Business Is About Changing Human Behavior

Great businesses change human behavior.

They do not, however, create entirely new desires. People already wanted something, but cost, time, limited information, and complex processes kept them from acting on that desire as much as they might have.

Good technology reduces that friction. When people can satisfy a desire more cheaply, quickly, and easily than before, their behavior changes.

Google did not make people curious. It reduced the cost of finding information to almost nothing. Uber did not create the desire to travel. It removed the need to find a car in an unfamiliar place, negotiate a fare, and pay in cash. Smartphones did not create the desire to communicate. They made communication possible anywhere and at any time.

Coca-Cola did not create thirst either. It made a drink with the same taste easy to buy almost anywhere and connected its brand to the recurring moments when people wanted one. It built a new habit on top of an old human desire.

Solving a problem ultimately means removing the friction that prevents people from acting. If the problem is important enough and the solution is good enough, people begin to behave differently.

When evaluating a new technology or business, we should therefore ask four questions.

• What did people already want?
• What friction currently prevents them from doing enough of it?
• How much would their behavior change if technology removed that friction?
• Through whom would the money generated by that changed behavior flow?

The first question finds the source of demand. We need to identify the human desire that would remain even if the technology disappeared. The desires to move more easily, find information more quickly, communicate with others, and accomplish more at lower cost are unlikely to vanish.

The second question finds the market opportunity. A desire may exist, but behavior remains limited when satisfying it is too expensive, slow, or complicated. The greater the existing friction, the greater the change a technology can create by removing it.

The third question measures the size of the innovation. Making an existing action slightly easier is different from making people do something every day that they rarely did before. The most important technologies do more than reduce cost. They create new habits.

The fourth question determines the size of the business. A technology may profoundly change human behavior yet capture little value if the resulting money does not pass through the company. But if the company occupies an essential path in the new behavior, it can build an enormous business while taking only a small share of each transaction.

The value created by technology and the value captured by a company are not the same. Technology must solve a human problem. A business must find its position in the flow of money created by that solution.

The starting point of business is therefore not technology but people. We must understand what people want, what keeps them from acting, and what kind of change would alter their habits.

Good technology solves a problem. A great business turns that solution into a new way of life.