Commitment Contract: The Best Growth Hack for Your Business

Loss aversion drives me harder than any other motivation tactic. Don’t get me wrong, I love working toward big goals. But as much as I love to achieve, I hate losing even more. That’s why a commitment contract works so well for me.

Because, I. hate. to. lose.

It’s been this way all my life. I remember getting deeply angry when my competitive soccer team would lose a game. Winning brought me joy, but the pain of losing was SO much worse than the happiness of a win.

I didn’t know it at the time, but the psychology of loss aversion is a deep motivator.

The science behind it basically states that we would feel more intense emotions about losing $5 than gaining $10. That’s right, we feel twice a strongly about losing than about winning.

So, last year while I took some time off, I came across this concept and it changed my life. By implementing it, I built healthy habits like meditating, eating a healthy diet and even practicing Spanish. I accomplished these things through a commitment contract – my favorite loss-aversion tactic.

I learned about this tactic from Mike Vacanti.

He calls it a reverse bet, but it’s essentially the same thing. After his 11-week commitment contract expired, he wrote the following about its power to drive action:

“During the reverse bet, I often felt like I was filming or scouring old photos with sense of urgency to just post something, an external pressure not to fail.”

The idea is simple. Stop working to achieve a win. Instead – Hustle hard to avoid the loss.

In today’s post, I’m going to take you through my strategy for implementing loss aversion to grow my business. And yes, I’ve got a reverse bet in place too.

Step 1: Outline Your Macro Vision

My major burn out came from a lack of vision. When you don’t understand what you’re working for everything becomes an empty vacuum, sucking the life right out of you. It’s terrible.

During my break from the freelancing world, I got very clear and created my life vision.

I don’t want to buy the Jets or become a billionaire. But I do want to buy/build a custom home with views of Pikes Peak that has a creek on the property. It’ll cost about $1-2 Million. Certainly not a modest goal, but not unrealistic either.

This is what I want, and I plan to get it. There are other, more modest and less quantifiable goals I’ll reach along the way. But that’s the big thing – the goal that all others will fuel.

But I can’t make a commitment contract that says, “Buy $1 Million home at the base of Pikes Peak by the time I’m 45-years-old or give my brother all my money.” That’s just not reasonable. It’s too large of a target without any real direction.

So, we have to take the vision and break it down into smaller, achievable steps.

Step 2: Reverse Engineer the Process

If you want to achieve your life goals, you’ve got to reverse engineer the process. In fact, I believe this is true with any goal you want to achieve, whether it’s weight loss, financial freedom or growing your blog.

I really enjoy how Kyle Reed breaks it down:

So, when I look at my 20-year vision, I can reverse engineer it into a few general milestones:

Buy a home with views of Pikes Peak that has a creek on the property.
– After 20-years of digital success, offer high-end consulting.
–– Invest and advise other startups.
––– Use credibility and connections to start professional speaking.
–––– Grow my brand, launch a startup and build multiple passive income streams.
––––– Build a six-figure freelance writing business.

Once I understand my macro milestones, I can set micro milestones to achieve the larger goals. It’s within these micro milestones that a commitment contract can prove incredibly helpful.

Step 3: Set Micro Milestones to Achieve

I, like Damon Brown, love BHAG (Big, Hairy, Audacious Goals). But we both agree: give yourself small, achievable goals and you’ll gain confidence to reach the big ones. He says:

In terms of a commitment contract, I like to work in 1 or 3-month intervals. This is a tool I use to achieve short-term success for long-term happiness. It’s why I used it for 3-months to lose weight, and why I’ll use it now for my blog.

So, let’s look at the first milestone in my reverse engineer: Build a six-figure freelance writing business. The first commitment contract I’ve made for that is to blog every day during July.

Why?

Because I believe blogging every day will serve as a launchpad for new clients. And it’ll become a powerful case study to sell my services to other entrepreneurs.

Step 4: Determine Consequences for Failure

Once you’re clear on the first three steps, it’s time for the commitment contract. This means setting consequences for when you fail to achieve a micro milestone.

At the end of the day, this is a bet. So, feel free to get as creative as you’d like.

Daniel Landis from Quora had a few ideas for you…

Personally, I prefer laying down some cold, hard cash. It’s what motivates me most. Plus, cash makes the most sense because this is business.

What would you be willing to be on yourself?