The new mathematics of startup valuation — Bill Aulet

MIT Sloan Senior Lecturer Bill Aulet

MIT Sloan Senior Lecturer Bill Aulet

From The Wall Street Journal

Valuing a company is always a mix of science and art, especially for startups.  Historically the science has been pretty simple: Find comparable companies and do a multiple of earnings or revenue.

However, three drivers of startup valuation have emerged that are changing the game. “Acquihire,” is the act of buying out a company for the skills and expertise of its staff. It has become so well-known that it is even listed in the Oxford English Dictionary. When Facebook buys a company like Hot Potato, it’s not for the revenue stream or products — it’s for the employees.

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What MIT can teach colleges about becoming an economic powerhouse — Thomas Allen and Rory O’Shea

MIT Sloan Professor Thomas Allen

MIT Sloan Professor Thomas Allen

MIT Sloan Visiting Asst. Professor Rory O'Shea

MIT Sloan Visiting Asst. Professor Rory O’Shea

From Bloomberg Businessweek

In 2011, two business school professors put numbers to an idea that many assumed true: that a vibrant research university can drive an economy. They studied companies started by alumni of the Massachusetts Institute of Technology and found that those businesses had provided 1.7 million jobs and generated $1 trillion in revenue annually.

As more countries try to compete in the global economy, the pressure is on policy makers and university leaders to imitate the way MIT spurs innovation and economic growth. Unfortunately, many universities struggle to match the speed and success of MIT’s model.

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Increasing click-through rates with ad morphing — Glen Urban and John Hauser

MIT Sloan Professor Glen Urban

MIT Sloan Professor Glen Urban

MIT Sloan Professor John Hauser

MIT Sloan Professor John Hauser

From Fortune China

Everyone is trying to make their banner ads and new media more effective. In the banner area, 90% of the effort is spent on targeting. If you click on a link, you’ll get a particular ad. A whole industry has emerged focused on collecting click stream data and making recommendations.

But that is only half the picture. Equally important is the question of how you should talk to consumers once they are targeted. This is what ad morphing is all about.

For example, a car company may target a consumer whose click history indicates he is interested in buying a car. However, instead of just randomly sending him car ads, it can track the consumer’s online behavior to determine his preferred communication style. We also call this his cognitive or thinking style. Does the consumer want a picture of the car at a NASCAR race? Or would the consumer prefer to look at the technical aspects of the engine? Or does the consumer want a fashion shot of a driver pulling up to a country club? What will the consumer best respond to?

This is a multi-arm bandit problem because it’s like a slot machine with many arms. The advertiser needs to choose the ideal lever to pull to match the ad to the consumer’s thinking style. However, it’s more difficult with ads because there is uncertainty as to the consumer’s thinking style.

Our algorithm addresses this issue by monitoring click stream data to determine how a consumer makes decisions on the web. After enough information is gathered, the algorithm determines the consumer’s likely thinking styles and matches the optimal ad to our estimates of thinking styles – all in real time.

Partnering with companies like General Motors to test our algorithm, we found that morphing has tremendous potential to increase banner ads’ productivity. Companies work hard just to get a 1-2% improvement in click-throughs, but we found that morphing ads based on thinking styles can improve that rate up to 83%. We also found that morphing can lead to 30% better brand recognition. These are very significant effects.

While our algorithms (see our paper for the algorithms) can be implemented by any good programmer skilled in the art, morphing can challenge the budget. To use this tool, companies have to design more ads – ads that appeal to each of the various thinking styles of customers. There also may be cross-organizational issues, as the people who create those ads must coordinate with the analysts doing the targeting.

However, this is the only algorithm that we’re aware of that integrates thinking styles and morphing in real time. It’s very cutting edge, but it can help move the market to the next wave of action in banner advertising.

Also see the post in Chinese at Fortune China.

Glen Urban is the David Austin Professor in Management, Emeritus, Professor of Marketing, Emeritus, Dean Emeritus, and Chair of the MIT Center for Digital Business at the MIT Sloan School of Management. 

John Hauser is the Kirin Professor of Marketing and a Professor of Marketing at the MIT Sloan School of Management. 

Understanding the implications of consumer empowerment in health care — Renée Richardson Gosline

MIT Sloan Prof. Renée Richardson Gosline

From Huffington Post

The days of the passive patient and omnipotent Marcus Welby-like physician are long gone. Since the 1990s, consumer empowerment in health care has been increasing, most notably with the advent of direct-to-consumer advertising for prescription medicines. Then, the rise of digital media allowed consumers to search symptoms and create communities around common disease experiences. More recently, the ability to shop for health insurance through health care exchanges and obtain treatment at drug store clinics has led to a new age of consumer empowerment.

We’ve gone from a B-to-B model to a B-to-C model in health care. This shift in power to consumers has many implications when it comes to how we make decisions about our health care. Here are six ways that a behavioral lens can help us understand the implications of empowering consumers in health care:

1. Heuristics

Heuristics are very important. These mental shortcuts or “rules of thumb” allow us to make decisions efficiently. However, these judgments are subject to non-rational (or biased) influences in the marketplace. For example, a retail promotion like a drug store coupon can affect the price on which patients “anchor” their judgments about the appropriate cost of health care. And a retail clinic can affect the appeal of non-healthy alternatives with their location, like in the candy aisle. While this may not have been a big deal before, it is an important consideration in a B2C retail environment.

Read the full post at The Huffington Post.

Renée Richardson Gosline is an Assistant Professor of Marketing in the Management Science group at MIT’s Sloan School of Management. She teaches the MBA course in Branding.

3 steps for harnessing failure the right way — Anjali Sastry and Kara Penn

MIT Sloan Sr. Lecturer Anjali Sastry

From Fast Company

Think back to your last project. Was it set up to maximize learning? Did you uncover valuable insights along the way? Did you deliver what you set out to? And once it was over, did your team reflect, or did you move straight to the next thing?

A systematic method for managing your projects can set up your team for useful epiphanies at every step. In the end, it can help you to create better deliverables with more lasting and further-reaching impact.

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