The 9x effect combines two factors with deadly results:
Targets value losses three times higher than gains
Many innovations replace an existing product or solution. Unfortunately, current users are attached to their existing solutions – in fact they are endowed with them, and strongly favor maintaining that endowment. We are wired to be biased towards the status quo and more afraid of loss than attracted to gains.
Imagine that I bet you $100 on a coin toss. That’s a pretty simple bet – 50% chance to win. Now imagine that heads you win $100 and tails you lose $100. Most people won’t take that bet. Most won’t bet unless they stand to win $200 to $300 to offset the risk of losing $100.
When we examine loss aversion in an innovation setting, your product will need to be perceived as around 3x better (or more) for it to induce people to give up what they already have. You might be able to objectively show that your product is 50% better or 120%, but your targets will irrationally overvalue the benefits they currently have relative to the ones they don’t.
Innovators over-value their own solutions by a factor of three
The second part of the 9x effect deals with the psychology of innovators. To the innovator, their invention has become status quo. It’s part of the innovator’s endowment, so the idea of being without it triggers the same type of irrational 3x over-valuation.
These two factors combine into the 9x effect: targets overvalue their existing solutions by three, while innovators overvalue the new benefits of their proposed solution by a factor of three, resulting in a nine-to-one mismatch between what innovators think is compelling and what users would find persuasive.
Five acceleration tactics
Acceleration tactic #1 – target a market that’s not already endowed with an alternative
For example, owners of substantial CD collections were slower to adopt streaming than younger consumers who didn’t have a financial and psychological investment in a status quo solution.
Acceleration tactic #2 – minimize behavior change
The bias towards endowment means that targets will overvalue losses by roughly three compared to gains. That means that any behavioral change that’s required to adopt your solution will tend to be perceived by the target as a loss, and valued as three times as much work as it objectively is. Products that have a high degree of change required will take far longer to be adopted even if the product itself is beneficial. Removing adoption barriers will accelerate adoption more than building in additional new benefits.
Acceleration tactic #3 – deliver 10x improvement
Inventing a product that's 10x better than the current solution is easier said then done! However it makes sense to think about the value offered in the context of timing the scale-up of the business. It’s sensible to have incremental releases of the new product to early adopters and targeted early mainstream customers to test for fit and prevent over-investing in developing the wrong thing. However, before going to scale with large awareness-raising marketing investments it may be wise to wait until the several deliveries have resulted in a new solution that is so packed with benefits that it overcomes the irrational weighting of losses.
Acceleration tactic #4 – address highly relevant needs
The Value Proposition Canvas is a simple and popular way to understand customers’ needs and design products and services that they want. It works in combination with the Business Model Canvas to design the total solution. Users of the Value Proposition Canvas sometimes make the error of focusing only on the customer needs that they aspire to fulfil. The problem comes when the need that has been targeted is not near the top of the customers’ list. The solution may look good as a standalone value proposition, but a customer typically has only a limited bandwidth for change and will tend to focus on more pressing problems. For example, a solution for increasing revenue from patients’ access to entertainment is less likely to have traction in a hospital struggling with security issues and infant abduction.
Acceleration tactic #5 – create reinforcement through change management
In certain business settings, it may be possible to tip the perceived balance of gains and losses using a reinforcement strategy. A reinforcement strategy promotes migration from an existing solution to a new solution by:
- Eliminating any rewards for the old behaviors
- Introducing negative consequences for the old behaviors
- Increasing the effort needed to do things the old way
- Ensuring there are no negative consequences for the new behaviors
- Maximizing rewards for the new behaviors
- Minimizing the effort to do things the new way
For example, a new reporting solution may take some effort to learn – but that can be minimized with training, job aids and access to a coach. The effort to do it the old way can be increased by making it more difficult to access the old system – e.g. by requiring the user to obtain a special login each time – and ultimately by eliminating it entirely. The reinforcement strategy should ensure that managers don’t unwittingly reinforce the old system – e.g. during adoption a user may take longer to generate the reports on the unfamiliar system. If the manager complains about the delay and compliments those who got their reports out with the old system, that would be a negative consequence for using the new system and a reward for using the old one.
Using these five acceleration tactics, innovators can avoid the worst impacts of the 9x effect and increase their chances of successful, rapid scale.