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Entrepreneurs and Salespeople: Are You Overestimating How Much Others Value Your Product?

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Minah Jung, Alice Moon, and Leif Nelson have published a new paper titled, "Overestimating the valuations and preferences of others," in the Journal of Experimental Psychology.   The scholars examine how individuals evaluate the preferences of others.  Specifically, they find that people tend to systematically overestimate how much others will value something.   Here's an excerpt from their paper: 

In social judgments, we are frequently called upon to make predictions about the evaluations of others, such as how much a friend will enjoy a recommended novel, how long a coworker will be willing to wait for useful feedback, or how much a potential buyer will be willing to offer for a used set of golf clubs. The overestimation bias has important implications on real-world economic and social decisions. Furthermore, the paradox we document suggests that someone who perfectly understands others’ enjoyment for a good may nevertheless be imperfect at setting prices, simply because they fail to recognize how people trade off enjoyment against other valuation metrics, such as willlingness-to-pay and willingness-to-wait. This suggests that social and consumer judgments may suffer not only from general overestimation but also from an additional imperfect understanding of how people weigh trade-offs. Many preferences are developed from a complex weighting of positives and negatives, the balance of which produces a summary evaluation for each individual. When judging the preferences of others, however, that complexity may be ignored and the weight of some attributes will seemingly tip the scales in the direction of a simpler, more intense preference.

This research has important implications for entrepreneurs who are trying to determine whether their idea will gain traction in the market.   Are they systematically overvaluing their idea, or overestimating how much people will be willing to pay for the product or service?   We all know that entrepreneurs can fall in love with their own idea, but this research gives us a deeper understanding of precisely why we can't estimate willingness-to-pay properly and accurately.   The same bias, of course, affects salespeople in a wide variety of professions.  Do they really understand the potential buyers' preferences?  Can they accurately assess value from the buyers' perspective?   
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The Perception Gap: Leader vs. Team Members

Kat Boogaard has written an interesting post for the Atlassian blog titled, "Attention leaders: there’s something your team isn’t telling you."  She explains the findings from some of the firm's research on leaders and their teams.   In particular, she focuses on the perception gap between the leader and his or her team members.  Here's an excerpt that summarizes the research findings:

Source: needpix.com
When we asked managers to rate their agreement with statements about their team’s health, they consistently agreed at a higher rate than their individual contributors. For instance:
  • 37 percent of managers said their team had quick and easy access to information, but only 20 percent of their individual contributors agreed.
  • 45 percent of managers said they receive honest feedback, but just 26 percent of individual contributors felt they like could give that honest feedback.
This inflated view is even worse in the C-suite. C-level executives are two times as likely to say that their team is high performing or has high well-being, while their individual contributors view those aspects as well below average.

How can leaders close this perception gap?  Boogaard has some good recommendations. For instance, she advocates getting out of your office to put your finger on the pulse of the organization, rather than waiting for people to come to you with problems or concerns.   Similarly, she focuses on the importance of promoting psychological safety within your team.   I would add one other important tip for closing this perception gap.  Find a truth teller on your team.   Find a sounding board, or consigliere if you are a fan of the Godfather movies.  Talk to them one-on-one, and use those private conversations to get a sense of whether team members are seeing things the way that you are.  Kathy Eisenhardt's research shows that effective leaders in high-growth firms operating in turbulent environments often have these confidantes who help them in numerous ways as they make tough decisions.  However, the key is to find a truth teller, not a yes-man or yes-woman.  Make sure it's someone who will give it to you straight.  
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Evaluating Creative Ideas: Ask Why, not How

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Stanford Professor Justin Berg has conducted some fascinating new research regarding people's self-evaluation of creative ideas. How do they assess the ideas that they generate, and can they spot the best ideas at a very nascent stage of the problem-solving process? Berg finds that individuals are not great at spotting the very best idea. In fact, the idea that they rank second-best at first often tends to be superior to the concept that seemed optimal at initial glance. What's happening? Berg explains his theory of how evaluation goes off track in this Stanford Leadership Insights article:

“People value concreteness too much and abstractness too little in their initial ideas,” Berg says. A concrete idea, he went on, is necessarily more developed, and so it will more readily present its creative virtues. Abstract ideas, meanwhile, can be difficult to see as promising. “The best initial ideas likely won’t seem very creative at the beginning—there may not be enough substance to see their potential originality and usefulness. Their abstractness is a barrier that prevents people from spotting their potential.”

Berg tested this theory by putting people in more abstract states of mind as they assessed their initial ideas. He had them ask “Why is this a good idea?” as opposed to “How is this a good idea?” and then provide answers. This approach was based on prior research showing that focusing on why (versus how) encourages abstract thinking. This simple shift to a more abstract mindset helped people identify their most promising idea at the outset.

This theory definitely resonates with me.   Research has shown the value of "why" questions and abstract thinking.   I think "how" questions often shift people into an "implemental" mindset too quickly, as I wrote about with Derek Pankratz in this article for Deloitte Review.  When we start thinking about how to execute an idea too soon, we can actually select a flawed course of action.  We become vulnerable to certain biases and faulty reasoning.  Perhaps we are also less creative too, as Berg's research suggests.   We move from the abstract to the concrete prematurely in those situations.  We need to think about what we want to do and why we want to do it, before we get too bogged down into the execution-related issues.  Of course, we can't ignore the how while we are making the decision, but the balance of our thinking can't shift too much to the how at those early stages of the creative problem-solving process.
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Why Your Innovation Lab Might Be Failing

Source: Wikimedia
Vip Vyas and  Diego Nannicini of Distinctive Performance have written an interesting blog post titled, "Is Your Innovation Process a Corporate Illusion?" for INSEAD's Knowledge website.  The authors examine why some companies have shut down their innovation labs, after achieving less-than-desirable results.  Vyas and Nannicini offer several different explanations for the underperformance of these labs, but I find one explanation particularly compelling.  They argue that the leaders at the lab often lack credibility with the managers in the core business.   Here's an excerpt: 

In their efforts to promote a culture of creativity, companies may establish unintended physical and psychological distances between their main business operations and the innovation lab’s activities.

Setting up the lab as a free-thinking island, or tasking it with forwarding critical initiatives, is a key strategic decision. Without a clear pathway for connecting to the core business units, the innovation lab can find itself generating orphan products that fall into no man’s land. Even worse, the lab becomes nothing more than an expensive showcase, running public tours and hosting product demo kiosks.

The takeaway: An innovation lab needs solid executive sponsorship and advocates from mid-level management to effectively integrate solutions into the existing organisation.

To accomplish this feat, one has to insure that the leaders of the both the lab and the core understand one another.   After all, they often speak different languages, use different metrics, and have very different risk tolerance levels.  They also use quite different methodologies for making decisions.  Fostering understanding and appreciation of each other's methods, processes, and mindsets is essential for effective cooperation.   Otherwise, innovative ideas will wither on the vine. 
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How Big is Your Idea? Will it Move the Needle? The Questions That Stifle Innovation

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Early Career Failures: Do They Make You Stronger?

Source: Osan Air Base
We all have heard the old adage: What doesn't kill you will make you stronger. Researchers at Kellogg School of Management have tested whether that is indeed true when it comes to early career failures. They did so by examining a very unique dataset. Dashun Wang, Benjamin Jones, and Yang Wang have examined research grants provided by the National Institutes of Health (NIH).  The paper, published recently in Nature Communications, is titled, "Early Career Setback and Future Career Impact."  The scholars compared scientists awarded grants early in their career to those who narrowly missed out on achieving a grant.  Here is what they found, as summarized by Kellogg Insight:

To figure out just how much of a difference these early successes or setbacks made to a scientific career, the researchers traced the careers of 623 near-miss and 561 narrow-win scientists.  Notably, it turned out that the two groups published at similar rates over the next 10 years—not what you’d expect, given that narrow winners got an early leg up from their NIH grant funding. Even more surprising, scientists in the near-miss group were actually more likely to have “hit” papers (that is, papers that cracked the top-five percent of citations in a particular field and year). In the five years after they applied for NIH funding, 16.1 percent of papers produced by scientists in the near-miss group were hits, compared to 13.3 percent for the narrow-win group.

The researchers went on to rule out some of the possible explanations for this finding.  For instance, they demonstrated that the finding is not attributable to attrition by the "near-miss" scientists... i.e., it is not explained by quitting on the part of some of the researchers who did not receive grants early in their career.  They conclude that the career paths of these "near-miss" scientists suggests that they indeed did become stronger through adversity.  Somehow, the early career failure inspired them to persevere, led to key learnings, and/or helped them understand their own strengths and weaknesses.   As a result, they overcame the failure and went on to achieve considerable success.  What an uplifting finding for all of us... the old adage is not just a cliche...there is real truth there apparently! 
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How Do I Assess This Firm's Culture Before Taking a Job?

Source: SHRM
Joann S. Lublin wrote a Wall Street Journal column last week about assessing the organizational culture of a firm at which you are considering taking a job.  She offered five tips for how to identify warning signs that a culture might not be the right fit for you.   I thought her first strategy was particularly useful.   Lublin argues, "Identify Who and What Count."  Here's an excerpt:

To grasp unwritten norms, discern what is acceptable behavior—especially for rainmakers, said Gail Meneley, co-founder of Shields Meneley Partners, a career-transition firm. She recommended inquiring whether sales stars operate under looser standards, such as completing deals without required internal approval.

“You may feel uncomfortable working for a business where there are different rules for different people,’’ she cautioned.

Small but significant gestures can offer hints about what behaviors matter. In 2017, Brad Neuenhaus became chief business officer of MindEdge Learning Inc., a provider of online education. He did so partly based on a company lunch he had attended as a customer. He recalled being impressed when a MindEdge leader exhibited respect for employees by clearing their plates.

“I wanted to be part of their organization,” Mr. Neuenhaus said. “Culture starts at the top.’

You might think that such small gestures don't matter, but in fact, they often can signal a great deal about the interpersonal and cultural dynamic at a company.  I had a boss who once said that he used to pay close attention to how someone treated a waiter or waitress at a restaurant during an interview process.  These things do matter.   At the end of the day, your antenna should be up at all times as you assess cultural fit. 
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