Marina Gorbis's Blog, page 1559

Design Your Top Jobs to Appeal to the Goals of Top Talent

A few leading-edge companies are making real progress in increasing the proportion of women in their executive ranks by turning the problem on its head. Rather than focusing their efforts on fitting the candidates to the jobs (through, say, more mentoring and training), they are taking practical steps to make the positions more attractive to their already high-potential candidates.

Take Australia-based hearing-aid manufacturer Cochlear, which when faced with a chronic underrepresentation of women in its high-potential pool, made an effort to better align its leadership roles both to their candidates' individual strengths and to their individual career aspirations.

This might sound like a monumental task, but the core of Cochlear's Leadership Presence Program is a one-day workshop, supplemented with various pre- and post-workshop activities. At the workshop, women create a personal mission statement and map it directly to their career goals and the company's needs. This is a critical step for helping them to see that their personal strengths and passions can be directly connected to leadership career goals at the company. Then the program helps women build networks, by assigning them mentors outside their core area of work, to give them opportunities to present (and become familiar) to senior leaders around the firm.

Of the 30 women who have gone through the Leadership Presence Program, 68% have taken on new responsibilities. Some have moved vertically and some laterally, but in every case the moves are testament to an increased desire to apply their talents to the organization. Even those who have not taken on new responsibilities are showing increased levels of discretionary effort and intent to stay.

Other firms are smoothing the leadership career path by addressing the onerousness of relocating, often so necessary for building the experience and breadth of outlook needed for advancement. A barrier to anyone with a family, relocation is often a worse deal for high-performing, mid-level women loathe to interrupt and lose the income of their high-earning spouses. So it's no wonder that, our research finds, they are 13% less willing than their male colleagues to relocate abroad to advance their careers.

Nestlé took creative steps to address this problem, which its internal research confirmed was a barrier to advancement for both men and women, but for fully 80% of its high-potential women in dual-career families. Through its Self-Sustaining Dual Career Network, Nestlé tackled the problem head-on in two ways. First it extended relocation support to spouses, offering such services as guidance in navigating, and entrée into networks in, the local job market. And second, recognizing that many other large, global companies face the same challenge with dual career mobility, Nestlé invited them to join in a program in which spouses of transferred executives are alerted to promising open positions in other companies. Although no formal preference is given in hiring, increasing people's awareness of these opportunities expedited spouses' job searches.

One appeal of this program is that spouses of high potentials are often high potentials themselves. Nestlé reports that the spouses they work with tend to speak at least three languages and have an MBA or equivalent. Multinational recruiters are happy to discover such qualified candidates.

The success of the Dual Career Network is reflected in its growth from enabling 350 spouses to find suitable positions in seven companies in 2011 to about 700 working in more than 30 in 2012. At present the network is based in Nestle's home base of Switzerland, but already some of the multinationals are working to set up similar networks in other countries. Smaller organizations are seeing similar results using LinkedIn and Facebook groups for relocating spouses — creating ways for employers and spouses to connect in advance of moves.

As women "lean in" to opportunities, leading organizations are meeting them half way: designing roles that map to the personal ambitions of diverse talent and helping remove the barriers that impede their progress. They are seeing their investment in such programs return significant benefits in increased effort, more effective teamwork and collaboration, and decreased turnover — without breaking the bank.

And an added bonus for those considering whether to follow suit: when the word gets out that this is how your company treats its rising leaders, don't be surprised to find a fresh crop of new high-potential, high-performing diverse candidates knocking on your door.

Women in Leadership
Special Series





Women: Let's Stop Allowing Race and Age to Divide Us
Tell Me Something I Don't Know About Women in the Workplace
A Fairer Way to Make Hiring and Promotion Decisions
"Feminine" Values Can Give Tomorrow's Leaders an Edge

U.S. Poised to Become the Low-Cost Manufacturer of the Developed World

The United States is becoming one of the lowest-cost countries for manufacturing in the developed world: By 2015, average manufacturing costs in Germany, Japan, France, Italy, and the UK will be 8% to 18% higher than in the U.S., estimates Boston Consulting Group. Among the biggest drivers of this advantage are the costs of labor (adjusted for productivity), natural gas, and electricity. The U.S. could capture up to 5% of total exports from these developed countries by the end of the decade, BCG says.

To Go From Big Data to Big Insight, Start With a Visual

Although data visualization has produced some of the most captivating artistic displays in recent memory, some of which have found their way into exhibits at the New York Museum of Modern Art and countless art installations around the world, business leaders are asking: is data visualization actionable?

I think so. In my role as the Scholar-in-Residence at The New York Times R&D Lab, I am collaborating with one of the world's most advanced digital R&D teams to figure out how we can draw actionable insights from big data.

How big? Massive: We are documenting every tweet, retweet, and click on every shortened URL from Twitter and Facebook that points back to New York Times content, and then combining that with the browsing logs of what those users do when they land at the Times. This project is a relative of the widely noted Cascade project. Think of it as Cascade 2.0.

We're doing this to understand and predict when an online cascade or conversation will result in a tidal wave of content consumption on the Times, and also when it won't. More importantly we are interested in how the word-of-mouth conversation drives readership, subscriptions, and ad revenue; how the Times can improve their own participation in the conversation to drive engagement; how we can identify truly influential readers who themselves drive engagement; and how the Times can then engage these influential users in a way that complements the users' own needs and interests. Do it, and we can turn that statistical analysis, as you'll see below, into elegant, artistic real time data streams.

Handling the streams, archiving the sessions and storing and manipulating the information are in themselves herculean tasks. But the even bigger challenge is transforming beautiful, big data into actionable, meaningful, decision-relevant knowledge. We've found that visualization is one of the most important guideposts in this search for knowledge, essential to understanding where we should look and what we should look for in our statistical analysis.

For example, here are three visualizations that have helped us gain knowledge. They show cascades of the tweets and retweets as lines and dots about three different Times articles over time, combined with the click-through volume on each article synced in time and displayed as a black graph under each cascade. Each panel tells a different story about engagement with the content.

For the first article, there is a sizable Twitter conversation and several large spikes in traffic. But the click-through volume seems independent of the Twitter conversation: The largest spike in traffic, highlighted in blue, occurs when there is very little Twitter activity. In this case, a prominent link on a blog or a news story that referred to the story, rather than the Twitter conversation itself, is probably driving the traffic.

On the second article, the Twitter conversation is intense. There are many, tweets and retweets of the article — yet the article itself gets very little traffic. People are talking about the article on Twitter, but not reading it. This sometimes happens when the main message of an article sparks a debate or a conversation that can happen without the content of the article being that important, for example, when a timely piece of news contains little analysis or editorial content, or when the conversation or debate gets away from the article and evolves its own independent content.

In the third and final article, an intense Twitter conversation moves in lockstep with engagement. As people tweet and retweet the article, their followers are clicking through and engaging with the content itself. This tight relationship between the online conversation and the website traffic is most pronounced when the three "influencers" tagged in the figure inspire the two largest spikes in traffic over the engagement lifecycle of the article.

With just these three data visualizations, we've gained understanding in important nuances about so-called virality. The relationship between online word-of-mouth conversations and engagement isn't as simple as something just "going viral." Different patterns emerge with different types of content.

Still, the visuals cannot tell the whole story. We see some clear correlations here, but complex conditional dependencies and temporal and network autocorrelation make it necessary to build more sophisticated causal statistical models that will generate true, reliable insights about word-of-mouth influence.

What these visuals do help with is getting us to know where to look and what questions to ask of the data. That is, we can't build the more complex models until we know the most suitable places for building them. These visuals give us some of that inisght.

Cascade 2.0 will be built on sophisticated analytics, and it will require data visualization. Asking important questions and avoiding unnecessary ones is essential to moving forward effectively and efficiently with big data. Without visualization, we are much less efficient in getting to the questions whose answers teach us something. That's why visualizing data must be one of the most important tools for data scientists. It is our torch in a thick, dark forest.

John McCain's Cable TV Bill Is Anti-Capitalist

My cable television needs are simple — give me the four staple network stations and a few business channels (for professional reasons) and I'm happy. When I called my local cable provider, a rep cheerfully informed me that the price for a basic network package is roughly $9 a month. Not bad, I thought. But when I explained my interest in adding Bloomberg TV and CNBC, the rep replied that I'd have to upgrade to the "Digital Starter" package, which would run me about $70 a month. Whoa — an extra $61 for two key channels plus a slew of others that I'll never watch? At that moment, I completely understood Senator John McCain's opinion of cable companies offering "consumers all the 'choice' of a North Korean election ballot."

McCain recently sponsored a bill — the Television Consumer Freedom Act — which would require cable, satellite, and phone companies to offer channels a la carte. This would allow consumers to hand pick (and pay for) only the channels they are interested in. Under current law, local municipalities sometimes have the right to regulate prices for basic channels but companies can charge whatever they want for other (non-basic) channels. Mr. McCain's bill would not regulate prices, but it would mandate a specific type of pricing strategy (a la carte).

This presumes a) that the offerings of that industry are so essential to the American people that they ought to be protected by government regulation and b) that there's not enough competition in the current video-information-entertainment industry to ensure the public has access to those essential goods and services.

First, I think we can all recognize that cable TV is not an absolute necessity product. The FCC regulating access to Duck Dynasty is not exactly like the Food and Drug Administration regulating artificial heart valves.

But the second issue is more contentious. While it's common to complain about cable behemoths, I'd argue that there is actually healthy competition in the MVPD (multi-channel video programming distributor) market. Almost every home in the U.S., for instance, has the option of ordering satellite television service (the Federal Communications Commission requires all buildings to allow satellite dishes), which tends to be cheaper and offer more channels than cable. In fact, satellite companies are the second and third largest U.S. MVPD providers. Direct Television and the Dish Network respectively have 20M and 14M subscribers (Comcast is the largest provider with 24M subscribers). Sure, there may be drawbacks to satellite television, but it is a reasonable cable substitute. Telephone companies such as Verizon and AT&T also offer television service.

The FCC estimates that in 2012, 35.3% of all U.S. homes were eligible for four or more television alternatives (the two satellite services plus at least two other — cable and/or telephone — options). And that doesn't count the new wave of web-based distributors, including Netflix, Amazon Prime, Apple TV, Hulu, and others who are aggressively promoting the Internet as a prime pipeline to television sets as well as creating original content. Some content providers, such as PBS and Major League Baseball, are starting to stream some of their content directly to consumers, rather than rely on an MVPD alone. Revealing how disruptive the Internet may be to traditional distributors, it's rumored that Google is in negotiations to broadcast Sunday NFL games.

Still not good enough? Remember that network channels can often be accessed for free with an antenna, games are often broadcast on the radio, and most series are eventually available through a streaming, rental, or retail outlet. While the Internet is not itself free — you do have to pay for the service, and for the computer you used to access it — much of the information on it is. Still too expensive? A single issue of a newspaper can be had for pocket change. Still too pricey? Go to your public library, where internet access, computers, DVDs and more are often available free of charge.

Of course consumers want low prices and a pricing plan that works best for them. This desire, however, is often incongruous with the goal of capitalist companies to set the pricing strategy that reaps the highest profit for them. I'd like, for instance, to only purchase "Boardwalk Empire" from HBO (instead of the monthly subscription service), pay less for shorter rides on Boston's "one price to anywhere" subway system, buy only certain rides (as opposed to unlimited rides) when I accompany my niece and nephew to Disney World, and to stay at the Ritz Carlton every time I travel. Unfortunately, these entities have chosen to employ prices and strategies that don't perfectly meet my needs. There's healthy competition in the MVPD market, and to date no provider has decided that it's in their best financial interest to offer a la carte pricing.

To be clear, my experience with my local cable provider has been remarkably dismal. Trust me, I'm not happy about paying an extra $730 annually to receive key business channels. So while I'd enjoy needling Comcast about their pricing, the facts don't support such an argument. The MVPD market is competitive, more competition is on the horizon, there are plenty of non-television alternatives, and we aren't dealing with a "life or death" product. This hardly qualifies as a situation where injustice is "being inflicted on the American people," as Mr. McCain recently opined. Let's allow the market to rule — our government has more far pressing issues to focus its energies on.

Steve Ballmer's Big Lesson for the Rest of Us

The business media lit up over the weekend with the news that Steve Ballmer, the college friend who worked alongside Bill Gates to build Microsoft and was heir to the CEO job, will step down within a year. Ballmer, whose skills were in many ways complementary to Gates', took the helm of an already massive organization as it entered an era of relentless disruptive innovation by competitors. He managed to hold the stock price on a pretty even keel, but no better than that.

It's worth taking a step back to look at what all the chatter is about.

The debate has focused almost entirely on the leadership of innovation. Read just a few of the articles — some of the buzzier ones have been a condemnation by The New Yorker's Nicholas Thompson, an incisive critique by Derek Thompson of The Atlantic, and a counterargument by Timothy Lee in The Washington Post. There's a pattern in them. They argue over whether Bing was a respectable competitive response to Google or not; they give Xbox its due, while tending to cordon it off as a special case; they accuse Microsoft of being oblivious to the threat posed by Web and mobile apps, or point to evidence that it was responding. Ballmer is being damned or defended wholly on the string of innovative (or not) products released on his watch.

So the big lesson other CEOs should take away from this public trial is a cautionary one: this is how you, too, will be judged. We have known for a long time that innovation is the name of the game now. Peter Drucker made the point in HBR's pages 18 years ago, writing that "Core competencies are different for every organization .... But every organization needs one core competence: innovation."

We've known even longer that our legacy organizations are not geared to excel at innovation. This was the point of James March's classic 1991 paper Exploration and Exploitation in Organizational Learning. He pointed out that companies had much more to gain in the short-term, and therefore were tooled to compete, by exploiting opportunities already found than by exploring the business landscape for new ones. It's a point that Clay Christensen put his own twist on with The Innovator's Dilemma: Even when leaders know intellectually that groundbreaking innovation is imperative, they find themselves investing in incremental refinements to please their most sophisticated customers, and leave themselves wide open to disruption by upstarts. Geoffrey Moore once compared big companies trying to innovate to right-handed people writing with their left hands. All the apparatus may be in place, but if the organization isn't in the habit of doing it constantly, it will always be an awkward affair.

Despite two decades of seeing the problem, very few CEOs have thought seriously about how their organizations should be reinvented if innovation matters more than anything else. Well, guess what: it does.

Two other observations can be made about the public autopsy of Ballmer's career: It may constitute another small way that Steve Jobs left a dent in the universe. And it might be more about us in the end than about Ballmer — or any CEO.

I can't remember people obsessing about a CEO's legacy this much before Steve Jobs' decline forced the issue in his case. But I suspect this will not be the last departing CEO we will put under a glaring spotlight. And I predict, too, that the attention won't only follow titanic departures in the tech sector. We're figuring out that innovation is the be-all and end-all in every kind of business, and that the quality of leadership is a big factor in determining where it happens. At the same time, we have all gained access to immediate national conversations on the matters that interest us.

And the fact is that the matter does interest us. In the United States, there is a terrible anxiety about losing the innovative edge that has been our source of competitive advantage and can be our only salvation. Tyler Cowen's The Great Stagnation is a prime example; his reading of history convinces him that the U.S. has reached a "technological plateau" and reenergizing economic growth will be extremely hard to do. Peter Thiel, who innovated as a co-founder of PayPal, is similarly worried - and also worrying about the worry. "It would be hard to imagine the President of the United States declaring war on Alzheimers," he told a business crowd on Nantucket last year, "because our pessimism about technology has started to seep into the system."

This obsession over national competitiveness isn't only an American one. Smart people worldwide fret that the era of discovery is over and, economically speaking, we're now in for a rough ride. It makes me wonder if what we're really talking about, when we talk about Ballmer, is the fear of our own failure to innovate.

Women Don't Need to Lead Better Than Men. They Need to Lead Differently.

In the summer of 2008, I experienced a massive hormonal shift, moving from the largely-male, testosterone-charged environment of Harvard Business School, where I had spent the first 18 years of my career, to the nearly all-female realm of Barnard College, the all-women's liberal arts college where I now serve as president. Suddenly, after a life spent mostly around men, I was thrust into a totally new environment — an alien, intriguing place where women outnumber men in every classroom and meeting.

Nearly from the start, I started to notice subtle differences that marked an organization run by women from those run by men. The quiet assumption, for example, that everyone would, or at least should, agree. A drive to achieve consensus and prevent outright conflict. It wasn't necessarily better. Or worse. But it was markedly different.

Later, as the financial crisis reverberated across the world and on to my small campus, I was struck by another gender difference. Nearly all of the perpetrators of the greatest economic mess in eight decades were, well, men. What would have happened if more women had been around conference tables and in board rooms, weighing in on crucial financial decisions? Might things have unfolded differently? Could more women in positions of influence have better insulated the global economy from its near implosion?

Across the public and private sectors, women are still underrepresented at the highest levels of power. Women today account for only 15.2% of the board members of Fortune 500 corporations, 16% of partners at the largest law firms, and 19% of surgeons. (I explored much of this research for my upcoming book.) Indeed, there seems to be some sort of odd demographic guillotine hovering between 15% and 20%; some force of nature or discrimination that plows women down once they threaten to multiply beyond a token few.

Even before the C-suite level, women's careers stall out for complicated, heavily ingrained reasons. Women often face difficult decisions about their personal and professional aspirations, decisions that can hold them back at key career junctures and which fall more lightly, if at all, upon their male counterparts. Without even realizing it, many once-equally aggressive women start backing away from their potential: they defer to their more assertive male counterparts to keep the peace, they modestly deflect praise when it is due, they fail to advocate for the raise or promotion they deserve.

To be sure, a handful of extraordinary women have broken through in recent years to the very top tiers of power. Sheryl Sandberg of Facebook and Marissa Mayer of Yahoo, for example, are among a small but meaningful population of women who have broken through the male-dominated ranks of their profession, forcefully changing the game for the next generation of women. There are PepsiCo's Indra Nooyi, Kraft's Ann Fudge, and the indomitable Martha Stewart.

Yet, impressive as these women are, it is not entirely clear why they remain so relatively rare. One possibility, explored in a fascinating study by John Coates and Joe Herbert of Cambridge University, is that women simply don't have the testosterone for it. The researchers deduced that on the trading floor, higher profits literally correlate with higher levels of the male hormone. Another study, examined in laboratory experiments conducted by Muriel Niederle and Lise Verterlund at the University of Pittsburgh, found that women are far less inclined than men to bet their pay on performance, even if they have evidence to suggest that they are superior performers.

For decades, corporations and other large institutions have sponsored expensive training programs to promote more women into their ranks. They have launched much-needed maternity policies and flexible work arrangements. Most of these initiatives, however, have been pursued to make life easier for the women involved — or, more cynically, to remove the threat of lawsuits or adverse publicity for the firms. But they have not successfully leveled the playing field or created the kind of true diversity that any great organization needs to thrive. To get there, companies need to bring men fully into the quest for diversity, and women need to bring men into their often too-private conversations.

We need women in leadership positions not only because they can manage as well as men but because they manage differently than men. We need them because they tend — over time and in the aggregate — to make different kinds of decisions and bring different ideas to the table. We need women who will approach risk from a different perspective, who take an altered view of time and conflict, and who understand diversity as something more than an abstract theory. We need women who operate as managers, not just as employees or critics; who are as competitive for themselves as they are for their children. And we need more men to recognize that having women around the table isn't just a nice thing to do. It makes for a better table.

Women in Leadership
Special Series





Women: Let's Stop Allowing Race and Age to Divide Us
Tell Me Something I Don't Know About Women in the Workplace
A Fairer Way to Make Hiring and Promotion Decisions
"Feminine" Values Can Give Tomorrow's Leaders an Edge

Do You Have the IT For the Coming Digital Wave?

With a tsunami of new digital technologies all converging simultaneously — social, mobile, cloud, analytics and embedded devices — there has been, once again, a cry for corporate IT to radically change to enable the digital transformation of businesses. But here is the daunting and exciting thing: we're only at the very beginning of the next digital wave.

Technology innovation is not slowing down or leveling off, but ramping up — and businesses will soon face a barrage of new digital possibilities. There is no time for complacency. Kim Stevenson, Intel's CIO, summarizes the challenge well: "[IT functions have] gone through ERP, they've gone through BYO and they've gone through cloud, and they think they've done it all. But the reality is, we're only at the very, very beginning of this next generation of computing, and I think that...industry leaders will be the ones that transform first. I don't care what industry you're talking about."

IT is already being asked both to industrialize traditional infrastructures and systems fast to save costs, and to innovate customer experiences and operations with new digital technologies. Cloud-based services are also now being bought directly by functions like HR and marketing, resulting in IT losing its control over technology purchase within the organization. Are all these changes just part of the natural evolution of the IT function? Or, in preparation for the coming wave, is a more fundamental re-invention needed? Research points to the latter.

Digital leaders, those companies that have managed their digital transformations successfully, all show common characteristics in the way they have shaped their IT to work differently with the business. They have changed their IT functions utilizing three related management interventions which, taken together, represent a fundamental re-invention of IT.

IT must play a central role in your digital transformation. It is no longer sufficient for IT just to be 'aligned' with your business objectives; a fusion is needed. As Angela Ahrendts, Burberry's CEO puts it: "I need [IT] to move from the back of the bus, where it traditionally sits, to the front of the bus...and it's traveling fast." It requires strong leadership from all senior IT executives, as well as new business acumen. Despite all the talk of 'shadow IT', digital transformations that happen without, or despite, IT are a myth. Company and unit leaders need to ensure that IT is in a leading position on all key digital projects. Also, it must become a key management responsibility to continually scan the technology landscape for fresh perspectives on how new digital technologies can improve business performance. In other words, IT must become a business-driven, front-office function.

Ramp up distinctive digital capabilities quickly. Digital capabilities are about methods, processes and people — and a truly digital IT organization is different from traditional IT. It requires new modes of operation. Requirements and specifications are more flexible and developed within cross functional teams with constantly evolving business needs. Service delivery is marked by a 'good enough' approach to error tolerance, relying more on rapid iterations and short cycle times. New, more agile, software development tools and testing methods are utilized. Different standards of project and portfolio management are also required with more flexibility in demand management and budgeting methods. And, there is a need to leverage partners within the group's ecosystem to ensure best practice re-use. How close or far does this sound from your own ways of working?

People are the key, obviously. The new, ideal IT person — a kind of "Homo Digitus" — needs to combine excellent digital specialist skills with deep functional business knowledge. He/she is used to short delivery cycles and feels at ease operating across silos and working within cross-functional teams. Homo Digitus is also output-minded and helps the business visualize solutions through rapid prototyping and experimentation.

How do you build these capabilities? In my experience, what works is adopting a three-pronged strategy of hiring new talent, re-skilling existing employees and filling skills gaps (such as a need for data scientists) by looking to trusted ecosystem partners. And crucially, with digital IT in a more central role that is more integrated with the business, a new breed of leaders is also required. As Markus Nordlin, CIO of global insurer Zurich, explains: "I believe that the successful leaders of tomorrow, in any business or industry, are going to be true hybrid professionals who have spent some time in IT but have shifted to operations and vice-versa."

Adapt your governance model according to your digital maturity. Choose the governance model that fits your organization best. If you are just starting your digital journey, a standalone digital unit within your IT organization might be appropriate. 51% of organizations that are 'digital beginners' have such digital IT units as the primary driver of their digital governance. These units can host your specific digital initiatives, start developing a catalog of digital services and nurture and grow new digital skills. They can also unify technology initiatives and start to foster global collaboration. But with this essentially IT-centric model, dynamic connections with global business units, marketing, brands and external partners remain difficult to develop .

If you are already well into your digital transformation and want to accelerate and harmonize your efforts, then an integrated digital service unit might be the answer. 57% of digital leaders use both marketing and IT as primary drivers of digital governance. In this model, the unit becomes the central point for all your corporation's digital initiatives and services. Both digital marketing and IT staff work together with common budgets and objectives. Nestlé, the global food giant, has implemented such a digital service unit, with a view to accelerate the deployment of digital services, harmonize digital technology platforms and scale local innovation. Such units present strong advantages. They reduce duplication of efforts and skills, thus reducing operational costs. They drive innovation and speed up time to market. And, they align the KPIs of each function to common goals. But, they can also represent a significant cultural challenge to implement and require strong leadership and cooperation from your organization.

Companies that are successfully leading digital transformation, and preparing for the coming digital wave (and it is coming) use these three levers to re-invent their IT. Organizations in every industry need to follow their example.

Reinventing Corporate IT
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The Problems with Incubators, and How to Solve Them

There is a very real knowledge gap in the early stage start-up game, on both sides of the table. First-time entrepreneurs lack the seasoning to captain a steady ship through turbulent waters. Inexperienced friends and family (and, increasingly, crowdsourced investors) lack the ability to gauge the viability of a business, or to mentor naïve entrepreneurs.

This knowledge gap, I have come to believe, is best filled by savvy incubators. However, there are over 7,500 business incubators around the world. Most of them fail.

The first business incubator in the U.S. opened in 1959 and is still operating. In the last couple of years, we have seen a renaissance in the incubator business. Pioneered by YCombinator, Silicon Valley's flagship incubator led by Paul Graham, incubators have come back with a vengeance. YCombinator has seen some significant successes, including Airbnb, Dropbox, and Heroku. It has fueled a bit of an incubator bubble, I must admit. Incubators are now a global phenomenon, and there isn't a major city in the world where an incubator isn't cropping up.

For incubators to live up to their full economic potential, they need to overcome two pitfalls: they need to provide real value, not just office space, and they need to measure success in more than just outside funding.

Adding Real Value

During the dot-com era, every law and accounting firm decided they were going to become incubators. Many of those efforts failed. Charles D'Agostino, executive director of the Louisiana Business & Technology Center at Louisiana State University, offers some analysis: "Incubators do work, but they must be more than a real estate entity offering executive suite services. Effective incubators provide business counseling and management assistance to their client firms. The value-added business services differentiate them from an office suite."

Indeed, as I investigated why incubators fail, I was astounded to find that many incubators assume that cheap real estate, co-working spaces, used furniture, plus a phone and Internet connection equate with business incubation. Jim Flowers, president of the Virginia Business Incubation Association, says, "They mistake cheap floor space for meaningful program content."

Well, it isn't. Neither are discounted legal services, accounting, or other kinds of commodity services.

Two things determine whether a business can get off the ground successfully and sustainably: a validated market opportunity with customers willing to pay for a product or a service; and a product or service that addresses such an opportunity. The only incubators I consider "real" are the ones that help entrepreneurs achieve these two goals.

Adds D'Agostino, "Incubators must evaluate the management capability of the entrepreneurs and assist in finding management for these companies. Especially when the entrepreneur is a technologist lacking business skills, it is critical that the incubator assists the owner in finding managers that have the skills necessary to manage a successful entity and take it to the next level."

My take is that technologists can, actually, be taught these skills. Hiring managers may often be expensive, but high IQ engineers have historically been very good at picking up business skills with the right mentoring. So getting to the next level is well within their capacity, and the role an incubator ought to play is to guide them in that process.

The only "next level" worth getting to for a start-up is a validated business idea that has the endorsement of reference customers, and a product that caters to their needs. The rest — an office, legal documents, QuickBook files — don't build valuation or business value. The benchmark incubators should be measuring themselves against is simply their success in helping clients validate businesses, gain reference customers, and complete at least a minimum viable product.

Success is More Than Funding

Most incubators use funding as a success metric, which is a somewhat flawed criterion. Over 99% of companies should operate as organically grown, self-sustaining businesses — bootstrapped, without external financing. For them the goal is to achieve customer validation, not financing. Yet if the incubator uses financing as its success metric, it will try to force inexperienced entrepreneurs into an unnecessary financing round. And more often than not, they will fail.

YCombinator has mitigated this by partnering with venture capital firms like Sequoia, Andreessen Horowitz, and General Catalyst, such that every single company in their portfolio gets $80k in seed financing as they graduate from the incubation program. But most incubators in the world do not have that luxury. Nor do they have the deal flow deserving of such guaranteed financing.

Of course, where funding is appropriate and relevant, helping entrepreneurs connect with angel investors and venture capitalists is an important service. Equally important is to provide education on what is and isn't fundable.

Will this new generation of incubators perform better than the previous ones?

It remains to be seen.

My primary conclusion is that incubators need to be decoupled from financing. While they need to continue to act as a bridge to capital, predicating their success on getting businesses funded will keep them focused on trying to find the less than 1% of start-ups that are fundable. In other words, coming to the rescue of victory!

The other 99%, then, continue to be ignored.

A scalable incubation model for the other 99% is a requirement for the next rev of capitalism.

The Problems With Incubators, and How to Solve Them

There is a very real knowledge gap in the early stage start-up game, on both sides of the table. First-time entrepreneurs lack the seasoning to captain a steady ship through turbulent waters. Inexperienced friends and family (and, increasingly, crowdsourced investors) lack the ability to gauge the viability of a business, or to mentor naïve entrepreneurs.

This knowledge gap, I have come to believe, is best filled by savvy incubators. However, there are over 7,500 business incubators around the world. Most of them fail.

The first business incubator in the U.S. opened in 1959 and is still operating. In the last couple of years, we have seen a renaissance in the incubator business. Pioneered by YCombinator, Silicon Valley's flagship incubator led by Paul Graham, incubators have come back with a vengeance. YCombinator has seen some significant successes, including Airbnb, Dropbox, and Heroku. It has fueled a bit of an incubator bubble, I must admit. Incubators are now a global phenomenon, and there isn't a major city in the world where an incubator isn't cropping up.

For incubators to live up to their full economic potential, they need to overcome two pitfalls: they need to provide real value, not just office space, and they need to measure success in more than just outside funding.

Adding Real Value

During the dot-com era, every law and accounting firm decided they were going to become incubators. Many of those efforts failed. Charles D'Agostino, executive director of the Louisiana Business & Technology Center at Louisiana State University, offers some analysis: "Incubators do work, but they must be more than a real estate entity offering executive suite services. Effective incubators provide business counseling and management assistance to their client firms. The value-added business services differentiate them from an office suite."

Indeed, as I investigated why incubators fail, I was astounded to find that many incubators assume that cheap real estate, co-working spaces, used furniture, plus a phone and Internet connection equate with business incubation. Jim Flowers, president of the Virginia Business Incubation Association, says, "They mistake cheap floor space for meaningful program content."

Well, it isn't. Neither are discounted legal services, accounting, or other kinds of commodity services.

Two things determine whether a business can get off the ground successfully and sustainably: a validated market opportunity with customers willing to pay for a product or a service; and a product or service that addresses such an opportunity. The only incubators I consider "real" are the ones that help entrepreneurs achieve these two goals.

Adds D'Agostino, "Incubators must evaluate the management capability of the entrepreneurs and assist in finding management for these companies. Especially when the entrepreneur is a technologist lacking business skills, it is critical that the incubator assists the owner in finding managers that have the skills necessary to manage a successful entity and take it to the next level."

My take is that technologists can, actually, be taught these skills. Hiring managers may often be expensive, but high IQ engineers have historically been very good at picking up business skills with the right mentoring. So getting to the next level is well within their capacity, and the role an incubator ought to play is to guide them in that process.

The only "next level" worth getting to for a start-up is a validated business idea that has the endorsement of reference customers, and a product that caters to their needs. The rest — an office, legal documents, QuickBook files — don't build valuation or business value. The benchmark incubators should be measuring themselves against is simply their success in helping clients validate businesses, gain reference customers, and complete at least a minimum viable product.

Success is More Than Funding

Most incubators use funding as a success metric, which is a somewhat flawed criterion. Over 99% of companies should operate as organically grown, self-sustaining businesses — bootstrapped, without external financing. For them the goal is to achieve customer validation, not financing. Yet if the incubator uses financing as its success metric, it will try to force inexperienced entrepreneurs into an unnecessary financing round. And more often than not, they will fail.

YCombinator has mitigated this by partnering with venture capital firms like Sequoia, Andreessen Horowitz, and General Catalyst, such that every single company in their portfolio gets $80k in seed financing as they graduate from the incubation program. But most incubators in the world do not have that luxury. Nor do they have the deal flow deserving of such guaranteed financing.

Of course, where funding is appropriate and relevant, helping entrepreneurs connect with angel investors and venture capitalists is an important service. Equally important is to provide education on what is and isn't fundable.

Will this new generation of incubators perform better than the previous ones?

It remains to be seen.

My primary conclusion is that incubators need to be decoupled from financing. While they need to continue to act as a bridge to capital, predicating their success on getting businesses funded will keep them focused on trying to find the less than 1% of start-ups that are fundable. In other words, coming to the rescue of victory!

The other 99%, then, continue to be ignored.

A scalable incubation model for the other 99% is a requirement for the next rev of capitalism.

Students Learn Less in States with Stronger Teachers' Unions

A 1-standard-deviation rise in teachers' union dues per teacher is associated with a 4% fall in student proficiency rates, according to a study of 721 U.S. school districts in 42 states by Johnathan Lott of the University of Chicago Law School and Lawrence W. Kenny of the University of Florida. Dues support union lobbying, which typically pushes for policies such as blocking merit pay and limiting the Teach for America program. Consequently, student proficiency is lower in states with stronger teacher unions, the researchers say.