How much can you cheat?

by Julien Hagege

For many entrepreneurs network effects sound like a distant promise of a $100 billion jackpot. In a crowded space with only a finite span of user attention, it is no surprise that most will fail and that some will try anything to succeed. Triangulate struggled whether to ‘play dirty’ and use ‘sleazy’ marketing tactics to boost user trials. Last week Path – a social media app - has been dragged through the mud when a hacker revealed that the app was uploading the user’s address book to Path’s servers, without his/her consent. It was indeed very tempting to snatch such data to generate leads and to foster growth, but at what cost?

Today the consensus around private information appears clear: one should not gather private information without the user’s consent, or at least without making it public to the blogosphere (so that bloggers / twitters can denounce any abuse). Path, Carrier IQ and others played ‘dirty’ and paid a hefty price: losing customer’s trust. Path’s CEO has issued public excuses and switched personal data transfer to become an opt-in feature, but only time will tell if they will recover from such a fiasco. LCA (HBS ethics class) taught us the danger of aiming for the lines, and how value could still be created when playing in the center of the court. This lesson can be applied to the tech startup world as well, where facts are easier to conceal and theft doesn’t always leave a trace.

But are some lies OK? Last week a section mate advertised for a new dating social network that leverages facebook friends. I checked it out (as it sounded like a good LTV candidate, not because I’m dating) and became intrigued by the user counter on the main page. I went through the JavaScript code - I can’t hide my engineering roots - and I was only half surprised to discover that the counter was faked. The variable behind the counter – notably called “wow_factor” - was incremented by a random number from 1 to 5 every 1.2 seconds. While there is here no clear harm done to the user, it sends a very negative signal: if you are willing to cheat on this to make the site more attractive, where else are you going to take shortcuts? Following the ‘tyranny of incrementalism’ concept, an entrepreneur should strive to take no shortcut and build trust from day 1.

Yet a lean entrepreneur needs to run experiments that feel realistic and might be compelled to make up numbers. It would even be quite depressing for an entrepreneur to put a counter of the true number of users in the early days (“Come in and sign up to discover 23 people”), and the temptation must be great to boost numbers to kick-start user adoption. I would rather advocate for staying away from such sleazy tactics and focusing on managing your customers’ expectations and getting a great product out there – ie one that achieves product/market fit.

When the first beta comes out you should focus on getting users that are willing to test your product and give feedback. Those early adopters will not buy the concept on a ‘wow factor counter’ alone, but rather on the overall value proposition (being big is not a sufficient value proposition, especially if you’re not big in reality). Expectations matter: say it is a limited beta when that’s the case, and don’t put a fake counter as a cheap trick to boost kick off. When you decide to launch, and if you got the recipe right, traditional marketing campaigns and PR events (like Techcrunch events we discussed in class) will start the machine, and word-of-mouth and direct/indirect network effects will do the rest. If there is a true market out there and your product has a compelling value proposition, users will understand that you have to be small before you become big and will reward your transparency with their trust.

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How Sleazy Is Too Sleazy In Acquiring Customers: The Three Product Qualities That Matter

by Michael Schrader

We’ve all seen the methods:

• Spam emails
• Free trials that automatically convert into paid subscriptions
• Installation of products or spyware without sufficient warning
• Overhyping services and under-delivering once installed/purchased
• Relentless posts to your Facebook profile

It’s obvious that some companies believe that these are acceptable, and may even be in users’ best interests. So when is this behavior acceptable and when will customers push back? While we don’t have clear data, we can infer from recent examples that there are four strong variables that decide just how much sleazy behavior customers will put up with:

1) How much true value does your product or service offer? Facebook has shown the world that a valuable platform can get away with extremes in questionable practices. Examples such as Beacon, which tracked user’s online purchases and posted the updates online, have drawn uproar from users, yet Facebook continues to grow, with more than 845 million users.
2) Are you seen as an exclusive community? Gilt Group has shown the power of exclusivity. By creating a product with a high end, exclusive feel, Gilt avoided the typical stereotypes that accompany the “Invite Your Friends” sales pitch. People who had been admitted to the site felt as though they were doing a favor for their friends by sending an invite.
3) Do you have strong positive brand recognition? Google has launched a ton of different products over the years, ranging from home runs like Gmail to far less successful products like Wave. The one constant has been Google’s ability to maintain a strong overall brand, which makes invitations to these services exciting to receive.
4) Will people be excited to invite their friends? Zynga tested many Facebook users’ patience with their relentless stream of Farmville invitations. The irony was that nearly all of these posts were initiated by actual users playing the games. Many people thought that their friends would actually want to help them feed their fake sheep, hence they supported the posts.

Let’s walk through each of these insights and see how it can be utilized to help you grow your startup.

1) Value: While value can be tricky to gauge, smoke tests can be a quick and easy method to evaluate your customers’ perception of value. If you don’t like the results, find a way to add more value.
2) Exclusivity: Past examples such as Gilt, Gmail, Facebook, etc. show that a feeling of exclusivity is possible with a variety of online enterprises. The tradeoff is limiting early signups by excluding those that don’t fit your target profile. You will have to determine if you’re the benefits of exclusivity outweigh the potentially slower initial growth.
3) Brand: Most startups can’t count on brand until later. Find another way.
4) Excitement to Invite: This can typically be created by adding a gaming aspect to your site or creating a model that revolves around social activities such as sports or parties.

So if you want to grow through slimy methods, make sure your product has the right elements to overcome the negative backlash that may result.

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When To Turn On The Sleaze

by Albert Chung

One of the most important issues facing an early stage startup is how to attract a user base. Thus far we’ve seen companies that have been reluctant to employ “sleazy” marketing tactics, presumably to not compromise the overall user experience. Below is a list of some sleazy marketing tactics that a startup could employ to drive early growth in both its user base and initial revenues. Some obviously register higher in sleaze factor^* than others:

1. Scam lead gen (i.e. Online quizzes turning into $9.99 monthly subscriptions without any notification). Sleaze factor: 10
2. Shill posting (a la Whole Foods). Sleaze factor: 9.5
3. Spamming people off purchased email lists. Sleaze factor: 8
4. Selling email addresses to third parties. Sleaze factor: 8
5. Installing difficult to remove adware. Sleaze factor: 7
6. Crippling functionality unless users invite X numbers of friends. Sleaze factor: 6
7. Legit lead gen (i.e. Netflix subscriptions). Sleaze factor: 5
8. Incentivizing users with extra stuff (badges, status, currency, etc.) to invite friends. Sleaze factor: 3

Certainly, some of the above practices are unethical and in some cases illegal (shill posting, scams) and there will never be a scenario where it would be recommended to employ these strategies. However, other strategies might be acceptable to an entrepreneur looking to drive early growth. (Note: from this point onward, I will not attempt to evaluate sleazy marketing tactics from a moral perspective.)

So, let’s assume your moral code allows for some measure of sleaziness. If this is the case, when is the right time and in what situations should you turn on the sleaze?

With regards to timing, the early stages of a lean startup might be exactly the right time to employ sleazy marketing tactics. One company that successfully employed sleazy marketing early on is Zynga.  Some may disagree with my calling Zynga a lean startup, but what better way is there to reduce waste and achieve product-market fit than to simply copy all the successful games and iterate them into profit maximizing skinner boxes? But, I digress.

Eventually, Zynga would end up removing all in-game offers after significant backlash and CEO Mark Pincus would admit he “did every horrible thing in the book to, just to get revenues right away.” However, Zynga today is a smashing success by any measure. The reason for this is that the mass audience simply doesn’t care. This is a real-life example of how Geoffrey Moore’s chasm can actually help startups—by giving them the ability to experiment with early adopters without affecting the majority. Thus, if you plan to be sleazy, do it early. Then, cut it out before anyone is the wiser and you’ve retained your equity because the company is that much more profitable.

In addition to lifecycle, startups should avoid sleazy marketing tactics that will detract from their core value propositions. For example, Dropbox, built on the idea that “It Just Works,” should not cripple functionality, even it is free version, in exchange for growth. On the other hand, a social game, whose value proposition is found in its content rather than performance, can afford to drastically decrease the user experience through slower or time-limited gameplay unless users pay or spam their friends. A startup’s core value-add will ultimately determine which sleazy marketing tactics it can afford to use.

At the end of the day, the decision to turn on the sleaze will be largely made by how your moral compass guides you. If you do choose to turn it on, it would be prudent to examine what stage your startup is in and what your core product offering is in crafting your sleazy marketing plan.

*Not an industry accepted metric.

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