I am Aarihant Aaryan! Welcome to the Iron Sharpen Iron newsletter,
I share my homework from my startup journey every week, learning about human behavior, and sometimes decoding industries and business models for fun.
I can’t control my curiosity :) )
When you build a company, you learn a lot of lessons - there are lessons that you learn from your mistakes, and then there are lessons that you learn from others.
Today I am going to share a lesson that I learned from my mistakes, after talking to a founder I respect the most - he was kind to share notes on this subject and since then I haven’t stopped thinking about it or considering it
In the early days of the company, I devalued the subject of engagement, I truly didn’t understand why it was a game changer
So this week let’s deep dive into the subject of engagement :)
What is engagement?
Engagement explanation :
Relationships are deeply correlated with engagement. There is a reason why long-distance relationships don’t work it lacks engagement.
what we fail to understand is all our relationships are replaceable, someone gives better engagement than us and we will be replaced in no time - that’s why digital cameras were replaced by Mobile cameras in no time, hardware calculators were replaced by mobile phone calculators in no time
When someone solves for engagement very well, their market cap and entire market opportunity increases - it decreases the market cap of older players
Engagement is rooted in frequency and quality of frequency.
Going for a walk with someone every day doesn’t create the same bond as playing a competitive sport with them every day.
Shared crisis. shared anger. shared embarrassment. shared jokes. shared secrets. shared fear. shared success. shared memories. All improve the quality of frequency.
The quality of frequency is rooted in emotional arousal achieved or hormones triggered.
A game of badminton is also much different every day than a walk together. Hence another cause of quality of frequency is variability.
Engagement = Frequency of experience*quality of experience (quality = emotional surges caused by variability)
How banks got relationships wrong and how the world has changed
Banks have got the relationship insight right but have failed to understand and implement ways to keep the relationship exciting and engaging. they have called a relationship as a relationship number.
You can’t number relationships. Relationship managers should be used for building engagement but they use them for monetization.
If you could easily speak to someone about all your financial troubles, you could easily call them for big events too. but they got that part wrong.
A new world doesn’t like to talk to humans as much as they did before. They prefer to work on self-service or deal with it over chat.
An app built for relationships may do tons of things that help the consumer and rarely cross-sell.
They would make the customers aware that you could use some of these things when you need them but not shove them in their faces. Just persistent but subtle reminders
Banks usually pay the highest rent to get a place in a street that has the highest engagement, but the digital world is different. But they don’t know how to pay rent to be in the middle of an engagement.
Shopping malls are failing in India in fact, today the success rate of malls has gone below 27%
See shopping malls make money by renting an outlet or charging a % of commission on total sales by an outlet
They only make money, when the mall is well designed to distribute the traffic equally to all outlets and bring a lot of traffic into the malls
Hence they bring music concerts, movie theaters, gaming and eateries to attract traffic to the mall
but because of the digital revolution, How we buy, where we buy and what we buy have fundamentally changed because of the digital revolution
Today the definition of a shopping mall has changed, apps on our phones are shopping malls, and we can buy through them, get entertained, order food
As apps got better engagement, shopping malls lost their revenue to them.
Tik tok became a larger lender in China by making lending a feature in a deeply engaging app
Alibaba's ad tech vertical became the largest advertisers for business by introducing ads as a feature in a deeply engaging app - today 60% of Alibaba's revenue comes from ads
Monetization will go to the highest trust- born through engagement
Monetization events in banks are infrequent and only the most active relationships get a chance to capture it.
It’s not about the cheapest price but the highest trust + deep engagement.
Human brains naturally trust people and products that they frequently engage with.
Fear of the unknown is real.
HDFC got smart buy right but it is a terrible experience. They got to recharge and bill pay right, but a terrible experience.
They got bank transfers from the beginning but UPI got it right on experience.
Banks should have built the UPI app and not let it be built by someone else, banks should have not moved ATMs outside the branches but kept it inside.
Banks should have launched MF, stocks, PF, tracking, and everything about money all in one place.
All tech products compete against each other for engagement
In the world of tech, they are fighting to timeshare, we all have limited time.
We cannot spend all our time on 500 different apps, any app that captures most of the consumers’ time today has huge potential to replace other products
Tomorrow WhatsApp can launch its e-commerce, and entertainment business and become sizable enough
When timeshare is well solved and well captured, revenue share and market share follow on
So never rent out your engagement to anyone, and don’t outsource it to anyone - don’t get it stolen, steal it if you can
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Here i came across with your twitter handle _ here is the real business while reading your blogs such a great understanding of biz nd its culture ... would like to know more