tl;dr:

Organizations and the people in them irrationally and addictively build and release products that often have no real value. This article gives my best explanation why. If you want to skip it, you can jump strait to the .

It’s a puzzle

A couple things have puzzled me for the close to 30 years I’ve been in product development.” Puzzled” is an understatement. They’ve actually driven me nuts.

1. Why are we so confident our product ideas will work when we know that they rarely do?
2. Why do we keep building new products or features without understanding what makes them successful or not successful?

Underpants Gnomes

In 1998 the crude US TV series South Park introduced the characters of the Underpants Gnomes. In this video I’ve combined two scenes: the first introduces the gnomes, the second is where they reveal their business strategy. You should watch it if you don’t already know what I’m talking about.

This is my edit, and I sincerely hope that Trey Parker and Matt Stone don’t sue me.

First, you need to appreciate how much work it took me to edit out most of the swearing and still keep the message intact. Second, I suspect you’re squirming a little because of how uncomfortably familiar this situation is.

I often work with organizations and teams working hard to build a new product of capability and after asking them “why?” I see the puzzled look and slow blink you just saw in that video. After pressing them a bit, I’ve often gotten answers similar to the underpants gnomes phase 3: profit. I also hear: ROI, business value, growth, to get more customers, to increase retention, or various other reasons that really don’t explain why they’re building that particular thing, and what they think might happen that’ll result in these fabulous rewards to their business.

If this insanity was obvious to South Park creators in 1998, why does it persist today?

Outcomes and how things really work

I’ve drawn this model and variations of it over, and over, and over again for close to 15 years. I’m now pleased to see most folks in software development openly discuss the importance of outcomes, and many actually know what they’re talking about.

Now, let’s overlay the underpants gnomes thinking here. Creating output is just phase 1. But what about phase 2? Well impact is phase 3, get it? Yeah yeah yeah, but what about phase 2?

Phase 2 is outcome: Outcome is what your customers and users do, say, and feel.

The missing understanding I see in too many organizations I work with is this foundational understanding of how things work, That, whenever we make anything we bet that we actually understand customers and users unmet needs, and that when we make something that they will see it, try it, use it, keep using it, and say good things.

If you can’t say what customer need you’re addressing and what you expect they’ll do when they see your solution, then don’t build it.

We’re wrong a lot

The problem with this model is the idea thing, There’s actually three problems.

First: there’s always too many. You know if you ask customers or stakeholders, they’ll always have ideas for things we should build to make our product’s better. This makes it seem like it’s your job to build more faster. But, then there’s the second thing.

Second: Most of them are crap.. or at least not likely to work.

We know the failure rate of new tech startups is 90% or higher. This from Startup Genome:

“While about 90% of startups completely fail, Startup Genome research demonstrates that only 1.5% of startups — or about 15% of those that survive — produce a successful exit of $50 million or more across the top eight U.S. startup ecosystems.”

And, we’ve known anecdotally that lots of features we put into products are rarely or never used. This quote from Pendo, a creator of analytics software:

“Based on an aggregation of anonymized product usage data, Pendo determined that 80 percent of features in the average software product are rarely or never used.”

This makes me wonder why we bother to build anything. But then there’s this curious third thing: Optimism Bias.

Have you ever visited a startup accelerator? One of these places where lots of startups work under one roof? The surprise for me is how positive everyone is in these places. Now, if your boss told everyone that there is a 90% chance you’d be looking for a new job this time next year, and can almost guarantee your workplace would be pretty depressing. But, in accelerators, despite that being a fact, they don’t seem depressed.

They’re not stupid. If you ask any one of them what they failure rate for startups is they’ll tell you “it’s around 90%” And, they can look around at all the other companies in the accelerator and say “most of these ideas are crap. But, not ours.” This is called bias. Optimism bias more specifically.

So, what makes us insanely optimistic – willing to try despite our odds of failure?

Skinner’s pigeons and variable rewards

In the early 1940’s Dr. B.F. Skinner conducted a series of studies on eliciting goal directed behaviour. Pigeons were taught to peck at a target and in exchange they received a reward. The pigeon didn’t need to understand the mechanical mechanism that dispensed the reward, only that they received it after pecking.

This feels like what’s happening in business.

Phase 1: We build and release things; Phase 2: something magical happens in the outside world; Phase 3: our organization profits.

We don’t really need to know how it works to benefit. And, I see a lot of evidence that many in organizations aren’t clear on how it works. And, it doesn’t matter.

In Skinner’s work, here’s where things get interesting. If the pigeons received the reward every time, they moderated their behaviour – they pecked when they wanted to eat. But, if the reward was made variable, and unpredictable, they went pretty crazy pecking incessantly. They behaved like addicts.

This also feels like what’s happening in business. Your organization releases something that does well. It makes your company lots of money. We’re not sure exactly why, but that doesn’t matter. Now we know how it works.

Release something then get an unpredictable reward. So we do just that. And we get addicted to releasing more things faster. Just like Skinner’s pigeons.

If it was predictable, maybe we wouldn’t be so crazy about trying to release more faster? This is my belief. For me this explains both the underpants gnome effect and our organizations’ crazy rush to release more faster given evidence that most of it isn’t working as well as we’d hoped.

If everything we released resulted in a financial reward, all of our organizations would be thriving and we’d have no need to constrain what we spend on building things.

Sapolsky and dopamine

I’m not sure Robert Sapolsky did the research on this, but he was the person I found that best explained the dopamine effect. It works like this:

We get a signal, we engage in some behaviour, then we get a reward… sometimes. You’d think that the reward was the best part. But, what Sapolsky explains is that we get a hit of dopamine when we get the signal and begin the behaviour. “Dopamin rises in anticipation of the reward rather than from the reward itself”

We get the dopamine hit in response to anticipating the reward, not actually receiving it.

He further goes on to explain that when the reward is infrequent and variable that dopamine hit is far far greater than if it was predictable. “A 50% reward rate delivered unpredictably results in a huge rise in dopamine. One of the biggest rises short of cocaine.” Both Skinner and Sapolsky use this to explain our affinity with gambling, and why casinos work hard to convince us that our chances of winning are about 50% – even when they’re far less than that.

”People will work like mad in contexts of ‘maybe’ far more than in contexts of certainty”

Sapolsky thickens the plot by saying that humans are unique in that they can wait a very long time for rewards. We’re much more patient than pigeons, rats, or monkeys used in scientific experiments. “How much lag time can there be between doing the work and getting the reward? For humans it can be years, or even a whole lifetime for those working hard through their whole lives to end up in heaven someday.”

I believe that in business acting on our ideas delivers a dopamine hit that overrides our ability to be more objective about our ideas.

Empathize

I really have been fretting about this for 25 plus years. It really does puzzle me that organizations and the people that work for them launch underpants gnome schemes almost addictively. I know these are generally smart people. I’ve needed some explanation for these seemingly smart people’s irrationality. And this is the closest to an explanation that I’ve come up with.

Given we’re all humans that behave in predictably irrational ways, and I know I do, let’s have a little empathy for each other.

But still point out when you see someone behaving in an irrational way.

Conclusion:

Here’s the behaviour I see:

• We don’t know why the products we build are successful or unsuccessful, and we don’t necessarily care
• If we’ve been successful, or even seen others be successful, that’s enough reinforcement for us to try
• When success is infrequent and unpredictable, that only leads to us wanting to try more because we get the dopamine hit from trying
• We’re willing to wait a long time to know if we’re successful, months, years, or a whole lifetime

Here’s what you can do:

• Understand how things really work: the relationship between output, outcome, and impact
• Expose assumptions about your customers unmet needs and outcomes you expect
• Recognize that people, including you, get energized from trying to build and release something new, empathize, but then try to curb that enthusiasm
• Really measure the outcome and really celebrate successful outcomes

Here are a couple books worth looking into:

• Outcomes over Output by Joshua Seiden
• Behave, the biology of humans at our best and worst by Robert Sapolsky
• Why Zebras Don’t Get Ulcers by Robert Sapolsky

And here’s and interesting video of Skinner’s pigeons playing table tennis. I watch it imagining software companies competing with each other neither knowing really why they’re getting the reward.

I’d love to hear what you think or do differently after reading this.

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