Engineering Graphics Essentials 2015 Solutions Manual
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There’s no handbook on how to evaluate and process “suggestions” and “advice” from a boss or a mentor. But how you choose to act on these recommendations can speed up your learning and make or break your career. Here’s what to keep in mind: I had a team of students working on an arcane customer problem. While they were quickly coming up to speed, I suggested that they talk to someone who I knew was an expert in the area and could help them learn much faster. In fact, starting in the second week of the class, I suggested the same person several times – one-on-one, in class and in writing.
Each time the various team members smiled, nodded and said, “Yes, we’ll get right on it.” Finally, eight weeks later when they were about to fly across the country to meet the customer, I reminded them again. When they returned from the trip, I asked if the advisor I suggested was helpful. I was a bit surprised when they replied, “Oh, we’ve been trying to connect with him for a while and he never responded.” So, I asked: Team, As per our conversation about the lack of response from your advisor John Doe -please forward me copies of the emails you have sent to him. Thanks Steve The reply I received was disappointing — but not totally surprising.
Dear Steve, Unfortunately, I believe our team has painted the wrong picture due to miscommunication on our part. It was our responsibility to reach out to John Doe, but we failed to do so. We did not attempt to reach out to him up until Week 8 before our flight, but the email bounced.
We got caught up in work on the trip and did not follow-up. What we should have done was to clarify the email address with our Teaching Assistant and attempt to contact him again. Best regards, Taylor Extra credit for finally owning that they screwed up – but there was more to it. Combine Outside Advice with Your Own Insights Upon reflection I realized that this student team was missing a learning opportunity. They were soon heading for the real world, and they had no idea how to evaluate and process “suggestions” and “advice.” Ironically, given they were really smart and in a world-class university, they were confusing “smart” with “I can figure it all out by myself.” Throughout my entrepreneurial career I was constantly bombarded by advice – from bosses, mentors, friends, investors, et al. I was lucky enough to have who took an interest in my career, and as a young entrepreneur, I tried to pay attention to what they were trying to tell me. (Coming into my first startup from four years in the military I didn’t have the advantage of thinking I knew it all.) It made me better – I learned faster than having to acquire every bit of knowledge from scratch and I could combine the data coming from others with the insights I had.
Have a Process to Evaluate Suggestions and Advice Here was my response to my student team: Dear Team: Throughout your work career you’ll be getting tons of suggestions and advice; from mentors – people you don’t work for but who care about your career and from your direct boss and others up your reporting chain. Treat advice and suggestions as a gift, not a distraction.
Assume someone has just given you a package wrapped in a bow with your name on it. Then think of how they’ll feel when you ignore it and toss it aside. When you’re working at full speed just trying to get your job done, it’s pretty easy to assume that advice/suggestions from others are just diversions. That’s a mistake. At times following up on them may make or break a career and/or a relationship. The first time your boss or mentor will assume you were too busy to follow up. The second time your boss will begin to question your judgment.
Your mentor is going to question your willingness to be coached. The third time you ignore suggestions/advice from your boss is a career-limiting move. And if from a mentor, you’ve likely damaged or ended the relationship. Everyone likes to offer “suggestions” and “advice.” Think of these as falling into four categories:.
Some bosses/mentors offer “suggestions” and “advice” because it makes them feel important. Others have a set of contacts or insights they are willing to share with you because they believe these might be useful to you. A few bosses/mentors have pattern-recognition skills. They’ve recognized the project you’re working on or problem you’re trying to solve could be helped by connecting with a specific person/group or by listening to how it was solved previously. A very small subset of bosses/mentors has extracted some best practices and/or wisdom from those patterns. These can give you shortcuts to the insights they’ve taken years to learn. Early in your career it’s hard to know whether a suggestion/advice is valuable enough to spend time following up.
Here’s what I suggest:. Start with “Thanks for the suggestion.”.
Next, it’s OK to ask, “Help me understand why is this important? Why should I talk to them? What should I learn?” This will help you figure out which category of advice you’re getting.If it’s a direct boss and others up your reporting chain, ask, “How should I prioritize this? Does it require immediate action?” (And it most cases it doesn’t matter what category it’s in, just do it.). Always report back to whoever offered you the advice/suggestion to share what you learned.
If you open yourself to outside advice, you’ll find people interested in the long-term development of your career – these are your career mentors. Unlike coaching, there’s no specific agenda or goal but mentor relationships can result in a decades-long. What makes these relationships a mentorship is this: you have to give as good as you are getting. While you’ll be learning from them – and their years of experience and expertise – what you need to give back is equally important – offering fresh insights to their data. If your goal is to be a founder, having a network of mentors/advisors means that not only will you be up to date on current technology, markets or trends, you’ll be able to recognize patterns and bring new perspectives that might be basis for your next startup. Lessons Learned. Suggestions/advice at work are not distractions that can be ignored.
Understand the type of suggestions/advice you’re getting (noise, contacts, patterns, insights). Understand why the advice is being given. Agree on the priority in following it up.
Not understanding how to respond to advice/suggestions can limit your career. Advice is a kickstarter for your own insights and a gateway for mentorship.
Treat advice and suggestions as a gift, not a distraction. We just finished our 3rd annual. Six teams presented their Lessons Learned presentations.
Watching them I was left with wonder and awe about what they accomplished in 10 weeks. Six teams spoke to over 600 beneficiaries, stakeholders, requirements writers, program managers, warfighters, legal, security, customers, etc. By the end the class all of the teams realized that the problem as given by the sponsor had morphed into something bigger, deeper and much more interesting. Each of the six teams presented a 2-minute video to provide context about their problem and then gave an 8-minute presentation of their Lessons Learned over the 10-weeks. Each of their slide presentations follow their customer discovery journey. All the teams used the, Customer Development and Agile Engineering to build Minimal Viable Products, but all of their journeys were unique. The teams presented in front of several hundred people in person and online.
Team: TrackID If you can’t see the TrackID video click If you can’t see the TrackID slides click Team: Polaris. The Class Our mantra to the students was that we wanted them to learn about “Deployment not Demos.” Our observation is that the DOD has more technology demos than they need, but often lack deep problem understanding. Our goal was to have the students first deeply understand their sponsors problem – before they started building solutions. As you can imagine with a roomful of technologists this was tough. Further we wanted the students to understand all parts of the, not just the beneficiaries and the value proposition. We wanted them to learn what it takes to get their product/service deployed to the field, not give yet another demo to a general. This meant that the minimal viable products the students built were focused on maximizing their learning of what to build, not just building prototypes.
(Our sponsors did remind us, that at times getting a solution deployed meant that someone did have to see a demo!) Note: The Hacking for Defense class was designed as “fundamental research” to be shared broadly and the results are not subject to restriction for proprietary or national security reasons. In the 10 weeks the students have, Hacking for Defense hardware and software prototypes don’t advance beyond a Technology Readiness Level 4 and remain outside the scope of US export control regulations and restrictions on foreign national participation. Goals for the Hacking for Defense Class Our primary goal was to teach students Lean Innovation while they engaged in a national public service. Today if college students want to give back to their country they think of, the, or or perhaps the or the. Few consider opportunities to make the world safer with the Department of Defense, Intelligence Community or other government agencies. Next, we wanted the students to learn about the nation’s threats and security challenges while working with innovators inside the DoD and Intelligence Community. While doing so, also teach our sponsors (the innovators inside the Department of Defense (DOD) and Intelligence Community (IC)) that there is a methodology that can help them understand and better respond to rapidly evolving asymmetric threats.
That if we could get teams to rapidly discover the real problems in the field using Lean methods, and only then articulate the requirements to solve them, could defense acquisition programs operate at speed and urgency and deliver timely and needed solutions. Finally, we wanted to familiarize students about the military as a profession, its expertise, and its proper role in society. And conversely show our sponsors in the Department of Defense and Intelligence community that civilian students can make a meaningful contribution to problem understanding and rapid prototyping of solutions to real-world problems. Origins of the class Hacking for Defense has its origins in the Lean LaunchPad class I first taught at Stanford in 2011. It was adopted by the National Science Foundation in 2012 to train Principal Investigators who wanted to get a federal grant for commercializing their science (an SBIR grant.) The NSF observed, “The class is the scientific method for entrepreneurship. Scientists understand hypothesis testing” and relabeled the class as the (Innovation Corps). The class is now taught in 81 universities and has trained over 1500 science teams.
It was adopted by the National Institutes of Health as in 2014 and at the National Security Agency in 2015. In 2016, brainstorming with of BMNT and at Stanford we observed that students in our research universities had little connection to the problems their government as well as the larger issues civil society was grappling with.
Wondering how we could get students engaged, we realized the same Lean LaunchPad/I-Corps class would provide a framework to do so. Both and with the State Department were born. At Columbia, (Non-Profits) at Berkeley and at Duke quickly followed. The Innovation Insurgency Spreads is now offered at eleven universities in addition to Stanford –, James Madison University, University of Southern California and Columbia University. Over the next year it will expand to 22 universities.
A non-profit, was established to train educators and to provide a single point of contact for connecting the DOD/IC sponsor problems to these universities. We’ve been surprised was how applicable the “Hacking for X” methodology is for other problems. It’s equally applicable to solving public safety, energy, policy, community and social issues internationally and within our own communities.
In the next year we’ll see three new variants of the class:. Hacking for the Environment.
Hacking for Oceans. Hacking for Cities It Takes a Village While I authored this blog post, this classes is a team project. The teaching team consisted of:. is a retired Army Colonel currently a Senior Visiting Research Fellow at the National Defense University’s Center for Technology and National Security Policy and CEO of. a 30-year veteran of Silicon Valley technology companies and Hollywood media companies.
Steve is CEO of MovieLabs the joint R&D lab of all the major motion picture studios. is a social science researcher at Stanford. Jeff served in the U.S.
Army as a special operations light infantry squad leader in Iraq and Afghanistan. Two of our teaching assistants were prior students: our lead TA, and and and also assisted. Special thanks to our course advisors –, Professor of Engineering and Faculty Director, STVP, and Co-directors of the Stanford, and, Stanford Provost of Teaching and Learning. A special thanks to and the for supporting the program at Stanford and across the country. We were lucky to get a team of mentors (VC’s and entrepreneurs) who selflessly volunteered their time to help coach the teams. Thanks to Tom Bedecarre, Kevin Ray, Daniel Bardenstein, Rafi Holtzman, Craig Seidel, Michael Chai, Lisa Wallace and Dave Gabler. We were privileged to have the support of an extraordinary all volunteer team of professional senior military officers representing all branches of service attending fellowship programs at, and (CISAC) and (APARC) at the Freeman Spogli Institute (FSI).
These included: Colonel Bradley Boyd, Lieutenant Colonel James “Gumbo” Coughlin, Lieutenant Colonel Marcus Ferrara, Lieutenant Colonel Jer “Jay” Garcia, Lieutenant Commander Nick Hill, Commander Michael Nordeen, Commander Rebecca Ore, Commander Michael Schoonover, Colonel Jason “Shrek” Terry and Todd Forsman. And of course a big shout-out to our sponsors. At SOCOM, Matt Leland and Angel Zajkowski, at MITRE, Suresh Damodaran, at NAVFAC, Ben Wilcox, at the 9th ISR, Ian Eishen, at AFRL, Jeff Palumbo and Mike Rottmayer at the Defense Acquistion University, Shirley Franko and at ERDC Thomas Bozada.! Is your organization full of Hackathons, Shark Tanks, Incubators and other innovation programs, but none have changed the trajectory of your company/agency? Over the last few years and I have helped build innovation programs inside large companies, across the U.S. Federal science agencies and in the Department of Defense and Intelligence Community.
But it is only recently that we realized why some programs succeed and others are failing. After doing deep dives in multiple organizations we now understand why individual innovators are frustrated, and why entrepreneurial success requires heroics.
We also can explain why innovation activities have generated innovation theater, but few deliverables. And we can explain why innovation in large organizations looks nothing like startups. Most importantly we now have a better idea of how to build innovation programs that will deliver products and services, not just demos. It starts by understanding the “Innovation Stack” – the hierarchy of innovation efforts that have emerged in large organizations. The stack consists of: Individual Innovation, Innovation Tools and Activities, Team-based Innovation and Operational Innovation. Individual Innovation The pursuit of innovation inside large companies/agencies is not a 21 st-century invention. Ever since companies existed, there have been passionate individuals who saw that something new, unplanned and unscheduled was possible.
And pushing against the status quo of existing process, procedure and plan, they went about building a demo/prototype, and through heroic efforts succeeded in getting a new innovation over the goal line – by shipping/deploying a new innovation. We describe their efforts as “heroic” because all the established procedures and processes in a large company are primarily designed to execute and support the current business model. From the point of view of someone managing an engineering, manufacturing or operations organization, new, unplanned and unscheduled innovations are a distraction and a drag on existing resources. (The best description I’ve heard is that, “Unfettered innovation is a denial of service attack on core capabilities.”) That’s because until now, we hadn’t levied any requirements, rigor or evidence on the innovator to understand what it would take to integrate, scale and deploy products/services. Finally, most corporate/agency innovation processes funnel “innovations” into “” or “” where they face an approval/funding committee that decides which innovation ideas are worth pursuing. However, without any measurable milestones to show evidence of the evolution of what the team has learned about validity of the problem, customer needs, pivots, etc., the best presenter and flashiest demo usually win.
In some companies and government agencies, innovators even have informal groups, i.e. An Innovators Alliance, where they can exchange best practices and workarounds to the system. (Think of this as the innovator’s support group.) But these innovation activities are ad hoc, and the innovators lack authority, resources and formal process to make innovation programs an integral part of their departments or agencies. Innovators vs.
Entrepreneurs There are two types of people who engage in large company/agency innovation: Innovators – those who invent new technology, product, service or processes; and Entrepreneurs – those who’ve figured out how to get innovation adopted and delivered through the existing company/agency procedures and processes. A version of this article appeared in the Elon Musk, Alfred Sloan, and entrepreneurship in the automobile industry. The entrepreneur who founded and grew the largest startup in the world to $10 billion in revenue and got fired is someone you have probably never heard of. The guy who replaced him invented the idea of the modern corporation. If you want to understand the future of Tesla and Elon Musk’s role – something many want to do, given the constant stream of headlines about the company — you should start with a bit of automotive history from the 20 th Century.
Sloan and the Modern Corporation By the middle of the 20th century, Alfred P. Sloan had become the most famous businessman in the world. Known as the “Inventor of the Modern Corporation,” Sloan was president of General Motors from 1923 to 1956 when the U.S. Automotive industry grew to become one of the drivers of the U.S. Today, if you look around the United States it’s hard to avoid Sloan. There’s the, the, the, and the in New York. Sloan’s book, written half a century ago, is still a readable business classic.
Wrote that Sloan was “the first to work out how to systematically organize a big company. When Sloan became president of GM in 1923 he put in place planning and strategy, measurements, and most importantly, the principles of decentralization.” When Sloan arrived at GM in 1920 he realized that the traditional centralized management structures organized by function (sales, manufacturing, distribution, and marketing) were a poor fit for managing GM’s diverse product lines. That year, as management tried to coordinate all the operating details across all the divisions, the company almost went bankrupt when poor planning led to excess inventory, with unsold cars piling up at dealers and the company running out of cash. Borrowing from organizational experiments pioneered at DuPont (run by his board chair), Sloan organized the company by division rather than function and transferred responsibility down from corporate into each of the operating divisions (Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac).
Each of these GM divisions focused on its own day-to-day operations with each division general manager responsible for the division’s profit and loss. Sloan kept the corporate staff small and focused on policymaking, corporate finance, and planning. Sloan had each of the divisions start systematic strategic planning. Today, we take for granted divisionalization as a form of corporate organization, but in 1920, other than DuPont, almost every large corporation was organized by function.
Sloan put in place (also borrowed from DuPont) that for the first time allowed the company to: 1) produce an annual operating forecast that compared each division’s forecast (revenue, costs, capital requirements and return on investment) with the company’s financial goals. 2) Provide corporate management with near real-time divisional sales reports and budgets that indicated when they deviated from plan. 3) Allowed management to allocate resources and compensation among divisions based on a standard set of corporate-wide performance criteria. Modern Corporation Marketing When Sloan took over as president of GM in 1923, Ford was the dominant player in the U.S.
Ford’s Model T cost just $260 ($3,700 in today’s dollars) and Ford held 60% of the U.S. General Motors had 20%. Sloan realized that GM couldn’t compete on price, so GM created multiple brands of cars, each with its own identity targeted at a specific economic bracket of American customers.
The company set the prices for each of these brands from lowest to highest (Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac). Within each brand there were several models at different price points.
The idea was to keep customers coming back to General Motors over time to upgrade to a better brand as they became wealthier. Finally, GM created the notion of perpetual demand within brands by continually with new models rolled out every year. (Think of the iPhone and its yearly new models.) By 1931, with the combination of superior financial management and an astute brand and product line strategy, GM had 43% market share to Ford’s 20% – a lead it never relinquished. Sloan transformed corporate management into a real profession, and its stellar example was the continuous and relentless execution of the GM business model (until its collapse 50 years later). What Does GM Have to Do with Tesla And Elon Musk?
Well, thanks for the history lesson but why should I care? If you’re following Tesla, you might be interested to know that Sloan wasn’t the founder of GM. Sloan was president of a small company that made ball bearings that GM acquired in 1918. When Sloan became President of General Motors in 1923, it was already a $700 million company (about $10.2 billion in sales in today’s dollars).
Yet, you never hear who built GM to that size. Who was the entrepreneur who founded what would become General Motors 16 years earlier, in 1904? Where are the charitable foundations, business schools, and hospitals named after the founder of GM? What happened to him? The founder of what became General Motors was.
At the turn of the 20 th century, Durant was one of the largest makers of horse-drawn carriages, building 150,000 a year. But in 1904, after his first time seeing a car in Flint, Michigan, he was one of the first to see that the future was going to be in a radically new form of transportation powered by internal combustion engines. Durant took his money from his carriage company and bought a struggling automobile startup called Buick. Durant was a great promoter and visionary, and by 1909 he had turned Buick into the best-selling car in the U.S. Searching for a business model in a new industry, and with the prescient vision that a car company should offer multiple brands, that year he bought three other small car companies — Cadillac, Oldsmobile, and Pontiac — and merged them with Buick, renaming the combined company General Motors.
He also believed that to succeed the company needed to be vertically integrated and bought up 29 parts manufacturers and suppliers. The next year, 1910, trouble hit. While Durant was a great entrepreneur, the integration of the companies and suppliers was difficult, a recession had just hit, and GM was overextended with $20 million in debt ($250 million in 2018 dollars) from all the acquisitions and was about to run out of cash. Durant’s bankers and board fired him from the company he had founded. For most people the story might have ended there. But not for Durant.
The next year Durant co-founded another automobile startup, this one started with Louis Chevrolet. Over the next five years Durant built Chevrolet into a competitor to GM. And in one of the greatest corporate comeback stories, in 1916 Durant used Chevrolet to buy back control of GM with the backing of. He once again took over General Motors, merged Chevrolet into GM, bought Fisher Body and Frigidaire, created GM’s financing arm and threw out the bankers who six years earlier had fired him.
Durant had another great four years at the helm of GM. At the time he was not only running GM but was a major Wall Street speculator (even on GM stock) and was big in the New York social scene. But trouble was on the horizon. Durant was at his best when there was money to indulge his indiscriminate expansion. (He bought two car companies – Sheridan and the Scripps-Booth – that competed with his existing products.) But by 1920, a post-World War I recession had hit, and car sales has slowed.
Durant kept building for a future assuming the flow of cash and customers would continue. Meanwhile, inventory was piling up, the stock was cratering, and the company was running out of cash.
In the spring of 1920 with company had to go to the banks and he got an $80 million loan (about a billion dollars in 2018) to finance operations. While everyone around him acknowledged he was a visionary and a world-class fund raiser, Durant’s one-man show was damaging the company. He couldn’t prioritize, couldn’t find time to meet with his direct reports, fired them when they complained about the chaos, and the company had no financial controls other than Durant’s ability to manage to raise more money.
When the stock collapsed Durant’s personal shares were underwater and were exposed to being called by bankers who would then own a good part of GM. The board decided that the company had enough vision — they bought out Durant’s shares and realized it was now time for someone who could execute at scale. Once again, his board (this time led by the DuPont family) tossed him out of General Motors (when GM sales were $10 billion in today’s dollars.) Alfred Sloan became the President of GM and ran it for the next three decades. Tried to build his third car company, Durant Motors, but he was still speculating on stocks, and got wiped out in the Depression in 1929. The company closed in 1931. Durant died managing a bowling alley in Flint, Michigan, in 1947. From the day Durant was fired in 1920, and for the next half a century, American commerce would be led by an army of “Sloan-style managers” who managed and executed existing business models.
But the spirit of Billy Durant would rise again in what would become Silicon Valley. And 100 years later Elon Musk would see that the future of transportation was no longer in internal combustion engines and build the next great automobile company. Days of Futures Past for Tesla In all of his companies, Elon Musk has used his compelling vision of a future transformed to capture the imagination of customers and, equally important, of Wall Street, raising the billions of dollars to make his vision a reality. Yet, as Durant’s story typifies, one of the challenges for visionary founders is that they often have a hard time staying focused on the present when the company needs to transition into relentless execution and scale.
Just as Durant had multiple interests, Musk is not only Tesla’s CEO and Product Architect, overseeing all product development, engineering, and design. At SpaceX (his rocket company) he’s CEO and lead designer overseeing the development and manufacturing of advanced rockets and spacecraft. He’s also the founder at The Boring Company (the tunneling company) and co-founder and chairman of OpenAI. And a founder of Neuralink a brain-computer interface startup. All of these companies are doing groundbreaking innovations but even Musk only has 24 hours in a day and 7 days in a week. Others have noted that diving in and out of your current passion makes you a dilettante, not a CEO. One of the common traits of a visionary founder is that once you have proven the naysayers wrong, you convince yourself that all your pronouncements have the same prescience.
For example, after the success of the Model S sedan, Tesla’s next car was an SUV, the Model X. By most, Musk’s insistence on adding bells and whistles (like the Falcon Wing doors and other accoutrements) to what should have been simple execution of the next product made manufacturing the car in volume a nightmare. Executives who disagreed (and had a hand in making the Model S a success) ended up leaving the company. The Tesla Model 3 was designed to be simple to manufacture, but instead of using the existing assembly line Musk said, “ the true problem, the true difficulty, and where the greatest potential is – is. In other words, it’s building the factory.
I’m really thinking of the factory like a product.” Fast forward two years and it turns out that the Model 3 assembly line was a great example of over-automation. “ Excessive automation at Tesla was a mistake. To be precise, my mistake” Sleeping on the factory floor to solve self-inflicted problems is not a formula for success at scale, and while it’s great PR, it’s not management. It is in fact a symptom of a visionary founder imposing chaos just at the time where execution is required.
Tesla now has a pipeline of newly announced products, a new Roadster (a sports car), a Semi Truck, and a hinted crossover called the Model Y. All of them will require massive execution at scale, not just vision. Unlike Durant, Musk has engineered his extended tenure and this year got his shareholders to give him a new $2.6 billion compensation plan (and it could potentially ) if he can grow the company’s market cap in $50 billion increments to $650 billion. The board said that it “believes that the Award will continue to incentivize and motivate Elon to lead Tesla over the long-term, particularly in light of his other business interests.” Elon Musk has done what Steve Jobs and Jeff Bezos did – disrupt a series of stagnant businesses controlled by rent seekers, permanently changing the trajectory of multiple industries – while capturing the imagination of consumers and the financial community. Just a handful of people with these skills emerge every century. However, fewer combine the talent for creating an industry with the very different skills needed for scale.
Each of Tesla’s stumbles has begun to squander the very advantage that Musks vision gave the company. And what was once an insurmountable lead by having an (battery technology, superchargers, autonomous driving, over the air updates, etc.) is closing rapidly. One wonders if $2.6 billion in executive compensation would be better spent finding someone to lead Tesla to becoming a reliable producer of cars in high volume – without the drama in each new model. Perhaps Tesla now needs its Alfred P. Lesson Learned. Founders/visionaries see things other don’t and the extraordinary ones create new industries.
When technology changes are rapid you want the founder to continue to run the company. However, when success depends on exploitation and execution at scale their impatience for continuous innovation and invention often gets in the way of day-to-day execution. The best ones know when it’s time to let go. If you asked me why I gravitated to startups rather than work in a large company I would have answered at various times: “I want to be my own boss.” “I love risk.” “I want flexible work hours.” “I want to work on tough problems that matter.” “I have a vision and want to see it through.” “I saw a better opportunity and grabbed it.
” It never crossed my mind that I gravitated to startups because I thought more of my abilities than the value a large company would put on them. At least not consciously. But that’s the conclusion of a provocative research paper, that explains a new theory of why some people choose to be entrepreneurs. The authors’ conclusion — Entrepreneurs think they are better than their resumes show and realize they can make more money by going it alone. And in most cases, they are right. I’ll summarize the paper’s conclusions, then share a few thoughts about what they might mean – for companies, entrepreneurs and entrepreneurial education. (By the way, as you read the conclusions keep in mind the authors are not talking just about high-tech entrepreneurs.
They are talking about everyone who chooses to be self-employed – from a corner food vendor without a high school diploma to a high-tech founder with a PhD in Computer Science from Stanford.) The authors’ research came from following over 30+ years. They found:. Signaling. When you look for a job you “signal” your ability to employers via a resume with a list of your educational qualifications and work history. Signaling is a fancy academic term to describe how one party (in this case someone who wants a job) credibly conveys information to another party (a potential employer).
People choose to be entrepreneurs when they feel that they are more capable than what employers can tell from their resume or an interview. So, entrepreneurs start ventures because they can’t signal their worth to potential employers. Better Pay. Overall, when people choose entrepreneurship they earn 7% more than they would have in a corporate job. That’s because in companies pay is usually set by observable signals (your education and experience/work history). Less Predictable Pay.
But the downside of being an entrepreneur is that as a group their pay is more variable – some make less than if they worked at a company, some much more. Entrepreneurs score higher on cognitive ability tests than their educational credentials would predict. And their cognitive ability is higher than those with the same educational and work credentials who choose to work in a company. Immigrants and Funding. Signaling (or the lack of it) may explain why some groups such as immigrants, with less credible signals to existing companies (unknown schools, no license to practice, unverifiable job history, etc.) tend to gravitate toward entrepreneurship. And why funding from families and friends is a dominant source of financing for early-stage ventures (because friends and family know an entrepreneur’s ability better than any resume can convey).
Entrepreneurs defer getting more formal education because they correctly expect their productivity will be higher than the market can infer from just their educational qualifications. (There are no signals for entrepreneurial skills.). The most provocative conclusion in the paper is that asymmetric information about ability leads existing companies to employ only “lemons,” relatively unproductive workers. The talented and more productive choose entrepreneurship. (Asymmetric Information is when one party has more or better than the other.) In this case the entrepreneurs know something potential employers don’t – that nowhere on their resume does it show resiliency, curiosity, agility, resourcefulness, pattern recognition, tenacity and having a passion for products. This implication, that entrepreneurs are, in fact, “cherries” contrasts with a large body of literature in social science, which says that the entrepreneurs are the “lemons”— those who cannot find, cannot hold, or cannot stand “real jobs.” So, what to make of all this?
If the authors are right, the way we signal ability (resumes listing education and work history) is not only a poor predictor of success, but has implications for existing companies, startups, education, and public policy that require further thought and research. Companies: In the 20 thcentury when companies competed with peers with the same business model, they wanted employees to help them execute current business models (whether it was working on an assembly line or writing code supporting or extending current products). There was little loss when they missed hiring employees who had entrepreneurial skills.
However, in the 21 stcentury companies face continuous disruption; now they’re looking for employees to help them act entrepreneurial. Yet their recruiting and interviewing processes – which define signals they look for – are still focused on execution not entrepreneurial skills. Surprisingly, the company that best epitomized this was not some old-line manufacturing company but Google. When Marissa Mayer ran products at Google the, “More often than not, she relies on charts, graphs and quantitative analysis as a foundation for a decision, particularly when it comes to evaluating peopleAt a recent personnel meeting, she homes in on grade-point averages and SAT scores to narrow a list of candidates, many having graduated from Ivy League schools, One candidate got a C in macroeconomics. “That’s troubling to me,” Ms. “Good students are good at all things.” Really.
What a perfect example of adverse signaling. No wonder the most successful Google products, other than search, have been acquisitions of startups not internal products: YouTube, Android, DoubleClick, Keyhole (Google Maps), Waze were started and run by entrepreneurs. The type of people Google and Marissa Mayer wouldn’t and didn’t hire started the companies they bought. When I shared at Stanford she asked, “If schools provided better ways to signal someone’s potential to employers, will this lead to less entrepreneurship?” Interesting question. Imagine if in a perfect world corporate recruiters found a way to identify the next Steve Jobs, Elon Musks, or Larry Ellisons.
Would the existing corporate processes, procedures and business models crush their innovative talents, or would they steer the large companies into a new renaissance? The Economic Environment.
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So, how much of signaling (hiring only by resume qualifications) is influenced by the economic environment? One could assume that in a period of low unemployment, it will be easier to get a traditional job, which would lead to fewer startups and explain why great companies are often founded during a downturn. Those who can’t get a traditional job start their own venture. Yet other public policies come into play. Between the late 1930s and the 1970s the U.S. Tax rate for individuals making over $100,000 was 70% and 90% (taxes on capital gains fluctuated between 20% and 25%.) Venture capital flourished when the tax rates plummeted in the late 1970s.
Was entrepreneurship stifled by high personal income taxes? And did it flourish only when entrepreneurs saw the opportunity to make a lot more money on their own?
Leaving a Company. Some new ventures are started by people who leave big companies to strike out on their own – meaning they weren’t trying to find employment in a corporation, they were trying to get away from it.
While starting your own company may look attractive from inside a company, the stark reality of risking one’s livelihood, financial stability, family, etc., is a tough bar to cross. What motivates these people to leave the relative comfort of a steady corporate income and strike out on their own? Is it the same reason – their company doesn’t value their skills for innovation and is just measuring them on execution? Or something else? Entrepreneurial Education. Is entrepreneurship for everyone? Should we expect that we can teach entrepreneurship as a mandatory class?
Increasing the number of new ventures will only generate aggregate wealth if those who start firms are truly more productive as entrepreneurs. Lessons Learned. Entrepreneurs start their own companies because existing companies don’t value the skills that don’t fit on a resume. The most talented people choose entrepreneurship. Read the paper and let me know what you think. I just received a thank-you note from a student who attended a fireside chat I held at the ranch. Something I said seemed to inspire her: “I always thought you needed to be innovative, original to be an entrepreneur.
Now I have a different perception. Entrepreneurs are the ones that make things happen. (That) takes focus, diligence, discipline, flexibility and perseverance. They can take an innovative idea and make it impactful. Successful entrepreneurs are also ones who take challenges in stride, adapt and adjust plans to accommodate whatever problems do come up.” Over the last decade I’ve watched hundreds of my engineering students as well as 1,500 of the country’s best scientists in the National Science Foundation Innovation Corps, cycle through the latest trends in startups: social media, new materials, big data, medical devices, diagnostics, digital health, therapeutics, drones, robotics, bitcoin, machine learning, etc. Some of these world-class innovators get recruited by large companies like professional athletes, with paychecks to match.
Others join startups to strike out on their own. But what I’ve noticed is that it’s rare that the smartest technical innovator is the most successful entrepreneur. Being a domain expert in a technology field rarely makes you competent in commerce. Building a company takes very different skills than building a neural net in Python or decentralized blockchain apps in Ethereum. Nothing makes me happier than to see my students getting great grades (and as they can tell you, I make them very work hard for them). But I remind them that customers don’t ask for your transcript.
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Until we start giving grades for resiliency, curiosity, agility, resourcefulness, pattern recognition, tenacity and having a passion for products and customers, great grades and successful entrepreneurs have at best a zero correlation (and anecdotal evidence suggests that the correlation may actually be negative.) Most great technology startups – Oracle, Microsoft, Apple, Amazon, Tesla – were built by a team led by an entrepreneur. It doesn’t mean that if you have technical skills you can’t build a successful company. It does mean that success in building a company that scales depends on finding product/market fit, enough customers, enough financing, enough great employees, distribution channels, etc. These are entrepreneurial skills you need to rapidly acquire or find a co-founder who already has them. Lessons Learned. Entrepreneurship is a calling, not a job. A calling is something you feel you need to follow, it gives you direction and purpose but no guarantee of a paycheck.
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It’s what allows you to create a missionary zeal to recruit others, get customers to buy into a vision and gets VC’s to finance a set of slides. It’s what makes you get up and do it again when customers say no, when investors laugh at your idea or when your rocket fails to make it to space.