Can We Use Big Tech’s Big Ideas to Help Entrepreneurs Succeed?
Photo source: @danielcgold on Unsplash
Big tech has figured out how to use human decision-making processes to keep its workforce engaged. Can we use the same tricks to help entrepreneurs in low- and middle-income countries improve their business practices?
An April 2017 article by the New York Times, “How Uber Uses Psychological Tricks to Push Its Drivers’ Buttons,” cast a bright and not-too-flattering spotlight on how easy it is for big tech to influence our behavior. Gig economy platforms like Uber (ride hailing), Instacart (grocery delivery), or MTurk (data collection) don’t just have to win over customers every day, but also workers: each platform uses ‘independent contractors’ who can choose when to work, how long to work, and in some cases what work they want to do. Despite this flexibility, every platform needs a critical number of workers at any given moment to meet demand: if there are no drivers out, you won’t keep waiting for an Uber — you’ll try Lyft, a taxi, or the subway, and maybe next time you won’t open the Uber app at all. Gig economy platforms therefore have good reason to keep their contractors working. How do they manage that? By delving into the nature of human decision-making to make work a more appealing decision.
Work-related decision-making is a familiar challenge to all of us, but its repercussions are arguably stronger for the self-employed and small business owners, for example because they face a less structured work environment (such as freedom to set their own hours and a lack of supervision) and decisions are often made alone. This is particularly true in low- and middle-income countries, where more than half of workers are self-employed. Policy interventions have long tried to support entrepreneurs through various forms of assistance, such as business skills training, because improved business practices are associated with higher productivity. But the impact of business trainings has been generally modest (McKenzie, 2020). It’s difficult to expect entrepreneurs to stay engaged with challenging and potentially unsuitable material after the end of a long workday, especially when some may be preoccupied with more pressing short-term challenges. But if big tech has found ways of engaging its (self-employed) workers, how might we be able to harness the same concepts to help entrepreneurs improve their business practices?
Tool N°1: Performance Metrics to Help with Goal Setting
Gig economy apps commonly offer a dashboard showing a worker’s metrics: time on the app, deliveries per hour, money earned, etc. This helpful summary screen communicates the work an individual has done and the impact they’ve had. Uber and Lyft use these metrics to help workers set goals. Once a driver sets a goal, that goal functions as a commitment device: a tactic where people try to limit their range of future choices to help themselves avoid impulsive behavior. Drivers aren’t forcibly held to their goal, but they may receive reminders if they try to log out of the app: You’re only $25 away from your goal! Commitment devices and reminders encourage workers to make the decision about how long to work just once (long before they are tired of driving), which saves drivers the constant decision-making challenge of “Do I accept the next ride?” and helps stifle the “I don’t feel like it anymore” sentiment.
Entrepreneurs similarly face constant decision-making throughout their workday. They generally have no helpful automatic dashboard showing them progress towards their goals — in fact, many struggle to even separate household and business expenses, so they may not know if their firm even makes money, much less their accomplishments in a day. Better information would not only help entrepreneurs track their time and income, but also help them set goals. One possibility is incorporating the idea of a “dashboard” into rules-of-thumb-based business training that allows entrepreneurs to more easily set and track their progress towards goals. For example, entrepreneurs could define the number of customers they need per day to make a (good) profit and monitor their count towards that goal. Managing time at work around concrete goals (work for this long, make this much money) could help limit the constant decision-making challenges entrepreneurs face.
Tool N°2: Harnessing Loss Aversion to Improve Business Practices
Loss aversion is a common human tendency to dislike losing more than we like winning. Lyft experimented with showing one group of inexperienced drivers how much more they could gain in an hour by driving Friday night (a busy period) as opposed to Tuesday (a slow period). A second group was told how much more they would lose by driving on Tuesday instead of Friday. Although the amount was the same ($15), the second group, who learned they would lose money by driving during slow periods, was more likely to increase their driving during busy times.
Entrepreneurs are also more likely to improve their business practices when they consider how much they’re losing, rather than thinking about how much they could gain. For example, the average small retailer in Kenya was losing 5-8% of total profits because she didn’t keep enough change on hand for customers to pay with large bills. When business owners were told how many sales they lost or surveyed about their lost firms’ sales due to lack of keeping change, their business practices adjusted – they began to carry more change and the number of lost sales fell (Beaman, Magruder and Robinson, 2014). Trainings and consulting interventions should consider harnessing the power of loss aversion to help entrepreneurs understand the impact of implementing good business practices.
Tool N°3: Gamification and Social Proof
Many gig economy platforms have tried to make working a game. BeMyEye, which uses contractors to take pictures of product displays, encourages workers to “level up” with “missions,” which allow them to unlock better opportunities and perks. If Lyft drivers complete a certain (personalized) number of rides per month, they can unlock special rewards like fuel discounts or roadside assistance. These micro-incentives help workers feel good about themselves and serve as goalsetting targets. Some platforms make gamification social: Crowdflower, a data labeling service, showed a leaderboard of workers who excelled, while Instacart allows workers to earn badges when they contribute to community discussions. Leaderboards and platforms for socialization tap into our social thinking: we are strongly influenced by non-monetary incentives like social recognition and we quickly absorb perceived rules of behavior in our social networks. By creating a forum for workers, gig economy platforms are encouraging the development of communities that will keep workers engaged.
Such tactics could also be used to help entrepreneurs engage with business trainings and each other. Entrepreneurs could receive ‘challenges’ to apply certain business practices, and gain social recognition (leaderboards) or awards (micro-incentives or special personalized sessions) when they successfully implement what they’ve learned. Using groups within trainings has proven helpful in encouraging attendance and supports the development of larger social networks, which provide entrepreneurs opportunities to validate their ideas, make professional contacts, and secure resources (Youth Business International, 2016).
Tool N°4: Harnessing the Power of Identity
On some gig economy platforms, such as BeMyEye, Helpling, and TaskRabbit, workers are able to choose which task they wish to perform. On MTurk, which connects businesses seeking data collection to workers willing to perform such tasks (like labeling pictures or taking surveys), businesses have learned that workers may be more likely to take up tasks with a purpose — the background context for why the task should be completed. A purpose taps into a worker’s sense of identity, giving them a reason to spend their time on that task over another.
Tapping into an entrepreneur’s identity may help better tailor entrepreneurship interventions. Understanding what an entrepreneur considers improvement or success depends, after all, on his personal identity. Is his goal to support his family? Does he hope to earn social recognition? Does he love his product? Encouraging an entrepreneur to improve business practices so he can expand operations is hardly desirable for an entrepreneur only interested in his firm as a means to an end; it may be more effective to encourage improved business practices so that he can operate more efficiently and spend more time with his family. Approaching training with an eye to entrepreneur’s identities may help make materials more relevant, accessible, and ultimately practicable.
Tool N°5: Microfranchising to Overcome Hassle
Hassle factors are small inconveniences that prevent you from following through on your intentions and taking action — like when you need to mail a letter but don’t have a stamp. Uber sought to make it as easy as possible for drivers to join its platform, so in the platform’s early years (2010 to 2014), Uber gave out a starter kit that included iPhones and accessories to drivers who signed up. A free iPhone wasn’t just a perk; it was overcoming the potential hassle of needing to find and buy a smartphone to be able to drive with Uber.
Entrepreneurs face similar hassles, particularly regarding the plethora of decisions involved in starting their business. Microfranchising is one possibility for helping entrepreneurs overcome these hassle factors: microfranchising connects aspiring entrepreneurs with local franchisor businesses, who provide an established business model and start-up capital. You might think of it as “business in a box.” Evidence on the impact of microfranchising remains thin, but Uber’s success points to the potential role microfranchising could play in helping entrepreneurs in contexts where the hassle factor is important.
Where do we go from here?
Although there’s significant controversy about how big tech companies use these behaviorally based tactics to keep gig economy workers engaged, the behavioral science behind these features may be useful as we try to enhance our support for entrepreneurs across the globe. More research is needed to best understand how we can account for human-decision making processes in entrepreneurship interventions (see our recent report synthesizing the current state of the field and major open questions). But with some more experimentation and testing, we may be able to make good use of big tech’s big ideas.
About the authors:
Mandy Bowers is currently completing a dual-degree with an MA in International Economics from Johns Hopkins SAIS and an MBA from INSEAD. She formerly worked in the International Finance Division of the Federal Reserve Board and was a Research Analyst at Prospera in summer 2020.
Kevin Hempel is the Founder and Managing Director of Prospera Consulting, a boutique consulting firm working towards stronger policies and programmes to facilitate the labour market integration of disadvantaged groups. You can follow him on Twitter @KevHempel.