July–August 2024

Why Entrepreneurs Should Think Like Scientists

In a recent study of European start-ups, one technique consistently boosted performance: the scientific method, a centuries-old discipline of formulating, testing, and tweaking hypotheses. Ventures employing it generated more revenues than those that didn’t and were also more likely to pivot away from unviable ideas, a necessity for early-stage firms.

The key to pivoting is focusing not on your ideas but on the answers to your experiments, which should provide insight into customer demand and industry pain points. That approach helped Osense, a start-up focused on technology for tracking carbon emissions, find its successful model. Its first idea was for peer-to-peer product rentals, and its second was for a platform for renting e-vehicles. If it hadn’t applied the scientific method, “we would have ended up with a product that wasn’t viable,” says cofounder Cosimo Cecchini.

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Firms Led by CEOs from Former U.S. Frontier Areas Are Awarded More Patents

George Mason University’s Lei Gao and his co-researchers—Macquarie University’s Jianlei Han, Zheyao Pan, and Huixuan Zhang—collected birthplace data on 1,777 U.S.-born CEOs and determined how many decades each leader’s hometown had spent on or near the frontier during the country’s westward expansion. Examining accounting and patent databases, they found that firms led by CEOs from longtime frontier counties were awarded more patents than other firms—and those patents were cited more frequently and had greater value in the marketplace.

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The CEO of Sodexo on Building More-Sustainable Food Systems

Over the several weeks that Paris will host the Olympic and Paralympic Games this summer, Sodexo will prepare and serve up to 40,000 meals a day to 15,000 athletes, their fans, and organizing committee staffers at 22 venues in and around the city. Catering an event on that level is quite a challenge. But so is the one the company has set for itself around sustainability. As one of the world’s largest food-services companies—managing dining options at hospitals, schools, office buildings, and much more in 45 countries around the world—Sodexo has been spearheading a push toward more-sustainable consumption, and it intends to take that ethos to the Olympics. Ingredients will be sourced from eco-friendly suppliers and, where possible, local ones. Waste will be kept to a minimum. And as part of an ongoing effort to shift eating habits away from resource-intensive choices, menus will emphasize delicious plant-based dishes. The company has become a market maker in sustainability—not just to improve the efficiency and productivity of its value chain and ensure financial success, but also for the benefit of society at large.

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Power, Influence, and CEO Succession

When a CEO transition fails, it’s often because the incoming leader isn’t skilled at managing the power dynamics. They’re complex because the key players—the board, the outgoing CEO, and the new one—have different agendas. Designated successors need to understand those dynamics and how best to influence key stakeholders. The authors present four approaches: assertive persuasion, incentives and disincentives, common vision, and openness and involvement. To convince others that they’re ready to take charge, successors must learn how and when to apply them, consider the culture, secure the right allies, and act humbly. Once they take the helm, two other tasks become paramount: winning board support and clarifying and conveying a vision.

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How CEOs Build Confidence in Their Leadership

Believing the conventional wisdom that they have roughly 90 days to prove themselves, many new CEOs get into trouble by launching bold initiatives before they’ve won the support and trust they need to effect change. According to a study of nearly 1,400 CEOs, earning people’s confidence actually takes two years. But leaders who focus methodically on gaining it can generate remarkable increases in company value. Drawing on their research and experience, the authors advise incoming CEOs to adopt a patient approach by setting a deliberate pace, picking battles strategically, and engaging stakeholders when the time is right.

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The Vital Role of the Outgoing CEO

Though they’re frequently overlooked, incumbent CEOs are central to ensuring drama-free successions. An in-depth study of 30 departing CEOs shows that when they have strong relationships with the board, are actively engaged in choosing their replacements, and have positive views of the process, handoffs are much more successful. But if they experience ambivalence or regret or feel excluded, transitions can become tumultuous.

Drawing on extended interviews with outgoing executives, this article discusses the five psychological crossroads that leaders face when they step down and offers advice on what boards and CEOs can do to navigate each one more deftly.

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Build a Corporate Culture That Works

There’s a widespread understanding that managing corporate culture is key to business success. Yet few companies articulate their culture in such a way that the words become an organizational reality that molds employee behavior as intended.

All too often a culture is described as a set of anodyne norms, principles, or values, which do not offer decision-makers guidance on how to make difficult choices when faced with conflicting but equally defensible courses of action.

The trick to making a desired culture come alive is to debate and articulate it using dilemmas. If you identify the tough dilemmas your employees routinely face and clearly state how they should be resolved—“In this company, when we come across this dilemma, we turn left”—then your desired culture will take root and influence the behavior of the team.

To develop a culture that works, follow six rules: Ground your culture in the dilemmas you are likely to confront, dilemma-test your values, communicate your values in colorful terms, hire people who fit, let culture drive strategy, and know when to pull back from a value statement.

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When Your Employee Feels Angry, Sad, or Dejected

Dealing with the negative emotions of employees isn’t easy, but knowing what to do or say can make a huge difference to their well-being, the quality of your relationships with them, and team performance. The trouble is, many leaders fail to respond at all because they think discussing emotions at work is unprofessional or worry they don’t have the right to intervene in personal matters. That’s a mistake. Research shows that teams whose leaders acknowledge members’ emotions perform significantly better than teams whose leaders don’t.

In this article the authors offer a road map for providing employees emotional support. The right response depends heavily on context, in particular, whether someone (1) is working on a time‑sensitive goal and (2) seems to be coping. Sometimes you have to intervene quickly; sometimes you should simply validate the employee’s feelings; sometimes you should validate and then offer advice; and sometimes you should give the person space and time. You need to assess each situation carefully and avoid the tendency to always jump in with solutions, bearing in mind that employees may not expect you to fix things; they may just need to be heard.

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How to Assess True Macroeconomic Risk

In this article, adapted from the forthcoming book Shocks, Crises, and False Alarms, the authors explain how economic analysis works in the real world. They lay out three principles for navigating the rising number of economic risks: (1) Don’t put too much stock in any one economic model. (2) Ignore the doomsayers in the financial press. (3) Cultivate rational optimism and an eclectic form of judgment that draws on multiple sources. That involves identifying the critical drivers of potential risk, building a narrative, and pressure-testing it from multiple perspectives.

The “dismal science” of economics and our clickbait culture of public discourse are a perfect match to fuel simplistic narratives of doom. To avoid false alarms and achieve a true assessment of macroeconomic risks, the authors write, leaders should look past both to reclaim their own judgment.

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Will That Marketplace Succeed?

Marketplaces are the quintessential type of business that can profit from network effects: The greater the number of buyers who join one, the more attractive it becomes to sellers, and vice versa. Indeed, marketplaces such as Amazon, Booking.com, and Apple’s App Store have achieved some of the strongest competitive positions imaginable. That’s why entrepreneurs are seeking to build, and venture capitalists are seeking to invest in, the next Airbnb, Uber, or Twitch.

But not all marketplaces have the potential to realize strong network effects—the kind that make a marketplace defensible against wannabe competitors. Differentiation among sellers, fragmentation of the seller and buyer bases, the value added by discovery and transaction services, and the importance of seller ratings are all decisive in determining whether a marketplace can flourish. That’s why it is extremely important, both for new and established companies trying to build marketplaces and for their potential investors, to dig deeper into those factors.

Drawing on their more than two decades’ worth of research and their own experience as angel investors in some 40 marketplace start-ups, the authors offer a comprehensive list of questions that anyone thinking of launching a marketplace should explore.

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Toward Healthier B2B Relationships

Today’s software makes it easier to track patterns, trends, and even granular details of how customers use products. This data is collected in systems that support marketing, sales, finance, and operations. But many companies aren’t sure how they can best support employees who are overseeing hundreds of unique relationships. They’re grappling with how to manage and use all their data to improve customer retention. And they’re wondering how they can assess the health of their customer relationships before it’s too late.

One solution is the use of customer‑health scores. In this article the authors introduce a model that any B2B company can use to measure and improve customer health. They identify three dimensions of customer health—customer-relationship quality, product usage, and value realization—and offer advice on how to measure and weigh relevant metrics.

The authors then take an in-depth look at how BigCommerce, an e-commerce platform, developed and refined its customer-health model. They share five lessons the company learned through the process, including how to identify the relationship between health and churn, and that a flywheel effect occurs as health scoring matures.

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How to Respond to Shareholder Activism

Activist shareholders are often seen as villains by managers and boards. Their demands for strategic and organizational shifts—which can feel personal to managers—often challenge the soundness of a company’s strategy. However, leaders who treat activist shareholders solely as a risk or an annoyance are making a mistake. Although they may be aiming to protect their companies, they’re missing out on an opportunity to tap one of the few free resources companies have to bring about value‑creating strategic change and build stronger business models.

To better respond to—and take advantage of—the campaigns of activists, leaders must learn to think the way they do. Most activists tend to follow a predefined process to identify and engage target companies.

This article presents the three main components of the activist playbook—linking performance failures to organizational weaknesses, developing a plan of action, and creating a narrative in support of change—and describes how managers can anticipate and respond to activist campaigns.

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Disclosing Downstream Emissions

An increasing number of companies are using the E-liability carbon-accounting method as an important tool for tracking progress toward reducing global emissions in their supply chains. The system does not require formal accounting for downstream emissions—those occurring after a company sells its products to immediate customers, for several good reasons.

Certain companies, however, are accountable for disclosing downstream emissions generated by consumers’ use of their products. Three principles govern accountability: (1) Downstream accountability is limited to companies whose products are directly used by end customers. (2) Accountability for B2C companies is limited to cases where a reasonable causal link exists between product-design decisions and the downstream emissions generated by consumers. (3) Companies are accountable for disclosing emissions produced per unit of use, not for total emissions.

This article presents the principles and explains how and to what standards of reliability the companies should disclose downstream emissions.

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The Middle Path to Innovation

Too many companies are failing to innovate. One reason, say the authors, is the polarized approach companies take to innovation. At one end of the spectrum, corporate R&D efforts tend to focus on product refreshes and incremental line upgrades that generate modest growth for lower risk. At the other end, venture capitalists favor high-risk “transformational” innovations that seek to upend industries and generate outsize returns. But there’s a better, middle, way.

This article presents the growth driver model, a framework that partners corporations with outside investors to identify and develop innovation opportunities, drawing on corporate resources and talent and externally recruited entrepreneurs. The authors illustrate the model with a detailed case study of how it revived innovation at Cordis, a large medical technology device maker.

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Stop Playing Favorites

Although most managers believe that they give each of their team members equal attention, respect, and consideration, four decades’ worth of empirical research says otherwise. Studies show that nearly all bosses have—or are seen to have—in-groups and out-groups. Employees on the wrong side of these divides experience a reduction in engagement, satisfaction, commitment, citizenship, innovation, and performance.

Bosses usually argue that any differentiation is unintended and that their reports are reading too much into minor disparities. Both claims might be true. However, it is the view from below that counts. Perceived unfairness is real in its consequences. Managers should first acknowledge these issues and then work hard to head off or repair conflict. Those who don’t may lose key contributors they’d prefer to retain, exacerbate the challenges presented by underperformers, ruin team performance and morale, and hurt their own reputations.

Start by regularly reviewing your treatment of team members. Ask yourself: Did I seek everyone’s company? Did I acknowledge their capabilities? Did I assist their growth? If you are routinely answering no for certain subordinates, they need more attention from you. When a relationship has already gone off the rails, it’s important to rectify the problem: Prepare for a direct conversation, engage empathetically, and then make a plan for how you’ll interact with one another in the future.

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Case Study: Are the Right People in the Right Seats?

The newly appointed CEO of Highstreet Properties has doubts about several members of the top team she has inherited. She’s trying to drive a turnaround, the company has a complicated matrix structure, and some team members seem opposed to her strategy. She’s debating replacing several of them, but she’s worried about making too many changes too quickly, upsetting her board, and bringing in too many former colleagues.

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The Promise and Peril of AI at Work

Four new books explore how AI can help—and hinder—our productivity: Co-Intelligence, by Ethan Mollick; The Singularity Is Nearer, by Ray Kurzweil; The Mind’s Mirror, by Daniela Rus and Gregory Mone; and Slow Productivity, by Cal Newport.

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Life’s Work: An Interview with Darius Rucker

When the front man of Hootie & the Blowfish ditched pop music to make country records, he was taking a big risk. Nashville didn’t welcome crossover artists, and an African American hadn’t had a country hit in years. In this interview Rucker describes why he prevailed, how he’s dealt with racism, and what still gets him excited.

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