“Jedi Mind Tricks”: Leveraging Behavioral Economics for Startup Growth
The tactics you are doing because everyone else does them are rooted in theory. Simple adjustments that can have monstrous impact. 80-20 rule.
In the ever-evolving startup world, let’s take a moment to delve into a powerful yet understated aspect that influences our business decisions, namely, Behavioral Economics, or as I like to call them, “Jedi Mind Tricks”. Although I eagerly invite specialists to deepen this conversation, I believe my observations and experiences could provide valuable insights to startup founders.
We’ve all seen it. LinkedIn prompting us to congratulate a friend on a new job, the three-tier pricing model on a website with the middle option emphasized and pre-selected, or a crossed-out price with a reduced amount listed next to it. Ever wondered why there’s an abundant use of free trials? Or why numerous websites flock to review platforms like Capterra and G2?
As a founder, you’re likely implementing many of these tactics, and that’s commendable. But, if you’re like most, you’re probably doing them because they’re widely accepted practices, not because you truly understand the psychological principles behind them.
These tactics are rooted in concepts such as Nudge Theory, Endowment Effect, Cognitive Bias, and Anchoring. By understanding and leveraging these concepts, you can drive significant improvements in acquisition, conversion, retention, and revenue for your startup.
Let’s consider Richard Thaler, a Nobel laureate known for his contributions to behavioral economics. Thaler once said, “If you want to encourage some activity, make it easy.” This encapsulates why these tactics are so effective and prevalent. The aforementioned strategies are all about making choices easier for the consumer, subtly guiding them towards the desired outcome.
These minor tweaks may seem insignificant, but their impacts are anything but. They can have a monstrous influence on your business growth. It’s the Pareto Principle, or the 80-20 rule, in action: a small number of causes often lead to a large portion of the effects.
In the end, it’s about understanding these underlying principles, not just blindly following the crowd. Once you grasp why these tactics work, you can harness their power more effectively, crafting strategies that are not just successful but also uniquely tailored to your startup. Good luck!