Fighting the Friction of Customer Behavior for New Products
What makes customer behavior difficult to navigate? All the funding in the world won’t guarantee your product will succeed. So, what can you do? Can you pivot into success?
Sometimes all the venture capital in the world won’t make your product succeed when you want it to.
Many variables can cause a product to fail, but if the market doesn’t want what you’re providing today, there isn’t much you can do. Knowing when to pivot is difficult, but it can create new opportunities for your startup.
What we’ll cover
- What makes customer behavior hard to navigate?
- Why success is found in changing customer behavior
- Ways to reduce your risk for failure with new products
- Public examples of new products struggling to succeed with large capital investments
- Examples of failed products that pivoted into successful ones
What makes customer behavior hard to navigate?
Timing of the market
In the case of the Metaverse, maybe the world isn’t ready for this type of experience today or even the next 3-5 years. With each generation of society, the more comfortable they become with behaviors tied to technology.
Just like how smartphones are the norm and have become a need instead of a desire, how can VR or AR hardware become a need for people? That’s the challenge that timing brings.
Trying to control the habits of large groups of people
You may be familiar with the Fogg Behavior Model. It covers three elements of behavior and what creates success for product adoption. In this video below, Andrew walks through the model with examples of how it can be applied to SaaS products.
Your product has to solve a big enough desire in balance with their ability to do it. The bigger the change for a customer, the harder it will be for your product to stick with them. What does your product have to do to be worth them changing the way they do something?
Why success is found in changing customer behavior
Customer retention
This is where behavior change begins. If your product can convince someone to change how they solve a problem and do it better than before, they’ll stick around. Retention is vital for growth. You can’t grow if you can’t keep customers.
Happy customers
When customers stick around, and it impacts their life for the better, they fall in love with your product. Happy customers are the most valuable resource you can have for understanding what to build next or who is your ideal target market.
Referral growth
Those happy customers will talk about your product and how it’s changed their life. Word of mouth growth can greatly reduce customer acquisition costs.
Predictable growth
When you can keep customers, make them happy, reduce customer acquisition costs, and discover who your best-fit customers are, you will have clarity around what it will take to create predictable growth.
Ways to reduce your risk for failure
Talk to customers early and often
The worst thing you can do is build something “really big” that will “innovate the industry” in stealth mode. If you don’t engage with customers to understand if they have a desire for what your product will offer, you’re building something that no one wants.
Learn how to talk to customers about your product ideas
Use prototyping for testing and feedback
When you can show potential customers your ideas in a tangible way, you’ll get clear feedback on whether or not your product is heading in the right direction before you even write a line of code. This can save you investment and guide you to build a better product.
Learn how to get feedback using prototypes
Pivot when the data tells you to
Sometimes, after you talk to customers and show them a prototype, you’re going to get signals to change what your build or who you build it for. This is a good thing. Having the humility to see the writing on the wall can make or break your success as a founder.
Learn about having a founder’s mindset on decision making
Public examples of customer behavior friction with new products
The Metaverse, Amazon Alexa, and Quibi are new products in recent years with large amounts of capital and resources. Despite the support, the market either doesn’t want or isn’t ready for these products in the way these companies were hoping for.
Let’s jump into the most-funded behemoth first. The Metaverse.
The Metaverse (2022)
The Metaverse is Meta’s vision for how people will experience the internet and communicate in the future. This includes combining virtual and augmented reality that creates a communal environment for work, play, and everything in between.
Meta has been making big bets on normalizing the Metaverse with society. They are trying to create the next phase of how we experience the internet, a very large task.
“Zuckerberg warned investors early on that the transition to living in virtual worlds would take years, if not a couple of generations. Even Gen Y, hooked on Instagram and TikTok since they were tweens, prefer to be in each other's presence rather than in virtual worlds.”
We need innovation, but human behavior is always a part of that journey and will define its success.
Investments Meta has made in the Metaverse since 2019
At first glance, this graph below seems like a normal pattern of incremental investments to find new products and revenue streams for Meta. The vision is driving the excitement around it.
We’ve become normalized to seeing numbers in the billions now with conversations around trillions of dollars being spent by the US government.
But how do these numbers compare to leaps in technology for society?
Comparing the Metaverse investments to human innovations from the past
This graph below with data from Bloomberg was shared by Chamath Palihapitiya on the All-In Podcast to help the audience understand the immense amount of capital that has been put into the Metaverse project.
Note: Dollar amounts adjusted for 2022
When you see the volume of investment through this lens, it gives you a new perspective. The Metaverse project is a very big bet. But will more capital make a successful new product?
So far, based on capital allocation so far, it hasn’t been very fruitful, especially with budgets tightening in the current economy at the end of 2022. Adoption has been slow, and the return on investment is becoming more painful with no clear signs of momentum.
“The amount of investment that they are making is so outsized and so abnormal and doesn’t compare to anything anybody’s ever seen. I think everything else in the business seems to be actually quite functional. So the problem is above the line thing has become so big that it could sink the business.”
Chamath Palihapitiya, All-In Podcast, Episode 102
Innovation requires a lot of risks, but is there a better way to pace innovation and create incremental success?
How can you innovate for the future without hurting the rest of your business?
My thoughts on friction for the Metaverse
- As of today, most people aren’t looking for a virtual or augmented experience in their day to day life
- It may take a full generation change of society (beyond Gen Z) to want more VR and AR
- Can Meta survive the long play if it takes 10+ years to get its return on investment?
- Facebook is losing traction with current users, can they keep them?
Amazon Alexa (2022)
"Amazon is going through the biggest layoffs in the company's history right now, with a plan to eliminate some 10,000 jobs. One of the areas hit hardest is the Amazon Alexa voice assistant unit, which is apparently falling out of favor at the e-commerce giant."
Amazon’s original intent with Alexa
Amazon wanted Alexa to be a new way to shop for its customers. Removing the friction of screens with the sound of your voice. They practically gave away Alexa-enabled devices for free in hopes of creating this new way of shopping in every home.
But that’s not how people ended up using them…
Amazon’s realization with Alexa falling short is based on customer behavior
Instead of impulse buys, people use the voice commands to set timers for cooking, turn on the lights, add reminders on their calendars, or resolve a debate between friends by answering questions that don’t really matter.
People did not want to shop with their voices. That’s because most people don’t want to buy most things that way. They want to see it, read reviews, watch a few YouTube videos, and feel more confident about what is the best purchase for them.
Adjusting for business resilience and other opportunities
Currently, people don’t want to buy products with Alexa, but that could change through generations. Today, it’s just not working, and Amazon is acknowledging the results and taking action on it through layoffs and adjusting where they focus.
Quibi (2020)
You may not remember Quibi, but they raised $1.75 Billion and still shut down the product within its first year.
Quibi was a high-end short-form video content platform. Imagine if TikTok and Netflix had a baby.
A seemingly unstoppable investor stack
In 2018, they were backed by all the big names in film and finance, including The Walt Disney Company, 21st Century Fox, NBCUniversal, Sony Pictures, WarnerMedia, Viacom, eOne, Lionsgate, MGM, Madrone Capital, Goldman Sachs, JPMorgan Chase, Alibaba Group, Liberty Global and ITV.
With companies like that backing you, how could you fail?
But they did fail. Why?
Why Quibi failed
The video below does a great breakdown of this, but I’ll recap it quickly for you.
- Consumer demand for this type of paid content was not there
- They lacked a hit breakout show - this emphasizes the first reason
- Market timing was poor with the pandemic
It all comes back to what people want and how they want to consume content. You can’t always change what people do in response to your product.
Failed products can still create business opportunities
Even though the Metaverse and Amazon Alexa faced friction into 2022, it doesn’t mean that the projects were a waste of time. The data and research they gathered are invaluable to future product ideas or iterations for when the market is ready.
Despite all the failures or slowed progress, they will be able to pivot into new products.
Examples of startups that pivoted into success
If you’re curious to hear in-depth stories on failed products that pivoted to become successful, I gathered a list below of software pivot stories.
- Burbn became Instagram
- The Story Behind YouTube’s History as a Dating Site
- The inside story of how Netflix transitioned to digital video after seeing the power of YouTube
- Optimizely - From Math Education to A/B Testing
If you want to learn how to navigate your new product idea, we have a great free video course for early-stage startups called Startup Foundations. You can check it out below.
