Its not one big thing, but rather a lot of little things

Today, early Facebook employee and now Quora founder, Charlie Cheer, came to Tepper to talk to us about his entrepreneurial experiences in the web 2.0 space.  He said a lot of interesting things, but one thing in particular I thought was quite smart and different.   When asked how Quora competes with other question-and-answer websites, especially as a late entrant, he said that Quora’s competitive advantage–and I am paraphrasing–

It’s not one big thing, but rather a bunch of little things.

He then went on to give an example of one of these little things that Quora has done with the design of its product; and that’s when I started to believe in my theory that a web-based platform business can not only compete with but beet incumbents with better user-centered design.   This made me then wonder why might this be true?  Are these web-based platform businesses unique from other businesses in this way?  Could any other business enter a market and create better user experiences by simply out-designing the competition?

Fortunately, I had the chance to ask Charlie what his biggest challenge(s) was in running such a web-based platform as opposed to say, a web app that taps into a platform, and he said it was growing the number of users that use the platform.  This of course made sense, and so I wondered, if users are the lifeblood of the platform, and the entire user experience dictates whether users continue using, join, or stop using the platform, shouldn’t we expect these platform businesses, which sometimes depend on network effects, to consistently announce that their competitive advantage will be user experience and product/service design?

All businesses need to care about the experiences of their users/customers, but I think network effect-dependent businesses/products may be uniquely positioned to make a focus on user experience design a market entry strategy against a sea of incumbent players.    This may be especially true given customers/users have such low costs of switching to competing products.

What It Takes To Innovate: Wrong-Thinking, Tinkering & Intuiting

I just read an article that explains the 7 things a good inventor/innovator does, and found I do 5 out of the 7:

2. Employ “wrong-thinking.”

I love wrong-thinking.

4. Sketch out their ideas.

I’ve got notes and drawings everywhere.

5. Trust their intuition.

It’s amazing to me that Einstein was more visual and trusting of his intuition than he was inclined to use formulas and logic for new ideas.

6. Love tinkering.

I love building stuff with my hands.

7. Possess a boundless curiosity.

I sometimes feel a slave to my curiosity.

“That feeling can create its own reality.”

Two very curious psychological phenomena have been whirling around in my mind when I started to see how much of human behavior might be explained by them.     The first is the concept of “loss aversion”, which explains we often act in ways that minimize our expected losses rather than maximize our expected gains.   The second phenomena are self-fulfilling prophecies.  And interestingly, these may be related.

Loss aversion

Why is that one who loses $100 will lose more satisfaction than another person will gain satisfaction from a $100 windfall?   I might have some ideas that explain why we are this way, but simply being aware of this curious psychological phenomena is probably most important.  Look around and ask whether you think this phenomena can explain the human behavior, and I think you still start to see how well it explains a ton of behavior.   Loss aversion might explain why we do not ask for promotions if we fear that such being denied such a request might result in a damaged reputation within the firm.  Loss aversion might explain why we do not ask people on dates if our minds know subconsciously that we could end up feeling less confident about ourselves if the person says no; and this is even amidst the fact that our ego would probably grow by a far greater magnitude if  the person said yes.

Self-fulfilling prophecies

How often do we fear something happening, and then–out of this fear–act in such a way that then leads to that thing actually happening?!   Take for example, a person who fears that his/her lover is cheating on them.  This person then starts to act in a very insecure way.  The person starts to ask all kinds of weird questions, in weird ways, maybe starts acting weird too.  This then leads to the person’s lover becoming disenchanted by the person and then actually cheating or breaking off the relationship, which is what the person feared to begin with.  I find this incredibly ironic and, at first, very saddening.

Feelings and emotions make us humans interestingly complex, thinking creatures.  In a recent conversation/interview with Charlie Rose, Warren Buffet said:

That feeling can create its own reality.

The topic for Buffet and Rose’s conversation happened to be the U.S. consumer sentiment, and consumer’s faith and belief in the U.S. financial system.   Here the self-fulfilling prophecy to which Buffet was referring, would be the consumer’s fear that the banks were not trustworthy and that they would fail, which would cause many consumers to pull their money from the bank, which would then lead to the bank actually failing.   This is another example of how our feeling scared of something leads to behavior that ironically causes that thing to actually happen.    This realization had me pretty scared and saddened until I read an article that featured positive psychology ideas from Ryan Jacoby.   I then realized that self-fulfilling prophecies can work in the opposite manner as well. For example, if I believe that what I want to happen, will happen, I will behave and act according to this belief, thus leading to the desired thing actually happening.  Take the bank run story, for example.  If we believe that the banks will not fail, then we will leave our money in the bank, and we won’t cause a bank run, which would cause the banks to fail.  If we believe our lover is not cheating, we will act trusting, normal, and loving, and our lover will have no reason to seek companionship from someone else.

Can “loss aversion” explain economic recessions?

Citing the U.S.’s rapid recovery from 1930’s depression, Buffet says the American economic system works very well, but we will have have recessions (we have had ~15 of them since the Great Depression).  This got me thinking…Are our economic recessions also the result of human behavior and the psychological phenomenon whereby wealth is created and then because people fear the loss of this newly acquired wealth, they withdraw or reduce investments, which then slows down the economy because it inherently means taking money/capital out of the economic system?