Marina Gorbis's Blog, page 1543

Research: Middle Managers Have an Outsized Impact on Innovation

Just the mention of “middle managers” is enough to make people’s eyes roll back. But these supposedly boring cogs of the corporation, these objects of derision in Dilbertland, can have a profound impact on innovation and performance. Companies need to pay attention to them and reward their special talent at making the best of the restrictions and limitations of their positions — of making lemonade from lemons.

For decades, researchers and businesspeople have assumed that in the thick of large organizations, what matters is process. Are the right resources available? Are incentives effective? If the organization isn’t being innovative, the solution must be structural.

My study of computer-game makers shows something different — that individuals matter a lot. And of all the individuals, the choice of who is middle manager on vital projects goes the furthest in explaining why some firms do better than others.

In a gaming-company context, middle managers have the job title of “producer” (primarily because it is thought to be a cooler-sounding title than “project manager”), and they supervise designers, who are the sources of creative ideas. After controlling for many factors, such as the genre of the game and the size of the project, I found that individual producers account for 22.3% of the variation in company revenue. Designers, by contrast, account for just 7.4% of the variation — a relatively marginal impact. For comparison, everything else that’s part of the firm, whether it’s senior managers or strategy or marketing, accounts for just 21.3% of the variation in firm performance. (The rest is due to exogenous factors such as changes in technology and the marketplace, as well as some of the natural variation in any creative products). What’s more, the talent of individuals was portable — when they left one company for another, they took their ability with them.

Producers’ impact extends beyond firm performance. When I looked at which group was responsible, and to what degree, for variations in product quality, as measured by critics’ responses to games, the numbers were similar.

Why do project managers have such a large impact? The answer has to do with the difficult, but often critically important, situation they find themselves in. Higher-ups don’t give them the resources they want, and subordinates are annoyed by the directives the project managers are mandated to promulgate. Squeezed from above and below, they have to make do. Some people are very bad at this and destroy value. But some are really good at it. The best have a knack for turning restrictions on resources into creative solutions. It’s almost magical.

For example, think of the middle manager (yourself, perhaps?) whose team, for budget reasons, was never restored to full strength after a couple of departures, and who responded by reassigning responsibilities in a creative way that made everything work better — to the point where everyone wondered why those additional people were ever needed.

Middle managers’ position is also critical in that they function as the facilitators, nurturers, and selectors of creativity. They’re the ones to get the creatives excited about a project, keep them on time and on budget, solve interpersonal problems, and select from the creatives’ ideas. They speak up when the creatives’ ideas are unrealistic or too difficult to implement. Good middle managers can also help create “collective creativity,” making sure that the sum of innovative work is greater than its individual parts by establishing healthy team dynamics.

When you study companies, you see that the good project managers are widely known. There’s respect for their abilities — sometimes it’s grudging, but it’s real respect. Everyone has a sense of how important they are.

But that doesn’t stop companies from ignoring them. The middle-management position is usually seen as a way station to “real” management. Companies make little effort to retain the most effective middle managers. A lot of project managers buy into this view, accepting that they should do everything possible to shed the “middle” label and move on.

But the reality is that good middle managers are a valuable resource. If you take a really effective middle manager out of his or her role, it’s unlikely that someone else will be able to do the job as well. And a number of managers like the middle. They know they’re effective there. Companies would do better to support the best of these managers and encourage them to stay in the middle, if that’s their chosen profession (and it is a profession).

One way to encourage them to stay is to frame the job description so that it doesn’t sound like a stepping-stone to something else. Another is to create a career path that doesn’t necessarily involve promotion out of project management. Have them aim for the role of “chief project manager.” Assign them to teams where they can deploy their special talents in interesting, challenging ways. Does one of them excel at fast turnarounds? Another at getting creative people to stop fighting? Another at resurrecting supposedly doomed projects? Make sure these skills get used.

Most of all, don’t think of middle managers as interchangeable parts. They are individuals, and many have significant talents.

Corporate leaders spend a lot of time worrying about the impact of their strategy. But they overlook the impact of the people who make the thousands of small, critical choices that truly make the difference between success and failure.

Executing on Innovation

An HBR Insight Center




Why Is Innovation So Often Synonymous With Disappointment?
How Corporate Venture Capital Helps Firms Explore New Territory
Innovation Isn’t an Idea Problem
Five Ways to Innovate Faster

Apple's iPhone Pricing Strategy: Good, Not Great

With yesterday's iPhone release, Apple changed things up by going to a "good-better-best" pricing strategy on its new devices. As it always does, the company showcased a new and improved iPhone model — the 5S — which provides faster processing, a better camera, and James Bond-like fingerprint security technology. Prices for the 5S in the U.S. start at $199 for customers who commit to a 24 month contract, and $649 for those who prefer not to be tied to a two-year financial obligation. Apple also released a lower priced iPhone, the 5C (many view the "C" as a moniker for "cheaper"), which in essence is old technology — similar to the current iPhone 5 — in a plastic backed case available with a variety of new colors. 5C prices in the U.S. start at $99 on contract and $549 off-contract.

But in my view the good-better-best pricing strategy (in this case "better-best") makes sense for Apple for a couple key reasons:

Giving customers more choice will generate growth. I often use the analogy of early-bird, regular, and chef's table options that are available at many gourmet restaurants. This strategy allows customers to choose the price that works best for them. Newly married couples on a budget, for instance, opt to arrive before 6:30 PM while dining high rollers willingly pay a hefty premium to hob nob with the chef. A similar type of self-selection will occur with these two iPhone options. By serving the price sensitive market, Apple will grow its business with new early-bird customers.

It will preserve the 5S's margins. In my consulting work with companies, I've been in similar situations as Apple now faces. Often times a premium product with large market share encounters a new wave of competition that is winning customers via rock bottom prices. For proof of Apple's woes in this area one need look no further than the recent Siri-bashing Windows 8 Tablet ads, whose punch-line is $250 cheaper price tag than the iPad. To combat this pricing pressure, I inevitably recommend introducing a lower priced version — a fighter brand — which competes with new entrants and serves price sensitive customers. With the 5C in place as a fighter brand, the 5S is now better positioned to customers who highly value the handset and can continue to command a premium.

The stock market reacted harshly to Apple's new strategy primarily due to the 5C's $549 off-contract price. But why does the high off-contract price matter? In emerging markets such as China, buying handsets off-contract is very popular and the 5C's relatively high price isn't going to generate long lines of "I must have it now" customers. Analysts had previously predicted the off-contract 5C price to be around $400 and when the actual price of $549 was announced yesterday, investors got skittish.

The analysts blew it and Apple is now a victim of unrealistically set expectations (as I discussed earlier today in an interview with Bloomberg TV). For the right to offer iPhones to their customers, wireless carriers typically pledge to sell large volumes. Verizon, for instance, has reportedly committed to purchase over $23.5 billion in iPhones in 2013 alone. Because of these deals, there's no way that Apple would have offered a cheap off-contract 5C price. This would induce customers to buy off-contract — which would hurt its wireless supply partners who are hustling to meet their commitments. In fact, it wouldn't surprise me if these high volume deals with wireless suppliers such as Verizon prohibit Apple from selling cheap off-contract phones.

What's interesting is the intended outcome of the 5C — attracting price sensitive iPhone customers who buy on-contract — could have also been accomplished with a new pricing strategy. Taking a page from the car leasing industry, carriers should offer customers a range of choices. If $199 upfront for the premium 5S on contract does not work for a customer, offer them $100 upfront plus an extra $5 per month for the 24 months of the contract, or no money down and an extra $10 monthly finance payment. Customers typically focus on what it's going to cost them today and often gladly tradeoff a lower upfront payment for a few extra dollars a month obligation. And just like car leases, monthly payments can be further reduced if customers pledge to return the phone in 24 months (presumably to trade-up to a new iPhone).

While the off-contract 5C pricing won't move the needle in emerging markets, the key to success in these markets is to push on-contract (in essence, financing) or lease pricing options. Apple needs to promote these pricing practices to help customers understand that leasing or financing over time via contract are time-honored strategies used by customers to buy luxury products. It's estimated, for instance, that over 60% of BMW and Mercedes new car sales in the United States are leases.

The 5C will accomplish exactly what Apple intended in the on-contract market — provide an early-bird $99 option, which is good. But what prevents this strategy from being great is the lack of a viable pricing-related growth strategy in emerging markets, which I believe is easily solvable.

The "Instant Referendum" That's Undermining Your Leadership

Outgoing New York City Mayor Michael Bloomberg knows more than a thing or two about running huge, complicated organizations and digital media. So when he notes in a farewell interview that, thanks to social media, there's now "an instant referendum on everything; I think it's going to make governing more difficult," private sector managers better get nervous, too.

The Arab Spring and other Twitter-credited uprisings get virtually all the headlines, but the C-suites and high-profile executives at enterprises worldwide are increasingly conducting "instant referenda" on their presentations, decisions, and actions. The digital institutionalization of the instant referendum makes leadership and management more difficult, as well. The more controversial or confusing the leadership decision, the harsher and more influential the instant judgments of that referendum can be.

Don't think for a moment that mid-level J.C. Penney managers and employees weren't sharing their unhappiness and concerns during Ron Johnson's troubled tenure there. At Microsoft, no sooner had Steve Ballmer's resignation set the company's digital tongues a'wagging than another internal debate broke out in the wake of the company's multi-billion-dollar Nokia acquisition. Are Google's employees running comparable referenda on the impact that a cofounder's relationship status may have on their company?

The water cooler hasn't vanished; it's simply become virtual, transported into the cloud. What's fundamentally different, of course, is the new speed and scalability of sentiment. Where rumors and reactions once took weeks to coalesce into enterprise attitudes, internal networks and "gray market" social media now compress into days. Global firms — indeed, any organizations of size and/or scale — are now captive to social-mediated that can turn quiet doubts into open skepticism and reluctant accommodation into passive resistance.

Managing — or at least influencing — information cascades will become one of the core communications competencies of top-level executives. Facilitating favorable cascades will matter as much as killing one in its virtual tracks. If information is cascading in private Twitter, Facebook, and/or LinkedIn networks, executives may indeed have to ask to "friend" or "follow" hub colleagues and subordinates.

At one European global financial firm, I saw heavily lawyered internal communications about an internal problem managed so poorly that managers across the enterprise collectively lost respect for the senior executive tasked with handling it. The instant referendum in the aftermath almost instantly devalued that executive's brand within the firm. He had to rehabilitate himself in face-to-face meetings throughout Europe to make up for losing that referendum. Needless to say, he and the corporate communications folks monitored the internal chatter that followed his make-up sessions. Issues of privacy and anonymity for these informal "off-network" referenda become managerially challenging, as well.

In instant referenda environments, being likable and/or highly competent counts for a lot. Leaders and managers want to be seen as either nice or credible enough to get the benefit of the doubt for a difficult decision or a controversial choice. Being more accessible or responsive can help. Similarly, so might "information inoculation" strategies and tactics where — like with a good vaccine — people get exposed to just enough of the decision or conflict to prevent uncontrollable outbreaks of negative sentiment.

Does this create the real risk that managers and leaders appear afraid of negative reactions from their subordinates? Yes, it does. Does it also create the possibility that employees and colleagues will be even angrier and more resistant to leaders who behave as if their reactions don't much matter? Why, yes.

Michael Bloomberg knows things have changed. In the digital enterprise where BYOD has become the new normal, instant referenda are an emergent phenomenon that leaders and managers ignore at their peril. The more important — and controversial — the decision, the more important that instant referendum will prove.

Poker players worldwide understand the admonition that if you can't spot the fish at the table in the first half hour, then you're the fish. In the socially mediated enterprise, leaders who aren't really aware of their internal referenda aren't really leading.

The Right Way to Find a Career Sponsor

As part of her employer's mentoring program, every month Willa meets one-on-one with Joan, a former EVP at the same global financial services firm. Warm and nurturing, Joan is a tireless champion of working mothers like Willa, having herself negotiated a flex arrangement working out of her home in Connecticut while overseeing operations in India.

Joan is unquestionably Willa's role model as well as mentor. But is she the senior leader best positioned to get Willa promoted to her dream job of heading up M&A at corporate headquarters? Probably not.

As sympathetic confidants, mentors can't be beat. They listen to your issues, offer advice, and review approaches to solving problems. The whole idea of having a mentor is to discuss what you cannot or dare not bring up with your boss or colleagues. But when it comes to powering your career up the corporate heights, you need a sponsor. As I explain in my new book, Forget a Mentor, Find a Sponsor, sponsors may advise or steer you but their chief role is to develop you as a leader. Why? Not so much from like-mindedness or altruism, but because furthering your career helps further their career, organization or vision. Where a mentor might help you envision your next position, a sponsor will advocate for your promotion and lever open the door. Sponsorship doesn't "rig the game"; on the contrary, it ensures you get what you deserve — and will propel your career far more than mentors can.

When scanning the horizon for would-be sponsors — and yes, you need more than one — many high-potential women make the mistake of focusing on role models rather than powerfully positioned sponsors. My research shows that they align themselves with people whom they trust and like or who, they believe, trust and like them. According to survey data from the Center for Talent Innovation, 49% of women in the marzipan layer, that talent-rich band just under the executive level, search for support among someone "whose leadership style I admire." What style is that? Forty-two percent are looking for sponsorship from collaborative, inclusive leaders because that style of leadership is one they embody or hope to emulate.

The problem is, those aren't the leaders with the power to push promising women to the corporate heights. CTI research found that only 28% of men and women at U.S. companies say that inclusive collaborators represent the dominant style of leadership at their firm. Instead, nearly half of respondents — 45% — say the most prevalent model is the classic, command-and-control leader who wants his lieutenants to fall in line behind him. Twenty percent perceive their top management to be competitive types — hard-edged, hard-driving guys who value quarterly bottom-line results above all. Very few — 6% — describe their chief as a charismatic visionary who, because he or she is focused on the big picture, seeks out tactical, pragmatic support.

In short, what female talent values and seeks in a sponsor just isn't on offer among those with real power in the organization. This profound mismatch helps explain why so many women — 40% — fail to find the real deal: Sponsors who can deliver. As one woman ruefully told me, "I wasted ten years talking to the wrong people."

To avoid that mistake, be strategic as you search your galaxy of supporters for would-be sponsors. Efficacy trumps affinity; you're looking not for a friend but an ally. Your targeted sponsor may exercise authority in a way you don't care to copy but it's their clout, not their style, that will turbocharge your career. Their powerful arsenal includes the high-level contacts they can introduce you to, the stretch assignments that will advance your career, their broad perspective when they give critical feedback — all ready to be deployed on behalf of their protégés.

Look beyond your immediate circle of mentors and managers. While you should, of course, impress your boss — who can be a valuable connection to potential sponsors — seek out someone with real power to change your career. Would-be sponsors in large organizations are ideally two levels above you with line of sight to your role; in smaller firms, they're either the founder or president or are part of his or her inner circle.

Sponsors don't just magically appear, like fairy godmothers (or godfathers), to hard-working Cinderellas. Sponsorship must be earned, as I'll describe in my next post — not once but continually. But when you link up to the right sponsor, the result can change your career.

What's the Status of Your Relationship With Innovation?

How important is innovation these days? Increasingly important, if one goes by the frequency of the word appearing during earnings calls that publicly traded companies have with investment analysts. In 2008, the word appeared 1,733 times in earnings calls for 435 large publicly traded companies. That's an average of about four mentions per company (Starbucks topped the list with 139 mentions). In the last four quarters where full data are available, the total was 3,299, or about 7.5 mentions per company (Nike, recently named the world's most innovative company, topped the list with 239 mentions).

But just talking about innovation doesn't mean a company is really serious about it, or is approaching it in a way that has as a reasonable chance of success.

Innovation — particularly that which pushes a company into new markets or new businesses — requires a serious ongoing commitment. But what we've found in our work with companies across a wide spectrum of industries over the past few years is that many corporate leaders who think they are seriously committed to innovation are really just flirting with it. There's nothing wrong with flirting, or even taking the next step and having an innovation fling, as long as leaders recognize that they aren't likely to get significant returns without making serious commitments.

Unfortunately, because innovation so frequently is confused with creativity or the generation of ideas, many companies dramatically overestimate their commitment to innovation. That leads to corporate disappointment when creative ideas don't translate into substantial growth businesses. As we described in Building a Growth Factory, a serious commitment typically requires (among other things) dedicated resources, a disciplined approach, and serious executive involvement. These kinds of commitments help to overcome some of the most common execution challenges companies face:

• Moving at a glacial pace because over-stretched managers are trying to fit efforts into small cracks in their calendars

• Unintentionally force-fitting a disruptive idea into the company's current business model, blunting its long-term potential

• Playing it overly safe because employees know that the rewards for success are miniscule but the penalties for taking even well thought out risks that don't pan out are prohibitive

So how can you tell how truly committed your organization is? Inspired by the somewhat tongue-in-cheek quizzes that populate fashion magazines, we created a short quiz. Find a colleague, and see how you fall on the following seven questions.

1. Who is working on innovation?

a) What's innovation? (You might want to stop the quiz now.)

b) Some people spend bounded time on innovation (e.g., "Free Thinking Fridays")

c) We have dedicated resources who eat, breathe, and sleep innovation

2. What's in it for them?

a) Suffering — it's their job. If they screw up, they'll feel it

b) Glory — the spotlight shines bright when they succeed

c) Riches — we have specific incentive programs for innovation

3. What is the background of the people working on it?

a) Some of our best performers

b) Internal talent that has a demonstrated history of successful innovation

c) Blend of internal talent and external hires with a proven track record

4. What are they working on?

a) Nothing specific — it takes 1,000 flowers, right?

b) All hands are on deck for a single make-or-break "bet the company" initiative

c) We have identified a handful of strategic opportunity areas we are exploring

5. Where does the money come from?

a) Our budget is focused on operating priorities, so there isn't any money for it

b) We don't have a budget for innovation, but we find money when we need it

c) We have a dedicated budget for innovation

6. What is leadership's role?

a) Get out of the way — we don't want to constrain it

b) We have a special quarterly meeting where senior leaders talk about it

c) We have a member of the executive committee or board who owns it

7. Word association — innovation is...

a) Random! We just hope for the best

b) Fun! We support it but don't constrain it.

c) A discipline! We approach it systematically.

Give yourself one point for every "A" answer, three points for every "B" answer, and five for every "C" answer in the right column.

If you scored:

• Fewer than 10 points: You tease! You are still just flirting with innovation.

• Between 10 and 25 points: All right, you've had your innovation fling. Are you ready to get serious?

• More than 26 points: Congratulations! You have made the life-long commitment to innovation

Ask colleagues to take the version of the quiz that we have posted at www.innoquiz.com. Once we get enough data we'll summarize the results to see what patterns emerge.

Innovation has its moments of fun, no doubt, but success requires discipline and hard work. Just like many other areas of life, real results don't come without real commitment.

Executing on Innovation
An HBR Insight Center





Why Is Innovation So Often Synonymous With Disappointment?
How Corporate Venture Capital Helps Firms Explore New Territory
Innovation Isn't an Idea Problem
Five Ways to Innovate Faster

Cracking the Mobile Advertising Code

"Mobile first." That phrase is increasingly shaping marketing decisions, and for good reason. In 2012, $10 billion in sales were made through mobile channels. That's expected to rise to $30 billion by 2016. In addition, 55 percent of smartphone owners use their smart phones to research purchases. Those numbers have mobile advertisers salivating. But they need to focus on real opportunities and not false hopes.

The Achilles' heel of mobile apps

While consumers are spending more time on their smartphones, recent research reveals that the vast majority of this usage — as much as 76 percent — is on mobile apps. Despite the popularity of apps, however, most mobile ad dollars go to search, which is better at targeting users and tracking ROI. Despite the popularity of apps, brands spend more than ten times as much on paid search advertising as they spend on ads on apps.

Why the discrepancy? There are a few reasons:

Limited targeting capabilities. Thanks to cookies, brands can target ads to customers online both on their site and on other sites users visit after they leave (aka "re-targeting"). That's because cookies track what sites customers have visited and what they've clicked on. Cookies can't do that well on mobile apps.

Lack of a closed loop. Though many purchases influenced by mobile are completed on other channels (e.g. in a store or online), there's no way to track that. Without any way to credit mobile's influence on purchases, it's impossible to determine the ROI on mobile ads.

Ineffective ad formats. Most mobile ads are banner ads, which are already poor performers in the online world. Ads that are large enough to be seen on mobile screens are often considered invasive by users. Ads that are small are often too hard to see.

Audience fragmentation. The top 250 apps on Android and iOS have a total audience of 52 million people — equivalent to the reach of three primetime shows on broadcast television. Moreover, these apps are constantly changing, with 45 percent turning over every 30 days and 85 percent every three months. As an advertiser, the fragmentation makes it difficult to get to a critical mass of viewers and the turnover forces advertisers to constantly evaluate new apps.

What marketers should do

In our experience, companies aren't thoughtful enough about where they allocate their mobile ad dollars. They tend to adopt a "spray and pray" mentality and use the excuse that the challenges of tracking mobile ad effectiveness make a more considered spend impractical. However, we've seen companies that thoughtfully align their ad spend to relevant stages of the consumer decision journey can have success.

Awareness and consideration. While mobile phone use is most closely associated with completing transactions or tasks, people are increasingly turning to their smartphones for entertainment. Our research shows that video traffic on mobile devices in Europe, for example, is expected to increase six times by 2016 while digital video advertising spend will increase four times. This trend has created an opportunity to develop engaging content that increases brand awareness. Kiip, a mobile rewards network, offers real or virtual rewards from brands when a user reaches a certain goal in a game. In 2012, it delivered 200 million rewards, with redemption rates of 10 to 25 percent per reward.

Evaluation and purchase. While mobile search is still a good place to buy ads, companies can find effective ad opportunities at a consumer's evaluation and purchase stages. Photo ads inserted into Facebook's mobile newsfeed, for example, have shown promising results to date. Some 50% of Facebook users are on Facebook's mobile app when they're in a store. Ads need to tap into this burgeoning mobile-social shopping behavior. Companies also should consider investing in automated algorithms to serve ads that recommend what product to buy next based on a user's purchase behavior.

Loyalty. Consumers spent six times as much time on retailers' apps in December 2012 compared with the previous year. According to the 2013 Maritz Loyalty Report, 91 percent of customers in loyalty programs are likely to download a loyalty program app. Ad dollars should go to developing useful and relevant apps that bond customers with the brand. Companies need to create compelling offers (such as discounts, free delivery, early access) to convince customers to download apps. Walgreens, for example, has seen a massive surge in its loyalty program that incorporates its app that customers use to earn rewards and manage prescriptions.

Even with a better understanding of how a customers' decision journey should direct ad spend decisions, companies also need to be more deliberate about where they spend those dollars. User time is concentrated today on a handful of applications but marketers often simply spread their spending across a wide array of them. Until better targeting techniques come along, brands should focus their ad spend on the most popular and relevant apps.

We believe the industry will make significant progress to address mobile's shortcomings in the next 6 to 12 months. In the meantime, marketers should drive deeper engagement across the consumer decision journey, test and learn, and build the capabilities needed to thrive in a mobile world.

Building a Minimum Viable Product? You're Probably Doing it Wrong

In creating a minimum viable product, entrepreneurs choose between experiments that can validate or invalidate their assumptions about a business model.

If your MVP is a worse product than your imagined final version, success validates your idea; failure, on the other hand, doesn't necessarily invalidate it. If your MVP offers a better experience, then failure invalidates your business model; success doesn't necessarily validate it.

Unfortunately, we usually pick the wrong kind of MVP: we tend to choose validating MVPs, even though most businesses fail because they persist too long in solving the wrong problem — what invalidating MVPs are designed to prevent.

The Two Kinds of MVP

Validating MVPs use a worse product than what the final version will be, so success proves your model but failure is inconclusive.

The classic Validating MVP is selling an idea. You approach people you think should be customers and try to sell them a product you haven't built yet. If they pay you today to deliver a solution a month from now — and you can build a profitable business from that revenue — you've validated your company. But failure of this test doesn't invalidate your business model.

For example, Drew Houston's March 2008 Digg video for Dropbox generated 70K signups for a product that hadn't been released yet — and went a long way in confirming product-market fit. But a failure of this test wouldn't necessarily mean that Dropbox wouldn't work — it could mean that the quality threshold was higher than expected, or that Digg users weren't ideal early adopters, or that some other news event had distracted users from watching or sharing the video. Regardless, failure of his validating MVP only invalidates one small way of acquiring customers — with a video on Digg — not the entire business model.

Invalidating MVPs, however, have a better product than the final business, so failure means the business model is doomed but success is inconclusive.

Many "concierge MVP" approaches fall into this category. You create a better product at an unsustainably high cost by personalizing it for every customer. If you cannot get people to pay a realistic long-term price for a better product, it's time to move on. Jennifer Hyman and Jennifer Fleiss began Rent the Runway with this approach: they provided an in-person dress rental service where college students could try on dresses in person before renting them — a much better experience than online rental. Had no one rented that night, they would have known that online rental was hopeless. But 34% (and then 75%) of women rented, so they went on to a validating MVP — where 5% of 1,000 women on their mailing list rented dresses from an emailed PDF.

While useful, invalidating MVPs are only possible when better products can be produced in small batches — making them difficult when product quality depends on scale of use or when low-quality alternatives abound in the market.

Which approach should you use first?

Ironically, the only successful MVPs we hear about are validating MVPs, since to succeed at invalidating a business model means no one will ever hear of your success. As a result, we're more likely to think of validating experiments. But most businesses fail because our assumptions about customer demand are wrong — because of market risk.

Accordingly, startups with significant market risk should run an invalidating MVP first, to test whether customers will buy a better product, rather than running escalating validating MVPs and wondering if people aren't buying because the concept is flawed or just because the product isn't yet good enough, or because you're targeting the wrong customers, or because the creative is wrong.

Test market risk first. If you create a "better product" and no one pays, then move on.

But creating a "better" experience early on is sometimes impossible, particularly when product performance results from scale — as in multi-sided platforms, where the value proposition depends entirely on network effects. In these cases, you're forced to run validating MVPs, as with Dropbox. It's critical, however, to define failure from the outset. Usually, this means failing to convince early adopters to buy your product once you've built a reasonably good (yet still inferior) version of the product, a process that often takes much more time than an equally effective invalidating MVP.

Most invalidating MVPs are relatively simple — and many will reveal our fundamentally flawed assumptions about customer demand, saving us a huge amount of time and frustration in pursuing multiple validating MVPs.

Learning from MVPs

Of course, MVPs have twin goals: learning what problems we should be solving, and driving risk out of our current (hypothetical) business model by testing fundamental assumptions.

I focus mostly on the second goal, but invalidating MVPs also tend to be more effective at the first, since those "better" initial products tend to resemble concierge MVPs that sacrifice unit cost and scalability for performance and flexibility. These tests substitute human labor for technology, and the human component means we can gather more information from potential customers about their problems and our potential solutions.

As a result, we should usually begin our companies with an invalidating MVP. Then, if it's inconclusive, we should switch gears and focus on MVPs that validate our business model.

Nadal Is Strong Enough to Cry. Are You?

Rafael Nadal, who just won the U.S. Open for the second time, is my hero.

His athleticism is extraordinary. His focus is awe-inspiring. His skill is, clearly, second to none. His will is unremitting. It's a joy to watch him in competition. Yet those are not the reasons he's my hero. In fact, it wasn't until after he was finished playing in this year's final that he rose to role model in my book.

So what was it?

It was that, right after winning, he fell to the ground, crying, then leapt for joy, then lay back on the tennis court, face down, sobbing. After a few moments, he got up and hugged Novak Djokovic, his opponent.

"Now that," I told Isabelle, my eleven-year-old daughter, who was watching with me, "is what it looks like when you put your whole self into something!"

Where is that energy in our companies today? Where are the people leaping for joy, pumping their fists in the air, or weeping, either with happiness or grief?

I sometimes walk through the halls of various companies, looking at people working numbly at their desks or cubicles or nodding off in meetings, wondering, "where are the people?"

I'm not advocating for a workplace of loose cannons. I am advocating for a workplace of human beings.

Before his emotional outburst, Nadal played for hours, channeling the energy coursing through his body with controlled responses and deliberate, calculated movements. In other words, he managed his emotions.

That's appropriate; it's how any of us achieve any challenging objective, and we've become very good at it.

But after the game, where does all that energy go? Nadal's post-game response was the natural eruption of energy pent up from the concentration of his game.

That's appropriate too. Yet how many of us unrelentingly repress our emotions, or eat and drink them back down?

Years ago, when emotional intelligence became the next big thing, I thought that, perhaps, it would give us permission to express ourselves more authentically in our workplaces. It might teach us how to hold the emotions of others, to sit quietly, empathically, with someone who was crying, without trying to fix what was wrong. Or to celebrate our successes without losing our compassion toward others, whether they be friends or opponents.

But that never happened. For the most part, emotional intelligence is simply new jargon for discussing our emotions intellectually or codifying them in competency models. Meanwhile our feelings remain imprisoned in our heads.

That's not the world I want to live in, and I don't think you really want to live there either. Sure, it might keep us comfortable. Certainly it might feel safe. But only in the short run. Long term, keeping our emotions nice and presentable hurts us, hurts our relationships, leads to burn out, and makes us sick.

So why don't we all live our lives with Nadal's open passion, with his exposed heart?

It's scary to be emotionally open. It makes us vulnerable. We may feel shame, and we're likely to feel weak.

When I watched Nadal lying face down on the court, his body heaving with sobs, I was reminded of a time when I did the same, in very different circumstances. Earlier this year, a colleague of mine was very angry about something I had done. In front of several other people, she proceeded to tell me everything I was doing that was making her angry.

My job, in that situation, was to listen to her without defensiveness. I had a very hard time doing that (I kept trying to butt in to explain myself), but the other people in the group helped me; when I tried to talk, they gently reminded me to just listen and, when I did, they told me how much they appreciated it.

As I took in her criticisms, my body began to vibrate and, after a while, visibly shake. I couldn't control it. I can't explain it other than I felt like my body was trying to contain all of the energy that was coming at me from her, as well as all the energy brewing inside me. After a while, it was simply too much for me to contain and I just burst into sobs.

I felt exposed and ashamed. Not so much by the way my colleague was attacking me as by my physical reaction. That felt painful.

But I also felt a massive release. I felt unburdened, like there was nothing left for me to hide. I felt completely and fully myself. And that was tremendously pleasurable.

I also felt like I could finally take in what my colleague was saying, without agreeing with everything she said but also without making her wrong or judging her. That felt important.

And what I thought might lead to my rejection led to connection. The people around me supported and comforted me.

My sobbing came from failure, Nadal's came from success. I have experienced both, and here's what's interesting: They feel the same. That's because, essentially, they are. It's all energy looking for a way out.

We are, fundamentally, emotional beings. In celebration or sadness, fear or anger or love, our emotions are very much a part of who we are.

It's high time we openly embrace them.

Every Leader Needs a Challenger in Chief

We are drawn to those who echo what it is we already believe. We get a dopamine rush when we are presented with confirming data similar to what we get when we eat chocolate or fall in love. On Facebook we defriend those with different political views to our own. On Twitter we follow people just like us.

Yet a vast body of research now points to the import of contemplating diverse, dissenting views. Not just in terms of making us more rounded individuals but in terms of making us smarter decision-makers.

Dissent, it turns out, has a significant value.

When group members are actively encouraged to openly express divergent opinions they not only share more information, they consider it more systematically and in a more balanced and less biased way. When people engage with those with different opinions and views from their own they become much more capable of properly interrogating critical assumptions and identifying creative alternatives. Studies comparing the problem-solving abilities of groups in which dissenting views are voiced with groups in which they are not find that dissent tends to be a better precondition for reaching the right solution than consensus.

Yet how many leaders actively seek out and encourage views alien and at odds to their own?

All too few.

President Lyndon Johnson notoriously discouraged dissent, with many historians now believing that this played a significant role in the decision to escalate U.S. military operations in Vietnam. Excessive group-think is now recognized to have underpinned President Kennedy's disastrous authorization of a CIA-backed landing at Cuba's Bay of Pigs. Former employees of the now defunct Lehman Brothers have talked about how voicing dissent there was considered a career-breaker. Yale economics professor Robert Shiller explained that when it came to warning about the bubbles he believed were developing in the stock and housing markets just before the financial crisis he did so only "quietly" because: "Deviating too far from consensus leaves one feeling potentially ostracized from the group with the risk that one may be terminated."

Is this the feeling the "clubby" environment in your boardroom is inadvertently engendering? Or are you actively signaling that you want to hear views different and diverse and in opposition to your own? We need to have the confidence to allow our own ideas and positions to be challenged.

Eric Schmidt, the Executive Chairman of Google, has talked about how he actively seeks out in meetings people with a dissenting opinion. Abraham Lincoln's renowned "team of rivals" was comprised of people whose intellect he respected and were confident enough to take issue with him when they disagreed with his point of view. Stuart Roden, Co Fund Manager of Lansdowne Partners' flagship fund, one of the world's largest hedge funds, tells me he sees one of his primary roles as being the person who challenges his staff to consider how they could be wrong, and then assess how this might impact on their decision-making.

Who in your organization serves as your Challenger in Chief? Interrogating the choices you are considering making? Making you consider the uncontemplated, the unimaginable and that which contradicts or refutes your position?

And also challenging you?

For we are not the robotic emotionless decision-makers of economics text books, bound to make the rationally best choices. Instead we're prone to a whole host of thinking errors and traps.

Did you know that when we're given information that is better than we expected — i.e. that our chance of being targeted for burglary is actually only 10% when we thought it was 20% — we revise our beliefs accordingly. Whereas if it's worse — i.e. if we're told that rather than having a 10% chance of developing cancer, we actually have a 30% chance — we tend to ignore this new information?

Are you aware of the extent to which our emotions or moods can skew our choices? You may already know that stress leads to excessive tunnel vision, but did you know that studies of both judges and doctors reveal that when stressed they typically revert to their unconscious racial stereotyping biases? Or that if we go 24 hours without sleep or spend a week sleeping only four or five hours a night, our thinking is as compromised as if we were drunk? Whilst studies in which people are presented with financial choices reveal that people make worse decisions when their blood sugar has dipped, but also when they're feeling hot under the collar. Male students presented with a financial decision after having been shown either a "neutral" image such as a rock or a "hot" image of a lingerie clad Victoria's Secret model, made significantly poorer choices after having looked at the "hot" image.

And how about our propensity to become overly attached to the past?

You remember how huge Nokia was. From the 1990s onwards, Nokia dominated the mobile phone industry. At its peak the company had a market value of $303 billion and by 2007 around four in 10 handsets bought worldwide were made by Nokia.

But when Apple introduced its game changing iPhone in 2007, Nokia was caught sleeping on the job. Despite having themselves developed an iPhone-style device — complete with a colour touchscreen, maps, online shopping, the lot — some seven years earlier. They never released the product. Instead they decided better to stick with what they knew worked — good, solid, reliable mobile phones. As a former employee working in the development team at the time said of that decision, "Management did the usual. They killed it!" When the iPhone was introduced, Nokia engineers sneered at the Apple devices' inability to pass their "drop test" in which a phone was dropped onto concrete from a five-foot height.

Nokia management believed that their successful past would continue to provide a reliable guide to the future, but as we now know it didn't. In the six years since the iPhone was introduced Nokia lost about 90% of its market value. And when Microsoft bought Nokia's phone business this month, the fire sale price it paid for it, only half what Google paid for Motorola last year, firmly reflected just how far it had fallen.

Your Challenger in Chief needs to be alerting you to such thinking errors and foibles. And you need to be listening to him or her.

Analyst Scrutiny Impedes Corporate Innovation

Companies covered by larger numbers of analysts generate fewer patents, and the patents they produce have lower impact than those from other firms, according to an analysis by Jie (Jack) He of the University of Georgia and Xuan Tian of Indiana University. The findings suggest that analysts exert so much pressure on managers to meet short-term financial goals that they impede companies' investment in long-term projects, the researchers say.