First 1000 - 🤷♀️The Trust Paradox
If this was forwarded your way and you wish to sign up to First 1000, you can do so here :) 🤷♀️The Trust ParadoxHow did startups with businesses anchored on overcoming a large threshold of trust acquire early customers when they have no track record to fall back on?
Sponsored giveaway in partnership with Thinkific I came across Thinkific a while back when I was looking to create an online course about how to start a newsletter. Thinkific offers the unique ability to build a fully customized online course, membership site, or other digital products, that you can market and drive revenue from. Thinkific is hosting a 2-day free workshop (Jan 25-26) to help digital entrepreneurs to get to the next level by bringing together 30+ inspiring speakers and 25,000+ entrepreneurs. 🎁 They are giving away a 6-month Thinkific Pro membership (valued at $594) to someone from the First 1000 community. The only thing you have to do is to register for the event before Jan 20th! —
Human beings have some disposition to trust others, and looking through the evolution of our behaviors, we had to grapple with many unknowns and make giant trust leaps. We would have still been stuck in the middle ages had we not done that. Since my last post and over the new year break, I embarked on this research project to understand the process of establishing trust through the lens of tech startups. Trust touches many aspects of our day-to-day lives— consciously or subconsciously — and the goal of this research is not to try to understand how trust dynamics work or why we trust others. Instead, what I’m trying to understand is more akin to network effects. How did startups with businesses anchored on overcoming an extensive trust threshold acquire early customers when they had no track record to fall back on? I found five characteristics, whenever any is present in a company, an ostentatiously high-level of trust is required before they can effectively acquire their first customers. Those characteristics include:
It is easy to understand why that would be the case; if trust hinges on our exposure to others’ action & intentions, these 5 broad categories encompass a great degree of risk. What is trust?There are more definitions and frameworks for quantifying trust than I can count. For the purposes of this piece ,I found Sandra Sucher’s— a Harvard Business School professor— definition of trust to be the most resilient when applied to early-stage companies. As Sandra defines trust:
Trust Models/Components Trust can be further divided into its different building blocks. There are 5 overarching types trust, some more important than others depending on: the stage of the company, the industry it operates in, its business model and customer profile. The 5 types of trust are:
While motive & impact-based trust are essential in increasing the level of consumer trust in a company, I found that they are mainly utilized much later in a company’s journey; when trust is used “as a competitive advantage.” In the early stages— when a company has close to zero customers— all of the 60 companies included in this research did not have impact and motive as a core part of their trust-building strategy. Only years later, after they had gained traction and product-market fit, they have started highlighting those aspects. The Trust ParadoxCompanies that reliably live up to the promises accrue customer trust over time. On the other hand, those that don’t erode their amassed trust. Trust is dynamic. The Trust Paradox that some early-stage startups face is needing to rack up a high level of trust before acquiring and activating any customers. This is commonly needed when operating in industries with historically low (and/or deteriorating) levels of consumer trust or when the downside risk of adapting your product has a far more detrimental impact on users’ lives that outweighs the upside to be had by adopting it. For instance, the risk of fraud/impersonation from providing your social security number outweighs the benefit of monitoring your credit score. Similarly, the risk of physical harm from having a stranger caring for your children in your absence outweighs the benefit of having an on-time short-notice sitter available. Without having the luxury of historical proof points of reliably delivering on your promises, newly formed startups need a mechanic to bootstrap trust to acquire the first cohort of customers, enabling them to build a track reliability track-record and, in turn, consumer trust. To unlock trust, understand riskIt does not matter if that risk is real (will my startup survive long enough to serve my customers) or perceived (Facebook is eavesdropping on my conversation). Both rational and irrational risks must be adequately addressed to establish trust. As with trust, risk comes in different flavors, each requiring a slightly different approach to overcome:
Businesses encounter different combination of these risk types, each to a different extent. A two-sided marketplace connecting elderly caregivers to seniors faces a high-degree of physical and technical risk and less so in terms of financial risk. On the other hand, an online auction house faces a high degree of financial risk, moderate technical risk and to a much lesser extent physical risk. Understanding the risks associated with your business is the first step to laying down the groundwork to establishing trust which we’ll address together in the sections below. Building competence-based trustQ: Can the company get the job done? When thinking of competence-based trust, we’re not concerned with whether something is right or wrong just how effective it is. This is the social-proof, logo based kind of trust. The need for establishing competence-based trust is the most common of all types. Even when establishing other kinds of trust is more paramount , it is almost always the case that a startup needs to create some-degree of competence-based trust. This kind of trust is especially important to display when the main risk your business poses, from a customer prospective, is technical. It’s most often associated with large transaction as applying to a loan via Juno, buying a car online via Shift or a large effort (or time) commitment. Some examples of large commitment transactions include setting up your estate planning via Trust&Will or migrating your data storage to Snowflake. Throughout my research, I found 4 common themes utilized by companies in their early-life to bootstrap competence-based trust:
Building systemic-based trustQ: Can I trust the process? Can I rely on the system if something goes wrong? When thinking about trust in the context of tech companies, one's mind probably wonders about systemic trust, the kind of trust the Ubers and Airbnbs are known for popularizing. Building systemic trust is the answer to dealing with physical and financial risk. It is a table-stake when dealing with online to offline 2-sided marketplaces and large financial transactions. Unlike a competence-based trust, systemic trust requires many processes and systems working in tandem to be effective. I highlight some of the most common levers companies pull on to establish systemic trust below:
Other levers, including contracts, incentive structures & control mechanics, were also common in establishing systemic trust, yet not as prevalent as the 4 highlighted above. I highly recommend watching this 18 min talk from Airbnb’s co-founder Joe Gebbia and its associated blog post for designing trust systems. Building values/integrity-based trustQ: Do I trust their character? Values-based trust (often referred to as Integrity-based trust in academia) is vital when dealing with service companies dealing with vulnerable third parties (kids, seniors), in industries having large asymmetric availability of information (real-estate, construction) or when sensitive personal information is needed to get the job done. In terms of risk, values-based trust is most direly needed when the main risks faced by the company are social, psychological, or financial. The 2 most common paths to establishing values/integrity-based trust are:
Bootstrapping trust for your companyFor me, If I were starting an early-stage company today that hinged on having a high trust threshold, I would begin by first understanding the main customer risks: the big hurdle keeping people from adopting your solution. From there, once I have a good grasp of the risks involved and their stacked ranking, proceeding to map out what types of trust I need to establish and use the corresponding trust-building mechanics highlighted in this research piece as a starting point to get the creative juices flowing. This is all I have for today, Until we meet next Tuesday 😉, If you liked this post from First 1000, why not share it? |
Older messages
✨Notion
Tuesday, December 14, 2021
+ launching a product in a crowded space, growing through Word of Mouth and positioning a product that is hard to explain!
Navigating First 1000
Tuesday, December 7, 2021
Making the best out of all previous First 1000 issues.
53 ideas to get your first customers.
Tuesday, November 30, 2021
Today's issue is brought to you by Alternative Assets: There are tons of stock market newsletters. The Alternative Assets Newsletter is about stuff that doesn't get discussed as much. Each week
🕵️ Getting your first 1000 customers through SEO
Tuesday, November 23, 2021
Step by step guide to acquiring your first users through SEO.
✍️ Substack
Tuesday, November 16, 2021
and the power of trust.
You Might Also Like
The problem with VC: Reason #384
Friday, April 26, 2024
We have brunch with HelixNano cofounder Carina Namih, Isomer enters secondaries market and the startups mitigating AI's impact on the climate. View in browser Notion flagship logo final Good
SaaSHub Weekly - Apr 25
Thursday, April 25, 2024
SaaSHub Weekly - Apr 25 Featured and useful products 12 Foot Ladder logo 12 Foot Ladder Prepend 12ft.io/ to the URL of any paywalled page, and we'll try our best to remove the paywall and get you
Editor’s Brief: The Robotics Renaissance
Thursday, April 25, 2024
Why we're entering into an automation supercycle. ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
Converso, Mood Board AI, For Future, Editor.do, and AI Chat
Thursday, April 25, 2024
Help solve humanity's existential risks with your talent/money/time BetaList BetaList Daily Win a $100 Amazon gift card? Fill out this one-question survey about domain names. Marc Converso AI
Partnering with Dropzone: Automating Security Operations with AI
Thursday, April 25, 2024
Tomasz Tunguz Venture Capitalist If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Partnering with Dropzone: Automating Security Operations with
if I were starting over today…
Thursday, April 25, 2024
Read time: 1 min, 20 sec A lot of people ask me: “Pat, what would you do if you were starting all over today?” Most of the time, I think they're looking for a quick fix. (hint: there's no such
Free ecomm coaching from multi-7-figure founders >
Thursday, April 25, 2024
Sign up for foundr+ to learn more > , Here at Foundr, we believe that taking initiative should ALWAYS be rewarded. That's why YOU, as a summit attendee, will get to join an exclusive 4-week
[SaaS Club] The Long Road to Building a Scalable Enterprise SaaS
Thursday, April 25, 2024
Hey Reader Let's connect on LinkedIn! Follow me to stay in touch! Here's a quick round up of what's been going on at SaaS Club: 🎧 Podcast SightCall: The Long Road to Building a Scalable
📂 Virality can be engineered even if it’s not inherent to the product
Thursday, April 25, 2024
Today's newsletter is proudly supported by Videodeck 🎉 One of the most common questions I've gotten in the last year is: "How do we get started with video marketing?" So I
My #1 regret in life
Thursday, April 25, 2024
This email is from THIS podcast - Spotify - iTunes HAPPY THURSDAY! I'm hosting a private office hour at 12pm CT on April 26th for people on this email list ONLY. If you wanna hang out and ask me