Black Hat Motivation within Fundraising (Gamification)
(Below is a snippet of Gamification Book: Actionable Gamification – Beyond Points, Badges, and Leaderboards. Please subscribe to the mailing list on the right to order the book when it launches. This post may be moved into a Premium Area after a certain period of time).
In the realm of fundraising, I regularly get approached by startup entrepreneurs who are looking for some support to help them navigate fundraising from angel investors as well as venture capitalists (I also get approached by many investors, but on an entirely different set of motivational challenges – mostly White Hat).
The thing about investors is that they are generally motivated by the forces of greed and fear. The force of greed – the intense desire to make a billion dollars (Core Drives 2 and 4); the force of fear – the apprehension of losing all their money (Core Drive 8).
At the beginning, the entrepreneur may promote many great attributes about the company, appealing to the investor’s sense of Core Drive 1, 2, 4 and even 5 if there is a good social proof. (Here you see the value of remembering the numbers for each Core Drive. Don’t worry if you don’t remember these numbers now, but just take note that they are mostly on the White Hat side of things.) The investor starts to show a lot of excitement, and the entrepreneur feels like the deal is sealed.
However, as the investor gets closer and closer to writing a check, the fear of losing all their money begins to preoccupy them, which is driven by Core Drive 8: Loss & Avoidance. They start to ask for more metrics, traction, and further social proof. Often, six months go by, and still no funding is committed.
From my personal experience, investors generally only close deals quickly when they are *convinced* that they will lose the deal if they don’t commit. If an entrepreneur *convincingly* tells the investor that a lot of people are already in on the deal, and if the investor does not act this week the round will be full, only then will they finally react. Black Hat creates urgency and closes deals.
When I was trying to raise $600,000 for my gamification startup straight out of college, I found the experience to be extremely difficult and sobering. We were a very young team, and this “gamification” thing seemed like a half-baked crazy idea.
After struggling for awhile to raise a modest amount of money to keep our small team afloat, we were finally able to secure $650,000 from three investors. At that point, I wrote an email to all our potential investors, who for over a year continually “wanted to see more” and “weren’t sure about this gamification thing.” I simply told them, “We are going to close the round, but thank you for your continuous (and non-existent) support!”
At this point, many of these investors who didn’t want to commit for an entire year suddenly responded with passion, enthusiasm, and even anger. “Yu-kai. I thought we agreed that I could invest this much money in your company. Why are you telling me that you are closing the round without me?” I was thinking, “Well, you kind of had an entire year to do that…” but they oddly made it seem like I was burning bridges if I didn’t take their money.
As a result, we tried to cap the round at $800,000 instead of $600,000, and we couldn’t do it. We tried to cap it at $900,000 and couldn’t. We tried to cap it at $1,000,000 and we still couldn’t. Finally, I capped the round at $1,050,000, while rejecting some investor money, just to show that we were serious about the cap. (I’ve also heard this same experience retold many times by other entrepreneurs.)
This illustrates the irrational power of Core Drive 6: Scarcity & Impatience as well as Core Drive 8: Loss & Avoidance (while also serving as a fine example of the limits of White Hat motivation). All these “potential investors” clearly liked what I was doing. They were encouraged whenever I gave them good news. They saw that it could potentially make the world a better place. But they didn’t acted until they saw that the deal was being taken away from them. With White Hat motivation alone, people will always be intending, but never actually doing.
For the curious, eventually my startup launched RewardMe, a product that gamified the offline commerce experience. RewardMe was performing eleven times better than the numbers our closest competitors published. (Sorry – since these companies are still in existence, I won’t cite sources here in respect to their current success.) Towards the end of my time there, we even closed a $1.5 million sales deal with a national chain.
Startups are risky, and the unfortunate thing is, just having a stunning product doesn’t mean a company will be successful. A few years after RewardMe’s launch, we hit a combination of personnel, funding, and legal issues. I stepped down as the CEO, and eventually the company folded. If only I had my Octalysis knowledge back then, many things would likely be different, which is why I am hoping my readers learn these elements on motivation before they run into issues in their own companies.
Fortunately, by stepping down as the CEO of RewardMe, it freed up a lot of my time to further study gamification, human-focused design, and develop the Octalysis Framework.
Today, even though my Octalysis Group organization is becoming busier and busier, I’m a lot happier than when I was running a technology startup. That’s because I am now mostly motivated by White Hat Core Drives, as opposed to the Black Hat Core Drives of constantly counting our runway before dying.