Episode 2: Nir Eyal – How To Keep Your Customers Coming Back For More

Show Notes

Who is Nir Eyal?

Nir Eyal writes, consults, and teaches about the intersection of psychology, technology, and business. The M.I.T. Technology Review dubbed Nir, “The Prophet of Habit-Forming Technology.”

Nir founded two tech companies since 2003 and has taught at the Stanford Graduate School of Business and the Hasso Plattner Institute of Design at Stanford. He is the author of the bestselling book, Hooked: How to Build Habit-Forming Products.

In addition to blogging at NirAndFar.com, Nir’s writing has been featured in The Harvard Business Review, TechCrunch, and Psychology Today.

Nir is also an active investor in habit-forming technologies. Some of his past investments include: Refresh.io (acquired by LinkedIn), Worklife (acquired by Cisco), Eventbrite, Product Hunt, Marco Polo, Presence Learning, 7 Cups, Pana, Kahoot!, Byte Foods, Anchor.fm, and Symphony Commerce

So Nir, how did it begin? Talk us through the journey.

Nir started his career is the gaming and advertising industry, and these companies are based on mind control. He progressively became fascinated with how companies always knew what to show you on the screen to keep you playing these games. 

Nir saw many companies come and go, based on how well they changed user behaviour. He wanted to learn how this was possible and how any company can affect user behaviour for the purpose of good and improving peoples lives. 

He wanted to actually find a book that taught him how to do this, and so he spent many years in the industry speaking with behavioural specialists, design experts, people in the field, and people who’ve created Instagram, Facebook, Whatsapp, etc. As he gained more knowledge, Nir started blogging and very quickly realised it’s not just for him — many other companies are interested in these concepts.

This book has now been turned into a course at Stanford University and now Nir spends most of his time doing public speaking, working product teams and only companies that utilise this methodology for good, such as education products. 

What are the 4 basic steps of the hooked model?

As this loop continues, customer preferences are shaped and habits are formed. 

(Credit: Business Insider) 

Trigger:

 A trigger is the actuator of behavior — the spark plug in the engine. Triggers come in two types: external and internal.viii Habit-forming products start by alerting users with external triggers like an email, a website link, or the app icon on a phone.

Action:

Following the trigger comes the action: the behavior done in anticipation of a reward. The simple action of clicking on the interesting picture in her newsfeed takes Barbra to a website called Pinterest, a “pinboard-style photo-sharing” site.

Variable Reward: 

What distinguishes the Hook Model from a plain vanilla feedback loop is the hook’s ability to create a craving. Feedback loops are all around us, but predictable ones don’t create desire. The unsurprising response of your fridge light turning on when you open the door doesn’t drive you to keep opening it again and again. However, add some variability to the mix — say a different treat magically appears in your fridge every time you open it — and voila, intrigue is created.

Investment

The last phase of the Hook Model is where the user does a bit of work. The investment phase increases the odds that the user will make another pass through the hook cycle in the future. The investment occurs when the user puts something into the product of service such as time, data, effort, social capital, or money.

Is there a connection between falling out of habits in our personal lives to technological products?

Nir focuses on product design as opposed to habits in real life. Interestingly in the current time, we are co-creating the products in real time. Lots of products offline and online have a hook, but products that are connected with feedback have their products go though the hook much faster. 

The fact that you can make a product in real time is very special, so if you think about the history of technological innovation or mass market production, Henry Ford famously said, “you can have any colour of novelty as long as it’s black”. Why? Because it was expensive to have the factory produce cars in different colours. 

Through history and innovation, this process has been occurring faster and faster, until today, you are literally co-creating a platform. Let’s take Facebook — every time you like, comment, share, etc you are tailoring the product to your use. 

Companies today that are very successful pass people through the four stages of the hook model very quickly. 

How do you find the right trigger for your audience and how do you find the correct reward for the audience?

There are two types of Triggers, you have the internal trigger and the external trigger. 

External Triggers are things in our environment that tell us what to do next. This can be a notification, an ad, an email — anything that tells us what to do next with some kind of information in your environment. 

For an association in the long term, it’s essential to have a long-term Trigger. These are emotions and more specifically negative emotions. When you’re feeling lonely you check Facebook or Tinder, if you’re feeling uncertain, you’ll check Google, if you’re feeling bored, you’ll check YouTube or Reddit. It’s all about the “itch” you seek to scratch. Every product (irrespective of what it is) has one fundamental goal and that goal is to modulate a persons mood. Everything makes us feel different.

As someone who’s building a product that you want to turn into a habit, you need to understand when your customer is going to feel that “itch” during the day and how do you become that solution of choice. 

To find the right reward, it’s about scratching the users itch and scratching in a way that’s better than the alternatives. Their current solution may involve sticky tape and putting things together in a very difficult way and your solution could be a super easy way of doing things that’s better than any of their alternatives. 

When you want a user to conduct the initial action, should you offer a fixed or variable reward?

For the past 150 years, the way you changed the perception was that you purchased ads. This is caused the mirror exposure effect — the more you see an object, the more impressions are made upon you and the more you like that thing. It’s no coincidence that the two candidates in the elections were household names. 

In a country of 300m people, neither candidate was the best, but people had seen these names hundreds of thousands of times so they developed an affinity of these names. This is why we know the brand Coca-Cola — this is how advertisers used to do this, they kept showing you the brand again and again. 

Interestingly, Twitter or Instagram don’t advertise as much. Why? It’s not the brand, it’s the product itself, the experience of using the product that changes our habits.

With so much noise in the environment, including ads, content etc how do you stand out when time is so limited?

Give them a hook! The ultimate form of a habit-forming product is to no longer require external triggers. External Triggers is something which is rented from other people. For example, if you buy an advert through Google, you are renting someone’s habit of using the platform. 

Eventually, the user learns to associate the use of the product or service with the internal trigger. So now you feel lonely, or bored or frustrated, you turn to a particular product or service. 

This is why social media companies don’t post adverts. Their business models rely on you doing it by yourself or those companies go out of business. 

How easy is it to transform from the external Trigger to the Internal Trigger?

We use the external trigger the first few times to remind the user or when to use the product. The closer you couple the external trigger and internal trigger, the more likely you are to change long term use because users develop a particular association. 

At a time when Instagram Influencers are on the rise, could we use tthese principlesto keep users coming back again and again?

Many companies have a problem where the product itself is not frequently used. What do you do in these situations? You can bolt on something that can become a habit. 

Let’s take the two ‘C’s: Content and Community. If you can create a Content Habit, there’s a company in the US called William Sinoma that does cookware, they realised buying cookware will never become a habit so they created a website called Taste and released interesting content and formed a habit around the consumption of the content so that the result of the engagement will eventually be monetisation. 

When it comes to online businesses, most are so fixated on checking out, they neglect the idea of checking in. How do you engage folks enough? Through forming a community around your products. 

What is the most common Principle out of the 4 that most businesses are getting wrong?

Every business is different, there’s not one that most people get wrong. The two biggest mistake companies make is that they think the people in silicon valley ‘just got lucky’, this just isn’t true. As well as not investing in the hooked model itself, companies just arn’t structured enough to utilise the hooked model because they’re stuck in their old ways of doing things. 

Many companies follow a rule which is a huge mistake of simply trying to build the best product. The best product doesn’t always win. 

There’s numerous companies that had the best technology that died because they didn’t create a customer habit. When you don’t create these habits, anybody can come in at a cheaper price and swoop your customers away.

What do you look for when Investing in companies?

Nir uses a framework called the GEM Model. Every company requires the following:

G — Growth

E — Engagement 

M — Monetisation

Nir focuses on the ‘E’. However each of these three things are necessary, individually they are not sufficient. 

What other things do Entrepreneurs need to do to impress Investors and secure funding?

Nir advises that we should back up a little bit and challenge the notion about why a company would need to impress investors at all. Investment isn’t something that’s sold, it’s something that’s bought. If you have to sell an investor, you’ve already lost the game. You should be selling your customer. If you can sell your customer and you’ve got a way to profitably grow that Enterprise, investors will come begging. 

How do you know when somebody is hooked?

That’s a great question — everybody company is different and this will vary from company to company. As we improve the quality of our product, is the number of hooked users increasing in a particular cohort? You’ll often find that on certain elements of the hooked model, you’ll need some improvement. Once you’ve improved your product you check if there’s a greater frequency of people in a particular cohort who are hooked?

Can the Hooked model be used by bootstrapping stage and funded stage?

In fact, it’s most useful at the very very early stage. Before you hire anyone, the best place to use the hooked model is to use it at the very beginning. Ask yourself the questions that are in the book and you’ll have the hook really well flushed out.

The other stage when they use this is when something is broken, this is when people aren’t sticking around. A lot of companies and VCs that go to him, they have an amazing growth rate, yet they are a leaky bucket because too many people are coming and going. Engagement is when you block those holes in the bucket and get people to stick around, only then will growth matter. 

 

 

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