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The Three Design Rules at Facebook

According to Julie Zhuo (YouTube), there are three design rules at Facebook. 

  1. What problem do people really have?
  2. Is this problem real? 
  3. How will we know if we solve it?

These three questions have a very JTBD essence to them. Serving customers is not just about giving them what they ask for but giving them what they really need. 

For example, Zhou said, many people over many years have asked Facebook for a dislike button. If there’s a thumbs-up for things we like, why can’t there be a thumbs-down for things we don’t? 

But this isn’t really what people want. If the Facebook feed was too much thumbs-down material and not enough friend’s photos, easy recipes (Tasty anyone?), and photos from the past no one would log on. What people want, said Zhuo, is that “not everything in the feed is likable and I want to express other things.”

It’s odd to think that what people say they want may not be what they really want, but we can trust this idea because conditions matter. For example, when parents were collected and questioned in focus groups about what kind of medical information they wanted for a vaccine, they said they wanted more information. The thinking was something along the lines of: ‘this is science, let me weigh the facts.’ 

But when researchers created 84 Facebook posts that went on to reach three-and-a-half million users, the results were different. The most resonate posts were those with personal stories. 

In another example, people were asked if they would wear masks during the coronavirus pandemic. The yes/no split was largely along party lines. However, when people were observed out-and-about, political preference yielded to prudence. 

In finance, Nassim Taleb rails, ‘don’t tell me how to invest, show me what’s in your portfolio.’ Tyler Cowen says to look at your actions, and then tell me what you think. 

Zhou’s other good point to add to our JTBD quiver is to think not in terms of supplier language but demander. It’s not about the click-through-rate as much as it’s about engaging content. Financial advisors should never bring up words like theta, Sharpe ratio, or quarter-Kelly. None of those are about the JTBD. 

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Nearby Solutions

Solutions to your problems may not be under your nose but they’re probably not further than next door, next block tops. 

Creative ideas work for two reasons, neither of which is inherent creativeness.

  1. There’s an untapped JTBD. Consumers have a latent need. Current solutions are ‘fine’.
  2. There’s limited competition for a new product. But the market responds rapidly, and similar people in similar places at similar times make similar things.

One way to wrangle a creative idea is to find areas where something is already being done but not done in your particular industry. There’s only so many things consumers need; ease, trust, consistency, etc. It’s likely that a creative solution for you is old hat to someone else. 

Scott Alexander brought this up writing about the Amish health system. There are multiple reasons the Amish system is more cost effective than the English (non-Amish-but-American) system, but one is how they’ve dealt with the costs.

From Alexander:

“Much of the increase in health care costs is “administrative expenses”, and much of these administrative expenses is hiring an army of lawyers, clerks, and billing professionals to thwart insurance companies’ attempts to cheat their way out of paying. If you are an honorable Amish person and the hospital knows you will pay your bill on time with zero fuss, they can waive all this.”

And.

“Doctors around Amish country know this, and give them the medically indicated level of care instead of practicing “defensive medicine”. If Amish people ask their doctors to be financially considerate – for example, let them leave the hospital a little early – their doctors will usually say yes, whereas your doctor would say no because you could sue them if anything went wrong.” 

Amish medicine costs less because it’s less costly to provide.

Duh.

But this obviousness was SoFi’s insight.

When SoFi started, the company looked at the loan default rates across a variety of metrics. Where did someone go to college? How much money do they earn? What degree does this person have? Which default more, art or vocational degrees? (Art). SoFi realized that some people defaulted less and paid promptly more. With lower costs for collections, SoFi could offer these customers a better rate. 



 Waitress At A Lunch Counter To Customer. 
Food Wood Print featuring the drawing We Use The Cheapest Ingredients And Pass by Robert Weber

This can be any insurance that’s sliced and diced. And it’s been happening all along.

What’s common between the Amish, the SoFi Henrys, and homes in floodplains since 1968? Legibility. 

We don’t know a solution exists until we see it.

Tony Hsieh succeeded enormously in the early days of the internet. Before joining Zappos, Hsieh sold an advertising network to Microsoft for hundreds of millions. Like anyone else who’s young, wealthy, and (maybe) smart, Hsieh started angel investing. Which is where he met Nick Swinmurn. 

It’s 1999. Everything internet was hot. It’s the year Webvan started taking orders for groceries in San Francisco. We can imagine Swinmurn meeting Hsieh.

‘Footwear is a forty-billion-dollar a year market and there’s no good way to buy shoes online.’ 

‘Of course, why would someone buy shoes online?’

‘Because of the selection!’

‘I just don’t see it.’

‘It’s already happening!’

‘People are buying shoes without trying them on first?’

‘Yes.’

‘Prove it.’

‘Have you ever opened a catalog?’

‘Sure.’

‘Weren’t shoes in there?’

‘Sure.’

‘There you go.’

‘Sure, but how many?’

‘Right now, five percent.’

Hsieh’s problem had already been solved. Now he just had to solve it better—and he did, selling Zappos to Amazon a decade later. 

During the coronavirus quarantine (or whatever we’re calling this) there’s been a lot of trouble with the data. Part of the problem is a collection issue. But part of the problem is a heterogeneity issue. The data is fine it’s just that the conditions are different. There’s culture, ethnicity, practice, government and so on. It’s hard to compare one place to another. 

But what makes the pandemic devilishly confusing makes business slightly easier. Your answers are out there. 

Note, in a related post we addressed this idea through sports. Our Jenn Hyman post addressed this too. Thank you for reading.

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Does Netflix compete with sleep?

Does Netflix Compete with Sleep?

Netflix added fifteen-million subscribers in March, double their expectations. This makes sense. Most people watch Netflix on a television. Most people search for Netflix around November and December of each year.

December search spikes as well as the March 2020 one.

In 2018, the Netflix annual report noted, “We compete with (and lose to) Fortnite more than HBO.” Director of content, Ted Sarandos told Variety their biggest competitor was sleep.

Does Netflix really compete with Fortnite and sleep?

No.

Well, kinda, but probably not as much as we think. There’s a human tendency psychologists call opportunity cost neglect. It’s our inability to compare across categories. For example, when researchers went to a Toyota dealership and asked the ‘just looking’ customers what they might buy if they didn’t buy a new car, almost everyone said they might buy a Honda.

Sure.

But they also might buy a vacation, a remodeled kitchen, or two-semesters of college for their oldest daughter. A dollar is a dollar but that’s not how people think.

In another study, researchers asked people if they would buy an iPod with 40gb for $399 or an iPod with 20gb for $299. Most college students chose the larger size for more money.

However, when researchers added ‘and with your $100 in savings you can buy better headphones or download more music’ the students flipped their answer. Now it made sense to buy the smaller and cheaper option but have money for music.

Ok.

Asking people, If you don’t watch Netflix, what might you do? is a murky question. If people don’t compare across categories, then they’ll probably bring up what comes to mind: Amazon, Hulu, HBO, or play Fortnite.

To untangle this web of apps and find which activities compete with Netflix we need to ask what job do people hire Netflix to do?

Bob Moesta has pioneered the JTBD research (I’ve added my own thoughts) and he says that company growth will come from “horizontal integration, not vertical integration.”

This observation came after an interviewee told Moesta what she did after work. Some nights she ran, some nights she ate ice-cream, some nights she played video games. Superficially we don’t think that Nike, Ben and Jerry’s, and Microsoft’s Xbox compete. But for this woman, they do. For this woman the JTBD is ‘unwind after work’.

If that’s true does Netflix compete with Nike, Ben and Jerry’s, and Microsoft’s Xbox too? Let’s take some guesses.

Netflix competes with babysitters. Parents use Netflix to keep their kids out of the way. During the quarantine of 2020, it’s very likely that many WFH parents use the service for spot supervision. When my daughters were younger, my wife and I certainly did.

Netflix competes with comedy clubs. Yes, going-out and staying-in are two very different jobs. The former is a date single people have, the latter is a date married people have. But for a good laugh, Netflix stand-up specials are tops.

Netflix competes with serialized television. Many of the top shows on Netflix are the same characters is the same situations with the same friends. Customers who watch these shows hire Netflix for the familiar.

Netflix competes to be in the Zeitgeist. I tried to watch Tiger King. I wanted to join the conversation, to mosey over to the digital water cooler. I couldn’t. Every Fantasy Football League has someone who did not want to play but they did not want to be left out more.

Netflix competes with boredom/family time. Why do Netflix searches peak around Thanksgiving and Christmas? Is it a coincidence that these are the two times of the year many are too lonely or too together?

Netflix doesn’t compete with Fortnite. Netflix is lean-back, Fortnite is lean-in. Netflix is consume, then converse. Fortnite is consume and converse. Netflix is same-level. Fortnite is level-up. Though both digital apps with millions of users, the Netflix and Fornite overlap is small. We think these two companies compete because they are easy to compare.

Netflix doesn’t compete with sleep. Are there any shared benefits between sleep and Netflix?

The JTBD research is a very helpful tool figuring out what people want, not what they say they want. Moesta has written a few books but he’s a great speaker so start your intro to JTBD on YouTube.

Thanks for reading and supporting

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Book Review: The Naked Jape

When Rory Sutherland recommends a book I do my best to find it. Even if it’s from 2006 and uses British English. Henceforth, I’ll be interchanging behavior and behaviour.

The Naked Jape was good for exactly the reason Sutherland said it would be: comedy reframes things.

Alchemy recasts one thing as another. Diets, wrote Penn Jillette are hard, but challenges are exciting. When he reframed his diet as something difficult but not-fun as something difficult and challenging it changed his attitude. Jillette had already learned challenging things – like juggling – so this was just another one of those.

Comedians are great at this.

“My father hugged me only once, on my twenty-first birthday. It was very awkward. I know now what it was that made me feel so uncomfortable: the nudity.”

That joke works well in a comedy set, less-well on a first-date, and terribly while talking to a psychiatrist. Change the context, change the meaning. Or, change the words and you change the meaning in the context.

Carr’s book offers lots of little jokes that prove this point. The ideas, these jokes are “anarchic, a little scrap of chaos from beyond the boundaries of the rational, a toe dipped in the shallow end of anti-social behaviour.”

Take the idea of jokes along with the JTBD theory and we get the start of the solution to a puzzle.

When Instagram was building out features an engineer told co-founder Kevin Systrom that he was building a polling tool. ‘That doesn’t sound like something I would use’ Systrom recalled. ‘Oh no, it’s going to be great,’ the engineer explained, ‘teens will love this!’

They did.

What was happening at the time was that teens were uploading solid-color backgrounds with a prompt on it. Their followers voted as comments. The users created a work-around, customizing the platform for their needs. Workarounds are also common in comedy. I saw a sign at an audiologist’s office that (loosely) demonstrates both JTBD and jokes; We don’t sell hearing aids, we fix hearing.

In the JTBD work, Bob Moesta changes his perspective. He enters customer interviews as an empty vesicle and lets them tell him about the product. He avoids jargon. He doesn’t lead them. Moesta is similar to Jerry Seinfeld who described comedians as people with a third eye. Here’s Seinfeld with the check after the meal.

“Went out to dinner the other night. Check came at the end of the meal, as it always does. Never liked the check at the end of the meal system, because money’s a very different thing before and after you eat. Before you eat money has no value. And you don’t care about money when you’re hungry, you sit down at a restaurant. You’re like the ruler of an empire. “More drinks, appetizers, quickly, quickly! It will be the greatest meal of our lives.” Then after the meal, you know, you’ve got the pants open, you’ve got the napkins destroyed, cigarette butt in the mashed potatoes – then the check comes at that moment. People are always upset, you know. They’re mystified by the check. “What is this? How could this be?” They start passing it around the table, “Does this look right to you? We’re not hungry now. Why are we buying all this food?!””

Let’s try this comedy idea with this reframing.

Instead of paying last, people pay first. A restaurant places a $50/100/200 charge just for stepping in. Customers get a menu without prices and order without influence. At the end of the meal, a waiter brings back their balance, if there is any.

There’s all kinds of consumer psychology at play here from menu design to mental accounting to the idea Seinfeld jokes about it. This may not even be a good idea but it’s a new idea and that’s what matters.

If something could be the premise to a joke, it’s on the right path.

Another Rory’s read is Schtick to Business by Peter McGraw. If you like this blog’s stories, you’ll probably like that book (a few overlap). McGraw’s big idea is that business people should think more like comedians and find the interesting weirdness around life. There’s areas where we’ve always done it this way has wallpapered over interestingness.

Thanks for reading.

Rory Sutherland (@rorysutherland) Tweeted:

Highly recommend. https://t.co/A4Wi0WmJIQ

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Ticketing Analytics in 2020

At SSAC20, Rob Sine, Adam Grove, Kristin Bernert, Patrick Ryan and Shira Springer spoke about ticketing in professional sports, among other areas. A few highlights.

Do we measure what matters? When asked what the opportunities are in the industry, Sine said, “going from season ticket units to revenue which keeps the lights on.” We can imagine a time when season ticket sales were a good proxy for revenue but with the secondary markets, public spaces, and better televisions at home people go to games less. Plus, people are busy. The successful teams will head back to ‘first principles’ and re-focus on revenue.

Who is your customer? “When you look at the data, an account holder for a full season goes to thirty percent of the games, the half season buyer goes to about sixty percent, and the quarter buyer goes about eighty percent. So you’re kinda servicing the same person,” explained Bernert. It’s a case of JTBD. It’s a question of, what are they hiring me to do?

Are there latent needs? When asked if the season ticket is dead, one panelists wonders if they were ever alive. “Teams and venues have always had to recreate what the fans are looking for,” said Sine. Patrick Ryan suggested teams talk to the ushers to hear what the fans are saying—not necessarily what they are asking for.

What are the intangibles? “There’s a lot of pride in being a season ticket holder.” “There’s a great benefit to saying, ‘I was there.'” “A lot of the L.A. Dodgers season ticket holders said the biggest benefit was the person checking them in at the premium station knowing their name, and how that impressed the clients they were with.” The best returns on an investment are the ones with the smallest cost, intangibles are often just that.

Are there latent needs, part 2. One growing request from customers is something Rory Sutherland calls this the airport lounge problem. What some customers want is not one visit on each trip to the airport, but one visit on some trips and a family pass twice a year. Teams like the Orlando Magic are offering this, buying back unused tickets for full face value and allowing that money to be used in the gift shop, concessions, upgrading future tickets, or special events.

One thing that SSAC offers is the chance to hear from people on the ground who may not often speak about their experiences. This was certainly one of those panels. Thanks again to Jessica and Daryl.

Your random fact of the day: Only two college bowl games sold out last year (2019/2020) (45:45).

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Sarah Tavel

Sarah Tavel spoke with Patrick O’Shaughnessy and in their discussion included five good questions. Perspectives from differing industries make these questions especially helpful, a change in point-of-view is worth forty IQ.

What weaknesses accompany competitor’s strengths? Ebay is a behemoth. They sell everything. So Tavel points to Goat, “and one of the founders had ordered a pair of sneakers off of eBay, opened the box up, and they were counterfeit.” That was their founding insight, eBay has all the supply, which includes fake products.

What business serves too many people? New companies arise to serve new needs. One helpful framing is to read is books from the late-90s an early 00s about technology and the remarkable respect for Microsoft. Everyone worried about them but large size brings weaknesses too. Why does TikTok work in a YouTube world? Why does Snapchat when there’s Facebook? Why Zoom with Skype?

Does this exist elsewhere? Tavel said, “It doesn’t really make much sense if you’re a real estate broker to be on LinkedIn. It’s not your network.” What if there were a network where brokers could share leads then share commissions? Poker does this when one player stakes another. “Real estate brokers do share leads with each other and if one of them converts they get a share of the commission, but there is no formal system.” There’s no such thing as new problems.

What job—and this may be different from what customers say they want—do customers really want? At Pinterest the power users wanted to rearrange pins on their board. This was a difficult engineering challenge and only requested by .1% of users—but that was still a lot of people so the Pinterest team built the feature. “It was a symptom of something else not working in the product, which was an inability to search your boards,” Tavel explained. They didn’t know the JTBD.

What choices reinforce our advantages? “Anytime a user clicks or taps they are using energy and you want to direct that energy in a way that creates the most value for the system that you have. Usually there’s a core action in your system that is most correlated with a user retaining, and creates accruing benefit for your product.” Richard Rumelt’s Good Strategy Bad Strategy is summed up by a different phrasing of the same question; what collection of choices is the most synergistic?

 

Thanks for reading and supporting.

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The Psychology of Rotten Tomatoes

In an article for Wired, @SVZWood writes about Rotten Tomatoes, the website one in five Americans use to inform their movie choices. Wood’s article showcases three helpful ideas:

Simple algorithms. Rotten Tomatoes has become a successful business and top website based on a simple algorithm—counting. Two movie curators read reviews each day, judge them as positive or not, and then count the totals. If a movie has more than sixty percent positive, it’s marked as fresh.

Numerical authority. There’s something about people, numbers, authority, and precision we just can’t get over. Wood captures this, writing, “There is an authoritative allure in the site’s numerical scores….(people) reflexively—and nonsensically—trust a fresh sixty percent Tomatometer over a Rotten 59%.”

In an age of big data and algorithms and random forests, it’s helpful to keep in mind that simple systems work. One example, football.

Numbers feel secure. They’re a rationalization blanket in a world of unknown things under the bed.

Jobs-to-be-done. Reviewers don’t like the binary nature of fresh or not. Wood notes that, “there is no Underripe or Overripe tomato.” In the terms of Bob Moesta, this is the difference between a supply-side orientation and demand-side orientation.

In JBTD theory, the goal is to find what customers want to do that rather than what a supplier wants or thinks the customer wants. Reviewers (supply) want to share their nuanced take rather than a 👍 or 👎 via their Twitter account. The customers (demand) just want to know if a movie is bad, potentially good, or very good. This plays out in some interesting ways that Rotten Tomatoes has plucked.

For example, a review which is glowingly positive and a review which is slightly positive are both coded as positive. This leads to extreme scores. This is a feature, not a bug. It’s the information people want to know.

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Escaping College and Commodity Competition

When one product is similar to another there is competition. Businesses which compete on price lead to low-cost-high-volume winners. Thankfully, being dissimilar isn’t difficult. Many brands (Advil, Coca-Cola, Harvard) differentiate commodities by framing the context.

Differentiation avoids the market mechanism. But that doesn’t mean things will be easy. Being the low-cost provider or being different both take extreme amounts of work. That said, jobs-to-be-done thinking may lead to a slightly easier slog

The JTBD idea is updated on Twitter, but Michael Horn’s TAG brought up an easy idea for escaping competition. Instead of asking who are your customers, ask what do customers want?

Typically businesses count things. This is easy data. Plus, the more math the less career risk: a bit of math in itself.

Through their book, Choosing College, Horn and Bob Moesta encourage people to think about new categories. To count less and consider more. Get past demographics (high school graduate) and to demands (level-up).

What is the demographic profile of someone who eats at Panera Bread? That’s a hard question. However, what’s the JTBD of someone who eats at Panera Bread? That’s easier. Ron Shaich explained that Panera is “the kind of space where you want to sit and do an interview, a place for a bible study group, for a team meeting.” 

People hire Panera for group space and bagel spreads. That’s the JTBD. That’s the differentiation.

Being different is easier—though not easy—because it offers many directions. If a business competes on price, that’s it. If a business finds a new JTBD they might have that market all to themselves, temporarily.