Marina Gorbis's Blog, page 1437

Tinkering with Strategy Can Derail Midsize Companies

Many leaders of midsize companies –  especially if they’re the founders – are constitutionally inclined to see new opportunities around every corner. And they love to pursue them, deadline commitments or old strategies be damned. They forget that the strategy which took them from small to midsize has already proven itself a winner. But a new vision is always more exciting to them than the present one. So they begin tinkering with their core strategy, burning up resources while their companies wander off their tried-and-true growth path.

The tales of two companies, cell phone accessories retailer Cellairis and skin care products maker Rodan + Fields, illustrate the dangers of top-level strategic tinkering.

Three friends, Taki Skouras, Joseph Brown and his twin brother Jaime Brown, launched Cellairis in Atlanta in 2000 to ride the cell phone boom. They had the epiphany that they could use cheap retail space – the carts that sit in the middle of shopping malls – to sell mobile phone accessories, mostly cases. Five years later, they had a $50 million business (including franchisees’ revenue). The future looked bright.

That’s when the tinkering began.

In 2006, they hired an experienced president to manage their rapidly growing business. The new president thought Cellairis should not only sell accessories, it should sell wireless phone service as well. Skouras, the company’s CEO, thought that sounded like a swell idea. People shopping for cell phone cases were natural customers for a wireless service provider. So the company jumped wholeheartedly into a joint venture with a reseller of wireless service, AMP’d Mobile, and opened AMP’d stores in the malls. Cellairis’ leaders didn’t think it necessary to test their new strategy. After all, it was just a slight variation on the core strategy of selling accessories. Nothing more than a tweak, they thought.

But AMP’D underpriced its services and regularly extended credit to bad-risk customers. After nine months, AMP’d filed for bankruptcy. It stiffed Cellairis and the wireless providers whose services it resold.

During those nine months, Cellairis’ leadership had been distracted from their core business. Not surprisingly, it had languished. In those nine months, the company’s revenue fell 33%. Closing the AMP’d stores cost millions.  Cellairis had tinkered with its core strategy, one that had been working beautifully, and it had turned ugly. Fortunately, the founders were quick to stop tinkering and refocus on their core business of wireless accessories. System-wide revenue for 2013 was $350 million – seven times revenue for 2005.

Tinkering can kill midsize companies. Unlike a startup company, which is supposed to play with alternative strategies until the right one emerges, a midsize firm already has a strategy that is working. Sure, it must always consider whether to adjust that strategy in the face of new competition, changing customer demand, technological innovation or all three. But because midsize companies lack the resources of big companies, which can experiment with multiple new strategies and launch pilot projects, midsize firms are at risk when they divert scarce resources from their core business.

The management team at Rodan + Fields, today a $250 million skincare products company, understood this risk. That’s why the San Francisco-based company tinkered with its strategy the right way, off to the side, in a manner that would minimize damage if the experiment went wrong.

In late 2009, CEO Lori Bush was searching for a way to raise the productivity of the company’s sales force. As a direct seller like Avon, Mary Kay, and Herbalife, Rodan + Fields works with about 50,000 independent businesspeople who in turn sell its skincare products to others in their community.  A direct selling company’s sales strategy is its core strategy. The reason is that unless it can continue motivating and helping salespeople succeed, a direct seller’s products won’t sell themselves. And it doesn’t have a retail channel to fall back on.

While Rodan + Fields’ makes its sales force feel like insiders, they remain a channel of independent sales professionals (whom the company calls “consultants”), some of whom hope that commissions from selling Rodan + Fields products will become their primary income. And while they love the company’s products, five years ago there was a wide disparity in sales skills.

Bush, Chairman Amnon Rodan, and adviser Oran Arazi-Gamliel decided they had two choices for the firm’s sales strategy: They could juice the sales commission plan with temporary short-term bonuses, trying to motivate their consultants to work harder. Or they could analyze the behaviors of the most successful consultants and train others on their methods. They moved on both paths at once, but with caution.

By the end of 2010, they found that incentive bonuses did have a minor impact on growth but that as soon as they were discontinued, sales dropped again. Over the same period, Bush and Arazi-Gamliel had identified top consultants in one particular city and studied their behaviors. They pinpointed a number of new consultants who were excelling, identified their behaviors and then implemented the new field development strategies with their Atlanta consultants (a tough market for the firm). The results were remarkable. Sales rose 300% in Georgia by the fall of 2010 and rose even more the following year. Since then, the company has refined and repeated the training program in many other regions of the U.S..

Rodan + Fields’ revenue growth has been breathtaking. Revenue in 2011 was $59 million. By mid-2013, the company was chugging along at a $200 million annual revenue rate.

The lesson here is to experiment carefully with variations on your successful strategy, not tinker with it in the field of play. This is a hard lesson, running counter to the improvisatory instincts of many CEOs. But they must learn it.

Once their firms have reached midsize, the CEO’s impulses must cede center stage.  Scaling the business must be center stage, and strategic innovations must be tested in the wings. Creating a program to prove the viability of a significant change in the firm’s strategy ensures that the experiment won’t knock the ship off course if the idea turns out to be flawed.

In these instances, CFOs can play a valuable role: keeping the CEO (or other C-suite leaders) from yielding to the impulse to tinker. The most successful CFOs I know insist their company’s core strategy be written down. When someone begins to tinker with it, they push for clarity. They want to see exactly what resources will be required and what priorities are emphasized. As important,  they want everyone to know how much time a new strategy experiment will be given to succeed.

Such discipline creates focus and forces leaders of midsize firms to determine whether a new strategy fits with the original winning plan. These simple protocols can be the difference between a midsize company that keeps its eye on the road ahead, and one that ends up in the ditch because it became distracted.

High Performers Are Covertly Victimized, Unless They’re Altruistic

In a study set in a Midwestern field office of a U.S. financial services firm, high-performing employees were more likely than average workers to report that colleagues covertly victimized them through such behaviors as sabotage, withholding resources, and avoidance, says a team led by Jaclyn M. Jensen of DePaul University. High performers’ average score on a 1-to-5 victimization-frequency scale (from “never” to “once a week or more”) was 3.37, with the greater the performance gap in the workgroup, the greater the victimization. The effect was most pronounced for high performers who were selfish and manipulative; those who were altruistic and cooperative suffered less victimization as their performance increased, the researchers say.

In China, Go for Broke or Accept that Less Is More

China is changing more rapidly than ever, but has your China strategy adapted yet?  In the aftermath of the US financial crisis in 2008, companies from North America and Europe rushed into China, seeking to grow both sales and profits.  However, with China’s growth slowing over the past two years, costs shooting up, the government making life difficult for multinational companies, and confusion following the reforms emanating from the Third Plenum in November 2013, some companies are heading in the opposite direction.

In early 2014, American cosmetics and skincare products powerhouse Revlon announced that it would pull out of China completely.  Despite entering the world’s largest personal care products market in 1996, Revlon was able to generate just 2% of sales from China 17 years later.  It therefore decided that it was time to rethink strategy.  Around the same time, the French beauty company, L’Oréal, said it would stop selling its flagship brand, Garnier, in the country.

Retailers such as America’s Best Buy and Germany’s Media Markt also quit China last year while after nine years, Britain’s Tesco concluded that it was unlikely to make a dent on its own in China and entered into a joint venture with a state-owned enterprise, China Resources Enterprise.  And Western Internet companies such as Yahoo!, eBay, and WhatsApp have failed to make a dent on local leaders such as Baidu, Alibaba, and WeChat, all but giving up on the Chinese market.

However, many multinational corporations cannot afford to quit China.  Not only do they need the sales and profits that China — still the biggest and fastest-growing market in the world for almost anything — provides, but also, they realize that it will be tougher to re-enter the market in future.  China is already the world’s fiercest battleground for global brands and more local companies are joining the fray.  That leaves country managers in China with two choices, neither of which will be an easy sell at corporate headquarters (HQ) that are still looking for substantial top-line growth and above-average profits in emerging markets.

Go for Broke.  One option is for multinational companies to go flat out for market leadership in China; that is, try to be either No. 1 or No. 2 in the market.  The CEOs of companies that have adopted this strategy – such as KFC, PepsiCo, Kraft, Audi, BMW,  and L’Oreal  – spend all their time thinking about how to get bigger, faster — and don’t worry about efficiency, synergy, or cost.

The downside is that these companies may not make profits in China, at least not for a very long time, partly because of the huge investments they must make.  Moreover, year after year, local rivals from both the public and private sectors have been getting better, as mentioned earlier.  They have learnt to offer global quality at low prices, squeezing multinational companies’ margins and profits.

Indeed, Western multinationals that have picked this strategy may be able to pull it off only by forming alliances with rivals or acquiring them.  There’s no dearth of examples: Bayer Healthcare acquired Topsun to become one of the leaders in the OTC medicines segment and Dihon in the TCM (Traditional Chinese Medicines) niche.  Between 2008 and 2012, Walmart more than doubled sales by adding 100 hypermarkets to its existing 400 stores, acquiring Trustmart in 2011, and picking up a majority stake in online retailer Yihaodian in 2012.  Japan’s Hitachi has struck as many as 36 alliances and joint ventures with Chinese companies such as Haier and Shanghai Electric.  And Caterpillar purchased mine safety company ERA for $677 million to break into the coal industry.  However, it had to take a $580-million charge after turning up book-keeping problems at an ERA subsidiary five months after the deal closed.

Accept that Less is More.  Several CEOs are realizing the limits to growth in China, and have focused on boosting profitability rather than sales.  Abandoning the desire to become market leaders, they have become selective.  They aren’t recruiting countless sales reps or extending their distribution to hundreds of cities every year.  They are gearing up to make more money with fewer resources by focusing on the most profitable products, regions, and sales teams.  These companies include DSM, Bayer Material Science, Solvay, P&G, and IBM.

A smaller-and-selective strategy isn’t necessarily good news for HQs; they can no longer depend on China for growth, and must invest in other markets across the globe.  Furthermore, their China teams, which have been chasing growth for years, may be on the bubble.  Not all of them will have the skill sets and networks to ensure efficiency, so several companies may well have to start afresh in China.

How do companies decide which of these two approaches will work for them?  One, they must evaluate their customers’ prospects to see if it’s worthwhile investing for growth.  In a dynamic market like China, a review of trends is necessary every one or two years.  Some sectors, such as chemicals and construction materials, are already plagued with slow growth rates; others such as consumer goods are reaching maturity so adding offices, salespeople, and distributors may boost sales but not profits.

Two, it’s important to evaluate if being the biggest kid on the block is necessary to bargain with customers.  In some industries, scale lowers supply chain costs but it doesn’t provide bargaining power over buyers.

The third question is whether the Chinese market, geographically, provides synergies or turns out to be several dozen (or hundreds of) standalone markets scattered across the country.  If customers don’t link across regional or municipal borders, as they do in the retail and healthcare industries, size won’t matter.

It’s tough to decide which play to pick, but companies that are unable to make up their minds will have no choice but to gallop out of China like Revlon — an unimaginable prospect until the Year of The Horse.

How Unusual CEOs Drive Value

William Thorndike, investor and author of The Outsiders, looks at some less-known but more effective executives.

Download this podcast

How Old Are Silicon Valley’s Top Founders? Here’s the Data

Last week, The New Republic published a lengthy exploration of ageism in Silicon Valley, the idea that venture capitalists discriminate against older entrepreneurs and that start-ups discriminate against older job applicants. The central evidence was largely anecdotal: several well-worn quotes by prominent techies talking up the innovative nature of younger founders, the struggles of a “fortysomething” entrepreneur in Boston, the thesis of an angel investor betting on older, overlooked founders, and the sociological musings of a plastic surgeon who has seen more middle-aged men coming to him to look young as a way to help their career. Nonetheless, it was enough for VC Fred Wilson to concede that, “Yes tech is biased toward younger people.”

That one of the industry’s most prominent voices wouldn’t even bother to defend it against the charge may itself be the best evidence that the start-up world has a real problem with age discrimination. Nonetheless, we were curious to know just how young Silicon Valley founders really are; is the myth of the pimpled, hoodie-wearing 20-something really accurate? So we set out to find age data for start-up founders, aware of course that this data was unlikely to tip the scales in the ageism debate one way or the other.

The data we collected confirms that 20-something founders are quite common among those who have built billion-dollar businesses.

The challenge with measuring age is that the data is relatively hard to find. Unless a founder has given his or her age in a magazine profile, or maintains a particularly public Facebook account, it’s hard to get age data without actually surveying entrepreneurs. But there is one clue to founder age that is often publicly available: the year they received an undergraduate degree, listed on LinkedIn. We decided to use this as a proxy for the age at which the founder was 22, under the assumption that this would provide age data that was accurate within a year or two. Unfortunately, LinkedIn does not include this data in its API, so we were limited by having to do manual research. We therefore picked a small but disproportionately influential dataset to examine: the founders of private, VC-backed companies valued at $1 billion or more.

Using The Wall Street Journal’s billion-dollar-club list, the Crunchbase API, and manually searching LinkedIn profiles for year graduated, we were able to generate a list of founders for 35 of the 41 start-ups, and to determine an approximate age for the majority of them. For those without graduation year listed, we scoured other sources and filled in reported age (from media profiles and the like) where we found it. The result was estimated age data for 52 founders, 71% of the individuals on our list. This, we believe, is a more complete picture of the age of today’s top start-up founders than what has been published to date:

The average age at founding in our dataset was just over 31, and the median was 30. Today, of course, these founders are quite a bit older, with an average age just under 39, and a median of 38.

Before trying to put this data in context, several caveats are necessary. First, because this sample includes a particularly successful (and therefore non-random) group of founders, we cannot generalize from it to conclude anything about entrepreneur age, or even VC-backed entrepreneur age, more broadly. Second, and more problematically, we were only able to uncover age proxies for 71% of the founders on our list. While the data presented here provides a richer glimpse at the age of successful founders than generalizing based on anecdote, and perhaps even better than some investors’ own pattern recognition, it nonetheless runs the risk of substantial bias. It may well be that founders who don’t list the year they graduated from college on their LinkedIn profiles are older, on average, than those who do. This possibility cautions against drawing hard and fast conclusions about even the founders of billion dollar start-ups.

So what can we say? Foremost, we can conclude that 20-something entrepreneurs are very well-represented among the most successful entrepreneurs. Even if our dataset is deeply biased in their favor, we can conclude that founders under the age of 35 represent a significant proportion of founders in the billion-dollar club, and most likely the majority. To visualize that, here is a breakdown of our data including the 21 missing founders:

Think of the data above as the minimum percentage of founders in each age bracket. If all of those whose ages we couldn’t find were 35 or older when they founded their companies, 46% of the entrepreneurs on our list would still have been under 35.

Our data suggests that founders on the billion dollar list are younger than tech entrepreneurs in general. A 2008 paper looked at a random sample of more moderately successful founders (sales in excess of $1 million and 20+ employees) and found an average and median age at founding of 39, with only 31% under 35. That contrast, between tech founders in general and founders on the billion dollar list, is confirmed by an analysis similar to our own done last year by a VC, which found an average age at founding of 34 for founders of billion dollar start-ups.

Those concerned with ageism will likely suggest that the relatively young age of founders in the billion-dollar club confirms that VCs are biased toward young entrepreneurs; skeptics of the ageism charge may see the data as confirmation that 20-something founders are disproportionately likely to build extremely valuable companies. While this data can’t settle that debate, it does confirm that many of Silicon Valley’s most successful bets have been on 20-something entrepreneurs.

We did uncover some data to suggest an appreciation by VCs for age and experience, however. We used the same technique to look at the age of the current CEOs and Presidents of the companies on the billion-dollar list, and this group is significantly older. (Again we were able to find age proxies for just over 70% of cases, so the same caveats apply.) CEOs and Presidents are 42 years old on average, with a median of 42.

Some of the difference reflects the fact that founders grow older while running their companies, but it also suggests that in many cases they are being replaced with older, more experienced leaders.

By way of comparison, the average age of an incoming CEO to an S&P 500 company was 52.9 in 2010. Even when it comes to installing older leaders, VCs seem to prefer the young.

High Frequency Trading: Threat or Menace?

There’s a wonderful scene (one of many) in Michael Lewis’s new book, Flash Boys: A Wall Street Revolt, in which John Schwall, then the head of product management at RBC Capital Markets in New York, decides one day in 2011 to figure out how stock trading had evolved into a high-speed, unfair race he thought it had become.

Schwall goes into his backyard with a cigar, a chair, and an iPad, and Googles “front-running,” “Wall Street,” and “scandal.” Before long he learns that the current market landscape was to a large extent created by the Securities and Exchange Commission’s Regulation NMS, which took effect in 2007. Regulation NMS was an attempt to crack down on front-running — profiting from knowledge of customer orders to buy or sell ahead of them — by the “specialist” firms that then still controlled trading on the New York Stock Exchange. It definitely succeeded in throttling the specialists: the news this week that Goldman Sachs is hoping to find a buyer to pay $30 million for its specialist arm, which it bought for $6.5 billion just 14 years ago, is pretty conclusive evidence of that. But in the process the new rule also spawned a whole new industry of front-runners called high-frequency traders.

As Schwall looks further back into the past — he ends up spending several work days at his local public library on Staten Island — he discovers that this was just part of a long cycle going back to the 1800s:

The entire history of Wall Street was the story of scandals, it now seemed to him, linked together tail to trunk like circus elephants. Every systemic market injustice arose from some loophole in a regulation created to correct some prior injustice.

When he got back to work and described his findings to his colleagues, Schwall’s conclusion was that “U.S. financial markets had always been either corrupt or about to be corrupted.”

That’s pretty much my sense, too. In the big picture, financial middlemen exist to enable the glories of capitalism, but day-to-day they’re mainly out to separate customers from their money. This is to some extent true of any business, of course (can I interest you in an HBR subscription?), but it’s especially stark when the product being sold is financial returns and every penny taken out by intermediaries makes that product worth a little bit less.

In olden times, the middleman’s take on Wall Street was set by cartels (the stock exchanges) and more or less endorsed by government. On May 1, 1974, though, the SEC ordered the end of fixed brokerage commissions, and since then regulators in the U.S. (and elsewhere) have kept pushing for more competition, lower transaction costs, and a smaller middleman’s take. This has certainly resulted in lower stock trading commissions and, in recent years, smaller “spreads” between the prices at which brokers offer to buy or sell stocks. But the middlemen have continued to make tons and tons of money, mainly by exploiting their informational advantages over their customers.

In the case of the high-frequency traders, those informational advantages start and end with speed. While the rest of the stock market world was still operating in terms of minutes and seconds, the HFTers (led by two Chicago-based firms, hedge-fund giant Citadel and upstart GETCO, now called KCG) found a whole new world of profit in the milliseconds and microseconds between when orders were placed and filled. Thanks to their early success, and the regulatory push that had broken the NYSE/Nasdaq duopoly into a scrum of competing exchanges, the HFTers were then able to get exchanges and brokers to craft all sorts of new ways for them to make money, some of them on the face of it pretty unsavory.

But the HFTers, at least some of them, are playing the same crucial role that NYSE specialists and Nasdaq market-makers did before them — ensuring that there’s a seller for every buyer and a buyer for every seller on the stock market. What’s never answered satisfactorily in Lewis’s book is whether they’re doing a worse or better job of this than their predecessors. Lewis certainly implies that things have gotten worse in the book, and has been even more explicit in his TV experiences, but he trots out only skimpy evidence and the occasional pithy quote in support of this view. My favorite of the latter:

“There used to be this guy called Vinny who worked on the floor of the stock exchange,” said one big investor who had observed the market for a long time. “After the markets closed Vinny would get into his Cadillac and drive out to his big house in Long Island. Now there is the guy called Vladimir who gets into his jet and flies to his estate in Aspen for the weekend. I used to worry a little about Vinny. Now I worry a lot about Vladimir.”

Don’t we all? Now, I’m not saying Lewis really owes us more than that. Nobody seems to have a good handle on the economic benefits and costs of high-frequency trading. Yes, it appears to have reduced spreads, but it has also introduced new, weird kinds of price volatility — most disturbingly the flash crashes that seem to have become a regular feature of modern stock markets. It certainly has to be healthy for this new regime to be challenged, both by the heroes of the book, a group of RBCers (Schwall among them) who leave to start their own, more transparent stock exchange, and by an author like Lewis.

Especially an author like Lewis. I’ve been meaning for a while now to buy and read two critical books on HFT published in 2012, Scott Patterson’s Dark Pools and Sal Arnuk and Joseph Saluzzi’s Broken Markets — both of which Lewis gushingly endorses. But I haven’t. I bought Flash Boys right after it was published, and read it in a day. It has already unleashed at least one epic and enlightening debate on CNBC, and will surely be sparking similar discussions for months and years to come. It shouldn’t be the last word, but it wasn’t intended to be (the book was clearly a bit of rush job, albeit it a brilliantly executed one).

In all these debates, though, it’s important to remember one thing. Yes, “the stock market is rigged,” as Lewis said on 60 Minutes. But it’s always been rigged, and that hasn’t prevented it from delivering pretty impressive returns to long-run investors. Yes, we should strive toward a market that’s rigged in the least expensive, most transparent, most efficient, most stable way possible. I don’t think we’ll ever get rid of the people (or computers) in the middle making money off the customers, though. And there may even be something to be said for letting them do it the old way, out in the open, with cartels and fixed fees and Cadillacs to drive home to Long Island.

Case Study: Career Choices When Life Is Short

The leaders of MedPath didn’t typically shed tears in their weekly meetings, but this was an exception. Gil Lehner, one of the start-up’s four founders, had just told the others about his diagnosis: He had small cell lung cancer, and while he planned to fight it with his trademark tenacity, his chance of surviving longer than five years was only about 18%.

After a few moments of morose silence, Gil clapped his hands and sat up straight. “I’m not dead yet,” he teased. The young Israeli was perennially positive and refused to indulge the team’s sadness for long. They had too much work to do.

(Editor’s Note: This fictionalized case study will appear in a forthcoming issue of Harvard Business Review, along with commentary from experts and readers. If you’d like your comment to be considered for publication, please be sure to include your full name, company or university affiliation, and e-mail address.)

MedPath was a New York–based tech company focused on turning cell phones into powerful microscopes. Gil and his partners, all recent business school graduates, had secured their first round of funding eight months before and were poised to receive another soon. They were currently testing various plastic lenses that could slash the cost of the microscope while providing the most amplification available for a mobile device.

“So let’s talk about the next phase of testing,” Gil said. He was the scientific expert on the team, having earned a PhD in biology and worked at a health care company in Israel before studying for his MBA.

Michael Shrock, the team’s finance expert, shook his head. “It just doesn’t make sense. You’re not a smoker. You’re barely 30.”

“The doctors tell me I’m an unusual case. It’s very rare for someone like me to get this kind of cancer, but it happens. I’ve already talked to another patient my age.”

Michael kept shaking his head.

“Does anyone have any other questions before we turn back to business?” Gil said.

“How’s Ruti doing?” Carly Gardos, MedPath’s technology chief, asked.

“She’s handling it better than most new brides would. We’re Israelis, after all. She’s already got my treatment plan mapped out.”

“So you’re going to stay here in the city? Keep working? Are you sure you want to?” Michael asked tentatively.

“I haven’t thought everything through yet, but yes, I’m committed to you guys, and Sloan-Kettering has some of the best oncology docs in the world.  The chemo will be rough, but I should have plenty of time where I feel fine. So I’d like to keep everything else as normal as possible.”

“You know, your health is more important than this company,” Carly said.  Everyone nodded in agreement.

“I know, but I think I can focus on both,” Gil said. “Now can we please change the subject?”

Labor of Love: One Month After Diagnosis

Three weeks later, two of Gil’s  friends, Arthur Kraus and Maya Hanley, both still in their second year of business school, invited him back to campus for lunch with David Johansen, the entrepreneurial management professor who had been their mentor since they did a group project in his class a year ago.

Gil met his friends on the stairs up to David’s office. “Before you ask: Yes, the treatments are going fine. Yes, I’m fine. Yes, Ruti is fine. Yes, the prognosis is the same.” He smiled. “Of course, I probably won’t eat much lunch, but I can’t wait to hear about this big idea. What’s up?”

“Let’s wait until we’re with David,” Arthur said, trying to match Gil’s upbeat tone. “We want to pitch it to you both at the same time.”

When they knocked on the professor’s door, he opened it immediately. “Come in, come in. Have a seat,” David said as he ushered them in. “Gil, how are you? Do you know anything about this big idea these two are so eager to share?”

“I’m in the dark too,” he said. “And doing fine on the other front.”

“Okay,” Maya said. “Here goes.” She explained that, inspired by Gil’s diagnosis, she and Arthur had started to look into the research on lung cancer and particularly why nonsmokers were getting it. They’d learned that, overall, lung cancer received much less financial support than other types of cancer.  “There’s not a lot of sympathy when people think victims have brought the disease on themselves,” Arthur said.

“Ah, the mentality of ‘Smokers know the risks; they should bear the consequences,’” David responded.

“Yes,” Maya nodded. “But we all know that’s not Gil.”

“And even if I were a smoker, I wouldn’t appreciate that logic,” Gil said.

What’s more, Maya explained, of the funds that were directed to lung cancer research, most targeted the much more common non–small cell variety. Donors and medical institutions seemed to think there were just too few people with small cell lung cancer, relatively speaking, to warrant the investment.

“But,” she continued, “we have a plan for changing that.” She passed identical folders to Gil and David.  “We want to establish a prize to reward innovative ideas in this particular area.”

She told them that Karim Lakhani, a professor at Harvard, had just completed a study showing that prize-based research initiatives not only raise awareness about lesser-known illnesses but also generate significant scientific breakthroughs. Often, the prize attracts scientists not currently studying the disease, who explore how their work might apply to the illness.

“Our goal would be to fill the treatment pipeline with fresh ideas,” Arthur said.

“Wow,” Gil said, opening the folder and scanning the proposal. “I don’t know what to say.”

David, already reading the last page of the document, turned to Maya and Arthur. “I assume you’ve already consulted the professor who did the study?”

They nodded.

“The biggest obstacle will be raising the funds,” Arthur said. “We want the prize to be significant—a million dollars. And we want to offer smaller prizes for different areas, like one in biomarkers and one in treatment.”

“Given the size of our academic community, you might start here,” David said. “And Gil as the face of the initiative could help.” Indeed, Gil had been universally liked by his teachers and classmates; from the moment he’d arrived on campus, they’d been charmed by his enthusiasm and generosity.

“Assuming you’re both committed to making this happen, I think this would be an excellent postgraduate pursuit.” Arthur and Maya looked pleased; it was their last semester, and although both had job offers from consultancies, neither was excited about accepting. “Just remember, these types of endeavors are a labor of love, at least at the beginning. You shouldn’t expect to make a salary right away.”

“We know,” Maya said. “But we want to do something meaningful. The consulting gigs will always be there.”

“What about you, Gil?” David asked. “I know you’ve got a full plate with MedPath, and I imagine your treatment is going to take up a lot of your time and energy. Would you have the time to get involved?”

“He wouldn’t have to,” Arthur said quickly. “I mean, we’d love for you to be involved in any way that you can, Gil, at least in a fundraising capacity. But we understand that you have a lot to focus on right now.”

They all looked at him. “I’m 100% behind the idea,” he said, “and so touched that you guys would take this on.  And I do want to get involved: If I’m not going to win this battle, I want other people to. But I’ll need some time to think about it. MedPath is at a critical stage, and I promised Ruti that I’d focus on this second round of chemo for now.”

Arthur choked up as he tried to speak, caught himself, and apologized.

“It’s OK. I seem to have that effect on people lately,” Gil said.

They all got up to leave, but David asked him to stay behind.

“I want you to know that I’m here if you want to talk—about MedPath, this prize, anything,” he said.

“It’s strange,” Gil answered.  “I thought I had it all figured out: the wife, the MBA, the start-up. I was in total control of my life. Now I’m not sure what’s going to happen next week, never mind in three months or three years. Most people have lots of opportunities to make important career decisions in their lives. I might have just one. I want to get it right.”

Back Home: Three Months After Diagnosis

Gil’s parents’ house on the outskirts of Haifa was packed. When his family had heard that he and Ruti were coming home to Israel for Passover, they’d all made time to see him. But Gil had insisted that there be no discussion of prognosis, treatment, cancer, or death, so the mood was lighthearted, even festive.

A few hours into the party, Gil managed to escape to the backyard for a quick rest. His cousin Tomer followed. The two men had grown up in the same neighborhood and gone to the same schools; now Tomer was married with two toddlers and working at a tech start-up in Tel Aviv.

“You look good,” Tomer said to his cousin.

“Not like I’m dying?” Gil joked.

“You’d hardly know it,” Tomer teased back.

“I actually feel good. The chemo sucked, but it has stalled the lesions for now.”

“I heard all about it. It seems like any time you throw up, Ruti calls your mom, and your mom calls mine, and mine calls me. It’s a Gil Lehner phone tree. I know all about the trial you’ll start when you get back too.”

Gil laughed. “It’s nice to be loved, I guess.”

“You also won’t be surprised to hear that your father asked me to talk to you,” Tomer said.

“About moving back?”

“I’m supposed to tell you to finish out this trial and come home this summer. Do the rest of your treatment here. Spend time with Ruti, your parents, the cousins, all our kids. You’ve got a support system here, and so does Ruti. In the grand scheme of things, family will help you a whole lot more than work will.” He paused. “Of course, I can’t for a moment imagine being in your shoes, so feel free to tell me to shut up.”

“Don’t worry. Uncle Jacob pre-empted you. He says he can get me into any clinical trial in the country and a part-time job at the Israel Cancer Research Fund. He laid on the mom-and-dad guilt a lot thicker than you ever could.” Gil paused a moment. “I have to admit that the thought of coming home is comforting, and I know I could accomplish a lot at the Research Fund.

“You know, Ruti was adamant that I stop everything at first too,” he continued. “Get through the treatments, then enjoy our life as much as we could. She wanted to travel around the world, just the two of us. But then she realized how much happier I am when I’m working. And work is really good.”

He updated Tomer on MedPath, explaining that the team had made a breakthrough—they were producing images that were much clearer and easier to transmit via mobile. They had interest from the World Health Organization and investors were clamoring to learn more. “So, if I stick with it, I could make some significant cash—if not for me to use, then for Ruti and my parents. Plus I’d be helping a lot of sick people who wouldn’t otherwise get care.”

“I can see how you wouldn’t want to give that up,” Tomer said.

“But there’s another option.” He explained Maya and Arthur’s project. They’d already raised $300,000 from business school alumni, and they’d been lobbying Gil to get more involved with fundraising so that they could announce the prize in the fall. “I like the idea of fighting this disease—not just in my body but on a bigger scale, and I think this prize could make a real impact.”

“Is there a chance it could fund a breakthrough that could help you?”

“Possibly. It’s impossible to know. Ruti gets excited about it when she talks to Arthur and Maya.”

“Man, Gil, this is heavy. I know you said we shouldn’t talk about death, and I, for one, still believe you can beat this. But if it turns out to be true that you only have a few years left, do you want to spend them as an entrepreneur, an activist, or with your family? What kind of legacy do you want to leave behind?”

 

Question: Should Gil keep working at MedPath, help launch the prize, or move home to Israel? 

Please remember to include your full name, company or university affiliation, and e-mail address.

Why Facebook Should Worry About Tencent

From the moment Facebook announced in February 2014 that it had bought the mobile messaging service WhatsApp, everyone’s been talking about the price that CEO Mark Zuckenberg parted with for the acquisition. Nineteen billion dollars (albeit $4 billion in cash and the rest in Facebook shares) is one of the largest sums ever paid for a venture-capital-backed start-up that is just five years old.

What’s really significant, though, is that by buying WhatsApp, Facebook has signaled its intention of taking on Tencent, China’s biggest Internet company, which is trying to become the global leader in the instant messaging market. Tencent’s mobile messaging service, WeChat (known as Weixin in China), has over 300 million users worldwide, and standalone, it is already valued at around $30 billion compared to WhatsApp’s $19 billion price-tag. The Chinese giant also owns QQ, an instant messaging program used on PCs, which had over 818 million users last year.

For the first time, the market leaders in the US and China are going head-to-head in a bid to dominate the global instant messaging market. Mobile services such as WhatsApp and WeChat cross borders more easily than most other Internet services can. In fact, Facebook acquired WhatsApp partly because the majority of the latter’s users live outside North America while the former is concentrated in the US.

Competing with Tencent should give Facebook pause, though. Founded in 1998, Tencent is a profitable company that has created a rich ecosystem of services. Its rise is the story of Tony Ma and Pony Ma, China’s first Internet moguls, as I describe in a recently co-authored book, The One Hour China Book.

According to VentureBeat’s Dean Takahashi, Tencent is “a little like what you would get if you combined AOL, Facebook, Skype, Yahoo, Gmail, Norton, and Twitter — under one roof.” Facebook should be worried about taking on Tencent for several reasons:

Tencent has benefitted from the evolution of the Chinese Internet. The country’s rapid economic growth and protective regulatory environment have enabled some start-ups to become world-beaters by combining government connections, low-cost engineering talent, aggressive innovation — and a global vision. Besides, Tencent is just starting out; Internet penetration is around 40% in China as compared to the US’s 80%.


Tencent enjoys the advantages of a giant social network as well as a history of innovation. It has repeatedly fought off competitors including messaging apps such as AOL Instant Messenger, Confide, Glide, GroupMe, iMessages, Instagram Direct, Kik Messenger, Line, Popcorn, Tango, MessageMe, Snapchat, Shots, Skype, Twitter direct messages, Telegram, TigerText, Viber, which Japan’s Rakuten recently bought for $900 million, Whisper, Wut, and ooVoo.


Tencent is cash rich, with a war chest of over $5.5 billion. It sells content such as games, in-game content, and emoticon sets to WeChat users, and charges companies that want to create their own channels on the messaging service. Consumers use the platform to find deals in shopping malls, buy airline tickets, and shop for financial products.


Tencent is pushing into markets outside China; it is keen to become the world leader. It has expanded into Southeast Asia, Latin America, and South Africa with a campaign starring the Argentinian and Barcelona FC football player, Lionel Messi. It is moving into the US and Europe, where WeChat recently launched a promotion offering a $25-gift card to anyone inviting five friends to join the service.


Tencent has learnt how to penetrate overseas markets. In the online gaming industry, for instance, it has become a player by buying equity stakes in Riot Games for $400 million; Epic Games for $330 million; Activision Blizzard for $1.4 billion; mobile gameplay recording service Kamcord; and in Level Up, a Singapore-based online game operator for $26.95 million. In February 2012, Tencent also announced a partnership with market leader Electronic Arts.

By comparison, I would say that Facebook has enjoyed a rather protected existence since its founding a decade ago. It has not had to fight too many meaningful rivals, substantially change its basic service, or even launch major new services.

The battle between Facebook and Tencent could well end by reflecting how it began: Facebook purchased WhatsApp at a huge price because it couldn’t, or didn’t, build a mobile messaging service internally while Tencent pioneered WeChat like so many other innovative products. Which do you think has the greater chance of success in this global battle?

 

Stop Trying to Control People or Make Them Happy

Whether you’ve heard of them or not, two gurus from the early 20th century still dominate management thinking and practice — to our detriment.  It has been more than 100 years since Frederick Taylor, an American engineer working in the steel business, published his seminal work on the principles of scientific management.  And it has been more than 80 years ago since Elton Mayo, an Australian-born Harvard academic, produced his pioneering studies on human relations in the workplace.  Yet managers continue to follow Taylor’s “hard” approach — creating new structures, processes, and systems — when they need to address a management challenge.  Hence, the introduction of, say, a risk management team or a compliance unit or an innovation czar. And when managers need to boost morale and get people to work better together, they still follow Mayo’s “soft” approach — launching people initiatives such as off-site retreats, affiliation events or even lunchtime yoga classes.  If these approaches made sense in the first half of the twentieth century (and that’s open to question), they make no sense today. Indeed, if anything, their continued use is making things worse.

We are living in an age of mounting complexity. By our calculation, companies are operating in a competitive environment that is six times more complex than it was in 1955, when the Fortune 500 was launched.  For the best companies, this complex world is an opportunity to gain a competitive advantage over their rivals. But, for too many companies saddled with approaches to management that are outdated and ineffectual, it presents a seemingly insurmountable challenge.

As they have responded to each new challenge, managers (as Taylor recommended) have introduced new structures, processes and systems. When this happens year after year, there is a damaging accretion of structural fixes — we estimate that the number of these has grown by a factor of thirty-five over the past 55 years. The consequence is what we call “complicatedness,” which spells trouble for a company’s productivity and leads employees to feel frustrated and to disengage. In the most complicated 20% of companies, employees spend large chunks of time on aimless activities that do not add value: For instance, writing reports or participating in internal meetings that have no impact.

There is, however, an alternative, a third way — one we call “Smart Simplicity.” We’ve developed this approach over the past 30 years of working with 500 companies in more than 40 countries around the world, and we introduce it in a new book called Six Simple Rules.  With “Smart Simplicity,” we put the cooperating individual at the heart of the modern organization. Where the Taylor school implicitly distrusts the individual worker and designs structural fixes for controlling their actions in a top-down, rigid, micro-managing way — albeit ameliorated by the softening effects of the people initiatives propounded by the Mayo school — we promote a radically different approach.

Simply put, companies are most productive when they harness — not hobble — the intelligence of their employees.  Six simple rules help managers get beyond the shackles of  the “hard” and “soft” management approaches we’ve inherited from our forefathers:

Understand what your people do:  Start with a true understanding of what your people do and why they do it.
Reinforce integrators: Foster cooperation by giving people the power and interest to do so.
Increase the total quantity of power: Create new power, don’t just shift existing power.
Increase reciprocity: Ensure people use their autonomy.
Extend the shadow of the future: Create direct feedback loops.
Reward those who cooperate:  Make transparency, innovation, and aspiration the best choices for individuals and teams.

No amount of structures, processes, and systems are ever enough to anticipate the kinds of problems employees face everyday on the front line of the business. So, instead, companies need to give their employees more autonomy and, at the same time, encourage them — impel them, even — to cooperate with each other. Only then, when they are liberated in this way, will employees be able to make critical judgments, balance complex trade-offs, and come up with creative solutions to new problems.

Are You Future Oriented? Your Language Tells the Tale

The structure of the language spoken by a company’s top team affects the firm’s planning for the future, according to doctoral student Hao Liang, Christopher Marquis of Harvard Business School, and two colleagues. If the language is English, Spanish, or one of many others that use mainly grammar, rather than context, to distinguish present from future (“It is raining,” “It will rain”), people tend to focus less on the future, presumably because it seems more distant. On corporate social responsibility, which is a highly future-oriented activity, firms in countries speaking these “strong-future-time-reference” languages underperform firms in weak-future-time-reference countries by more than 1.2 grades on a 7-step scale, the researchers say.