Human behaviour is not always rational. While we are capable of applying rational thinking and logic to solve problems, our instincts and emotions tend to reign supreme when it comes to our decision-making. This is a very interesting phenomenon that marketers and business owners must pay attention to and be aware of in order to ensure their success.
For instance, logic dictates that the more money a business try to raise, the more difficult it should be to reach the goal. This is a logical assessment – it makes sense that a higher payoff should mean higher difficulty.
But that simply wasn’t the case for Eco Fuels Kenya (or EFK) Group, a startup that failed to raise $50K but succeeded in raising $1M – twenty times the amount they failed to raise.
EFK Group is set on improving the lives of people living in impoverished regions throughout Africa. In particular, EFK Group has identified a myriad of uses for the croton tree, a common bush that exists in abundance on otherwise useless farmland.
At some stage, EFK Group’s CEO realised that the group could enhance their effectiveness if they were in control of their supply chain. Thusly, they endeavoured to raise $50K in order to build a processing facility.
The group produced great numbers: An attractive logical argument for investors to get on board. They were even raising the wages of farmers by 500%. Considering the average ask of charity fundraisers, the logical conclusion was that $50K would be a breeze.
But that simply wasn’t the case. After pitching multiple banks and investors, the company failed to raise the $50K. EFK Group’s CEO was distraught, watching other African startups raise millions of dollars seemingly with ease. It was then that he came to a logically fickle conclusion: The group needed to ask for at least a million to be taken seriously.
After reaching this conclusion, EFK Group campaigned to raise $1M. Immediately, a hedge fund manager in Boston invested $250K, which inspired further donations from other investors. The round closed in two months, and EFK Group wound up raising $1.4M.
So why did this happen?
Human beings are tribe-oriented creatures. If we see a group of other people doing something, our natural inclination is to assume that it’s the right thing to do and join in.
It’s difficult to find the first investor – the pioneer / early adopter willing to go before anyone else. But once that happens, raising funds only gets easier and easier. After EFK Group managed to convince the first investor to buy in, the rest followed quickly.
In investment circles, they call the first investor a “lead investor”.
Investors don’t invest in projects, they invest in your vision. They invest in potential.
Asking for $50K was conducive to a small vision. The end result of that investment would be a processing facility, and that would be that. However, when asking for $1M, you can talk to what that $1M would allow you to do. That’s a much more exciting vision for an investor to buy into.
Knowing your worth
You teach people how to treat you. If you ask for $50K, you’re perceived to be worth $50K. Even if an investor stands to make a return on that investment, it’s not as exciting to invest in a $50K company as it is to invest in a $1M+ company.
Know and set your own worth, and be confident in it. Investors, business allies and others will follow your lead.
When you’re considering your marketing strategy, your business strategy or your investment strategy, it’s important to keep in mind that humans don’t always behave logically: Even when it comes to large sums of money. Social proof and emotion always play a part in business. Learn how to work with and around that, and you’ll be unstoppable.