March 7, 2012
Last week in TechCrunch, guest columnist Nir Eyal proclaimed that "Habits are the New Viral." Now, normally I find "X is the new Y" posts to be either linkbait or some guru's heavy-handed attempt to come up with the next "Web 2.0." But in this case I was pleasantly surprised by a thoughtful analysis around the secret sauce of the most successful startups. Habit formation is arguably the number one key to building a viable, long-term business, yet is too often overlooked in a landscape where startup ideas go in and out of style faster than Reddit memes (I give you Cubeduel). It is also one of the key measures that we try to shed light on through the Minimum Viable Concept Test. In his column, Eyal first gives a nod to viral ideas that gain rapid traction thanks to a Viral Coefficient above 1.0. In a world of small marketing budgets and many competing new ideas, Viral Coefficient has become the latest obsession for startup leaders, including several companies in our portfolio at CincyTech. However Eyal claims that habit is what counts in a low-attention span world.
"Silicon Valley is strewn with the stories of 'leaky bucket' companies – businesses that grew quickly, annoyed lots of people, and died. While some of these companies were pure spam, others offered value to users but failed to form habits."Clearly there are a handful of companies that have soared "rocket like" thanks to both high viral and habit factors. Facebook is the textbook case, while Pinterest is coming on strong. But Eyal reminds us of the other less-viral success stories that are able to build a very profitable user base by converting consumers to frequent use. Pandora, Yelp and OpenTable are not "viral," but earn a very engaged audience that regularly returns. It should not be difficult to imagine the power of habit to impact consumer behavior and business results. Think about your personal list of iPhone apps or bookmarked websites. Which ones are daily candy? What's worth activating the alerts on? And which do you have to be reminded to use? Prepare for consumers to assign these buckets to your ideas... I personally learned a lot about habit formation success and failure while working in New Products Development at Procter & Gamble. I joined the group in the late 1990s as the company was launching Febreze. Believe it or not, Febreze was a perfect example of a viral success and habit failure in test market. People loved the product's ability to remove awful odors from fabrics, and initial advertising scored well by showcasing some of the worst smell experiences. One of the highest scoring TV commercials showed how a visiting relative smoked a cigar in a certain chair when he visited. People realized they could use Febreze when the dog had an accident, or when they got home from that smoky bar (remember the days of smoking in bars?). So Trial grew quickly in test market thanks to a link to these specific, memorable needs. You can probably guess the issue: People only pulled it out for the relatively rare occasions, like when Uncle Larry fired up a stogie after Thanksgiving dinner. One bottle of Febreze lasted for years, and sales were languishing in test market--until the brand team started marketing Febreze as something that could freshen the entire house, and advertising showed women using Febreze as a final step in their weekly cleaning regimen. Suddenly volume took off, and Febreze nearly tripled expectations in its first year of national launch. Today it is a $1 billion business. (Here's a great article with more on the Febreze story.)
In the MVC Test, we first look for signs of habit potential or risk by asking people how often they expect to use the product or service being tested. These responses, when judged against a database of dozens of other startup ideas, help founders and investors understand how quickly a consumer will pick up on a new product, service or app. Simply put, the more people use something, the quicker they get into the habit. Another key measure is the likelihood of sharing the product or service with friends or family. A high word-of-mouth score means that the idea is more likely to be used in a social setting (think Pinterest and Facebook again), which helps people get started on and keep using something new. Other MVC Test questions dig into how people expect to use the product and what they will substitute away from (if anything). This data is priceless for the development teams as they move forward in getting the right Minimum Viable Product into market.
Low habit formation scores are not a death knell. It may mean that you need to work harder to remind people that your service exists--with CRM outreach, continual upgrade releases, or even advertising. Sometimes it means you have to focus on a smaller audience that finds your product necessary, rather than reaching for mass adoption. And there are great apps that should be able to carve out a profitable business with infrequent use. Shazam, for example, is not going to convince me to keep it open during TV commercials, but any time I hear music that I want to buy, Shazam is open and active (I've become great at using it while driving). This infrequent but meaningful music identification use has helped it achieve $16 million in revenue from 80 million users. Not Facebook's billions, but it should be incredibly profitable.
Every business should work harder to turn Trial into Habit. Back in my P&G days we hoped to convert 50% of triers into repeating buyers and regular users; and we uncovered four general ways to improve habit formation:
- Reduce barriers by making your produce easy as possible to use, with a wide range of options. Develop for the apps and screens where your customer expects to use your service. And provide useful tips when they log on or open an app.
- Provide a link to familiar, current habits rather than forcing people to do new work. This is one of the reasons why nearly every digital startup allows registration through existing social networks such as Facebook and Twitter, rather than asking people to set up new screen names and passwords. What you lose in "control" you gain in a lot more people who don't bounce away.
- Deliver incentives for hitting use levels. Gamification tactics like badges and quests can provide no-cost incentives. And I love how services like LinkedIn show how "your profile is 90% complete" to get you over the last usage hurdles.
- Provide social reinforcement. There's a reason why both Weight Watchers and Alcoholics Anonymous are some of the longest-lasting service organizations of all time--they bring people together who help each other stay committed. People like camaraderie (even with strangers), enjoy helping each other succeed, and don't want to let down the group. Focus on a particular interest helps drive this social bond. That's why new social networks like Instagram and Pinterest rise up and stay active, despite Facebook's dominance--and it's why Google+, the new general-purpose social net, is fading fast.
Habit formation is not something that startups can figure out as they go along through incremental testing and learning from a handful of early adopters. It needs to be built into the core user experiences that come out into a MVP worth perfecting in market. Otherwise your leaky bucket business won't be worth filling with founders' time and investors' dollars.+Bob Gilbreath