Monday, April 20, 2015

Mistakes that Serial Entrepreneurs Make

Professor J.P. Eggers of the NYU Stern School of Business and Lin Song of the Central University of Finance and Economics in Beijing have conducted an interesting new study regarding serial entrepreneurs.   They examined data on Chinese entrepreneurs as well as startups supported by venture capital in the United States.  Their paper is titled, "Dealing With Failure: Serial Entrepreneurs and the Costs of Changing Industries Between Ventures.” It will be published soon in the Academy of Management Journal.

Eggers and Song find that serial entrepreneurs often change industries after an initial startup failure.  However, changing industries often proves to be a mistake.  Why do entrepreneurs switch industries?  Consider the fundamental attribution error, a phenomenon discovered years ago by psychologists.  When others fail, we look inside of them to identify the reasons for their failure.  We examine their expertise, capabilities, personality, and motives.   However, when we fail, we tend to blame external factors.  We attribute the failure to uncontrollable factors in the environment.  For this reason, serial entrepreneurs sometimes blame their initial startup failure on the industry environment, and they change industries for their next venture. 

These serial entrepreneurs may encounter difficulty, though, because they are not leveraging the learning  fully from their initial startup.   Moreover, they may not be leveraging their social networks as well as they can.  Changing industries may mean having to build entirely new networks.  Finally, they may not be taking a hard look at internal issues such as leadership style, ability to work with others, and other competencies that may be at the heart of their initial failure.  Not correcting these issues may lead to a subsequent failure.  

Wednesday, April 15, 2015

Elements of a Creative Culture

Matt Williams, CEO of The Martin Agency, shared his insights about the elements of a creative corporate culture with Kellogg Insights.   I think two points are worth emphasizing here.  

First, Williams argued that leaders should "celebrate the work, not just the wins."  In other words, be sure to honor and reward people for terrific work even if they don't land the big contract or make a key sale to a potential customer.  Sometimes you do great work, but you don't achieve the ultimate goal.  Celebrate that creativity.  

Second, Williams argues that we should "avoid hiring a lot of people who are 'similarly creative."" He argues that we need to be wary of "creative redundancy."   There are different types of creative people.  Some people are very broad thinkers; they are all about big ideas.  Others are wonderful at challenging the existing ideas on the table and making them better.  Some people are very visual in the way that they process information and share ideas.  Others tend to be excellent writers.  You want a mix of creative types to create a successful organization, and you want some level of healthy tension among these types. 

Monday, April 13, 2015

Jack Welch on the Role of a Manager

With Jack Welch visiting campus today here at Bryant University, I thought that I would share one of my favorite Welch quotes:

I see my job as a manager today so much clearer.  I see it as walking around with a can of fertilizer in one hand and a jug of water in the other.  Think of the employee population as a garden, and you are pouring the water and the fertilizer on.  You want the flowers to grow.  Some will grow.  Some you will have to cut out.  But your job is to constantly pour the water and the fertilizer, and give everyone a chance to flourish.

Welch shared this particular story in an interview with Harvard Business School Professor Chris Bartlett in 1999.

Loyalty: 60 Minutes Segment on Bryant Lacrosse Coach Mike Pressler

Saturday, April 11, 2015

GE's Changing Corporate Strategy

General Electric announced this week that it would divest nearly all of GE Capital, the financial business that had been a major profit generator in the past.  The latest strategic shift at GE marks the continued move away from the firm's historic strategy of unrelated diversification.  Few true conglomerates (i.e. unrelated diversifiers) remain in the United States.  Investors can diversify risk more efficiently than corporate executives.  Without true economies of scope, conglomerates could not justify their existence.  The argument that governance economies existed did not hold water in many cases, i.e. corporate parents could not argue that they simply had better many management systems through which they added value to each of the business units.  For this reason, many conglomerates have broken up over the past two decades.  GE remained an exception to the rule for many years.  Investors did not push for a breakup when the company routinely outperformed competitors for each of its major business units.  The whole seemed clearly greater than the sum of the parts.  Governance economies did seem to exist.   People raved about the quality of the management systems and the leadership talent at GE.  A lagging stock price in the past decade shifted the conversation.  Investors begin to ask a question that once seemed unthinkable to ask: Should GE break up?   Could the whole no longer be worth more than the sum of the parts?  

The divestiture of GE Capital does not end this conversation though.  GE has returned to its industrial roots in many ways.  It no longer owns a television network or a major financial business.  However, it still owns quite a wide array of industrial businesses.  Investors will continue to ask the question:  Are these businesses worth more together than apart?  They will continue to ask:  Where are the economies of scope (i.e. the synergies)?   Are the governance economies sufficient to justify keeping all the units together?  Yes, these businesses are more similar than the portfolio was in the past.  However, we still aren't talking about the type of relatedness that we see at a company such as Disney.  If performance lags, the questions will continue.  GE has moved in the right direction, but the strategy will likely continue to evolve. 

Wednesday, April 08, 2015

Don't Pay for Past Performance!

This week marks the beginning of another major league baseball season.   Hope springs eternal.  In my home state, fans believe that our beloved Boston Red Sox will engineer another  magical "last to first" season, much like the 2013 campaign.  In Chicago, fans of the downtrodden Cubs believe that this season might just be the year that they return to respectability.  Of course, most teams have welcomed some new players in the offseason, including some high-priced free agents.  In addition, they have had to say goodbye to some key players who were signed by other teams.  In Boston, we lost ace pitcher Jon Lester to the Cubs.  Fans were not happy.  Management of the Red Sox claimed that they did not want to commit to a 6 year, $155 million contract to a pitcher in his 30s.  The philosophy is clear: Don't pay for past performance.   Fans don't like to hear that.  We fall in love with players based on past performance, and we aren't worried much about what that player will be like in three years.  Management, though, must think about the future.  Smart baseball teams, as well as other sports teams, do not pay for past performance. 

Business leaders should take a cue from the smart general managers in sports.   Of course, in sports, the reason we don't want to pay for past performance is because skills deteriorate with age.  In business, that is not the case.  In fact, performance can increase as managers gain more experience.  However, we still should be worried about paying strictly based on past performance. Why?  What made a manager and an organization successful in the past may not be the key to future success.  Competitive environments, technology, and consumer preferences can change dramatically.  As a result, the needed employee skill sets change.  Someone may have excelled in the past, but they may not have the skills required to succeed in the future.  They may have mental models that are rooted in the past, and they may have a hard time changing those mindsets.   For these reasons, companies need to think about the future drivers of performance, and not simply pay for talent that has excelled in the past. 

Tuesday, April 07, 2015

Don't Brag About Being a Dinosaur

The Boston Globe published an interview with Jack and Suzy Welch today (the two will be speaking here at Bryant University on Monday, April 13th).   I thought the excerpt below about the adoption of technology in the workplace was important to highlight. 

 Jack: Nothing is worse than the person in their 40s who says, ‘I’m not going to learn this.’ ‘I don’t carry an iPad.’ That will label you and put you right in the corner. Some people do it as a badge of honor. I’ve seen them myself, they walk around bragging [about not knowing much about technology].
Suzy: Why don’t you carry a placard saying ‘I am a dinosaur.’ You’ve got to dig in [and learn about things you don’t know] if you want to stay in the conversation.

I agree wholeheartedly.   I can never understand the rationale of those who brag about being dinosaurs. "Oh, I don't get the whole Twitter thing."  "I can't figure out how to sync my calendar across all my devices."  "I don't really need most of the functionality of my smartphone; that's why I haven't bothered to learn about those apps."  I think people put a target on their back when they make such statements.  I understand that one does not have to embrace every new social media platform, and some will rely on certain devices more than others.  However, bragging about being a dinosaur signals to others a reluctance to learn new things, make mistakes, and take risks.   The last thing that many leaders want in their organizations want is someone who is not a voracious lifelong learner. 

Monday, April 06, 2015

What do we want from our managers?

Gallup has released some interesting findings from a survey of 7,200 employees across a wide array of organizations.  Gallup has done some outstanding work in the past showing that many workers are not engaged or even actively disengaged at their jobs.  The lack of engagement often has much more to do with a bad boss than it does with other broader attributes of organizations. In this survey, Gallup's results help us understand what employees desire from their managers.  Here are three big takeaways:

1.  People want their managers to communicate very often with them... daily seems to be the desired frequency.   They also want their bosses to be approachable.  Engaged employees tend to be those who feel very comfortable asking their boss a question at any time.

2. Employees desire clear guidance regarding objectives and priorities.   They want to know: What should I be working on right now?   What's most important?

3.  People want everyone to be held accountable in a fair way.  Equal standards for all: that's the desired state.