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Wisdom gleaned from data and behavioral economics

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Wisdom gleaned from data and behavioral economics

Before Bill Aulet joined the MIT Sloan School of Management as managing director of the Martin Trust Center for MIT Entrepreneurship, he raised more than $100 million for his own companies. Perhaps the most powerful insight taken from this experience was that entrepreneurship is a craft — not an art or a science, but a craft. It can therefore be studied, practiced, and taught.
Ever since, Aulet has been dedicated to “building a body of knowledge about entrepreneurship and spending time making that readily accessible to other people.” This mentality led him in 2014 to publish “Disciplined Entrepreneurship,” which outlines a 24-step process for building a startup. After the book’s release, readers approached him with words of appreciation, followed by questions that the book hadn’t broached. He began to catalog these questions and compose answers. “It’s true that you learn more after publishing a book than before,” Aulet said.
Today, he releases the results of this work in “Disciplined Entrepreneurship Workbook,” a follow-up to “Disciplined Entrepreneurship” that dives into matters of practical implementation: How do you conduct primary market research? How, exactly, do you talk to customers? The publication includes a detailed visual dashboard and a series of worksheets to help startups stay on track.
Consider the value of data
The $26.2 billion sale of networking site LinkedIn to Microsoft last summer, one of the largest technology deals on record, crystallized the competitive advantage of consumer data. In a sense, the tech industry has shifted into a third, distinct epoch.
Decades ago, IBM dominated a landscape of companies focused on the manufacture of hardware, like industrial computing machines and storage devices. In time, these companies took a backseat to software developers; the ascent of Microsoft exemplifies this transition. Today’s leaders — Google, Facebook, Twitter — sit atop troves of data, the newest universal currency.
“What’s clear in the present is that winners have to be cognizant of data,” said Aulet. “Though a subtle distinction, this affects the way you think about the entire business.”
In short, the value of data can overshadow the value of the product itself. “Our standard mental model says a business is about the product, the intellectual property, or the patent,” Aulet said. Engineers, especially, tend to think in these terms. While product quality is important, any new company should be equally attentive to “following the trail of digital dust and learning everything you possibly can about the customer.”
Customer acquisition through behavioral economics
Roughly 40 percent of the things we do every day are done out of habit; we give them no thought. For companies — new ones especially — overcoming this status quo and encouraging new purchase habits is a significant challenge.
Two relatively recent insights from behavioral economics can help. First, all consumers pass through “windows of opportunity,” said Aulet, during which a company has a greatly increased chance of influencing decisions. Second, during these windows, particular “triggers” like “only two seats left!” can then be used to pull consumers toward a purchase.
These two related concepts apply to almost every product and are well known by large corporations; but among entrepreneurs, who face greater consumer inertia and for whom the ideas are even more important, there tends to be little study of behavioral marketing principles.
“When customers are in homeostasis, their habits are set and you’re not going to move them,” Aulet said. The trick is thinking carefully through timing and triggers; the new book has a full chapter devoted to this issue.
Breaking rules? Good.
“When all the fish are swimming one way, you need to get excited to swim the other way,” Aulet said. That mentality fundamentally defines the entrepreneur, who should possess “the spirit of a pirate.”
Most facets of our culture, and most people, don’t necessarily value this orientation. When Aulet was going to college, for instance, nobody told him to go out and redefine the rules. “They told us to follow the rules.” But regardless of the major currents, entrepreneurs must be willing to work against them.
He hastened to say this does not mean doing anything unethical. Though pirate-like in spirit, entrepreneurs need to “have the execution skills of a Navy SEAL”: unwavering focus on the goal, and fastidious attention to every detail along the way.
This pairing of vision and execution, which can to a great degree be learned and honed, defines the successful entrepreneur. Aulet, too, is optimistic that spreading this mentality will help the world solve some of its most intractable challenges, from the creation of jobs to the protection of the environment.
“Historically, entrepreneurs and entrepreneurial thinking solved so many major problems,” Aulet said. “That’s why it’s needed now more than ever.”

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