Anyway, a few of the key points I took away from the podcast were:

1. Traditional “carrots & sticks” (i.e. incentives & punishments) work really well in routine, focused, clearly defined tasks. But they work quite poorly in the sort of creative, fluid, less defined tasks that are typical of knowledge work today.

2. The #1 motivator in the work context is a sense of progress. In other words, we all feel a strong need to get better at things, to improve, maybe even to develop mastery. Finding ways to give people a sense of progress is critical if you seek to get the best out of them in the work environment …or to get the best out of yourself, particularly if you’re self-employed.

3. Contribution is another under-rated but powerful motivator of human behaviour. We want to make a difference, and contribute to something greater than ourselves. Interestingly, it’s important not to layer monetary incentives on top of this …because it can backfire. A classic example is open source software – paying contributors would arguably destroy the fabric that binds so many disparate people in a collaborative effort.

Reflecting on my own efforts in launching and promoting Software Shortlist, I can see the power of this ‘sense of progress’. There’s nothing quite like positive feedback from the market (in the form of sales) or the satisfaction of hitting a major milestone to encourage further efforts. And conversely, the toughest times are those when you’re working hard but don’t feel like you’re getting anywhere. Finding ways to give yourself a sense of progress seems like a powerful antidote in those challenging situations – for example, highlighting some of the lessons learned along the journey.

To find out more, listen to HBR Ideacast #183 or check out the book at Amazon:

“…if a CEO’s primary focus is on profit maximization, employees develop negative feelings towards the organization. They tend to perceive the CEO as autocratic and focused on the short term, and they report being somewhat less willing to sacrifice for the company. Corporate performance is poorer as a result.

This research [...]  underscores the risk of single-mindedly pursuing profit”

Makes sense.  Who’s going to go out of their way to make someone else (e.g. CEO, shareholders) rich, particularly at significant personal cost to themselves? As a motivational strategy, ‘we have to make $X profit” is limited – you might get a basic level of compliance but you won’t get much engagement and initiative.

For all the talk about self-interest, the evidence suggests that humans are actually social creatures who are intrinsically motivated by working together in pursuit of a bold vision.

What picture of the future are you painting?

This thought struck me while doing a spot of gardening this morning. A bit philosophical perhaps, but probably appropriate for the start of a brand new year. After all, they say that:

“The best time to plant a tree is 20 years ago. The second best time is now!”

The same is arguably true of a business. So, without any further ado, here are a few thoughts on the similarities between planting a tree and starting a business:

• Location is all important. A good tree in the wrong spot won’t thrive. Neither will a business.
• Think carefully about what to plant. Sure, you can prune or shape, but the fundamental nature is set at the very start.
• Preparation matters. Do the groundwork, place it in carefully, and nurture while young. A strong start helps.
• It can take years to bear substantial fruit. It may even be wise to sacrifice any early fruit to reinvest for growth.
• External factors can have a big influence on success. Pick a good climate, but be prepared for unforeseen events (frosts, heat waves, etc).

Any budding gardeners/business people out there?  Feel free to add more to the list.

For example, if you see an opportunity in widgets, there are many ways of going after it. You could sell widgets direct to customers; sell widgets wholesale; rent widgets out; sell leads to retailers; sell advertising to widget-brands; advise widget customers; consult to widget makers; etc etc. How do you decide which to use?

One approach I’ve found very useful is to spend a few hours with pen, paper, calculator, search engine and (most importantly) an open mind. Running some back of the envelope calculations like this can really help before committing to an idea and specific business model.

I like to start with the outcome I want/need (e.g. $1.0M sales) and work backwards to arrive at the number of customers/users/units/…etc required to achieve it. Use your trusty search engine (or a phone call) to quickly find benchmarks or industry averages for the intermediate steps (e.g. conversion rates from visitors to customers; employee salaries; etc). Adjust these depending on your model – for instance, you can’t typically expect to offer distinctive customer service with a lower than average number of service staff. And once you arrive back at the “start”, apply some sanity checks on your assumptions and implied results. How consistent and/or reasonable are they?

Back of the envelope calculations can also highlight key differences between business models. For instance, they may suggest that a direct sales model is best if customers will pay more than $50 each but otherwise you’re best going with an advertising model (assuming an industry-average rate card). You can then go and quickly test how much customers are actually willing to pay and make a confident decision on business model accordingly.

So if you’ve got a business idea, make sure you thoroughly explore the options by investing a few hours up front in back-of-the-envelope calculations…

1. Is there a compelling need? Do people really need the solution you are proposing? Or is it just a ‘nice to have’, something they might think about doing sometime if the mood strikes them. Too many consumer internet businesses fail this test, in my opinion – they may have some novelty or coolness value but this erodes very quickly. If you’re going to build a real business, you need to be serving a compelling customer need.

2. Will they pay for it? The gap between “yeah I’d buy that” and “here’s the money” is surprisingly large. This means that asking people about a potential product/service is not as useful as actually getting real customers.  One framework that may help is to consider what drives value for the customer – e.g. the value of a published report, software-as-a-service, or tangible product typically depends on its own quality; but the value of a marketplace or advertising opportunity depends on  how many of the right people are using it.

3. Is there a viable business model? Can you deliver the product/service at a cost that is sufficiently less than people’s willingness to pay? This is a common stumbling block since the devil is in the details and things inevitably cost more and take longer than you expect. Chances are your initial business model will need to be evolved after you launch, but it’s still worth doing some sanity checking first before you spend time on it. Also, if your business model only works “at scale” – e.g. a marketplace – then you need a good answer to how you will actually getting to scale without going bust.

4. Are you the right people to launch it? Execution counts for a lot in business. It’s not just how good your idea is, but whether you have the capabilities, expertise, network, and resources to make it happen. Sometimes it may be a cracker of a business idea, but you’re simply not the right person to build that business. Partnering may be a solution to this, but then again maybe you should just move on to your next good idea.

What do you think? Are there other key issues you would suggest someone consider in evaluating their next big idea?