Concentration, Vision, Practice: Essential for Tennis Players – and New Ventures

I just saw research on how to successfully start a new venture that made me think about the Wimbledon tennis tournament. Here’s why: some of the things that are obvious sources of strength in tennis are widely thought to be weaknesses in business – but if current research is any guide, they are strengths. Concentration, vision, and practice through endless repetition are how champions are built in tennis, a sport where the average serve speed is 180 km/h for men and 155 km/h for women. But how is that related to new ventures?

Research recently published in Administrative Science Quarterly by Susan Cohen, Christopher Bingham, and Benjamin Hallen looks at how new ventures perform in accelerators, which are training and development programs for new ventures. They looked at many accelerators to find out exactly what activities accelerate and improve a venture more, because some accelerators have been successful in helping launch new ventures but others have not. Before they started, we knew very little. Their findings were clear – and completely the opposite of some common beliefs about forming and improving new ventures.

Belief 1: New ventures should start with a solid business plan and be given information and introductions to potential mentors gradually over time to develop their ventures. This is not true. Ventures should be given concentrated consultation and advice early in the founding, because that is when the value of new information is highest. The venture may be most flexible and uncommitted at this stage, but even if it isn’t, Cohen, Bingham, and Hallen found that the concentration of feedback was key: it helped venture founders overcome their own biases and assumptions, connect with potential customers, rethink what would be best for the business, and act on the new information.

Belief 2: Entrepreneurs should avoid divulging information about their activities to other entrepreneurs, who might steal their ideas. This is not true. Yes, we’ve all learned since childhood that secrets are valuable, but in business, quality trumps secrecy. New ventures in accelerators were able to understand their own business much better and improve faster when they had a clear vision of what other ventures were doing. That was only possible when they also shared information about their activities.

Belief 3: New ventures should have development plans customized to their needs. This is not true. The problems faced by new ventures are very similar, so using a standard process that lets ventures practice how to overcome these problems is best. New venture founders don’t know what they don’t know, so by customizing – seeking input and knowledge from only the people they assume will be most useful to them – they create blind spots.

How can we be so wrong about the factors that create successful new ventures? All venture founders, advisors, financiers, and researchers have incomplete information and bounded rationality. Ventures are typically not visible until they have reached a certain size and become full organizations, so there is not enough knowledge about the crucial founding phase. And we humans learn from what we see in very limited ways, strongly shaped by prior beliefs and selective use of examples. The secrecy belief is a good example, because it is such an old myth that people rarely challenge it.

The best accelerators go against these three beliefs and foster concentration, vision, and practice. Their ventures are much more successful than those of accelerators that follow the conventional beliefs. Entrepreneurs should take note, even if they are not part of an accelerator. I think Serena Williams would approve.

Cohen,Susan L., ChristopherB. Bingham, and Benjamin L. Hallen. 2018. The Role of Accelerator Designs in Mitigating Bounded Rationality in New Ventures. Administrative Science Quarterly, forthcoming.

How Good Is Competition? Pretty Bad, Actually

In many areas of life, we enjoy competition. Right now, there is lots of excitement in Wimbledon. There is even more in the World Cup, where entire nations seem to believe that they are in matches with each other – not 22 selected players, most of whom play professional football outside their home country. The excitement extends to management practices too, where various prizes and rewards are distributed along with pay adjustments, all as a function of how well each employee is thought to perform compared with others. “Competition cures laziness,” is the belief.

What could possibly go wrong? The answer is found in a paper by Henning Piezunka, Wonjae Lee, Richard Haynes, and Matthew Bothner in Proceedings of the National Academy of Science. They look at Formula 1 racing, which is a place where one can find drivers who enjoy competing and are used to competing. After all, who would drive a car at such crazy speeds very close to other cars if they didn’t think competition was a great thing to do? But even in Formula 1, there are costs to competing.

The cost is a simple and important one: close competitors collide more often. In F1 driving, colliding is never a good thing: minor collisions damage the cars and slow them down, intermediate ones make cars useless, major ones kill drivers. Yet collisions occur, and it turns out that they happen more often between drivers with similar accomplishments during the season. That’s interesting because it means that the most perilous situation is when two people are near each other in two ways – similar social status, and capable of giving each other trouble.

But wait, it gets worse. The intensified competition is seen even more clearly if the drivers are also similar in other ways. Similar-age drivers collide especially often if they have similar status. The same is true when the stakes are high, such as when the drivers are high in the tournament ranks and the season end is drawing near. These conditions sound a lot like those facing employees in firms that motivate by tournament.

This gives a good account of when we can expect F1 drivers to collide, but it also means more. Many of the modern ideas of management and motivation rely on the idea that tournaments are good and should be encouraged through various rewards and prizes. They don’t take into account the conflict that results. If they did, would these practices still be as popular as they are now?

 Piezunka,H., Lee, W., Haynes, R., & Bothner, M. S. 2018. Escalation of competition into conflict in competitive networks of Formula One drivers. Proceedings of the National Academy of Sciences.

Liberals Like to Talk: How Police Officer Ideology Shapes Law Enforcement

Misunderstandings are common in the workplace. An important one is between customers who are confident they know how employees are supposed to do their jobs and the employees who are equally confident that the customers are clueless. Sometimes this is amusing, as when patients go to a doctor convinced that they will get exactly the medical leave and medicine they have in mind. Sometimes this has serious consequences, as when those in public service occupations like the police see the general public as ignorant, hard to control, and potentially dangerous, and resort to using tactics that are effective but harmful. Two natural questions are how to improve understanding and what happens when understanding is poor.

A recent article in Administrative Science Quarterly by Shefali Patil looks at the second of these questions and finds surprising effects of police officers’ political ideology on what happens when they feel misunderstood by the public. We might expect that feeling misunderstood would lead to a decline in performance, but that is not true for all officers – it is true only for liberal-leaning police officers. Conservative-leaning police function the same whether they feel more or less understood – they seem immune to any ill effects of feeling misunderstood.

What is going on? Patil points out that community understanding is an important part of liberal ideology: liberal officers expect the public to understand them. When that understanding is missing, the liberal police officer experiences doubt about the social order and about the best way to interact with the public to promote community understanding. Conservative ideology is different because it celebrates authority, and an important part of belief in authority is that those holding authority do not need to be understood by others. Not being understood means having less information, but it also reinforces the beliefs of a conservative police officer about how best to interact with the public in doing their job.

The effects of ideology run even deeper than this. Further study of the extent to which police officers felt they were understood by the public showed that this, too, was split along ideological lines. Conservative officers were more likely than liberal officers to believe that the public did not understand them. The picture painted by these studies is one of police officers shaping their understanding of the world, including whether the public understands their work, according to their political ideology. They then interact according to this belief, and if they believe that the public does not understand them and does not need to, as conservative officers do, they can function well even when public understanding is low. Facing the same circumstances, liberal officers tend to be more uncertain in their actions and perform less effectively.

You might think this is not a problem, because the findings seem to show that everything is well as long as officers’ political ideology aligns with public understanding. But things are not that simple. There have been cases of suspects dying in police custody because of the way they were restrained, and many of these involved the suspect or bystanders warning the police that their actions were dangerous. A police officer who believes that the public understands will listen to such warnings; one who does not will see them as misinformed and will ignore them. Ideology matching beliefs of public understanding may work well much of the time, but sometimes it has tragic consequences.

Patil, S. V. 2018. “The Public Doesn’t Understand”: The Self-reinforcing Interplay of Image Discrepancies and Political Ideologies in Law Enforcement. Administrative Science Quarterly: forthcoming.

The Political Firm: How State and Party Careers Influence Chinese Firms

It is well known that firms ask for favors from the state and often get them, with examples ranging from all the secretive lobbying in the U.S. to the land use permits that politically connected firms seem to get more often in many developing nations. But what do the firms give in return? In democracies, the answer is easy: money. Donations to help re-elections are channeled to politicians’ election campaigns from firms and their owners through Political Action Committees in the U.S., ensuring that the politicians remain grateful and compliant. Money does not work as well to secure the favors of state officials who are not elected, however, unless they are corrupt, so the question is what can firms do when seeking favors from unelected officials?

A recent article in Administrative Science Quarterly by Danqing Wang and Xiaowei Rose Luo explores this question using data on Chinese firms during the market reform in the 10 years starting in 2001. They take advantage of the fact that provincial government officials and party officials have different goals, as do officials near retirement and younger officials with much of their career ahead of them, to show that there is a very close relation between the goals of important state officials and a very consequential firm action: diversification through the acquisition of failed firms. This was a period in which many state-owned firms that had enjoyed significant state support before the reform failed and laid off their workers, creating the potential for social unrest. Other independent firms could help this unemployment problem (albeit unprofitably) by acquiring the failed firms and continuing operations. Whether they helped or not was closely tied to the careers of state officials.

The key insight is that party officials and government officials both care about social stability and economic growth, but party officials care especially about social stability, while government officials care especially about economic growth. Taking this reasoning one step further, government officials are generally more interested in economic growth, but when provincial governors are close to retirement they become interested in social stability too (it turns out to be good for their post-retirement careers). Firms react to this in responding to calls for help for the failing firms. Having a provincial governor near retirement makes them more likely to diversify in response to layoffs by local firms, but having a provincial governor not close to retirement has no effect. A party official near retirement has no effect because party officials always care about social stability, so retirement does not increase pressure on the firm.

Wang and Luo went one step further in showing that political pressure changed firms’ diversification. They looked at whether the provincial level of civil unrest could explain the firms’ reactions, whether retirement alone could explain it, or whether it was a combination of the two. It turned out to be the combination: layoffs, retirement, and civil unrest together made firms help the governor by diversifying to absorb the laid-off workers.

So we know that firms are politically sensitive and can do useful things like reducing unemployment. That’s often a good thing. The problem lies somewhere else. The relationship between firms and the state is one of give and take, so if you see firms giving they are usually taking something else. If you can’t see what they are taking, you should probably start worrying.

Wang, D., and X. R. Luo
2018 "Retire in Peace: Officials’ Political Incentives and Corporate Diversification in China." Administrative Science Quarterly: forthcoming.