we talked about that, the percentage of users of habituated users? So, once we have that North Star metric. Then once we have that North Star metric of what percentage of our user base is habituated, now we change the product and observe what happens per cohort.

So, we make some changes to the product. We improve the Hook Model in some ways. We, you know, work on the external triggers, the internal triggers, the action phase, the variable reward phase, and the investment phase. We tweak the product based on the Hook Model, and then we observe what happens to the cohort of users who are presented with the new, the improved version of our product based on the changes we made.

And then we’re tracking just one number. What happened to that percentage of habituated users? Used to be, we were at 5%. Oh, my goodness. Look with this cohort now we’re at 10% of our user base is habituated. They’re using the product as much as we would expect a habituated user to use it.

Etienne Garbugli: And gradually you do have a benchmark where you feel like this would represent a product that is really habit-forming?

Nir Eyal: Well, the gold standard, what they saw at Facebook was about 50%. Yeah. But that, we haven’t seen that in a long, long time. It’s very, very rare that you’ll get a product that will be that habit-forming. And of course, it depends on how many users start using your product. And of course, the quality of the users.

You know, if you just spend a lot of money on advertising and people come to your product, but they’re not the right type of users, you might get them to sign up, but they weren’t really great to begin with. But you know, assuming that you’re actually fishing where your consumer, lives right, if you’re actually finding the right type of user, then, then, you know, anything above 5% is a good sign.

Etienne Garbugli: Okay. So, you work with and invested in a variety of organizations. How do you typically see the Hooked framework working out in complex B2B or enterprise settings?

Nir Eyal: Yeah. So, as long as the product is used habitually, you know, and again, not every product needs to be used habitually. So, for example, let’s say you have some, you know, a software that is only used if something terrible happens.

Let’s say you have some server-side software that, brings all kinds of bells and alarms when something terrible happens.

Yeah. So, that’s not going to be a habit-forming product. That’s something that you don’t need to use. It just runs in the background. So, you need to focus on, on selling it once and then you’re kind of done right until something terrible.

So, you don’t have to create a habit with that kind of product. But you know, increasingly that is the minority of products these days that if you look at the revolution in bring your own device (BYOD) and you know, enterprise SaaS software, it is critical that the product is actually used because if people don’t use your product, they, they, they cancel. Right? They churn out.

Yeah. And so, it becomes absolutely critical that we get people to use the product in order for them to keep paying us. Now, that’s a very different business model than what used to be the case, right? Pre-Salesforce days when Salesforce said “No software”, it used to be, you know, you buy per seat and then you can use the software as much as you want, but we got paid no matter whether you used it or not.

That business model is becoming increasingly rare in the enterprise these days because today, you know, people want to pay per month, and so if the product isn’t used, eventually the procurement department says, what the hell are we paying all this money for, nobody’s actually using this?

And then of course they, they churn out. So, it’s very important, increasingly important today that whether it’s enterprise and of course in the consumer web space, that your product does create a habit or you’re very likely to find that your customers will stop using your product and stop paying for it.

Etienne Garbugli: But if your software, for example, Salesforce is used by different roles, different types of users within the organization, how do you, what do you think are the best ways to kind of figure out, would there be multiple, would you use multiple versions of the Hooked framework or multiple instances of the different hooks that you’d be creating in place?

Nir Eyal: Sure. Yeah. If the product does different things for different people, then absolutely. You can modify the different types of hooks per that particular use case. I would argue in the case of Salesforce, Slack, Github, Stack Overflow, all of these things are enterprise products, and, and they all utilize the Hooked model.

Etienne Garbugli: That’s interesting. Hmm. So, from your experience with, with teams and businesses, like what are the criteria that drive the successful implementation of the Hooked framework? Like in what circumstances is it most successful?

Nir Eyal: It’s, it’s really about frequency. That’s the number one criteria for a product that can succeed or will not succeed with the product, is how often should people use it.

You, you can’t, you can’t make people use a product that doesn’t benefit them. And so, if the, you know, it’s a nice aspiration if you say, Oh, I wish people would use the product more. But if it doesn’t make sense, right? And if it doesn’t, if there isn’t a context with which people should use the product and that it benefits them to use it more often, then, then you, you know, you can’t change that, you fundamentally have to create value for the user.
And so, the, the best type of products are the ones that are used with sufficient frequency to form a habit. Those are the right candidates for the Hook Model. Again, if it’s, if it’s a product that’s very rarely used, you don’t need a Hook Model.

You just need to sell it once and then you can walk away. But with a product that needs to be used habitually for the business model to succeed, that’s the kind of product that, that does require habits.

Etienne Garbugli: So, there needs to be a certain, a certain potential for usage frequency, but as well we mentioned before, it’s better if you’re beyond product-market fit

Nir Eyal: You don’t have to necessarily, I mean, if you use it in the very early days, you’re just using it differently. So, the Hook Model can be used in the very, very early days to help you design the experience itself, right? So, if you’re still in a pencil sketch stage, then it behooves you to, before you spend a lot of money on, on the user experience, or of course committing code, spend some time asking yourself what the Hook Model should be so that you could design that into the product from day one. Because again, you can’t buy engagement. It has to be built in.

But if the product is already out there, and maybe it’s even reached some level of a product-market fit, but you, but you find that the consumer engagement rates are too low and the percentage of habituated users isn’t where you want it to be.

Well now you can use the Hook Model as a diagnostic tool to figure out what’s wrong with your user experience to hopefully improve it.

Etienne Garbugli: It’s really interesting having those, those threshold as well. You’re talking about 5% if you’re under that, it gives you a sense of where you should be focusing as opposed to when you’re beyond that. That’s really interesting.

Nir Eyal: Yeah, yeah. And that’s, by the way that I have to say as a disclaimer, because I, I want, I want to make sure this is clear. This is just in my personal experience. I haven’t seen any studies that show 5% is the magic number. This is just in my, you know, decade or so of experience in the industry. What I tend to see, but again, there’s never been a state that says, Oh my gosh, you know, 5% is the number.

Etienne Garbugli: Have you seen a relationship between the Jobs-to-be-Done framework and how people use the Hooked framework?

Nir Eyal: Um, in terms of, I think what I like about the Jobs-to-be-Done framework is that it does focus on the base needs, right?

There’s the, there’s the always that a story of, you know, people don’t want a hammer. Uh, they, they want to hang their picture on the wall. And so how can you help them hang their picture on the wall? I would even take it a step deeper of, well, why do they even need that picture on the wall? Right?

What emotional need are they satisfying? That would even open the aperture even more. Right? Um, so I think there is, there is some similarities between the Jobs-to-be-Done framework in terms of getting down to base needs. Um, but I think what I add to the conversation is, okay, now that we know the internal trigger, now that we know the base needs, we know the Job-to-be-Done.

How do we put this into practice? How do we actually make sure that our product has these four fundamental steps of the trigger, the action, the reward, and finally the investment?

Etienne Garbugli: That’s really interesting. Yeah, that’s what I was thinking about before when you were mentioning how the same level of clarity can be used in both different instances, so thanks for taking the time Nir, that’s all the questions I had for you today.

Where can people go to learn more about your work?

Nir Eyal: Yeah. Thank you. My website is at nirandfar.com Nir spelt like my first name N-I-R, so that’s NIR and far.com and the book is called Hooked: How to Build Habit-Forming Products. And my second book is called Indistractable: How to Control your Attention and Choose Your Life.

And that book is more of a consumer-facing book, not so much a product design book. And it’s about how to make sure that we live with personal integrity and do what it is we say we are going to do.

Etienne Garbugli: And congrats again on the new launch, and thanks for taking the time to chat today. That’s really, really appreciated.

Nir Eyal: My pleasure. Thank you so much.

Etienne Garbugli: Thank you.

More on Product Engagement + The Hook Model

[ Interview ] 5x Founder David Cancel on Why All Businesses Will Become Customer Centric in the Next 10 Years

A few weeks back, I spoke to 5x entrepreneur and angel investor David Cancel for The Lean B2B Podcast. We talked about customer centricity, the commoditization of SaaS, growth, and various strategies to learn and iterate early business models.

You can watch the full interview below, or access it on iTunes, Google Play or Spotify.

Interview Transcript

David Cancel on Customer Centricity

Etienne Garbugli: My guest today is David Cancel. David is the co-founder and CEO of Drift, the world’s first conversational marketing and sales platform. Before, David founded several technology companies, four of which Compete, Ghostery, Lookery, and Performable were acquired. Performable was acquired by HubSpot where he led product from scale up to IPO. David is also an investor and advisor in dozens of startups.

David, welcome to the podcast.

David Cancel: Thank you for having me. I’m excited to talk today.

Etienne Garbugli: Great. So maybe a bit of a question on a tangent. In a great interview that you gave to Patrick Campbell, you talked about the importance of focusing on a shift in behavior when starting a business, be it a buying process or messaging, what would you say was the starting point for Drift?

David Cancel: That’s a great question. It’s something I think a lot about now, but as like an early entrepreneur I never thought about enough. Right? One of my mistakes. So for us, the shift that we saw, we saw a couple of shifts. So, I’ll talk about the first two.

The most important one was that we saw us moving into the commodity phase of SaaS software.

And what I mean by that is that in any given category, now there’s hundreds, if not thousands of alternatives. And the rate at which those are being created, a new SaaS offerings is exploding, right? So accelerating. And what that means is it means on a macro sense that we’re moving from a world where us, the companies could control the sales process to all the power moving towards the end user, the buyer.

And so we saw like the rise of, you know, a buyer-centric world versus a company-centric world. And so we knew that we had to rethink everything there. And then when we saw another, another mega trend which was, messaging had finally hit a tipping point where we were all defaulting into messaging as the number one way we were communicating.

And because of that, we, yeah. Oh, we can finally use messaging for sales, not just support.

Etienne Garbugli: So, I went back in time to Web Archives, and I looked at early versions of the Drift messaging. So, how did you guys get from…

David Cancel: Oh my goodness. I’m nervous to hear that.

Etienne Garbugli: Well, how did you guys get from this initial vision to the first version that you guys launched in November, 2015, if I’m not mistaken.

David Cancel: Yeah, that’s exactly right. The short answer is that we iterated a ton with early customers, and Patrick Campbell was actually our first paying customer over at ProfitWell. And so we got a bunch of friends. Luckily, we had a bunch of friends that we did tap in companies and say, you know, work with us.

And we did something that I do often, which is to basically go off at the beginning of a product, find early customers. Most importantly, get them to pay me even before we’ve created anything. But the payment could be anything. It’s basically how much money they have in their pocket. I think, you know, people have paid us 20 bucks, five bucks, 10 bucks, whatever they have.

That’s an important step in it. And then we give them access to whatever the software becomes for life. You know, that’s the exchange. And then they help us build the product. It’s important to get some dollar amount from them, whatever. It doesn’t matter what the number is. Versus working with a beta partner and them never paying you, so they have to have that skin in the game. It’s super important. No matter how ridiculously small the amount is.

And so we started working with all of them that got us, and we iterated kind of in, some would call it stealth mode, but we weren’t really stealth. We just didn’t have any energy to actually publicize anything. And so we did that. And then we iterated, so the first version in November of 2015.

Etienne Garbugli: Okay. Okay. But there were products before, before that.

David Cancel: Oh yeah. So, yeah, that we killed, we killed that. We killed three different product versions. That were, you know, some that we spent a week on, some we spent a couple of months on, some we spent several months on, and we would just quickly kill them as we were testing with this initial set.

Etienne Garbugli: And what were the criteria that, that made you decide to kill those versions of the product? What made you decide that these were not that the right ones to build on?

David Cancel: Ah, that’s a good question because that’s one of the most difficult things to, to figure out as an entrepreneur because as entrepreneurs and product people and creators, we have a happy years, right?

We don’t want to kill our creations and our babies. And so we hear what we want to hear and for us is that we kept using this thing that I call the dollar test, which I kind of briefly described there with new people and trying to see if new people who would tell us who the, we would get feedback from new people, new customers.

Potential customers, I should say. And, we would always get them when they indicated interest to try to pay us. And we kept seeing that with various versions that basically people didn’t care enough to even part with 20 bucks that was in their wallet. And then we knew we were not onto something.

But you know, everyone is default to be nice and they’re willing to waste and an insane amount of time, you know, thousands of dollars of bare time. Uh, you know, meeting with you and giving you feedback, but they’re not willing to part with 20 bucks. There’s something there’s a psychological thing there that happens.

And so to us, that’s the shortcut path to understand if we’re on to something or not.

Etienne Garbugli: So in a way, the exchange of money was the acid test to figure out if these different products were cutting it for you.

David Cancel: Yeah. It’s remarkable because if you spend time creating things, it is remarkable how many strangers and friends will spend thousands, and thousands and thousands of dollars of their own time and energy just saying nice things to you and giving you feedback and trying to help because they’re genuinely trying to help and not offend you. Uh, but they, you know, they even know, they, they know that they’re not interested in the product, that they wouldn’t buy, that they wouldn’t use it.

And so we found accidentally this path to short cutting this, of just going straight towards, you know. Getting some dollar amount from them. And when I’ve described this to other entrepreneurs, and I’ve seen other entrepreneurs use this, they, they get too wound up on, well, I don’t want to give away too much value and I don’t want to give this.

And what about if it’s worth this much? And like they try to optimize too much on what the price is. And for us it’s just very simple. It’s any exchange. If they have $5 in their pocket, I will take the $5 and I will give them lifetime access to that software.

Etienne Garbugli: So you’re not looking at a certain threshold in terms of being able to figure out the business model at that stage.

David Cancel: Not at that stage. Later, we start to do that. We start to refine the pricing, but once we’ve hit a critical mass and critical masses, you know, different for everyone. For us, it’s defined by how big we think the market is. And some, you know, do we have hundreds, thousands of customers?

Again, it depends on your business, but once we feel like we have a critical mass of early evangelists.

Then, and only then do we start to price test, but we never go back and try to extract more money from those early customers or raise their prices. We always honor that forever. And, instead we only apply those price increases or changes to new customers.

Etienne Garbugli: Okay. At that stage and beyond, how did you go about identifying the gaps in your knowledge around the business or the product strategy?

David Cancel: How do we find the gaps?

Etienne Garbugli: Yeah. Like what you need to learn or what you need to get insights in.

David Cancel: Yeah. We set like very small increment. We have grandiose and insane, um, you know, high level visions of what we want to do. So big dreams. But then we set very small, almost laughable tactical goals.

And, we, we optimize for them to be super, super quick experiments. So we’ll always have a goal of all we’re trying to figure out this day or this week is like, how do we increase this amount of usage or people to get from A to B, or people to pay when they’re not paying, or for people to sign up.

You know, we always have like some goal, but it’s basically. All of those goals sum up to one thing in the early days at the beginning, which is how do we get, as Kevin Kelly would say, your first thousand true fans. How do we get a thousand people in the world to care about this? Even if they’re paying us nothing or very little depends on your product.

For us, it’s always they’re paying us something, but like it doesn’t matter what they’re paying us, but can we get a thousand people in the world to care about this thing? And what’s standing and today, what is the biggest blocker from getting those thousand people? We’ll work on that.

And then tomorrow we’ll work on the next thing on that list. And you know, so forth.

Etienne Garbugli: And that is a company-wide or is it specific to the product, particularly.

David Cancel: You know, in the early days it’s, uh, it’s company-wide because it’s, we’re all doing everything together, right? There’s no functional distinction really in early days, and then later once we’re like at our stage and we’re doing this kind of stuff, there is functional separation, but we’re all working on different parts of the same goal.

So we have the same shared high level goal as a company or as a team or as a sub-unit, and then we’re all divvying up what we can do to align to that goal. That’s our point of alignment.

Etienne Garbugli: Okay. Okay. You’ve been a really big proponent of customer centricity. You wrote about this, you wrote books, you read a lot of posts, which is great. Do you think it’s possible to get there without a customer centric approach?

David Cancel: Uh, Abs… 100%. It happens every single day. Most companies in the world are not customer centric. Um, and I think most successful companies that we would model today, or that we would look at today, are not consumer centric.

I think that is the very reason that we exist as Drift and why we started the company, which is like, I think those days are over because all markets. The, basically the, the Internet has done one thing right over time and it’s finally compounded to this point and we’re finally at the point where it removes all friction out of markets, right?

It just goes in every market you look at friction is being removed, whether it’s an offline market or online market because of the internet and penetration and things that we can do now. And when that happens. In every given market, what happens is you move from a sea of monopolies or, or, um, you know, uh, a set of monopolies in those markets, you know, to it being open to everyone being able to compete in that market at a global, in a global way.

And when that happens is, uh, you have mass commoditization that’s happening every market, whether it’s direct to consumer, whether it’s B2B, whether it doesn’t matter what you are doing there, there are still monopolies left, but most of them are being toppled. And when that happens, the power we believe moves from the company to the customer because now you have thousands of alternatives on how to spend your money.

Where before maybe you had one or two, uh, and in that world, this. Insane. Um, view on customer centricity that we have, I think will become the, the norm. And, you know, this will take decades to play out, but will become the norm and will be the only way that you go to market. Uh, this idea that you will create stuff in isolation and not care about, uh, how the customer experiences it, which is not just the product, but every touch point, you know, along the way from your marketing to your sales, to your support, to your in-person kind of events to everything that you do is a customer touch point. It will matter.

These are not new ideas I should say. You know, people like Forrester and many others have been talking about the rise of customer centricity, customer centric businesses and the customer experience for 20 years, at least now. But the point is, we were at the point in the market where it didn’t matter because we didn’t have the mass commoditization effect happen yet.

And so we still had monopolies in our market. So it didn’t matter for you to adopt customer experience, kind of focus. Well, we’re past that. We’re in a different market now, and everyone that you would talk to would agree that we’re in a world of commoditization now. And so like now you have to compete on experience.

Etienne Garbugli: Well, if you look at a lot of data points that the team at ProfitWell has shared, there’s still that gap between what people they do. Do you feel like, like right now it’s still a competitive advantage if you are in that mindset where you’re customer centric, and how long do you think that position will stand?

David Cancel: I think it depends on the market that you’re in. The easier it is to compete in those markets, like digital products, like SaaS and software, I think we probably have, you know, a. At most max of five-year kind of advantage right now for companies to get in and really compete on customer centricity and, and the customer experience that comes out of that.

Maybe less, probably two to five I would say. Right? That gap is closing quickly. But then, uh, your harder markets, your offline markets, your markets where it’s more of a physical change that you have to, uh, conduct and not just digital. There, I think you probably have a good 10 year run, 10 year kind of advantage that you can have if you compete this way.

Etienne Garbugli: Okay. Okay. And at this stage, how do your recommend founders prioritize features or functionally groups, when they’re expanding their product?

David Cancel: Yeah. To me, you know, it comes down to our approach, which is this, um, which is the approach that we stumbled upon, you know, over a decade ago and started to build, first it started out as, uh, an engineering and development methodology.

Then it turned into kind of a product and design. And engineering methodology. And now it’s expanded to a company-wide methodology around this building things around the customer. And so we look at how we prioritize features and do all of that kind of stuff that you mentioned, uh, by. From the customer themselves. Right?

And that does not mean, again, that the customer gives you a list of features and you implement those features because it is your job to interpret and understand the customer. They don’t know what’s possible. They don’t know how to express features. They don’t know how to do roadmaps. I don’t believe in public roadmaps. Um, first thing. So I’ve never done those. Um, or I try hard to avoid them.

Uh, it has to do with how do we continue to solve for the customer problem over our problem. And that is a deeply, um, that’s, that’s more of a psychological kind of hurdle that we have to get through because we all have egos.

Uh, no matter how humble you think you are, we, uh, we all have egos. And so our egos get in the way every single day in the way that we make decisions, uh, around our companies, but specifically around product. And, you know, why did we design something like this? Because we wanted to be cool.

We wanted it to be clever. We wanted it to be different. We wanted it to look like, uh, no one else. What does that mean? That means that most of our customers probably have no experience with that pattern or that design. And then we’ll just might just end up frustrating that customer because we put, we prioritize our own ego and our own satisfaction and pride over the customer.

So most of our work that we do in this, in this has less to do with listening to the exact words that the customer tells us. And it has to do more with setting up internal guard rails. We call them, and systems to try to express, stamp out and extinguish our pride and ego from our decision-making process.

And that’s why we look towards models like. Uh, whether it’s, uh, Warren Buffet and Charlie Munger, whether we look at Ray Dalio or whether we look at different people who make systematic-based decisions and how do they remove their own personal bias and their own personal egos out of that decision-making.

That’s where we spend all of our time thinking and looking at, which helps us then serve the customer.

Etienne Garbugli: Hmm. So that’s super interesting. So, can I ask like what are some of the process that you put in place to be able to really remove the ego from the decision-making?

David Cancel: Oh yeah. They’re, they’re, you know, painful.

I’d say them the most, uh, very painful even for, you know, all of us. That gets in the way, I think, um, forcing, creating guardrails about being intellectually honest around the metrics that we use, uh, the feedback that we get and, and therefore being able to push back on people when they’re presenting, when they’re making an argument for something, um, that is probably the most effective thing that we do, but also the hardest, because again, people do not want to tell other people bad news. They don’t want to seem offensive. They don’t want to seem mean. They don’t want to seem contrarian. So that kind of rigor, which we have to practice every day, that’s less around a form, less about a formula and more about a daily practice and ritual that we do and we hold ourselves accountable to, that’s the most effective.

On the most easy to replicate side of things. If you go to the other end of the spectrum, we do things like, uh, you know, how we prioritize, you know, the feedback that we do get from our customers. How do we, um, how do we convince. You know, a product team and engineering team, a marketing team to do something, we use the words of a customer always.

So we kind of, uh, put together feedback and ratings and reviews and comments, but we literally highlight the words of a customer. Right? Here’s feedback that we got from a customer, whether it was through chat or email, or they posted this on a third-party review site, or they did this on a call.

We constantly mine calls and videos and voice and all these kinds of different mediums to literally find the words of the customer and do that in mass. So at scale so that we can see the trends of what our customers are actually saying, which goes back to no surprise, conversational marketing and the stuff that we’re doing.

All of our customers are telling us. They have told us since the beginning of the time, the problem is that we did not, we did not have technologies and ways to actually capture and make sense of this information. Part of why we exist and what we’re doing is like, because now we can finally do that.

We can get in the middle of video voice calls, uh, obviously chats, obviously emails, and we could amass and start to make sense of what is the customer actually telling us versus what are we interpreting or what are we aggregating or what are we saying that they say no, literally, I want to see what they said.

And so that that is the most effective means that our, that we use in our team across product, sales, marketing, the executive team on how we make decisions. We actually amass the words of our customers. And then the sentiment that we see expressed because of that. We use something starting to rant on this for so long.

I could go on forever. So, you know, we used to use NPS, so Net Promoter Score, everyone listening to this probably knows what that is. We used to use then. And we use that in my last company, HubSpot as well. Uh, but the problem that we saw from that, from a product making decision, a standpoint was that it’s a very lagging indicator on the changes that you’re making today.

And the other problem that we saw with it is that the actual literal question, is not the question that people think it’s answering. So we, we kind of look at it, most of us and think like, Oh, this tells you how happy customers are, or like how much they love our product.

That’s not the question. The question is, how likely would you be to recommend this to a friend? And because that question is very different. Sometimes you get weird side effects, like you may be selling a product in a market like we were at HubSpot. We’re even at Drift where you may not know anybody else.

You may not be friends with anybody else who has your job. So you may score it low from a Net Promoter Score standpoint. Uh, even though you love the product, and we would see this happen where they would give a low score, but in the comments, they’d say, I love this product. I can’t live without it. This is the best thing ever. But yet they gave us a detractive score, and they’d say, the reason why, it’s like, Oh, I don’t know any other marketers I can recommend this to. Right?

So like very lagging and weird indicators. So instead of using NPS, we use another thing, which is called product-market fit score and, and you can, people can search for it.

And it’s, it was put together by, originally it was Sean Ellis, um, put this score together. And I had worked with him back in 2010, uh, and we used to work, use it a lot. And then, Rahul from a company called Superhuman. I’m an investor in Superhuman. He took it to the next level, and he use it as a systematic approach on different features.

And we use that internally. So we’ll ask our, our, our customers the product-market fit score’s question, which is simply, if we were to take this feature or this product away, you know, how, you know, how upset would you be? Would you be, you know, and there’s a range. There’s three different ways you’d be like, I’m not upset at all.

I’d be mildly upset. Well, I’d be devastated, and I’m paraphrasing, that’s not the exact words, but we use that every single day with different features and different things that we’re doing to get more of a real-time handle on how the things that we’re building are affecting our customers and whether they’re actually moving the needle for them or not.

So if you’re in product, if you’re listening, look up the product-market fit score. So PMF score, and look at how you could be using that as a more real-time measure versus a lagging indicator like NPS.

Etienne Garbugli: That’s very interesting. I spoke to Rahul, I think tree weeks ago and. Yeah, we talked about that specifically how they use that as a guidepost to always test against their progress, and I thought like your, what you were mentioning about money initially is kindof the same thinking a little bit where you have this exit criteria that helps you understand if you’re truly making progress.

David Cancel: Yeah. Every, all of these things are what, what’s, what’s interesting to me after all these companies on all these years that go by.

So is that how simple things are really how simple all of this stuff is like we already have the answers solid. I, I have this reoccurring, I don’t know if it’s a nightmare or dream, but I would this thought, I should say that, that my day, on my death bed, the thing that I will be thinking beyond all my family and experiences on this will be like that I always knew the answer, but it took me this long or answers, I should say this long too fricking to figure it out. Right, because the answers are pretty simple, but we overcomplicate everything.

And, uh, and so like, you know, guardrails and guard posts, guide posts like you just talked about, like that part of marketing score, we use the dollar test or whatever.

These are simple things that already exist. If you look at history and you look in other markets that are not your own markets, that people are doing very simple approaches. And common-sense approaches to doing all of this stuff, but we overcomplicate it because we always think everything’s different.

The world has changed. This is different. That’s different. It’s different. You know what? Humans have not evolved, so our decision-making processes are the same. Again, this is from a marketing and product standpoint and just management standpoint. Why I spend so much time rereading and rereading and reanalyzing.

All the different cognitive biases, all the books you can think about, human decision-making, all of those, you know, books that I’d never spend time thinking about in social psychology and triggers and how we make things. I spend all my time thinking about that because it is the human and it is the incentives and the systems and how we think that are always the same, that are never going to change.

Etienne Garbugli: Yeah. I think that’s one of the most powerful ideas in the book that David Gerhardt wrote and that I think you taught him and I was super interested in, in terms of how you guys are building marketing.

David Cancel: Just, it’s a very different approach. You starting, you invert, right, which is a Charlie Munger kind of concept that at least that he’s popularized and he didn’t invent, but like you always invert, you start from the other way around, which is like, you know, not start the traditional way that we think about marketing, but like let’s invert it and let’s start like how to make people, how do people make decisions based on the marketing that they see? Okay, let’s start with decision-making. How do people make decisions? And then we spent all of our time doing that and then finally focusing on copywriting and then finally focusing on marketing programs.

So it was like the other way around. And, and that leads to, I think, to better results if you can invert a problem.

Etienne Garbugli: But in that sense, if you guys started with money changing hands as the first guideposts initially, like how did that evolve afterwards? Did you guys set another benchmark or another way to track that progress?

David Cancel: Yeah, so yeah, we set a ton of them. We kept doing the dollar test, but in different ways. Right? We, we even do it today, you know, with new features or requests from new features, we try to associate monetary, uh, of monetary value or cost, I should say. To them when we talk to a customer of like, yeah, we could probably do that, or maybe we’ll do that, but it’ll probably cost this much. I’m like, would you pay this much? You know?

So we’re like, we are doing that from every conversation. What happens when you do that is most feature requests go away, miraculously, they disappear. And so it lightens your load of, and all the, the decisions that you need to make, if you start assigning value to them and you’re just being honest with them of like it is going to cost more and if you value it.

Uh, you know, you should be, you’re willing to pay for it. So, but people, again, that’s an uncomfortable conversation. We are trained, uh, society trains us not to have uncomfortable, to avoid uncomfortable conversations, I should say. And so like nobody wants to do those, but that’s the very simple, basic way that you can answer these things.

And so we, we would continue to do that test. Then we would, um, as we start to understand our buyers more, and you know, we start to develop personas and we start to like test those personas. We start to test different segments and market. We try to test different, go-to-market approaches. We’re always testing a new thing, but we’re refining who our audience is, who we speak to, what is the messages that resonate with them.

And we just keep getting more and more focused. And this, this is. This happens every single day, but it also happens at the macro sense of like every year I look at what we’re doing as a company and it becomes, you know, one end, the vision and the breadth becomes way bigger. But from a tactical standpoint, it becomes more and more laser-focused every year and a, and I’m finding joy in getting good at things that I’ve never been good at.

Um, I’m not good at them, but I’m trying to get good at them, which is like operational excellence and becoming more and more focused and all these kinds of things, which is as an early. Early stage entrepreneur, serial offender, you know, you’re good at like bouncing around and not staying focused.

Um, and, and so I’m learning new things, which keeps me interested.

Etienne Garbugli: Okay. You were talking about like simplification. It sounds more and more simple or you feel it gets it. It’s simpler than people make it out to be like, maybe if you put it all together, like if an entrepreneur were to start a new business tomorrow, how would you recommend they go about doing that?

David Cancel: Uh, so the, the first thing that I always talk to entrepreneurs about is that to get rid of their ideas to. And we do this as a kind of our mantra getting, uh, as every person gets onboarded and comes to work at Drift, we say the first thing that I talk about when I do onboarding on the first day is like, look, our mentality and our mantra is that all of our ideas here are wrong, right?

And so I would say this to entrepreneurs. All of your ideas are wrong, that should be a mantra. Your ideas are never right. Your goal is to use the scientific process, a.k.a. the feedback loop to work with your market as quickly as possible and have as many iterations of that feedback loop as you possibly can over a month, a week, a year, whatever your timeframe is.

That’s where you want to optimize for as the learning loop, and you need to figure out how wrong your idea is. Is it 5% wrong, right, or off, or is it 100% off? It’s somewhere in between that spectrum. No one has ever had an idea that is 100% on the money and never needs to change and is 100% right from the get-go.

That’s never happened. That is fiction. Right? And so this is what I tell entrepreneurs, this is what I tell everyone at Drift when they join. That is make-believe. The creation process always follows the same path. Whether it’s, doesn’t matter what end of the spectrum you’re at. If you’re a scientist, the scientific process follows the same path, right?

The feedback loop. If you’re an artist, which is the other end of the spectrum that follows the same process, it’s a game of iteration and exploration and you know, stumbling onto things. It’s never, no one ever writes the first paragraph, and that’s the best-selling book. They iterate, they edit.

They go over and over and over again. Same thing in science, but for some reason we as entrepreneurs and as business people have been taught that we’re going to come up with magic ideas in the shower and those shot, those shower ideas are going to be, you know, so solve the world. That’s never ever happened.

I’ve met tens of thousands of entrepreneurs in my career. That has never ever happened one time. So we have to, we have to dispel this, uh, Hollywood fiction. This make-believe fiction that that happens. So you as an entrepreneur, you have to, this has to be your mantra everyday. Our ideas are wrong, our ideas are wrong.

How do I validate? How do I test? How do I iterate? How do I get as many bites as the apple before I run out of money or resources to test these things? And then as I test them and as they, as I learn them. How do I instill this in the second person, third person, the fourth, the hundredth person that joined the company.

So we never lose this and we build a culture and uh, and, and, uh, a machine around this thing every day. That would be the most important thing that I would, I would tell an entrepreneur because most entrepreneurs are exactly like I was. Full of ego, full of pride, right? And, and you have to be in some ways to like persevere through all the pain that you have to get through.

And, uh, and because of that, they can’t listen. They cannot receive feedback. And because they can’t, and when you can’t receive feedback, what inevitably happens is that you fail at whatever you’re trying to do. So if you want to optimize for avoiding failure, you have to optimize for listening.

Etienne Garbugli: That’s really interesting. Thanks for taking the time to join for the podcast. Where can people go to learn more about your work here at Drift and your different investments?

David Cancel: Yeah. So, um, I’m davidcancel.com so like cancel a check and I’m dcancel on every possible social media thing and Drift.com, D-R-I-F-T.com and thank you for taking time with me and most importantly to listen to all the crazy rants that I have because I have no shortage of them.

Etienne Garbugli: No, that was fascinating. Thank you very much for sharing all your insights and I really appreciate it.

David Cancel: Thank you.

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