How Behavioral Science Can Build Products that Sell Themselves: The Pirate Funnel Toolkit

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Apr 26, 2023

Introduction

Recently, a friend of mine shared his dilemma as a SaaS product founder in a post on LinkedIn: “To be successful, you need to do both of these things even though they are the opposite: build a human connection with every customer and make everything a (scalable) funnel.” 

This is a delicate equilibrium, and there’s no silver bullet. How can we address the challenge of balancing human connection with scalability? In this article, we’ll explore how behavioral science can boost the application of product-led growth (PLG).

What is Product-Led Growth?

Driven by the dual forces of software development cycle acceleration, and the consequent downward push on sales cycle durations, the idea that “products that sell themselves” is a compelling frontier of building and commercializing tech.

PLG is a growth model in which product usage drives customer acquisition, retention, and expansion. To succeed in PLG, products must independently attract users, onboard them, and on top of that, provide an intuitive UX that’s sticky enough to keep them engaged. 

Behavioral Science, Democratized

We make 35,000 decisions each day, often in environments that aren’t conducive to making sound choices. 

At TDL, we work with organizations in the public and private sectors—from new startups, to governments, to established players like the Gates Foundation—to debias decision-making and create better outcomes for everyone.

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Chart from venture capital firm OpenView explaining the evolution of product-led growth.

This approach has some compelling benefits for businesses: faster scaling, lower user acquisition costs, lower cost to serve, and often a continuous flywheel of growth (i.e. growth loops). This translates to impressive growth numbers: PLG companies are more than 2X likely to be growing at 100%+ YoY revenue growth compared to sales-led companies.1

In 2021, all the top IPOs were companies with a PLG model – an effect that may have been exacerbated by the pandemic, which reduced reliance on a human-led sales model.2 In fact, organic searches for PLG skyrocketed after the pandemic.

Google searches for ‘product led growth’

Google searches for ‘product led growth’ over the past 8 years

Mixing PLG with BeSci

PLG reduces organizations’ dependence on human-led sales growth, underscoring the importance of applying human behavioral principles to product design. When users need to understand the value of a product through self-serve journeys, the design needs to be in line with natural human tendencies. In a world where PLG is the norm, it’ll be more important than ever for organizations to understand the mechanics of behavior.

Commercializing through a behavioral lens

In the world of tech and product design, there are two core functions in which behavioral science can add value: Building and Commercializing.

The Build function includes finding the pain point, building a solution, designing the product, operationalizing it to work at scale, and so on. Through testing and learning, you can find the holy grail of Product Market Fit. Afterwards, human-centered design becomes centre stage: a design lens that puts the end user at the heart of UX and physical products.

The Commercialize function involves getting users to find, use, and engage with the product. This has traditionally been a combination of marketing and sales, and increasingly reliant on ‘Product Led’ steps.

To commercialize with a behavioral lens, an easy starting point is the Pirate Funnel, a popular growth framework.

The Pirate Funnel Toolkit

The Pirate Funnel (AARRR) is a growth model that focuses on the 5 stages of effective growth strategy: acquisition, activation, retention, referral, and revenue. This was popularized by Silicon Valley investor Dave McClure, with the intent to bring focus to the metrics that matter and prioritize growth efforts to relevant areas.

Across each of these steps, specific human behavior change principles can catalyze growth, making it easier for your product to be used by the people who need it. If you’re already using some of these concepts, great! You can take it a step further by intentionally applying and testing them in order to build a comprehensive playbook over time.

Acquisition

During the acquisition stage, you want your audience to know about your product and want to use it. Goal metrics here are usually in the form of sign-ups or app downloads. 

The acquisition stage is full of behavioral potential, if you’re familiar with the relevant concepts. Take the messenger effect: If YouTuber Ali Abdaal recommends Notion AI as a useful way to brainstorm ideas for an article, I’ll probably do it. If my partner says the same thing, he’ll be met with a cold stare. According to the messenger effect, the authority, likeability and trustworthiness of the person delivering a message changes how the message is received. Who is the messenger of your product?

Across the board, biases like the affect bias, the framing effect, salience bias, social proof, and mere exposure effect all influence how we engage with the world around us. Leverage the affect bias by leaning into the emotional appeal of your product, or harness the mere exposure effect in your advertising campaign. By understanding the behavioral roots of what we pay attention to, you can optimise the number of target customers reached and acquired.

Activation

Are people using your product the way you intend them to? At this stage, it’s important to demonstrate continued value, which relies on making the product intuitively usable and balancing elements of surprise and predictability. 

Experience the product from a new user’s perspective. Do you clearly see the why and how of product use, or does it need to be explained? If it’s the latter, you’ve got an opportunity to “productize” a sales pitch. How?

  • Make it easy by strategically using defaults. We don’t like to make that many decisions, so help them with a ‘do-nothing’ path. 
  • At some point in the journey, you do want to add skin-in-the-game via the endowment effect. But a word of caution: doing this too early may lead to higher bounce rates and drop offs.
  • Consider exploring regret aversion to establish further value and incentivization to drive specific usage behaviors (e.g., unlock a limited-time offer by continuing to use this meditation app for the next 7 days).

Retention

Novelty and curiosity are powerful drivers. At this stage, you’re up against natural decay of the quality of experience with your product.

Be real with yourself. Is the product habit-forming? Does your user want or need to build recurrent usage behavior, and why? How does the recurrent behavior align to user motivations? Once you have a tentative hypothesis, you can tap into it as you optimize this stage of the funnel. 

A common behavioral tool for retention is gamification. Making users work towards variable goals – instead of concrete ones – is more effective, due to the principle of motivating uncertainty. Or consider the popularity of ‘streaks’, which harness our ability to remember unfinished tasks better than finished ones, and salient progress bars, that show how far we’ve come. 

These concepts operate at subconscious levels, engaging us to return again and again to the activity at hand. But ensure you use these principles intentionally, not for their own sake. Academic research on gamification related motivation systems suggests that ~70% of gamification interventions are in the education, health and crowdfunding space.3 A ‘streaks’ feature is sensical for an education app like Duolingo, which relies on habitual practice to engage users in language learning. But if your product is related to ecommerce or transportation, gamification might not be as relevant.

Referral

A growth loop is a series of strategic actions that amplify further growth – loops based on referrals are one way to build such a flywheel. You can explore whether or not to incentivise referral. Do your users love the product enough to risk their reputation on it?

It’s important to consider how incentives work: though most of us wouldn’t say no to extra cash in our pockets, relying on financial incentives can spill over into the overjustification effect. Effective incentives span far beyond monetary. They can rely on business interest (PE fund refers a SaaS product to their portfolio companies to improve efficiency), social status (a user wants to impress their friends), or altruistic (a user wants to help their friend). Prioritize the value proposition you plan to highlight and invest in intentional incentives for referral. 

Revenue

Parting with money is a meaningful demonstration of perceived value – in a time where usage usually comes before any transaction, this funnel saves the best for last. While relying on value provided is key (reaffirming PMF), there are human tendencies you should consider when trying to monetise your product

We place disproportionate value on things we create ourselves (also known as the IKEA effect). Can you weave a step into your activation journey that makes this product more valuable to a user? When giving users the opportunity to provide their own touch, they’re more likely to attribute greater value to the overall product. 

Another way to position offerings is to bundle products and services together. Research suggests that we attribute greater value to an item when multiple are sold together. Or, if you want to provide ample choice for users, add in decoy options to ease decision-making. 

What does this mean for your organization?

To stay ahead in a changing market, it’s important to build products intentionally and with the language of behavior science. This is by no means an exhaustive exploration of behavioral concepts that can boost your PLG funnel, but they’re a toolkit to start building hypotheses.

But a word of caution: behavioral science isn’t a magic bullet. You can use insights to sculpt users’ decision-making environment and increase the chance of certain behavior patterns. But you can’t use it to make users behave however you want. 

It’s crucial to follow the data every step of the way, by building in a hypothesis-led, test-and-learn approach to product building and testing. Understand the goal metrics you are trying to move, design some tests, and invest in rapid learning loops to deeply understand the way your product scales.

And who knows? By bringing a behavioral lens to your product, your team may start to see greater self-awareness and fewer biased decisions in your organisation. Behavioral science doesn’t just improve products – it can make a team more effective, too.

What other behavior science concepts have you considered or successfully used in your journey to product growth? Let us know at info@thedecisionlab.com. 

References

  1. OpenView. (2023). 2022 Product Benchmarks. OpenViewPartners.com. Retrieved from https://openviewpartners.com/2022-product-benchmarks/
  2. OpenView. (2023). Product Led Growth Index. OpenViewPartners.com. Retrieved from https://openviewpartners.com/product-led-growth-index/
  3. Koivisto, J. & Hamari, J. (2019). The rise of motivational information systems: A review of gamification research. International Journal of Information Management, Vol 45, 191-210.

About the Author

Riya Chhabra's portrait

Riya Chhabra

Riya Chhabra is a technology growth leader, and is passionate about understanding and leveraging behaviour science towards positive personal and organisational outcomes. She draws on her business experience as a growth strategist at Meta, strategy consultant at McKinsey, and a growth leader at Milaap, an Asian digital crowdfunding startup. Born and raised in India, she has lived and worked in New York, Singapore, Paris, and now lives in London. She holds an MBA from INSEAD, and is currently doing a part-time MSc in Behaviour Science from the London School of Economics to connect the dots between behaviour science and technology.

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