Thursday, September 18, 2014

Entrepreneurs Are Not Overconfident Gamblers

next-invest.ru

One facet of the mythology about today's entrepreneurs is that they are major risk takers.  But are they?  This study goes against this stereotype, pointing out that many entrepreneurs take very reasonable risks after considering the costs to their lives.

Over the years I've read studies that point out that many true entrepreneurs are cautious about their decisions to go into business, often working full and part time jobs for the first year or two of their enterprise.

Here's the report on the study:


Entrepreneurs Are Not Overconfident Gamblers
Leaving one's job to become an entrepreneur is inarguably risky. But it may not be the fear of risk that makes entrepreneurs more determined to succeed. A new study finds entrepreneurs are also concerned about what they might lose in the transition from steady employment to startup.

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In "Entrepreneurship and Loss-Aversion in a Winner-Take-All Society," Professor John Morgan at UC Berkeley's Haas School of Business and co-author Dana Sisak, assistant professor at the Erasmus University Rotterdam, focused on the powerful impact of loss aversion.

Loss aversion, or the fear of losing one's salary at a full-time job, along with its prestige, is directly linked to the amount of effort an entrepreneur puts into a startup. Loss aversion, the researchers found, is what drives most entrepreneurs, not a love of risk.

"There is a view that entrepreneurs are often overconfident gamblers, who thrive on risk, yet there is little evidence to support this view," says Morgan, who studies competition in online markets at the University of California, Berkeley's Haas School of Business. "Entrepreneurs aren't Steve Jobs. They're just ordinary people who want to start a business. I wanted to try to understand a little better what motivated those individuals."

Many studies focus on what makes a successful entrepreneur different than the rest of us. Morgan sought to learn what motivates individuals to sacrifice a secure job, and what determines an entrepreneur's effort to succeed.

The study is based on a theoretical model the researchers developed and was inspired by the dramatic stories people like to tell about risk-taking entrepreneurs.

All entrepreneurs have a "reference point," which defines how they feel about their salary or, say, happiness level, compared to others, Morgan says. That reference point is not connected to profits and losses, but is directly linked to how much or little the entrepreneurs are willing to lose when starting a company.

Morgan and Sisak found an entrepreneur's level of ongoing concern about loss aversion correlates with entrepreneurial effort. In other words, entrepreneurs who put a high stake on avoiding loss -- more so than acquiring new gains -- worked harder.

Morgan used a winner-take-all framework, which is common within the Internet startup environment, for his study of entrepreneurs. Startups such as Facebook or Twitter might not offer the best platforms, but still dominate their markets. In markets such as real estate, where there is no clear single winner, this model would be less appropriate, Morgan says. "For every Facebook, there were hundreds of failed ventures," he says. "We model this aspect of entrepreneurial markets explicitly." This research can help entrepreneurs gain self-knowledge so they make better decisions and have a clear understanding of "why they're doing what they're doing," Morgan says.

"One of the most important traps entrepreneurs fall into is when they're not experiencing success and they become increasingly willing to take risks because of where they are psychologically," he says. "One lesson from the research is to be careful when you are behind. It's not necessarily the best decision to double down."

In other words, risk aversion can be a good thing.

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Story Source:  Materials provided by University of California - Berkeley Haas School of Business. University of California - Berkeley Haas School of Business. "Entrepreneurs aren't overconfident gamblers, researchers say." ScienceDaily, 17 September 2014.

Tuesday, August 26, 2014

Humble Leaders Get More Employee Commitment

Source: mpiweb.org

Those business owners or managers who are more critical of their own leadership style than their employees have the greatest success.  Why?  Leaders with self-insight, who are humble and act as credible role models, are rewarded with committed and service-minded employees.

This is the conclusion in a study conducted among 1500 leaders and their employees.

The leaders were asked to assess their own leadership style, while their employees were asked to assess the same style. The eye of the beholder is in fact important for a leader's ability to create job commitment and a good service climate.

The organisation researchers compared the employees' assessments and the leader's assessments of his or her leadership style, and found that the responses were by no means identical -- rather the opposite.
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The employees decide
Leaders can think whatever they like about their own leadership style. The study shows that leaders' assessments of themselves have little direct impact on the employees' commitment to work.
"It is only when we compare the employees' and the leader's assessments of the same leadership style that we see how leadership affects commitment and service climate," says organisation researcher Karoline Hofslett Kopperud, who conducted the study with Professor √ėyvind Martinsen and Associate Professor Sut I. Wong Humborstad at BI Norwegian Business School.

Transformational leadership.
When employees feel a leader conducts this type of leadership, it has a positive effect on the perceived service climate in the organisation. It is particularly true when the leader is humble and has a lower opinion of his leadership than his employees have.

"The extent of agreement between the leader and the employees concerning his/her leadership style can both enhance and negate the positive effects of leadership," says Hofslett Kopperud.

Training in self-insight
The extent of agreement between a leader's assessment of herself and the employees' assessment of the same leadership is an expression of the leader's self-insight. Leaders with a strong self-insight demonstrate a good understanding of their own needs, emotions, abilities and behavior. On top of that, they are proactive in the face of challenges.

The researchers recommend that leadership development programs should also contribute to greater correlation between a leader's own assessment of leadership and the employees' assessment. This can be achieved by including training in self-reflection and role clarification with one's nearest staff in the development program.

"It will give the leader a better understanding of how his or her behaviour is perceived and interpreted by the employees," says Hofslett Kopperud.
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Story Source:  Materials provided by BI Norwegian Business School, written by Audun Farbrot.  K. H. Kopperud, O. Martinsen, S. I. W. Humborstad. Engaging Leaders in the Eyes of the Beholder: On the Relationship Between Transformational Leadership, Work Engagement, Service Climate, and Self-Other Agreement. Journal of Leadership & Organizational Studies, 2013

Thursday, August 7, 2014

How your business's religious affiliation safeguards against negative reaction

 

"Customers are more likely to forgive firms when service
failures are associated with religion, no matter what
religion was used in the scenarios: Christianity, Judaism or Islam."

While companies like Hobby Lobby and Chick-fil-A are at the forefront of debate over the religious rights of employers, a new study by a Grand Valley State University researcher shows religious affiliation can safeguard companies against negative reactions to store policies.

Kelly Cowart,
Assistant professor of marketing
at Grand Valley State University
The research, led by Kelly Cowart, assistant professor of marketing at Grand Valley State University, examines the effect of a firm's religious association on customer perceptions of the firm, especially when a service failure occurs. A service failure is defined as limited hours of operation or a temporary store closing.
 
Cowart said the current findings indicate that religious affiliations may buffer against some of the negative fallout that ensues in the wake of a service failure, as consumers do not penalize such firms as heavily as those without an affiliation. "More importantly, the findings suggest that a religious affiliation can garner favor even when the religion is not the dominant religion in society," she said.

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Two experimental studies were conducted in which participants assumed the role of a customer visiting a restaurant for the first time. In study one, the customer either ate a meal at the restaurant or could not eat a meal due to the restaurant's closing for an annual holy day. In study two, the restaurant is closed for weekly religious worship rather than an annual holy day.

"Results from both studies revealed that customers are more likely to forgive firms when service failures are associated with religion, regardless of attitudes toward the religious group," said Cowart. "The results were similar no matter what religion was used in the scenarios: Christianity, Judaism or Islam."
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Story Source: Materials provided by Grand Valley State University.  Kelly O. Cowart, Edward Ramirez, Michael K. Brady. Religious affiliation: buffering negative reactions to service failures. Journal of Services Marketing, 2014

Monday, June 30, 2014

Are you seen as a jerk at work?

Credit: © diego cervo / Fotolia
New research shows that many people seen by others as under-
assertive or over-assertive think they're appropriately assertive.
 
New research shows that many people seen by others as under-assertive or over-assertive think they're appropriately assertive. The study also reveals that people seen as getting assertiveness right often mistakenly think they've gotten it wrong.
 
Jill Abramson was recently ousted from her position as the executive editor of The New York Times for being, among other things, too "pushy." But did Abramson -- who has also been described by the media as "polarizing" and "brusque" -- know during the course of her tenure that others viewed her as being overly assertive? A new study from the Columbia Business School suggests that there's a great chance she didn't.

"Finding the middle ground between being pushy and being a pushover is a basic challenge in social life and the workplace. We've now found that the challenge is compounded by the fact that people often don't know how others see their assertiveness," said Daniel Ames, professor of management at Columbia Business School and co-author of the new study. "In the language of Goldilocks, many people are serving up porridge that others see as too hot or too cold, but they mistakenly think the temperature comes across as just right -- that their assertiveness is seen as appropriate. To our surprise, we also found that many people whose porridge was actually seen as just right mistakenly thought their porridge came off as too hot. That is, they were asserting themselves appropriately in the eyes of others, but they incorrectly thought they were pushing too hard."

Based in part on research previously conducted by Ames and former Columbia Business School Professor Frank Flynn, the new study is called, "Pushing in the Dark: Causes and Consequences of Limited Self-Awareness for Interpersonal Assertiveness" and will be published in Personality and Social Psychology Bulletin this month. In short, the research shows that many people seen by others as under-assertive or over-assertive think they're appropriately assertive. The study also reveals that people seen as getting assertiveness right often mistakenly think they've gotten it wrong.

The Research
Ames and fellow researcher Abbie Wazlawek -- a doctoral student at Columbia Business School -- conducted four studies to test their hypotheses about the connection between assertiveness and self-awareness. Three of the four studies involved participants who were MBA students enrolled in negotiation courses at Columbia Business School, and one study involved an online survey of 500 US adults.

The MBA student studies paired up developing professionals for mock negotiations over issues such as licensing rights. After the deal-making, each person answered questions about their own assertiveness and their counterpart's assertiveness. The negotiators were then asked to guess what their counterpart said about them. A key question for the researchers was whether people knew what their counterparts thought of them.

The studies found that, generally speaking, negotiators have a lot of work to do in the self-awareness department. For example, one study found that:
  • 57 percent of people actually seen by their counterpart as under-assertive thought they had come across as appropriately assertive or even over-assertive.
  • 56 percent of people actually seen by their counterpart as over-assertive thought they had come across as appropriately assertive or even under-assertive.
  • Together, these results suggest that people seen as getting assertiveness wrong in the eyes of others had about a coin-flip's chance of recognizing how they were seen.
"Most people can think of someone who is a jerk or a pushover and largely clueless about how they're seen," said Ames. "Sadly, our results suggest that, often enough, that clueless jerk or pushover is us."

The researchers were surprised to discover another pattern in their results. Ames and Wazlawek found that many people getting assertiveness right mistakenly thought they were seen as pushing too hard. In multiple studies, Ames and Wazlawek observed a good share of people displaying what they called the "line crossing illusion." These people believed that they came across as being too assertive -- or had crossed a line -- during negotiations, when in fact their counterparts saw them as being appropriately assertive.

While the "line crossing illusion" might seem like a harmless or even endearing mistake, Ames and Wazlawek showed that it can be costly. Those who mistakenly thought they had over-asserted themselves were more likely to try to repair relationships with their partners, sometimes agreeing to a less valuable subsequent deal just to smooth things over. As the researchers put it, these negotiators were attempting costly repairs for something that wasn't broken. The result was that both sides frequently lost out on what could have been a better deal.
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Story Source: Materials provided by Columbia Business School. D. R. Ames, A. S. Wazlawek. Pushing in the Dark: Causes and Consequences of Limited Self-Awareness for Interpersonal Assertiveness. Personality and Social Psychology Bulletin, 2014