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Nicholas Epley: Thanks all of you for coming to my session today. I really appreciate it. What I’m gonna do is I’m gonna describe to you just a little bit of a class that I teach to my MBA students. Some of you have been in it. Most of you have not. The class is called Designing a Good Life, and it does what I think any good class at least is intended to do, or at least that’s my intent of the class. And that is it encourages students to stop and pause a minute and reflect on what it is that they’re here getting their MBA for. Why is it that you’re here? Why are you taking all of these classes? Why are you investing all of this time and effort into achieving a degree from us?
Ultimately it’s, of course, to achieve some goal later in life. You take classes, you come here, you spend all this money, you put all this effort into it because you wanna achieve some goal, because you’re trying to achieve some desirable life down the road, otherwise this would be a meaningless waste of time. And so it naturally then raises the question of what is education for? Why are you here? Why are you in my class? Why are you getting an MBA? What are you trying to do in your own job? What do you want out of your life when you actually grow up? As I get older, I have learned that you never really feel like you’ve grown up. What do you want out of your life?
Well, my class is based on the assumption that all of us want basically the same kind of things out of our life. That is that we want to live a good life. A good life not in a simple sense of that term, but in a sophisticated, nuanced sense of that term. In particular, what I assume is that you and me, and all of my students as well, you wanna live a good life. A good life in three senses of the term. First, you’d like to do well in life. Good in the sense of succeeding. You’d like to be successful. You’re all working in business, I’m teaching students who get MBAs.
And so what does success look like in the business world? Well, Milton Friedman knew what success looked like in the business world; it meant money. He once wrote, “There is one and only one social responsibility of business, to use its resources and engage in activities designed to increase its profits.” That is, all of you wanna succeed. You’d like to make some money. Nobody signs up to work in order to be in the poorhouse.
But, of course, that’s not the only thing that we mean by doing well in life. It’s not the only goal that we have. How do we know? Well, every year I ask my students this. Essentially, I ask them this question up here, which is actually a measure that’s taken from a psychopathy scale, and the question is this one: making a lot of money is my most important goal. Is that what students think of by success? Is that your most important goal?
What do my students say? Mostly they say no, that’s not my most important goal. So this was from one particular year. We’ve got about 80 percent of students disagreeing with this in one way or another, 16.5 percent agreeing with this slightly, not a single person out of about 200 students agreed with this strongly. That is, we all know this as well. We all understand that the things we want out of our lives are so multifaceted, and money’s one thing, but it’s not the only thing.
Friedman knew this as well. Friedman knew that we want more than just money out of our lives, or even out of our business, because the famous second half of his quote suggests another motivation, that we have another sense of what it means to live a good life, and that is that we want to be good. And I assume that in your life, you not just wanna do well, but you also wanna do it in a way that you can be proud of, that is: you wanna be ethical. You wanna do things that leave a positive impact on the world that’s arguably bigger than you in some way.
What do we mean by being good? What do we mean by being ethical? If you take a philosophy class, you’ll spend a whole semester mired in this question. Psychologically, it’s actually not that hard. What do most of us mean when we talk about ethics or being good? We mean being prosocial. All ethics really involves sociality in one way or another. They deal with how we treat other people. Are we treating other people fairly, kindly? Are we being honest or dishonest? Are we helping other people or are we harming other people? All of the behaviors that have some ethical component to them have a social component to them.
And so when we talk about ethics, we mean being social. The Dalai Lama suggested that this in fact is sort of the core of our being. This is what we’re designed to do. “Our prime purpose in this life,” he argued, “is to help others, and if you can’t help them, at least don’t hurt them.” Friedman seemed to agree with this as well because the famous, often overlooked . . . the second part of his famous quote that’s often overlooked also suggests this as well. “So long as it stays within the rules of the game, which is to say engages in open and free competition without deception or fraud.” That is, Milton Friedman assumed that you are running a business that was already good, and once you are already ethical, once that was your foundation, then beyond that, your primary goal was to be profitable.
But he did that only because he had already assumed another motive, and that was to be good. And it turns out there’s nothing unusual about the Dalai Lama or Milton Friedman. We seem to come into the world somewhat programmed to be good, to be someone ethical, to help others. You can see this even when you look at our little guys, our little toddlers. Here’s a video from a former colleague of mine at Harvard, Felix Warneken, who studies spontaneous helping in infants. He puts little kids, in this case, a little toddler, just a touch under two, in a situation where they’re given a chance to help. So what you’re gonna see on this video is you’re gonna see this little boy playing here in the middle of the room. The experimenter is off to the right of this video, and she is gonna accidentally drop a can that’s gonna roll over and fall on to the floor. Watch what the child does.
Woman: In there. Put that one here.
And then that’s for me.
Put that here.
(mumbles) We’re put that here.
Put that right there, and then here’s another one, see, these are the same size. You can put that here, and—
Nicholas Epley: And every time I watch this video I think I gotta do more experiments with little kids.
And so we all come into the world, it seems, wired, a little bit with self-interest, of course, but also with an interest in others, and you can see this surprising degree to which we are social, to which we care about others, showing up in rather unusual and unexpected places, such as in times of war. So these data here are some of the most amazing that I’ve come across in my two decades as a behavioral scientist. These data come from a book written by Lieutenant Dave Grossman, which I recommend to you, despite the title, which sounds a little grizzling. What Grossman studies is how soldiers kill in battle, and what he finds time and time again when you look at the data is that they have a shockingly hard time killing, even when their lives are on the line.
At times of war, when you dehumanize the opposition, people still have a shockingly hard time killing other people. He estimates, if you look at actually the firing rates in war, he estimates there were only 15 to 20 percent of soldiers in World War II were even able to discharge their weapon. You would go to foxholes in Europe and find gun after gun after gun that had never been fired, held by a soldier who just couldn’t pull the trigger. When left at their own, the great majority of individual combatants appeared to have been unable or unwilling to kill, Grossman finds. They estimate about 5 percent of soldiers in World War I were responsible for about 95 percent of the killing. Once they were actually shooting, they had a hard time killing, so you know, given the quality of a gun, and how far you are away of the enemy, how far you are away from the enemy, you know what the kill rate ought to be, how many people ought to die in a given minute in battle, and what you find is that in actual battles, people die at much slower rates than you would expect. Largely because people tend to shoot over the opposition’s head.
So in the Civil War, for instance, the soldiers would stand about 30 to 40 yards apart from each other, using a musket that could hit a pie plate at 75 yards, and they would spend hours firing over each other’s heads. That’s essentially what would happen. You see shockingly low kill rates given the quality of the guns that people were using. Soldiers are now trained to kill. That is, the ethical principle that we all have hardwired in us not to harm somebody else is something that actually has to be taught out of a soldier, and now our armed forces know how to do this.
Indeed, Grossman wrote, “From a psychological perspective, the history of warfare can be viewed as a series of successively more effective tactical “and mechanical mechanisms to enable or force combatants to overcome their resistance to killing other human beings, even when defined as the enemy.” Our natural inclination often toward others, despite what you might have been told in economics, when you look at actual human behavior, is to be much nicer to other people than you might imagine. We care about others, and our automatic inclination often is to help others.
And finally, I assume that you wanna live a good life in this third sense of the term as well, that is, you wanna feel good. You wanna be happy. You wanna feel good about what you’re doing. You wanna be happy in general. This is not a new notion. Again, Aristotle, centuries ago, wrote that “happiness is at once the best and noblest and the pleasantest of things.” Our Founding Fathers might have quibbled with his grammar, but they didn’t quibble with Aristotle’s sentiments when they wrote “life, liberty, and the pursuit of happiness” into our Declaration of Independence as an inalienable right.
Alexander Pope suggested that this is really the only thing that we’re striving for, that happiness is our being’s end and aim. Indeed, you can think of almost any choice that you make as an implicit prediction, at least, of what will make me happy down the road. I’m doing this because I presume the outcome will be more positive than if I do something else. And Blaise Pascal suggested that there aren’t any exceptions to this. “All men seek happiness,” he wrote, “there are no exceptions.” Presumably, if he was writing today, he would include women in this mix as well. We don’t think there are any gender differences on this. Both men and women want to be happy.
And so this naturally raises the question, and if these are the three things we want out of our lives: we wanna succeed in a way that we can be proud of, doing things ethically, in a way that makes us feel happy. Can we get all this stuff? It’s a pretty lofty wish list. Mick Jagger once sang that “you can’t always get what you want, but you get what you need.” Can we, in this case, get everything we want? Are these goals aligned with each other, or do they compete in some powerful way? Well, this is ultimately just an empirical question. We need to look at the data. But it raises a couple of questions.
First, are the first two goals aligned with each other? That is, does doing good, does being good in business generally lead to doing well, to success? Does ethics pay? So in my class I actually spend a lot of time on this. You might think that there’s not an argument you need to make; nevertheless, it is one I think you need to make, and I think it’s one where you need to look at the data, and the data on this actually are super clear. That, over time, ethics certainly does pay in business. The key reason is because treating other people well is what you need in order to create a sustainable business over the long haul. It doesn’t necessarily predict short-run profits, but it predicts sustainability, and for obvious reasons. Remember, all ethics are social. They deal with how we treat other people. Here’s a summary of, basically, three hours of data that I show to the class, summarizes this well. Gill writes, “Well-treated employees show up happier and more dedicated to company success. They steal less and work harder. Customers who receive what was promised to them and who treated with respect will return more frequently for more business and recommend more friends to patronize the business. Anyone who needs a study to prove these common sense observations about the impact of good ethics on good business is beyond help.”
We do spend some time helping our students by showing them data that actually tests whether this is true or not, and how it is. The one thing that I will show you—I won’t go through all that data—I will show you that these effects are big enough that you can actually make money on it. That is, you can trade on good ethics and business. I’m not doing this work, but certainly lots of other people are.
OK, I don’t wanna spend more time talking about this. Now what I wanna spend the rest of the time talking about is actually the link between these last two things. Most of the time I spend in my class is actually focused on this second thing. What would you do to create an organization that helps people like all of us actually be good? How would you design or construct a business that helps people who are prone to unethical lapses but who generally would like to be good? How do you design an organization that helps us be good?
I’ll talk about that just very briefly at the end, but I don’t wanna spend more time on it at the moment. Instead what I wanna talk about is the link between the second and third goal. Does doing good feel good? Now, some have suggested that, yes, this is obvious. Thomas Jefferson once wrote, “I believe that every human mind feels pleasure in doing good to another.” This is essentially a hypothesis, right, we can treat this as an empirical question. But I think all of us also resonate a little bit with this side as well. That yeah, yeah, yeah, it feels good to be good. That’s all nice and great, but it feels good to be naughty sometimes too, doesn’t it? Just a little bit.
So which is it, does doing good actually lead to feeling good, or not? And perhaps, when does it? Well, we can consult a handful of different data points to look at this. This is really a question about what is it that leads to happiness. And we can go back to Milton Friedman here, who suggested that, really, businesses are existent in order to make people money. People in business are pursuing money, and so we can ask a very simple question about whether this thing that we all spend lots of time pursuing actually is one of the things that brings us happiness. Does money in fact bring us happiness? And if not, if it doesn’t or if it does, then how does it do compared to other things that we might pursue?
I’ll show you a little bit of data on this. These results I’m gonna show you in just a moment come from a massive survey that Danny Kahneman and Angus Deaton—both Nobel Prize winners in economics, Danny Kahneman, a psychologist, Angus Deaton, a sociologist—data that they report from a Gallup poll of about half a million Americans, where they looked at the relationship between lots of different variables, including how much money you make, and a number of different measures of well-being, OK. So here are the measures of well-being on the right. They asked people to report how happy they were, how frequently they smiled on a given day, how much enjoyment they felt in life. Also, the inverse of this, essentially sadness. I’m gonna show you the inverse of this, so the percentage of people who report not feeling sad, so it’s at least on the same scale. The percent who report not feeling worry or sadness. The amount of stress you report feeling in your life. How stressful is your life? And, finally is this latter measure, which isn’t really a measure of mood. It’s a measure of social comparison. How well am I doing compared to others? That’s what that is. And what Kahneman and Deaton report in the graph that got lots of attention from this paper is the relationship between the amount of money that you make and these different variables. It’s a very simple question to look at in the data. Do people who make more money, are they happier?
Well, here’s what the data show. So down here on the bottom is how much money you make, annually, $10,000, 20, 40, 80, 160. And this is essentially how happy you report feeling, how positive you report feeling. Positivity and how little stress you report feeling. So higher numbers here just essentially indicate feeling more positive, OK. And so we can look at this one here, positive affect. This is how happy you report being, how frequently you enjoy smiling, and much enjoyment you report in your life. Does making more money increase positive affect? Numbers are right . . . yeah, hell yes, it does, of course! Jeez, it’s like a one-item IQ question. Of course making more money makes you happier! Anybody who says that money doesn’t buy some degree of happiness has never been poor before, has never stood in a breadline before. Yes, of course, making money makes you a little happier. That’s a no-brainer.
But notice, there’s an interesting feature to this line that’s been widely reported as well. It actually slopes off. It sort of stops rising at a fairly low amount, right at about the median of income level, actually, in the US at this time. Beyond $75,000, they found that they couldn’t actually detect increases in happiness that come from increasing amounts of money. So, yes, money buys happiness, but there are severe diminishing returns on it, and really the effect is that poverty is miserable. That’s the effect. Poverty is miserable, OK?
But notice that what we can do here is we can say, OK, this is what money does with happiness. We can also think about how much happiness money brings compared to other things that we could be spending our time doing, other things we could be doing in our lives. And Kahneman and Deaton surveyed people about lots of different things, and you can relate lots of these different attributes as well to happiness or to well-being and see what really is accounting for most variants in happiness.
So this is a less-well-known table from their paper, less widely discussed. What they did was they just created an index variable to index how much happiness comes from an increase in wealth, going from the bottom quartile of their data to the top quartile of their data. So this is an average increase of $58,000 in your income on year, which is a lot for the average American. And so this is just the regression coefficient, just the beta weight on this index variable of high versus low income. It’s 0.03, you see. It’s positive. It’s not huge, but it’s there for sure.
But now what you can do is you can take this index variable, going from the bottom quartile on this measure to the top quartile, you get an effect size out of that, and you can look at, well, what happens when you go to the bottom quartile to the top quartile on other variables that we might measure? And this allows you then to scale how much a fourfold increase in your wealth, the return you get on this on your happiness compared to other variables. So what they do then is they looked at a bunch of other variables too. You just create now a ratio of high income compared to these other variables. So when you create a ratio, obviously, the ratio here is one, and what you see here is, essentially, the percentage of the effect of going from the bottom quartile to the top quartile in wealth, that you get from going to the bottom to the top on these other measures as well.
So here, for instance, is age, OK. Age is a good one. Right, ’cause you can be young or you can be old. Bottom quartile on this versus top quartile. And you can see that getting older, age gives you about 80 percent of the value that a fourfold increase in your income does. You’ll be happy to know, everybody in this room who is, I believe, getting older—it’s a sad fact of life—that people tend to get happier and happier in life as they get older, not sadder. So that’s a nice thing. It gives you about 80 percent of a fourfold increase in your income. Whether you’re religious or not. The degree to which you’re religious actually is a bigger effect than a fourfold increase in your wealth. Oh, this is a good one, whether you’re getting surveyed on the weekend versus a weekday. Sad testament to the state of work these days, a slightly bigger effect than a fourfold increase in your happiness.
But notice, out of all these different attributes, what’s the really big effect? It’s being alone, feeling alone. Seven times bigger effect on your happiness, on positive affect, than the amount of money that you’re making. That is a crushing effect. Remember, ethics are all about sociality. How you’re connecting to others, whether you have meaningful, positive connections to others. If you wanna know how happy people are, it turns out asking about the quality of their social relations is a huge determinant of that. And we find this over and over and again in experiments. So here’s another way to look at this. You can ask, what makes the happiest people out there? What differentiates people in surveys who say they’re very happy from people who say they’re very unhappy? One way you can do this. Ed Diener and Marty Seligman did this some years ago, and what they found was that sociality was the key determinant, the quality of your social relations. So people who reported being very happy over here in the right column, report on the top line here having better relationships with close friends than those who are very unhappy here. They report having better family relationships, and also better romantic relationships over here than people who are very unhappy. Your peers, your friends, these people’s friends, also report that very unhappy people have poorer social relations than very happy people. And you can also see it in the time that they spend alone or with others. Very happy people tend to report spending less time alone than very unhappy people, and more time spent with family, friends, and romantic partners than time spent alone. As Diener and Seligman write, “No variable was sufficient for happiness, but good social relations were necessary.”
If you wanna know how happy people are, turns out two questions seem to account for the most variants on happiness measures. One is: How meaningful do you find your work to be? And second, asking questions about the quality of your social relations. Everybody in this room, I suspect, has a sense that when things are going badly in a close relationship with family, or friends, or romantic partners, when you’re in the midst of social conflict, those are tough times. Those are the hard times, the miserable times. And so we can then ask, go back to this question: Does doing good, does being ethical, does treating other people well lead people to feel good? And these data would suggest they ought to be positively related. Well, are they? Remember, all ethics are social, and so we can see, well, what happens when you spend money in different sorts of ways? Does spending money, say, on other people in a way that you might consider to be ethical, does that make people feel happier?
So this is . . . Liz Dunn has done a bunch of work—she’s a psychologist at the University of British Columbia, really brilliant social psychologist. I’m gonna show you just two studies from her. This is a simple survey where they ask people, this is a Gallup survey, they ask Americans: Do you feel happy in general? This is just a simple happiness measure. And they also asked them how they spend their money, how much money they spend on a given week on personal spending versus prosocial spending. That is, spending on themselves—bills, expenses, gifts for yourselves, things for you—versus money spent on others. Of course, you can see there’s a huge discrepancy in the average amount. People spend a lot more money on themselves than they do on others. We wanna know, how are these things, these two variables, related to happiness? They also ask about income, what their total level of income is.
OK, what do we see in the results. Well, here’s what we see. First off, you see that the amount of money people spend on themselves is actually not positively related to their happiness here. But the amount that they report spending on others is positively related to happiness. That’s on the order of magnitude that is essentially identical to the effect of income on your happiness. How you choose to spend your money, Liz argues over and over again from her data, seems to predict your happiness as much as how much you’re actually making. How you choose to spend your money turns out to be important.
But, of course, these data here don’t actually tell us that spending more on others, or being more ethical in some way with your money would make you happier. Right, everybody in this room knows that you can’t infer causality from a correlation. We just have a correlation here. Factors could be running in the other direction. And so what we need in order to figure out does being more ethical, does behaving more positively toward others, does that buy you happiness? Does that bring happiness? Is we have to actually run an experiment where we give you money and ask you to go out and spend it in different ways, and that’s exactly what Liz did in a follow-up study. Brought people into the lab and gave them some money, either $5 or $20, and asked them then to go out and spend it either on themselves or on somebody else. So you get a windfall, you either go out and spend it on yourself, buy something nice for yourself, or go out and buy something for others, OK.
Now, as important here, I think, as the actual effects of this on happiness are, it’s also important, I think here, to get people’s expectations. Everybody in this room was schooled in the theory of rational choice, that people tend to behave in ways that maximize their well-being as they perceive it, as they conceive it as Gary Becker wrote. And so what we also wanna know is what do people think will happen to their happiness when they spend in these different ways because that’s ultimately what’s gonna guide their behavior. And so they asked people, one group of people was asked not to go out and actually do this, but to report their expectations about what would happen if they actually did this. Just to report their beliefs about how they would feel if they went out and spent in these two ways.
So first they were asked, which condition would make you the happiest, spending $5 or $20 on yourself or others? So, first, which would make you happiest, spending on yourself or spending on others? Two-thirds of people said spending on myself would make me happier than spending on others. Seemed to be self-interested agents here. Spending $20 or spending $5, which would make you happier? No duh, more is better, yes. Most people passed that one-item IQ test, say that spending more money would make you happier than spending less.
It turns out, though, that both of these expectations are wrong when you actually give people $5 or $20 and ask them to go out and spend it on themselves or others, and here are the data on that. So they then gave people this money, asked them to go out and spend it on themselves or others, had them come back, had them, before they go out, report how happy they were, and when they came back, report how happy they were, and what we wanna know is what’s the change in those two things?
And this is the change in those two things. Those who spent on others in the prosocial condition reported feeling happier after they had done it than before, regardless of whether they spent $5 or $20. And those who spent on themselves reported feeling a little less happy. Again, regardless of whether it was $5 or $20. If anything, $20 made you feel a little worse, but that wasn’t a statistically significant effect. Spending on others in this case made you feel happier than spending on yourself.
And yet all of us also have this intuition, too, that maybe there are times when just being a little bit naughty feels kind of nice, feels pretty good. Are there cases when treating other people poorly or aggressively makes people feel better? What about revenge? Revenge is sweet, isn’t it? Lord Byron thought so, “Sweet is revenge,” he wrote, “especially to women.” We don’t actually quite know why he thought there was this gender difference. As far as we know there isn’t one, but there certainly is this intuition that exacting revenge on people who have wronged you is what’s gonna make you feel really good. That maybe in this case, harming somebody else, that bit of unethical behavior makes you feel good. There certainly are strong intuitions that revenge is sweet. Here’s a quote from the internet, on a post following one of the mass shooting incidents of which there are now way too many here in the US. This was in Virginia Tech. One of the women who was writing about this wrote on the message board, “I don’t think there would be anything temporary about the satisfaction I would feel in being permitted to execute the person who killed my child.” Some sense that exacting revenge might do two things: one, it will make me feel better. It will help resolve this pain that I’m feeling. And second, it might help me get some closure, so to get on with my life.
Well, notice, these are hypotheses. These are expectations. Are they right, are they meted out in actual behavior? Does getting a chance to exact revenge on somebody else, does that actually make you feel better? We don’t have a lot of research on this in psychology, but we have some. We know a few things. First, there’s a strong belief in the positive effects of revenge, a kind of catharsis moment. This goes back to Freudian sorts of ideas. Catharsis is defined as the process of releasing, and thereby providing relief from strong or oppressed emotions. There’s a strong sense that revenge allows you to experience this kind of catharsis. But, again, this is an empirical question. We don’t wanna know what people think. We wanna know what actually happens. What actually happens when you put people in experiments, you give them an opportunity to exact revenge on somebody who has harmed them. How do they feel about it afterward compared to people who didn’t get a chance to exact revenge?
Well, I don’t have to share you my intuition. I’m gonna show you an experiment, one of many that had been conducted by Kevin Carlsmith and his colleagues. This is one of a handful that were published in this particular paper. They put people in a situation where somebody—so you can imagine that you’re in this situation—put in an experiment where somebody harmed you in some way, really put you at a disadvantage for their own personal gain. Then gave you an opportunity to exact revenge on them or not, measured how you felt about it, and also how much you were thinking about the person after you exacted revenge. And this is how it went. You’re in an economic game, essentially, with a group of people. On each round, you’re given a dollar. Everybody in the group is given a dollar. This is a commons-dilemma game, OK, public-goods game. And you can contribute some amount of your money to the common pool, 40 percent is added to the amount that everybody pitches in to the common pool, and then the total proceeds are then divided equally among everybody who paid in. You learn of each player’s investment on each round, their winnings at the end, and the total on each round of the game.
And here’s the interesting part. So on the very first round, one of the other people in your group—you are sending instant messages back and forth to each other, communicating what you’re doing—one of the players in your group contributes half of their earnings, so contributes 50 cents on the first round to the public pool, and then sends an instant message suggesting that everybody cooperates. But then on all the subsequent rounds, never gives anything again. Is a total free rider! So she encourages you to contribute and then gives bubkes for the whole rest of the experiment.
You can feel it, can’t you? That’s just the kind of thing that chaps your hide, that makes you angry. They said help us and then they don’t help anymore down the road. Three conditions here in this experiment: One is you’re not given any chance to punish the free rider at all. Second condition, you’re given a chance to punish the free rider. You can, at the end of the experiment, pay however much you want to remove three times the amount that you are willing to pay from the other person. So this is punishment, costly punishment. So if you put in a dollar, you can take $3 from the other person. You can pay to punish the person. And there’s a third group that doesn’t actually get a chance to do this. They just predict how they would feel if they were given a chance to do this. So this, again, is measuring people’s expectations, not their actual experience, their expectations. What do people think would happen?
Two measures that we care about, first are their feelings, positive or negative mood, 10 minutes after they’re given a chance to exact revenge or not on this person. And also rumination. How much do they report thinking about the free rider after they’ve gotten a chance to exact revenge versus not? There’s some notion that this catharsis, that if I can exact revenge for somebody who’s harmed me, I’ll be able to get on with my life. OK, is that true?
Here are the results. First off, in the punishment condition, almost everybody chooses to punish. People are happy to punish when they’re given a chance. The question is how does this make them feel. Does it make them feel good? Here’s the mood rating. So this is an average of positive and negative mood. Here’s the no-punishment condition. This is their average here. It’s about five. That’s just on a 1–7 scale. It’s not very meaningful. What we wanna know is what happens to this bar in these other conditions? If punishing makes you feel good, then this bar here in the punishment condition, these people ought to report feeling better, right? Do they feel better? Uh, the answer’s no. They actually report feeling significantly worse after they’ve punished than those people who had no chance to punish. Those who predict how they would feel if they had a chance to punish predict feeling happier than those who actually punish. Not happier than those in the no punishment, but these folks think that they would feel better if they punished than people in the punishment condition actually did.
We can also see people’s theories compared to reality, their expectations compared to the reality of punishment. If you look at the correlation between how much people punished and how they actually felt. If punishing feels good, then the more you punish, the better you ought to feel. There ought to be a positive correlation between the amount you punish and how you actually feel. Is that correlation positive? No, it’s negative. Goes the other direction. The more you punish, the worse you actually report feeling. You feel guilty is what it is.
We’ve all been in the situation. You lash out at a colleague who pissed you off in some way. How do you feel after that? Maybe at the time you feel sort of OK. Moments afterward you kind of feel like crap. That’s what we get here.
But notice, look at the expectations. These are in the predictions, so these people predict how much they would punish and also how much they would feel. Expectations, the correlation is positive here. That is, people think the more they punish, the better they’ll feel. They’re precisely wrong about that. That goes in backwards. No, it actually makes people feel surprisingly bad. Does punishing decrease rumination? Does it make you think less? Actually no, it actually made them think more not less. So here’s the amount they report thinking about the free rider 10 minutes after it’s over. Those in the punishment condition actually report thinking more about the person they exacted revenge on than those in the no-punishment condition. Our beliefs about catharsis and revenge just seem to be wrong. It’s another piece of data that suggests that doing good actually feels surprisingly good.
And an interesting thing for me as a behavioral scientist, as psychologist, interesting thing about these last two results in the studies I showed you, is that people’s expectations here were both wrong in both of these last experiments. That is, they expected to feel better when they were doing the antisocial or the proself thing, and it raises this possibility that we might, just in general, undervalue the power of this link between doing good and feeling good in a way that might keep us from being more social in our own lives that would actually make us feel a little bit better.
I, after all, see people, highly social agents, who feel better connecting to others, interacting out in the world in a way that suggests they don’t really believe that to be true, that they would be better off if they were more social, if they connected more with others, if they were more positive toward others in their daily lives. Every day on my commute into Hyde Park, into this building here where my office is—we live on the South Side of Chicago. I come in on the Metra Electric line. Every day on my commute in, I see people get on the train, highly social agents, made happier by connecting with others, spend 50 minutes on the train essentially ignoring another person sitting right next to them. The drill is the same every day. People get on the train. They line up here along the outside. God forbid, you’d ever sit next to another person, you creep. That’d be totally weird. No, you wouldn’t do that. We then go down to the next stop. These people, by the way, are married to each other, so that’s OK.
They’re not actually talking to each other, but they are at least sitting next to each other. Some of these seats, of course, are set up to enable conversation. It typically doesn’t work that way. I see these two women here who are sitting sort of across from each other. Of course, they’re not talking to each other. People then get on at the next stop, what do they do? They line up on the outside seat here, cheek to jowl next to another person, and for the next 50 minutes, on their way into Chicago, what do they do with this person sitting right there? Absolutely nothing. They just ignore the person, essentially, for 50 minutes.
Now, if connecting with others is a thing that makes us happy, this doesn’t make any sense. People seem to be choosing to make themselves miserable. And I don’t think there’s anything unique about my train coming into Chicago, I think this is a general phenomenon. This shows up in lots of different places around the world. Mostly you see people when they’re out in the world, around other people, they choose to ignore each other. I don’t think this is necessarily a feature of modern life as well.
So Stanley Milgram, a famous social psychologist, some years ago got very interested in sort of some paradoxes of urban life. One is that people tend, who live in big cities, so around lots of other
people, also tend to report feeling lonelier than people who live out in rural parts of the world without anybody else around them. And he noticed the same thing on the trains in New York that I noticed in Chicago. “The requirements of appropriate social behavior,” he wrote, this is in the 1970s, “on the face of it are simple. One rule is that seats are filled on a first-come, first-serve basis.” But here’s the interesting one, “Another implicit rule is one that discourages passengers from talking to one another. Even though riders are often squeezed into very close proximity, they’re rarely observed to converse.”
And so this raises an interesting question, one is: Why are people doing this? One possibility is that connecting with others is not always a pleasant experience. It depends a little on the context, right? And so, some cases it’s really nice to connect with somebody else. Other places, it’s not so nice. This is the hallway by the bathroom, the men’s bathroom, by the way, right down the hall here in the Harper Center. I love my colleagues and my students. This is not a place where I wanna connect with them. That little partition just isn’t quite enough, frankly. There is a place where we want a little more social distance. Maybe the trains are like the bathrooms, where we just need to keep to ourselves. Maybe not engaging in conversation with strangers out in public actually makes people happier, and so there’s an important boundary condition on the benefit of social connection for happiness. That’s one possibility.
And of course, the trains might be just the kind of place where you definitely do not want to start up a conversation with some randomly selected person because these people are weird. But the other possibility is that our expectations about the consequences of social interaction are just miscalibrated. Just like people in the experiment I showed you thought that spending on themselves, on average, would make them feel better than spending on others, and they were wrong about that. Or that exacting revenge would make them feel better instead of worse, they were wrong about that. Maybe this represents a general tendency to undervalue how good you’d feel if you were actually just a little more social, a little more prosocial in your life, treated other people with a little more civility and kindness, or just ethics. Maybe we’re just wrong about that. Maybe we seek solitude in places where it doesn’t make any sense.
So this, for instance, is the bike rack right over here, right outside of the building in the back. One day when I came in, here’s a case where our MBA students are trying to get into the building to the same door, and yet they want a little space for themselves from their bike. They hook their bike up to its own separate rack, not wanting to get too close to each other. Now, this doesn’t seem to make any sense to me here. I think expectations are leading to suboptimal behavior.
So what do we have going on in the train? Well, to find out we have to conduct some experiments, and so that’s what we did. We ran some experiments on the Metra Electric line here that I take every day on the way into Chicago, and we ran the experiment in the Homewood Station for a variety of different reasons. What we did is we set our lab managers up in the basement, the entryway to the platforms, and recruited them for a commuter study. This is Jasmine Kwong, one of our MBA alums who was my lab manager for about a decade. Recruited them for a commuter study, and if they were interested in participating in the commuter study, they came up to us. We gave them an envelope. Inside that envelope was a Starbucks gift card, a $5 Starbucks gift card, which turns out to be the most valuable incentive we can provide to anybody on the planet. People will do anything for a $5 Starbucks gift card.
We then, once they expressed interest in participating in the experiment, we then randomly assigned them to one of three conditions. That’s important—after they indicated being interested in the experiment, we then randomly assigned them to one of three conditions. In one condition, we told them to enjoy their solitude on the train today, just to keep to themselves, not talk to others, just keep to yourself on the way, think about your day ahead. Second condition, we told them to just do whatever you normally do. Whatever they normally do is sit there and keep to themselves. That’s our control condition. Third condition, we told them to do something radical. We told them that when somebody comes and sits down next to you, what we’d like you to do is just to try to make a connection with this person. Try to learn something about him or her, try to form a connection, that is, to have a conversation with this person.
When they were done with their commute, we told them to take the envelope out that we gave them, pull out the survey, take out your $5 Starbucks gift card, and fill out the survey for us. There were a bunch of measures on it. The first four were the ones we cared about. The others were personality measures, which I can talk to you about later if you’d like. We report them in the paper, of course. The first four items were the ones we cared about. How pleasant was your commute today compared to normal? How happy are you right now after your commute? How sad are you right now after your commute? We averaged those three items together, reverse scored the negative item to create, essentially, an index of how pleasant, how positive was your commute? Fourth item was how productive was your commute?
Turns out we don’t get any differences in reported productivity across these three conditions, which either means people don’t get squat done on the train, which it could be, or they redefine what productivity means once you give them a different sort of goal. We don’t know which it is, but we don’t see differences across those three conditions. What we really care about is the positivity measure. Did talking to a stranger, did connecting with somebody else stink? Was it unpleasant, was it miserable? The answer is no, in fact, not. Those in the connection condition actually reported having the most positive commute, and those in the solitude condition reported having the least positive commute.
And so this raises the question: If connecting with others makes you happy, and commuting tends to be one of those miserable things that people do, why aren’t you talking to other people more often? Why aren’t you doing this more often? Well, it could be that people expect that connecting with somebody else will actually make them feel worse. That is, it could be our expectations about the consequences of sociality undervalue the positive impact of connecting with somebody else. To figure out whether that’s going on we have to run another experiment where we don’t measure how people actually feel, rather we measure their expectations. So here what we do is we have them, on the train ride in, predict how they would feel if we randomly assigned them to each of these conditions. This measures their expectations. How do they think they would feel if they were in each of these conditions? Exactly the opposite of what our data suggests they would actually feel. That is, they predict feeling the worst in the connection condition.
And so people, I think, are behaving totally rationally, that is, behaving in a way that maximizes their well-being as they conceive it, they’re just profoundly wrong. Their expectations are mistaken in this case. We don’t just see this on the trains. We also this same pattern everywhere we look. This is a study that we did on the buses in downtown Chicago, ran the same experiments with cabs leaving Midway Airport. We created a waiting room downtown where we find that the positivity that you get from connecting with somebody else actually spreads to the other person. The other person is happier when you talk to them than when you ignore them, which is sort of a no-brainer, but that’s not what people seem to think. And now, it’s important to know that these expectations can, nevertheless, be powerful determinants of behavior, and so when I was doing this study with Metra, I learned this very quickly, very well.
After we ran our first experiment on the trains, I called up Virginia Chandler, who was the head of marketing at the time, who I was working with, a wonderful human being, so much fun to talk to her, and I told her about the results of our train studies, and she said, “Nick, I totally believe that. That is totally consistent with my experience. I would have predicted that without question.”
She said, “But you’re not gonna believe what we’re about to do.”
“OK, interesting, what are you about to do?”
She said, “Well we’re about to roll out a new policy on all of our train lines.”
“OK, what’s that policy?”
And she said, “We’re about to roll out the quiet car, which actually forbids people from talking on that particular car.”
I said, “Virginia, why is it that you guys are doing that?”
And she said, “Well, we asked people on a survey what they wanted, and this is what they said they wanted.”
That’s what our participants said they wanted too. I asked her, “Well, have you ever experimented with the opposite, have you ever had a chatty car where you just get together and just hang with your friends and meet somebody new, right, talk to a neighbor, your chatty car.”
She said, “No, we’ve never had a chatty car, but we did have something for a while that sort of functioned in the same way, she said. “We used to have the bar cars on the trains.” Bar cars would run way out to the northwest suburbs and stuff. She said, “But we don’t have those anymore.”
And I asked her, “Why don’t you have those anymore?”
I was expecting people stumbling off the train drunk or something, and she said, “Because they turned out to be a hazard.”
“Well, why were they a hazard?”
She said, “Because they were too crowded.”
You can lead horses to water, but you can’t make them drink.
We find that this effect of undervaluing the positive consequences of prosociality is not just a function, not something that people just experience predicting their own well-being. We also find in more recent research that they underestimate the value of being good for how good others will feel as well. That is, they underestimate the value of prosociality, their own prosocial actions. They underestimate how good it will make other people feel.
So this is now a class demonstration that I do every year when I teach my Good Life class. I have students in my class write a gratitude letter to somebody else. If you wanted to feel better today, very simple thing to do, think about somebody in your life who’s done something really positive for you, who you feel like you haven’t really expressed gratitude sufficiently for, write that person a letter. Time and again, psychologists find this to be a big effect. We have my students do this. This was a study. This was the first time I ran it in class. I had 120 MBA students in this, actually I had 130 MBA students; 120 of them completed the survey in time to get their data. We asked them to write the letter and to send it to somebody else. We also asked them to give us the email of the recipient so that we could contact the recipient and see how they felt about it. We had the letter writers predict how their recipient would feel, and then we just compare expectations against reality, OK.
So 101 of my students allowed us to email the recipients; 80 recipients responded. We do a lot with the nonresponse rate, which I can talk to you about later, but I’m not gonna talk about it at the moment. What did they write about? They wrote about lots of things. Don’t be so nosy. It’s very personal. I can’t tell you exactly what they wrote about, but they wrote about serious stuff. They pasted the letter that they wrote into the survey if they wanted to. Really powerful stuff. It’s the neatest thing I do in class without question.
How did they feel about it afterward? Well, consistent with one experiment after another, after another, people tended to feel really, really good. They felt much better than they did before writing this. Here’s what the data looked like here. This is a baseline measure of mood across my class. At the beginning of one of my lectures, I’m sad to say that people at the start of one of my lectures weren’t totally thrilled. This scale goes from -5 : “I feel much more negative than normal” to +5: “I feel much more positive than normal,” with 0 being “I feel like I always feel.”
Most people at the start of my class don’t seem to be all that excited to be there. They’re feeling about how they normally do. Word to the wise if you have a chance to take a class for me. This is how they report feeling after they write the gratitude letter. They feel much better than they did before, and the statistic comparing after to before is so big that it’s of the embarrassing variety. It’s a massive effect, but this is what we cared about: Did they know how the recipient would feel? In some ways they did, but there were also some interesting and meaningful gaps. So we asked my letter writers, my students, to predict how surprised the recipient would be to receive the letter, how surprised they would be about its content, to predict the participant’s mood, on the same scale that I showed you right here that goes from -5 to +5. I’m gonna add a 5 to it so it’s on the same 0 to 10 scale as all these others, but more positive numbers indicate more positive feelings. And also predict how awkward the recipient would feel getting the letter, OK, as a measure of sort of a cost to this prosocial behavior. Here’s how they thought their recipients would feel. Sort of moderately surprised, little less surprised about the content. Notice, they predicted the recipient would feel really great. No, duh, this is obvious, this is actually a three on this -5 to +5 scale, added 5 here so it’s on the same scale. It’s basically at the ceiling of the measure. If you’re a behavioral scientist and you see a survey result like this, you assume that your measure’s not gonna be sensitive enough to predict any differences. How awkward they predicted, it would be moderately awkward. Turns out every one of these predictions was significantly miscalibrated in a way suggesting that they underestimated its value. The recipient was significantly more surprised to receive it and more surprised about the content. Felt even better than you thought they would. You predicted they would feel great, basically the negative side of the scale is irrelevant here. You predicted they would feel great. They felt even better than that, and you also overestimated how awkward the recipient would feel, turned out not to be very awkward at all.
You miscalibrated in the value of it. This is how the recipients actually felt. This is what a ceiling effect on a measure looks like. People were thrilled to receive this letter.
People also didn’t have a whole lot of clue about how recipients would actually feel. There are very weak correlations here between people’s predictions of their own recipient and how their recipient actually felt, but notice the interesting thing is that the black bars all suggest that I’m underestimating the positive value of this prosocial act. I know it’s gonna be good. It’s even better than you think it will be for the recipient. We see this in other places as well. So I also have my students do random acts of kindness for somebody else, for a stranger. Do a random act of kindness. We get exactly the same effects. We ask them to predict how their recipient’s gonna feel. We also measure how the recipient actually feels.
Recipients think that your act was bigger, was more positive than my students predict. The recipients think that you invested more time, spent more money, and put more energy into it than you think the recipient will. Again, they predict that the recipient of their random act of kindness is gonna feel really good. They feel even better than that. And they also, to a smaller degree here, overestimate how awkward the recipient would feel. All of these differences are statistically significant. Again, suggesting undervaluing how positive a prosocial act is.
We find this in other experiments as well. This was an experiment that we did at the Maggie Daley skating rink downtown. We went out and had people do some random acts of kindness, in the winter in particular. We gave them a coupon and asked them to give a cup of hot chocolate away to somebody else down here in the Maggie Daley Park today. We didn’t have them actually deliver it. What they did was they pointed out who they wanted us to deliver their cup of hot chocolate to. We then went over and gave them the cup of hot chocolate. The people who gave the chocolate away, hot chocolate away, predicted how the recipient would feel. The recipients reported how they actually felt.
How big was the act? That is, how valuable did this seem? You predicted how your recipient would rate how big this act seemed. The recipients reported it as well. They underestimated, our givers underestimated how big an act the recipients would perceive this to be. This was kind of a big deal. This small, little cup of hot chocolate, nevertheless, felt kind of big, felt really good. This, by the way, experiment, is the only time in my life I’ve ever had one of our participants take out a checkbook and ask to fund our research ’cause they enjoyed participating in it so much.
Also predicted positive mood, and again, they predicted recipients would feel positive; they felt even better than that. Again, underestimating the positive value here. Lady Montagu, a 17th-century aristocrat, once wrote that “civility costs nothing and it buys everything.” Our data suggests that the average person doesn’t calculate the benefits of prosociality quite the way that Lady Montagu did.
Alright, so I started this session by pointing out that I assume in my students, in all of you, in me as well, that we want to live a good life in three senses of the term. We wanna do well out there in the world. We wanna do it in a way that we’d be proud of. We wanna do it ethically. And third, we’d like to feel good. We’d like to be happy about what it is that we’re doing. Raised the question to whether you can get all three of these things. In fact, I think these things are . . . all of these goals are in fact aligned, particularly in the long run. These things are aligned with each other in ways that people, I think, tend to undervalue or underestimate how aligned these goals actually are.
And so it ultimately then raises the question: What do we do to change our lives, or to change the context we’re in, or the organizations that we run? What do we do to help people achieve all three of these goals? Well, first, let’s talk about how do we be better in our lives. How do we create organizations that help people achieve this core goal of being good or being ethical? What do we do? I didn’t spend much time talking about this, we’ve spent a lot on this in my class. The most important thing you need to do is to make it easier for people to be good, make sure you have incentives that are aligned with ethical behavior, make sure that you have opportunities for people to be good. Often it’s easier in organizations to be bad than it is to be good. You need to set up policies and procedures and protocols that make it easy for you, for instance, to call out unethical behavior when you see it, make it easy for you to make the hard but ethical choice.
And avoid temptations, it turns out the best way not to fall prey to a self-control problem is not to put yourself in an ethically tempting situation. People tend to overestimate how strong their moral or ethical compass is. They tend to overestimate how ethically they’ll behave when they’re tempted. You need to structure ethics in ways that keep these goals top of mind. All of you wanna live a good life in this way, but how many of you in your day-to-day life are thinking about: Is what I’m doing right now really the thing that’s making me happy? Is the thing that I’m doing right now really the right thing to be doing? If you want people to be good, you need to make sure that ethics are top of mind. One thing you can do is just make sure that you know what your own ethics are.
In my class, I have my students write a personal responsibility statement, and we frame it so that they can post it somewhere easy. If you have this on top of your mind when you’re out there engaging in behavior, you’re more likely to follow this goal. Here, for instance, is my personal responsibility statement. And this is where it sits in my office, right next to my computer right there. Keep ethics top of mind.
And finally, most behavior is contagious. We tend to do what others around us are doing, And so you wanna make sure that you’re around other people who are good. Social norms are not just powerful, they’re surprisingly powerful. Second, we need to design organizations and our own lives as well with a little bit of prosociality in mind. That is, with a little positive, ethical interpersonal behavior in mind. And in this way, we need to treat happiness like exercise. That is, happiness is something we often treat as if it’s stable over time. It’s not. Happiness is a mood. It rises and falls from one moment to another. It’s a little like having a leaky tire on a car: you have to keep putting air into that tire in order for it to stay up, otherwise it’s gonna go flat. Happiness is the same way. You need to keep doing it and doing it and doing it. The problem with lots of these goals, just like with exercise, we might know what’s good for us, but we don’t necessarily get around to it. Nobody thinks that exercising once is gonna make them healthy for the rest of their lives, but we sort of treat happiness that way. If I can get that job, I can marry that person, and I can have these kids, whatever, that’ll keep me up here, happy, that’s not what happiness is like. Happiness is a moment-to-moment sort of phenomena, and so you need to practice prosociality to make it a habit, to make it easy for you to do, just like you would do with exercise. Do it over and over and over again. There are a number of ways, you can do this: keep a gratitude journal, do a daily random act of kindness, buy a plus one when you’re out buying coffee for yourself, chat with a stranger. Just walking around smiling more turns out to make people lots happier. The reason is, is because when you smile at somebody else, what do they do back to you?
Nicholas Epley: Yeah, no doubt, they smile back to you and that feels pretty good, we find in our research. Finally, when it comes to thinking about happiness and living a good life, we often think about lots of the big stuff, but the small stuff also really matters a lot. What we find as psychologists is there are lots of little things that you can do in your life to help keep you on the ethical road that will also help make you happier. Happiness is a fleeting mood that responds disproportionately to little things. Happiness is better predicted by the frequency of positive experiences you have, not by the magnitude of those positive experiences. So lots of little things can actually add up. These things that seem like such small events—doing a random act of kindness, writing a gratitude letter—have meaningful effects on people’s happiness and well-being. On the order of psychotherapeutic medication, psychologists find. They can be big. A happy life then is a steady stream of positive experiences, both big and small.
This, of course, treating the good life as a scientific sort of problem won’t make it certain that you’re going to achieve it, of course. The hope is, though, that putting some data and putting some rigor on this kind of pursuit, this thing that we all want, will help give us some guideposts to know where we ought to be looking in order to live a meaningful, a good life. And also give us some advice about how we might design organizations that help all of us who are in it do this a little more easily. Thank you all so much for your time. I really appreciate it.
Watch Choosing Leadership with Linda E. Ginzel, clinical professor of managerial psychology.
Linda E. Ginzel: So I’m Linda Ginzel and I said hello to some of you. Some of you I know. Many of you I do not. But I’m really thrilled to have you in my classroom today. And welcome. And thank you for being here.
So I have been here 28 years. And I know I look young. It’s the Asian genes. And I’m really thrilled to do this session because you get two gifts from me, the book and the green pen. And I will explain those in one moment. And let’s see. Here we go. I use a document camera, and this allows me to kind of . . . I have a plan, and I can do PowerPoint. So a lot of people tell me that they think I don’t know how to do PowerPoint. Problem is that when I make a PowerPoint, it’s gonna be beautiful. It’s gonna be perfect. And so you’re gonna sit there and you’re gonna see every single slide in the order that I prepared and I determined would be best ’cause like sunk cost, I will be so committed to it.
So what I do instead is I prepare, but I print out my slides, and I use the document camera so that I can change the order or go with you or decide that something else is actually better in the moment. So this is one of the ways that I try to manage my own kind of command of the classroom, the environment.
So I’m a social psychologist. And what that means is that what I try to do is teach my students to think more like a social psychologist, which is about the power of strong situations. So I try to create the strongest situation I can in my classroom to accomplish my goals, which today have to do with helping you to be wiser, younger, and trying to get you perhaps to buy into my mission, which is to seed a grassroots leadership-development movement.
So that’s the story. You have informed consent. I just told you that I have a mission to accomplish with you. Welcome to my classroom.
Hi. Hello. Welcome back.
So I . . . someday I’m only gonna teach with illustrations. Someday. And I have a few illustrations for you today. I was sort of dragged into the teaching of leadership kicking and screaming. Leadership is really hard. What is it? There’s no consensual definition. No one has the answer. This is leadership. OK! Also, I’m an experimental social psychologist. There’s a discipline, right? What does discipline mean? You put on blinders and you go deep and narrow. You discipline your mind. Like economists. They have a disciplined way of thinking.
There’s no discipline of leadership. Leadership is multidisciplinary. It’s philosophy. It’s religion. It’s economics. It’s psychology. It’s political science. It’s everything. So it’s really hard. And I’m sure like you, I have personally been through many, you know, we have many things that we deal with in life. A few things have kept me up at night. Trying to teach leadership with integrity is something that has kept me up at night. People will sell you anything you are willing to buy. And at first, I thought: I need to help my students become a better consumer of leadership literature. And then I just gave up and wrote my own.
So here’s the story. This is the, the beginning. I wanna tell you that my goal in the classroom is for you to come up with your own perspective, your own point of view for you. Every one of you has a definition that you are using to operate about what you think leadership is. And that definition is either enabling choices or it’s inhibiting choices for yourself and for others. And I think that to the extent that we actually understand what is the definition we are using moving forward, we can create a better future. We can make better decisions.
So what I’m here to do today is to help you to develop your point of view. This is one of my favorite quotes by Marvin Minsky. He is the father of artificial intelligence. And I just read in the Booth alumni magazine, with the hiring of Sendhil [Mullainathan] into my group, the Center for Decision Research in the behavioral science group, that we are going to become the Chicago School on data analytics, right? On A.I., on artificial intelligence. So this is the father of artificial intelligence, Marvin Minsky, and I love this quote. He says that, “Point of view is worth 80 IQ points.” So just by developing your point of view on leadership, I can raise your IQ. I believe that. I really believe that. You have to have your own perspective. So that you can be smarter. So that you can do a better job. So you can do whatever your heart desires. So you have to know what your heart desires. That’s one thing.
So that’s what I wanna do today. We have one hour, and I’m going to try to help you. I’m gonna raise your IQ and help you to make better choices.
Here’s how it begins. Each of you has a book in front of you, and I’d like you to open the book and write your name here. Just like that. Because this is the first step in learning. Oh, the pen has a little plastic nib. Yeah, I know people are like, these are defective. No. Plastic nib, you can just kinda flick it off. And you put your name here. So this is the first act in learning, because if you don’t write it down, it doesn’t exist. If you don’t write things down, it is a figment of your imagination. This way, you know, it’s your book. This is a workbook. I created this book so you have two gifts in front of you. One is the workbook, and one is the green pen.
And I’ll say something about the workbook first. I told you I was dragged into the teaching of leadership kicking and screaming. And I started teaching leadership in the Executive MBA Program some years ago. And the first time I taught it, I was like, eh. I put everything I had into it. I worked really hard at it. And the next year, I decided that I needed to put together exercises activities.
Some of the essence of what I was teaching in the class took off, and students would say to me, “Can I get an extra copy of this for my boss? My boss could really use this book.”
And other people would say, “Oh, my, my wife, my wife would love this book.”
I’d say, “Nope! Just one copy per student. These are handouts in my class.”
But it worked really, really well. So the next year, I actually had the handouts proofread. I had an index made. We made a table of contents, but it was all my class. Class one, class two, class three. And people were asking questions about it. And one of the students said to me, “Can I get two copies of this from my high-school children?” And I found my mouth say “yes.”
And I realized, what am I an idiot? Now, what am I an idiot? Of course! If this can be useful, then it should have a broader base. So I already have the book. I mean, I had already written it for my students. And we just turned it into a workbook for the general public. So my idea is this book, this workbook is going to make me obsolete. Really, I don’t wanna go around the world teaching and talking. And this book teaches itself.
So today we’re going to do an activity or two from the book. And I’m hoping that you will see that this is cost-effective professional development, right? All you need for professional development is a little structure and a little time. So my idea is that groups of people get these books. They do x activities individually, and then they get together and teach and learn together. So what professional develop— You’re here today. This is a leadership-development workshop. I’m going to teach you. We’ll learn together a little bit about Choosing Leadership.
And there are two things that always happen with professional development if you’re . . . if you do it well. One is that you create collective wisdom. So you go in and say you do an activity, and then you meet together with your family, with your team, with your friends, and you share knowledge. So there’s an activity there, for example. It’s: What’s the best advice you ever received? So you write down your best advice, and then you get together with a group of people and you learn what was the best advice you ever received.
“You know, well, mine came from a parent. Yours came from a teacher.”
“Ah! Mine was from an early, early boss, an early . . . someone who I learned quite a bit from.”
And then we can talk about, well, what advice do we give? What do we think? What do we think is important? So what I used to do in my MBA classes, I would have like 100 students, and we would have them submit their best advice and then collect it and give it back to the students as collective wisdom. So that’s a formal way to create collective wisdom.
But even just getting four people together and sharing and teaching and learning together, I don’t think it’s only motivating. I think it’s inspiring to teach and learn from each other. And the book has all these prompts and all these activities that will help you to have conversations that you wouldn’t have otherwise.
So collective wisdom is really important. And you have a ton of earned wisdom already. And so how do we kind of help everyone to be wiser, younger with that collective wisdom?
The other thing that happens with professional development of this type is community building. Like, you’re back at Booth. You’re building community, from five years—or is five years the first one that we have out? Five-year reunion?
Linda E. Ginzel:
One! From . . . oh, are you one? We have some . . . we have. We have a . . . She was just in my leadership class using . . . You were the first class that used this book, right?
Student: No, we were the last class to use—
Linda E. Ginzel: To use, to use the handbook. It was one of your classmates who I gave to his two daughters and his son the book, and that’s why it became a book. So and then we have how many years?
Linda E. Ginzel: Oh, what a range! From one year to 45 years. And what are we doing? We’re here teaching and learning together. We’re building community.
Alright, so that’s one gift. And we’re actually gonna do an exercise, maybe two in the book. We only have a small amount of time, so we will do the best we can with what we’ve got.
The other gift is a green pen. And the explanation of the green pen is on page 111. But I’ll give you a quick tour. The idea is that I was taught in early on, when I was an assistant professor at Stanford, that what executives do is you manage meaning. You manage meaning every day. And you do that in all different ways. You do that in the words that you use, in the behaviors you exhibit, in the . . . what you make salient, awards that you give, what you draw people’s attention to, and with symbols.
So this green pen pretty much captures my essence. In my, what I’m trying to accomplish in the classroom. It’s practical. I’m a very practical girl. It’s relatively inexpensive. I do not have a big budget. So it comes from my budget. Usually. I mean, the reunion people paid for yours today. But if you were my student, in my classroom, it would come from my budget. So I can’t be . . . I can’t have to think, oh, can I afford to give these pens? No, everybody gets a pen. If you’re my student, you get a green pen. They are . . . it’s about writing and learning. And I believe I just told you already, if you don’t write it down, it doesn’t exist. It will remind you to collect the data of your experience. One of the things that I try to teach my students is that the data of your experience is and can be as valuable as the data that professors bring to you from their disciplines from psychology, from economics, from sociology. But we don’t tend to value the data of our experience. And you can’t write everything down, so you have to be selective about what you want to capture. And the book will help you guide you through this.
Alright, so it’s tangible. It’s inexpensive, but it’s good quality. Japanese. You can tell: good quality but not cheap, but inexpensive. And it completely captures a lot of my teaching. I want you to become your own coach. It’s great if you have a boss or a spouse or I always tell people, a teenage son, who tells me everything I do wrong on a moment-by-moment basis. But just think how much wiser you can be at a younger age if you create feedback for yourself, if you become your own coach, in addition to mediated sort of third-party feedback. So the pen reminds you to be your own coach.
And the way that, and the way that you use it is this. I’ll show you an example. Some of you were in my Negotiations class, we were just chatting about that. On page 112, I believe is, yes, this is a framework. So one of the things the book teaches you, and what I hope to teach people in life, is that we have to . . . In order to manage ambiguity, we have to have structure. We can’t just deal with the lack of any kind of structure. So when people hand us a rubric or a framework or say, “This is what you need to do.” There’s no ambiguity. You’re smart. You can fill it out. You can do that. The ambiguity comes when you have to figure something out and you don’t have the framework. So you create your own structure.
So the book helps you walk through how do you create your own structure? How do you create your own frameworks for collecting data, for organizing it and then accessing it more effectively outside the situation in which it was created? I created this framework for my negotiation students, and it’s for preparation. But you can use this in your . . . You don’t have to be in a negotiations class. Any time you prepare for an activity, I mean a meeting, you have to do problem-solving. You’re trying to convince someone of something else. You can go through and you can figure out: What are your goals? What are you going to try to accomplish? What are your alternatives? What’s the most you’re willing to give up? What’s the least that you hope to gain?
These are all very basic notions. They’re not just about negotiations, negotiation any time, two or more people divvy up a resource or solve a problem. So the other side is taking the perspective of trying to understand what’s the other side. What do they want? What’s there? And you don’t know, but you can create hypotheses.
Please come in and have a seat.
You can create hypotheses. You can generate speculations to then test at the table. So the reason I’m pointing this out is that next time you go into a meeting where you have to divvy up a resource or, or be persuasive, or learn, or exchange information, prepare in writing in advance. Prepare in writing and then take your green pen with you to that meeting. In green ink, you cross out things that you got wrong. You underline things you got correct. You make notes to yourself in the margin. And if you do this across time, then you will see trends and patterns in green ink. You will. You’ll see trends and patterns. You’ll be able to say, “Wow, I tend to do that a lot. Next time, I should try this.” So you’ll be your own coach. So the green pen will remind you to be your own coach.
Why green? Everything’s symbolic, right? Managing meaning. Pablo Neruda, the Chilean poet, he said, he himself said that he wrote his poetry in green ink because green is the color of esperanza. Anyone speak Spanish? What is esperanza?
Linda E. Ginzel: Hope. Green is the color of hope. So it’s with hope that I give you a green pen. With hope that you will use it to collect the data of your experience to be wiser, younger. If you were in my classroom, we give feedback in green with hope that our feedback is useful as well for your growth, right? And so that’s a gift for you. And I always tell my students, the more green, the better. So repeat after me. Green is good.
Students: Green is good.
Alright, I told you that with professional development, we’re doing community building. This is John Gardner, one of my favorite quotes. “The building of community is one of the highest and most essential skills a leader can command.” I was fortunate enough when I was an assistant professor at Stanford . . . John Gardner spent his career in government. He was President Johnson’s Health and Human Services secretary. He started the Common Cause, the citizens’ lobby. He also started the White House Fellows Program. And he left his position in protest over the escalation of the war in Vietnam.
Some years later, he came to Stanford and was a faculty member. He was a teaching faculty. And he taught me many things. I was fortunate enough to be mentored by him. And this is something that I . . . it’s a skill. Building community is a skill. And skills benefit from practice. And I have always tried to build community here at Booth. It’s not a skill that is often valued very highly, because you know, we are your, you know, we kind of do our thing and we value individual accomplishment and such. But community building is a really essential skill, and you’re all here today building community. And so I encourage you to think about a lot of outcomes and things that people think are traits more as behaviors. Like courage. You wanna be more courageous? Start by small act of courage. Courage benefits from practice. And because our identity and even our reputation follows our acts, if you wanna be more courageous, start by being courageous.
Skills benefit from practice, and here we are building community together. Collective wisdom and the building of community. So I learned a lot of things in writing this book. One thing I learned is what’s called an epigraph. Do you know what an epigraph is? Do you? I didn’t. An epigraph is the quote that appears that foreshadows what’s to come in the book. And this is my quote, “Leadership and learning are indispensable to each other.” Have you ever heard that quote? Yeah, many people have not heard this quote. I mean, it is the quote that I think the Kennedy School of Government uses as their sort of moniker. But a lot of people haven’t heard this quote.
The reason I chose it, two reasons. But what I wanna say now is that this book is actually more about learning than it is about leadership. This book is about being wiser, younger. If it were true that everyone would . . . became . . . learn from their experiences, then everyone who is old would be wise. And that is not the case. You will never be younger than you are today, but you can be wiser tomorrow. And that is also your choice.
So we’re gonna say a lot about choice today. I wanted to point out that every chapter, every chapter starts with a verb, right? And the verb that we have here is choosing leadership. I believe that leadership is a choice. It is a behavior. It is not a person, a title, a credential. It is not, right? It is a behavior. So that’s the premise that we will work from.
If you go to page 132 of your book, you will see the index. I’m sorry, this is the, the Activities index. There are more than 20 activities, but these are the 20 that were indexed. And we’re going to do, we’re going to start in a moment with “Zero-draft leadership definition.” And I’ll say a few words about, maybe we’ll try a little bit of juxtaposing leadership and management. But these are the activities that you can do individually and then get together with your team or your group. I will tell you that I have mothers and daughters doing this book together. At Booth, the staff has formed Choosing Leadership groups. They do a chapter or an activity at a certain period and then they come together and teach and learn together. The Booth alumni, the Women’s Network in London pilot tested this and they’re rolling it out across the country of having women, Booth alums get together and teach and learn. My MBA TA is using it with her husband to do, her fiancé to do premarital work, to have discussions and conversations that they might not otherwise have about what’s important to them, about who has inspired them, about what they want to accomplish.
So there are lots of different ways that you can use this book to build community and create collective wisdom. Just as, while we have this open. This is my first class assignment. This is an amazing assignment. It’s from the NPR series This I Believe. And what I, what I do—and Vanessa knows—is that we have all the students bring together their essays, and then I compile them and create a booklet and give them back. And it is amazing how much humanity, you know, people, the MBAs aren’t usually, you know. You can’t really show your humanity when you’re calculating the cost of capital. But a collection of This I Believe essays is astonishing and amazing. So this is the first class assignment, “Vicarious learning framework.” That’s another assignment: create your own framework for learning by observation. What do you wanna learn from others? How do you create a structure to capture that data and move forward with that? This is Harry Davis’s final paper. Harry Davis, who’s taught here for more than 50 years. He hired me. Very smart man.
When I went to teach this class, I asked him if I could put his final paper into the class because when I first started teaching, he was teaching in the Executive MBA Program. And people came up to me said, “You know that paper I wrote for Harry, it changed my life.” I thought, “Wow! I’d like to have people say that about me someday.” So I have this paper here. So now it can change your life. You can write the paper. So the idea—and this is the best advice—so the idea is there are lots of ways that you can use this workbook. It’s not a thought-leadership book. We have enough thought leadership, and there’s not much changing. This is a book you do. This is a book that you process. It is the size, the dimensions of a composition notebook. It’s about the size of a composition notebook. It’s light. It’s paperback. It’s inexpensive. It’s meant to be your companion. When you’re ready to do the activities and exercises, it will be there for you. And you can do the whole book, and then some years later, go back. It’s kind of a container for your future self. And that’s my hope. So that’s the gift to you.
We will do a couple. We’ll move to it now. But that’s what I wanted to introduce to you. Oh yeah, by the way, while I’m thinking about . . . I always forget this. There is a website with videos. The website is called choosingleadershipbook.com. And on the homepage is a great two-minute video that is basically an advertisement for the University of Chicago, because it was filmed on a beautiful fall day walking through campus. So on the homepage, there’s a video that basically tells you what I just said about how I’m trying to see the movement and get people to teach and learn together. And then under Resources, there are seven videos produced here at Booth that were these pictures that I use, are used in the videos and then I’m talking about concepts from the book. So those are on YouTube as well.
But this will remind you and have you kind of go back to what is in the book, and if you wanna use it with other people, that’s gonna be useful to you. Alright, we’re not gonna do this activity. A lot of times when I do this session, I start with this activity. But today I thought I would just give it to you as a homework assignment and use it as a story to tell you why this is important to me.
So before I started teaching leadership, officially like as a class, I did a lunch talk for the MBA Full-Time students. And I thought this would be a great icebreaker. I thought it would be really easy. And we would just start with: What was your earliest time you recall engaging in leadership behavior? And I thought it would be like an icebreaker. And it wasn’t. It was really hard. I got answers like,
“You know, I haven’t really been in a leadership position yet.”
“I was just a manager.”
“I mean, someday. I’ll be a leader someday. And but I really, I really don’t have a leadership experience.”
And I realized that it’s because of the stereotypes that we have about what a leader is. That we constrain our own understanding our own ideas about what it means to lead because we buy into sort of myths and popular knowledge, popular wisdom about what it means to lead. So I would give you this. So what I did in the book is, I solicited early leadership stories from my students, and some of them appear in the book. And I will tell you that I’ve had, I have stories from kindergarten. One person said that he was in kindergarten, and a new student came, and the student was a little different, I don’t know why, but people weren’t befriending her. And so this person went to her and included her on the playground, and that for him, that was his first act of leadership. And so, and to this day, his notion of leadership is more one on one. And it’s peer to peer. Now that’s partly a function of his choices, his job and everything, but there’s something about your earliest, whatever you think of as your earliest leadership experience, there’s something there. There’s something there about what you think leadership means. So I encourage you to do this activity as homework assignment. It is on page nine of the book. So that’s homework, optional homework.
Obviously, but that’s there for you on page nine. We have, so but the story, the reason I tell you the story is because it brought up this idea about myths. So let’s turn to page 119 together. So this section is called “Busting leadership myths.” And here’s some of the myths that I start with. “Leaders are born. Leaders have charisma.”
You know what’s interesting about charisma? I think it is a really unhelpful construct, right? It’s a very not useful construct. If you think of who had, think of your charismatic ideal, whoever that is. Now, are you ever going to meet that ideal? Probably not. What is charisma anyway? Charisma in social psychology, charisma is called referent power, right? You have referent power to the extent that people want to be like you. It means to refer to. When you are a role model for someone, when people look up to you and say, “I wanna be like him or her,” you have charisma. That’s what charisma is. It’s your ability to move people in your direction, because you serve as a role model for them.
So don’t buy into this notion that you should be a certain kind of leader. Of course you can emulate a certain leader or you can admire leaders, and people always tell me, “Well, we have to fake it ’til we make it,” whatever. But you should figure out younger, sooner who you are and what it is about you, each of you that makes people want to follow you.
And there are as many different ways to be leader as there are people in this room. So don’t buy into this kind of notion about charisma being something out there that belongs to other people. That’s the myth that I think makes us think that we aren’t leaders yet.
“Leaders are extroverts. They know everything. They don’t make mistakes.” I don’t know what it means you can’t lead if you aren’t the leader. I don’t really know what that means. Oh, I guess that means if you don’t have the title or the label. “Leadership is based on seniority.”
So here’s what I’m gonna ask you to do. Talk to one or two people around you. And talk and write down another myth or two. I’m gonna give you two minutes. And I will time it on my . . . this is a participation. And think about other leadership myths that are not here. Or you can choose one that you think is interesting, and talk to each other about what you think leadership myths are. I’m gonna give you two minutes. This is a way to . . . this is a trick that teachers use to increase the energy in the classroom, right? So in case you didn’t know, so two minutes. Talk to the person next to you about leadership myths. My idea is that you’ll write another one or two down. But if that isn’t interesting to you, then just talk to the person next to you about leadership, and I’ll come back and ask you if there’s something interesting you’d like to share about what you just thought with regards to leadership myths, and then we’ll continue. So two minutes with one or two people around you, OK? And I’ll put the timer up so you can see. You’re on.
OK, so why don’t we come back together? That was two minutes. It goes quickly, right? So I would like to just ask, does anyone have one that they think we should add? Did anyone hear one or say one? Yes sir.
Student: Yes, I’ve actually got three of them.
Linda E. Ginzel:
OK, let’s start.
Student: The first one is: “Leaders are necessarily enthusiastic.”
Linda E. Ginzel: Is that different from, OK, “leaders are extroverts”? Or I’m just gonna put that here, “enthusiastic,” OK.
Student: “Leaders only associate with other leaders.”
Linda E. Ginzel: OK.
Student: And, “Leaders do not portray weakness.”
Linda E. Ginzel: Ooh, “leaders have all the answers. No portrayal of weakness.” That’s interesting. “Leaders associate with other leaders.” Yes. Oh I’m sorry, both, we have our elder statesman.
Student: “Leaders are good speakers or communicators.”
Linda E. Ginzel: Ah, “leaders are good communicators,” so we . . . communication is one thing. Speaking? Is speaking? Speaking, OK. So OK, I’m gonna put here, I’m just kinda trying to chunk these. “Leaders are good speakers.” Sir?
Student: “Leaders are tall.”
Linda E. Ginzel: Oh, that’s a great one.
OK, so let’s add to that. Let’s add to that. “Leaders are tall, attractive, male.” Oh, here we go. What else? “Blonde”? No. What are leaders, tall attractive?
Student: Deep voices.
Linda E. Ginzel: Huh? Deep voices. That’s interesting, yeah. Tall is also empirical. “Have deep voices.”
Student: Good Hair.
Linda E. Ginzel: Hair? No bald leaders?!
Linda E. Ginzel: “They have great hair.”
Linda E. Ginzel: Yes, that’s interesting. They, “leaders are educated. They have the credentials.” They’re credentialed. They’re of a certain age, aren’t they? “They’re of a certain age, credentials.”
Alright, well you get the idea. So this is exactly the idea. So to the extent that we buy into and really believe some of these what I call myths, then we are waiting to become a leader or we may never actually be able to accomplish that, right? Now you notice the problem here is that we’re talking about leaders as people. This is the only thing that ,the only time we have here where we don’t actually have leaders, but every other time here, we’re talking about leaders as people, as individuals. And I think this is part of the mistake. So I have been on a mission to get people to stop using the label leader and manager and start using the verb to lead and to manage.
But we still need a noun. We need a label. So I’ve been trying to figure out how to solve this problem. And I came up with this idea. So just like we manage meaning with symbols like the green pen, we also manage meaning with the words we use and words we choose. So the words you use are really, really important. What you call yourself and what you call others matters a lot. Are any of you here middle children? Middle? Middle children? Anyone else a middle child? No. But you know what if I say middle children right, maybe you don’t. But what association do we have with middle children? Don’t they have a stereotype associated with them?
Student: Black sheep.
Linda E. Ginzel: Oh, that’s interesting. Yeah. What else about middle kids?
Student: They don’t get any (inaudible).
Linda E. Ginzel: They don’t get any (inaudible).
(Ginzel heartily laughs)
Well, we just proved them wrong.
Right, so there are stereotypes, right? They’re not the oldest. Firstborns always have all these privileges. They’re not the youngest. They have all these privileges. There’s . . . yeah, they’re like, you know, they’re in the middle. That’s why they’re called middle children. So let me tell you something. You don’t have to accept labels that are put on you or use these labels.
My son, Tomer, asked me one day why someone called him the sandwich kid. And I said, well, it’s because you’re the only one in the family who has an older brother and a younger brother. They’re the bread. You’re the center of the sandwich. And that boy who’s probably, I don’t know, four or five years old, to this day, if you call him, if you say, “Oh, you’re the middle kid,” he’ll be like, “Oh, no, I’m the center of my family.”
And his email address is the center . . .
So what we call, what we call ourselves is really important. So think about calling yourself leader versus manager. I’ve been trying to change the label, and the label that I have been using in my classroom is executive. You are an executive. Most of the time you’re managing. Sometimes you make a choice to lead. This is what I’ve been using. And how did I get this? I got this from Peter Drucker. I’m using his definition of executive: “anyone who is responsible for the actions and decisions that contribute to the performance capacity of his or her organization.”
I am an executive. I am. I have no power. I have no title. I mean, like, I’m not an administrator. I’m not a dean. I have no budget, as you know, ’cause I use inexpensive pens. I don’t have people who work for me, but I’m an executive, according to this definition because every day I engage in behaviors and actions that contribute to the performance capacity of Booth.
So I was using this, and in the book I had executive, executive, executive, executive. And, Dick Thaler, was, is amazingly generous and smart and kind, and I asked him for a favor and he read . . . I didn’t ask him to do this, but he read the first four chapters of the book and gave me line-by-line edits. It was an incredibly generous act. He said to me, Linda, you’ve got to lose executive. You’ve gotta to lose executive. He said, if you’re trying to reach the general public, from high-school students through . . . you got to lose executive. And I said, No, no, no, no, no, no. You don’t understand. I’m using it the way Drucker’s using it. That’s what I mean. Right, I’m an executive. Let me . . . I’m an executive. According to this. He said, “Linda, people at Booth would call you a leader. No one’s going to call you an executive. You’ve got to lose executive. And I said, “Look, if there were a better label, I would have found it. ’Cause I’ve been working on this problem for about 15 years. I would have found the label. Honestly, believe me.” He said, “Linda, this is not world hunger. You can solve this problem. By tomorrow morning, give me 20 words that substitute for executive.”
He gives me this assignment. What am I supposed to do? So I have a baseball game. My kids play baseball. I’m asking all the baseball moms, you know, “Here’s how I use it. Here’s what it means.” Here’s . . . What’s a better word?
“Advocate, steward, actor, agent,” arrgh.
Horrible, horrible, horrible! I go home. I’m googling. I’m synonyming, antonyming, trying to find, you know. I have 15 words. Ten of them are so bad I can’t even type them out into the email. And I give him five words. That next morning, he writes back and he says, “Champion. Champion is your word.” So I did a global search and replaced 42 instances of executive for champ . . . champion for executive in the book, and I wasn’t completely bought in. I wasn’t completely bought in, but you know, you got to trust a Nobel laureate when he gives you advice.
And so I did. I trusted, and lately I have been on my hands and knees thanking him because yesterday I did a talk for graduate deans, trying to explain to them how they can use this book with PhD students who definitely do not consider themselves executives. We are using this book with high-school students who come to the University of Chicago to do summer programs. They definitely don’t think of themselves as executives.
But champion? Here’s how champion works. OK, so here’s the story. This is the gist of Choosing Leadership.
Susan, you are a champion. OK, you’re a champion. You’re a champion. Every one of you, you’re champions. Most of the time, you are in the present. Your are managing, in the present, in the here and now. When you manage, you usually use things like legitimate power, the power that comes with your title. You know, you’re a parent. You’re a boss. You’re a teacher, whatever your title gives you legitimate power, that’s what we usually use when we manage. We also, in those roles, with those types of power, have the power to reward and punish. So we can give people positive things. We can take away positive things. We can give people negative things. We can take away negative things. All of those affect people’s behavior. When we are in the present, that is when we develop trust. Trust is the contingency between what you say and what you do, in how you behave, how the reciprocation and how you behave. So that all happens in the present.
Most of the time you are managing. And don’t let anyone ever tell you that that is less important than leading. Because management is noble. When we manage, we allow . . . we help people to pay their mortgage, to send their children to school. To live their dreams. Managing is noble. And most of the time, you as a champion, you are managing. Whether it’s in your home, at work, in your community, in your classroom, you’re getting things done. You’re making the budget. You’re meeting the (inaudible) expectations, making sure you have diapers at home. When we are managing, we can use a map because the terrain is charted. We know, we know. It’s here. We can see it. We are in the here and now.
Most of the time champions manage. Once in a while, you make a choice, a decision. And it’s actually a risky decision. You make a decision to champion a view of, a different view for tomorrow. Now, the reason it’s risky is ’cause you don’t know if you’re right, because you have never been to the future. The future does not exist. You make this risky choice to leave the stability of the present that you can see and that you know to go to a place that doesn’t exist yet. This is when you make the choice to lead.
And you can’t make that choice too often. Because you would wear yourself and other people out. You have to believe so much in your vision of that better tomorrow that you are willing to go to this place that doesn’t exist. And when you’re managing, you really need people’s heads. They just need to know what to do. When you are leading, you need their heart ’cause they have to believe in your vision of tomorrow and they have to believe so much that they’re willing to follow you over that cliff. That you could be taking them over a cliff. So you need their head and their heart. You need their commitment. You need to believe in that vision of a better tomorrow. Because you’ve never been there. There’s no map. The terrain is uncharted. The best you can do is have a sense of direction.
So my symbol for leading is a compass. Just a sense of direction ’cause you don’t know exactly how to get there, where to go. So that’s when you . . . you are not a leader now and you were a manager then. It’s not that some people are leaders and other people are managers. You’re a champion. You’re either leading or you’re managing. Now what happens, you create this future and now that’s your present, right? So however long or back and forth. So this is a process that champions engage in. And this is how I see leadership.
I actually have read so much horrible stuff on leadership that I . . . this is why I couldn’t sleep at night. “How am I gonna teach my students this? How am I gonna do this?” I have come to understand that you have to develop your own point of view. You don’t have to buy my point of view. This is my point of view. This is my best shot at it at this current time. What do you think leadership is? What is your definition of leadership?
I put Followership here ’cause I have no idea what to do with followership. I really, I really don’t know. There are sections, pages in the book where I give you . . . this is Kelly’s model of followership. He says— and there are only like, there are like thousands of theories on leadership. You can count theories on followership on one hand. They all have something to do with behavior and thought, right? This one is active engagement and critical thinking. And he says that you want followers who are high on both: actively engaged and thinking critically. I think that can be useful. You can think about when is it when you . . . what situations make you more engaged and thinking critically and how can you create stronger environments that help move everyone in a more productive direction. So I still don’t know what exactly to do with followership. But I tried to kind of put it all on one image here.
So this is kind of the central image of how I think about leadership. And I wanted to tell you that in order to have you think about your definition of leadership, I’m gonna have you spend two minutes writing down your zero drafts. So start thinking about it. I believe that we have much more choice than we tend to recognize. So this is called a reversible figure, and the reason it’s reversible is because usually we see black words on a white page. So black is figure. White is background. They’ve reversed that in this image. The white is figure: the vase; the black is background: the two faces in profile. Which is why this image is unstable. It shifts back and forth. You can see both, right? Everyone see the vase in the middle? Everyone see the two faces? Now switch? You got it. You’re making a choice of what you see. And this is black and white on paper.
What if now you started talking about choices when it comes to self and others, motives, intentions, everything that’s hidden from view. You have many more choices than you think. The question is: When do you choose to lead? How do you make the choice to lead? What is it about your earliest leadership experience that tells you something about what your definition of leadership is? Your definition is as legitimate as anyone else’s. Actually, it’s more because you’re acting on the definition, whether you realize it or not. The idea in Choosing Leadership is that leadership can be with a lowercase l or a capital L. Most of us think leadership has to be big transformational Leadership. And that’s one of the reasons why we have all these myths also around leadership.
But actually, lowercase leadership are small changes you could make in a day, in a week, in a month to create a better future. So again, the question is: When do you decide?
So we’re gonna move to the last activity. And let me tell you another Drucker label: zero draft. I’m going to ask you to write down a zero draft. Now some of you may have thought a lot about leadership, what’s your definition, and you’ve already written it down. Some of you may not have ever even thought to write it down. We’re all in different places. Wherever you are today, you’re gonna write a zero draft in your book. You can even put today’s, a little date there to remind you when you come back to it that this is today’s date.
Let me show you where it is in the book, where we’re going to go. It’s page 20. Your zero-draft definition of leadership. But let me first tell you what is a zero draft. This is another label, like center’s child or you know, middle versus center. Draft versus zero draft.
So I work with . . . I work with various, you know, the undergrads at the University of Chicago are like smarter than graduate students at most other institutions, really. They’re incredibly smart. I have the privilege of working with undergrads as research assistants. They are really, really, really good. So I had this situation that used to happen to me that I would chat with them and I’d say, you know, here’s what I’m thinking. I don’t really know exactly what I want, but I kinda want, I wanna do this. And here’s, so can you, can you look into this? Can you maybe like, you know, come back with something next week and kind of move us forward on these. You know, just drafts, put a draft together.
They come back and they give me a thesis because they don’t want to give me something that they’re not, that isn’t their best work. They wanna help me. They wanna show me that they, they are good students, that they’re, that they’re good employees, that they are smart and capable, and they wanna do the best job they can. And then I look at what they send me and I’m like, “My God! I’m so sorry you spent all that time and did all that effort. It wasn’t exactly what I meant. I was kind of thinking about kind of this way a little more. Let’s just move a little bit in that direction for next time, OK?” And then everyone feels horrible. Everyone feels horrible. You know what I started saying? “Just give me a zero draft. Just a zero draft, OK. Just like jello on the wall. Let’s just, something to get us started.”
Now they still bring me back something of beauty. But it’s not a thesis because I have just given them permission to put jello on a wall. And they are not going to put jello on a wall ’cause that’s just not what they do. But this has saved this, this little change in my vocabulary has changed . . . has made me much more productive, and my students, my research assistants also feel more, more like they’re succeeding. It’s a simple, small change.
So wherever you are in your journey in defining leadership, I’m gonna ask you to write your zero draft. So I’m gonna give you two minutes. You have to write something down. It doesn’t have to be a lovely sentence It doesn’t have to be . . .you don’t have to show it to anybody. It is simply yours. It is on page 20. I want you . . . It’s the second activity in the book, I think, after writing your earliest leadership experience.
What is today’s date? May 4. Oh right. “May the Fourth Be with You.” I have to say something about that. Two minutes. Two minutes. Two minutes.
OK, that’s your . . . that’s your two minutes. Let me get back and shut this off so it doesn’t ring again in two more minutes. Alright, so we have five minutes left. And I wanna try to go back to where we started. So you have your zero draft. We thought about myths. You’re gonna do your homework on what’s your earliest leadership assignment. In the . . . at least that’s my fantasy of what you’re gonna do. What you’re gonna do, I don’t know.
My fantasies are very low level, so I’m hoping that you will, will oblige. But the idea is that there’s a zero-draft definition, which you just did. Then you have a little bit . . . you do some things, and then there’s a first draft. And then at the end of the book, for this time, whenever is the first time you go through the book, is your current definition. So that’s on page 129.
And my current definition is: “Behavioral choices we make in order to create a better future.” That’s my current definition. Now you see there’s nothing there about followers. There’s nothing there about any of that other stuff because this is the gist of my definition.
I would encourage you to continue to evolve and think about the implications of your definition and what’s kind of the essence of what you think leadership is.
So let me finish by reading this last paragraph in the book. We opened with John F. Kennedy’s quote, “Leadership and learning are indispensable to each other.” Well, Kennedy never had the opportunity to deliver these words. They were written as part of the speech he planned to give on the day of his assassination, which is why many of us have not heard this quote. I should have said “we.” We have the opportunity to live these words by making learning indispensable to leadership in our lives. So as long as we are alive, we have an opportunity to make better decisions, to build a better future, to make better choices. My hope is that Choosing Leadership this small . . .
It even did it again! I even shut it off, right? Cancel, OK, OK, OK. That’s two minutes, OK.
My . . . see it was so beautiful, wasn’t it? That was like . . . I was almost there with the close.
My hope is that this little gift to you will serve you well in your efforts, in your journey and that you’ll be able to create a better future by building your courage, your capacity, and your wisdom. And you know, again, no matter how old you are, there’s a future self that is, is possible.
So we have two minutes left, and I just have to show you something that is, that reminded me when I asked you. I completely forgot until I knew what day it is. So in my classroom, I always do use Star Wars analogies. I always talk about there’s every decision you make there’s a force, and each force has a light side and a dark side. And then what we can do is make decisions that have more light side and less dark side. And today happens to be the fourth of May. And so there’s something called “May the fourth be with you” for Star Wars fans. And, may the fourth be with you. And my understanding is that there are two videos that are out live now on Twitter, from Booth, Booth social media for “May the Fourth Be with You.” And I happen to have one that was sent to me, you know, as a preview, and it’s live on Twitter, but I don’t do Twitter. I’m sorry. You can do Twitter, but let me show you. I will show you this, and then you can go to Twitter. Let’s see if we can do it on here.
Linda E. Ginzel: “The green pen, it’s a symbol. The idea is that I wanna help people, my students to become their own coach. You might be wondering why green. So Pablo Neruda, he said that he himself wrote his poetry in green ink ’cause green is the color of esperanza. It means hope. But what some people don’t know is this.
(students laugh and clap)
Thank you so much. Thank you so much for being with me today. I will stay after. It’s very . . . Thank you, thank you. Thank you for being here. Please spread the . . . please join the mission to help people to take more responsibility for their growth, for their development. I am so thrilled that we had Vesna from one year and my friends here from 45 years.
Linda E. Ginzel: Forty. Forty. Oh, 45 is five more years from now. Alright. One and 45, that’s amazing. Thank you for building community and creating collective wisdom for all of these years and for the years to come.
Decision-Making with a Dearth of Data
Watch Decision-Making with a Dearth of Data with Waverly Deutsch, adjunct professor of entrepreneurship.
Waverly Deutsch: In classic Booth tradition, we will go ahead and get started on time. I’m Waverly Deutsch. I will be your guide for this session today, and what’s really exciting to me about doing the Reconnect is I get to meet some of you who were here before entrepreneurship was super big at the University of Chicago’s business school. It really didn’t take off until the very late ’90s, when we launched our New Venture Challenge.
But for those of you who follow your alma matter with pride, entrepreneurship is our No. 1 concentration now, and the New Venture Challenge process, which launches companies, and has launched over 200 existing companies, raised nearly a billion dollars in capital and had about $13 billion–worth of exits, is now the No. 1 ranked incubator/accelerator program, university-based incubator/accelerator program in the world. It’s also right up there in the top five with folks like Y Combinator and Techstars.
So you should be very proud of what your alma mater is doing in entrepreneurship, and I’m really happy to have you here with me today to taste a little bit about that.
So as you can imagine, every year we get a new group of students coming in, and one of their first emails to me—those who are interested in entrepreneurship—is, “Professor Deutsch, we’ve heard you’re the person to talk to about entrepreneurship. Can I just get 20 minutes of time on your calendar to talk about my idea?”
And I say “No, I don’t wanna talk to you about your idea. I have no idea whether your idea is a good idea or not.”
What they really want is for, you know, to come in and tell me, “I wanna create an app to help people get together with their friends on a Friday night.”
I’m serious, by the way. This app comes, probably every other New Venture Challenge, this is proposed.
Apparently, millennials have a lot of friends online, but they don’t know how to get together with them in the real world.
And apparently all of the tools that you might think one would normally use—like telephones, text messages, email, Facebook—apparently none of those work. What I’ve actually learned from talking to these folks over the years, trying to understand why they think this app is necessary, is that millennials are uniquely worried about rejection. So they don’t wanna be the one who throws out the idea. “Hey, let’s go see UC play basketball on Friday night,” because people are like, “Ugh, UC is a terrible team! I don’t wanna do that.” Or, “Maybe. Let’s see if something better comes along.” So they wanna crowdsource the idea so they don’t have to face the rejection.
Nobody’s ever made this app work, just so you know. Right?
But I’m not a millennial. I’m not your target market. I don’t know. How do you know if you have a good idea?
Well, a couple of years back, when the Polsky Center’s mission was changed from just entrepreneurship to entrepreneurship and innovation, we realized that being a business school at a university without a design school or an engineering school, at the time, we weren’t necessarily the best people to claim we understood the process of innovation. A little humility there by us. So we partnered up with the Illinois Institute of Technology’s Institute of Design. IIT’s, Illinois Tech, right? IIT’s design group, which is one of the top applied design academic institutions in the world. I mean, they do work for Fortune 1,000 clients, startups, everything. Really, really good school, and they shared with us what they call their breakthrough innovation model for evaluating ideas as they go through the design process.
So I would present this to my students. So it starts with—how do you know if you have a good business idea—it starts with: Do the users want it? So how would you define desirability from a user perspective? If you’re a customer of something, what makes it desirable to you? It solves an issue for you. It solves some kind of a problem, right? And we can’t get too obsessed with the idea of solving a problem.
We had a coach for the New Venture Challenge. He was the fellow who started Techstars in Chicago, a guy named Troy Henikoff. For several years, he was a coach for the New Venture Challenge, and I would often witness him saying to students, “What is the problem? Are you the cure for cancer, or are you a vitamin? Are you the cure for cancer, or are you a vitamin?”
I’d say, “Troy, settle down.”
Obviously, if what their business addresses is a problem as painful and as concrete and as recognized and as quantifiable as cancer, and they have a solution for it, that’s gonna be an easy business to bring to market. But there aren’t very many opportunities out there like that. And oh, by the way, thousands of companies make millions and millions of dollars selling vitamins. Right? So it’s not the end of the world not to be the cure for cancer as an entrepreneur. In fact, there are very few of those.
In developed nations, we spend way more money on our wants than we do on our needs. So in addition to solving a problem, maybe it creates an opportunity for our customer, an opportunity to express themselves, an opportunity to experience, an opportunity to grow. It doesn’t have to necessarily be a problem that you’re identifying, but you have to really understand: Why does my customer care about this? What is it doing for them?
But what else makes something desirable? You guys did walk into a Booth classroom. You knew it was class participation, right?
What else makes you want something?
Student: If other people maybe do it.
Waverly Deutsch: So other people use it. So there’s testimonials. There’s a reputation. What else?
Student: I suppose it satisfies a need or want.
Waverly Deutsch: Right. So that was the whole problem/opportunity space, yep.
Student: It does something faster. It can do more with less time.
Waverly Deutsch: So you as the customer can feel some kind of a value proposition out of it.
One of the cases I teach is on the design of a technology in the late ’90s, early 2000s that took scratches out of CDs, and when they did their market research, they learned, I mean, they intercepted people coming out of CD stores to find out what they would need in a device that took scratches off of CDs: (1) it works, (2) it’s easy to use, and (3) it’s not too expensive. Now, obviously, this was not rocket science. Never in the history of man has market research said, “This should be really complicated to use, and it should be awfully expensive.”
But one of the hardest things for entrepreneurs to do is change human behavior. The payoff has to be enormous for us to actually change our habits, as any of you who have ever tried to lose weight know.
Right? It’s really hard to change your habits. So does your product fit into the user’s workflow, into their life easily? Is it in a price range where they feel like they’ve gotten their money’s worth in a reasonable amount of time? All of these are the kinds of things that make a new product or service on the market desirable to the users.
So then we marry that with feasibility, and that goes back to the “Does it work,” right? So when we’re creating something really new, particularly something innovative, there’s a moment in time where we don’t even know if we can do this.
I’m gonna pick on an audience member. We have one of my favorite Booth alumni here, Phil.
Phil started a company when he was at Booth called ProOnGo, and his vision was that expense reporting was a pain in the ass. Why do we have to take all those receipts, take the data off them, put them in an Excel spreadsheet, or enter them into a . . .? Why can’t we just take a picture of them and let character recognition and programming fill our expense reports for us, right? Makes a lot of sense. One of the very first things Phil had to do was prove that he could develop a technology like that, and he did. And one of the first things he learned was character recognition wasn’t going to be the answer, especially not back in, what was it, 200-?
Phil Leslie: 2008.
Waverly Deutsch: 2008, right? So he had to find another way to solve that problem. So technical feasibility—can you actually deliver the value proposition that you’re proposing—is really important. And technical feasibility is sort of the R, research, of R&D development, right? So the R is: Is this even scientifically possible? Then the D is: Can we do it in a way that we can bring it to market that is not cost prohibitive, it’s repeatable and scalable, and all of those kinds of good things?
Feasibility is not the same for every entrepreneur. So there’s a wonderful story that I’ve been told by someone who was actually in the room at the day is a true story of Fred Smith proposing FedEx to his entrepreneurship professor or his business professor—it probably wasn’t entrepreneurship in those days—to his business professor his business idea. And the professor said to him, “Fred, you’ve violated two rules of entrepreneurship, and so I’m giving you a D on this paper. The first rule is: you can’t start a company where your primary competition is funded by the US government. To which I can imagine a young Fred thinking, “Come on, the day the US Postal Service delivers something overnight is the day pigs fly.”
And so far, I think he’s been proved right, right? I’m just imagining that. I wasn’t in Fred’s head at the time.
But the second violation of the rule of entrepreneurship, according to this professor, was around feasibility. You can’t start a business that has such heavy capital requirements that you need planes and trucks in every city in the US, every major city in the US on day one, just to start. To which Fred did say, “Aha, there you’re wrong. I happen to be the heir to a substantial part of my family’s trust, and I’m gonna leverage every dime of my trust in planes and trucks so that I can be in every city the day FedEx starts.”
So feasibility for Fred Smith is different from feasibility for maybe you or me, unless you happen to be heir to a multimillion-dollar trust, in which case, it would be very feasible for you. So feasibility is not just about whether the product is possible. It’s also about whether you as an entrepreneur have the resources, the wherewithal, the teams, the networks to actually make it happen.
So technical criteria around feasibility for the Institute of Design is more about: Can this product work, can it be made, and can it be produced in a repeatable manner? But for an entrepreneur, it’s also about the fact that you’re starting small with few resources.
So then the third thing they said is, Well, OK, if you check both of those boxes, is it viable from a business perspective? Now, when the Institute of Design is being hired by Steelcase to reimagine hospital furniture—and this, in fact, was one of their projects—Steelcase is gonna give them a lot of the business viability criteria. They’re gonna say, “It has to be manufactured with our set of approved materials and work within our process. It has to have certain gross margins on the product, all of those kinds of good things. But as an entrepreneur, what makes a business viable?
Waverly Deutsch: That it can be profitable, right? So you could sell it for a price that more than covers its costs, so that you can build a business, so that you can have cash flow. What else makes it viable?
Waverly Deutsch: Distribution. Can you get it to the customer? Do you have the right channels? What else?
Waverly Deutsch: Is it scalable? Is it in a big enough market? Can you grow it to a size that makes sense? Is it in a highly competitive market? So there are a lot of market dynamics that come into business liability.
So using ID’s breakthrough innovation model, you go through this process of evaluating these three things, and if you feel like you’ve checked the box, then you have a good business idea. You should go out and test it. And my students look at me like I’ve grown three heads.
“Oh, come on, Professor Deutsch. This is Booth. We have rigor. We have data. You’re giving us some squishy Venn diagram and some random overlaps, and what we need at Booth is we need a rubric. We need data.”
Alright, you want a rubric? I’ll give you a rubric. There are tons of rubrics out there. Here’s one that I sort of adapted from one of the top entrepreneurship textbooks. It’s an opportunity-assessment scorecard, and it essentially does exactly the same thing we just did. So needs, right? What’s the problem? What are you solving? Does your customer recognize it? Is it a “must have” or a “nice to have”? Are your customers skeptical? Are they brand loyal? Are they open to innovation? Are they reachable? How long will it take them to feel like they’ve gotten their pay back on it?
We can talk about the feasibility, all the things we talk about: capital requirements, the technology risk, your competencies, all of those kinds of good things. We can go into all of the business criteria. What’s the market? Is it large and growing? Is there an 800-pound gorilla competitor that could take you out? Is the regulatory environment in the market favorable for this?
We can go through the competition. Are there industry barriers to entry? Do you need to have IP, or would you be in violation of someone else’s IP? Can you build a sustainable differentiation?
Economics. What are the gross margins in this business? Can you access the capital you need? Can you create the kind of return on investment that you would need to create to bring in either a bank with lending or an investor who needs to get a return on their investment?
Are you the right people to do it? This is part of business execution. Do you have the skills you need? Do you have the networks you need? Do you understand what the risks are, and do you have a plan to overcome those risks? To which I think it’s really important to add something that the Institute of Design doesn’t think about, and that is: What is your personal motivation? Why are you going into entrepreneurship? Are you going into entrepreneurship for risk and reward? Well, in that case, you really have to look at your opportunity costs. How devoted are you to this? If your passion level is low, this is way too hard a process. Starting and building a business is way too difficult if you’re not really in love with the business or if you don’t really have some personal reason you wanna get into it.
What’s your ultimate goal with this business? Are you trying to build a business that you can hand down to your children, that’s gonna employ the people in your community? That’s gonna dictate how you finance the business. You can’t bring in venture capital if you wanna control the business ad infinitum and have it in a community without an exit.
So what are you trying to accomplish? Are you just trying to see if your innovation actually creates the value you think? You wanna just see: Does this work in the market? And then you’d be perfectly happy to send it off to somebody else? That’s really, really different motivation.
So there you go, you have a rubric now. You can score all of these things. What’s the right answer? Come on, Boothies, data! Do I need this to be 75 or greater? 90 or greater? Does a really good score in one area outweigh a score in the other area? How confident do I feel about these answers before I’ve even started? What research have I done to validate the scores that I gave it? Who knows!
Who knows. So what’s the point of doing all of this homework? What’s the point of doing all of this research? Why do I tell you whether it’s the innovation breakthrough, breakthrough innovation methodology by IIT’s ID, Institute of Design, or it’s this rubric from an entrepreneurship textbook? If I don’t know what the right score is, why am I telling you you should do this?
Student: It forces you to think through all the issues.
Waverly Deutsch: So it forces you to do a disciplined approach to analyzing your idea and your opportunity. What else?
Student: It gives you a framework of where you are. (inaudible)
Waverly Deutsch: So it can give you a framework to figure out where your weaknesses might be, right? Do you need to get somebody on your team to supplement your management team, to improve that score? So it might put you in a better position to start.
Student: It organizes your original assumptions and hypotheses that allows you then to go out and iterate as you learn more.
Waverly Deutsch: Right, it forces you to articulate what you’re assuming about your business and really figure out, “Do I know that, or do I just believe that?”
Student: You can compare ideas.
Waverly Deutsch: You could compare different opportunities. Lots of entrepreneurs have multiple ideas, and it’s now the time that they’ve just had it with being employed. They’re gonna go out. They’re gonna start their own business, but they’ve been thinking about these three ideas.
Student: It’s almost marketing. You’ve got basically a story to tell.
Waverly Deutsch: Exactly. So one of the things we have to do as entrepreneurs is convince other stakeholders to join us in this very risky endeavor of starting this new company. We gotta answer some of their questions with some decent answers, right? So this gives us the ability to at least tell them what we think is going to happen or what we think is the case, and why we think it. Because what we’re looking for here is confidence, not certainty. Entrepreneurs don’t get to have certainty. What might work for someone might not work for someone else. What might work at one time in the market might not work at a different time in the market, right? You will not really know until you try.
And that’s one of the hardest things for entrepreneurs to get past. They want to know: yes, this is a good business idea, and if I go out and do it, it will succeed. And you cannot know that until you get out there and try, which is why all the new entrepreneurship thinking and methodology is on: get something into the hands of your customers as quickly as you can. So for those you who know about Agile and know about The Lean Startup, right, and know about customer discovery, and minimum viable products, and all that stuff, it’s all about getting out of your head, getting out of the conference room with the whiteboard, and getting something into the hands of your customer to figure out if you can do it, and if they want it, and go from there.
But you’ve gotta have confidence that this is something you wanna move forward with. You’ve gotta convince yourself that. You’ve gotta convince other stakeholders of that.
So this question of how do entrepreneurs make decisions when there is a complete lack of really good data about the market, about your product, about how your customer values your product, right, ’cause it doesn’t exist, how do really, really successful entrepreneurs make these decisions? And an academic at the University of West Virginia’s Darden School, she started to think about these problems, and she said, “What can we learn from the way really, really successful entrepreneurs think, how they make their decisions, how they choose to take risk, how they identify opportunities?” So she identified about 100 entrepreneurs who had multiple companies, at least one IPO, hundreds of millions of dollars in sales, and she wrote to them, saying, “I wanna do some research on how really, really successful entrepreneurs solve problems and build businesses and think.” And if you sent out 100 requests for participation in your research, what kind of a response rate do you expect to get?
Student: Two percent.
Waverly Deutsch: One percent, 5 percent?
Waverly Deutsch: At most? Seventy-five of them said, “Yeah, we’ll help you out.” So there’s one thing we know about entrepreneurs. They love telling their story.
And they like to think that their experience can help other entrepreneurs. So they’ll play.
Student: So in the entrepreneurs looking for the data, isn’t the data coming from their customers?
Waverly Deutsch: Well, let’s talks about that. So the entrepreneurs don’t have customers when they start. You’re thinking about an idea, “Should I launch this business?” That’s the problem. You don’t have customers. You don’t have data. You’re looking at all of those things that we just talked about because you don’t have anything of your own yet to figure out: Is this gonna work?
Alright, so she went to these expert entrepreneurs. She decided to use about 60 of them and keep 15 of them for follow-on research, and she said, “I need you to clear two hours on your calendar.” OK, alright, these are very, very senior guys running big companies. She’d walk into the room, and they’d say, “Lemme tell you about how I started my first business,” ’cause that’s what they’re used to people asking ‘em about.
She said, “No, no, no, no, no. I wanna hear about that, but first, I want you to solve this 15-page problem set.”
“And I want you to do it out loud, because what I’m gonna do is I’m gonna tape record how you work through these problems and come up with your answers, and using tagging and language analysis and deconstruction and all that stuff, I’m gonna try to figure out the logic tools that you’re using to make your decisions.”
So these guys worked through this 15-page problem set out loud, and then she and her graduate students parsed every bit of that tape to figure out the way these guys were solving problems, what logic tools they were using.
So let’s take an example of a simple problem that she pointed out, that she gave them: OK, someone comes to you and they say, “I’ve invented this thing right here, this thing. You know what it does? It puts a red dot wherever you want it.”
You can’t see the red dot. Why can’t you see the red dot? There it is. You can see the red dot. You can see the red dot, right? You can see the red dot.
“So it puts the red dot wherever you want. So I’ve invented this thing. How should I take it to market?” Now, your friend comes to you and asks you that question, what are you gonna tell ‘em?
Student: Find out whether it can be used.
Waverly Deutsch: Find out if it can be used. Find out who can use it. Do some market research. Figure out if there’s a market there. Before you go crazy, figure out who wants it, who needs it, will they pay you for it? Do all your market research. And that’s the first instinct of most of the entrepreneurs that you would talk to, because we’ve been taught a certain set of logic that says, “We can predict what’s going to happen if we have the right information.” So that’s causal logic. If we know that A leads to B leads to C, and we wanna try something that looks like C, let’s go out and look for A and B.
And you might remember when you were young being taught inductive and deductive reasoning and set theory and all that kind of stuff, right? So deductive reasoning: if A leads to B and B leads to C, if we see A, we can be certain we’re gonna get C. Or if we see C, we know that B happened. So it’s basically, if Norman is a cat, and all cats are mammals, what can we definitively say about Norman?
Student: He’s a mammal.
Waverly Deutsch: He’s a mammal, right? You guys remember learning these tools, right? Inductive reasoning is: if every time it’s ever happened in the past, it’s been this way, the next time it happens, it will be that way again. So that’s just . . . we have a huge dataset that tells us that every time this has happened in the past, this has been the outcome. This is the way early philosophers figured out that the sun would always rise in the east, because every known recorded sunrise had always happened in the east. So they said, “Well, that means that every sunrise will always happen in the east.” Of course, then we got astronomy, and we found out why that was true.
This kind of reasoning can cause problems if your dataset is incomplete. So in the 19th century, part of the definition of what it meant to be a swan was you had to be white. Researchers just hadn’t encountered genetic swans that happened to be black. So if you don’t have the right dataset, it can lead you the wrong way. So the bigger the dataset, the better your inductive reasoning. Does that make sense to everybody?
OK, so I’m gonna go out and I’m gonna do my research and I’m gonna discover that I think that there are two places where this thing that makes a red dot wherever you want it would be valuable. One is for business executives giving presentations who need to highlight what they’re talking about. So right now, we’re talking about, if I can find my dot. Come on, dot. There you are! We’re talking about causal logic. There it is, OK. The other market is for people with cats, as a cat toy.
Alright, and there’s a lot of cat toys out there so I’m gonna go after my business market first, ’cause my research says that’s a really big pain point.
“OK, would you like a red dot pointer?”
“No thank you.”
“Would you like a red dot pointer?”
“No thank you.”
“Would you like a red dot pointer?”
“No thank you.”
Maybe it’s because I’m only talking to men.
“Would you like a red dot pointer?”
“No thank you.”
So what should I do now? I’ve predicted that this market will want red dot pointers. I’ve looked at all my data. What should I do now?
Student: Is it also important to rephrase the question then? Maybe you ask it differently?
Waverly Deutsch: Right, maybe I’m not explaining it correctly. Maybe the market just doesn’t know yet that it needs it, and I have to do some education, right? That’s one possibility. So what you’re saying is, the power of prediction is really strong, but your job is to make it happen. And this, she defined as visionary logic. So it’s a combination of a belief in the power of prediction and a belief in the power of an entrepreneur or an entity to control the market or create
the market. Make it happen. Does that make sense?
My favorite example of this is Bill Gates and Microsoft in the ’80s. So Bill Gates is looking at all the research about computers. We’ve moved from mainframes to midrange. We’ve introduced the PC. Computers are getting smaller. They’re getting less expensive. They’re getting more powerful. He’s looking at all the research about Moore’s law. He’s looking at all the history of what’s going on, and he decides that the next step for the computer is into the home, and he makes it Microsoft’s mandate, a PC in every home. That’s the mission of Microsoft. There is going to be a personal computer in every home, and we are gonna be the company that makes that happen. That’s visionary logic, right? So if he goes out to the marketplace at that time, and he says to people in homes, “Do you want a computer?”
“What the heck would I do with a computer?”
So he keeps working on the product. He keeps working on the software. He talks to the person who is the accountant who says, “When you go home and you have to continue working, wouldn’t you like your Lotus 1-2-3 at home?”
You have to imagine that when you would talk to people in homes, “Why would I ever want one of these? All it does is has a black screen with a little C: flashlight”—unlike my full-time students, you guys are old enough to actually know what the hell I’m talking about, right?
Even to find out what was on that computer, you had to type “DIR.” You’d get a list of programs, and those program names could only be, remember, eight characters long. You remember, right? So you had to figure out what those eight characters actually meant. Everybody was like, “Bill, nobody is gonna want a computer in their home.”
But he was like, “We are gonna continue to make it more valuable, to make it easier to use. We’re gonna continue that . . . we’re the software company. We’re gonna add software that businesspeople wanna take home, and once we have it at home, people are gonna wanna use it for other things. It’s going to happen, and Microsoft is gonna be the company that makes it happen.”
Visionary logic. Your job is to persist, to teach the market.
So I’m going along, I’m explaining the value of pointing at things on your presentations, right, and I’m going along, and I run into this customer. This customer says, “Well, I liked that red pointy thing, but what I really need is something that actually moves my presentation from one slide to the next.” Now what should I do? So I’ve come across a customer who says, “I kinda like that red pointy thing, but this is what I really need.” What should I do?
Student: Adapt it to that.
Waverly Deutsch: Adapt it to that need, right? So I listen to my customer. I give me customer what he wants. That’s called adaptive logic, right? You listen to the market, you figure out what the market wants, you give them what they want.
Now, adaptive logic is much less reliant on prediction. Your job isn’t to predict what the market will want. Your job is to go out and figure out from the market what they want. And you don’t control it; the market controls it. The market controls its need, the market tells you its need, and your job is to implement.
So I’ll give you an example of that. I was working with an entrepreneur who had created a company to build text-messaging apps in the mid-2000s, before the iPhone, right as the iPhone is coming out. So it was like, 2007, right? iPhone comes out in 2007. So it’s right about 2007, and he’s going to companies, and he’s saying, “I have the most robust, inexpensive SMS text networking system, and what I can do is I can build automated alerts for your customers so that you can push out information to them.” And he’s going to places like hospitals so that people can text in and say, “What’s the ER wait time,” or he’s going to things like school districts, and he’s saying, “When you need to notify all of the families of a snow day, you can push it right out to their phones,” and he’s going to corporations, and he’s saying, “When you have a big promotion to offer on your product or an upgrade, you can tell all your customers. They can actually text you in questions. You can deal with those kind . . .”
And the companies are going, his customers are going, “Yeah, that would be useful. Yeah, that’s kind of interesting.“But what about this app thing I’m hearing all about?”
’Cause remember, we’ve got Blackberries out there. We’ve got PalmPilots out there. Now we’ve got the iPhone out there, and people are starting to talk about apps.
“What’s this app thing I’m hearing about?”
“Well, that’s a really cool, interesting new technology that will definitely be relevant as the iPhone rolls out, but right now, the iPhone is 17 percent market penetration, and 87 percent of your customers can actually get texts. So if you wanna reach all of your customers, you really wanna stick with texts.”
“OK, Ok, but these apps seem really, really sexy. They seem like they would be really, really useful, like, they could put us out in the lead.”
“Yeah, OK, OK, but only 17 percent of your customers, if that, can use these apps.”
“OK, OK, OK.”
So he’s doing these $10,000, $15,000 builds, you know, creating text messaging apps, and he’s talking to one of his customers about the next app he’s gonna create for them, the next text-messaging application he’s gonna create for them, and they say, “Hey, you’re a smart guy. You’re in this space, and I know you don’t do apps. So could you do me a favor? We just got a $250,000 proposal from a development shop to do an app for us. Could you review it and make sure they’re not cheating us?”
And the entrepreneur said, “Did I say I didn’t do apps?”
“Let me take a look at that. I can bid on that.”
At which point, he in fact called the gentleman in this room, right here and now, Phil of ProOnGo, and he said, “Phil, you guys aren’t making any money right now. You wanna do some development work?”
And Phil said, “Hell yeah!”
And they started making apps, even though apps did not have good payback for customers at that time. That’s adaptive logic. Give ’em what they want, even if you think they’re idiots.
So what she found was a fourth kind of way of thinking, a way of thinking that had nothing to do with trying to predict the market and everything to do with controlling the market, and she called that effectual logic. The main aspect of effectual logic is that you’re going to create the opportunity. You’re not gonna discover or identify the opportunity. You’re gonna make it happen. You’re gonna create it. And it manifested when the entrepreneur would say about that red pointy thing, they would say to her, “I think a lot of people would try to go out and do market research, but if it was really innovative, the market wouldn’t even know it wanted it. So I would find one customer to work with, and what we would do together is we’d develop a solution on that technology that was really valuable for that customer, and then that customer would help me bring in more customers, and I would bring in other stakeholders that could create value around that, and together, we’d just make that market happen.”
So it started with sales, not market research. It started with finding one other person, one other person, that agreed that that thing had value, and working with that other person to build a network that would make that value come to market. Does that make sense?
Alright, so she does all this parsing. She finds all these four different ways of thinking about these entrepreneurial problems, and everybody’s using, well, most of the people are using a mix of all of these ways of thinking. And she discovers that her expert entrepreneurs really relied very heavily on this idea of creating the market. The terms they use were create, negotiate, make it happen. In fact, two-thirds of them used it 75 percent of the time. She identified two who used 100 percent effectual logic. So she thought, “Hmm, I wonder if entrepreneurs in general and even businesspeople just naturally default to, ‘I can figure out how to make this happen,’” and being an academic, she wanted to have a control group, and being at a business school, she had a great control group, a bunch of people who had some experience in business, many of whom wanted to be entrepreneurs. She had her students. So she gave them the same test, and she did the same analysis, and she discovered that MBA students, 78 percent of them use 0 percent effectual logic.
They always talked about market research, trying to predict the market, crafting the right message, educating the market. Or just giving the market what it wanted, figuring out what the market wanted and getting that out there. They relied on everything but effectual logic. Now, why do you think that is?
Student: We’re students of process.
Waverly Deutsch: What?
Student: We are students of process.
Waverly Deutsch: We teach students process, right?
Student: There are very large entities that have a legacy application to protect.
Waverly Deutsch: Right. So these guys come out of college. They go. They get their first job. Now imagine one of your brand-new young direct reports comes up to you and says, “This company should really do X, Y, Z, ’cause I know that customer would love it, and I think we should just go for it.”
What would you say to them? “OK, what research have you done? That customer’s a data point of one. Have you gone out and looked at the market? Who else is doing it? Why could we do it better than anybody else? What would it cost us to do that? Would it cannibalize any of our current positions?” You’d tamp that right down. You’d kills it, right? And in business school, a lot of what we teach is how do you back up your decision-making with data. Big data marketing, big data analysis, big data, big data, get data.
But an entrepreneur is in a place where there isn’t a lot of data. So not only do young entrepreneurs learn not to rely on their ability to create the market, but so do most other people in business. So she went out and she did her research across the board in business, and she puts sort of different employees, different firms on this matrix between our causal logic, our analytical, and our test, Bayesian-analysis type of logic, and this control, shaping, creating effectual logic. Young entrepreneurs try to use an almost even blend of the two, right, and they have to rely on some effectual logic ’cause there isn’t enough data.
But by the time you become a corporate manager, you pretty much never wanna make a decision based on effectual logic. Now, that’s not true if you’re at an entrepreneurial firm that grew up really quickly in this age of growth companies and the power of entrepreneur and innovation, and we try to maintain some of that. Let’s just go for it and give it a try and see what happens. But, corporate managers, yeah, not so much.
Why do you think small-business managers use so much more effectual logic than the corporate managers? Wouldn’t they be just as risk averse?
Student: Well, isn’t it comfort with the unknown as well? If your job is based on being able to hit a number at the end of the day, you want a recipe that’s gonna be able to ensure you’re gonna hit that number.
Waverly Deutsch: Yeah, but the small business guys use way more effectual logic than the corporate guys.
Student: In big companies, it’s all about community think, and in a small business, the one person can decide, “I’m just gonna do this.”
Waverly Deutsch: So the decision-making process is different. But what else?
Student: They don’t charge corporate overheads. I’m serious.
Waverly Deutsch: Yeah, no, that’s true. It’s true. I’m not sure how it affects their thinking.
Student: I think your cannibalism thing is a big piece of it.
Waverly Deutsch: Well, it’s also that they can’t afford to get the data. Getting a lot of data is really expensive. You gotta hire a market research organization to do a statistically valid survey of your customers. You gotta hire somebody to do in-depth competitive assessments. You just can’t afford to get all that data, so sometimes, you just gotta wing it.
Now, what’s really interesting on here, to me, is the migration of VCs. Now, Steve Kaplan’s research on venture capitalists would tell you exactly why the novice VCs use so much causal logic, right? Their job is to get enough return on their first fund that they can raise a second fund. So they can’t just tell their limiteds, “Yeah, we’re taking a flyer on these guys.” So what they do is they do as much research as they possibly can, and Steve Kaplan says they’re fast followers. So they’re never gonna be the first into a market. They’re gonna figure out what the Sequoias and those guys are doing, and they’re gonna get the next best company, and they’re gonna do that. The really fast followers, because these markets are huge and big enough for more than one winner, are gonna prove their business, and they’re gonna get their next fund.
But over time, what they start to learn is: that’s not the best way to make big returns. In fact, I was at a speech by Tim Draper of Draper Jurvetson Fisher, and he said, “Over our many, many decades of being venture capitalists, we learned very clearly where our big wins are gonna come from.” He said, “If an entrepreneur brought us an idea, and every single one of the partners was like, ‘Damn, yeah, this is gonna work. Let’s do this,’ it failed every time.”
Because if everybody agrees it’s a good idea, there are gonna be a lot of people and a lot of dollars chasing it. So even if you do get a return, you’re never gonna get the really huge return, right?
He said, “If a partner brought us an idea, and they were super, super passionate about it, and the rest of you were really skeptical, but that partner was so convinced that we went ahead and did the deal, it failed every time.” One guy is not enough.
He said, “But our biggest wins, our biggest returns, came when two partners thought it was a really good idea, and the rest of us were skeptical.”
So to get really big returns to play in innovation, you’ve got to have a lot of skepticism, ’cause otherwise, you’re gonna get killed by either fatal flaws that you just don’t know until you launch, or too many people rushing into the market too quickly.
So what do I mean by this skepticism? Well, since you guys are old enough to be with me here, I want you to put yourself back into the middle of the 1990s. You know, Apple had launched. We had Windows. We were getting online using AOL, right.
(Waverly imitates modem screeching)
You’re connected. You are online, right? We have Amazon starting to sell some books. It’s really, really good, right? Somebody comes to you and says, “Dude, I’ve got it. I’ve figured out the next big thing for this internet thing that everybody’s so crazy about. Garage sales. We’re gonna put garage sales online, so people can sell their junk to other people anywhere, and they don’t have to come to the garage. Are you in?”
“People are gonna buy random used products from people they’ve never met online? I don’t think so! I’m out.”
What am I talking about?
Waverly Deutsch: Yeah, right? So to put it another way, a venture capitalist, about four years ago, wrote a great blog post. It was, “If you really wanna make a lot of money, you gotta find a bad idea.”
Meaning, you’ve gotta find an idea that a lot of people think is a really dumb idea, but that the entrepreneur has figured something out that nobody else has figured out yet, and they’re gonna make it happen, and it’s gonna happen. It’s gonna be huge.
So can large companies innovate? And if they can, are there tools that these expert entrepreneurs use? Are there ways of applying this effectual logic that we as corporate managers, since I know that’s where a lot of you guys actually are, and entrepreneurs, can actually apply in decision-making?
Well, [Saras] Sarasvathy actually identified five operating principles of effectuation, five operating principles of using this effectual logic in decision-making. The first was the bird-in-a-hand principle, that what these guys start with is not an analysis of the opportunity, not an analysis of how big this can be. They start with what they’re really good at, who they are, who they know, what they know. So their skill sets, their competencies, what they can do. When Wayne Huizenga and his brother bought a garbage truck, they weren’t thinking about, “What’s the biggest opportunity for a waste management company we can create?” They’re like, “We can drive a garbage truck. There isn’t enough garbage collection in our neighborhood. Let’s do it.” So starting with who you are, what you know.
The second is the affordable-loss principle. So you start by thinking, “What am I willing to lose to try this business to see if it works? And if at the end, it’s not working, I’m done. I’m gonna get a job.” Or for the corporation, “If after this amount, we don’t feel like we’re getting the returns we want, we’re gonna cut this thing.” Not what you think you can actually generate as a big upside. Because when you focus on what you can generate as an upside, you tend to play the sunk-costs game, and because you are a Booth alum, I know you all know what I’m talking about, which is, you keep throwing good money after bad, trying to chase that return. Lots of entrepreneurs stay with companies that don’t work for much longer than they should, beating their heads against the wall, thinking, “I just need to turn
this next corner.”
The crazy-quilt principle. When I teach this to my international students, I have to kind of explain. The “crazy quilt” was the Amish would make quilts out of random scraps, whatever they had available, in random shapes with no planned pattern, and they would turn into these incredibly beautiful works of art. That’s what a crazy quilt is. And if you ever go to a quilt show, you’ll see some Amish crazy quilts are some of the highest-priced art pieces that you can get at a quilt show. The idea is that you gather self-selected stakeholders, that if you’re gonna hear a lot of “no, that’s a dumb idea,” don’t try to convert those people. Try to find that one person who’s gonna help you start, and then the two of you go out, and as you’re going along, “this is a really dumb idea.”
“It’ll never work.”
“This might work. Have you thought about talking to these people, because I think this market could be an interesting market.”
“Great, thank you. Would you mind making some introductions for us?”
Let’s keep him. He might be an advisor. He might be an employee. He might be a customer. He might introduce us to people. You gather the people who are excited about your idea, and you make that your network on which to build this innovation.
The fourth principle. This is an easy one, right, the lemonade principle. You cannot as an entrepreneur plan for all the chaos, obstacles, and risks you’re gonna face. You can think about what some of the likely ones are and have your backup plan, but something’s gonna come out of nowhere and blindside you. Phil’s going, “Mmhmm, mmhmm, that’s true.”
So what you have to do is you have to recognize that those things are gonna happen, and you have to make the most of ’em. You have to have a plan for: How do you get through a crisis? What do you learn from that crisis? How do you let that crisis make you stronger? You never leave a failed opportunity out there without drawing your learnings out of it, without keeping what worked, without keeping what was useful. You always keep those for your next venture. If you get good luck, you make the most of it. You don’t just, “Oh, that was lucky,” and you keep moving. You’re like, “OK, how did that happen? How can we make more of that?”
And the last one is the pilot-in-the-plane principle, and this really goes to the power of control in the market. The market is not an inevitable trend. It’s not a tsunami wave that you’re trying to get your surfboard to the right point on. It’s something people do together, right? So you can make a market for something that doesn’t exist if you can educate people, convince people, evangelize people into believing in your value proposition, to experimenting with your value proposition, to trying it. Does that make sense?
So there’s lots and lots of entrepreneurial examples, but I was asked to do this talk for a group of up-and-coming executives who are possibly headed to the CEO job in their very large organizations. It’s a program called CEO Perspectives. So I felt like it was pretty important to say, “Yes, this is in fact possible for large corporations.” It is not easy. It is not common. I had to do really, really deep digging to find examples that weren’t all out of the tech industry, but I wanna give you some examples of these principles in practice so you can think about whether your company can do something like that.
So the first one is the bird-in-hand principle. I was actually at Forrester Research, working with the Grainger IT team in 1996 when Grainger became the first company to use the internet for B2B. So what Grainger said to us is, “Look, we don’t know what this internet thing is gonna be. We don’t know if it has any application to us. But what we were thinking was, what the internet is really, really good at is information. The internet is a giant catalog of information. Well, guess what we are? A giant catalog of information about products. Maintenance, repair, and operations. We have the world’s largest catalog of maintenance, repair, and operations products. So we’re just gonna put it out there and see what happens. We’re gonna launch an e-commerce website for our customers.”
They had no idea what was gonna happen. One of the risks that they foresaw was that their salespeople were gonna get really angry because they were commissioned on people doing reorders through them. That was their easiest money in their territory.
“I’m gonna go see my customer. Are you ready to reorder your widgets?
“Yeah, OK, let’s have 5,000 this year.”
If they could just do that on the internet, then that’s gonna really put pressure on me. So Grainger said, “We’re going to commission our salespeople on all the sales that come out of their territory, whether it comes through the web or direct through them.” So guess what their salespeople did? They started introducing their customers to the web portal, because if their customers could do orders between when they visited them, they started to get commission on it.
So I was telling this story at the CEO Perspectives group, and I had one of the guys from W. W. Grainger in the room who had worked on this project. He said, “Yeah, we still commission ’em out of the website to this day.” No idea where this was gonna go. “We’re really good at catalogs. The internet is really good at catalogs. Let’s try it.” Bird-in-the-hand principle.
The affordable-loss principle. Google is the master at the affordable-loss principle. If you Google “Google’s biggest mistakes,” you will find a lot of websites—"25 of Google’s top failures,” “10 of Google’s biggest time-wasters,” “The Nexus Q.”
What the hell is the Nexus Q? This is one of Google’s first forays into hardware. This thing was a digital jukebox sphere.
Load up all your music, you can use your device. You can play YouTube. Nobody used it. The music industry was so far ahead of Google with digital jukeboxes. They pulled it off the market really fast. But what they did was they kept a lot of that technology that went into Alexa.
I don’t know if any of you guys used Google Wave. It was supposed to be sort of a combination of Facebook and LinkedIn and Slack and Groups, and . . . It was so complicated. There was a very small handful of people who were absolutely addicted to it, but it was very small. Nobody else could figure out what the heck you were supposed to do with a Google Wave. Well, a lot of that went into things like Google Meetups, Google Hangouts.
So what they would do is they throw products out into the market, see how the market reacts. If the market doesn’t like it, they pull ’em out of the market, and they figure out what technology they can use in something else, affordable loss.
Now, because I don’t like to only leave you with tech examples, 3M has a really, really great operationalization of the affordable-loss principle. They give their engineers time to work on their own projects, on work time. I think it was close to a day a week or a day every two weeks. It’s a lot of time. It requires you to have a substantially higher percentage of FTEs to do the work of the company. For a lot of companies, they wouldn’t be able to bear that loss. They wouldn’t think that was a reasonable thing to do. But 3M did it so that their engineers could keep their minds excited, could keep their minds fresh. It put their engineers in a position of doing their own self-learning, and guess what came out of it? Post-it Notes. I think blue tape too, yeah.
Student: Even all the big IT companies, even Amazon, is doing the same thing today. They’re launching hundreds of products.
Waverly Deutsch: Right, exactly! But most of the old world companies are not trying those things. So this is a technique that you can try, you can try to get your company to try, when you’re working on innovation.
The crazy-quilt principle is a difficult one. Again, the best example is really out of the tech industry with iTunes. So iTunes was Apple actually getting stakeholders involved who really hated iTunes, the music industry, and they were like, “Look, if you guys don’t learn how to play with us, things like Napster are gonna kill you. We’ve got to do a joint project to find a way to monetize your asset in the real world, and you gotta come along with us,” and they built a big network.
But I don’t know if many of you know the story of the online reservation system Sabre. So Sabre actually started because the CEO of American Airlines happened to be on a plane right next to a senior engineer from IBM. And they got to talking, and the IBM guy was working on a really interesting technology for the government about allocating resources for the DOD, and the American Airlines guy was like, “Gosh, man, I wish we had something like that. Our reservation system is killing us.”
So the reservation system was so bizarre. It was giant turntables that represented a flight with all the seats as little slots. And you’d have somebody on the phone. They’d spin, “Oh, yep, that seat’s available. Mark it sold.” They were working with travel agents mostly at the time. And of course, as the airline industry is scaling, this is becoming completely untenable, because you had to have multiple call centers. Now you had to keep your little rotational things in sync, and it was a disaster. The IBM guy was like, “Yeah, I wonder if what we’re doing for the DOD could be used for that.”
So the CEO of American Airlines is like, “Come see our reservation system. Come on by.”
Now, most people would get off that plane, and nothing would ever happen. Random chance encounter, interesting conversation. But that IBM guy was like, “Yeah, I’m gonna go see,” and took a team. He went to the reservation system, and IBM and American Airlines started to work on a joint pilot project. It wasn’t a contract. It was like a joint pilot to figure out what this thing was, and pretty quickly, as they’re rolling it out, they realize, well, travel agents will only use this with us, so let’s get some other transportation companies on the system, and eventually they spun it out, and it became the basis of Expedia and actually is the reason that we have an online travel industry, from a conversation on an airplane.
Lemonade principle. This is a fun one. So I don’t know if you guys know this, but Pfizer was researching a drug for heart attacks, for reducing heart attacks, for heart medicine, and as they’re going through the trials, the efficacy is not meaningful. It’s not working out. This multi, multimillion-dollar research, you know, hundreds of millions of dollars of research on this drug is looking like it’s gonna be failed at the second stage of FDA trials, which is horrible. That means you’ve sunk a ton of costs. So you’re giving this to a lot of people, and it’s not working. It’s not having the effect on heart disease that you’re expecting it to. We’re gonna have to pull this thing. And they’re looking at the logs of the trials, and they start to notice this weird thing.
A lot of guys in the trial.
Those guys are saying, “Hey, I don’t know if this medicine is doing this to me or what, but boy, I’ve been experiencing something unusual lately.”
And that was the birth of the erectile-dysfunction industry, the massive, multibillion-dollar erectile dysfunction.
Just to embarrass the women, World War I, a company called Kimberly-Clark is approached by the government with a huge problem. We are having a huge cotton shortage. There’s a cotton shortage, right, because cotton is needed for the uniforms, and cotton is needed for bandages, and World War I is killing us with regard to cotton. “I know you guys work with paper. Can you guys come up with something that is absorbent that we can use to substitute for cotton?” So Kimberly-Clark’s organization does a bunch of research, and they create a product called cellulose that goes into all the Army hospitals and is being used for bandages, and that cotton can now be diverted for uniforms. World War I ends. Kimberly-Clark has warehouses full of this stuff thinking that they’re selling it to the government for bandages.
Government says, “Thank you so much for that. We don’t need that anymore.”
Kimberly-Clark says, “What do we do? Just burn all this stuff? It’s sitting in our warehouses.”
So they start to go into the field where the customers were using it, and they’re like, “How did you use it, ’cause they’re trying to find an application for it. And they discover that the nurses have been using it during their time of the month. That became Kotex, and thus, the feminine-protection industry was born.
Last one, my favorite, and then I’ll let you go: the pilot-and-the-plane principle. So all of the market research in the world would have told Steve Jobs: The world does not need tablets. Nobody wants tablets. Tablets are useless. I actually reviewed a tablet in the 1990s when Microsoft and a bunch of hardware manufacturers thought tablet computing might be useful, and I reviewed it to see if it had a business application so I could report back to our corporate customers, do you need to worry about these tablets, and my research indicated that no, a tablet is a bad laptop without a keyboard. It doesn’t do anything that a laptop doesn’t do, that the only thing about a touchscreen that’s useful is if you have a highly forms-based application. So tablets will find specialized uses in things like hospitals where nurses have checklists or ruggedized tablets out in the field where inspectors have to deal with oil rigs, and you need something that’s really very much touchscreen. List, touch, right?
But tablets continued to come out. So the first tablets were launched in the late ’80s, then in the ’90s, then in the early 2000s. Apple itself tried a tablet. It was Newton. It went nowhere. But Steve Jobs was, “Damn, I know that we can do it. We have this incredibly cool technology in our innovation center. I know we can do this. We can make people want tablets. Touchscreens are better now, and even though it doesn’t have a keyboard, and even though it doesn’t do anything that the iPhone doesn’t do, let’s get it out there. People are gonna love this.”
Now, at this stage, Apple has a fan base, a loyal fan base, that’s like, “If Apple sells it, it must be great. Yes, I will buy iToilet Paper, sure.”
And they line up, and Apple sells millions of these things. It comes out to really mixed reviews, like, “What the heck is this? It’s not a Netbook,” which everybody’s carrying around, a lightweight laptop that can connect to the internet. You could do your email. You could do your word processing. You can’t do word processing on this thing. It doesn’t have a keyboard. It’s a big iPhone that doesn’t make phone calls. That’s what they called it.
It’s out there, but you know, and I’m a technology person. I’m a technology analyst when this thing comes out. I’m into tech, right? And I’ve got a Netbook, and I’ve got an iPhone. And I’m like, (Waverly sighs) “I don’t need one of these. It’s $600. I don’t need one of these things. If I wanna work in a cafe, I’ve got my netbook. It does everything. It connects. I browse. If I wanna check my email quickly,
I’ve got my iPhone. I don’t need it. But I want it!”
And you remember, “Is that the new iPad? Can I touch it?”
You remember this, right? People would come up to you. “Is that the new iPad? “Is it so great?”
And I gave in, and I bought an iPad, and it didn’t do anything except go to websites, do email without a keyboard. It was just a big thing. But so many of us bought them that developers started to say, “Huh, there are a lot of people with these iPad things. I wonder if we could do something interesting with this iPad,” and developers started to work on applications specifically for the iPad. And the iPad reinvented the way we got content, right? It reinvented a lot of the way we play games. It reinvented . . . and the App Store takes off, and all of a sudden, there’s this ecosystem that makes not only Apple’s tablet, but tablet computing something that we now take for granted. And that’s one man saying, “I can make this happen.” Yep.
Student: So was that a vision that he had?
Waverly Deutsch: That was a vision he had. The vision that he had was, “The market doesn’t know what it wants. We’re gonna get this out there, they’re gonna see that they love it, and it’s gonna happen.” But yeah, he wrote a developers’ API kit so that other people would write apps for it, yeah, which wasn’t the case with the early Macs.
Alright, so to wrap up, for corporate innovation to take place, the dean of the Institute of Design says you need three things. I mean, entrepreneurs, they already have this. Managers who know when their customers’ needs are not being served. So if you’re head of innovation, and your company outsources its market research, bring that back in house. You’ve got to be with your customers. You’ve got to be on the street with them, right? Fear or pain that drives urgency. Someone’s coming to eat your lunch. They’re gonna steal your market if you guys don’t do something. That creates the urgency for corporate leaders, and executive leaders who are willing to go down a path without knowing exactly where they’re gonna end up.
So I hope all of these tools and this thinking is really useful for you guys.
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