How Entrepreneurs Can Recover From Failure

Vivian Giang has written an interesting story for Fast Company about how entrepreneurs can recover from failed startup experiences.   She interviews Steve Blank, among others.  Blank is a serial entrepreneur who now teaches at Stanford.   Blank talks about the importance of giving yourself "time to grieve" when you have been part of a failed startup.  You don't want to rush into the next startup.  You need time to go through the natural emotional reactions and to experience the grief, denial, anger, and depression that might come with a failure.   Then, you need to truly reflect on what you have learned and identify how you want to change your behavior moving forward.   Only when you have moved past the emotionally difficult stage, and moved through the reflection and learning stage, are you ready for another venture.  It seems like terrific advice.  I would argue that it's good advice not simply for entrepreneurs.  Anyone experiencing a failure would benefit from Blank's advice.

Market Basket and the Benefits of Low Employee Turnover

As the crisis at Massachusetts-based supermarket Market Basket rages on, it's worth noting that Consumer Reports just ranked the retailer as one of the top 10 supermarkets in the United States.  I also found an article this week on Boston.com quite interesting, because it explored the question of how Market Basket could keep prices so low while offering employees compensation and benefits that exceeded those provided by rivals in the industry.  The article, by Adam Vaccaro, cites low employee turnover as one key to the firm's success.  I thought that I would do a bit of research on the economic cost of high turnover.  I went to the Hay Group's website, since that firm has done a great deal of research on issues related to employee compensation.   The Hay Group examined the economic benefit of having a highly engaged workforce coupled with low employee turnover (the two obviously are related... if you have high engagement, you are likely to have low turnover).  Here is what they found:

Similarly companies with high levels of engagement show turnover rates at 40 percent lower than companies with low levels of engagement. However, companies that both engage and enable employees demonstrate a total reduction in voluntary turnover of 54 percent... For an organization with 20,000 employees and an annual voluntary turnover rate of eight percent, the cost of turnover is approximately $56 million (assuming an average salary of $35,000). Reducing the voluntary turnover rate by 40 percent would yield annual savings of $22.4 million. But reductions in turnover through high levels of engagement and enablement would yield savings of over $30 million annually, a difference of more than $7.5 million.  

The Hay Group research also shows that highly engaged employees are likely to far more productive.  As a result, the firm achieves substantial additional economic benefits.  What can firms do with these economic gains from the combination of high engagement, low turnover, and high productivity?   Certainly, they can pile up healthy profits.  However, in the case of a firm such as Market Basket, it appears that they were able to share that economic value with customers and employees as well.  Employees received solid compensation and benefits, while customers enjoyed low prices.  Of course, all of these gains are at risk if the Board cannot move to resolve the leadership crisis at the firm.  As of now, the workers are standing strong in support of their former CEO.  The Board continues to examine a potential sale, either to that former CEO or to another party.  

Weird Al: How Many Buzzwords Can You Cite In Four Minutes?

Thanks to Bryant University mascot Tupper the Bulldog for sending me this video via Twitter.  Weird Al Yankovic (remember him) has a new album that is immensely popular right now.  In this song, he pokes fun at corporate life, with all of its jargon and cliches. 

Do Entrepreneurs Do Better In Their Second Attempt at a New Venture?

Francine Lafontaine and Kathryn Shaw have conducted an interesting new study regarding entrepreneurship.   They chose to study whether entrepreneurs who failed in their first new venture did better the second time around.   The scholars examined retail entrepreneurs in Texas from 1990 to 2011.  Here is a summary of their findings, from an article by Allison Schrager in Business Week:

Over the 21-year-period, 2.4 million retail businesses opened and 2.2 million closed. Three out of every four were founded by first-time business owners.  Lafontaine and Shaw found that the Texas retailers were less successful than the national average for small businesses: One in four closed after a year; half after two. What happened next was telling. Of the first-time entrepreneurs whose businesses closed quickly, the overwhelming majority—71 percent—didn’t bother to try again. But the tenacious 29 percent who did were more likely to be successful the second, third, and even tenth time around. Somewhat paradoxically, their success rate increased with their number of past failures.

Interestingly, the article points out that these findings stand in stark contrast to the findings of a study conducted in the UK by Deniz Ucbasaran, Paul Westhead, and Mike Wright.   They found that serial entrepreneurs have a hard time learning from failure, though they note that people working on several ventures at the same time appear to be more successful .  Here is their explanation:

Psychological research suggests that strong emotions often prompt people to blame others or external events rather than themselves so that they can maintain some semblance of self-esteem and a sense of control. This “attributional bias” appears to make serial entrepreneurs less capable of learning from failure than portfolio entrepreneurs, whose attachment is spread among multiple initiatives.

What do we make of these contrasting findings?  I'm not sure, though I would note that the new study on Texas entrepreneurs has a much larger sample size, and it does not rely on self-reported data from surveys.  The new study also controls for industry and type of entrepreneurs (mostly mom and pop retail stores).   Does the type of venture matter?   Perhaps that may be the reason, but more research will be needed in this area.

Jimmy Kimmel's Hilarious Apple Smart Watch Prank

Irrationality in the Airline Business

This Wall Street Journal headline did not shock me today, even though it speaks to an incredibly irrational set of behaviors:  "New Startup Airlines Crowd the Skies."   The article describes how a number of new players ("a flock of startups") are entering the airline industry, including a firm that has brought the People's Express brand back to life.  

Why do I say that the headline describes irrational behavior?  Consider the following important fact: for over one hundred years, the airline industry has been one of the least profitable markets on earth.  Richard Branson once joked that it was actually quite easy to become a millionaire; all you had to do was begin as a billionaire and then enter the airline industry!   Look back at the leading players in the industry in the 1970s and 1980s.   Most of them either no longer exist, or they have experienced a Chapter 11 reorganization at one point or another.  For those familiar with Michael Porter's five forces framework, a quick analysis shows that the industry is terrible along each dimension.   In short, the industry structure is incredibly unattractive.   

Why, then, are firms continuing to enter this industry?  Yes, the barriers to entry are quite low, but why enter if the likelihood of success is so low?   I think it comes down to the fact flying has always had a special allure.  Succeed, even for just a brief time, and you can become a celebrity.  Think about the famous names throughout the industry's history:  Howard Hughes, Juan Trippe, Richard Branson, Herb Kelleher, Michael O'Leary, Freddie Lake, and Don Burr.  Just take a look at the quote that ends the Wall Street Journal article today: 

"It's a high-profile, sexy business," says Henry Harteveldt of Atmosphere Research Group, a travel research firm. "And if you keep a lid on costs, have the right strategy, aircraft and managers, you can make money." What's more, the U.S. needs more airline competition, he says. The problem is: "the best markets are spoken for." 

There you have it.  It's sexy.  It's high-profile.  You can become a celebrity CEO if you succeed, or you can hob nob with CEOs who already are celebrities.  Unfortunately, many entrepreneurs in this industry forget one key lesson that I always teach my students when we study industry structure:  sexy industries are not always very profitable. 

Effective Listening Skills

The Wall Street Journal has a very good article today about listening skills.  The article highlights factors that detract from effective listening and offers tips for becoming a better listener.  What are some traps to avoid?

1.  Don't begin formulating your response when the other party has just begun talking.
2.  Don't filter what you are hearing based on pre-existing  views you may have.
3.  Don't multi-task.

What can you to improve?  First, you can write down questions you would like to ask before a meeting takes place.  Second, offer subtle signs (non-verbals) to demonstrate that you appreciate what the other party is saying.  Third, repeat what you think you have heard and ask for confirmation that you have interpreted them correctly.  Fourth, take notes to keep yourself focused.  Fifth, maintain eye contact.  Finally, set a goal of what percentage of time you plan to listen vs talk during a meeting.

Employee Revolt at Market Basket

While I'm here in Tokyo this week, I've been intrigued by what's happening back home in Massaschusetts.  A massive employee revolt is occurring at a supermarket chain called Market Basket.  This family-owned regional chain competes as an effective low cost player and has a devoted customer following.  The CEO has just been fired by the Board.  Here's the interesting part.  He's been fired by his cousin, who took control of the Board last year, and with whom he has feuded for years.  The Board hired two non-family members to run the company.  What happened next is fascinating.  The employees (non-union by the way, and incredibly loyal) revolted!  They have protested publicly.  Store shelves are bare in some instances.  Politicians are supporting the workers.  The employees object for three reasons.  They know the company is profitable, and thus do not understand the firing.  In addition, the fired CEO treated them well in terms of pay and benefits.  Finally, they have great personal admiration for the fired CEO.  The company has responded by dismissing managers who have led the protests.  

What do I take away from this rare situation?   First, every CEO should wish that his or her employees would stand up so forcefully for them even at great personal risk.  What a statement about the leadership provided by the fired CEO, as well as his treatment of the employees!  Second, the Board has badly miscalculated by firing managers who objected to the CEO's dismissal.  It only added fuel to the fire.  Third, it really demonstrates the value of culture as a source of competitive advantage.  One of the greatest assets a firm can have is devoted and highly productive employees who share common values.  That culture has enabled Market Basket to outperform much larger players such as Shaw's in the marketplace.  The Board has failed to understand the true "gold" that they have here.  Fourth, employee loyalty is so rare in retail, yet these employees rarely left.  Turnover was quite low compared to other supermarkets.  The cost of turnover in retail can be incredibly high.  Again, the Board failed to see the key source of competitive advantage here.  Finally, this case shows how social media can fuel a raid and massive backlash.  It has enabled customers to show their support and to spread the employees' message.  The Board is losing the PR battle because it has no counter to this wave of support via social media. 

Do You Pre-crastinate?

Yes, you read that correctly.  I'm not talking about procrastination, something at which many of us excel.  I'm speaking about a different type of behavior described in a new study by Penn St. scholars David Rosenbaum, Lanyun Gong, and Cory Adam Potts.   The New York Times reported on their research this weekend.    These scholars define pre-crastination as "the hastening of subgoal completion, even at the expense of extra physical effort."   What might that look like?  Well, you may be working from home on an important project, perhaps to write a complex report about some research you have been doing for work.   However, before sitting down to tackle this challenging project, you scratch a few other smaller items off of your to-do list, such as cleaning the kitchen, doing laundry, etc.   

Why do people tackle these smaller items first?   According to the article, "People are seeking ways to limit the burden to their 'working memory,' a critical but highly limited mental resource that people use to perform immediate tasks... In essence, they were freeing their brains to focus on other potential tasks."   That sounds like a good strategy, right?  Well, by now, you can see the risks with this to-do list strategy to limit the burden on our working memory.   As Alan Pastel of UCLA notes in the article, "“People who are checking things off the list all the time might look like they’re getting stuff done, but they’re not getting the big stuff done.” Yes, I've definitely fall into that trap. 

Fox, Time Warner, and the Perils of Vertical Integration

The news broke this week about a possible Fox takeover of Time Warner.   As you read these reports, you may have noticed many of the key arguments for why this deal would make sense, i.e. powerful synergies exist between the two media/entertainment companies.  However, yesterday's Wall Street Journal featured a terrific article examining the perils of vertical integration with respect to this  deal.   Note that Time Warner is a major producer of television shows, which it sells to various broadcast networks.    Fox, of course, owns a major television network (and a variety of cable channels).  Warner Brothers is one of the only major TV studios not connected to a major broadcast network (Sony is another).  In the article,  Time Warner CEO Jeff Bewkes says, " Being the leading independent supplier to all the broadcast networks makes us the preferred home to the top writers and producers on TV which, in turn, makes us indispensable to those networks."  Lee Dinstman, a partner at the Agency for the Performing Arts, explained, "The fact that [Warner] has the freedom to take a creative idea to the proper home, instead of just selling to a captive network, can be incredibly attractive." 

What happens if the two firms merge?  Will the loss of independence hurt the Warner production studios?  Put yourself in the position of a programming chief at one of the other major broadcast networks.  When Warner Brothers studios comes pitching a new TV show, what will you think?  You might wonder:  "If it's such a great show, why is it now being broadcast on Fox?"   You may conclude that Warner Brothers is trying to push lower quality shows out to your network.  Note that many firms are vertically integrated in the industry.   Many of the in-house studios at other firms place most of their shows on their own networks. For instance, the article notes that Fox studios has 18 shows on major networks at this time; 14 of them are on the Fox network, while only 4 have been sold to other networks.   Is that because it's the most profitable decision, or is it because other networks are reluctant to buy from the competition?   That, in a nutshell, is one of the perils of vertical integration.  A firm such as Warner Brothers ends up competing with its own customers, creating some challenging conflicts of interest. 

Active Copers Make Effective Leaders

Leslie Pratch is a clinical psychologist who has evaluated many candidates for senior executive positions at large companies.  She argues that one trait distinguishes the successful candidates from others who do not fare well.   She argues that effective leaders are adept at "active coping."  What does she mean by that?   According to this article in Fortune, "By active coping, Pratch means the ability to adapt creatively and effectively to challenges and change. An active coper quickly recovers from setbacks, opens up to the people around her and is aware of her own motivations, strengths and shortcomings."    What is a sure sign that someone is not an effective active coper?   Pratch argues that we should beware of narcissists (no surprise there!).   Narcissists are not very self-aware, and therefore, they struggle to cope with ambiguity and challenges to their authority or expertise.  I think the concept sounds interesting and quite reasonable.  Having said that, I am always highly skeptical of individuals who try to boil success and failure down to one trait or one causal factor.  That's far too simplistic.  

Does Thinking Quantitatively Cause Us to be More Selfish, More Unethical?

Scholars Long Wang, Chen-Bo Zhong and Keith Murnighan have conducted new research examining the link between a "calculative mindset" and selfish/unethical behavior.  They used the ultimatum game and the dictator game to conduct their studies.  These two exercises often used in business schools to teach basic principles of game theory.   They split study participants into two groups.    In the control condition, participants were primed by reading a historical account of the industrial evolution.  In the experimental condition, participants were primed by reading a tutorial about net present value analysis.   What did the scholars find?   The participants who examined the net present value tutorial acted more selfishly, and they lied more often during these games than those who read about the history of the industrial revolution.  In other words, those primed to think quantitatively tended to act more selfishly and unethically.   The scholars argue that the calculative mindset is not problematic in and of itself, but it becomes dangerous when it comes to dominate people's thinking.  They also point out that business schools often emphasize the calculative mindset a great deal.  They should question the impact of asking students to think quantitatively so often. 

How to Give a Better Speech or Presentation

Lisa Evans has a great article at Fast Company about how to deliver a better speech.  Her essay is titled, "4 Common Vocal Mistakes Leaders Make."   She describes the following four errors:

1.  They lack passion for their own ideas.  They don't sound energetic and engaged.  If you don't care deeply about your ideas, why should the audience care?

2.  They speak in long rambling paragraphs.   They forget to speak in concise sentences, with breaks to enable the audience members to process what they are hearing.  

3.  They are monotone.  They don't use intonation to help emphasize key points, capture the audience's attention, and stimulate questions.  

4.  They fail to practice and then to listen to themselves speaking.   Therefore, they have no idea whether they are delivering their message effectively.   

I would add a fifth key error that leaders often make.  Many leaders fail to use stories to communicate their key message.  They rely on numbers, facts, and statistics.   However, research shows that storytelling is much more effective when trying to influence and persuade.   

Poor Disaster Preparation: Three Mental Biases

Wharton marketing professor Robert Meyer and his co-authors on several studies have explored the reasons why individuals and organizations fail to prepare adequately for major disasters such as hurricanes.  They argue that three mental biases impair our ability to project the likelihood and negative impact of a looming disaster appropriately.   Here's Meyer describing the findings:

 Basically, what we found over a number of years and using a combination of field surveys and working with people in laboratories, is that effectively, people are subject to three major biases. One is, simply put, that there is a tendency to under-appreciate the future or under-consider the future, or future consequences. A second thing is that people are too quick to forget the past, or too slow to remember the negative events that have happened in the past. The third one is that if in doubt, what often happens is that people will follow the advice of other people who are no less prone to those sorts of mistakes than they are.

I believe similar biases explain why many firms fail to prepare adequately for major disasters of all kinds, not simply natural disasters.   By making executives aware of these biases, perhaps firms can do a better job of preparing for events that could impact their operations in a significant way.  

Stephen Colbert on the Amazon vs. Hachette Battle

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College Factual Ranks Bryant University College of Business Among Top 10 Undergrad Programs in Nation

The USA Today reported on Wednesday, July 2nd that College Factual ranked Bryant University's College of  Business as one of the top 10 undergraduate business schools in the country.   For a detailed description of College Factual's methodology, click here.  In the article, USA Today wrote: 

If you’re looking for a deeply personalized undergraduate degree, Bryant is for you. There are no lecture halls and no teaching assistants at Bryant, so you actually get to know your professors. The business school also offers an MBA program that lets you specialize in a global field of study within business.

I'm very proud of the strides we have made in recent years here at Bryant.  We have built a strong undergraduate business program now being recognized by multiple publications and rankings.   Business Week surveyed employers earlier this year, and we ranked #18 in the country in the employer survey.   US News cited Bryant as the #2 up and coming university in the northeast.   Now we have been cited by College Factual as a top 10 undergraduate business program.  Why are we being recognized so prominently on these lists?  I believe that it is because we prepare our graduates well for the workplace, and our graduates get good jobs.  How do we achieve strong placement results?  We don't simply sit in the ivory tower.  We offer an applied education, in which students learn by doing.  They work on projects throughout their four years here that provide them actual experience doing the type of work that employers will expect them to do.  We have partnered with terrific employers to provide students with these applied learning opportunities in our curriculum. 

Experts vs. Crowds: A Study of Kickstarter

Kickstarter is a crowdfunding platform, in which individuals can solicit funding for creative projects from others around the world.   Recently, Wharton's Ethan R. Mollick and Harvard's Ramana Nanda conducted a study comparing the crowd's judgment (via Kickstarter) with expert evaluations of the same creative projects. The scholars collected a random sample of 120 theater projects aiming to solicit at least $10,000 in funds via Kickstarter.   Of the projects, 60 failed to meet their fundraising goal, 40 just met their goal, and 20 exceeded their goal.   The researchers also assembled a panel of 30 theater experts to evaluate these 120 projects.   Then they compared the experts' judgments with the crowdfunding results via Kickstarter.  

What did they find?   The crowd and experts made remarkably similar decisions with regard to these 120 projects, i.e. there is a strong correlation between the expert rankings and the results achieved on Kickstarter (in terms of whether or not a project met its fundraising goal.   Despite the high correlation, the experts and the crowd naturally do not always agree.  Most of the disagreements occur in situations where the crowd chose to fund a proejct, but the experts did not rate it very highly.  The authors' findings suggest that some people may have better networks that they can tap into to fund projects, and there may be an art to fundraising via Kickstarter that some individuals have mastered more than others.

Finally, the scholars examined the actual results of the funded projects.   They examined whether projects came in under budget, whether organizations continued to operate in the long run, and other measures of success of these theater projects.   They found "no quantitative or qualitative differences between projects funded by the crowd alone, and those that were selected by both the crowd and experts." 

Older CEOs More Likely to Sell Publicly Traded Companies

Stanford's Dirk Jenter and and Dartmouth's Katharina Lewellen have conducted a new study about corporate takeovers.   The two scholars examined more than 9,000 publicly traded American companies over a nearly twenty year period.   They found that companies with older CEOs tended to receive more successful takeover bids.   In fact, CEOs ages 64-66 experienced a 32% increase in successful takeover bids relative to CEOs ages 59-63.  Note that the shareholders did just as well in the deals that occurred for both age groups.  Thus, older CEOs are not accepting lower quality deals.  However, they are doing many more deals.  We should not be surprised, of course.  Younger CEOs still have more years left in their working lives, and they know that selling their companies probably means the loss of their positions.  The key question is:  Are younger CEOs spurning potentially good deals, or are we simply seeing more acquirers focus on companies with older CEOs because they know that those executives are more likely to sell?