It is a common belief that humility is a virtue while overconfidence is considered rather a nuisance. But does this hold true for an entrepreneur aspiring to conquer a market? J.T. Li, Chair Professor of Management at HKUST Business School and Academic Director of the HKUST-SKOLKOVO Executive MBA Program for Eurasia, comes to an unexpected conclusion following a wide-ranging research.
Last year, Lei Jun, Xiaomi’s Director General, lost a 1 billion yuan bet to the head of Gree Electric, China’s largest manufacturer of air conditioners. In 2013, the two business leaders made a bet—Lei Jun claimed on a TV channel that as soon as five years later the earnings of the recently formed smartphone manufacturer would exceed those of the established national corporation. That statement must have been taken as mere chest-thumping of an insolent fellow—Xiaomi’s turnover was then 2,000 times less than that of Gree. But it’s too premature to reproach Lei Jun for being overly self-confident. Following 2019 results, Xiaomi has already outdone Dong Mingzhu’s brainchild by about $3 billion.
Lei Jun is a classical example of a self-assertive leader. And now I know for sure it has been a great luck for his business. The research covering business activity of over 6,000 technology companies in the U.S. and China and based on more than 120 interviews, that my colleagues and I have recently completed, has clearly shown that—contrary to what conventional wisdom says—it is in technology-related fields that a self-assertive director general is a big asset. Lei Jun is China’s Steve Jobs. He dresses like Jobs did, he speaks like Jobs did. But most importantly, he’s not afraid to act like a person who is planning to ‘blow up’ the market. As with other similar leaders, his hubris is mostly based on his success in the past, as he’s a serial entrepreneur. That’s why he’s not afraid to take on risk that sometimes may seem unreasonable.
Xiaomi was started by six co-founders only ten years ago, when Apple and Samsung have already gained a strong foothold in the market. It might have seemed they had nothing to count on. But they came up with an idea to offer users decent technologies and high performance at reasonable prices. This year Xiaomi, with a market share of 13 %, displaced Apple to the fourth line in the ranking of the world’s largest smartphone manufacturers. What they have brought to the smartphone market has transformed it. And then they thought: “Okay, we’ve succeeded in ‘blowing up’ the mobile market—this means we can succeed in doing that to other products in China too.” For example, currently Xiaomi is a successful manufacturer of household appliances, electric bikes, TV sets, and even air purifiers—the pollution issue is looming large in the country.
Indeed, creating innovative products seems to require a remarkable self-confidence from business leaders. Introducing something yet unknown to the market, you can’t foresee the success—you can only believe in it. And a self-confident executive is more likely to exploit the opportunity and launch that product than a cautious one. A smart leader, however, still has to strike a certain balance between reasonable optimism and outright chest-thumping. How can it be done? Having studied the issue, we, as researchers, can say that the concept of “managerial discretion” can be of help here. It implies that a top manager endowed with a good deal of autonomy regarding the direction they’re leading the company in is counterbalanced by the board of directors acting as a ‘deterrent.’ Such a body should rely on concrete figures for that innovation, for example, performance tests and the like.
The board of directors can be independent—it can even comprise external academic experts and scientists evaluating the product development level. And it is at this point that open innovation is embraced, a major trend in collaboration of different companies and their ecosystems that’s going to be determining business development for years to come. I believe self-confident leaders will be more prepared for that cooperation model, meaning they’re going to be much better off in the future. And that’s because those wishing to hide their technology in a bunker, afraid of competition, don’t stand a chance of becoming a global ecosystem. Facebook and TikTok would have never succeeded were it not for the content uploaded by users and the possibility for other companies to use those platforms.
‘Safety net’ rules
What else should a self-confident CEO in a technology company bear in mind in order not to lose? I would emphasize a few management principles to abide by.
Be unbiased and open to everything new. Even if you are the most confident person in the room, it doesn’t necessarily mean you are the most knowledgeable one too. Innovation is mainly about research after all. And your ‘technical’ colleagues might have a fresh take on what’s going to be the next big thing. It’s important to be able to listen to professionals and trust the ideas of other knowledgeable people. Plus, you need to demonstrate that openness to provide the company with an environment conducive to exchange of thought.
Decentralize scientific research choices. Give people the freedom to do and study what they like. Researchers need ‘air’. For example, in academic circles we are allowed to ‘follow our passion.’ If this same approach is practiced by a company in its R&D projects, it is sure to succeed. The company becomes an ‘accelerator’ of those ideas and innovation that scientists develop in its R&D laboratory on an individual basis. In that case, a non-interference approach is the best thing possible.
Understand the value of what you’re doing. As a corporate leader, you must understand what you’re doing and why —and communicate it to your employees and the rest of the world. Xiaomi, for example, is loved by many for its philosophy to let customers benefit from the fruit of innovation the company creates. Life has meaning, and your company needs to be given that meaning. It is a great motivator.
Be ready to fail. It’s okay to fail sometimes. Some of your experiments will by all means flop. People can learn from those. Your objective is to prevent an ailing project from stretching over 10 years. Because the longer companies postpone abandoning such products, the less sure they become they’re actually able to. Once a failure detected, don’t drag it on into the future.
And last but by no means least — talk to your scientific team. Most people think engineers like to work shut in their laboratories to avoid any disturbance. It’s true most of them are nerds, but it doesn’t mean they can be disregarded as is the case in many companies. If you’re ambitious enough to manage an innovative company, then, I believe, you should know those engineers personally. Talk to them. Understand what technological track the company is on. Because one of the products developed by those guys is going to become the sensation to ‘blow up’ the market.