Practical Loss Aversion

You’re probably aware of Loss Aversion as a concept.

If not, I think the $10 bill on the sidewalk example is the best way to explain it:

Let’s say you’re strolling along 13th street on your way to get a coffee at Everyman Espresso (my old local coffee spot that I miss horribly), and you find a $10 bill on the ground - you’ll be pretty happy. Like, 5 or 6 out of 10 level happy.

If you then go to Joe and Pats (my old local pizza place that I miss horribly) and pay with a $20 but they give you change for a $10, and you don’t notice until you’re home, you’ll be upset. Maybe 8 or 9 out of 10 level upset. And if you can’t tell, I miss NYC a lot this time of year.

The point is that humans dramatically overvalue what we have and then get irrationally upset when we “lose” it. That’s Loss Aversion. Scientifically, we get about twice as “mad” at a loss, as we do “happy” with an equivalent gain.

So, what’s that got to do with you?

A ton. Founders tend to dramatically overvalue what we “have,” which makes us terrified to “lose” it. This causes us to be timid with certain types of decisions.

Here’s an example:

Let’s say you get a landing page up and push an ad live on a niche newsletter and 50 people visit your site. Amazing! Of those, 10 sign up to your call-to-action.

This triggers your form email which has a line or two about you and the problem and asks them to grab a Calendly slot to talk more, or to just respond to the email if they have any thoughts.

But, after a few days, no one has signed up to chat more.

What do you do?

If you’re like most entrepreneurs, you wait. You don’t send another email to those 10 because you don’t want to look pushy or salesy and lose them. Maybe, when they’re ready, they’ll answer that Calendly. Don’t want to send a bunch of stuff and ruin what we have.

This is Loss Aversion.

Our instincts will always be to overvalue these 10 people. To assume that we “have” them, and that any misstep could “lose” them. But, we have nothing. There’s no relationship, so there’s nothing to lose. There’s just a person that thought something was interesting enough to give their email to. And hopping on a call was too high a bar, for whatever reason.

And importantly, every second we get from that initial moment of interest, the less likely they’ll open or respond to anything we send.

If your instincts are to sit back, you’re usually just avoiding discomfort or loss aversion and should explore the benefit of the opposite.

Maybe, instead of waiting, you send the 10 people something useful. You could offer specific value with a wedge problem you think they have then ask if it’s relevant. You could go into detail on the problem you think they have and the issues it causes and say you think you can help, then ask a specific question for them to answer. You could ask their opinion on existing competitors and whether they’ve tried them / if they’re useful.

Worst case? They unsubscribe. Which is fine, because you didn’t “have” them anyway.

Best case? They respond. You get them on the phone. You learn their actual problem and decide if you can solve it.

The bigger point is that it’s less relevant what you send them and more important to understand that as a founder you usually have way less than you think you do. And that’s a great thing. You have nothing to lose - just opportunity to find people you can build something for and interact with them.

If, of those 10 people, 7 don’t respond to your follow-up emails but 3 do - that’s not a loss of 7 people, it’s a massive gain of 3. This is tough to wrap your head around, but it’s the correct math.

So, remember the (possibly overly harsh) words of my dad:

“You’re lucky — no one cares enough yet to care.”