The key to whether something sells or not is not the superiority of the product technology, but whether consumers are willing to pay for it. That's a key message Laura Huang, associate professor of Harvard Business School, delivered at SparkLabs Taipei Demo Day 4 held recently.
Digitimes later talked to Huang - who was named one of the 40 Best Business School Professors Under the Age of 40 by Poets & Quants - about the skills of perception that enterprises need to cultivate and what it takes for startups to succeed.
Q: Why did you attend the SparkLabs Taipei Demo Day 4? Was it because of the new research you are currently doing?
A: Edgar (Edgar Chiu, managing partner of SparkLabs Taipei) and I had mutual friends, which is how we got to know each other several years ago. When Edgar was in Boston last year, he invited me to attend this year's Demo Day, hoping that I could share some insights to startup founders. My research focuses on how investors make decisions to invest in early-stage startups, analyzing the soft variables, such as gut feeling and perception, and the hard variables, such as financials, competitors, and scalability. My research seeks to quantify the soft factors that investors rely on to help understand how these variables relate to decision making. I'm continuing to extend this research and am currently also focusing on the topic of mindset, which I hope will provide insight to Taiwanese companies.
In many cases, the key to success is not the superiority of a product's specifications and features, but the willingness of consumers to buy it. It is certainly possible to develop the most powerful product, but if the price is too high or those who can afford it do not want all the features, then the value of the product is not recognized.
In fact, many products that have achieved leadership positions in the marketplace are not the most powerful. As I mentioned in my book, "Edge: Turning Adversity to Advantage," the successful businessperson must be able to recognize an adverse market situation, such as economic recessions, and leverage the situation to their advantage. These advantages are of your own making. Therefore, success cannot be achieved by just putting your head down and working hard behind closed doors - something that the Taiwanese are exceptional at and very proud of.
Taiwanese are taught from a very young age to "work hard" and "be good," which usually means to not have too many opinions. Often, the Taiwanese put double the effort into their work just to get the same results. The main theme of my research explains that the key to success is not hard work, but to understand what people value and how they perceive you. This gives you a chance to flip any adversity to your advantage. If you can get twice the results with half the effort, why spend twice the effort to get the same results? Isn't the growth rate of 10X or 100X what startup companies are looking for?
I have this understanding of Taiwanese culture because my parents taught me these values when I was a kid. However, growing up in the United States, I found Taiwanese values were very different than American values, which became a quick source of frustration for me. Both are valuable, and one is not better than the other. In American culture, self-awareness and social awareness are key, and you can't live in your own world if you want to be successful. You have to be able to understand others and know how others see you. There are dotted lines between these points, i.e., interpersonal relationships.
By gaining a deeper understanding of how others perceive us and subtly subverting these views and stereotypes, we can create new advantages out of the limitations and obstacles created by an imperfect system. This is especially important for startups because the focus is not solely on products and services. In business school, we spend 80% of our time learning about marketing, products and services, financial accounting, competition, and so on, but spend very little time discussing people and perceptions. However, when we graduate and go on to start our own businesses, we actually spend 80% of our time discussing people, including customers, partners, and suppliers, to determine whether or not a product can be made and sold. There's a clear disconnect between what we learn in the classroom and what we actually do in the professional workplace. In Taiwan, I would like to see a transformation in the way we think about business education and the reality of the startup workspace as part of the new innovation ecosystem.
Companies that embrace the mentality of believing superior technologies are key to success are prone to misinterpret results when doing market research. They often ask engineers to raise the bar for their products by focusing on pixels, lens resolution, and so on. However, I always tell my students that it is important to get customers' real perception of your product or service: you can't just rely on the data. For example, if you ask a consumer, "If my phone can take 30 photos or 99 photos in a row per second, which one would you prefer?" the consumer will most likely say 99 shots without having any idea of what that actually means. Then, the company will turn around and asks their product engineers to make a product that can take 99 shots without taking the time to see how the consumer will use the finished product. This market research does nothing to help the company understand what their consumers care about the most or what they want to achieve with the product. Companies rarely stop and consider if they really need that 99-shot series, or does the consumer actually care more about getting the best visual effect, regardless of how many shots can be taken? The factors that make consumers want to buy go far beyond technical specifications. We spend so much energy on specifications that we neglect the market feedback and user experience that entrepreneurs need to pay the most attention to, and how that feeds back into the design of our products and services.
As we engage more with AI, big data, robots, AR and VR, it is easy to fall into the trap of technology and not realize it. Behind every VR goggle and IoT device, there is a user experience. "People" are the key, not technologies.
Q: We have heard of examples of large corporations partnered with new startups in search of new applications for their existing products. What advice would you give to corporate venture capital (CVC)?
A: CVC accelerators have a 95% failure rate because they don't use the right approach. These accelerators are usually well-funded, and they choose new ventures by cherry-picking: choosing Company A for its intellectual property (IP), Company B for its team's R&D capabilities, and Company C for a certain quality, and then they buy them all. This is because accelerators thought it would be more efficient to internalize innovation. They thought the startups, which have a certain understanding of their company's technology, would have a better chance of success if they used the company's technology and resources as a basis for their R&D. However, what they didn't see was that the startups they bought, such as the startups acquired by Google and Microsoft, recognized this cherry-picking strategy and tried to figure out what the big firms wanted, creating the product accordingly. When outsiders saw what they were doing, they thought it was uninspiring and not innovative because the product was often too similar to the parent company's already existing product. I believe that the struggle that many startups experience can actually be beneficial and lead them to making a product that will attract the most consumers in the market.
This is because the products that come out of these in-house ventures will ultimately be tested in the marketplace. This is not to say that all CVCs are not effective, but they need to be designed carefully so that they don't end up catering to parent company's solutions. CVC accelerators are usually the latter, but innovation is often about trying to find a solution to a problem by drawing from multiple solutions that already exist, not the other way around. Innovation often starts with a technology application, and then someone goes back to find a problem and develop its solution.
Q: Perhaps large corporations with a lot of past successes also need some level of reset and "learning to unlearn"? The pandemic has brought about many changes, perhaps their perceived successes will become a burden in the future?
A: They don't need to unlearn everything, but they do need to know exactly what they need to "prune." This pruning is especially difficult for large companies because they are already successful, and it seems unreasonable for them to alter business practices that have already reaped rewards. While it's important to help them retain their core strengths, they must also continue to push innovation and learn new skills. As I said at Demo Day 4, large companies can be compared to trees in the sense that when they get to a certain size, they must be pruned in order to continue to grow. The hardest part stems from these companies knowing they need to prune, but not understanding which areas to focus on or what new areas to explore.
Q: You strongly emphasize the need for companies to be sensitive to the "perception" of others. How do you go about strengthening that sensitivity?
A: Perception is actually a skill. If you want to grow your muscle, you need to do certain trainings. I spend almost half of my book talking about how to develop these skills.
Don't we spend our entire lives communicating with others in hopes that they will understand us, agree with us, and ultimately do what we want them to do? It is important to understand why, when, and under what circumstances the other person will say "no" to us. So in class, I have my students do an exercise: for a week, they need to have 10 people in 10 different situations say no to them. And for each situation, they have to write a short paragraph describing the situation and present in class.
Interestingly, my students found that some people have a fixed communication pattern: when communication styles like tone of voice, words, and facial expressions changed in a certain way, the other person would say "no." They began to observe phenomena that they had previously taken for granted. It's important to train yourself to be aware of how you communicate in order to get your desired outcome. If you go directly to a person and say, "You are not giving me a promotion because I'm a woman," it is natural for them to immediately deny that accusation, even if it's true. When you understand others' perceptions of you, then you can flip any misconceptions to highlight your true talents and strengths, and have deeper and richer conversations and interactions with people.
This ability is especially important for startups. Startups need to understand how their different customers, partners and investors perceive them so that they can understand what these different target audiences expect from them. This understanding enables startups to more effectively communicate their message and product in different ways to appeal to their various stakeholders. For example, you don't need to tell an investor a bunch of information about product specifications because they are more interested in learning about the business model. Contrastingly, consumers are quite interested in these product specifications, such as how the product works and pricing. Using your perception skills, you can better understand your different target audiences and communicate more effectively to get more done with less effort.
(Editor's note: The Women in Venture series is a collaboration with Digitimes' strategic partner Anchor Taiwan, a platform to connect the world with Taiwan focusing on corporate innovation and cross-border expansion. The Women in Venture Roundtable is a network of 80+ female investors and bi-monthly sessions featuring world-class guest speakers. More info: Anchor Taiwan. For the podcast, see Spotify, Apple Podcast or Soundcloud: https://open.spotify.com/episode/0Dy6TKKLIazz8oaCW0oiiE.)
Laura Huang, associate professor at Harvard Business School
Photo: Shihmin Fu, Digitimes, November 2020