Publications
The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup
| Authors: | Noam Wasserman |
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| Publication: | The Kauffman Foundation Series on Innovation and Entrepreneurship. Princeton University Press, in press |
Abstract
Often downplayed in the excitement of starting up a new business venture is one of the most important decisions entrepreneurs will face: Should they go it alone or bring in cofounders, hires, and investors to help build the business? More than just financial rewards are at stake. Friendships and relationships can suffer. Bad decisions at the inception of a promising venture lay the foundations for its eventual ruin. The Founder's Dilemmas is the first book to examine the early decisions by entrepreneurs that can make or break a startup and its team.
Drawing on a decade of research, Noam Wasserman reveals the common pitfalls founders face and how to avoid them. He looks at whether it is a good idea to cofound with friends or relatives, how and when to split the equity within the founding team, and how to recognize when a successful founder—CEO should exit or be fired. Wasserman explains how to anticipate, avoid, or recover from disastrous mistakes that can splinter a founding team, strip founders of control, and leave founders without a financial payoff for their hard work and innovative ideas. He highlights the need at each step to strike a careful balance between controlling the startup and attracting the best resources to grow it and demonstrates why the easy short-term choice is often the most perilous in the long-term.
The Founder's Dilemmas draws on the inside stories of founders like Evan Williams of Twitter and Tim Westergren of Pandora, while mining quantitative data on almost 10,000 founders.
People problems are the leading cause of failure in startups. This book offers solutions.
Purchase the book: http://www.amazon.com/Founders-Dilemmas-Anticipating-Foundation-Entrepreneurship/dp/0691149135/
The Organization of Firms Across Countries
| Authors: | Nicholas Bloom, Raffaella Sadun, and John Van Reenen |
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| Publication: | Quarterly Journal of Economics (forthcoming) |
Abstract
We argue that social capital as proxied by trust increases aggregate productivity by affecting the organization of firms. To do this we collect new data on the decentralization of investment, hiring, production, and sales decisions from corporate headquarters to local plant managers in almost 4,000 firms in the United States, Europe, and Asia. We find that firms headquartered in high trust regions are more likely to decentralize, with trust accounting for about half of the variation in decentralization in our data. To help identify causal effects, we look within multinational firms and show that higher levels of bilateral trust between the multinational's country of origin and subsidiary's country of location increases decentralization, even after instrumenting trust using religious and ethnic similarities between the countries. Trust raises aggregate productivity through two channels: (1) trust facilitates reallocation between firms by allowing more efficient firms to grow as CEOs can decentralize more decisions and (2) trust complements the adoption of new technologies, thereby increasing productivity within firms during times of rapid technological change.
Free to Punish? The American Dream and the Harsh Treatment of Criminals
| Authors: | Rafael Di Tella |
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| Publication: | CATO Papers on Public Policy 1 (2011) |
Abstract
We describe the evolution of selective aspects of punishment in the U.S. over the period 1980-2004. We note that imprisonment increased around 1980, a period that coincides with the "Reagan revolution" in economic matters. We build an economic model where beliefs about economic opportunities and beliefs about punishment are correlated. We present three pieces of evidence (across countries, within the U.S., and an experimental exercise) that are consistent with the model.
Working Papers
When Performance Trumps Gender Bias: Joint versus Separate Evaluation
| Authors: | Iris Bohnet, Alexandra van Geen, and Max H. Bazerman |
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Abstract
We examine a new intervention to overcome gender biases in hiring, promotion, and job assignments: an "evaluation nudge," in which people are evaluated jointly rather than separately regarding their future performance. Evaluators are more likely to focus on individual performance in joint than in separate evaluation and on group stereotypes in separate than in joint evaluation, making joint evaluation the money-maximizing evaluation procedure. Our findings are compatible with a behavioral model of information processing and with the System 1/System 2 distinction in behavioral decision research where people have two distinct modes of thinking that are activated under certain conditions.
Download the paper: http://www.hbs.edu/research/pdf/12-083.pdf
Breaking Them In or Revealing Their Best? Reframing Socialization Around Newcomer Self-Expression
| Authors: | Dan Cable, Francesca Gino, and Brad Staats |
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Abstract
Socialization theory has focused on enculturating new employees such that they develop pride in their new organization and internalize its values. Drawing on authenticity research, we propose that socialization leads to more effective employment relationships when it starts with newcomers expressing their personal identities. In a field experiment carried out in a large business process outsourcing company, we found that socialization focused on personal identity (emphasizing newcomers' unique perspectives and strengths) led to significantly greater customer satisfaction and greater employee retention after six months, compared to (a) socialization that focused on organizational identity (emphasizing pride from organizational affiliation) and (b) the organization's traditional approach, which focused primarily on skills training. To confirm causation and explore the mechanisms underlying the effects, we replicated the results in a laboratory experiment. We found that individuals working temporarily as part of a research team were more engaged and satisfied with their work, performed their tasks more effectively, and were also more likely to return to work when initial socialization focused on personal rather than organizational identity. In addition, authentic self-expression mediated these relationships. We call for a new direction in socialization theory examining how both organizations and employees benefit by encouraging authentic self-expression.
Download the paper: http://www.hbs.edu/research/pdf/12-067.pdf
An Exploration of Luxury Hotels in Tanzania
| Authors: | Diego A. Comin |
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Abstract
Tourism is a tradable service activity that could allow some African countries to generate significant growth. Tanzania, given its unique natural assets, is an ideal candidate. However, despite being so richly endowed in touristic resources, Tanzania receives very few tourists and revenues from tourism. To explore the determinants of this performance, I conduct an international survey for upscale hotel managers to measure supply-side constraints on the operation of hotels. The survey reveals that hotels in the safari area in Tanzania are more expensive than comparable hotels, and that this difference in price cannot be accounted for by differences in supply constraints. Further, using cross-country panel data, I show that upscale hotel prices account for a significant fraction of cross-country differences in tourists.
Download the paper: http://papers.nber.org/papers/w17902?ntw
What Makes a Critic Tick? Connected Authors and the Determinants of Book Reviews
| Authors: | Loretti I. Dobrescu, Michael Luca, and Alberto Motta |
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Abstract
This paper investigates the determinants of expert reviews in the book industry. Reviews are determined not only by the quality of the product, but also by the incentives of the media outlet providing the review. For example, a media outlet may have the incentive to provide favorable coverage to certain authors or to slant reviews toward the horizontal preferences of certain readers. Empirically, we find that an author's connection to the media outlet is related to the outcome of the review decision. When a book's author also writes for a media outlet, that outlet is 25% more likely to review the book relative to other media outlets, and the resulting ratings are roughly 5% higher. Prima facie, it is unclear whether media outlets are favoring their own authors because these are the authors that their readers prefer or simply because they are trying to collude. We provide a test to distinguish between these two potential mechanisms and present evidence that this is because of tastes rather than collusion-the effect of connections is present both for authors who began writing for a media outlet before and after the book release. We then investigate other determinants of expert reviews. Relative to consumer reviews, we find that professional critics are less favorable to first time authors and more favorable to authors who have garnered other attention in the press (as measured by number of media mentions outside of the review) and who have won book prizes.
Download the paper: http://www.hbs.edu/research/pdf/12-080.pdf
Technology Choice and Capacity Portfolios Under Emissions Regulation
| Authors: | David Drake, Paul R. Kleindorfer, and Luk N. Van Wassenhove |
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Abstract
We study the impact of emissions tax and emissions cap-and-trade regulation on a firm's long-run technology choice and capacity decisions. We study the problem through a two-stage, stochastic model where the firm chooses capacities in two technologies in stage one, demand uncertainty resolves between stages (as does emissions price uncertainty under cap-and-trade), and then the firm chooses production quantities. As such, we bridge the discrete choice capacity literature in operations management (OM) with the emissions-related sustainability literature in OM and economics. Among our results, we show that a firm's expected profits are greater under cap-and-trade than under an emissions tax due to the option value embedded in the firm's production decision, which contradicts popular arguments that the greater uncertainty under cap-and-trade will erode value. We also show that improvements to the emissions intensity of the "dirty" type can increase the emissions intensity of the firm's optimal capacity portfolio. Through a numerical experiment grounded in the cement industry, we find emissions to be less under cap-and-trade, with technology choice driving the vast majority of the difference.
Download the paper: http://www.hbs.edu/research/pdf/12-079.pdf
Lords of the Harvest: Third-Party Signaling and Regulatory Approval of Genetically Modified Organisms
| Authors: | Shon R. Hiatt and Sangchan Park |
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Abstract
Little is known about the factors that influence regulatory agencies' decision making. We posit that regulatory agencies are influenced by the firms they regulate but not exclusively via political influence, as is argued in the traditional regulatory-capture literatures. Instead, regulatory decisions are indirectly shaped via third-party actors whose signals reduce uncertainty in the agency's pursuit of legitimacy. Focusing empirically on the U.S. Department of Agriculture's approval of genetically modified organisms (GMOs), we find that signals from salient stakeholders and peer agencies have a positive influence on product approval and that their effects vary under different dimensions of uncertainty. We also discuss the implications of these findings for business-government relations and for nonmarket strategy.
Download the paper: http://www.hbs.edu/research/pdf/12-081.pdf
Brides for Sale: Cross-Border Marriages and Female Immigration
| Authors: | Daiji Kawaguchi and Soohyung Lee |
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Abstract
Every year, a large number of women migrate as brides from developing countries to developed countries in East Asia. This phenomenon virtually did not exist in the early 1990s, but foreign brides currently comprise 4% to 35% of newlyweds in these developed Asian countries. This paper argues that two factors account for this rapid increase in "bride importation": the rapid growth of women's educational attainment and a cultural norm that leads to low net surplus of marriage for educated women. We provide empirical evidence supporting our theoretical model and its implications, using datasets from Japan, Korea, Taiwan, and Singapore.
Download the paper: http://www.hbs.edu/research/pdf/12-082.pdf
Cases & Course Materials
Scaling a Startup: People and Organizational Issues
Thomas Eisenmann and Alison Berkley Wagonfeld
Harvard Business School Note 812-100
This note discusses the organizational challenges that startups often encounter as they begin to scale rapidly, along with approaches to addressing these challenges suggested by scholars, investors, and experienced entrepreneurs. The challenges fall into five broad areas: the need to formalize organizational structure, executive transitions, the need for management systems/processes, evolution of the board of director's role, and preservation of an entrepreneurial culture.
Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/812100-PDF-ENG
Hypothesis-Driven Entrepreneurship: The Lean Startup
Thomas Eisenmann, Eric Ries, and Sarah Dillard
Harvard Business School Note 812-095
Firms that follow a hypothesis-driven approach to evaluating entrepreneurial opportunity are called "lean startups." Entrepreneurs in these startups translate their vision into falsifiable business model hypotheses, then test the hypotheses using a series of "minimum viable products," each of which represents the smallest set of features/activities needed to rigorously validate a concept. Based on test feedback, entrepreneurs must then decide whether to persevere with their business model, "pivot" by changing some model elements, or abandon the startup. This note describes, step-by-step, how to follow the hypothesis-driven approach when evaluating entrepreneurial opportunity; explains how the approach mitigates cognitive biases that otherwise can contribute to poor decisions; and considers conditions that are best suited for lean startup methods.
Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/812095-PDF-ENG
Fiji versus FIJI: Negotiating Over Water
Francesca Gino, Michael W. Toffel, and Stephanie van Sice
Harvard Business School Case 912-030
This case examines negotiations between a company and government over natural resources. The Fijian government proposed a substantial increase in its water extraction tax that would only apply to large extractors, and thus to FIJI Water and not to its competitors. FIJI Water responded by calling the increase "discriminatory" and threatening to shut down its operations, but in the end its negotiations resulted in its agreeing to pay the tax increase.
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/912030-PDF-ENG
PAREXEL International Corp. (A)
Regina E. Herzlinger and Natalie Kindred
Harvard Business School Case 311-068
Despite severe market turmoil, in 2001, the biopharmaceutical contract research organization (CRO) PAREXEL is bucking calls for cost cutting by pursuing an expensive globalization and IT strategy. Under the leadership of founder and CEO Josef von Rickenbach, PAREXEL has made several bold investments over the past 20 years based on a vision of future industry dynamics and client demand. Indeed, over PAREXEL's sometimes-bumpy journey from an opportunistic two-person venture into a global company valued at $1 billion, Rickenbach's willingness to take calculated risks has kept it at the leading edge of the CRO sector. Now, despite slowing demand for CRO services and against the advice of some analysts, PAREXEL is betting that global capability and technology services will become its key competitive advantage in the decade to come. This case traces the evolution of the CRO sector from a small, secondary cluster of firms into a major player with essential capabilities for global drug development. The context of CROs' rise, highlighted in the case, is the biopharmaceutical industry's transformation from the mid-1970s through 2001, including the rising cost and complexity of drug development and the remarkably slow pace of IT adoption in clinical trials.
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/311068-PDF-ENG
PAREXEL International Corp. (B)
Regina E. Herzlinger and Natalie Kindred
Harvard Business School Supplement 311-087
This case, the denouement to "PAREXEL International Corp. (A)," describes developments at PAREXEL and the biopharmaceutical industry from 2002 to 2011. Through an investment of $365 million over 10 years, PAREXEL has built a strong technology services business that is its key differentiator, although clinical trials remain its most lucrative segment. Additionally, PAREXEL, like others in the industry, has expanded its presence in lower-cost locations, especially the strategically important Asia-Pacific region. Another key change is the growing number of long-term strategic partnerships between CROs and their biopharmaceutical clients, reflecting the strengthened, more equal relationship between the two players. These developments have occurred against a backdrop of a persistent lull in R&D productivity and serious profitability concerns among large drug companies as some of their top-selling products face generic competition. With some observers forecasting an overhaul of the biopharmaceutical R&D structure, students are left to consider what the future holds for PAREXEL.
Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/311087-PDF-ENG
Music and the (Real) World: Thirty Years of MTV
Mukti Khaire and Eleanor Kenyon
Harvard Business School Case 812-041
The case is useful for teaching students the structure of creative industries and the issues to consider when attempting disruptive innovation and entrepreneurship in these industries.
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/812041-PDF-ENG
Speeding Ahead to a Better Place
Elie Ofek and Alison Berkley Wagonfeld
Harvard Business School Case 512-056
In mid-2008, Shai Agassi, CEO of Better Place, is in the midst of planning a paradigm shift in clean transportation. In an attempt to wean the world from using gasoline-powered vehicles, his company is playing the role of innovator and integrator for new vehicles, charging spots, and battery switch stations. The effort also requires aligning various parties, from governments to auto manufacturers to consumers. The fledgling company has made good progress in both Israel and Denmark as the first two launch locations but faces a series of decisions on the best course of action going forward. Agassi must decide how best to market in these two countries given the likely adoption challenges once the infrastructure and cars are ready, as well as decide how quickly to begin pursuing other countries (and if so, which ones). A big part of the Better Place solution relies on a novel business model that needs to be evaluated for its attractiveness and feasibility.
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/512056-PDF-ENG
Assembling the Startup Team
Noam Wasserman
Harvard Business School Note 812-122
Nothing can bedevil a high-potential startup more than its "people problems." These problems typically result from choices that founders make as they add team members to their startup team. Three characteristics of startup teams must be aligned for these teams to function well: relationships, roles, and rewards (the Three Rs). Early decisions that founders make about the Three Rs can significantly affect their startup's direction and success. This note explores some of these choices and their long-term implications.
Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/812122-PDF-ENG
Career at a Crossroad: Akhil Patel
Noam Wasserman and Lisa Brem
Harvard Business School Case 812-010
Akhil Patel is passionate about his business idea: an innovative green technology fuel cell. He wants to dive in and commit to his startup, but his fiancée is much more risk averse, his parents don't approve of the startup, and Akhil has an enticing alternative offer from a prestigious consulting firm. Should Akhil follow his dream and become an entrepreneur? Or should he take the "safer" consulting job?
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/812010-PDF-ENG
Career at a Crossroad: Roopa Rao
Noam Wasserman and Lisa Brem
Harvard Business School Case 812-011
Akhil Patel is passionate about his business idea: an innovative green technology fuel cell. He wants to dive in and commit to his startup, but Roopa Rao, his fiancée, is much more risk averse, his parents don't approve of the startup, and Akhil has an enticing alternative offer from a prestigious consulting firm. Should Akhil follow his dream and become an entrepreneur? Or should he acquiesce to the other forces in his life and take the "safer" consulting job? This is a companion case to "Career at a Crossroad: Akhil Patel," HBS No. 812-010, giving Roopa Rao's point of view.
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/812011-PDF-ENG
Career at a Crossroad: Packing Up
Noam Wasserman and Lisa Brem
Harvard Business School Supplement 812-013
Akhil Patel is passionate about his business idea: an innovative green technology fuel cell. He wants to dive in and commit to his startup, but Roopa Rao, his fiancée, is much more risk averse, his parents don't approve of the startup, and Akhil has an enticing alternative offer from a prestigious consulting firm. Should Akhil follow his dream and become an entrepreneur? Or should he acquiesce to the other forces in his life and take the "safer" consulting job?
Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/812013-PDF-ENG
"Playing with Fire at Sittercity (B)
Noam Wasserman and Rachel Gordon
Harvard Business School Supplement 809-010
To help her finance her aggressive expansion plans, Genevieve Thiers plans to raise venture capital for the first time. She has spent the last six long years building Sittercity into the nation's leading babysitting web service, larger than all of its competitors combined. In the process, she brought her boyfriend and his sister into the business to help her and ended up learning important lessons about mixing family and business. Now looking to raise venture capital, Thiers has just received an email from a general partner at a top venture capital firm, proposing another meeting and asking her to bring to the meeting an extensive list of proprietary information. This was a promising development, but Thiers was unsure whether she wanted to discuss Sittercity in such depth, especially when the venture capital firm had refused to sign a non-disclosure agreement. How should she respond?
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/809010-PDF-ENG