Find the black swan of customer choice

Successful problem solving requires finding the right solution to the right problem. We fail more often because we solve the wrong problem than because we get the wrong solution to the right problem.

Many startups fail. In today's tech and entrepreneurial ecosystem failure is applauded and depicted as the path to success. This is dangerous, because more often than not, it distracts us from the real path to success. Failing as an entrepreneur is very sad. The emotional and social costs are very high. It’s also sad because it’s a waste for society. Entrepreneurs as action-oriented bright minds can and will help us solve society’s greatest problems. As a fellow human being I would love to see them succeed. Here is how to lay the foundation for success.

By Samir Saberi | Estimated reading time: 18 minutes

Retrospectively predictable

So what is the path to success for entrepreneurs? The first rule is to find the black swan. The second rule is to find the black swan of customer choice. I will start with explaining the reasoning behind the latter one.

The black swans of customer choice are those hidden pieces of information who’s unearthing and right utilisation have game-changing effects. They have game-changing effects, because they reveal high impact causality [1]. Entrepreneurs that discover and utilise the black swans of customer choice and execute them well are set for creating everlasting growth and profitability.

Being able to drive growth and profitability by understanding customer choice has however been elusive to corporates and startups alike, despite the pervasiveness of customer thinking as illustrated by business jargon like ‘customer intimacy’, ‘customer development’,  ‘listening to customer’, ‘meeting customer needs’ or ‘solving their problems’.

Here are some numbers to illustrate the magnitude of the problem. In 2015, thousand publicly listed companies spend $680 billion on research alone in annual investments. At the same time, 94 % of global executives were unsatisfied with their own innovation performance [2]. In 2019, venture capitalists (VC’s) invested roughly $294.8 billion in startups globally [3]. Yet more than 60% of startups fail [4] . Number one of the many reasons is that they build a product or service nobody eventually wants to buy and use [5].

The term black swan was coined almost two thousand years ago by Roman poet Decimus Junius Juvenalis, known in English as Juvenal. Juvenal’s phrase was a common expression in 16th century London as a metaphor of something impossible or non-existent. Essentially because all swans ever seen in 17th century Europe had possessed white feathers. But then the Dutch explorer Willem de Vlaming nullified this system of thought when he went to western Australia in 1697. He found black swans.

Black swans are thus metaphors for things that are thought of to be impossible or non-existent, because they do not fit into our view of the world. While, in fact, they do exist or come to pass.

The black swan theory is popularised by risk analyst Nassim Nicholas Taleb in his bestselling books The Black Swan (2007) and Fooled by Randomness (2001). Taleb's "black swan theory" refers to unexpected events of large magnitude and consequence.

Based on Taleb’s theory, a black swan is an event that has the following three properties:
 

1. It is an outlier as it lies outside the realm of regular expectations of the observer. Because nothing in the past can convincingly point to its possibilities.
    
2. The event has a major effect.
    
3. After the first recorded instance of the event, it is rationalised by hindsight. Or as Taleb puts it: prospectively unpredictable, retrospectively predictable [6].

The fact that the event is retrospectively predictable means that the markers were all there. Observers are blinded to see the markers, because they only watch through their lens of past experiences and thus a regular set of expectations. They therefore fail to predict or uncover them.

The black swans of customer choice are pieces of information that help you understand the causal reasons why your customers choose to buy or refuse to buy and use your product or service. Because the devil is in de detail, it’s critical to be specific here. The blacks swans of customer choice are not ‘impossible’ things, because ‘the impossible’ falls into the realm of known-unknowns.

The black swans of customer choice are pieces of information that are unknown-unknowns to you, the entrepreneur. But their discovery and right utilisation might make the difference between your customers craving for your product or not buying and not using it at all.

The case of Airbnb

Many successful companies started their success stories with the intentional or unintentional unearthing of black swans of customer choice. Take for example the case of Airbnb and the story between two of its three founders, Joe Gebbia and Brian Chesky. Airbnb seemed like a very bad idea [7] to many outside observers such as VCs, because the idea didn’t fit their regular set of exceptions. ‘Who would pay for staying at a strangers spare bed, rather than stay at a hotel?’, one investor has said. ‘People are actually doing this? Why? What’s wrong with them?’ [8].

Just before moving to live with Joe Gebbia, Brian Chesky asked Gebbia if he could rent the couch in the living room for five hundred dollars a month instead of paying more for an entire bedroom. Gebbia said that this was out of the question. Chesky wanted to rent the couch, because he wanted to keep his job and a new part time job in Los Angeles. At that time, Chesky didn’t have meaningful employment, and both Chesky and Gabbia were essentially broke. To make some money, a few weeks later Gebbia sent the following email:

Subject: subletter

Brian, I thought of a way to make a few bucks - turning our place into a designer’s bed and breakfast - offering young designers who come into town a place to crash during the 4 day event, complete with wireless internet, a small desk space, sleeping mat, and breakfast each morning. Ha! -Joe.

The description of the service on the website went like this:

“AirBed & Breakfast is an affordable housing resource, social networking tool, and an up-to-the-minute guide to the conference." [9]

Here is what were unknown-unknown casual reasons to many, that were known-knowns and known-unknowns to Gebbia and Chesky: people that are really stretched for money (young designers) and really want to be somewhere (World Design Congress in 2007) and don’t have an inclination to luxury (a place to crash) will use it. Gebbia and Chesky themselves were young designers. They knew the importance of attending such a conference and they were both struggling to make ends meet. Chesky maybe even more so, as he was so strapped for money that he wanted to pay for a couch only to save money.

The story of Febreze

The story of the P&G product called Febreze demonstrates beautifully the power of a black swan of customer choice. P&G collects more data than almost any other merchant on earth to craft their marketing campaigns. The firm is incredibly good in figuring out how to sell things. In the 90’s, the company had spent millions of dollars to develop Febreze. A colourless and odourless spray, that could remove bad smells from every fabric. The product was destined to make the company a fortune, but soon after launch it was on track to be one of the biggest flops in P&G’s history.

The company sent researchers to stores, visiting housewives who had received free bottles, and asked a group of PhDs in consumer psychology to conduct interviews to figure out what was going on. The latter group found two black swans - hidden pieces of information -  who’s unearthing and right utilisation transformed Febreze into a-billion-dollars-a-year-product. The first black swan was found during a visit to a women that had nine cats. The scent of the cats in the living room was so overpowering that one of the researchers gagged. Here is the conversation between the scientist and the women that reveals the first black swan [10]:

Scientist: What do you do about the cat smell?

Woman: It’s usually not a problem.

Scientist: How often do you notice the smell?

Woman: About once a month.

Scientist: Do you smell it now?

Woman: No.

The scientist detected the same pattern in dozens of other homes. The black swan, revealing the causal reason why people didn’t use Febreze, was that they couldn’t smell most of the bad smells in their lives. They had become desensitised. Even the strongest scents fade with constant exposure. The second black swan was revealed after many customer interviews in a conversation with a women near Scottsdale, a city in the American state of Arizona. To the surprise of the researchers, she loved Febreze. Here is the conversation between the researchers and the woman:

Woman: I use it every day.

Scientist: You do?

Contrary to the world view of the scientist, the house didn’t seem like a place that had problems with bad smells. There were no pets, and no one smoked.

Scientist: How? What smells are you trying to get rid of?

Woman: I don’t use it for specific smells. I use it for normal cleaning. A couple of sprays when I am done in a room. It’s a nice way to make everything smell good as a final touch. Spraying feels like a mini-celebration when I am done cleaning a room.

The second black swan: ‘It’s a nice way to make everything smell good as a final touch.’ The causal reason for buying and using the product was not to get rid of bad smells, but to finish off their cleaning chores. The researched found out this pattern again and again and transformed a failed product with a slight shift in advertising into a major success.

As Airbnb, Febreze and many other successful startups and innovations projects illustrate, there are no bad ideas. There are black swans.

How to find black swans of customer choice

So how do you get to know what you do not know you do not know? First, go to the source. The customer. Second, see the world through their eyes [11].

Many entrepreneurs and startups do go to customers. They do build MVP’s, they do test hypotheses. This is exactly the problem. The hypotheses are based on what the entrepreneurs know (known-knowns) and what they know they don’t know (known-unknowns). Because we are so close to the heart of the matter, our ideas and solutions correlate extremely well with the supposed problem-solution combo of the customer. We, and even our customers, start believing in the road ahead. We forget that correlation is not causation. VCs and media put more gas on the fire. Our egos amplify our sense of being a part of ‘the elect’ tenfold and there is no way back.

But at some point, we know we are lying. Lying to our customers, investors, media and worst of all: we lie to ourselves. Big time. We start building products and services and keep pushing, while deep in our hearts we know people do not need them. This supposed path to success that is completed detached from causation and thus reality leads to devastating failure. I have seen this too often. I have seen that the product was being built for investors, instead of customers. I have seen that the media was a greater concern for the founder than finding the right solution for the right problem of her customers. I have seen entrepreneurs falter and how much it hurt them. This is not necessary.

You can find black swans by observing and interviewing. I am bullish that finding these black swans through quantitative methods is impossible. But I would love to be proven wrong.

Because we are so close to the heart of the matter, our ideas and solutions correlate extremely well with the supposed problem-solution combo of the customer. We, and even our customers, start believing in the road ahead. We forget that correlation is not causation.

I am also bullish that before doing anything - anything else - observe and listen to your potential customers with a Shoshin attitude, a beginner’s mind. Before sketching out a business model canvas, before building an MVP, before anything. Once there, be aware of the curse of knowledge. Your own world view. Leave your ego at home. I cannot stress enough how important this is. Stop reading for a moment and let this sink in.

Try to not only grasp rationally, but feel that your world view is your biggest enemy in this instance. Essentially because it prevents you to adopt a Shoshin attitude in observing and interviewing your potential customer.

Use for the interview only the following three questions. Ask them:
 

1. What are the two to three goals you’re trying to achieve every day?
2. What are the roadblocks to achieving these goals?
3. What are the means you use to achieve these goals?

All other questions, and there are many, are follow-up questions. Remember that the goal here is not to confirm the known-known, or understand the known-unknown. The goal is to understand intricacies of the day-to-day struggle your potential customer is confronted with, intricacies you just didn’t know that mattered to them at all.

Mind that the art is in asking the right follow-up questions, and dig very, very deep. You have to do this, because your potential customer often doesn’t know what the specific roadblocks are. At least not at root-cause level.

Really listen to your customer

Read non-verbal clues like facial expressions, note the small pauses. To give you an example of how such a customer interview might go, I have redacted an interview I had many years ago with a civil service officer. The goal here is to give you a feel of how deep you have to go to discover a black swan of customer choice. We chime in at 43 minutes and 54 seconds into conversation.

Me: You previously said that building a bridge between the government and startups is an important goal.

Civil Service Officer (CSO): Yes, gatherings have helped enormously. It’s for all of us very important to understand what the barriers to the success of startups are. So it’s great to hear it from startup teams. 

Me: So that’s one way to connect with startups. Are there any other?

CSO: There are online initiatives, but there is quite some room for improvement for online platforms.

Me: Great, are there any other alternative means you use to connect with startups besides online platforms?

CSO: Yes, there are workshops.

I now summarise and ask once again the same question: are there any other ways you connect with startups?

CSO: I don’t know, maybe congresses. There is also a platform that is intended for fundraising.

Me: What kind of questions are asked on the fundraising platform?

Now 47:30 minutes into the interview , the CSO explains what kind of questions are asked on the fundraising platform. He then all of sudden mentions a platform he didn’t mention before. I will call it Platform X, so you can more easily follow the conversation.

CSO: It’s a platform that is used by entrepreneurs to exchange experiences and give advice to each other. The entrepreneurs also exchange experiences about government programmes. It’s an interesting platform.

Me: Why is it [Platform X] an interesting platform?

CSO: It’s interesting because entrepreneurs exchange information with each other and we get feedback on government programmes. Our agencies read the conversations.

Over an hour into the interview, the CSO says that it’s really sad and a big problem that they do not get enough feedback on the programmes they develop as policy makers. ‘It’s just very difficult and a lot of work to get feedback.’ The feedback tools used now are evaluation reports that are published once every five years. There is no online feedback tool. Completely nothing. Not even a simple chat box to gather feedback which you see on many websites.

The conversation takes another direction, but at 1.08.00 we again touch on Platform X. The CSO also mentions that it would be wonderful to have tools that would enable them to get feedback on programmes they develop. The conversation goes on for another nine minutes, taking again another direction. After twelve follow-up questions, the CSO mentions Platform X as an insignificant side note. After thirteen more follow-up questions, I come back to Platform X. 

Me: Do you use the platform [X]?

CSO: I only follow the conversations. I also use the platform to analyse what the problems are that the startups are confronted with.

Me: Why do you only follow the conversation?

CSO: Because it’s only intended for entrepreneurs? I am not confronted with the problems that entrepreneurs are confronted with.

Me: It’s only intended for entrepreneurs?

CSO: Policy makers could use the platform. A policy maker could ask entrepreneurs about the problems they encounter. But I haven’t used it.

Me: You haven’t used it because?

CSO: Because I think that’s more applicable for entrepreneurs.

Me: It’s more applicable for entrepreneurs because?

CSO: Because it’s built for entrepreneurs.

Me: Because it’s built for entrepreneurs..?

CSO: The thing is that if we want to have feedback we will ask our partners to arrange a meeting with a group of entrepreneurs. That’s better.

Me: That’s better than?

CSO: That’s better than using the online platform [platform X].

Me: I am going to ask a few more follow-up questions so please bear with me. You’re saying that you’re not using the platform, because it’s intended for entrepreneurs. But if I am correct it’s a publicly available platform, so if you would like to use it you can?

CSO: Yes I can.

Me: At the same time, you crave feedback on the programmes you have built for entrepreneurs. So...

CSO: Well, the thing that always influences our jobs is that everything a government official does, is under the authority of the minister. So whenever we say something it can have political implications not only for me, but also for the minister. Our freedom of speech as civil servants is limited.

And there you have it.

A black swan of customer choice. The fact that civil servants are restricted in their speech, because everything they say can be regarded as policy authorised by the minister.

Now imagine that you think you have discovered a customer need, based on a range of interviews. Let's imagine that in the case of the above example the need of the customer - civil servants - is to get feedback on the programmes they develop as policy makers. Not every five years, but more frequently. Now also imagine that you think that building an online platform is the most logical solution for this. The fact that a civil servant has limited freedom of speech can be a casual reason why a civil servant officer will not use an online platform. As was the case with Platform X. A factor that is pivotal for the successful launch and subsequent growth of your platform.

Now as the black swan theory goes, this is retrospectively predictable. It might even come over as lame to you. You might think: ‘You didn’t know that policy makers cannot publicly talk about policy related issues like we can. Really, you didn’t know?'

The point is that as you have seen in the example above that the unearthing of a black swan is extremely difficult. Essentially because it's a black swan for you, while your counterpart might be completely unaware of its importance. Like treasure hunting, you have to do the work. But as stated before, their discovery or lack thereof could mean the difference between your customers craving for your product - or not buying or not using it at all.

As promised, I would come back to the first rule: find the black swan. Find the black swan in everything, each day, every day. They are waiting to be discovered. 

About the author

Samir Saberi has lived and breathed the startup scene for the last decade. He is currently a mentor to a number of startups and scale-ups and board member of the Dutch Startup Association. Previously, Samir was the Commercial Director of ScaleUpNation and a member of the founding team of TeachLeap (formerly StartupDelta) under the leadership of former EU commissioner Neelie Kroes. He advised Braventure on the growth of the Brabant startup ecosystem, managed a fast-growing SME company and served as strategy and growth consultant. Samir brings accordingly a deep network of relationships and ‘stories from the trenches’ in the tech community.

Samir is Writer in Residence at the Utrecht University Centre for Entrepreneurship. His ambition? To contribute to a better understanding of our entrepreneurial ecosystem so we can all learn and benefit.