When Netflix was in its early days, Reed Hastings made a surprising decision: he banned the word “Blockbuster” in Netflix meetings. To many, this might have seemed counterintuitive—after all, Blockbuster was the dominant force in the movie rental industry, and Netflix was the upstart trying to challenge it.
But Hastings understood something fundamental: Netflix wasn’t just competing with Blockbuster. It was competing with guilt.
The Hidden Power of Guilt in Business Models
Many business models thrive on guilt. Blockbuster made billions from late fees—penalizing customers for holding onto a movie too long. Gyms still make money from unused memberships, banking on the fact that people feel guilty about not exercising but don’t cancel. Many subscription services count on the sunk-cost fallacy, where customers keep paying simply because they’ve already invested time or money.
Netflix turned this model on its head. Instead of capitalizing on guilt, they removed it entirely:
✅ No late fees – Customers could hold onto DVDs as long as they wanted.
✅ Flat-fee subscription – No surprise charges, no feeling of being “punished” for watching at the wrong pace.
✅ Streaming with unlimited access – No decision fatigue, no anxiety over rentals.
By removing guilt, Netflix didn’t just build a better product—it eliminated a key psychological barrier that Blockbuster relied on. Customers weren’t switching from Blockbuster to Netflix because of better selection or lower prices. They switched because Netflix made them feel better.
How to Identify “Guilt-Based” Competition in Your Industry
Many industries unknowingly rely on customer guilt, frustration, or anxiety. To identify this in your space, ask yourself:
🔹 Where do customers feel punished? (Are they paying extra for small mistakes?)
🔹 What causes friction in the buying process? (Confusing pricing, difficult cancellation policies?)
🔹 Is the customer being forced to make hard decisions? (Too many options, hidden fees, unclear terms?)
Some industries that thrive on guilt/frustration include:
💳 Traditional banking – Overdraft fees, penalty charges
🛑 Insurance – Difficult claims process, lack of transparency
🎓 Online courses – Low completion rates, guilt over uncompleted learning
🏋️ Gyms – Subscriptions that rely on non-usage
Actionable Insight: Look at your industry’s dominant players. Are they profiting from customer mistakes or confusion? That’s your opportunity to disrupt.
Redefining Competition: A Playbook for Startups
Once you identify the “guilt” factor in your industry, follow these four steps to disrupt the space:
Step 1: Identify the Emotional Pain Points
- What frustrates customers about existing solutions?
- Are they afraid of making the wrong choice? (E.g., confusing subscription tiers)
- Are they forced to pay for things they don’t use?
💡 Example: Traditional car rental companies charge for unused days, leading to anxiety about returning the car on time. Turo (Airbnb for cars) removed this by offering flexible rental durations with clear, upfront pricing.
Step 2: Find a Way to Eliminate Guilt or Friction
- Can you replace hidden fees with transparent pricing?
- Can you let customers pause/cancel anytime without penalties?
- Can you simplify the customer journey to reduce decision fatigue?
💡 Example: Amazon Prime reduced friction in e-commerce by offering one-click ordering and free returns, eliminating anxiety around shipping costs.
Step 3: Build an Incentive Model That Aligns With Customers’ Success
- Shift from penalizing mistakes to rewarding engagement.
- Design pricing structures that feel fair and empowering.
💡 Example: Duolingo changed language learning by gamifying progress, making it fun instead of guilt-driven. Traditional language courses often make students feel bad for missing lessons.
Step 4: Market the Emotional Benefit, Not Just the Features
- Instead of saying, “We’re cheaper than competitors,” say, “We eliminate surprise fees.”
- Instead of competing on technology, compete on how your product makes customers feel better.
💡 Example: Slack didn’t just sell itself as a chat app—it positioned itself as a replacement for stressful email overload.
Case Studies: Startups That Won by Eliminating Pain Points
Here are three companies that succeeded by removing guilt/friction instead of competing on features alone:
1️⃣ Robinhood vs. Traditional Stock Trading
Pain Point: People felt intimidated by complex fees and investment jargon.
Solution: Robinhood removed commissions and made trading simple, gamified, and accessible.
2️⃣ Peloton vs. Gym Memberships
Pain Point: People felt guilty for not going to the gym.
Solution: Peloton brought the gym experience into the home, making fitness feel flexible and engaging rather than a chore.
3️⃣ Spotify vs. iTunes
Pain Point: People felt frustrated buying individual songs and managing downloads.
Solution: Spotify removed ownership concerns by offering unlimited streaming for a flat fee.
Final takeaway for entrepreneurs
Your real competition isn’t just another company—it’s the negative emotions customers feel when using existing solutions.
🚀 Actionable Question: What is the “guilt factor” in your industry?
If you can remove it, you won’t just compete—you’ll win by redefining the game entirely.
