Flashpoint's Demo Day 2016 - Finding Authentic Demand Through Behavioral Economics
Merrick Furst, Founder and Director of Flashpoint
Flashpoint, an accelerator based in Atlanta, takes a unique approach in honing the skills and thought processes of entrepreneurs through behavioral economics and startup engineering. If you’ve never heard Merrick Furst speak on the topic, I highly recommend trying to grab some of his time or attend a Flashpoint demo day in Atlanta, Chicago, New York or San Francisco. Merrick opened this year’s demo day with the concern that entrepreneurship is being framed as something "magical." That unicorns and successful entrepreneurs just seem to appear, given the right person, idea, time, place and funding. This is problematic because it couldn’t be farther from the truth. The fact that VC’s assume that only 1 out of 10 startups will make a return speaks to this misconception. While there may be tales of quick exits, the process of building a sustainable company will be far longer and more arduous than the media perpetuates.
Entrepreneurship, a word borrowed from the French, means “to undertake.” Merrick claims that the greatest mystery of undertaking entrepreneurship is discovering customer demand. Startups are routinely advised to “make something people want.” This strategy sounds simple and easy enough but is not actionable. What people “want” cannot be the right question to answer because the notion of “want” is not causative.
The Problem With Traditional Customer Discovery
Merrick believes that the traditional method of customer discovery is fundamentally flawed because of our own confirmation biases that get us to the answers we seek. Eric Gold, a behavioral economist, spoke on this topic in detail. Research has shown that the questions generally asked of customers are full of demand characteristics and therefore, produce unreliable data. “Demand characteristics include all aspects of the experiment which cause the subject to perceive, interpret, and act upon what he believes is expected or desired of him/her by the experimenter.” People are unreliable because they tend to give the answer they believe the questioner wants. In fact, it’s likely that we will get totally different answers to the same questions from the same people depending on the format and timing of the question.
Example of Demand Characteristics
You can see an example of demand characteristics played out in the slide on the right. A group of people were given two options about what they would rather have happen during an outbreak of a disease expected to kill 600 people. As you can see, simply changing the wording from ‘saved’ to ‘die’ in options 1 and 2 resulted in vastly different choices made by the group. Of course, it sounds far better to want to save others than send them to their death. The brain tricks us into wanting one outcome over another when in fact, they are the same.
So How Do You Figure Out What People Really Want?
Finding the authentic demand is the holy grail that entrepreneurs must find to build a successful company. But they must tread carefully because discovering this elusive secret is similar to performing a psychology experiment and if done incorrectly, can easily lead you down the wrong path. Entrepreneurs must focus on figuring out what the customer “cannot not have.” To determine this, ask yourself, “can the customer not buy?” If the answer is yes, then you need a better product.
Some advice that I got from the founders that went through Flashpoint is not to take any answers you get at face value. The majority of people never stop to question why they think or feel certain ways. Many times you will find that what you’re told and what is true are two very different things. A good way to circumvent this dichotomy is to always question what you think you know. If what you know is true, then what else must be true? A bit of a brain teaser but a great exercise!
I was definitely impressed by Batch 6. Speaking to the founders after the demos, I was able to get a more in-depth look into the problems they are solving. While most are unsexy solutions, I believe they make the best businesses. I have personally known several very successful founders who have participated in the Flashpoint program and have no doubt that it’s well worth an entrepreneur’s time and equity to get in the trenches of startup engineering to discover the holy grail of authentic customer demand.
And with that, I'll leave you to think about the answer to the slide below.
