It’s safe to say that where we’ve arrived in life is largely a result of the decisions we’ve made. The fortunes and failures of companies are no different in this regard. Apple was at one point on the verge of bankruptcy before reinstating Steve Jobs as their interim, and then permanent, CEO. The decision to bring Jobs back to Apple, and the decisions that resulted from this decision, triggered the most astounding comeback story in the history of corporate America.
How do we know what the right decisions are, particularly in a startup environment? Entrepreneurs perpetually operate in conditions of extreme uncertainty, in which it’s unclear how to find the right answer - let alone ask the right questions.
In search of guidance on this matter, I discovered Cloverpop, a cloud app that uses behavioral science to streamline enterprise decision making. This lead me directly to Cloverpop CEO Erik Larson, who was kind enough to sit down for a chat. As a tech entrepreneur, Erik has discovered numerous paradoxes that exist in Silicon Valley culture that often result in backwards or nonsensical decisions. In this feature, Erik and I will uncover some of the more prominent paradoxes that exist and how startup founders can make better decisions in light of these quandaries.
It’s often said that the best startups are born when founders solve a problem they are facing in their own lives. Isn’t necessity the mother of invention? Can you tell us about the unorthodox way Cloverpop was born and how this flew in the face of conventional wisdom?
Yeah, an anthropologist from Mars could get a pretty good idea of the day-to-day problems faced by entrepreneurial San Francisco millennials just by looking at a list of startups from the past five years: dating, food, cabs, air mattresses…
The most important decision a business leader makes is what problem to solve. And it’s tricky. One of the biggest tricks comes right at the start thanks to a quirk of our brains - we overweight things that happened to us recently. Unfortunately, there is not much reason to believe that a problem is especially important just because it happened to us recently. Even worse, once we have a hypothesis, we seek out information that supports our current thinking. We are the man who loses his keys and then looks for them beneath the streetlight because that’s where he can see best.
I’ve always been fascinated by what motivates people, and finding ways to help people do better work and live better lives. Cheesy but true. So when I founded Cloverpop, I was looking for important problems that directly affect a lot of people. From reading widely about what makes people tick, I knew that behavioral scientists have a knack for uncovering predictably irrational quirks that are at the root of many of our biggest and most challenging human problems. In essence, behavioral science was like a big streetlight that gave me a wide view to look for lost keys.
So we started by building prototypes to put behavioral science insights into practice. It was a search for pragmatic ways technology could directly help people live happier lives. We built 20 different prototypes, and tested them with thousands of people. They were all over the map, from mood tracking and community building to goal setting and decision making. It turns out that the decision making prototype was far and away the most effective. From there, we believed that if we could effectively solve a big problem like improving decision making, then we would find a big market for the resulting product. After some twists and turns, that’s working out pretty well so far.
With analytics tools like MixPanel, Optimizely, and Google Analytics, CEOs have more data to work with than ever before. In theory, this should help them make better decisions, right?
Strange but true - more data doesn’t help people make better decisions. More data is powerful when it highlights or eliminates decisions, but most of the time data is a befuddling mixed bag when it comes to making decisions.
Without question, data is powerful when it highlights the need for decisions. If you can’t see a trend in sales conversions or customer retention, you won’t know that decisions need to be made to turn it around. And data is incredibly powerful when it removes the need to make a decision at all. A/B testing is a great example. Should a button be blue or green? Just test both, and go with the one that works best. That isn’t helping with better decision making, it’s eliminating decision making. That is a super-powerful strategy, but it only works in very specific situations: when tests are cheap, the data is simple and conclusive, or both.
But most of the time, data is complex and ambiguous, tests are expensive, and decisions still need to be made. When people get involved in decision making, brains and behaviors are driving the bus, and too much data is a potent source of distractions. Give an executive a single data point, and she considers it. Give her two or three conflicting data points, and she considers them together. Give her 10 conflicting data points, and she starts to cherry pick. Our brains do that automatically, usually picking data that confirms our current beliefs. Give her 20 or 100 conflicting data points, and her decision making circuits literally shut down and throw it all out.
This happens all the time when a group of managers and executives are sitting around a table, each cherry picking data that supports their views. The boss either shuts down the process and “goes with her gut” in her own form of cherry picking, or pushes back and asks for more data, delaying the decision and potentially triggering analysis paralysis. Our brains are not simple rational machines, and it doesn’t help to pile more data on the group hoping for answers to emerge. We just don’t work that way.
When an executive has six brains sitting around a table, she has more human computing power at her command than all the cloud computing power in the world combined. Her most important responsibility is to make better use of that decision-making power. She has to put in place a process for decision making based on behavioral science insights, and a platform to track the decision-making effectiveness of her company over time.
When startup founders take on venture capital investors, it’s taken for granted that they will follow their advice as well. After all, they have decades of experience in the trenches of entrepreneurship and business. When might it actually be a bad decision to take this advice too seriously?
To know when and how to take anyone’s advice, you first have to put yourself in their shoes.
Most investors have a very different view of the world than entrepreneurs. I think of it this way - they get to live many entrepreneurial adventures in parallel at a slight distance, but entrepreneurs only get to live one at a time in the heat of the battle. Clearly that helps investors bring powerful experience to bear and see patterns you can’t. But most of the time those patterns are going to matter a lot from an investment perspective, and a lot less from an entrepreneur’s perspective.
Here is a stereotypical example. It is common for VCs to talk about the importance of focusing on a very specific part of a very large market, going big by spending money to move quickly along the path, and failing fast. That makes perfect sense if you are looking at a portfolio of opportunities trying to create a few ten-baggers. But it’s incredibly risky if you are an individual entrepreneur inside the portfolio. VCs are risking a little bit of time, energy, money and reputation on each company. Entrepreneurs often put the rest of their lives on hold and risk phenomenal amounts of time, energy, money and reputation on their company.
So I call bullshit on most go big, fail fast advice. Entrepreneurs should be doing everything they can to explore market opportunities and strategies more broadly. If you don’t have the resources to do that in parallel, then plan to do it sequentially, and keep a reserve of time and money to change direction when the first explorations fail. It also means you need a team of investors who get it.
It’s no accident that Cloverpop’s investors get it. Jon Callaghan and Phil Black at True Ventures are famous for building their investment strategy on a founder-centric philosophy. Steve Mankoff and Jim Pastoriza at TDF Ventures take a long view with decades of direct senior executive operating experience. Mike Smerklo and Tom Ball’s new firm Next Coast Ventures is “built by entrepreneurs for entrepreneurs.” And they are all very successful investors as a result.
You suggested that startups who are entering the B2B enterprise SaaS space should make products that look and feel like B2C consumer products. Why would this strategy help startups succeed?
The consumerization of IT has been going on for a while, so much so that it hardly seems like a paradox anymore. And I think there is a lot more to learn from the current wave of B2B SaaS companies that take on complex business process problems that don’t really exist in the consumer world and build simple and playful consumer-ish experiences around them.
Everyone’s favorite example today is Slack, which uses consumer product and brand experience (simple and playful) and focuses it on a business problem (team collaboration). Other great examples are companies like Gusto and Namely for payroll, Guideline for managing 401Ks, or Coupa for managing enterprise procurement. There are a huge number of complex enterprise processes with real problems that are ripe for this type of consumerization. And companies will pay for easily adopted solutions.
Cloverpop is part of the next wave of B2B SaaS companies that use design thinking to dig deep and identify big business process problems that can be solved by software. This is hard, but the payoff is huge. We can see that decision-driven work is a broken process inside most companies, one that is responsible for some of the worst parts of work - annoying meetings, flaming emails, politics, frustration, unaccountability - and that a software platform like Cloverpop can actually make the process better.
Cloverpop has been getting great press coverage at a very early stage, which you credit for much of the company’s success, and yet you said most PR is BS, and reading stories can be a very bad way to have fun learning the wrong stuff. How do you square that circle?
Storytelling is a powerful tool. Good stories leave out everything that would distract from the excitement of knowing what happened. The best stories do this without you even noticing. Suddenly, you know something new and it makes sense. In a business context, this drives success.
The BS side of this again goes back to the brain. We value stories that are compelling and coherent far more than we value stories that match reality. We want a few little surprises, as long as they are followed by the emotional payoff of easily understanding what the story means.
But real life is generally too complicated to fit in a story. So if a business person is standing on a stage and telling you stories, it is a pretty good rule of thumb that the more convincing they are, the more heavily they have edited the story...in other words, the more they are leaving out chunks of reality in favor of storytelling punch. Now that marketing has explicitly moved upstream into content, this type of business storytelling spin is even more prevalent.
OK, so what are you leaving out of this story?
Ah, but that would ruin it! Alright, I’ll give you one example. I named our three VCs as good VCs, but I didn’t tell you how I met them, nor did I tell you about all the bad meetings I had with many other VCs, some who were unimpressive...and more who were unimpressed. Life’s complicated and surprising, but that’s another story.