Homo economicus | Ed Powers | Ep. 86

[Ed] (0:00 - 0:20)

Science shows we, at a minimum, will weigh six different things when we compute value. Cost is always on the list. You can't separate the cost from the value because that's one of the factors that drives the value.

This notion that value and expense are two different things. No, they are intrinsically tied together.

[Dillon] (0:27 - 0:39)

All right. What's up, lifers, and welcome to The Daily Standup with Life. I'm Adam, we're giving you fresh new customer success ideas every single day.

I've got my man Rob here. Rob, you want to say hi?

[Rob] (0:40 - 0:41)

Buenos dias.

[Dillon] (0:41 - 0:44)

And we've got Ed here. Ed, you want to say hi?

[Ed] (0:45 - 0:45)

Hello, everybody.

[Dillon] (0:46 - 0:55)

And I am your host. I know those two Spanish words and very little else. My name is Dillon Young.

Ed, thank you so much for being here. Would you introduce yourself, please?

[Ed] (0:56 - 1:35)

Absolutely. I'm Ed Powers. I'm a consultant in the customer success space, been doing that for about a dozen years.

I have also been a practitioner, a VP of customer success a few different times. And as a consultant, I've worked with about 50 different companies, from startups to multi-billion dollar companies. And my specialties are applying neuroeconomics to the customer journey, analytics, which is helping folks make better data-driven decisions, and continuous improvement.

So facilitating and helping clients systematically get better results.

[Dillon] (1:37 - 2:19)

I saw Rob's face light up when you said neuroeconomics. I've never heard that term before. But knowing you, Ed, having talked to you before, following you on LinkedIn, of course, I know exactly what that means.

I think you are one of the premier thought leaders. And I hate that term, but I follow what you say. And I'm like, that makes total sense.

I think that's super smart. So I'm so excited to have you back, Ed. You were obviously on the first iteration of this podcast.

But anyway, enough gassing you up. You know what we do on this show? We ask one question and one question only, Ed.

What is on your mind? And why don't you tell us what that is? I think I already have an idea.

[Ed] (2:19 - 2:41)

Yeah, I saw something on LinkedIn a little while ago. And it's something that's been bouncing around the customer success echo chamber here for a while. And I finally said, that's it.

This is BS and CS. And I thought, I got to get in touch with Dillon here. We need to have a little chat about this one.

Yes.

[Dillon] (2:42 - 2:43)

Cue the music.

[Ed] (2:43 - 2:44)

Cue the music.

[Voiceover] (2:47 - 2:49)

Biggest load of crap I've ever heard.

[Voiceover] (2:54 - 2:55)

Number one bullshit.

[Dillon] (3:00 - 3:01)

Oh, number one bullshit.

[Ed] (3:02 - 3:28)

Let me put the statement out there and get your impressions, you and Rob's impressions about this. So the statement was, customers don't churn because the product is too expensive. Customers churn because they don't get enough value.

So let me read that again. Customers don't churn because the product is too expensive. Customers churn because they don't get enough value.

You guys agree or disagree?

[Dillon] (3:29 - 3:38)

Oh, I want to be put on the spot because you're ready. I hear the edge in your voice, Ed, and I don't want to answer incorrectly. So I'm going to toss this over to Rob.

[Rob] (3:40 - 5:08)

I think it's a bit myopic for my taste. It's a very narrow way to view economic decisions. So Ed, similar to you, I've studied a lot of behavioral economics.

So not quite neuroeconomics, but I do have, I studied psychology, consumer psychology. So there's a neuroscience embedded in all those different domains. And I think that that is like, what do they call it?

Like homo economicus, like perfect way of framing the problem, which is that people just make the decision based off of cost versus value. I don't think that's necessarily true. I feel like whoever wrote that probably hasn't maybe considered more nuanced situations that we deal with customer success, like around your client just being flat out broke.

Maybe they would see huge value. Imagine someone could invest in like Apple stock, and they would see huge value in that investment, but they don't have the cash, right? If you don't have the cash, good luck.

So there's a lot more nuanced exceptions to this rule. But I do think that the overall spirit of the rule is, it's cute. It's good.

I talked a lot about ROI calculators. I think that most companies would benefit from taking the ROI calculators that their sales teams use and use them in their QBRs and renewals. Say, okay, every dollar you put into the solution that you're buying with us, you get $2 back.

It's a great way to show value, but it's just not true, right, in every situation.

[Dillon] (5:10 - 5:41)

This is similar to where I was going with it, but I think why I struggle with this statement is it's apples and oranges. Like value is a formula of multiple variables, whereas cost is just dollars. And so the formula can't work, right?

Because the equal sign, what's on either side of the equal sign is not, they don't match one another. I'm using, like, I haven't been in math class for decades, so that's as good as I can get. Ed, why don't you tell us?

[Ed] (5:41 - 6:22)

No, you guys are spot on. And Rob, it's great that you've studied behavioral economics, because neuroeconomics is just that plus what mechanisms in the brain are actually doing all this. So very closely aligned.

Yeah, and you guys are thinking exactly the same way I am on that. I think there's three major problems here. And the first is that value is relative.

It's not absolute, right? For example, let's say you guys are buying some software for your business. So you go out there and you do your search and you come up with three vendors, vendor A, vendor B, vendor C.

What do you do next? If you need to make a decision, you need to make a choice, what do you do next?

[Dillon] (6:23 - 6:30)

You start to do a list of pros and cons, you create a priority list of what's most important to you, all that stuff, right?

[Ed] (6:30 - 7:20)

Yeah, you start to compare them, right? So we always compare things, we're always comparing alternatives. So there isn't some magical enough value amount that you deliver that once we're above that, we're in the clear.

That's not how it works. It's always comparing between alternatives. And value is about what's the better value compared to the next best thing, right?

So there's no absolute in any of this. It's only relative, right? So I think people lose sight of that.

And that's one thing that's wrong. The other one was, okay, let's say you have these three vendors, right? And you've already started answering this one, Dillon.

So you've got A, B, and C. So what is it that you're looking at to evaluate your options? What are the kinds of things that you would go through to compare these different options?

[Rob] (7:21 - 7:27)

Rob, this is yours. So if I'm comparing different vendors, different solutions, let's say?

[Ed] (7:28 - 7:28)

Yeah.

[Rob] (7:28 - 8:37)

So I think you brought up a good point there. I was actually thinking when you said value is relative, expenses are relative too, right? There are times where you'll take a option.

So I'm comparing the expense, I'm comparing the product offering, and the relative priority of the product offering. So for example, one solution might have a few extra bells and whistles, but the extent to which I value those bells and whistles factors into the equation. I'm also considering the value of the different stakeholders at my organization.

And that's where I think the statement that you shared also fails is that it doesn't necessarily represent the multi-threaded nature of our client organizations and how sometimes your economic buyer doesn't even control the purse strings. Let me rephrase that. Your perceived economic buyer doesn't actually control the purse strings.

And so the different stakeholders may have very different considerations when they're making that decision. But yeah, to your point, value is very multifaceted. Stakeholders are multifaceted.

Then the economics of each of the different features and functions are also multifaceted.

[Ed] (8:38 - 9:07)

Right. And Dillon, you said this too. I mean, you were saying it's an equation, right?

And the science shows that we, at a minimum, will weigh six different things when we compute value. And cost is always on the list. You can't separate the cost from the value because that's one of the factors that drives the value.

So this notion that value and expense are two different things, no. They are intrinsically tied together.

[Dillon] (9:08 - 9:25)

And so what would you recommend folks do with that statement? Is it just throw it in the trash? Is it slightly modify it so they're specifications?

Or is it just consider that expense is a part of the value equation? Is it that simple?

[Ed] (9:25 - 10:09)

I guess what kind of got me triggered on this one is the message that this seems to be sending to CSMs, right? The message to CSMs is don't worry about the cost. We'll jack the cost.

Just make sure they get the value. It's all going to be good. It's not going to affect churn.

That's not true. That is not true. And I think that's something that companies have to really embrace.

And people who are in these SaaS companies, there is a consequence when you raise the price. In fact, this just happened to me. I was working with a vendor.

I've purchased their software for 10 years. And this whole time I've been a loyal customer, never looked around. What do they do?

They jack their prices 82% for the renewal. What?

[Dillon] (10:10 - 11:14)

I just recently went through this with, I'm sure you guys are seeing the same thing, but insurance. Because of everything that's been happening in like wildfires and hurricane seasons are this much stronger. I think my insurance last year went up by 80%, my insurance premium, like something bananas.

And I remember asking my insurance broker, I was like, can I just not pay it? Is there something I can do? Unfortunately, no.

And so I think that's interesting other take on this value equation of sometimes cost is really low on the list, or sometimes your hands are tied in your ability to consider costs, which I lamented with my insurance broker. I was like, it doesn't seem fair that I am required to have this. And I have a super clean record.

But because of these overarching changes in economics, I have to eat like a four digit change in my expenses over the next year. And he just kind of laughed and was like, yeah, you're right.

[Rob] (11:15 - 11:24)

Just to conclude things here, though, I heard two things, two flaws of the model. And I think there may have been a third. I don't think we have time to get into a third.

Did we get all three yet?

[Ed] (11:25 - 11:37)

The third one was just that the example I shared is that it does affect churn, because all the things that you guys said, if it's that dramatic a change, yes, if it is too expensive, people will churn. That's a fact.

[Dillon] (11:38 - 11:52)

Yeah, you know, what I take away from this, there is an insurmountable piece to see us, that we are not superheroes in our ability to do certain things with our customers. It is an ecosystem. But go ahead, Rob, finish us.

[Rob] (11:53 - 12:33)

Thanks for concluding thoughts. And I think concluding thought is that, to me, this isn't even just neuroeconomics, behavioral economics, it's actually even gets down to philosophy. The company that I was at, that my friends co founded, was there for a few years called Qualia.

Qualia is the most fundamental unit of subjective experience. And the name was chosen because we wanted to create like, really good experiences for people using our software. But that, like, the idea of a fundamental unit of subjective experience is a philosophical concept.

It's not really something that can be boiled down to dollars and cents. And so I think you bring up a really good point, Ed. And I'm going to think about this one for a while to come.

[Dillon] (12:34 - 12:46)

And that is our time, Ed, I love talking to you. Thank you so much for coming on to the show. I think your perspective is so fascinating.

Would love to have you back in the future. But for now, we've got to say goodbye.

[Ed] (12:47 - 12:48)

Gentlemen, it was a pleasure.

[Voiceover] (13:17 - 13:23)

Thank you for joining us on Lifetime Value. And find us on the socials at LifetimeValueMedia. Until next time.