Buyers Aren't Rational

Perhaps the biggest challenge in enterprise sales is getting a large organization to act and act quickly. Because of size and complexity and bureaucracy it can be very difficult for large organizations to make quick decisions. When an enterprise becomes a certain size it inevitably creates a series of checks and balances to protect its assets and competitive position. This protects shareholders but also makes it difficult to innovate and to make decisions to invest in innovative technologies.

Selling into these organizations requires one to find an external champion that is willing to break through blockers and jump over walls. One of the ways to do this is by helping the buyer see a future positive state. This is what great sellers do. They get a buyer to see a future state that is better than their current state that will require a relatively small investment. If the buyer is rational then they will buy.

Of course it's never that simple.

Over the holidays I had the chance to read Michael Lewis’s new book, The Undoing Project, and it shined some light on some of the many reasons why it's never that simple. The book takes on the issue of “decision theory” and tells the story of two Israeli psychologists and their mission to better understand how the human mind makes decisions. They found that people are absolutely not rational decision makers. I thought I'd capture some of their ideas here.

One of the most interesting ideas discussed in the book is the notion of 'loss aversion'. People will irrationally avoid losing what they have -- even if it could result in a much larger gain. Here's a summary of one their experiments.

When you gave a person a choice between a gift of $500 and a 50-50 shot at winning $1,000, he picked the sure thing. Give that same person a choice between losing $ 500 for sure and a 50-50 risk of losing $1,000, and he took the bet. He became a risk seeker. The odds that people demanded to accept a certain loss over the chance of some greater loss crudely mirrored the odds they demanded to forgo a certain gain for the chance of a greater gain. For example, to get people to prefer a 50-50 chance of $1,000 over some certain gain, you had to lower the certain gain to around $370. To get them to prefer a certain loss to a 50-50 chance of losing $ 1,000, you had to lower the loss to around $370.

People’s desire to avoid loss significantly exceeds their desire to secure gain.

This is the reason insurance companies make money. They take margin from our irrationality. For most people, the happiness involved in receiving a desirable object is smaller than the unhappiness involved in losing the same object.

Not only do people act irrationally (from a probability perspective) to avoid loss, they'll also make decisions based on descriptions of probabilities.

Another useful example from the book is a study done with lung cancer patients:

Lung cancer doctors and patients in the early 1980s faced two unequally unpleasant options: surgery or radiation. Surgery was more likely to extend your life, but, unlike radiation, it came with the small risk of instant death. When you told people that they had a 90 percent chance of surviving surgery, 82 percent of patients opted for surgery. But when you told them that they had a 10 percent chance of dying from the surgery — which was of course just a different way of putting the same odds — only 54 percent chose the surgery.

People facing life and death decisions will not respond to probabilities, they will respond to the way probabilities are described to them.

Lastly, the book notes that most people will respond to probabilities using their own context and view of the world, as opposed to the actual probability. Here's a great example. 

Ask yourself the following question:

An individual has been described by a neighbor as follows: “Steve is very shy and withdrawn, invariably helpful but with little interest in people or in the world of reality. A meek and tidy soul, he has a need for order and structure, and a passion for detail.” Is Steve more likely to be a librarian or a farmer?

The vast majority of people would say that Steve is a librarian despite the fact that there are 20 times more male farmers in the United States than there are male librarians. People ignore probabilities and give more credence to “resemblance” or context or experience. We don't make rational, probabilistic decisions.

The lessons from all of this for enterprise sellers are simple:

Most buyers will prefer to buy something that will help them avoid loss (keep their job) rather than increase gain (get a promotion). Sellers need to find a way to appeal to loss aversion or find a champion that's willing to take a risk.

Buyers are not buying your product, they are buying your description of your product. The way you explain what you do is incredibly important and needs to be constantly tested and iterated.

Finally, buyers may not make rational buying choices based on the probability of success. They’ll rely on “resemblances” and their own context. They’re more likely to buy the thing that 'feels' like it will be successful than the thing that has the highest probability of creating a positive future state.