"The Voltage Effect
By John A. List
(Currency, 263 pages, $28)
John List's "The Voltage Effect" is marketed as a generic business title on how and whether to scale up an idea or product. Mr. List, an economics professor at the University of Chicago, explores why some ideas attain "voltage" and catch fire while others die out. This angle suggests that it will be another book about how to turn that great invention in your garage into the next Hewlett-Packard. But Mr. List is far too thoughtful to write something gimmicky or simple.
Scaling up can mean taking a product that appeals to a niche, local market and making it commercially viable to the masses.
It can also apply to a belief or set of values, or a policy aimed at a small group of people that has the potential to work on a wider level.
Mr. List has run many small-scale policy experiments, in particular with education. He knows that what makes a small charter school in the Chicago area succeed doesn't always work when taken nationally. He also knows what products can scale -- he was the chief economist at Uber and Lyft and has consulted with major corporations.
Mr. List starts with five questions to ask yourself before deciding to scale up.
First, is your product or idea actually good, or has your research misled you because you wanted to believe something was true when it wasn't? (Perhaps your test sample doesn't conform to the general population or you mistook correlation for causality.)
Do you know your audience, and can you deliver something people want and are receptive to?
Does the product or idea work because of the talent of certain individuals, and can it scale without them?
Does it work in small settings but once scaled create externalities or spillovers that undermine success or make things worse?
And does the idea, instead of getting cheaper, become more expensive as it scales?
Once you have a worthy idea, Mr. List says, you must create incentives among employees to bring it to scale while acknowledging that not everyone thinks like you and your staff.
You have to think on the margins [1] rather than in averages and make sure you are spending each additional dollar in the most effective way.
You must know when to cut your losses and quit.
And finally you need to create a workplace culture that scales.
Mr. List compares two fishing communities in Brazil, one where people fish in teams and the other where they mostly work alone. On a small scale either approach can work, but a culture that fosters teamwork is better if you want to go big.
He also describes his time at Uber, when chief executive Travis Kalanick was forced out. A startup "bro" culture of the sort that Uber had may not work so well when you become a big corporation, and Mr. List suggests hiring a diverse staff to avoid this pitfall.
Mr. List is an entertaining and clear writer. His book is chock-full of compelling stories of businesses that failed and others that went big. The British chef Jamie Oliver, for instance, built a hugely successful network of Italian restaurants. Key to its rise (the first location opened in 2008) were an especially talented executive named Simon Blagden, and the spirit and personality of Mr. Oliver. But the chain ran into trouble after Mr. Blagden left in 2017. Mr. Oliver began to overstretch himself, and his absence, Mr. List writes, created a leadership void. The restaurant empire collapsed in 2019. The author also describes research projects he worked on that failed to scale and even shares lessons from his personal life, like when he realized he had more potential as an economist than as a professional golfer.
"The Voltage Effect" is a fine business book, though in many ways it works better as a meditation on the shortcomings of our increasingly data-driven world. The business community and academia have been taken over by data science.
Mr. List seemingly argues that good and helpful data analysis may not scale well.
It takes tremendous skill and talent to distinguish a scalable idea from one that is doomed to flop when you are working with a limited set of data and have an incentive to overhype your results.
Data is the new currency; companies are presumed to have an unfair advantage if they have access to more of it. What gets less attention is the shortage of people who know how to make sense of statistical experiments and generalize them to a larger population.
The fields of business, policy and economics have all become enthralled with Randomized Control Trials. These are statistical experiments in which researchers take two populations: a "treatment" group that may be given cash or some other incentive and a "control" group that is not given anything. Researchers then observe any difference in outcomes from the experiment to make policy recommendations. RCTs can be a useful tool. But taking Mr. List's lessons to heart, you see how limited they are.
Even the best-designed experiment may not give you insights that scale. For example, studies have found that it is more effective to give people cash in Kenya than to distribute aid through arcane development programs. The mantra in the development community has become "just give people money." But just because cash is better than aid in Kenya, it doesn't necessarily mean that a Universal Basic Income will work well in California.
We are keen for easy answers, but an idea that will truly scale is rare, and so is the ability of a founder to recognize it and make it grow.
The dominance of data science has obscured that hard truth because it is easy to get encouraging results and take them as validation that you have a winner.
This is a problem that is itself scaling up as we become more data-driven -- and another reason why "The Voltage Effect" is more far-reaching than the simpler book it's presented as.
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Ms. Schrager is a senior fellow at the Manhattan Institute and the author of "An Economist Walks Into a Brothel and Other Unexpected Places to Understand Risk."" [2]
1. “Thinking on the margin or marginal thinking means considering how much you value an addition of something. You ignore the sunk costs of what's already going to happen, and weigh up the costs and benefits of adding in something extra (extra work, money, bananas etc.).”
2. Do We Have A Winner?
Schrager, Allison.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 28 Mar 2022: A.15.
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