Marina Gorbis's Blog, page 1542

What Markets Do and Don’t Get About Innovation

In 2007, Clayton Christensen co-founded Rose Park Advisors, a hedge fund devoted to investing in disruptive companies. The idea was to transform his theory of disruptive innovation into an investment thesis. Disruptive innovation can take several forms, and the market understands some types better than others. But do markets really follow the logic of an academic theory?

Great investments are both non-consensus and correct, and examining the valuation process shows that consensus tends to coalesce differently around each type of innovation.

Four types of disruption

Disruption theory reveals four innovation types that could shape an investment thesis:

Low-end disruptive  – a dramatically cheaper way of producing worse products for customers who are over-served by existing options
New market disruptive  – a cheaper, more accessible, and worse-performing product that turns non-consumers into customers
Quality-sustaining  – Christensen’s “sustaining innovations”: incremental improvements to product performance, leading to higher cost; companies’ bread-and-butter when products aren’t yet good enough
Efficiency-sustaining  – incremental innovations that make products cheaper and businesses more efficient; these are important all the time, but particularly when product performance becomes “good enough” for most customers; the realm of LBOs and the iPhone 5C

Why the market values some kinds of innovation better than others

Sustaining innovation inhabits the world of incremental change, deliberate strategy, and most financial and management theory. Disruptive innovation, on the other hand, is more difficult to value — and potentially a more fertile ground for investment. Investors’ core valuation methods (comparables and discounted cash-flow analysis) both extrapolate past performance into the future — but they fail to predict when the future will be radically different from the past.

Sustaining innovations are more easily quantified than their disruptive counterparts, and hence easier for the market to grasp. Efficient-sustaining innovation is essentially cost-cutting, and should be the easiest of all four categories to predict. Costs are concrete and immediate. And incorrect analysis often falls into well-understood categories — the overestimation in M&A synergies, for example.

Quality-sustaining innovations also tend to follow well-known rules: expected sales yields of marketing investment, established norms for product improvements and price increases. But forecasting revenues requires identifying market shifts, particularly the point where products go from being “not good enough” for many customers to “good enough.” As a result, sometimes, changing circumstance strips away expected results, or strategy leads products to outperform historical precedent (consider HBS marketing professor Youngme Moon’s examples of Reverse, Breakaway, and Hostile positioning in brands like Ikea, Swatch, and Red Bull). Mostly, though, markets get things right.

Disruptive innovations, however, entail a discontinuous shift from “how things worked” in the past to how they work today. Without theory to tell us how the rules are changing, many tools of management and finance seem to break down.

New-market disruption is more complex. Because products and customers are entirely new, it’s harder for analysts to mistakenly force these innovations into the old paradigm. As a result, outlooks are more likely to be positive or mixed.

The recent influx of capital into low-cost 3D printing is a good example. Desktop 3D printers are a classic new-market disruption: fundamental changes in technology allow much cheaper, more accessible, and worse performing products to become available to new customers. And many investors intuitively recognize this innovation as a new-market disruption that could unleash a wave of creativity in product design and revolutions in the manufacturing, retail, and software industries. So money piles into the sector, and crude bets based on disruptive potential become increasingly risky. The task shifts from merely identifying innovations to evaluating strategy, tactics, people, and prices.

The difference between low-end and new-market disruption is that, in pure low-end disruption like Nucor, the market tends to miscategorize disruptors as if they were low-quality incumbents. Because a low-end disruptor’s customers are the incumbent’s worst customers, and because its products are low-quality substitutes, it’s easy to miss the discontinuous change in a product’s performance trajectory and the inevitable sustaining innovations that will allow the disruptor to move up-market. As a result, analysts have higher confidence that the disruptor is playing by the same rules that are effective in valuing incumbents, and incorrect consensus is more likely — creating a big opportunity for investors who recognize the signs of disruption.

Instead of just crunching the numbers on less valuable sustaining innovations, market analysts ought to be looking for signals of disruption. For instance, over-served customers in markets where sustaining innovations have overshot customer demand. Instead, markets often miscategorize low-end disruptors as low-quality incumbents.

Next, market analysts should look for new-market disruptors — companies that are converting non-customers with a worse product. Because growth from non-consumption is often fast, we expect new market disruptors to be consensus bets much more often than low-end disruptors. First, analysts should look for a lack of consensus: when analysts are betting against new-market disruptors. Only then should they consider consensus bets, to evaluate whether the market is ignoring any part of a darling’s disruptive potential.

The tools of financial analysis are particularly ill-suited to disruptive innovations, because they offer no insight into when circumstance changes so that past rules no longer apply. This is when disruption theory can inform investors on the value of innovative companies. This creates opportunities for investors who understand disruption and are willing to bet on it.

If Crowdfunding is the New Day Trading, Look Out

Paul Volcker famously said the only financial innovation to improve society in recent memory was the ATM. Not everyone agrees. In an essay earlier this week on the evolution of money and finance, GigaOM founder and venture capitalist Om Malik argued that crowdfunding will be the new day trading, the latest financial innovation to “cut costs and [drive] wider participation in a previously closed and clubby market.” Advocates of crowdfunding had better hope not.

To be clear, Malik isn’t talking about Kickstarter where funders make a donation that acts like a pre-order. He’s talking about the public buying stock in private companies, something that may soon be legal thanks to the JOBS Act, and which took a step forward this week with new rules from the SEC allowing private companies to advertise investment opportunities for accredited (read: rich) investors. Now startups and hedge funds alike can advertise the fact that they’re raising money, and some day soon you or I might join wealthier citizens in investing in them.

There’s no doubt that this will drive broader participation in startup investing, but the comparison to day trading confirms crowdfunding skeptics’ greatest fear: that when the party’s over, the public will be left with substantially lighter wallets.

That’s what happened in the case of day trading.

A 2004 study of day traders in Taiwan concluded that, while a small group of traders made money consistently, “more than eight out of ten day traders lose money.” (Subsequent research determined that fewer than 1% of day traders consistently beat the market.) Two of the same researchers found something similar in a broader paper in 2000 on stock trading by U.S. households (not just day trading), which they provocatively titled “Trading is Hazardous to Your Wealth.” Once commission was taken into account, the researchers determined that households did substantially worse than they would have done investing in index funds. Notably, they found that the more households traded, the worse they did:

Our most dramatic empirical evidence is provided by the 20 percent of households that trade most often. With average monthly turnover of in excess of 20 percent, these households turn their common stock portfolios over more than twice annually. The gross returns earned by these high-turnover households are unremarkable, and their net returns are anemic. The net returns lag a value-weighted market index by 46 basis points per month (or 5.5 percent annually). After a reasonable accounting for the fact that the average high-turnover household tilts its common stock investments toward small value stocks with high market risk, the underperformance averages 86 basis points per month (or 10.3 percent annually).

In other words, it’s far from clear that widening participation in the stock market — at least at the level of active trading by individuals — was a good thing.

Malik nods toward this problem, writing of financial innovations:

People race to try it, hoping to earn higher returns, and that works; for a while, anyway. Inevitably, however, the innovation attracts too many newcomers that those returns collapse, leaving huge losses

In the case of day trading, at least, the data suggests lack of knowledge is a more relevant constraint than timing; nonetheless the questions at hand are whether such “innovation” does us much good, and whether equity crowdfunding will be any different.

There are reasons for skepticism: venture capital as an asset class has underperformed the S&P 500 for the last decade, and pouring more capital into VC has historically led to lower returns. Only the top 20% or so of VC firms have a track record of beating the market, and they have the advantage of seeing the best deals (which may never be available to the average crowdfunding investor, at least at comparable terms).

In the case of startups, at least, the time frames involved are long enough that frequent trading is basically impossible. But the central bias the researchers identified as causing individual stock traders to lose money is just as relevant for crowdfunding: “People are overconfident.”

When it comes to the stock market, the deck is firmly stacked against the little guy, and so the best way for most people to invest in it is through a boring old index fund. If investing in startups is anything like picking stocks in that sense, there’s likely to be a dark side to democratization.

An Investigation of Online Reviews Uncovers a World of Lies

I Give This Blurb 3 StarsOperation Clean Turf and the War on Fake Yelp ReviewsBusinessweek

Were the 19 companies accused of commissioning fake online reviews the only firms out there engaged in this nefarious practice? Mmm, no. Not likely. The U.S. Federal Trade Commission says 15% to 20% of all reader reviews might be fake. A lot of the attention generated by the New York attorney general’s investigation has focused on Yelp, but in fact Yelp came out of it looking pretty good. The review site now says it helped identify businesses to investigate. The AG’s office, for its part, says Yelp is the “most aggressive” of the major review sites in filtering out suspect reviews. But you have to take Yelp’s word for it that its filter is effective, because the company won’t say how the filter works. That would only tip off the mendacious. – Andy O’Connell

Career Ladder to Nowhere? All LinkedIn with Nowhere to GoThe Baffler

You probably have a LinkedIn profile. I do. It's one of the prerequisites of modern professional life. But maybe you and I should be asking ourselves: What has my LinkedIn profile really done for me? That's among the questions Ann Friedman asks in The Baffler. She ends up essentially eviscerating the site paragraph by paragraph. First there's the phenomenon of "frenetic networking-by-vague-association" in which you pretend to know people you want to be associated with, a system that creates an online "Escher staircase masquerading as a career ladder." Then there's the advice from "thought leaders," whose writing sometimes "reads like management-speak Mad Libs.” She points out, however, that LinkedIn does offer a few advantages. For one thing, yes, sometimes recruiters really do troll the site’s profiles. 

Unanswered QuestionsTragedy in Switzerland: What Drove Two Top Executives to Suicide?Fortune

It was perhaps this summer's most chilling business story: the suicide of Zurich Insurance Group CFO Pierre Wauthier, who left a note condemning the company's chair, Josef Ackermann. In this analysis, drawing on the Swiss biweekly Bilanz, Vivienne Walt highlights why Wauthier's suicide, and that of Swisscom CEO Carsten Schloter just weeks earlier, rocked the global business community. In both cases, personality and business conflicts in the upper echelons caused immense pressure, which was magnified by the always-on nature of business reporting and shareholder analysis. And while it's impossible to know why any one person commits suicide, people close to both men suggest factors included their 24/7 professional lives, their competitive natures, and the intense financial pressure to perform.

In Your Medicine CabinetUse Only as DirectedProPublica

Can Tylenol kill? According to this investigation it can, with overdoses of the drug claiming the lives of more than 1,500 Americans between 2001 and 2010. Yet it's widely considered one of the safest over-the-counter medications. There’s a lot in this piece, but one of the most interesting stories is about how Tylenol became such a powerful brand. Because Johnson & Johnson doesn't have a patent on the drug, it had to find a way to convince consumers the premium price would get them extra value. First, the company persuaded doctors and hospitals that Tylenol is safer and more trustworthy than aspirin. Then, after a few capsules were tainted with cyanide in the 1980s, the company pulled all its products off store shelves, turning a PR disaster into a coup. Today, more than half of all acetaminophen sales come from J&J-owned McNeil.

BONUS BITSGeeking Out

Bill Gates: "Control+Alt+Delete" Was a Mistake (PC Mag)
10 Cool Features Hiding in iOS7 (Time Techland)
Quora’s Search for What the Internet Doesn’t Know (MIT Technology Review)

Getting Big Results from a Small Business Unit

Earlier this year Sun Yat-sen University, a well-regarded institution in Guangzhou in the Guangdong province of China, announced that the university and affiliated hospitals were entering into a novel collaboration with Johns Hopkins Medicine. The agreement would see Hopkins faculty working bilaterally with Sun Yat-sen’s medical faculty both in China and at Hopkins in order to help the university become a world-class biomedical research institute. The deal has significant implications for U.S. hospitals because, facing declining revenues, international collaborations like these offer a new path for growth.

It was the 30th major, revenue-producing, international healthcare collaboration for Johns Hopkins Medicine, with several more currently under negotiation — when the rest of the world combined has perhaps a few dozen similar partnerships. One reason Hopkins is outpacing others is because it created an agile satellite unit – Johns Hopkins Medicine International (JHI) – within the much larger parent organization solely dedicated to these projects.

JHI’s activities illustrate how large healthcare organizations, often bound by size, complexity and conservatism, may need to turn to satellite units if they are going to tap into the innovation and flexibility needed to explore new opportunities for growth. But to be effective, such units have to cultivate key differences from their parent organizations, while at the same time maintaining close ties to the mother ship and adhering to its main tenets.

The Sun Yat-sen project offers a good example of how JHI took advantage of its smaller size, specialization and agility to identify, structure and close an ambitious, unusual and potentially highly rewarding deal that might well have eluded the main organization. It’s well known how difficult it is for large U.S. companies to do business in China profitably, if at all, and even many of our fellow private academic institutions have struggled in their efforts to establish partnerships in China. Our success depends on a set of capabilities any healthcare organization will need in venturing into similar international deals. They must:

Seek out novel relationships and challenges. Large U.S. healthcare organizations like JHM tend to enter into types of partnerships that don’t require them to operate in a substantially new way such as with other large domestic healthcare institutions, or with local hospitals.  Our unit, however, is set up to be more attuned to different types of opportunities. We have staff on the ground throughout Asia and the rest of the world to network and look for potential collaborations like the one in Guangzhou, which, being far from Beijing and Shanghai, fell under everyone else’s radar. The proposition for this collaboration would have had most executives at large medical institutions scratching their heads — there are no clear models for how to help another university develop its research expertise. We didn’t have a model to work with either, of course, but we were willing to innovate and develop one from scratch to make the collaboration work. We routinely partner with private investors, ministries of health, non-healthcare corporations, and other players who aren’t part of typical healthcare deals with U.S. academic medical centers.

Maintain unusual expertise. JHM’s strong reputation in patient care, research and education provides us with an invaluable brand halo that opens doors and motivates partnerships, and defines our mission. But striking international deals calls for a range of other competencies that our parent organization and others like it would have trouble assembling and deploying. These include being familiar with the variation from country to country of social norms, healthcare traditions, religious influences, negotiating tactics, contract law, effective local sales and marketing strategies, media coverage, and political influence. How many healthcare organizations are equally comfortable dealing with government officials in Asia and royal family members in the Persian Gulf? Or are capable of predicting how the next election in a small, developing nation is likely to affect hospital revenues there? Our teams deal with these sorts of offbeat challenges every day, and if we don’t have a resident expert we know how to get one. Critically, for every region we have a dedicated manager capable of championing a project there.

Embrace risk. Hopkins’ reputation is its greatest asset. But it also leads to an organizational culture that tends to shy away from doing anything that risks denting that reputation in any way. A sound policy, to be sure, but one that can sometimes pull the organization away from potentially rewarding opportunities. Our unit also places a high priority on protecting our parent organization’s reputation. But because of our experience and focus, we’re better able to understand and manage the risks associated with international collaborations that JHM itself might be. For example, we allow some of the hospitals that collaborate with us in other countries to identify themselves as Johns Hopkins Medicine International “Affiliates,” but only when we’re intimately involved in setting up, monitoring and maintaining patient care and safety processes and standards. The joint research coming out of our Guangzhou collaboration will bear the Hopkins name, but only in those cases in which Hopkins researchers have played a meaningful role. We also structure our deals in phases, typically starting with pilot projects and moving gradually into more extensive and challenging levels, so that if we have misjudged the risk in a project we’ll catch it early and be able to step away before any real damage is done.

Move with agility.  John Hopkins Medicine is a massive, complex organization that prefers to move into partnerships with great deliberation, because a large number of decision-makers have to buy in, and because there’s more risk in acting quickly. But when a health ministry or a group of private investors in a small country give a big health care project a green light for funding, they’re not going to wait around for two years for a potential partner to sign on. So we’ve developed business processes that enabled rapidly pulling together a team to efficiently evaluate the Sun Yat-sen opportunity, perform due diligence, structure the deal, line up the resources needed to live up to our end of it, set up contracts, and present JHM — which still has to approve all our deals — with a solid, complete package that can be decided on relatively quickly, all within six months. It helps, of course, that we’ve earned the trust of JHM decision-makers over the years, that I myself am a senior vice-president of JHM in addition to my role leading the international innovation unit, and that we consult with key JHM executives every step of the way so that there are no surprises.

The result of these competencies is that our satellite unit has been able to help the mother ship extend its health care mission globally. That’s a huge payoff to the entire organization–even before factoring in the substantial revenues that have come along with these projects.

Follow the Leading Health Care Innovation insight center on Twitter @HBRhealth. E-mail us at healtheditors@hbr.org, and sign up to receive updates here.

Leading Health Care Innovation
From the Editors of Harvard Business Review and the New England Journal of Medicine




Leading Health Care Innovation: Editor’s Welcome
How We Revolutionized Our Emergency Department
How to Get Health Care Innovations to Take Off
Value-Based Health Care is Inevitable and That’s Good

Do You Really Want to Bet Against China?

The book Asia Rising was a prescient 1995 forecast of East and South Asia’s continuing rise to economic power, written by the Economist’s first Asia editor, Jim Rohwer. It is also mostly forgotten because, two years after its publication, East Asia fell into a deep financial and economic crisis that seemed to discredit the thesis. And after that, when China and India’s spectacular growth in the first decade of the new millennium proved Rohwer right in spades, he wasn’t around to say I told you so because he’d died (in a sailing accident) in 2001.

I knew Rohwer slightly, and I thought of him a lot last week during my first visit to Shanghai, a city that played a central role in his book. He had forecast that it would be the epicenter of the Asian boom, with 27 million inhabitants by 2020 and a place alongside New York and London as one of the world’s top three financial capitals.  Rohwer — at the time a resident of Hong Kong — also predicted that he’d be living there, “in a district … that in imperial days was known as the French Concession.”

Obviously, and sadly, that last prediction can’t come true. But one night last week I found myself sitting in the garden of a sturdy old house in the lovely, leafy neighborhood that is again known as the French Concession, drinking excellent wine poured by the China-born executive at a U.S. company who lives there, and concluding that Rohwer really had been on to something. Shanghai stands a good chance of meeting or surpassing his population prediction — it’s already at close to 24 million. It’s not yet quite the financial center Rohwer envisioned, because China so far hasn’t been willing to take the plunge into full, unfettered participation in global financial markets (although a new free-trade zone in Shanghai amounts to a major dipping of toes in the water). It does have the feel of a soon-to-be-inescapable global metropolis, the kind of vibrant, affluent, stylish, bold place that will be setting trends and shaping the world economy for decades to come.

Am I utterly confident in that prediction after four days in Shanghai and just 10 total in China? (I also visited Beijing, where I spent most of my time stuck in traffic, and the port city of Dalian, where I spent most of my time in this crazy-looking new conference center.) No, I’m not, and the superficial impressions of short-term visitors to China should of course be taken with many grains of salt.

But a visit to China, or at least to a few of the big, booming cities on or near its coast, cannot help but reinforce the view that it is the inevitabilists like Rohwer who have gotten Asia in general and China in particular right, while the doubters have gotten things wrong again and again and again over the past couple of decades. Nothing truly is inevitable in this world, and China now faces huge pollution problems, dwindling resources, an aging workforce, and a harder road to economic progress with the potential gains from cheap-labor-driven export growth mostly exploited — not to mention the potential for conflict between a populace growing accustomed to economic freedom and at least partial freedom of expression and a ruling political party determined to stay in control. No country has risen to economic greatness without crises and backward steps along the way. But China’s forward momentum is remarkable, and it is so huge and so far along the road to joining the world’s wealthy nations that from now on its crises and backward steps will likely be ours, too.

A core prediction of Rohwer’s 1995 book was that by 2020 the center of global economic gravity would have shifted from the mid-Atlantic to somewhere in or near Asia — with Asia’s economy bigger than those of Europe and the Americas combined. With only six years to go and Asia still quite a few trillions of GDP dollars behind, that seems like a stretch. But the relative change in fortunes has nonetheless been dramatic, and betting against Rohwer on Asia has generally been a bad idea. If only he were around to collect.

One other superficial impression from my China visit: I’ve long been partial to the argument that India possesses a long-run advantage over China because while its hard infrastructure of highways and railroads and airports and power grids is clearly inferior, its soft infrastructure of laws and politics and a free press is vastly superior to China’s. But China’s physical infrastructure just keeps getting more impressive. (Fun fact, from a fascinating article by Keith Bradsher in Tuesday’s New York Times: “China’s high-speed rail network will handle more passengers by early next year than the 54 million people a month who board domestic flights in the United States.”) And over the past decade, with the rise of social media and an independent business media and the continuing development of its legal system, China has made real progress on the soft stuff—possibly as much as India has in building airports and subways and surely more than India has in improving its electrical grid.

Cheating Makes People Feel Good (When There’s No Victim)

In a series of experiments, cheating on tasks improved people’s moods, says a team led by Nicole E. Ruedy of the University of Washington. For example, participants who were shown the correct answers to an intelligence test and used them to improve their scores registered a bump from 2.42 to 2.71 on a five-step positive-affect scale, while noncheaters’ moods declined slightly. The researchers point out that this “cheaters’ high” applies only in contexts with no obvious victim.

Why Large Companies Struggle With Business Model Innovation

Innovation success stories are all strikingly similar: a bright idea, supported by a zealot-innovator who sees it through. The windfall of goodies follows.

But failures happen for all sorts of reasons, and they often occur even when the idea is sound. This is especially true for business model innovations — when the new idea is not a product, service, or technology but a different way of engaging with the customers and earning revenue from them. Large organizations in particular struggle to implement these kinds of innovations, which is why you most often see them in the context of entrepreneurial ventures.

In our research on business model innovations in large companies, we’ve identified three common problems in executing or rolling out a new business model in large organizations.

Lack of top management support and attention 

Unlike other innovations, implementing a business model innovation often requires changes that affect multiple parts of the organizations. And while the R&D department can sponsor and push through a new product or technology, rolling out a business model innovation requires direct support from the top management.

This was a problem for one large financial services company we worked with. We developed dozens of new innovation ideas with managers in the company but the board, though initially enthusiastic, never took the time and energy to engage with the projects, directing their attention on day-to-day operational issues instead. As a result the innovation projects died on the vine.

The board of a large chemical company we also worked with took a very different approach. Here business model innovation projects were sponsored directly by the board member who would receive regular updates and who would fly in personally for interim reports.  The chief of HR personally tracked minor milestones of project implementations and personally followed up with groups falling behind schedule.

Reluctance to experiment

Even the most brilliant business model innovation idea is just that: an idea.  It relies on a lot of assumptions and judgments, and in the absence of a crystal ball, the best tool we have is experiments. But established companies are surprisingly bad at experimenting.

A large retail chain on the brink of bankruptcy refused to follow our advice to experiment with a drastic revision of its labor management practices in a few stores because the CEO was concerned about appearing “indecisive” and “unsure” about the correctness of the decision. The company did eventually go bankrupt.

This “all or nothing” rather than “experiment and decide” mindset reflects technology/product innovation paradigm in which a company cannot afford not to launch a full-scale support of one innovation because it requires a strong marketing message across all channels.  But business models are different: they often can be prototyped on the cheap by creating a “minimal viable business model” and experimenting with it.

Failure to pivot

Even when the company experiments with a new business model, it often fails to interpret the result of the test correctly and adjust an implementation plan accordingly. What may seem like a failed experiment might carry the message that an adjustment in the planned rollout of business model innovation is needed. And what looks like a successful test might not be really testing the most critical aspect of the business model.

Take the recent demise of the prominent startup Better Place, which promised to revolutionize electric cars by equipping them with switchable batteries.  During the test of the business model in Tokyo, Better Place replaced regular cabs with their electric battery-powered cars in order to demonstrate the viability of its switching station business model. The experiment was a success but the company went bankrupt shortly thereafter.

What the experiment had demonstrated was merely that battery switching stations work: it did not demonstrate that consumers would buy such cars, and people are understandably less finicky about taxicabs than about their own cars. One possible pivot after this test could have been to focus on selling to fleets (such as taxis), a route that Better Place did not appear to have taken. Another possibility ignored was to design a separate follow-up test to assess the likelihood of consumers actually buying Better Place cars. It might have told them that having just the one model to sell was unlikely to result in sufficiently large sales.

Business model innovation is a powerful driver of value and a surer way to succeed than technology, product, or service innovation.  Large companies have the resources and capabilities to create and exploit business model innovation ideas on an extraordinary scale.  But their failure rate is nonetheless unacceptably high because so far too many have not shown enough commitment and flexibility in the way they develop and roll them out.

Executing on Innovation

An HBR Insight Center




Innovation Isn’t Just About New Products
Three Signs That You Should Kill an Innovative Idea
We Need a New Approach to Solve the Innovation Talent Gap
Recognize Intrapreneurs Before They Leave

Lead Authentically, Without Oversharing

Lisa Rosh, assistant professor of management at the Sy Syms School of Business at Yeshiva University, explains how to build trust through skillful self-disclosure. For more, read the article, Be Yourself, but Carefully.

Download this podcast

In Praise of Humble First Jobs

Like many parents, I am troubled by the growing fixation with careers. We seem to be putting young people on the career treadmill at an earlier and earlier age. Choosing extracurricular activities, summer jobs, and even preschool is increasingly undertaken with a calculating eye towards securing career success.

I was therefore excited when I came across the New York Times article, “Why a Summer as a Chambermaid Can Be More Valuable Than an Internship.” I thought the author would share character-building life lessons gleaned from a summer spent “cleaning toilets and changing sheets” — pride in doing a good job performing unglamorous and perhaps unpleasant duties, appreciation for those who toil away at resorts, restaurants, and other establishments for the comfort of the privileged, and so forth.

My heart sank when I realized that this article was fundamentally no different from the career-promoting columns you find elsewhere, except that the “lessons” were drawn from working at a picturesque resort instead of a glum office. According to the author, the highlights from her summer as a chambermaid included meeting people who proved helpful professionally down the road, developing good work habits (in this case, reading newspapers daily), and stumbling upon a “spark” that opened up or deepened a career interest. In terms of lessons, how is this different from a positive internship experience? And doesn’t it reinforce the career obsession that the article — going by its title — seemingly derided?

Similar to many Americans, I held part-time jobs during college. While I did pursue an internship related to my field of study, I also worked as a busboy in a fine-dining restaurant and as a cleaner in a luxury goods store in order to pay tuition, rent, and other living expenses. Looking back, there is no doubt that the non-professional jobs taught me more.

At the restaurant, working among a highly diverse group — the staff comprised a motley crew of varying ages, ethnicity/geographic origin, educational background, and “life” experience — helped me realize that people share important traits: Most of us had pride in our work, yearned to be liked and respected by peers, sought to behave decently, and nursed modest as well as grand dreams, if not for ourselves then for our offspring.

Equally instructive was narrowing “gaps” with some colleagues. The restaurant’s assistant manager — a tall, dignified man who was unlikely to move up the managerial ranks because he didn’t have a college degree — barely hid his contempt for me when I first started. Over time, as I worked hard to prove that I belonged, he eased up and signaled his approval through the occasional wink and pat on my shoulder. He even started sharing with me his love of wine.

At the luxury goods store, it surprised and upset me that some salespeople looked down upon me — and treated me as largely invisible — simply because my job entailed cleaning the windows, vacuuming the showroom, and polishing the brass door handles. That experience seared into my brain the importance of according everyone — irrespective of their occupation, stature or station in life — a modicum of respect and regard.

Perhaps the most important life lesson from that period — though not always remembered — was that it didn’t take much for me to be happy.

Young people certainly need to plan carefully to achieve professional success in today’s highly competitive environment. But we mustn’t forget that a life is distinct from — and lasts longer than — a career and equal attention should therefore be given to building the foundation for a successful life, including through jobs as a chambermaid, busboy, or store cleaner.

Defend Your Research: Are Entrepreneurs Really Pot-Smoking Rebels?

The study: Ross Levine of the Haas School of Business, University of California at Berkeley, and Yona Rubinstein of the London School of Economics’s Department of Management studied the traits associated with successful entrepreneurs, using longitudinal data that included individuals’ responses as teenagers. They found that “aggressive/illicit/risk-taking tendencies,” when combined with intelligence and other factors, helped predict success in entrepreneurship.

The challenge: The paper generated numerous mentions in the press, many of which dwelled on the connection between smoking pot and entrepreneurial success. But do pot smoking, run-ins with police, and other such “illicit” activity as teenagers really predict entrepreneurial tendencies? Professors Levine and Rubinstein, defend your research.

Levine: The main finding there is that it’s a combination of smart, which we measure as learning ability where people in the survey are given exams when they’re teenagers, and their willingness to bend and even break the rules and engage in aggressive risk-taking behavior, which is measured by an index of the degree to which they engage in illicit activities before they entered the workforce.

HBR: What are we actually talking about in terms of what it is this Illicit Index is measuring?

Levine: This index is based on the answers to many questions. Have you ever taken anything by force? Have you ever stolen anything of $50 or less? Have you stolen anything of $50 or more? Have you been stopped by the police? Have you been arrested by the police? Have you been convicted? Have you been suspended from school? Have you done marijuana? Have you done higher drugs? Have you sold drugs? So, many, many, many questions.

We don’t focus on the specific questions. We use this as an overall indicator of the degree to which people engage in risky activities, the degree to which they bend or break the rules. Also, some of the questions ask about whether respondents have taken things by force, so this provides information about the degree of aggressiveness. So, [to] us this as an overall indicator of a particular set of non-cognitive traits.

So the illicit index is capturing much more than just ‘Did you smoke pot?’.

HBR: To what extent is it possible that the Illicit Activity index is measuring, because it’s self-reported, as much the person’s perception of themselves as the activity?

Levine: The illicit activity index asks very specific questions. It doesn’t ask to what degree did you engage in illicit activities? Rank this 1 to 5, which I think would be very prone to a different interpretation such as the one that you gave. [It asks] have you ever been stopped by the police? Yes or no? Have you ever been arrested by the police? Have you ever been convicted? So, it’s possible, but given the specificity of the questions, we don’t think that that’s what it’s capturing.

HBR:  We know that the successful entrepreneurs of incorporated businesses tend to rate higher on the illicit activity index when they’re teenagers. Do we know anything about there being a level of activity on the illicit index that is so high that it starts to become detrimental?

Rubinstein: You can see from the details that it’s more about circumventing the rules rather than becoming a criminal. It’s not that they’re more likely to be arrested and [be] jailed. They are more likely to steal less than $50, but it’s not so high a proportion of them stealing more than $50 in ’79 dollars. So, you can see it’s breaking the rules but not being professional criminals. Strictly following all of the rules when in high school is not the best predictor of a future as a successful entrepreneur.

Levine: It’s not that if you go around in the population and you simply say AHA, here’s somebody who engages in lots of illicit activities, this guy’s going to be an entrepreneur. It’s not that illicit activities by themselves exert this strong predictive power. It is the combination of “smarts” and illicit tendencies that predicts both entry into entrepreneurship and the comparative success of entrepreneurs.

HBR: What if people who are both smart and break the rules just are more likely to succeed at whatever they do and it’s incidental that they succeed as entrepreneurs?

Rubinstein: No, that is not quite right. The combination of “smart” and “illicit” traits is very powerful at explaining success as an entrepreneur, but this combination is not as powerful at accounting for success as a salaried worker.

HBR: One of the responses to your paper said that essentially what had been identified was entrepreneurship as “the ultimate white privilege”. Is that a fair assessment based on what you found? 

Levine: I would put it differently because focusing only on color misses the broader results of the paper. Entrepreneurs tend to be white, male, come from higher-income families with better-educated mothers, and [have] high levels of self-esteem. Moreover, entrepreneurs tend to be both smart and exhibit illicit tendencies as youths. Different from salaried workers and other business owners, entrepreneurs have a unique mixture of cognitive and non-cognitive traits.

Rubinstein: So, to the extent that the home environments are important in developing this unique mixture of traits, then people don’t face equal opportunities. But it’s this particular mixture of traits that makes them successful. It’s not purely the family income or purely their race or purely the education of their parents.

HBR: I was really interested in the way that you resolved the definition of entrepreneurship because self-employment is recognized to be an imperfect measure. Why is incorporated versus non-incorporated the better measure?

Levine:  The legal definition of what it means to be incorporated was created over many centuries with the very explicit goal of facilitating investment in innovative, risky, large, long-gestation investment projects. Although there are more costs, informational disclosure requirements, and accounting regulations associated with incorporating, people establishing innovative, risky, and large businesses find the legal characteristics of the corporation worth the extra cost. But people opening up opening up businesses that doesn’t involve what we would call entrepreneurial characteristics — that is, people opening up businesses that are not that innovative, risky, large and that do not involve long-gestation investments — are going to tend to organize such businesses in an unincorporated form because of the extra costs and organizational hassles of incorporating. Of course, some skeptics of our approach might ask doesn’t somebody just start as unincorporated and then if they’re successful, they become incorporated? What we find is that exceedingly few businesses change from unincorporated to incorporated, or from incorporated to unincorporated. All of this evidence points toward the view that people choose the structure of their business, i.e. whether it is incorporated or unincorporated, based on the planned nature of the business.

Rubinstein: Our work concerns a very particular set of people that are being attracted to this type of business organization. It’s a very particular mix of traits that were determined many years before they even were dreaming about joining the labor market.