Evergreen is a weekly collection of links to the best learning resources in business, collected by a group of aspiring managers, founders, and investors. We contribute resources about one topic each week, which are synthesized and shared in this Weekly Edition. The aim is to learn more efficiently through increased context and focus. Join here to receive the next Edition of Evergreen Business Weekly.
This Edition is built from 6 books and 3 posts. See all of the resources and previous Editions in the Evergreen Business Library [coming soon].
Remember, these are designed to feel like short books, you’re meant to meander and spend ~3 hours on this topic this week. Save some of these links and read them throughout the week. Immerse yourself in this topic and leave the week smarter than you started it!
Word of Mouth
Happy customers sharing their good experiences with others is the best imaginable form of growth for a business. Not only is it cheap for the business, it’s likely to result in more valuable and dedicated customers. (Anyone know of a resource that verify this?) This also means that it is a trend likely to continue over time, rather than ephermal growth dependent on press or spend.
How do businesses initiate and nurture this word-of mouth growth? Let’s figure it out. We can start with this simple, powerful idea from Charlie Munger. This was a guiding principle that he learned from his Grandfather, and employed with great success as a young lawyer:
The surest way to build a business is concentrating on what’s already on your desk.
This idea sums up the most basic, massive idea behind Word-of-mouth growth. Everything else you read is the iceberg above the surface. This idea is the giant mass below the surface that anchors and enables the rest of these concepts. Without this idea in place, nothing else floats.
This correlates strongly with the lessons on Brand—Brand lives in the hearts and minds of customers. By giving them great experiences—concentrating on them, the Brand will growth stronger. Having a strong, clear brand will increase the ability of customers to articulate it to others and spread word-of-mouth.
Is your Company Contagious?
A fantastic book called Contagious, by Jonah Berger, dissects why ideas catch on, and why they are passed on incessantly through a culture. When paired with Different, it’s a great way to think about structuring ideas, promotions, and companies for Word-of-mouth to take hold and grow.
One wonderfully simple example, from Contagious, of how one book publisher used word-of-mouth to distribute their book in a targeted way:
They sent a note explaining why they thought the book would be good for my students, but they also mentioned that they sent a second copy so that I could pass it along to a colleague who might be interested.
That’s how word of mouth helps with targeting. Rather than sending books to everyone, the publishers got me, and others, to do the targeting for them.
Berger explaining six different key traits (Social Currency, Triggers, Emotions, Public, Practical Value, Stories) that make ideas Contagious is enlightening, and the set of case studies and examples of manifestations of all of these traits is incredibly instructive.
How Word-of-Mouth Changes with Times
Human nature doesn’t change much—what makes us happy, and what we choose to communicate to each other. However, changes to our methods of communication and the availability of information massively change our ability to drive word-of-mouth growth.
The best book about this, from the Godfather of Digital word-of-mouth growth, is Satisfied Customers Tell 3 Friends, Angry Customers Tell 3,000. It’s written by Pete Blackshaw, head of Digital at Nestle. This book was suggested by Nick Seguin—thanks Nick!
As always, inversion is an important way to look at a problem. In this case, to create positive word-of-mouth, ensure the absence of negative word-of-mouth. Blackshaw highlights the importance of heading off anything that could damage the company’s reputation, and empowering happy customers to share to a broad audience.
Net Promoter Score
Understanding that word-of-mouth is valuable, you might be wondering how it is measured. According to the classic Drucker quote: “What gets measured gets managed.” In order to get a baseline for word-of-mouth, and work to improve it, there needs to be some measure, and that measure is Net Promoter Score, or NPS.
It’s a simple survey, asking customers to rate from 1–10, “How likely are you to recommend _____ to a friend or colleague?” Here’s a basic explanation of the Net Promoter score Metric, and how it is calculated. Services like Delighted automate the process of collecting and synthesizing data.
Decision influence by Social Proof
The label word-of-mouth implies that someone needs to say something, but that’s not always true. In many cases, our decisions are influenced by the actions of those around us. As our peers silently cast their votes in the form of consumption choices, we take notice and adjust our behavior to the herd.
While not explicitly recommended, we interpret these votes as indicators of quality and follow suit.
The most commonly-cited of these in the business world is how Apple’s white headphones showed everyone what kind of phone someone owned, even when it was hidden. Other aspects of Apple’s social proof come from how visibly different their products are, their stores, and the lines outside of them.
Everyone is susceptible to the influence of Social Proof on some level — it’s an imperative of evolution which allowed us to identify threats and react quickly. There are a myriad of experiments which prove this, and one of the funniest is the Elevator Experiment, redone here by Candid Camera:
As you can see, this isn’t only a large-scale phenomenon. If the two or three strangers near you make the same decision emphatically, you are likely to make the same decision.
Here’s an even less potent dose of Social Proof that still yielded results:
There's a park in Arizona where they let you see petrified wood. It's petrified wood forest. They were having problems with tourists stealing petrified wood. So, Robert Cialdini, a social psychology professor from Arizona who is probably the father of influence and persuasion, conducted an experiment with his grad students.
They had a certain part of the park. They measured it off. And they controlled how much petrified wood was in the area. Then, they tried this experiment…
They put no sign. And they saw how many people stole petrified wood. Then, they put the petrified wood back. They put a sign that showed one person stealing petrified wood with a warning sign that says, "No, don't steal petrified wood." They put another sign showing lots of people stealing petrified wood, "No, don't steal petrified wood." Guess what the results were?
The sign that was the most effective was one person stealing petrified wood, i.e. very few people steal petrified wood. You will be an outlier of society if you steal petrified wood. The second best condition was no sign. The third and worst condition was: "Ha! The sign that says not to steal petrified wood has lots of people on it. It must be OK." Social proof is telling you it's OK.
This is a transcript from Guy Kawasaki speaking at Stanford. The people in the elevator didn’t surprise me—this experiment’s subtlety and effectiveness was extremely impressive. Don’t underestimate social proof.
Brands such as Coca-cola and Starbucks benefit from how obvious their consumption is—when you see someone with a Coffee or a Coke, it’s like an advertisement for their product. Products like Mattresses are nearly impossible to observe as consumption choices, and so Social Proof plays less of a role in our decisions.
If you’re trying to spark word-of-mouth, take advantage of social proof by finding a way to make your product’s use visible.
A manifestation (often Digital) of Social Proof (with built-in Distribution power), viral growth is a holy grail for products. The idea is that each customer will bring on more new customers because they are sharing their usage with others, recruiting them.
Instagram mastered this by sharing to Twitter, so usage of Instagram naturally grew the awareness about Instagram via Twitter. Uber and Lyft enjoyed similar dynamics in the analog world, as customers called for rides with non-customers, which led to an explanation and a conversion.
One of the most insightful series of posts on Viral growth is from Rahul Vohra, CEO of Rapportive. He points out that virality is best understood as a part of a broader strategy; not as a perpetual-motion machine of new user acquisition, but the amplification factor that determines the rate of growth of customers from any channel.
With a great viral factor we can amplify, several times over, the effort we spend acquiring users through non-viral channels. But remember: you can’t amplify something that isn’t there! This is why we should split our growth efforts across both non-viral and viral channels. If we focus on just one, we leave users on the table.
Companies who have successfully used this channel are easy to spot in hindsight, but nearly impossible to predict going forward. Most companies who believe that they are going to make their growth off of network effects are in denial or delusion. Viral growth comes in all shapes and sizes, so having a little bit doesn’t mean you’re on a rocketship. But it is a good indicator of positive word-of-mouth, and it’s worth nurturing.
Decision influence by Authority
Some word-of-mouth isn’t from a peer but from a perceived ‘authority’ that can convince someone to make a purchase decision. This can take the form of organizations, governments, doctors, people with titles, even people with trappings of influence.
As Peter Bevelin describes in his book, Seeking Wisdom:
Names and reputations influence us. And symbols of power or status like titles, possessions, rank, uniforms, or a nice suit and tie.
Basically if someone who even appears or sounds important or knowledgeable makes a suggestion, we’re likely to acquiesce. This is especially, but not exclusively true of decisions where we feel under-informed or non-expert.
For a terrifyingly dire example, consider this experiment (also from Bevelin)
In one study 22 hospital nurses got a telephone call from an unknown physician and were ordered to administer an obvious overdose of an unauthorized drug. All but one nurse obeyed.
If we as humans are subject to make such serious mistakes at the influence of authority, we are certainly open to manipulation on such trivial choices as toothpaste selection.
Just Following Orders
Authority is a given in the military—everyone is always following someone else’s orders. This can lead to horrific outcomes, because the important thing becomes to obey authority, rather than to think or act independently.
On september 1, 1987, to protest US shipments of military equipment to Nicaragua, Mr. Wilson and two other men stretched their bodies across the railroad tracks leading out of the Concord, CA, Naval Weapons Station.
The protesters were confident that their act would halt the train’s progress that day, as they had notified Navy and railroad officials of their intent three days before. But the civilian crew, which had been given orders not to stop, never even slowed the train, despite being able to see the protesters six hundred feet ahead.
Although two of the men managed to scramble out of harm’s way, Mr. Wilson was not quick enough to avoid being struck and having both legs severed below the knee.
Another powerful set of examples about our tendency to obey authorities comes from the Milgram experiment, where participants in the study, under orders from someone posing as a scientific experimenter, were willing to deliver intensely painful and near-fatal electric shocks to innocent victims. Here’s Milgram on the results of his experiment:
It is the extreme willingness of of adults to go to almost any lengths on the command of an authority that constitutes the chief finding of the study.
Both of these examples come from the classic of psychology, Influence, by Robert Cialdini.
Still a good thing
These tendencies we have to follow authority are a good thing—they allow us to function well as a society. These are based in evolution and have been a part of our social patterns since we were born: (from Influence)
We are trained from birth that obedience to proper authority is right and disobedience is wrong. The essential message wills the parental lessons, the school-house rhymes, stories, and songs of our childhood and is carried forward in the legal, military, and political systems we encounter as adults. Notions of submission and loyalty to legitimate rule are accorded much value in each.
And these are systems that we need to avoid anarchy and chaos:
A multilayered and widely accepted system of authority confers an immense advantage upon a society, It allows the development of sophisticated structures for resource production, trade, defense, expansion, and social control that would otherwise be impossible.
Our tendency to obey authority continues in our purchase decisions. If a knowledgable (or even just persuasive or persistent) friend tells us about a product or experience, we’re likely to try it. This is the effect behind celebrity endorsers and spokespeople—because they are famous and recognizable, we follow their guidance.
This is the strategy that led to the success of the George Forman Grill, William Shattner as the Priceline spokesperson (mascot?), and countless other similar relationships.
Ashton Kutcher recognizes the influence of celebrity endorsement as a reinforcing layer on top of their distribution strength, and has rallied some celebrity partners and created a top-50 website (in US traffic) in barely a year.
It’s a totally new distribution model. Previously, media properties have had to carefully build their own brand and online followings, in an increasingly crowded market. A+ has managed to sidestep the entire process by piggybacking on the established followings of others — and it’s extremely successful.
People on a cultural (or subcultural) pedestal have disproportionate impact in influencing the opinions of consumers. By having those people onboard with your mission, you’ve got a step on Marketing.
In order to build on word-of-mouth growth, create or garner some authority to speak for the company. By cultivating evangelists and equipping them with information and even a cursory title (Yelp Elite), a company can spur word-of-mouth by creating legions of mini-authorities. This set of strategies is available and impactful with any level of influencers. That could be Ashton, or it could be a PTA President.
People do not have to say anything to contribute to representing the Brand, simply consuming visibly is a form of word-of-mouth.
And never forget to concentrate on the work on your desk.
If you enjoyed this, you’ll get more like it by joining Evergreen:
My Other Projects
Upcoming Book: The Almanack of Naval Ravikant
Mini-book: Career Advice for Uniquely Ambitious People
Evergreen Lives on Donations
Creating Evergreen takes a lot of time and decent amount of money. If you find anything helpful and interesting here, please consider buying me some BBQ ($11 Z-Man & Fries at Joe’s KC), or really anything between a coffee and a good dinner. Thank you very much! ❤ ☺
Many thanks for being a part of this project! Not every suggestion is able to make it to the final edit, but every single suggestion is read and appreciated.
As my Father always says: “There’s always room for the best.” There’s always a better resource out there. These collections can always get better, and I hope that they do. If you can think of anything that was missed, I welcome you to share it.
If you liked this, check out other Editions of Evergreen:Building and Managing a Team:How to Find and Recruit the Team you Need
How Not to Hire like a Clownshow
Compensation Rules Everything Around Me
Why Employee Onboarding is holding you back
How to Boost Employee Retention
How Performance Reviews are being Reinvented
Secrets to Perfecting Organizational Communication
How to Manage Scale, and Operate in Scaling Organizations
How to Fire an Employee
What you actually need to know about Company Culture
How to Interview Prospective HiresStrategy and Competitive Advantage:How to Master the Craft of Strategy
Competitive Advantage: How to Build a Winning Business
The Power of Network Effects
How Cost Leadership Builds Powerful Businesses
Why the Best Brands Stand Out
Scale as Competitive Advantage
Barriers to Entry are Confusing
Flywheel Effect: Meta-Competitive AdvantageBuilding the Business:How to get good business Ideas: Mental Alchemy of Ideation
How to Choose the Right Business Ideas
Product/Market Fit: What it really means & How to Measure it
How to Failure-proof your business with Customer Development
How Strategy and Psychology Work Together to Perfect Pricing
The Most Important Equations in Business - CAC (Part 1)
The Simple Math Behind Every Profitable Business - CLV (Part 2)
How Psychology behind Word-of-Mouth Works
The Secret Core of Every Successful Business--Distribution
The Most Important Lessons in Sales
Why Value Creation is the Foundation of Business
Why Value Capture is the most important idea you haven't read about
The Misunderstood and Underestimated Genius of AdvertisingHow to be a Great Human:How to Start a New Job: Handling Career Transitions like a Boss
How to Master the Discipline of Product Management
The Ancient Origins of Storytelling, and how to Apply Them
How to Prioritize Using These 9 Mental ModelsI've also written about How & Why we started Evergreen:How a prototype's failure created the next iteration
Mission & Method of EvergreenFollow me on Twitter: @EricJorgensonAnd Please... Join Evergreen.