Chuck's weblog

Technology Review: Entrepreneur Central

2009-11-12T16:40:00.000-05:00

Lunch with the President of Stanford University

2009-11-11T17:05:00.001-05:00

Biography: Office of the President: Stanford University

I had the opportunity (along with 10 other faculty) to have lunch today with Stanford President John Hennessy. It was my second chance to meet him as he had the new faculty over to his house a few weeks back for a reception. I have been impressed with him when I have heard him speak so far. The discussion today ranged from Stanford's response to the economic crisis and handling of the endowment, distance/online education, entrepreneurship and the OTL/medical school and whether the university should remain in a single location or whether a significant research arm could be developed on the East Coast or overseas. It was a fun lunch and I am thrilled to be in a community with such interesting and entrepreneurial fellow faculty members.

Newest paper

2009-11-10T19:18:00.003-05:00

This is actually a revision of an old paper but here is the introduction.

The question of why some firms develop more valuable resources and capabilities than others has been a central one for strategy researchers. The resource-based view (RBV) of the firm has been a central theoretical framework for explaining heterogeneity in firm performance (Barney, 1991; Peteraf, 1993; Wernerfelt, 1984). There is a growing consensus that differences in firm performance are driven by higher order capabilities to develop or reconfigure bundles of resources that will generate value over time (Teece et al., 1997; Winter, 2003).

However, we still do not understand the source of dynamic capabilities and why some managers are able to develop more valuable resources than others. A growing stream of literature examines how managers may play an active, cognitive role in making bets and predicting which resources and capabilities will be more valuable than others. Managers face numerous biases as they attempt to understand the competitive environment and its trends in enough detail to search for a cluster of resources that will provide competitive advantage (Gavetti and Rivkin, 2007). Cognitive representations have been identified by prior research as important in shaping decision-making as well as focus and interpretation (Huff and Jenkins, 2002, Fiol and Huff, 1992, Walsh, 1995, Simon, 1991, Weick, 1995, Narduzzo, Rocco and Warglien, 2000). Yet, existing work has focused on the content of mental models rather than on the use of mental models for certain capabilities, such as predicting what resources will be more valuable in the near future.

The purpose of this paper is to address the gap in our understanding of the sources of dynamic capabilities. We show that one initial source of firm-level dynamic capabilities is the cognitive representations of its founder(s) that result from their careers. Conceptually linking the individual and firm levels, we extend the line of work that recognizes that strategy arises from managers’ cognitive theories about the world (Gavetti and Rivkin, 2007, Huff and Jenkins, 2002, Porac, Thomas and Baden-Fuller, 1989). We demonstrate that improved cognitive maps of industry trends and causal relationships come from specific types of industry experience and guide the successful recombination of resources, routines and capabilities.

Conclusion

We extend the microfoundations of strategy (Gavetti, 2005) and seek to answer the question: When organizations are putting together new bundles of routines and capabilities, what determines who puts together the more valuable and difficult to imitate bundles? Specifically this paper is interested in whether firms gain a competitive advantage through dynamic capabilities in the form of improved cognitive representations that the founders acquired via prior work experience? The results support the main thesis of the paper that the answer is yes. We suggest a novel mechanism through which dynamic capability arises from improved cognitive maps of the competitive landscape. We examine the micro-foundations of resource and capability development by theorizing how cross-functional experience results in variation in cognition due to the well-known psychological phenomenon of partition dependence. We extend and build on prior research that has suggested that differences in managerial cognition lead to variation in strategic decisions (Tripsas and Gavetti, 2000, Adner and Helfat, 2003, Porac et al., 1989). Our primary proposition, Hypothesis 1, that individuals with cross-functional experience will build more accurate cognitive representations, resulting in assembling more valuable combinations of resources/capabilities was supported. Our analysis shows both environmental and individual-level contingencies when improved cognitive representations are expected to be of greater importance for making predictions on trends and the future value of resource positions. Hypothesis 2a was also supported in that those remaining in the same industry context experienced higher performance. Hypothesis 2b was that after a significant industry disruption, cognitive representations built up through prior cross-functional experience would become a liability. The results show that post-1997 the impact of cross-functional experience became negative and significant as individuals who had built up mental models before the internet boom mistakenly attempted to apply them after the disruption to the industry. Similarly, when we separately ran the analysis on the pre-1997 time period and post-1997 time period, the coefficients on cross-functional experience are positive and significant for the pre- time period and are significantly lower (indistinguishable from zero) for the post-1997 time period. The data tended to support hypothesis 3, that cross-functional experience leads those who experienced success to higher performance. After initial results in Table 3 showed that more highly educated individuals appeared to benefit more, once additional controls were introduced, we failed to continue to find support for hypothesis 4. The results appear to support the idea that a more recent cross-functional experience is more useful and that the benefit fades with time, supporting hypothesis 5. This result supports the notion that for predicting trends, a more recent cross-functional experience is quite important. The overall pattern of results, under a number of different specifications, appears to provide robust evidence consistent with an account where experience with a broader set of responsibilities and functional decision rights leads to more balanced cognitive representations to guide strategic decisions.

This study extends and challenges existing work on the resource-based view and particularly on the ability to restructuring and identify more valuable assets and capability bundles. Prior work on the sources of performance-enhancing resources and capabilities has focused on the inheritance of search routines or superior information. While this moves our understanding forward, we still lack a psychological foundation for identifying where differences arise in cognition or beliefs about the future value of routines, resources or capabilities. Rather than asking what forces constrain the strategic options under consideration or factors that lead to greater homogeneity and mimicry in strategic choices, we examine how certain managers and firms uniquely make predictions leading to differentiation and higher performance. We build on work showing the strategic importance of framing and individual level cognition (Kaplan and Tripsas, 2008; Tripsas and Gavetti, 2000). We examine a different cognitive spillover mechanism: where individuals appear to transfer to a subsequent firm more accurate representations as a result of the prior founding experience. We build on the theoretical framework for the psychological foundations of capabilities’ development laid out around cognition and the integration of knowledge (Grant, 1996; Gavetti and Rivkin, 2007; Gavetti, 2005) by extending the theory to propose mechanisms by which differences in cognition emerge around variation in work experiences. Similarly, we provide previously missing theoretical account for when the managers of firms notice trends and change the bundles of routines and capabilities they hold and for how they know in what directions to change them.

Extending earlier efforts to disaggregate the influence on business-unit profits of industry, corporate-parent and market share effects, scholars have examined the influence of firm-level effects (Schmalensee, 1985). Examining lower levels of analysis shows that industry-level effects are approximately half as important as business effects in determining business-unit profits (Rumelt, 1991, McGahan and Porter, 1997). Yet, with the exception of work on top management teams and entrepreneurship, much less work has looked at the influence of even lower levels of analysis (including individuals) on performance (Higgins and Gulati, 2006, Johnson, 2007, Mollick, 2008). Why do some firms outperform others even when in the same industry? Prior work has shown that individuals with firm-specific human capital can be a source of competitive advantage (Hatch and Dyer, 2004). Our contribution is to use psychological foundations to show how cognitive representations specific to the competitive landscape embedded in individuals can function as a difficult to imitate dynamic capability, guiding firms to build competitive advantages.

Much prior work has focused on the content of cognitive representations, but significantly less is known about their origins and the usefulness of certain types of representations (Walsh, 1995). We provide evidence that certain types of work experience can lead to representations that have a higher likelihood of breaking out of the strategic status quo and predicting the development of resources leading to greater performance. However, we also show the downside of relying on these models when a very significant industry change occurs. In a very fluid phase in the industry, cognitive flexibility appears to be more important (Furr, 2009). As noted in Walsh’s (1995) review, we still have unanswered questions for future research about the relationship between the content of a cognitive representation and the information environment it represents. Others have shown that there are differences between accuracy and the usefulness of cognitive representations when simplifying and screening out unnecessary information may be of greater importance (Starbuck and Milliken, 1988), especially as the amount of information available multiplies.
The findings also have implications for the entrepreneurship literature. Our account provides a complementary theory of why managers and entrepreneurs may leave and go outside of their firms to work for others or to start their own ventures. Most organizations tend to become more rigid over time. If individuals within the same firm can develop substantially different cognitive representations of the competitive landscape due to differences in types of work experience and the accumulation of psychological biases, then individuals can begin to have fundamental disagreements with the organization. Furthermore, due to the inertia and rigidity of the existing bundles of capabilities, it becomes increasingly difficult to move the organization to a new set of resources and capabilities that individuals perceive will provide competitive advantage according to their representations of the competitive landscape. Some individuals leave for new organizations due to increased rigidity in bundles combined with cognitive maps drifting away from the increasingly small set of recombinations possible within the firm or from an inability to convince others to select their bundles of capabilities. Differences in the accuracy of cognitive representations, particularly concerning trends and shifts in the competitive landscape may also be a reason why individuals voluntarily leave firms. Individuals may choose to move to other firms or start their own new ventures when disagreements arise, when they see opportunities others do not, or when the existing firm seems incapable of exploiting quickly due to inertia or loss of plasticity (Klepper and Sleeper, 2005; Klepper, 2007).

In conclusion, we have developed and tested a model that links psychological theory to dynamic capabilities and heterogeneity in firm performance. Variation in career experiences leads to variation in the extent of known psychological biases such as partitioning dependence, and then variation in the extent of these biases results in differences in cognitive representations that function as a dynamic capability providing a map to future bundles of resources that will provide a performance advantage.

David Morgenthaler

2009-11-09T14:11:00.001-05:00

I got to meet David Morgenthaler for a breakfast meeting this morning. His son was a Stanford MBA and he set up a fund in his son's name. So I am the current David Morgenthaler II Faculty Fellow at Stanford.

Mr. Morgenthaler was extremely nice and humble despite his tremendous success as a serial entrepreneur and one of the early venture capitalists. I really enjoyed the opportunity to meet him and his wife. We had a lot to talk about since he is an MIT alum and lives in Cleveland, Ohio. He invited me to come and meet his other son and the partners at his firm as well.

Bringing Entrepreneurial Ideas to Life

2009-10-30T17:12:00.001-04:00

Bringing Entrepreneurial Ideas to Life

We just submitted a brand new paper.

Abstract:
Organizational design in the context of new venture development is particularly challenging due to initially severe resource constraints. Deepening our understanding of differential productivity in the startup resource assembly process is therefore important. We address the twin questions of what assets are important to venture performance, and under what conditions are those assets especially important? We do so by considering initial venture idea assets and founder contracting experience. The resource-based view of the firm stresses developing the right assets, which accords with idea assets. Firm boundary theories of the firm emphasize structuring relationships in the right way given a set of organizational assets, which accords with founder contracting experience. Using unique survey data, we find that neither view by itself is as important as both theories taken together. We therefore advance an integrated perspective by showing that new ventures perform better when they both identify valuable resources and also assemble human assets with expertise in structuring organizational arrangements to commercialize those ideas. An important implication is that organizational resources have a range of potential values, and that realizing the upper range of value capture involves the additional ability to structure organizational relationships.

Oprah's 2008 address at Stanford

2009-10-29T15:02:00.000-04:00

Oprah talks to graduates about feelings, failure and finding happiness

Not a small topic this is, finding happiness. But in some ways I think it's the simplest of all. Gwendolyn Brooks wrote a poem for her children. It's called "Speech to the Young : Speech to the Progress-Toward." And she says at the end, "Live not for battles won. / Live not for the-end-of-the-song. / Live in the along." She's saying, like Eckhart Tolle, that you have to live for the present. You have to be in the moment. Whatever has happened to you in your past has no power over this present moment, because life is now.

But I think she's also saying, be a part of something. Don't live for yourself alone. This is what I know for sure: In order to be truly happy, you must live along with and you have to stand for something larger than yourself. Because life is a reciprocal exchange. To move forward you have to give back. And to me, that is the greatest lesson of life. To be happy, you have to give something back.

I know you know that, because that's a lesson that's woven into the very fabric of this university. It's a lesson that Jane and Leland Stanford got and one they've bequeathed to you. Because all of you know the story of how this great school came to be, how the Stanfords lost their only child to typhoid at the age of 15. They had every right and they had every reason to turn their backs against the world at that time, but instead, they channeled their grief and their pain into an act of grace. Within a year of their son's death, they had made the founding grant for this great school, pledging to do for other people's children what they were not able to do for their own boy.

The lesson here is clear, and that is, if you're hurting, you need to help somebody ease their hurt. If you're in pain, help somebody else's pain. And when you're in a mess, you get yourself out of the mess helping somebody out of theirs. And in the process, you get to become a member of what I call the greatest fellowship of all, the sorority of compassion and the fraternity of service.

The Stanfords had suffered the worst thing any mom and dad can ever endure, yet they understood that helping others is the way we help ourselves. And this wisdom is increasingly supported by scientific and sociological research. It's no longer just woo-woo soft-skills talk. There's actually a helper's high, a spiritual surge you gain from serving others. So, if you want to feel good, you have to go out and do some good.

But when you do good, I hope you strive for more than just the good feeling that service provides, because I know this for sure, that doing good actually makes you better. So, whatever field you choose, if you operate from the paradigm of service, I know your life will have more value and you will be happy.

I was always happy doing my talk show, but that happiness reached a depth of fulfillment, of joy, that I really can't describe to you or measure when I stopped just being on TV and looking at TV as a job and decided to use television, to use it and not have it use me, to use it as a platform to serve my viewers. That alone changed the trajectory of my success.

Great resource

2009-10-21T14:21:00.000-04:00

Don Dodge on The Next Big Thing: Boston startup events, resources, people you need to know

MacBook wireless very unstable - Mac-Forums.com

2009-10-10T12:26:00.000-04:00

MacBook wireless very unstable - Mac-Forums.com

I am having this problem as well - on a 4 month old Macbook with an Apple Airport Extreme Base station. It seems to be something with having a large number of wireless networks around and the connection cuts out every few minutes requiring me to restart the airport card. Come on Apple, you're better than this.

Biscuit Factory :: A legal alien lost in American healthcare system

2009-10-10T12:21:00.001-04:00

Biscuit Factory :: A legal alien lost in American healthcare system

My friend Yoojin has a new blog post that is yet another story of how the American healthcare system is broken to its core. While I'm glad some kind of reform is coming, I hope that it is not further entrenching a broken system with relatively minor fixes here and there.

She is a legal immigrant and was not unemployed for a single day, but went without coverage for over 50 days because her health insurance was "paid by her employer", but not an "employer sponsored health plan."

Craziness. Is this how we attract the best and brightest?

I also had to go without health insurance through most of the summer as I went from being a PhD student to a professor.

StartupVisa Momentum

2009-09-30T23:12:00.000-04:00

StartupVisa Momentum

I think this is one of the more interesting/exciting things happening around entrepreneurship right now. I'm not really sure how big of a problem it is, but is seems worth digging into.

Time and Hard Work

2009-09-26T21:15:00.002-04:00

Fwd: Hope you had a good visit to Stanford, originally uploaded by eesley.

Two great blog posts I came across today offer an interesting juxtaposition.

Caterina offers the idea that much of "working hard" can often be "freaking out" and working for the sake of working rather than working smartly.

My colleague Tina Seelig notes that we should worry more about how we are investing our time than how we are investing our money.

Both are good points.

By the way, thanks to everyone who came by my housewarming party last night! Hope you all had as good of a time catching up with everyone as I did.

YouTube - President Hennessy to Class of 2013: Take intellectual risks

2009-09-16T16:26:00.000-04:00

YouTube - President Hennessy to Class of 2013: Take intellectual risks

Business as Science

2009-09-06T15:01:00.001-04:00

The Scientist, originally uploaded by Nika Fadul.

Is the process of business the same as the scientific method? My contention is that especially for high tech start-ups, it just might be analogous in more ways than we tend to think.

When I used to work at a venture capital firm we used to think in terms of testing hypotheses. This appealed to me very much as a former scientist in genetics and neuroscience labs. However, I wondered how accurate the analogy really was. The view of business as science has grown on me over time however.

I think especially for start-ups they begin, like good science with an idea. It's an idea that the scientist, or entrepreneur holds great conviction in and wants to show the world is right. We often hear entrepreneurs speaking in these terms. "I wanted to prove a point," they say when referring to their business. The start-up process may well be one of testing and disproving or proving a hypothesis about a market.

In the venture capital world we were often trying to do as much work as possible to narrow down where the risk was in a new venture. What bet exactly are we making was what the partners would always want to know. In more precise terms, we were trying to figure out exactly what the bet or the hypothesis was that this venture was going to test and how likely that hypothesis appeared to be true. Like in science it is possible to have a good hypothesis but fail in the execution of the experiment. Similarly, you want a good scientist doing the research, you also want a founding team that is likely to be able to execute on the experiment so that if it is true then you are able to successfully show it.

In business, like in science, if you are successful and show that your hypothesis is right then others begin to follow you down that path. Also like in science, in doing a start-up you want to generate the correct data that will show your hypothesis is right as quickly and efficiently as possible. I think this is the thrust behind the trends for releasing early and the minimum viable product.

I'm interested in exploring this idea further that business is akin to the scientific method in many dimensions.

Quote of the week

2009-09-06T01:42:00.001-04:00

“It is not enough to be industrious; so are the ants. What are you industrious about?”

- Henry David Thoreau

Daybreak at the Golden Gate

2009-08-23T21:52:00.001-04:00

Daybreak at the Golden Gate, originally uploaded by PatrickSmithPhotography.

I arrived in California at the end of July and am getting settled in here. It's such a thrill to be beginning the next stage of my life and career here. I can't wait for the adventures that lie ahead. I've already been enjoying the weather and beautiful nature here. I met up with Meera on Saturday and we went to a film festival in Sausalito co-sponsored by Indiegogo, her boyfriend's company.

Today I went up to Skyline to visit Ann and go for a run among the redwoods up there.

Charles River Sunset

2009-08-23T21:49:00.001-04:00

Charles River Sunset, originally uploaded by amythyst_lake.

I am of course sad to leave my friends behind in Boston and leave MIT. However, I'm very excited for the journey that the next chapter of life will bring...

Chicago

2009-08-13T01:00:00.000-04:00

Had a great time in Chicago at the AOM conference catching up with people and visiting my good friend Rachael Carbone. The architecture boat tour of the city was great.

Campus

2009-08-06T02:41:00.000-04:00

While touring campus with Xijin, a professor visiting from Tsinghua Univ., I was interviewed by these high school students doing some market research on a new entrepreneurial idea they had as part of a summer program.

Sloan Fellows

2009-08-06T02:38:00.001-04:00

Here is a photo from the Sloan Fellows class no Applied Econ for Managers that I helped teach this summer. They were a great group!

STVP : Research : People : Faculty

2009-07-16T20:49:00.000-04:00

STVP : Research : People : Faculty

Big Move

2009-07-15T15:10:00.004-04:00

My move out West is coming up soon! Next Sat. (25th) I have a late flight to San Francisco. All of my stuff will be picked up the day before and will follow me out.

Plan is to stay in a hotel for the first few days (The Westin St. Francis
335 Powell Street, San Francisco) and then I move into my new digs on July 29th.

Can't wait! Though I will miss all of my Cambridge/Boston friends. I will not miss the frigid winter temperatures.

I'll hit the ground running, attending the REE Entrepreneurship conference at Stanford July 29-31st, then heading to Chicago in mid-August for AOM. I was invited to give a talk at Wash U. St. Louis in Oct. and will go straight from there to present at the Strategic Management Society conference in DC Oct. 11-14th. Might go to Hong Kong to present and be on a panel on univ. tech transfer at REE Asia just after that.

Lessons Learned: The Principles of Product Development Flow

2009-07-13T22:48:00.000-04:00

Lessons Learned: The Principles of Product Development Flow

Last_line_of_defense_-_statistics.gif (image)

2009-07-10T10:37:00.000-04:00

Last_line_of_defense_-_statistics.gif (image)

Initiatives ‎(Entrepreneurship at Duke)‎

2009-06-25T12:13:00.000-04:00

Great to see so many new e-ship initiatives at Duke. None of these existed when I was there from 1998-2002 except for the Duke Start-up Challenge.

Initiatives ‎(Entrepreneurship at Duke)‎: "There are a number of initiatives related to entrepreneurship at Duke University. These initiatives cover the many areas need to help create a strong entrepreneurial ecosystem that fosters the entrepreneurial spirit.

* Duke Start-Up Challenge
* Duke Entrepreneurship Education Series
* Duke Global Entrepreneurship Network (DukeGEN)
* DUhatch Student Business Incubator
* Duke Student Ventures
* Entrepreneurship Week at Duke University
* Program for Entrepreneurs"

Came across a pair of interesting articles recently on work/life balance

2009-06-21T11:04:00.000-04:00

Feld on Life Balance: “Accomplish What You Want, Not What You Think You Have to” | On the Radar...

Feld professed a belief throughout the interview that work-life balance is an important issue to everyone, yet he acknowledged that each person’s approach will be different. In fact, Feld expressed equal skepticism towards those who say “here’s how you achieve work life balance” in a one-size fits all approach as towards those who claim “work-life balance is bullshit” and life is only about working hard. But the venture capitalist did draw a line in the sand by saying that balance is an important issue to consider at all ages, as many make the mistake in believing they will “get the balance on the back half of life” an find it shorter than they hoped (“you don’t know when the lights are going to go out”). With this frame of reference, Feld spent most of the hour discussing his personal journey towards better work-life balance over the past eight years.

Doctor and Patient - Taking Time for the Self on the Path to Becoming a Doctor - NYTimes.com

According to a study from the Johns Hopkins University School of Medicine in Baltimore, I am far from the only doctor who has behaved this way. The researchers interviewed residents, or doctors in training, from seven different specialties and found that they set themselves up for burnout by accepting, even embracing, what they believed would be a temporary imbalance between the personal and professional aspects of their lives. While the young doctors interviewed defined well-being as a balance between all those parts, many felt that their medical training was so central to their ultimate sense of fulfillment that they were willing to live with whatever personal sacrifice was required, even if it meant a temporary loss of a sense of self.