Guest: Alfonso Gambardella was born in Rome, Italy. He received his undergraduate degree from the Università di Genovain Italy. He then got a master’s degree in Economics from New York University and after got his PhD in Economics from Stanford University. He is now a Professor of Management and Head of the Department of Management and Technology at Bocconi University in Milan, Italy. Alfonso has been published in many articles and books covering his key research areas of strategy, innovation, and management.
Overview: Ever thought about starting your own business? Do you have that entrepreneurial motivation in you? In today’s podcast, Shad and Alfonso discuss Alfonso’s research on innovation for entrepreneurs and small entrepreneurial firms. Alfonso shares the simple secret to a big question many entrepreneurs have: how do I know if my business is going to be successful or not?
Shad: I’m here with Alfonso Gambardella from Italy from Bocconi University in Milan, Italy. Alfonso, first I was wondering if you could tell us a little bit about yourself, where you’ve been, your background and so on.
Alfonso: I am Alfonso Gambardella. I am a Professor of Bocconi in Milan. I was born in Italy but actually studied in the US. I got my PhD in Economics from Stanford University and right after I went back to Italy and since then I pursued an academic career as a professor of innovation strategy and technology.
Shad: What area of research and what kind of research do you do in general?
Alfonso: What I do is I study how innovation changes the path of companies and how companies can profit from innovation and how can they help society take advantage of innovation. I have looked at large companies for a long time but more recently I’m looking entrepreneurial companies and how entrepreneurs can take advantage of innovation.
Shad: Fantastic! Before we get too serious and too down to the nitty-gritty of your work, we’d like to learn a little something about you. Maybe something unique or something interesting that would surprise our listeners.
Alfonso: Okay, so the one thing that I think might be surprising is when I was 15, I was a soccer goalkeeper and I also used to play the flute. Then, over time, I was really uncertain whether to become a goalkeeper or a flute player. But, in the end I was not good enough as a goalkeeper and not good enough as a flute player, so I had to become a university professor.
Shad: If you could tell us a little bit about your career path, like, how you left Italy to come to Stanford, what attracted you to Stanford, and what attracted you to the things you’re studying.
Alfonso: One good reason is my father was an engineer and he was pushing me to actually try to understand how to work on innovation and how innovation can change the thought of companies. He was really the one who insisted that I try to get a PhD in Stanford, because he visited the Silicon Valley many times and in his opinion that was the right place to go and so on. He pushed me so much that in the end I did the application and I did all the tests and everything and I went there. Then when I completed, I had this good opportunity to come back to Italy and so I first started in the University in Ubino, which is a beautiful medieval city in Italy. I spent ten years there and then I went to Piza and then finally I went to the big city, to Milan. So I’ve lived most of my life in small cities, but now, since 2004, I live in this big city.
Shad: This is really interesting because I just read your paper recently on innovation and innovative ideas for entrepreneurs and small entrepreneurial firms. You have a study on entrepreneurship in Italy on Italian firms and some of what’s been going on. I think a lot of what you found in your study will be extremely helpful for entrepreneurs, especially young budding entrepreneurs, and students at University who are saying ‘should I play the flute or should I start a new business, what are the risks, how do I ensure that I can predict whether my business idea is going to be successful or not’. I think you got some really good stuff to say and things you found that have really shown there are some things you can do as an entrepreneur, especially as a young budding entrepreneur, to ensure that you are more successful. So, maybe you could tell us a little bit about your study and how it started. It’s published in Management Science. Maybe you could tell us a little bit more about it.
Alfonso: Thank you for this question. I’d like to start by saying that what we are applying to entrepreneurs should actually apply to anyone who is playing an instrument, and to anyone is doing sports. To really say, in a nutshell, the point is what we found in our study, with very credible evidence, is that if you think, you do better. Humans have this incredible power that they can think very deeply. Not often we use it at its maximum power. But, what our study suggests, that whatever you do, even as a goalkeeper, thinking about what you have to do increases your performance quite significantly. Basically, this what we find with entrepreneurs. What we do with entrepreneurs, in a nutshell, is we do a classical randomized control trial. We take a bunch of entrepreneurs and we teach them to develop theories and to test their theories very much like scientists and researchers do. To a control group of entrepreneurs, we give them standard teaching on entrepreneurship. The key difference we find is that the people who were taught to think, to use theories, to use tests, and to use experiments, are either more likely to close that business because they understand that they are on a bad idea, or if they pursue their idea they are more likely to have more successful ideas. Either you understand that your idea is bad or you understand your idea is good. It’s a little bit like saying ‘thinking helps you to predict’.
Shad: Interesting. You’re saying by using science entrepreneurs can more rapidly go through this process. By using this scientific approach to figuring out how whether an entrepreneurial idea is a good idea or a bad idea. To say ‘I’ve got to stop this idea, it’s a bad idea. I figured this out.’ If they use this scientific approach they can figure this out earlier, saving a lot of money, time, and effort. Or, if it’s a good idea, they can test that, by using science, the likelihood of them succeeding as an entrepreneur goes up.
Alfonso: That’s exactly right.
Shad: We know that with entrepreneurship, that the level of success in being an entrepreneur is pretty not so high, right?
Alfonso: Right, right. Here is one way to put it. I actually tried to teach these two students that humankind has three deep desires, largely unfulfilled I would say. One is immortality, the second one is flight, and the third one is prediction. We have tried as much as we could and we have kind of increased our lifespan, but not, of course, become immortal. We now, with some device, we can fly. The other big thing is prediction, which we are actually doing very poorly. We have one treasure which we don’t understand very well and this is the scientific method. Basically, science is one way in which, by using a particular method, you can predict the future. Of course, with lots of mistakes, you can do it up to a point. This is the best method we know. What we thought is why don’t we teach entrepreneurs to apply the scientific method that researchers in universities, in the scientific community, typically apply. Why don’t we teach them to apply this method to predict whether their idea is successful or not. Our trials actually showed that it actually does.They can predict much better on whether they had a bad idea or a good idea and can take actions accordingly.
Shad: Do you have some examples of some of the companies you worked with and how they applied that scientific method? I mean, what does that process look like? If I’m a student out there, an entrepreneur out there, and I’m thinking ‘that’s a great idea, what does that look like for me’, do you have an example you could give us?
Alfonso: One good example I have is a company called MiMoto. This is a company that had this business idea to create a motorbike sharing service in Milan. Essentially, you get this motorbike, you open it with an app, and you use it sometimes. You pay whatever, you leave it wherever you want and then someone else can come and take it and go throughout the city. Initially, the company had this idea because motorbikes would be useful because in a heavy traffic city like Milan, you can actually move quite quickly. They thought very scientifically on how to set up this business and they thought that the motorbikes should have been large and solid and they also thought that basically the motorbikes target customers had to be university students. They went in the field and they tested this hypothesis using, very much like trials that I used with my entrepreneurs. What they figured out is that their hypothesis was accepted, because people liked the idea of a flexible service to move in a large city like Milan. They also discovered that the key target was not students but young professionals. They also discovered that women were very unlikely to use large motorbikes. So, they moved to young professionals and light motorbikes and they have become quite successful. They are now expanding to other cities. This is just a simple example of how thinking, as opposed to just doing, helps you figure out the better path.
Shad: So, the process would be that if I’m an entrepreneur and I have a problem and I see a problem, I develop a theory around what I think would solve that problem. Then I would probably, I assume, I would develop some hypotheses.
Alfonso: Exactly, exactly.
Shad: So, for the motorbike, what would one of the hypotheses be?
Alfonso: Here is the way to think about it and this is based on what I saw these entrepreneurs actually do. So, they had problem. I would like to develop a service for sharing motorbikes in a large city. First, they would want to decompose the problem into smaller problems. In order to get a service like that, and for that service to be successful, what do I have to think of? First, I have to think what the problems are. How should the app look like? How should the method of payment be? How should the motor bikes look like? Who are the customers I should target? More imaginative entrepreneurs think of more of these issues and problems. Then, what you want to do, you want to test each one of these hypotheses one by one. Essentially, you have to create a set of problems and then you have to create what we call a set of problem solution tests. I need to understand who the target customers are and then you have to figure out that young professionals are the right target for your business. You have to figure out how the app should look like and then you have to test particular specifications on the app and so on and so forth. What scientific entrepreneurs do is actually decompose the problem, and for each of the problems they try to find a solution, and for each one of the solutions they want to go and test and see whether the solution is feasible or not. Once you created this, and on many occasions you actually pivot, you basically think ‘oh this is what I thought’ but then I do the tests and figure out this is not the right way to do it and say you do something else, you pivot to a different type of business model. But this initial thinking, researching, and experimenting with the problem is the source of success.
Shad: Thinking about generalizability, would you say this would apply, if this applies in Italy, would you say this applies in other countries as well?
Alfonso: I think it does because I do believe in the general power of thinking. I think that thinking helps, so I would think that it would apply more generally. There are also scholars here in Utah, Todd Zenger in particular, that actually theorized very similar ideas about how corporations should think about making innovations. I think it’s a general perspective on how to do things.
Shad: Todd Zenger is a professor of strategy and entrepreneurship at the University of Utah and maybe we can talk to him as well because that sounds like some really very interesting stuff. In closing, Alfonso, what would you say would be maybe two or three key takeaways that a student could walk away with from our discussion today?
Alfonso: Let me try to give you these key takeaways that can give you a sense of what I am thinking of. The key is that entrepreneurs have to do two things: think and test. Do the theory and test. This is very much the method that a famous Italian, Galileo Galilei, taught us. His idea was to think and test. I think we should get Galilean entrepreneurs. This is my key takeaway.
Shad: Thank you, Alfonso. There it is, how to get out Galilean entrepreneurs. Thank you very much!
Alfonso: Thank you.