What Evidence Shows About Who Really Succeeds in Business

Kara Miller:

Welcome to Instigators of Change, a Khosla Ventures podcast where we take a look at innovative ideas, the people who come up with them and those who invest in them. I'm Kara Miller and today a professor who's obsessed with applying hard evidence to business even if it proves that approaches we've long embraced are totally wrong.

Ethan Mollick:

Brainstorming was invented in the early 1950s in like 1953, 1954. By 1959 we knew it was a terrible idea and we've been trying to stop it ever since.

Kara Miller:

And notions we have like that the best software engineers are much better than average software engineers, well, those notions may be far more significant and wide reaching than we think.

Ethan Mollick:

The surgeons at the bottom quartile have four times made complications as the surgeons in the top quartile, even at the same hospital.

Kara Miller:

Ethan Mollick, a professor at the Wharton School at the University of Pennsylvania, punctures our beliefs, shows us the data and makes us rethink what it takes to succeed in business. That's just ahead on Instigators of Change. If you're looking to start or be part of a super successful company, there are lots of stories of great entrepreneurs and great organizations that you can lean on. Stories of how brilliant folks staffed up their companies, how they behaved, how they ran meetings.

Ethan Mollick:

As a founder, you are telling a story, weaving a myth about your company and its success. And it turns out the story you tell is a powerful one in determining how successful you are.

Kara Miller:

Ethan Mollick though prefers to look at startups through a cold fact driven lens. And when you do that and you move away from the catchy origin stories, which now a good chunk of the time seem like they're made into movies, he says that founding myth starts to explode. So watch out.

Ethan Mollick:

This second and more insidious flavor of myth is the myth we have about who should start startups and who succeeds. And it turns out that myth doesn't resemble reality nearly as much as people think it does. And as a result, we tend to fund a very small segment of the population to launch startup companies. We tend to think some people is being potentially good at startups and others not in ways that aren't supported by evidence.

Kara Miller:

Mollick is the author most recently of The Unicorn's Shadow: Combating the Dangerous Myths that Hold Back Startups, Founders, and Investors. And he offers as exhibit A, a presentation you're about to hear a little bit of. It was given a number of years back. I'm going to withhold the presenter's name for just a minute, but see if you think this is super exciting.

Douglas Engelbart:

The research program that I'm going to describe to you is quickly characterizable by saying if in your office you as an intellectual worker were supplied with a computer display backed up by a computer that was alive for you all day and was instantly responsive, instantly responsive, every action you had, how much value could you drive from that?

Kara Miller:

That's Douglas Engelbart. He's giving what became known as the mother of all demos in 1968. Engelbart revolutionized computing forever and his work led to network computers, the mouse, hypertext, President Clinton would ultimately award him the National Medal of Technology, but Engelbart's demo was not particularly infused with energy.

Ethan Mollick:

This was probably the most important tech pitch ever done beats the iPhone I think, because Steve Jobs ended up taking a lot of ideas, basically stealing them directly from these demos. But incredibly influential, terrible delivery read from cards that's still messed up. And that I think tells you something.

Kara Miller:

What it tells you says Mollick, is that the myths that we lean on, myths that have gotten propped up by truly successful people make Steve Jobs or momentarily successful people like Adam Newman who ran WeWork, well, they're just that, they're stories.

Ethan Mollick:

We find that for successful venture capitalists, they actually aren't very swayed by charisma and passion at all, they actually look for that rationality and a clear and well explained pitch more than anything else. So I just would urge people to think about even if they think they're not good at some of the skills that they might think they need for startups, that doesn't mean they can't be successful.

Kara Miller:

And that's also true of the image of a straight A kid sitting alone in their dorm room at night, punching out computer code living on soda.

Ethan Mollick:

So if that person in their dorm room working on a computer also happens to be a nerdy white male Harvard College dropout, you're describing Mark Zuckerberg or Bill Gates exactly, right? So this image is a really powerful one. These people are mythmaking people. They're some of the most successful founders of all time. And that image of that person is extremely persistent but doesn't represent almost anything about entrepreneurs. So let's just take one thing for example, age. So that you've got this image of this young kid doing stuff and people when you ask them think that the average age of a founder is in their twenties. In fact, there's been venture capitalists who've will remain unnamed that say over 30 you won't be a good founder.

But when you actually look at the evidence, and by evidence I mean literally there's a study that looks at all US census data and all US IRS returns, it combines them. The average age of a founder in the United States is 42. The average age of a founder that raises venture capital in the United States is 42. The average age for a founder that achieves hyper growth in the top 0.01% of all companies in the US is between 45 and 59. So just from the bat, the idea that you should be aiming for young founders and that those are the people who start companies doesn't match reality.

Kara Miller:

It also seems like having those beliefs imagining like you say the Mark Zuckerberg or the Bill Gates who obviously reinforced these myths because they even went to the same school, that it has downsides, probably. Not just that we don't know the right story, but that we also whether it's investors or other entrepreneurs or people who think maybe I could be an entrepreneur, that there're downsides to getting the story wrong.

Ethan Mollick:

Absolutely. We see this actually happen and there's a lot of studies looking at this idea of role modeling or kind of fitting an image. So you're less likely if you are an older woman and who doesn't see yourself as an entrepreneur in that mold to launch a startup company. It actually discourages you from launching a startup company. And for investors they look for pattern matching with these successful founders and they don't proportionally fund women and minorities as much as they could. And we see this evidence all over the place and it leaves a lot of opportunities unturned over a lot of people who could become founders who don't.

Kara Miller:

I actually remember years ago interviewing a woman who has started a software company and she was a little older, maybe in her forties, maybe in her early fifties, I can't remember exactly. And I remember her saying that when she would meet people, people were like, okay, well, where's the person in charge of tech? And she was like, me, this is her. And she knew they were waiting for the 25 year old with the hoodie to come out from behind the curtain, but he wasn't going to come out because she was the person.

Ethan Mollick:

Right. I mean, it's a common issue and something that is pretty insidious because we know that women are not funded anywhere near the men are. Women make up 38% of business owners in the United States. 2% of venture capital between two and 4% goes to female founders.

Kara Miller:

I know I saw those statistics not that long ago. I think 2021, 2%. That is shocking. I mean, considering women are half the population.

Ethan Mollick:

Well, and not 38% of business owners, right? It's not even just the population. And I do a lot of research on this topic, it's an insidious problem. There's lots of causes for it, but part of it is this role modeling issue. It's the idea of seeing yourself as a founder and other people seeing you as a founder. And that's why some of these myths can be dangerous.

Kara Miller:

Can you talk a little bit about your own experience with startups? Because I know it's not just through being a professor though, it is obviously through that too.

Ethan Mollick:

Yeah, I co-founded a company that invented the paywall in the late '90s, so I apologize to everyone for that. I think we helped save a lot of media, but I feel like it's a sin somehow. But I literally made every mistake possible. I fortunately had a college roommate who did a better job than I did, navigating a lot of issues, but made every possible issue, decided to learn how to do it better to get an MBA at MIT, realized nobody knew what they were doing, decided to get a PhD in this and now I study and teach it and I help a lot of startup companies out and I've launched internal startup companies at Wharton. It's including a game company, which is awesome. So this is a place that I care a lot about and have done a lot with as well.

Kara Miller:

So often VCs are sizing up founders and they're thinking, does this person have what it takes to make a long shot idea a success? Do they have the right kind of personality? How much do you find that a founder's personality matters and is there evidence that let's say a lot of confidence is very helpful?

Ethan Mollick:

Well, so this is another case where academics have spent a lot of time looking at the personalities of founders and the answer is it does not seem to make a big difference on success. So a founder personality has very low relationships to any success outcome. People are confused by that, they don't want to hear it. I mean the stuff that helps you in real life as well, being conscientious, being open to new experiences, those help you as a founder. But there is no founder personality we've identified that's a universal, there's some matching between different personality types and starting companies, but there's no universal founding type.

And even more than that, the things that make you more likely to become a founder and there are personality traits that make you more likely to become a founder can often get in your way. So for example, the number one of the number personality predictors of becoming entrepreneur is overconfidence. Okay? Entrepreneurs are more likely to believe that they're amazing than other people around them. And you have to, it's like going into hip hop or becoming a Hollywood star. You have to think you're better than the millions of other people trying it. But overconfidence actually ends up hurting you in many cases running a startup company because you don't listen enough to the market and the feedback that you get from it.

Kara Miller:

It's interesting though because we also talk to the folks who wrote the WeWork book, Eliot Brown and Maureen Farrell, and when they talk about Adam Newman, who seemed like a very confident person, it is true that in many ways WeWork had a moment where it almost imploded in flames, but he also was incredibly, that confidence helped bring in billions of dollars to support the company.

Ethan Mollick:

I mean, sure. Their personality of overconfidence, that can help persuade people. But when you look at the overall figures, this is the issue I have when we look at top entrepreneurs. Going back to the question you had before, there's a phenomenon called superstitious learning. It's a car cult of learning, which is we look at successes and then we try and graft onto one or two factors that we see in that person or that company and assume that's why they're successful. One thing I see all the time was people saying, okay, I heard Amazon has before every meeting has people write memos. Let's do that. Is that why Amazon's successful at meetings or is this just a symptom of something else?

Kara Miller:

Right.

Ethan Mollick:

In the same way this happens all the time with entrepreneurs. We keep talking about profiles of various founders and extrapolating from these profiles, it's very hard to do that. Almost all of the stuff people talk about retrospectively about why startup succeed or fail, we actually analyze whether they're accurate or not, they usually aren't. So it's really hard to learn this stuff. So my argument is an academic is by all means, read the wisdom, read the stories, but we do have hard data on some of this stuff and that's what I try and share.

Kara Miller:

Let me talk about another myth you tackle, which is the idea of a single founder versus a team sort, the Steve Jobs, Steve Wozniak kind of thing. Despite a lot of folks loving the idea of teams thinking that's definitely the best paradigm. Apparently a single person founding a company tends to outperform. And you actually say that groups working together generate about half the ideas of the same people working alone. In some ways I don't think that's going to be a surprise to people who've been, let's say in a meeting where you've got this idea and all the exciting edgy angles of that idea are shaved off because somebody doesn't like this and maybe somebody else doesn't like that.

Ethan Mollick:

Yeah, and the issue is also there's group performance issues, but there's also issues just of conflict. We want different directions, different results. It's not clear who's in charge, by all means, I should tell everybody's listening. There're advantages starting a company with other people, you're going through this emotionally with them, you have the same stakes that can be great. So I don't want to discourage people from doing that. All I want to say is that people are discouraged from starting companies because they're solo founding and feel like they can't progress until they found a co-founder. I think that there's reason to suspect that that story isn't true.

Kara Miller:

Let's come back actually to this idea of groups. If you are working with a group people, and as you say there are some advantages for sure to working with a group people and to hearing their ideas, you have some suggestions for if you are going to go into a meeting to generate ideas, there are better ways to do it and much less productive ways to do it. You want to talk about that a little bit?

Ethan Mollick:

Oh, definitely. So basically brainstorming was invented in the early 1950s and like 1953, 1954. By 1959 we knew it was a terrible idea. We've been trying to stop it ever since. We meaning people who study innovation. So the issue is, as you were saying before, as soon as you start working in a group setting, people start to have all sorts of social processes. So you start to fixate on other people's ideas. So you immediately stop saying, you're more daring ideas because they headed a different direction. You look at people's faces to see how they're reacting and so you actually generate less ideas and worse ideas when you start with group brainstorming.

So a really simple fix, there's more complicated ways and I've actually built games to teach these and things like that. But the really simple fix is to use what's called brain writing. So for the first one third of your brainstorming meeting, do not talk to each other, sit in a room, write down ideas individually, only after you've done that for the rest of the two thirds of the meeting do you start posting those ideas, recombining them talking to each other. That little tweak increases the quality of your ideas by 10% or more and more than doubles the amount of ideas you generate.

Kara Miller:

I can see that social dimension of judging other people. I have certainly been in meetings where let's say I came in and we were evaluating, I don't know, a piece of writing or something and I thought it was terrible and the first person was like, yeah, I thought it was pretty good. All of a sudden I start to doubt like, oh maybe it's not great, but it's okay, you start thinking maybe I'm just way, way too out on the fringe here. Whereas it sounds like the way you're talking about things, people already have some fringy ideas down before the conversation starts and they immediately erase all their unusual ideas.

Ethan Mollick:

Absolutely. And idea generation requires variants. It requires low quality ideas to have high quality ideas. It requires dumb ideas to have good ones. If you ever observe a writing room among sitcoms or something like that, you'll see people are throwing out terrible ideas all the time. You need permission to do that, to come up with really good breakthrough ideas or to spark someone else's good ideas. So environments that don't have that kind of safety end up coming with worse ideas overall.

Kara Miller:

You have a really interesting line in the book that cut my eye, which is the division between creative and non-creative people is less clear cut than you might think. I think people often conceive of creative people as fully formed or they arrive on the scene that way. It's interesting to me that you don't think that that dividing line between the creative and the non-creative people is so hard and fast.

Ethan Mollick:

Well, I have to qualify that. So there actually has been even more research since the book and I will say your individual creativity is more malleable than you think. The differences in your individual creativity between your most creative and less creative is greater the difference between yourself and other people most of the time. So maximize your own creativity and we talk about some ways to do that, is a huge advantage. However, something has recently been proven true in labs called the Equal Odds Rule, which is people who are creative, who can generate lots of ideas, also tend to generate better ideas than other people in almost any circumstance you put them in. So there are people who are really creative. Now the interesting thing is there's no correlation between creativity and IQ, and this was samples of college students. So it was a IQ cutoff, but nonetheless, it's a skill people have. So it might be a trainable skill and you can maximize on yourself. But you do also want to think about how do you get those most creative people in your organization in an every idea generation session you can.

Kara Miller:

And there are things that turn up the dial on creativity it sounds like. I mean, very mundane things like getting enough sleep, which I don't think people would get much thought to at all.

Ethan Mollick:

So generally for entrepreneurs, one of the simplest tweaks you can do as a founder to be more successful is sleep more. So let me tell you what happens if you don't sleep enough as a founder. Okay? So number one is you generate worse ideas, which we just talked about and there's lab studies for all of these things by the way. Okay? The second problem is that you think your bad ideas are good, you lose your ability to evaluate ideas. The third thing that happens is you become more impulsive and more likely to act on ideas including bad ideas. So founders who are chronically sleep deprived launch more companies around worse ideas than founders who are not sleep deprived. Then once you're actually running your company, if you don't sleep enough, I know this sounds shocking, but you are in a bad mood the next day and for founders their mood is contagious in the company. It actually decreases the performance of your company when you come in cranky. So sleepy founders have angrier companies that get less done, so get a good night's sleep.

Kara Miller:

Well, I think you tell a story of, I don't know if it was a venture capitalist or somebody who used to call people at 1:00 AM at their office to make sure they were still there, that they were still working really hard and grinding it out, which speaks to this image how the images we have, which is somebody who's on the clock at least 20 hours a day like that's the way to go.

Ethan Mollick:

I mean, again, it's a destructive image that also if you have kids, it tells you to neglect your family. And again, biases you to single 20 something folks, right? Which again is backed by data. So we have this problem of a view of an overworked, never wants a social life only doing stuff all the time founder. By the way, when I do a survey, I did a survey of every Living Wharton alumni a few years back and I found that the entrepreneurs were the happiest of all the people, but they also felt like they had the best work family balance.

Kara Miller:

The best work family balance.

Ethan Mollick:

Exactly, because they felt like especially the older founders felt they had some control over when they were working and when they were not. So this doesn't have to be dooming you to working all the time is not necessarily your best strategy for success.

Kara Miller:

It's interesting too because I bet this also affects who startups are able to recruit because I've heard many people when they consider where to work when they're considering a big company or a small company, think I shouldn't work for a startup because I want to have a life and I know I couldn't if I worked for a startup. So they just immediately discount that, right? Because if they want to get enough sleep, if they ever want to see their children, that kind of thing.

Ethan Mollick:

Right. I mean, substituting grinding for smart work is not a great strategy in life overall. It is not a sustainable strategy. So smart startups have to think about those issues.

Kara Miller:

I want to pick up on something you said, which is about who's in the room and what kinds of ideas you're listening to. What do we know about having a diverse team in all sorts of ways of the idea of diversity and what that does, if anything, for a business?

Ethan Mollick:

So there are actually many forms of diversity and we could talk about lots of them. So for example, gender diversity turns out to seem to be a positive from the evidence that we have of startups. So there was this kind of neat study where randomized teams were asked to start startup companies, part of a school project. The closer you were to 50/50 gender split the better you did. There was a similar study in China that showed the same thing. So gender diversity seems to be a positive. Now when we talk about diversity and idea generation, we often talk about background diversity, coming from different sets of experiences, different sets of backgrounds, having an MBA and a lawyer on your team having a philosopher and a business person and that's sort of diversity is good for idea generation. You generate more ideas because you have more perspectives, more backgrounds, more networks to draw from.

The downside of that kind of diversity though is it creates conflict. Now there's a good form of conflict, we call that task conflict, which is argument over what data we should pay attention to, what information matters, what tasks should we be paying attention to. That kind of conflict can sometimes feel bad, but is extremely generative. Teams that have that kind of conflict do better because they're surfacing more issues and solving more problems. If that goes badly, it turns into the second conflict, which called relationship conflict, we actually hate each other, that's bad. But teams with diverse backgrounds are basically a way of generating task conflict. So those teams tend to move a little slower than teams that have more similar backgrounds. So for some kinds of startups we need to act fast, they may have a disadvantage, but for idea generation, for creative problem-solving, there're huge advantages.

Kara Miller:

I'm guessing at a business school that you think a lot about how you get started, those first few steps of a startup and you identify... I want to talk about a few things there. You identify three questions to focus on when you think about your startup. One question is who are you? Second is, what do you know? Third is, who do you know? These sound like incredibly basic questions, but why think through these questions in this particular way?

Ethan Mollick:

So this comes from Professor Saras Sarasvathy at UVA who has studied successful entrepreneurs and has argued that there's actually a thought process behind a lot of their successes and she calls that approach which differs from causation, which is the way marketers tend to think about things. They go step by step in a causal reasoning and she says they work backwards. So successful entrepreneurs often start with this combination of who they are already. So my favorite example of this is maybe Palmer Lucky. So Palmer Lucky famously founded Oculus and since gone and found other companies. But Palmer was a kid interested in VR, and at that point VR technologies had been left for dead. So in the '90s there was a brief interest in virtual reality. Anyone who was alive during that time may remember terrible movies about this Lawnmower Man, which was a VR Stephen King thriller.

Kara Miller:

I don't remember it, but what a great title, Lawnmower Man.

Ethan Mollick:

It was not good.

Kara Miller:

There was a Superman and Batman, I'm sure.

Ethan Mollick:

Exactly. And he did have a lawnmower, so that was good.

Kara Miller:

Sure.

Ethan Mollick:

But then that whole VR thing kind of fell apart. So people stopped investing in VR that was VR winter. During that time, hobbyists kept working away at this and Palmer was one of those hobbyists and he made his own equipment. He got to know various famous people in the industry and at one point he decided to launch a Kickstarter. If you read the original post where he proposes the Kickstarter on the VR forums, he's like, I don't really know anything about marketing stuff. Does anyone have any marketing ideas or anything else? And I'm think about calling this thing the Oculus Rift, but I don't know if that's a good name or not. And he said, I don't really want to make any money from this. I just want to sell it to enthusiast and I'm hoping to make enough money to recoup my cost plus pay for a beer and pizza.

And of course it sold for two billion dollars to Facebook. But Palmer started with the idea of who he was, right? He was a computer guy. Who do he know? He knew people in this industry really well, including some famous people. And what did he know? What skills did he have that were different people? So that's the checklist. Who do I know? What connections do I have that other people don't have? What do I know? What material advantage do I have that other people may not have? And starting from that kind of perspective and who am I? What do I know about myself? What other characteristics do I have that other people don't have? Starting with makes you special, lets you start with an idea that is tailored to you and that large companies that other people may not never spotted.

Kara Miller:

You pose this great thought experiment that I really liked. How do I pronounce this? Which is what would Croesus do? Is it Croesus?

Ethan Mollick:

What would Croesus do? Exactly.

Kara Miller:

Croesus, yeah, you can explain it. I thought this was such an interesting approach to thinking about a problem. I really liked it.

Ethan Mollick:

And this is not my approach, I credit the two authors in the book who mentioned this, but it's a very common approach used overall, which is that constraints tend to create issues for us. So when we try and solve problems, we often start off with very constrained view. I only have this much money, this much time, I only know these things. So we tend to come with ideas that are very constrained and there's value in that too. We could talk more about that, but it sometimes helps to loosen constraints. So Croesus was the ancient king of Lydia to give too much detail, but he was one of the first people to mint gold's coinage. So there're pictures of his face all over ancient coinage and there became an expression as richest Croesus as a result. So what would Croesus do is asking what Elon Musk would do? What would the richest person in the world do to solve the problem that you're facing?

So an example I like to give is imagine Croesus drops his iPhone and it breaks. What would Croesus do? Well, you might think, okay, well, he'd probably wouldn't go to the Apple store to buy a new iPhone. Maybe he has a bunch of iPhones available and one of his assistants hands him a new iPhone. But that's annoying because it doesn't have his data in it. So maybe Croesus is constantly having people back up his iPhone and restoring it. So as Susie drops one, someone hands him a new iPhone that he's ready to use right. Now, obviously that's very expensive, we can't do that. But the richest Croesus argument is then let's figure out what can we do to get the same outcome with a different means.

So maybe we have the idea of maybe there's a service that has trucks available and when you subscribe to the service for some small amount a month, you automatically have a backed up iPhone waiting for you on these trucks or ready to download to these trucks. And as soon as you break your phone, they drive over, give you a new phone with your backup, restoring, take your old phone and charge you a convenience fee for doing that. So is that a good business idea? I'm not sure, but it is an example of how you could take unconstrained thinking and then apply it to your business.

Kara Miller:

Something that's happened I think in fairly recent years is the rise of accelerators so that people have ideas. They very often join these small business accelerators. I think 28% of VC investment you say now comes through accelerators. How has having these collections of people with resources for sure you get connected to resources. How has that changed the landscape of how ideas get filtered and changed?

Ethan Mollick:

So accelerators are interesting because they do what it says on the tin, they accelerate. So it doesn't actually guarantee success. It actually makes you fail faster or succeed faster. And if you fail, you end up better connected, especially if you go to a high status accelerator like Y Combinator to the rest of the world afterwards. So it really does accelerate and part of the reason accelerates is the same reason business plan contests accelerate. You actually compare yourself to your peers and you're like, oh, my idea is not very good, I'm going to drop out now. And that actually turned out to be good because it discourages people who have bad ideas wasting time with them or who can't make their idea work and encourages people with good ideas to keep going. So it's actually more social comparison than anything else that's driving that factor.

Kara Miller:

Do you feel like there are downsides to people being in these collections rather than working individually with all the, I don't know, geographic diversity or whatever kind of differences that might normally exist?

Ethan Mollick:

Well, in some ways it's a better form of diversity. I mean geographic diversity, right? Though according to the beginning of 2022 where we have the numbers from, Silicon Valley still gets 40% of USVC funding. That number's been pretty stable between 30 and 40%. And that's despite all the remote work is coming and rise of all these other cities, geographic diversity already doesn't exist. The average of venture capitalist and a company they invest in is only 80 miles.

Kara Miller:

So basically the idea is if you want to start a company move, I mean, that's what it sounds like you're saying to a lot of people I would think.

Ethan Mollick:

Yeah. So I could tell you that pre-pandemic, the best most careful studies we have shows that even moving from the second best startup city in the United States, which is New York to Silicon Valley results in a boost in outcomes for these companies that move. And I'm hoping Zoom changes that. There's no reason I grew up in Milwaukee, Wisconsin. I think there're great ideas all over the United States, all over the world. By the way, for example, in Q2 2022, LA raised more money than three continents combined. And LA is the third biggest startup city or was at that point. So more than South America, Africa and Australia combined. Penn graduates from my school raised more money last year than everyone in France and Germany put together.

VC is already very biased in those ways. So yeah, I mean the answer is moving tends to work. So the short version is I don't know whether we're losing diversity by moving to accelerators. I think that gives more people at least a first shot at the pie to mix metaphors. But I also think that it is, and I think a support network helps going back to that solo versus group founders. So you have a group of people to lean on who may not be part of your company. So I don't necessarily think that you're losing a lot by moving to accelerators.

Kara Miller:

Just building on what you said, is your sense that as we come out of the pandemic, things will be any different in terms of these geographical concentrations of investment than they were three years ago?

Ethan Mollick:

So the issue is if you look at how venture capitalists spend their time and time surveys these, most of them spend their time doing two things, especially more junior venture capitalists. They source deals and they manage portfolio companies. So they're looking for new deals and they're doing portfolio companies. It's potentially that the early deal sourcing can be done over Zoom, but ultimately you have to have a bunch of meetings with people. So you need to be somewhere. Sourcing is one thing, but then monitoring is actually hard. If you are trying to monitor a company's performance over resume, it helps a lot to actually go visit the company.

And so there're geographic constraints on a venture capitalist time. In fact, when you add a direct flight between SFO San Francisco airport and any other city in the country, VC investment in that city goes up because people can go there to do monitoring better. So I'm hopeful. I would love to see geographic barriers fall. People have predicting this and again, as of the best numbers we have in early 2022, and I'm sure there'll be more updates, there is literally no sign of that happening. It doesn't mean it's not going to, but no sign of it happening.

Kara Miller:

Got it. Let's talk for a minute about building a team. You say some things that I find really interesting and counterintuitive. One is this idea that people have talked about before, which is that the best engineers, the best whoever's, are much better, not just twice as good or even three times as good necessarily as somebody who's mediocre, but they're much better than that. Is there truth to that? What's your feeling about how talent falls? Because this also dictates how much you're willing to pay somebody because how much are they worth?

Ethan Mollick:

So the answer is yes, they're a huge talent gaps and there are talent gaps in literally every field that you might look at. So programmers are the most mythical. You might have heard of the 10 times engineer. And interestingly, the studies that established that were done in 1965 and 1983, and they by the way found a difference between eight and 28 times depending on what factors you looked at. So I actually think that there's reason to suspect there're big gaps, but also what talent means in those cases matter. But it's not just that. Let's say we take something surgeons. The surgeons at the bottom quartile have four times as many complications as the surgeons in the top quartile at even the same hospital. I did work on middle managers. The difference in middle management in who your middle manager is, the specific person who's the middle manager in a video game determines 28% of the difference in which video games succeed and which one's fail. The best people in any field are much better than the less good people. Getting those best people is a huge force multiplier for you as a startup company.

Kara Miller:

Do you think that that's something people realize or not enough?

Ethan Mollick:

I think that people are aware about engineers and they put this mystical thing that some engineers are just better. And by the way, I think we need to unpack that. I think engineers who are the best coders, they may not be good engineering managers, they may not be good product visioning, but I do think that skill differences in particular areas outside of engineering are not taken into account nearly enough. I think middle management gets overlooked a lot by startup companies. While there're tons of evidence that middle management is a huge benefit to startups, and if you talk to any founder, at some point you have to start scaling your company and then the quality of your management determines your success. So I think people need to pay attention to things outside of the area of coders.

Kara Miller:

Well, middle management also feels like something that would be probably hard to get funding for. It seems very, I don't know, kind of un-sexy, encore to what you're doing. But what you're saying is don't write off management as crucial to whatever your project is?

Ethan Mollick:

Management is a technology, and I mean that literally that anybody who applies better management does better. In fact, 30% of the US productivity advantage over other countries is because we have better management on average in the US. So management is critical. It can be learned, that's why I teach this stuff. But also it is underestimated. There was a study in Germany that shows that startups that got middle managers sooner performed those that didn't. We actually know there is a huge role in figuring out how to use resources, who does what task, how tasks get done, how you coordinate, how you learn. That is a management job. And overlooking that is a disaster for startup companies and especially a bottleneck scaling if you can't get good managers.

Kara Miller:

You write about the importance and certainly some big deal of people have talked about this too, of keeping a notebook. I wonder if you can talk about the notebook, but also what that says to you about the frame of mind of a person who's going through this incredibly fast paced competitive process which is building a company.

Ethan Mollick:

So one of the things that you have to realize as somebody who's starting a company is lots of stuff is happening all the time. Most of your strategic decisions are actually tactical ones where you're trying to just make a choice before something and those decisions end up adding up. So you will tend to lose track of things really easily. So the notebooks are really practical idea, which is where different mindsets over different period of time. To call back to what I said earlier, the variation between an entrepreneur and their own creativity over the course of a day is greater than the variation between average entrepreneurs.

So there are times in your day and there are modes where you're creative and there are times of the day where you're not, you'll encounter information that's valuable and forget it. So I just recommend having a file on your phone, we call it spark notes. And you just write down any idea bit of information data that comes to you. And the really important part is not writing it down, it's every month reading through the whole thing and seeing if you find connections or new ideas in yourself. Your goal is to maximize your own creativity and ideas and not just get caught up only in the tactical, but also think strategically in a visionary way.

Kara Miller:

In terms of your own work, what are you really interested in now? What are you working on now? What questions do you have as you move forward?

Ethan Mollick:

There's something I'm really passionate to talk about because I'm very inspired by of all things of this study in Uganda. And what the study in Uganda felt did was it took high school students and they were able to apply to a program and something that were randomly admitted to it to get a three week MBA-ish style entrepreneurship course. Okay? And three years later, the people who got that course had something like 20% higher chance of starting a company. Eight or 10% higher income were more likely to have hire people. The program paid back for itself in multiples just after three years. Little bits of entrepreneurial training are transformative and the belief that entrepreneurs are born and not made is dangerous. First of all, lots of people become entrepreneurs without meaning to, and there are skills you can learn. So I am absolutely passionate about how do we teach those skills at scale.

So what I've done at Wharton is launched an internal startup called Wharton Interactive. It's our internal game studio. And I build games and simulations that anyone could play. Some of them are completely free that actually let you run a fake startup company in real time and give you feedback. And I've got some of the most successful entrepreneurs of the country who pop up in videos that give you advice and you literally have to live with the consequence of your action inside the games. And I want to figure out how do I teach entrepreneurship at scale? I could do this great in our classroom. We've had, I think out of the course I teach at Wharton, both myself and other faculty members, we've had every startup from Warby Parker on down launched from there billions of dollars is funding raised, but that's hundred people at a time. How do we get a million people to learn entrepreneurship? So that is my passion at this point. How do we make that happen? How do we use an evidence based approach to do that? How do we transform the world through entrepreneurship education?

Kara Miller:

Ethan Mollick is an associate professor at the Wharton School at the University of Pennsylvania, he's also the author of The Unicorn's Shadow: Combating the Dangerous Myths that Hold Back Startups, Founders, and Investors. Ethan, thank you so much.

Ethan Mollick:

Thank you. It was a pleasure.

Kara Miller:

And thanks so much as always to you for being here. That's it for this week's show. If you want to know more about how good management makes a real difference, check out our episode, why you're managing talent all wrong. I talked with Roger Martin. He's a former business school leader and an advisor to CEOs about why managing talent may be the single most important part of an executive's job. I'm Kara Miller. The show is produced by Matt Purdy. I'll talk to you next week.