Sunday, June 12, 2011

When Loose Entrepreneurs Get Tight

There’s a fascinating study out in Science magazine which says that the competition among nations isn’t about East vs. West, communism vs. democracy, or Christianity vs. Islam.  It’s not even about those with and without McDonald’s.

It’s about what researchers from the University of Maryland refer to as “loose” vs. “tight.”  

“Loose” describes nations like Brazil and United States that have relatively weak social norms and a high tolerance for deviation.  “Tight” describes nations with strong social norms that punish anti-social behavior, like Japan, Singapore and Pakistan.

Nearly 7,000 people from 33 countries participated in the survey, and researchers are quick to point out that they’re not making value judgments.  (You’d have to admit, though, that it gives the old plumber’s reminder of “righty tighty, lefty loosy” a whole new meaning, doesn’t it?)

What’s even more interesting, however, are the underlying conditions that give shape to this phenomenon.  Want to organize a “tight” nation?   Think high population density, scarce natural resources, a history of conflict over the last century, and regular outbreaks of disease.

The topic of loose vs. tight is a staple of management, made perhaps most famous by In Search of Excellence where leaders were encouraged to embrace “simultaneous loose-tight properties.”  So, one company might give authority to issue customer credits up to $5.00 to Customer Service Reps, $50 to Customer Service Managers, and $250 to Customer Service VPs.  That would be a tight, rules-driven, high conformity ship.  Another company might tell its team  that “One of our core values is to take care of customers” and then let each Customer Service Rep (and everyone, for that matter) solve customer service problems as they see fit.  

The price of focusing on values instead of rules is generally education--you’ll then need to train the folks in customer service to really listen to customers, understand their issues, and not try to solve everything by automatically giving away money.  But it’s always worth the effort. Rules take obedience; values take smarts.

And, unlike the Maryland researchers, we don’ t have to be politically correct about that conclusion.

It’s probably fair to say that we all know bunches of small, loose companies, and bunches of  large, tight companies.  And there are a few companies, like Google, that got so large so quickly and with such abundant resources and so little conflict --and nary an outbreak of disease--that it’s managed to remain very loose.  That’s why we marvel at it; it’s so different from what we’re used to.  Of course, the next decade will be the real test, as Google absorbs body blows from China, the publishing industry, Bing and Facebook, governments concerned with privacy and governments worried about monopoly and governments dealing with revolutions.  We can reasonably predict that Google will be tighter a decade from now (despite the new CEO’s impulses); it’s just a question of how tight.

The other odd extreme, however, is the small, tight company.  The really wired-up start-up.  They happen, and they happen more than you think because entrepreneurs bring lots of baggage to a start-up.  If the particular leader has personally taken a bunch of body blows, he or she is apt to be wound in ways that can make for a stifling organization, despite the fact that start-ups and emerging companies that don’t stay fluid often don’t stay around.

This is all just thinking-out-loud conjecture, of course, but I wonder if it doesn’t explain why failed entrepreneurs don’t seem to do better the second time out.  (The post is here and it says: First-time entrepreneurs have a 22% change of success, experienced successful entrepreneurs a 34% chance, but experienced entrepreneurs with a previous failure have only a 23% chance of success.)  My hypothesis would be that failed entrepreneurs taking a second bite may have learned tons from their first experience, but those lessons are more than offset by the “tightness” that comes from taking all those body blows.  So, they’re made smarter by failing but able to tolerate less of the fluidity and values-based leadership required to pilot a successful start-up.

I was on the phone just last week with a friend who was being driven from (what he believed) could be a very successful start-up by a CEO who was running things so tightly that nobody could breath.  Worse, the CEO wouldn’t go out and raise capital the company required for fear of giving up some of that control.

I assume smart investors figured out this loose-tight trade-off a long time ago and have a way of sussing it out in due diligence.  On the other hand, only 1 in 5 failed entrepreneurs is successful the second time out, so maybe it’s harder than that, or not as well understood.

I once interviewed a gentleman, maybe 40, and I asked him about his most spectacular failure.  He told me, not only had he never had a spectacular failure, that he’s never failed at all.  That would be classic tight--40 years old and couldn’t admit to a single failure.  So tight, in fact, that I kept waiting for his head to pop-off during the interview.

It didn’t, but it might have happened later.  Maybe even in the parking lot after the interview. I just know enough about tight to also know I didn't want to be around to watch.