Business leaders tend to be super rational. Many believe that if they can prove a product is better, people will buy it. Show investors impressive numbers and the company will get funding. Grow earnings and the stock will rise.
But recent research shows that’s not the way things really work. People make their strongest decisions to buy or invest based on emotions, not logic or data. And their emotions are often driven by stories, which can come to them through the media, friends, social networks or any number of sources.
CEOs Need a Story
So, then, one of the most important jobs for a CEO or entrepreneur is to create and spread a story that effectively influences emotions to help the business. That’s arguably a better use of a leader’s time than managing finances or improving the product.
Sound mushy and unscientific? Well, consider new research by Taly Reich of Yale’s School of Management and Sam Maglio of the University of Toronto. They conducted a rigorous behavioral science study to try to understand whether the way people make a decision influences how strongly they stick to that decision, as opposed to changing their minds over time. They set up an experiment that forced one group of people to make a decision based on facts and rationality, and another group to base their decision on their emotions.
Time after time, the researchers found that those who decided based on emotions defended their decision and stuck to it, even when presented with competing facts. Those who decided rationally could be moved to change their minds.
“The unique thing about our paper is that we look at the post-choice phase: sure, we make a choice, but then we’re exposed to all this new information, to other options that can threaten the choice we made. How do we protect our choices in the face of that?” Reich told Yale Insights. “What we document is a basic effect where deciding based on feelings seems to offer people more choice protection,” Reich says.
Think of Microsoft running commercials telling you that Bing produced better search results than Google. By then, the majority of people had emotionally bought into Google and felt comfortable with it. Microsoft’s facts meant little to them – and couldn’t budge Google’s market share. Microsoft gave up trying.
Yale is also home base for Robert Schiller, a Nobel laureate who predicted the 2008 housing crisis and made behavioral economics a significant field of research. In 2019, Schiller published his book Narrative Economics: How Stories Go Viral & Drive Major Economic Events.
Schiller goes for a broad sweep, arguing that economists who just study the numbers miss the most powerful drivers of historical economic trends. He bounces through time to show how popular narratives influenced people to make irrational but emotional decisions that had enormous economic impact.
Financial bubbles are an obvious example. Popular narratives in the mid-2000s about how housing prices would always rise, mixed in with the “American dream” of owning real estate, were unsubstantiated myths. But the stories struck emotional chords and people made irrational decisions that they wholeheartedly believed were right. During the dot-com boom of the late-1990s, Silicon Valley proffered a myth that the embryonic internet “changes everything” – including age-old concepts of profitability and sound management. Millions of people bought the story, confidently invested in dot-com companies at crazy valuations, and lost their shirts when the facts proved the myth wrong and the industry nearly collapsed.
“Ultimately, the mass of people whose decisions cause economic fluctuations aren’t very well-informed…and yet their decisions drive aggregate economic activity,” Schiller wrote. “It must be the case that attention-getting narratives drive those decisions.”
Category Point of View
We see this in our category design practice. When we work with companies, our first task is to help them identify and rally around a strategic focus – a North Star. At that point, there are a lot of possible ways to capture that strategic focus: charts, slides, spreadsheets. But those play to logic and rationality, which means they aren’t nearly as effective as a story.
So we work with the leadership team to write a narrative story, which we call a Point of View (POV). The story rarely has numbers – no total addressable market stats or growth curves. It doesn’t cite analyst reports or academic studies. It instead tries to get at the emotional drive behind the strategy – tries to get to an a-ha that makes people go, “Oh wow, we need what this company is doing!”
And to maximize the emotional impact, the story needs to be a story – with a beginning, a middle, a climax and a resolution. (But in less than 1,000 words. You know: attention spans.) A great deal of scientific research shows that humans remember information in a story much better than information presented as stand-alone facts. “Researchers at Western Australia have shown that when a good story is told but then it is revealed as misinformation it’s hard for our memories to let it go,” writes the newsletter Anecdote. “In workplaces, however, this ‘let’s just get the facts out,’ is the default response. The best remedy is to tell a better, more plausible story.”
A Story for Every Persona, Every Purpose
A story may not sound like the kind of traditional deliverable “real” business people expect, but a narrative story can capture a strategy more powerfully than any set of graphs and action plans. Once a company gets the story right, it can tell that story to all of its employees to get their buy-in. It can tell a version to investors to get funding. The marketers can create a version of the story to lure customers. Once the product team embraces the story, the engineers and designers can have a gut-level feeling for what the product should do. And at IPO time, the story becomes the stock’s story – and stocks with a story (Zoom, Tesla, Slack) often perform better than the rest because they play to our emotions.
Of course, behind the story, people have to practice rational business management. No one can run a company on stories alone. But as the research shows, getting to people’s emotions is the key to success, and an effective way to get to those emotions is with a great story.