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Octalysis: Complete Gamification Framework


Octalysis: Complete Gamification Framework

(This is the Gamification Framework that I am most known for. Within a year, it was organically translated into 9 different languages and became classic teaching literature in the gamification space worldwide. If you are interested in commercially licensing the framework, please visit our Octalysis Group Licensing Page.)

Gamification is design that places the most emphasis on human motivation in the process. In essence, it is Human-Focused Design (as opposed to “function-focused design”).

Gamification is the craft of deriving all the fun and engaging elements found in games and applying them to real-world or productive activities. This process is what I call “Human-Focused Design,” as opposed to “Function-Focused Design.” It’s a design process that optimizes for human motivation in a system, as opposed to pure efficiency.

Most systems are “function-focused,” designed to get the job done quickly. This is like a factory that assumes its workers will do their jobs because they are required to. However, Human-Focused Design remembers that people in a system have feelings, insecurities, and reasons why they want or do not want to do certain things, and therefore optimizes for their feelings, motivations, and engagement.

The reason we call it gamification is because the gaming industry was the first to master Human-Focused Design.

Games have no other purpose than to please the individual playing them. Yes, there are often “objectives” in games, such as killing a dragon or saving the princess, and sometimes saving a dragon, but those are all excuses to simply keep the player happily entertained.

Since games have spent decades (or even centuries depending on how you qualify a game) learning how to master motivation and engagement, we are now learning from games, and that is why we call it Gamification.

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A CEO’s account of how his Startup Failed (RewardMe)

Startup Fail

A post that will cost me $13,000 (regarding how I lost $1 Million in Funding)

This post has been long overdue.

Partially it was because I felt rather embarrassed about the unfulfilling results of my startup Rewardme, and partially it was because I had been so busy growing my new business on Gamification Framework in the past few years. Also, I wanted something to clear with a major Silicon Valley Law Firm that we had a detrimental history with before sharing my experiences too publicly, but it became clear that this would take too long and I have given up (in fact, writing this post would cost me at least $13,000 because of that).

But alas, the lessons from my failures could possibly benefit thousands of entrepreneurs out there, so I’m taking the bold step forward to share what happened from my viewpoint as well as some lessons learned during the process (for an account from my life-long friend and former CMO Jun, click here).

An overview of RewardMe

I was running RewardMe from 2010 to the end of 2012. It was generally bringing gamification into the offline retail/restaurant market through a digital loyalty program. Nowadays there are quite many of these companies, but we were the very first in the market if you didn’t count FourSquare’s “Mayorship” system.

Our product metrics were great (actually 10x more than our competitors based on what they published on their press releases), customers loved us, we were covered by large media sites including Forbes and Business Insider. Towards the end of our reign, we closed a $1.5M deal with a big chain store that would allow us to deploy our product nationwide. We were also attracting many of the biggest chains, getting multiple meetings with top executives from Carls Jr, Subway, Swarvaski, and many more.

We decided that going door-to-door was not the way to scale (I still believe in this today, even after seeing the traction of the top leaders in the industry who dumped tens of millions with only thousands of paying stores), but it’s to go through the big hurdle of closing large chains early and deploying nationwide quickly (since chains and mom-and-pops alike like to follow other chains, but not the other way around). That would give us a strong barrier to entry, as when our competitors realized they need to go after chains, we would be one year ahead and compounding our traction there.

Runway is Everything

We however, did not raise a lot of money. We raised a bit over $1M to get to where we were when our competitors at the time already raised over $10M. I wish I had knew more about my own Octalysis Framework and the 8 Core Drives at the time, but since we did not come out of a famous incubator or had a celebrity startup team, fundraising was particularly difficult (so I guess a lesson here is: join a famous incubator if you can. It would increase your fundraising hype regardless how great you can get your company to become. The equity taken is peanuts when compared to decreased chances of dying).

Because of our stellar results mentioned above, the investment/VC community was impressed with our execution, but liked the door-to-door model better because it produced “predictable growth” such as “next week, 30 more mom-and-pops will signup.” They told us that just because VPs of gigantic chains are taking 3rd meetings with us does not mean they will sign a deal with us, which was a fair statement.

So towards the end of our runway, we finally closed a $1.5 Million revenue deal with a large national chain brand, thinking it would get us our next round of funding. The big problem is, this two-year contract would at least take 6 months to implement and revenue collection had to come later.

Most investors became interested and wanted to talk more immediately, but then got to a point where they still wanted to see “predictable growth” and would like to see the second and third big deal come in before they wanted to commit. To take some personal responsibility, perhaps I just wasn’t being a great salesperson and just didn’t close the deal (now I understand it as – I didn’t use any Black Hat Gamification/Motivation Techniques that drive urgency, but merely used White Hat Techniques that makes people feel good and trust me, but no urgency to act).

During this time of fundraising, I was also heavily distracted because of a devastating issue that escalated from some work a “Top Silicon Valley Law Firm” did for us. Even though I believe initially it was an honest mistake, instead of spending more time on fundraising, I was stressfully dealing with the IRS day in and day out for many months. To be fair, I know many entrepreneurs who have had a great experience working with this firm, but according to my own experiences and especially how they dealt with it afterwards, I cannot recommend any entrepreneur I care about to work with them (email me if you want details – I’m scared.) Lesson here? Don’t take every sentence as truth just because it came out of a prestigious firm – especially if you are on a “startup deferred payment plan.” Double check and use common sense.

At the same time, when we still had a few months of runway left, we realized how VCs liked the predictable mom-and-pop growth, but we didn’t think door-to-door was scalable (in fact we were rejecting small stores reaching out to us since we only had very limited resources and needed to focus on supporting the chain stores). We started to setup the first self-serve freemium program in our industry, hoping to capture our daily inbound leads. 

At this point, we were at the end of our runway, and since we (or rather, I) couldn’t raise our Series A with the traction we had, we were in big trouble. Our existing investors however, were very excited and impressed about our progress and execution, so they committed a lot more money to get us to the place where we can close those other big chain stores that are excited to sign-on but still waiting on the bureaucracy. Literally, our current investors were at the point of, “Hey, what was the wiring information you gave me last time? I can’t find it anymore but I’ll wire you the money as soon as I get it!”

However, this is when the Big Burnout happened in our company.

The (Anti) Climatical Fall of RewardMe

Keep in mind, all our team members at RewardMe were hard working, smart, and passionate. They were some of the best people I have ever worked with. But to close this million-dollar revenue deal, many of these teammates worked over 100 hours a week in a high-stress environment, and most people were only paid 30% of their market rate (again, we raised a lot less than other companies. I myself NEVER drew a single salary from RewardMe). We all believed that, once we closed that large deal, we would raise that next round of funding, people could get paid better, and we could grow quickly like our well-funded competitors.

When I was unable to close that next round quickly, it demoralized some of the key members on the team, and they felt it would be a never ending rabbit hole. Even if they did work for another 4 months with 110 hours of insurmountable stress every week, and even if that did lead to closing the 2nd or even 3rd big chain, they were no longer convinced that it would truly cause the “Come back with more” VCs to invest.

Their concern was not unwarranted. I have many startup friends who kept surpassing their promised milestones but kept getting “come back when you hit this new milestone” from VCs for YEARS, even until the very moment they sell (which of course, the investors regrettably admitted they should have moved earlier). My teammates were also uncomfortable with taking more money from existing investors because it would just lead them deeper into that rabbit hole of burden without a clear path to salvation. As a result, a few key people decided they needed to withdraw from this dark and overwhelming environment after sustaining it for many years.

Even though this behavior was more than understandable, it obviously created big issues for the company. Remember our current investors were already asking me to send them the wiring information so they could give us more money? At that point I had a moral decision to make. I could give them the wiring information, take the money, and see what I could do with a few more months of runway (which would basically be trying to recruit people we couldn’t afford even with the new money). Or, I could tell them the truth and face the consequences. I thought, “What would I prefer if I was the investor?”

At the end, I decided to I disclose this information to existing investors that have committed the money, and told them that this would also make it more difficult to raise our Series A round. They thanked me immensely for being up front about it, and sure enough they decided to hold onto their money for longer to see what would happen.

At that point, without further investments and many of our key members burnt out, we had no resources to push forward. The quick conclusion was that, in order to not get into overwhelming personal debt,  we had to shut down operations immediately. We did not have any resources to do anything, including servicing or deploying our product.

That was very unfortunate (and depressing at the time), because our online self-serve freemium model was just about to take off too. Over the next year, even though we have winded down and just looking to close the business, we continuously get businesses reaching out to us and saying, “We did our research, and we believe RewardMe is the best. How do we sign up?” At the time I could only painfully stall, “We’re working on a next version, so we’re no longer deploying the last one. We’ll let you know when it’s ready” since I was still hoping that we could possibly revive the company again with a few free part-time volunteers. That did not happen.

Without any marketing or work over an entire year (besides the draining work of turning customers away), over 40,000 individuals/businesses clicked the “Get RewardMe Now!” button on our site, expressing they wanted to use RewardMe. To this day, I still believe we took the best strategy to win in the market, but just were not funded enough to execute on it. As mentioned earlier, other companies have spent tens of millions of dollars, but even the leaders have less than 8000 active customers (Of course, I also highly respect the traction they have obtained since I know how hard it is to grow in this market period – I wish them huge successes! I think they can still definitely win big by being acquired by bigger companies who want to buy their way into this space).

Aftermath of Closing a Dead Company

Immediately after the Big Burnout, that was a very dark and deeply depressing time of my life. Amidst the chaos, confusion, and helplessness, I realized that there was a TON of materials out there to teach startups how to become success, grow, scale, raise funding, find cofounders – but there was almost nothing out there to guide how an entrepreneur should fail (besides….failing fast). There was no service, literature, or even emotional support for entrepreneurs trying to clean up a dead company, and it was extremely lonely. Many of my Cofounders have already moved on to new opportunities, but as the CEO of the company, I still had to worry about organizational structure, company debt, and disappointed investors. I secretly envied a little bit towards my non-CEO Cofounders (who are all still great friends with me today), because if we succeeded, our payout would be the same, but since we failed, I spent a significantly longer time dealing with the baggage and ramifications.

I also spent a long time liquidating the assets to cover the company credit card debt (since I was trying to buy time to see if we could do a turnaround). One interesting thing was that during this time, a competitor reached out to us to discuss potentially acquiring us. That gave me a light of hope to at least return the money I raised from our investors. However, after a few discussions, the acquiring company revealed, “Actually, we’re mostly interested in your team talents [that stayed as free volunteers]. If we could just hire you guys with a GREAT compensation package, that would be ideal for us.”

This was yet again another ethical decision to make. At this point, I burnt out my savings, just got married, and I know my teammates were in tough financial situations as well. Could we try to justify years of uncompensated hard work? At the end, I told the company, “Look, there can never be a situation where we benefit immensely while our investors who believed in us become greatly worse off. If you are interested in us, give us a real offer that respects our investors too.” They replied, “We understand and respect your loyalty to your investors. However, your individual payouts will be A LOT less because of your investor baggage, if that’s okay.” We responded, “That’s okay. Let us know when you figure out something that is fair for both sides.”

Unfortunately, at the end, the acquiring company’s investors couldn’t justify paying for our investors just to get us onboard as talents, so nothing happened (Oops, should have been more talented!). Annoyingly, after every effort of protecting our investors, a few smaller investors still became very aggressive on us, sending lawyers against us and really adding a ton of stress when I was already in this dark depressed time of my life. Luckily, I convinced them that there was nothing they could possibly gain from this that would even justify their lawyer fees, and they let it go.

On the other hand, some of my investors were AMAZING. The day I was supposed to call them and tell them the horrible news that I have likely lost their money, I had this fire burning feel in my head, to the point where I could even hear burning static noises. When I called a few of my investors and told them the news of how I failed them miserably, I expected them to yell at me for throwing away their hard earned money. But instead of yelling at me, a few investors immediately responded with, “Are you okay, Yu-kai?” 

I did not expect that type of kindness at all when it happened, and I secretly cried while reaffirming that I was doing fine and just trying my best to wrap up everything in a responsible manner. Those simple words probably changed a bit of who I am forever. For that, I am forever grateful of DJ Martin and Vicki Young for being the best investors ever. If you could have them as your investors, it would be your best decision ever.

Now, regarding the lesson here. You could see that I made a couple of big ethical decisions here, which didn’t really lead to beneficial results. The question here is, was that better or was that a mistake? I can’t really say as an absolute because everyone believes in different things and has different values. All I could say is, even if I had a greatly successful company, if I knew I got there by lying and cheating, I would not be a happy person. It would be a lot of money, a big house, and a nice car surrounding a piece of crap, and I would be that piece of crap. To me that isn’t worth it. Who I am is more important than what I have. Of course, since I try to be a faithful Christian, I also hold my accountability towards God and trust that things will work out in the end (which it did, as you will see later), even though there may be immediately short-term pains.

I think that’s the best answer I could give to aspiring and struggling entrepreneurs in the field, but everyone has to find their own answers and find peace in their own hearts. Being a leader is about making the hard decisions and stomaching the emotional consequences. That’s why it’s not for everyone, and sometimes I’m not even sure it is for someone like me.

Life After RewardMe

So after all the stuff with RewardMe, I did some soul searching – what many people that have failed in life do. I realized that throughout my life, a big problem I had was that all my ideas were considered “too early.” Ever since my first business in college, I would talk to VCs, and they would tell me what I was doing was ridiculous and wouldn’t work. I then decide to give that up and pivot to something else (after all, of course these grownups were smarter than I was). 3-5 years later, all the VCs were suddenly fighting to fund other companies with that very model I did earlier, but unfortunately I have moved on.

When I approached them again with my new companies, they would say, “Yu-kai, your last business was actually right on! But your new thing here….that’s just ridiculous.” And of course, the same things would happen again. If I was a celebrity entrepreneur, I could raise a lot of money for crazy and audacious ideas, and truck through a few years until the market caught up. I wasn’t, so I shouldn’t play by those same rules. This is important for all those new aspiring entrepreneurs that often read how companies raise tens of millions of dollars before launching a product on Tech Crunch. In general, if you can’t raise money just on your past exit records, you generally need TRACTION before you can raise significant money. Now how to get traction without the money you are raising is the difficult work of a resourceful entrepreneur. 

Upon recognizing my tendency and problem, I realized I could adapt and adjust to that…no more crazy startups. Focus on what the world needs, not what it deserves (thanks Batman for bitter-sounding thoughts haha).

I also thought about what made me happy, and I realized it was when I was creating gamified designs. The term “gamification” became more popular starting 2010, but I in fact have been working on productive applications of games and game elements since 2003 (yes, one of those ridiculous things that would “never work”). I definitely had a lot of experience on it and was very passionate about it.

An epiphany in Gamification

I looked around the gamification industry late 2012, and saw a few things. There were already many established “gamification experts” who had a brand name. Even though I spent ten years working on related projects, I did not have a name at all attached to gamification, because every inch of my muscle was used to push my startups and not myself.

But then I noticed one interesting thing: the established “gamification experts” came from a variety of backgrounds: some were game designers, some enterprise software, some academic, some marketing. And I realized that I had one expertise that they did not have – Personal Branding. This is what you learn working in startups for so many years: in a startup you have no history, no name, and no resources, and you need to get it to the point where within 2 years, everyone knows about you.

So I decided to use one of my expertise to promote my other. Very systematically, I got my blog traffic to go from 1,000 untargeted visitors/mo to 25,000 targeted visitors/mo within a year and a half.

I published a gamification design framework that I originally created back in college called Octaylsis, and it really picked up. It was translated into over sixteen different languages with students reaching out to me from all over the world. The framework was unique in the sense that it went much further beyond the points, badges, and leaderboards (we call them PBLs in the industry) that most people thought gamification was, and derived motivation into 8 Core Drives.

Some Core Drives were associated with White Hat Gamification (things that make you feel powerful and in control, but lacks a sense of urgency), while others were Black Hat (things that made you feel urgent, obsessed or addicted, but gives a bad taste in the mouth), and some Core Drives were related to Left Brain Oriented (appealing more to extrinsic motivation) while others were Right Brain Oriented (appealing more to intrinsic motivation).

Octalysis Gamification Framework

All in all, my life is going great these days and I do feel excited about waking up every day. I’m now recognized as one of the leading figures in the industry, speak/lecture at Stanford, TEDx, SxSW, Accenture and across almost all continents. Many VCs are asking me to help their portfolio companies with my new behavioral design (some of them call it behavioral engineering) knowledge. Instead of working on one project for over 100 hours a week, I get to simply do the thin slice of work that I enjoy the most for dozens of projects (and get some equity in them too). 

This year I even published my own book, Actionable Gamification: Beyond Points, Badges and Leaderboard that summarizes my learnings within the 12 years.

It sounds somewhat odd and even arrogant, but getting the results above was actually very systematic and even easy, especially compared to running a tech startup. Adjusting based on the lessons I’ve learned in the past, I was exponentially more successful revisiting stuff I did many years ago, instead of going after the new things in the future that I’m excited about (trust me, I’m holding myself back for many things that I believe would be world-changing).

I think the lesson here is that, no matter how many successes or failures you have in your life, the key is to make sure you are always learning more about yourself, understanding your unique placement in the world, and do meaningful things that you are passionate about.

Wounds do mend. Success is never a given, but if you are spending every day of your life pursuing things that you are passionate about, the journey itself is what makes it meaningful, not the destination. Very few people I know have beaten the first Super Mario game, but they all have fond memories playing it. Life is not about winning (once you hit your goals, you just look for new goals anyway), but more about whether you are spending your time on things that bring it to the fullest.


FINALLY! Beginner’s Guide to Gamification (21 of 90): Discovery Phase

Full year of hiatus for gamification videos

It’s been a full year after since I have my beginner’s guide to gamification videos. I have been mostly working on finishing my book, dealing with client projects, and expanding my international brand. I did, however, make 10 Gamification Videos in a similar fashion for Captain Up called the Engaging Website Design Series.

Someone also informed me about a mistake I made regarding the Keyword game on Episode 20, so I have corrected that.

Discovery Phase in the 4 Experience Phases of a Player’s Journey

In this video, we talk about how to apply the 8 Core Drives into the Discovery Phase of a Player’s Journey. This includes footages from California, Norway, Poland, Bali, Hawaii, Macau, Hong Kong, South Korea, Czech Republic, and more!

Soon introducing a Premium Subscription Plan

I explain in my video how much of the video content will be locked behind a wall soon. This will be rolled out with the biggest project I am working on called Octalysis Prime. It will launch first with a Kickstarter, so stay tuned!

In the meantime, enjoy the video!

EXCLUSIVE!! Interview with the man who spent $30,000 on a Single Game

Gamer Whale Interview

The “Whales” that carry the gaming industry on their shoulders

You may have heard of so-called “Whales” in the Free-To-Play (F2P) gaming industry. Even though I am not a fan of this term, it represents hardcore players that spend a sizable amount of money in a game (as opposed to Dolphins, Minnows, and Freeloaders who spend significantly less money). Most gaming companies depend on these “Whales” to stay alive, and they try to design specifically for them.

Some heavy gamers spend thousands or even tens of thousands of dollars on a game. When I was doing research on the game Battle Camp, I was amazed when I saw some players spend $6,000 just on one weekly competition – not for any external reward, but just to win two “Legendary Monsters” that helps them play the game better.

Have you ever wondered who are these heavy spenders and what goes on in their heads? Are they just filthy rich millionaires who don’t care about money? Or are they so into the game that they are willing to lose their livelihood just to obtain more of those 8 Core Drives we so desperately need in our lives? Are they illusional and think that proud achievements in a game are more important than the real world? (Spoiler: in this interview, we will see that this is not the case.) How do they feel about spending so much money on a game?

Big Jim: the “Whale” who spent over $30K on We Heroes

When I started doing research on a mobile game my friend was working on – We Heroes, I also noticed many hardcore players who were not shy of spending real money in the game. On my server, the top player was named Big Jim, and he was setting and breaking all sorts of records in the game.

Seeing how he has accumulated ALL the expensive heroes in the game, I was very curious about what he would be like in real life. After admiring his game status for a while, I had the opportunity to join his Guild, which led to us becoming friends on Facebook. To my surprise, he lives in Pleasanton, California, just twenty minutes away from where I live!

After a few more months of playing and communicating in-game (after all, I was no weak player either – doing some heavy lifting in the Guild too. And yes, I can actually expense my spending in-game as “research budget.”), we finally met at a conference, in which he graciously agreed to an interview.

I then learned that he has spent over $30,000 on We Heroes alone! And this wasn’t spent over many years like some League of Legends players do. Since We Heroes just launched in early 2015, the $30,000 must have been spent within a year’s time.

Below is the exclusive content of what goes through the mind of a “whale” heavy spender, and some lessons he wants the world to learn about.

Interview between Yu-kai Chou and Big Jim, a “Whale Spender” on We Heroes

I. Yu-kai Chou: Thanks so much for being part of this interview. Can you start off with a quick intro of yourself? Who you are, where you are from, and what do you do?

Big Jim: My name is Jim. I am a 55 year old electrical engineer working in Silicon Valley.

II. Yu-kai Chou: How many years have you been playing games for?

Big Jim: I have played games since I was old enough to roll a die. I played my first war game when I was about 12. It was Blitzkrieg by Avalon Hill. My first MMORPG was Asheron’s Call.

III. Yu-kai Chou: What are the games that you have considered yourself a hardcore player for?

Big Jim: Any game I like I play to win, which makes me hardcore to most people. Asheron’s Call. Everquest. World of Warcraft. World in Flames (a boardgame by Australian Design Group). Kingdoms of Camelot and now We Heroes. There may have been others I have forgotten.

IV. Yu-kai Chou: In We Heroes, you are one of the top players in the game. When did you start playing, and how did you achieve the top status?

Big Jim: I saw an advertisement for We Heroes while playing another game so I tried it, and I liked it. It was sometime in early 2015 when server 12 opened. There wasn’t any great strategy involved in becoming a top player. All it takes is spending a lot of money.

V. Yu-kai Chou: I know you have spent over $20k to reach your status. Have you played any other game that you have spent a considerable amount of money?

Big Jim: I spent a lot of money on Kingdoms of Camelot. Before that the games I played cost more time than money. I spent a lot of time in World of Warcraft, Everquest and Asheron’s Call.

VI. Yu-kai Chou: What drove you to become a heavy spender in We Heroes, as opposed to the other games you played.

Big Jim: I got sucked into spending a lot of money because I was competing with other players to reach the top of The Arena. At first I was just trying to get into the top 10. Then I got into the top 10, and I thought it wasn’t that much further to get to #1. Then I got to #1, and I thought “I’ll just get a little cushion to discourage other players from trying to take #1 from me.”

I was never able to get that cushion because Flash never quit spending money to keep up with me. Having already spent a lot of money, I wasn’t going to give up and let him take #1 from me so I just kept spending money.

VII. Yu-kai Chou: Do you consider the game developers unethical for causing you to spend so much money? Why or why not?

Big Jim: Trying to get people to spend money is not necessarily unethical. Businesses have to do it to stay in business. Most of the time I consider it ethical but there are some exceptions. I consider it unethical to try to sell me something and to not tell me what the price is. Continue reading

Affection Held Hostage – how my love for my wife got me duped in China

Chinese Scam

My Affection Held Hostage

In early 2014, I was invited to the global conglomerate *Huawei* in Shenzhen, China to do a few workshops on gamification. During this trip, I had an assigned tour guide that took me to the beautiful Tea Stream Valley for a full day trip. (You can see much of this trip, including my camel ride and a jaw-dropping lion dance performance, in my video series – The Beginner’s Guide to Gamification). Between all that excitement, the educational part of my trip came towards the end.

As I was leaving Tea Stream Valley, I saw people soliciting for pencil drawn portraits. My tour guide was using the restroom, so I decided to check them out and if they were any good – that’s the power of Core Drive 7: Curiosity. They saw me approach and asked if I wanted a portrait which I politely turned down.

I was about to leave, when I saw another artist drawing a portrait based on an iPhone photo for another customer. I asked (in Mandarin of course), “Oh, so if I give you a mobile photo, you can draw it too?” He responded, “Of course! Do you want one?”

I decided that this would be a great way for me to bring something back for my wife to show that I was thinking about her during my long trip away from home. Instead of just buying something expensive on the shelf at an airport, a hand-drawn portrait of her would be more personal and more endearing. It would show her that I actually spent time to have something unique and custom-made for her.

I asked the artist, “So how much for one?” He told me it was about the equivalent of $50 USD. I thought, “Wow, that’s extremely expensive, even by U.S. standards.” Instead of negotiating with him, which I generally dislike doing because it requires too much emotional energy, I decided to use the walk-away tactic in Core Drive 6: Scarcity & Impatience.

“Sorry, that’s way too expensive for me.” As I started walking away, he rushed to say, “What if I could do it for $35?” I felt happy that my scarcity tactic was working, but $35 was still too expensive so I said, “Naw, like I said, it’s way too much.” Of course, I wasn’t bluffing. I truly did not intend to buy anything at that point.

He then said, “Okay…I can do it for $25. Since the day’s about to end, I’ll just do you a favor and wrap up with this one.” At this point, even though it still wasn’t very cheap (for comparison, a 90-minute massage in Shenzhen was only $25), I thought I haggled well by cutting his original asking price down by 50% – feeling a sense of Core Drive 2. He also just used a Core Drive 5: Social Influence & Relatedness tactic of “I like you, so I’ll do you a favor,” so I thought I might as well agree to do it. I’m on a fun trip anyway.

After working for twenty minutes, he was almost done with the portrait. It was alright. It wasn’t great but you could tell that it looked like my wife.(That was my main goal – I didn’t want her thinking that I was having another woman drawn!)

As he was wrapping up, he asked, “Would you like to add a transparent protective layer to the drawing? It will protect the pencil lead from being smudged.” I said, “Sure, sounds good!” He gave me a concerned look and said, “It’s going to cost more though.” Slightly surprised, I asked, “How much more?” He told me nonchalantly that for the protective layer, it was going to cost me $15 extra.

I then realized his sneaky tactic and felt fairly annoyed. I responded in an emotionally disturbed tone, “Then forget about it. I’m not going to pay $15 just for that layer.”

Then, with a very concerned and considerate facial expression, he explained, “But if you don’t add the protective layer, the pencil lead will definitely smudge in your luggage bag and ruin the whole drawing. Look how easily the pencil lead falls off.” He then proceeded to use his thumb to rub a corner of the portrait, and indeed a layer of graphite came off onto his thumb. “It would be such a shame if this nice drawing got destroyed!”

What would you do in this situation?

As you can imagine, it was a very uncomfortable situation to be in. Nevertheless, it was also a very compelling educational experience.

The power of Core Drive 8: Loss & Avoidance had taken over my behavior and I ended up paying him $40 for a rather mediocre drawing. And if you recall, just a few minutes earlier I turned down the same drawing for $35!

I walked away, reminding myself repeatedly, “I’m not buying his drawing skills for $40. I’m buying my wife’s happiness for $40. It’s totally worth it.”

Loss & Avoidance Lessons in this experience

A couple of very important observations in persuasive design should be made from this interaction.

I was highly compelled to take the Desired Action. I ended up paying $40 for 20 minutes of the artist’s work, even if I rationally understood that the price wasn’t fair nor its delivery honest. The “artist” made his money. In addition, I felt extremely uncomfortable after taking the Desired Action, and from that point on, would never be strongly inclined to purchase something from street vendors in China again.

This is very important to understand. Utilizing this Black Hat Core Drive is extraordinarily powerful in getting someone to take the Desired Action, but in the long run, it demoralizes the user’s experience and creates burnout which can lead to high turnover. Once they commit the Desired Actions, people don’t want to ever put themselves in the same situation again.

In the situation above, where the artist is only making money from one-off tourists, this tactic only harms other street vendors in China so it may be worth it. At least, until a few years later when all tourists know to avoid buying anything from sleazy street vendors – unfortunately, including the honest ones. However, in your own experience design, I’m guessing you would like your users to commit more Desired Actions subsequent to the first Desired Action, as they enter into the Scaffolding and Endgame Phases.

As a result, when we utilize design elements in an experience that appeal to Core Drive 8: Loss & Avoidance, it should only be at critical bumps where you really need the user to take the Desired Action. This should be followed by a series of White Hat Core Drives to encourage and balance the motivations of the user. We will explore this theme further in Chapter 14 on White Hat versus Black Hat Motivation.

This is the beauty of the Octalysis Framework (from my point of view). We not only can use it to understand how to engineer and design for motivation, but we can understand and optimize for the nature of that motivation to make sure it fulfills both our short-term goals and long-term goals.

And if you must know: upon returning to California, my wife recognized herself in the portrait and was extremely touched by the gesture. I also felt extremely accomplished (Core Drive 2) because she was so happy and because my plan worked like a charm.

Perhaps the $40 was worth it after all.

Loss & Avoidance Design: Ultimate Loss vs Executable Loss

Loss Avoidance

Loss & Avoidance Design: Ultimate Loss vs Executable Loss

(Below is a snippet of Gamification Book: Actionable Gamification – Beyond Points, Badges, and Leaderboards. If you like this blog post, you will LOVE the book.)

Core Drive 8: Loss & Avoidance can be a tricky Core Drive to manage. If done improperly it can demoralize the user and lead to churn.

One important thing to keep in mind is that Loss & Avoidance is motivational in a proportional manner. The way users respond to Loss & Avoidance is generally proportional to how much they have already invested into the experience.

If users have played a game or used a product for ten hours, they will feel a more substantial loss than if they had invested only ten minutes. Starting over after losing is definitely more impactful on a player that’s invested a few days into the game and is on level 37, as opposed to a player who just started and is on level 2.

The key strategy here is that the experience designer should dangle the threat of a large setback (the Ultimate Loss), but should only implement (if at all) small marginal setbacks (the Executable Loss) to emotionally train the user in taking the Ultimate Loss more seriously. The Executable Loss reinforces the avoidance.

As a general rule from my own experience, the Executable Loss should never be greater than 30% of what the user has already invested in time and/or resources, and ideally never more than 15%. Generally a small loss of 2-5% is enough to motivate users to take the activities seriously. If the users lose over 30% of what they have originally invested, the odds of them feeling demoralized and quitting become extremely high.

Loss & Avoidance Design in Employee Motivation

Since it benefits no one if the user actually suffers heavy losses, it’s best to utilize the “ultimate loss” as a form of expectation management, with the system creating “grace systems” that the users appreciate but do not abuse.

For instance, in the workplace the manager may make it clear that performances below a certain level will result in being let go. So everyone becomes motivated, in a sure but limited sense, to avoid the dreadful loss. This Core Drive 8 manager may even exercise small loss-events ranging from pep talks, moving people off important assignments, to publicly scolding them (hint: generally a terrible idea). All to make sure the employees emotionally acknowledge this sense of loss, and are motivated to work harder.

However, when an employee has failed the performance goal and fully expects to be let go, the manager may execute another option. Knowing full well that turnover and retraining new talent is the least preferable outcome, the manager can tell the employee that the organization appreciates his effort and hard work, and that they will give him another chance to hit the target.

As you can see, the Ultimate Loss here is not actually implemented, but instead wielded as a black hat motivational tool. After this, the employee may appreciate the second chance and become more motivated to do the work. This then becomes an example of Core Drive 8: Loss & Avoidance setting up for Core Drive 5: Social Influence & Relatedness, where the employee potentially starts to work harder because of a new sense of gratefulness towards the manager.

Happiness is Determined by Expectations

Expectations have everything to do with happiness and motivation. A hungry teenager in a poor country will have an extremely difficult time understanding why a perfectionist student in a developed country would be depressed for three weeks simply because she received a “B” in school. On the other hand, a student who expects to fail the class celebrates for a week when they obtain a B.

Similarly, a billionaire who lost a lot of money and became a millionaire might end up committing suicide, while the average person who end up with a million dollars would become ecstatic. From my own observations, our happiness is almost exclusively determined by our expectations matched against our circumstances. Based on that, the easiest way to become happy may be to adjust our expectations and appreciate what we do have, instead of becoming upset because of the things we don’t. Even many marriages fail because of unrealistic expectations for each other, leading to built up bitterness over the years that plagues the soul.

When it comes to interactions with people, it’s always easier to start off stern and then become lenient, rather than being nice and then executing harsh punishment later. The dynamic between Core Drive 8 and Core Drive 5 often determines the relationship between landlord/tenants, teacher/students, employer/employees, and government/citizens.

Of course, if the employee starts to take the second (or third, fourth etc.) chance for granted, then it is crucial to maintain the credibility of the Loss & Avoidance system and let the employee go. If the ones breaking the rules aren’t facing any real consequences, it demoralizes the experiences of those that are performing their parts, and overall motivation plummets.

With that said, one thing to always remember is that this same slacking employee may shine like a star if the manager actually implemented more White Hat motivation. Motivational designs such as providing more autonomy, feedback, and meaning, as opposed to pure punishment systems. However, since the scope of this chapter is to explore the nature and effects of utilizing Core Drive 8: Loss & Avoidance, we focus mainly on the uses and effects of that Core Drive.