Houston research: Innovating a way out of corporate scandal

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The organizations most likely to benefit from a competitor's scandal are ones that offer similar services, but are seen as having stricter ethical policies. Photo via Getty Images

When scandal tears through an institution, it can hurt innocents in the same field. But even the darkest scandal can sometimes benefit a similar organization ⁠— if, that is, the public sees it as far more ethical, says Rice Business professor Alessandro Piazza.

In a recent paper, Piazza collaborated with Julien Jourdan of the Université Paris-Dauphine, PSL Research University, to study the effects of the sex crimes scandal that embroiled Catholic priests and other clergy on membership in not just the Catholic Church itself, but also 16 other U.S. Christian denominations. The researchers analyzed the 16 denominations between 1971 and 2000 in an attempt to track any flight of Catholics to other churches. The findings offer insights for secular organizations in scandal-stricken fields.

To reach their conclusions, Piazza and Jourdan studied data sets from the Religious Congregations and Membership Study and the Churches and Church Membership Study, maintained by the Association of Religion Data Archives. The data included county-level statistics on congregations of 149 religious bodies.

Using this data, Piazza and his coauthor first tallied county by county church membership, coding for variables such as ethnicity and economic status. Next, they created a model to rate churches on issues such as strictness, mandatory commitment and evangelism. Finally, they compared the changes in membership figures for non-Catholic churches to explore whether former Catholics might have joined other churches as a result of the clergy scandal, and if so, which ones.

Scandal, broadly defined as publicized transgressions of established norms, can indelibly mark the collective imagination. Media amplify the effect with their investigations of the disgraced organizations, whether it be the Catholic Church, Enron, WorldCom or the British Parliament. Research shows that a scandal can tarnish individuals, organizations and, by indirect association, even entire industries.

At the same time, it's possible for members of a scandal-plagued group to prosper. When, for instance, Nike was accused of using slave labor in the developing world to make their products, rival companies that could showcase better labor practices benefited. Past studies, however, have not shown how these consequences occur, or how they affect people on the inside of the implicated organizations.

Piazza and Jourdan found that scandals can improve business for rival organizations under key conditions, the most important one being if they offer close alternatives to the services once supplied by the disgraced organizations. This kind of swap is most likely to happen when a service is still needed. After the Enron scandal, for instance, clients of its disgraced auditor, Arthur Andersen, still required auditing services, so took their business to rival auditing firms.

The researchers also analyzed the responses of people within an organization disrupted by scandal. Unlike investors, who may react to a scandal quickly and coldly, an organization's members are more likely to reflect on options before leaving.

In the case of the Catholic Church, disillusioned members gravitated to denominations that shared certain traits with Catholicism, but were perceived to enforce stricter norms. For these Catholics, religious participation and commitment to religious activity were the most compelling aspects when choosing a new church. Theology mattered less.

Most of the disillusioned Catholics, in fact, moved to Protestant denominations seen as strict and ethically austere, such as the Missouri Synod Lutheran and Southern Baptists. Far fewer turned to more liberal mainline churches such as the Presbyterian or Episcopalian churches, even though the latter is theologically close to Catholicism.

The stricter churches were more likely to draw ex-Catholics who were poorer and less educated, had contributed more money and attended more services, held stronger beliefs and belonged to more church-related groups.

Though the Catholic Church scandals unleashed enormous spiritual anguish, the practical effects also apply to secular organizations, Piazza and Jourdan write. Certain firms, like certain denominations, can gain tangibly from a rival's disgrace. The caveat: They must offer similar services, and appear to be more virtuous.

Surprising as it may sound, in other words, an industry-wide scandal can sometimes mean opportunity. When a large institution falls to rubble, its survivors resolve not to make the same mistake twice. Looking for similar services, they'll choose the most austere organizational culture they can find.

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This article originally ran on Rice Business Wisdom and is based on research from Alessandro Piazza, an assistant professor of strategic management at Jones Graduate School of Business at Rice University.
Most workers surveyed visualize their organization as either a ladder structure or a pyramid, and the quality of relationships in pyramid-structured workplaces is higher than in ladder-structured workplaces. Photo via Pexels

The way a workplace is structured can make or break business, Rice University research finds

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It's a paradox of power: research shows that hierarchies often undermine the very structures they are designed to uphold. Within organizations, conflicts between members can erode entire systems. In a groundbreaking paper, Rice Business Professor Siyu Yu shows that even visual perceptions of the hierarchy can influence its success.

In the first study of its kind, Yu joined a team of colleagues to explore how humans visualize the hierarchies to which they belong – and how that thought process influences group processes and outcomes.

The researchers found that most of the people they studied thought of hierarchies in terms of pyramids or ladders (a tiny minority visualized them as circles or squares). In a ladder hierarchy or stratified structure, each member occupies a particular rung. A pyramid hierarchy is more centralized, with one person at the top and multiple people on the lower levels. Think of corporate giant CISCO, a typical pyramid, versus a mid-size dry cleaning business, with the owner at the top and one person on each rung below, down to the entry-level cashier.

These are far more than fanciful images, the researchers argued. Psychological research has long shown that individuals think, feel and act in response to mental representations of their environment. Intuitively, the link between perception and behavior has been articulated as far back as biblical times: "As a man thinketh, so is he" – or, for that matter, she or they.

To better understand the practical effects of these visualizations, Yu's team conducted five studies with 2,951 people and 221 workplace groups. They chose from nationwide pools monitored by West and East Coast American universities. The studies took place in the United States and the Netherlands and included multiple ethnicities, men and women, and income groups ranging from college students to seasoned professionals earning upwards of $90,000 annually.

In the first study, the team asked participants to indicate the shape that best reflected how they thought about hierarchies: pyramid, ladder, circle or square. In the second study, the researchers measured social relationship quality within different groups: participants were asked to rate their answers to questions such as, "Are your needs met at work? Do you feel socially supported?" In the third study, the researchers focused on professional workgroups, measuring relationship quality, group performance and the likelihood that individuals compare themselves to others in the group.

Subjects who perceived their working group as a ladder, the researchers found, were more likely to compare their rank and station with others. Their relationships were also weaker: when asked whether they trusted their team members, most subjects disagreed or strongly disagreed. When asked whether they thought about if they were better or worse than their colleagues, they agreed and strongly agreed. These comparisons and lack of trust indirectly correlated with lower performance levels, the research showed.

Perceiving one's organization as a ladder structure, Yu's team argued, undermines group members' relationships with each other and hinders collective performance. In contrast, participants who visualized the same company as pyramids rated radically higher on all three quality measures.

Interestingly, the impact of these visualizations is similar, whether the visualizations reflect an actual company structure or simply an individual's perception of that structure. "It can be created by both perception and actual rank, for example, job titles," Yu said in an interview. "So, as a practical implication, companies should think about ways to reduce the ladder system, such as with a promotion system that seems more like a pyramid, or by creating the mutual belief that upward mobility within the company is not a ladder or zero-sum."

Managers, in other words, need to pay close attention to how subordinates see their workplace. Even if your firm is structured as a pyramid, your team members could perceive it to be a ladder – with a cut-throat climb to the top. For the sake of both work performance and quality of life, Yu said, managers, human resources directors and C-suite members should do their best to discern how their workers visualize the company – and, if the paradigm is a ladder, work hard to reduce the workplace vertigo that goes with it.

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This article originally ran on Rice Business Wisdom and is based on research from Siyu Yu, an assistant professor of management and organizational behavior at the Jones Graduate School of Business Rice University.
In business, affiliating with high-status colleagues often gives newcomers a professional boost. But less so in the creative industries. Photo by Jaime Lopes on Unsplash

Networking with high-status colleagues isn't successful across industries, per Rice University research

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In a timeless scene from the mockumentary "This Is Spinal Tap," an 80s metal band swaggers in for a performance only to find they're billed second to a puppet show. Though the film is farce, real musicians often come to question the value of playing second fiddle to anyone – even an A-lister.

Now research by Rice Business professor Alessandro Piazza and colleagues Damon J. Phillips and Fabrizio Castellucci confirms those musicians are right to wonder. In fact, they discovered, the only thing worse than performing after a puppet may be opening up for an idol. Bands that consistently open up for groups with higher status, the researchers found, earn less money – and are more likely to break up than those that don't.

"Three cheers," The Economist wrote about the researchers, for confirming "what many people in the music industry have long suspected – that being the opening band for a big star is not a first class ticket to success."

While the findings may be intuitive for seasoned musicians, they fly in the face of existing business research. Most research about affiliations concludes that hobnobbing with high-status colleagues gives lowly newcomers a boost. Because affiliations give access to resources and information, the reasoning goes, it's linked with individual- and firm-level successes such as landing jobs and starting new ventures.

Both individuals and organizations, one influential study notes, benefit from the "sum of the resources, actual or virtual, that accrue to an individual or group by virtue of possessing a durable network of more or less institutionalized relationships."

That's largely because in many fields up and comers must fight to be taken seriously – or noticed at all. This problem is often called "the liability of newness:" In order to succeed, industry newcomers first need to be considered legitimate by the audience they're trying to woo.

Showing off shiny friends is a classic solution. In many fields, after all, linking oneself with a high-status partner is simply good branding: a shorthand signal to audiences or consumers that if a top dog has given their approval, the newcomer must surely have some of the same excellent qualities.

Unfortunately, this doesn't always hold true – especially in the creative world, Piazza's team found. In the frantic world of haute cuisine, for example, a faithful apprentice to a celebrity chef may actually suffer for all those burns and cuts in the star's hectic kitchen. Unless they can create meals that are not just spectacular, but show off a distinct style, consumers may sneer at the newcomer as a knockoff of the true master.

So what determines if reflected glory makes newcomers shine or merely eclipses them? It has to do with how much attention there is to go around, Piazza said. While partnering with a star helps in some fields, it can be a liability when success depends on interaction between audience and performer. That's because our attention – that is, ability to mentally focus on a specific subject – is finite. Consumers can only take in so much at a time.

Marketers are acutely aware of this scarcity. Much of their time, after all, is spent battling for consumer attention in an environment swamped by competitors. The more rivals for advertising attention, research shows, the less a consumer will recall of any one ad. In the world of finance, publicly traded companies also live and die on attention, in the form of analyst coverage of their stocks and angel investors' largesse.

Musicians who perform live, Piazza said, are battling for attention in a field that's gotten progressively more fierce, due to lower album sales and shorter career spans. Performing in the orbit of a major distraction such as Taylor Swift or Beyoncé, however, only reduces the attention the opening act gets, the researchers found. Though performances are just a few hours, the attention drain can do lasting harm both to revenue and career longevity.

To reach these conclusions, the researchers analyzed data about the live performances and careers of 1,385 new bands between 2000 and 2005. Supplementing this with biographical and genre information about each band along with musician interviews, the team then analyzed the concert revenue and artistic survival of each band.

They discovered that in live music, high status affiliation onstage clearly diluted audience attention to newcomers – translating into less revenue and lower chance of survival.

In part, the revenue loss also stems from the fact that even in big stadium performances, performing with superstars rarely enriches the underdogs. According to a 2014 Billboard magazine report, headliners in the U.S. typically absorb 30 to 40 percent of gross event revenues; intermediate acts garner 20 to 30 percent and opening acts for established artists bring as little as $15,000.

The findings were surprising, and perhaps dispiriting, enough for the researchers to carefully spell out their scope. Affiliation's positive effects, they said, are most often found in environments of collaboration and learning – for example academia. In these settings, a superstar not only can bestow a halo effect, but can share actual resources or information. In the music world, however, the fleeting nature of a shared performance makes it hard for a superstar band to share much with a lower-ranked band except, perhaps, some euphoric memories.

Interestingly, in many businesses it's easy for observers to quickly assume affiliations between disparate groups. In the investment banking industry, for instance, research shows that audiences infer status hierarchies among banks merely by reading "tombstone advertisements," the announcements of security offerings in major business publications. Readers assume underwriting banks to be affiliated with each other when they're listed as being part of the same syndicate – even if the banks actually have little to do with each other beyond pooling capital in the same deal.

In the music business, star affiliations mainly help an opening act a) if the audience understands there's an affiliation and b) if they believe the link is intentional. But that's not always the case because promoters and others in Big Music often line up opening bands. When possible, though, A-listers can do their opening acts a solid by making it clear that they've chosen them to perform there.

Otherwise, Piazza and his colleagues concluded, the light shed by musical supernovas typically gets lost in the darkened stadium. For the long term, business-minded bands may do best by working with peers in more modest venues – places where the attention they do get, like in Spinal Tap's classic metric, goes all the way up to 11.

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This article originally ran on Rice Business Wisdom and is based on research from Alessandro Piazza, an assistant professor of strategic management at Jones Graduate School of Business at Rice University.
Rice Business Professor Amit Pazgal found that in certain situations, gray markets can actually help manufacturers and retailers. Photo by Science in HD on Unsplash

Rice University researcher reveals the benefits to unauthorized manufacturing markets

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A camera store in Taiwan buys Nikon cameras from an electronics shop in the Philippines, where photo equipment is cheaper. Then the store sells them to consumers in Taiwan at a lower price. The camera comes without a warranty and instructions are in Filipino – the buyers in Taiwan are happy to have a real Nikon for a lower cost.

The sellers and customers are operating in the so-called gray market – where genuine products are sold through unauthorized channels. Gray marketers buy goods in markets with lower prices, then ship them to a market with higher prices, where they will likely sell for a profit. Though the products are identical, consumers typically see gray market goods as inferior since they often lack benefits like after-sale services or warranty coverage.

For years, gray markets have posed a significant threat to both manufacturers and retailers, depriving both of customers and profits. It's estimated that around $7 billion to $10 billion in goods enter the U.S. market through gray market channels every year. The IT industry, for one, loses approximately $5 billion a year due to gray market activities.

No specific laws in the U.S. ban this practice outright, however. As a result, in recent years, retailers are increasingly taking advantage of potentially cheaper prices abroad, personally importing or using third parties to buy original goods not meant for direct sale in the United States – and then selling them here for less. Alibaba, China's most extensive online shopping site, offers its hundreds of millions of shoppers a large array of gray market goods to peruse.

Manufacturers usually respond to gray markets with knee-jerk hostility, urging customers to avoid gray market goods and even filing lawsuits against gray market peddlers. Nikon, for example, includes a website section to educate consumers on how to identify gray market products, to shun the gray market.

But is gray market commerce always destructive? Rice Business Professor Amit Pazgal joined then-Rice Business Ph.D. student Xueying Liu (now an assistant professor at Nankai University) to explore scenarios in which gray markets could be good for both manufacturers and retailers. Testing the theory in recent research, Pazgal and Liu found that there are indeed situations in which both manufacturers and retailers can profit thanks to gray markets, while the associated product also improves in quality.

To reach these conclusions, the researchers started by recruiting 118 participants between the ages of 25 and 45 to complete a gray market product survey. They found the majority had no problem buying gray market goods. Only 3 percent of consumers wouldn't consider buying cosmetics from a gray marketer, while 6 to 7 percent wouldn't buy electronics. Despite this, more than 90 percent of participants who were willing to buy required a price discount of 20 to 30 percent, showing the goods were seen as slightly inferior.

The researchers then tested responses to a model of a manufacturer selling a single product to two markets – or countries – that differed in size and in customer willingness to pay for the product. Consumers in one market would pay more, on average, for quality. For example, the Nikon D500 camera is sold for a 7.5 percent premium in Taiwan versus Thailand and a 10 percent price premium in Taiwan versus the Philippines.

Pazgal and Liu found that when the manufacturer sells their product directly to consumers in both markets when there is also a gray market, both the manufacturer's profit and product quality decrease. But when the same manufacturer sells their product indirectly to a retailer in at least one of these markets, both the manufacturer's and the retailer's profits can increase. So can the product's quality.

This occurs for several reasons. First, gray marketers increase total demand and profit for the retailer in the lower-priced market, or in the market where the gray marketer buys their goods. The manufacturer can set a higher wholesale price for the better quality product in a market where consumers pay more, and increase sales in both markets as consumers compare the regular, high-quality product to the gray market one. In fact, by offering a lower-priced, lower quality (that is, gray market) alternative to its own high-quality product, the manufacturer can better segment consumers in the higher-priced market.

Finally, the retailer in the higher-priced market becomes more profitable even though they lose some customers to the gray market. This is because increased product quality and price more than make up for lost sales. Researchers found that the results hold regardless of whether the gray marketer buys from the manufacturer or a retailer.

The bottom line: in certain situations, gray markets can improve profitability for both manufacturers and retailers (and, of course, the gray marketers). Counterintuitive though it is, manufacturers that sell through retailers shouldn't automatically see gray markets as an obstacle to their profits, rushing to demand that governments and courts shut them down. Instead, in some cases, companies could do well to embrace these gray markets, because they lead to overall improved profits.

Manufacturers can use this information to their advantage, Pazgal noted. Nikon, for example, could introduce a higher quality camera to the market, allowing it to set even higher wholesale prices and increase sales in both markets, far exceeding the cost of the higher quality product.

For consumers, meanwhile, gray markets are always beneficial because of lower prices. If companies heed Pazgal's findings, however, customers could also benefit from more innovative and higher quality cameras and other merchandise, as manufacturers hurry to create better products to bump up their profits.

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This article originally ran on Rice Business Wisdom and is based on research from Amit Pazgal, the Friedkin Professor of Management – Marketing at the Jones Graduate School of Business.
A Rice Business Professor shows how tailored, personalized health care marketing works better to convince at-risk patients to get screening for liver cancer. Photo via Getty Images

Research: Rice professor reports on the impact of personalized health care marketing

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Amazon is famous for targeted marketing that approaches customers based on their unique needs. Like other successful businesses, such as Netflix, the company taps into machine learning, which uses customer data to understand their behavior.

Hospitals and medical centers rely on marketing too, investing heavily in direct-to-patient outreach to urge at-risk people to get regular screenings. Johns Hopkins Hospital's cancer center, for example, uses emails, letters, seminars and community events to encourage patients to get screened for potential cancer. The high cost of cancer treatment makes this effort worth it: research shows regular screenings help with early detection, leading to more cost-effective treatments and better prognoses.

But hospitals can – and must – improve their outcomes much more, by melding this essential outreach with individually tailored communications based on machine-learning insights.

In an award-winning paper, Rice Business Professor Vikas Mittal and colleagues developed new algorithms indicating that targeted, personalized outreach can increase screenings among at-risk patients. "Outreach marketing" – including sending informational letters and talking to patients about potential barriers to screening – was indeed a powerful motivator for patients to get screened, ultimately lowering health care costs for patient and hospital. But patients with different characteristics, Mittal's team found, responded differently to marketing interventions. When it came to marketing campaigns for cancer screening prevention, one-size-fits-all outreach efforts were neither effective nor economical. Personalized marketing works better for preventing cancer.

To conduct their research, the researchers randomly divided 1,800 patients at UT Southwestern Medical System at risk for hepatocellular carcinoma – the most common type of primary liver cancer – into three groups – usual care, outreach alone, and patient navigation, which includes help such as follow-up calls, motivational messages and assistance spotting specific barriers. They followed each group to see if patients scheduled an MRI or CT scan within six months, from 6-12 months and from 12-18 months.

The first group was asked to receive a screening during their doctors' visits and wasn't contacted after that. The second group received a one-page letter in the mail, then staff called patients who didn't schedule a screening. The third group receiving patient navigation got the same treatment as the second group supplemented with phone calls designed to identify potential barriers, which they used to give customized motivational messages encourage coming in for a screening.

The researchers used patient data from medical records, including patients' age, gender, ethnicity, income, commute time, health status, how often they received healthcare services, whether or not they had insurance and how populated their neighborhoods were.

Following traditional methods, Mittal's team found that the patients who got a letter and call were 10-20% more likely to complete a screening, while those who got the customized motivational messages were 13-24% more likely to schedule their screening. But this is where traditional medical research stops, without asking a crucial question: Within each group, such as those of the 600 patients receiving patient navigation, could screening rates differ based on patients' individual characteristics?

In past research, everyone receiving the same stimulus is presumed to respond the same way. There was no statistical technique to separately estimate the responsiveness of patients with different characteristics. Mittal's team solved this problem by using a machine learning technique called causal forests.

By using "causal forests" to quantify how each of the three marketing approaches could be applied to different patients, Mittal's team found, improved returns on the traditional approach by a remarkable 74-96% – or by $1.6 million to $2 million.

Using traditional methods, physicians would have concluded that every patient should get patient navigation because it was a more intensive marketing approach. The causal forest method showed otherwise: there are small groups of patients with unique characteristics who respond best to specific types of overtures. Minority women in good health who had insurance, visited the doctor often and lived close to clinics in more populated neighborhoods responded especially well to all three types of outreach interventions. Younger patients with long commutes who live in neighborhoods with more public insurance coverage embraced the second type of intervention, outreach alone. And older patients in higher-income neighborhoods favored the patient-navigation approach.

The stakes for common marketing practices like "AB testing" could not be higher. In AB testing, marketers run randomized experiments such as showing ads to some people and not to others. If those seeing an ad, on average, buy more, the conclusion is to blanket the market with ads. But AB testing ignores the fundamental idea that customers exposed to an ad might buy differently in response to an ad based on their individual characteristics. In fact, research shows, many customers seeing a non-tailored ad will buy less than those not seeing an ad.

Personalized marketing can uncover these differences and substantially increase the return on marketing investments in many settings such as retail and ecommerce, services marketing, business-to-business marketing and brand management. Healthcare companies should consider dedicating more resources to machine learning, which can power data-driven patient-centric outreach programs. Because individual health is a civic good, policy makers and organizations need to support these personalized outreach programs.

As for patients themselves, giving detailed personal data to a doctor or receiving highly personalized, unsolicited phone calls legitimately can seem like an invasion of privacy. But Mittal's research shows, it measurably has the potential to save your life.

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This article originally ran on Rice Business Wisdom and is based on research from Vikas Mittal, the J. Hugh Liedtke Professor of Marketing at the Jones Graduate School of Business.
Expanding into foreign markets is tempting, but strategic fit can determine success or disaster. Photo via Getty Images

To expand or not to expand? Houston researcher weighs in on global growth

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You built your business from the ground up, patiently finding techniques and products that work, carefully crafting solid bonds with your clients. Then one day a new project, opportunity or simple request poses a question: Is it time to branch out overseas?

Of the welter of questions to consider, the first and most important involves location: not just the physical location of the prospective expansion site, but the cultural differences between a firm's home country and its new destination. Secondly, key company traits need to be considered in choosing the investment locations. Is your firm large or small? Young or old? Finally, of pivotal importance to companies outside the United States: Is your company privately held or state-owned?

In a recent paper, Rice Business professor Yan Anthea Zhang looked closely at these three variables with Yu Li of the University of International Business and Economics Business School in Beijing, China and Wei Shi of the Miami Business School at the University of Miami. What, the researchers wanted to know, was the relation of these three features and firms' location choices for their overseas investments?

To find out, Zhang and her colleagues analyzed 7,491 Chinese firms that had recently ventured into foreign markets with 9,558 overseas subsidiaries. Because China now has become the world's leading source of foreign direct investments, the sample promised to be instructive. Thanks to the large sample size, researchers could test hypotheses relating to firm size, age, ownership and the impact of geographical and cultural distance on their location choices.

After studying the elements of geographic distance and cultural distance, Zhang and her colleagues uncovered a paradox. Companies that had an advantage in tackling one dimension of distance were actually disadvantaged — because of the same characteristic — in another dimension.

How, exactly, did this paradox work? Larger firms, with access to more resources, can "experiment with new strategies, new products, and new markets," the researchers wrote. This large size makes geographic distance less of a concern, but it comes with a ponderous burden of its own. Company culture is directly influenced by the country of origin, Zhang wrote. Transferring that culture into a completely different environment can cause the kind of shock that could lead to failure, even with financial and physical resources to ease the geographical distance. Conversely, smaller firms may be more nimble and able to adapt to needed cultural changes — but lack the resources to make true inroads in a foreign market.

A similar paradox exists for older and younger firms, Zhang wrote. A younger firm is more likely to adapt to a culturally distant country than an older firm might, even if that youth means that geographical distance is a greater logistical challenge.

State-owned firms face a similar paradox, one that comes down to the balance of resources against cultural flexibility. A company with state-generated resources may be better equipped to move a caravan people, machinery and materials to a distant new location. However, state-owned companies often typically lack the internal cultural flexibility to handle expansion to a different environment.

What does this mean for the average manager? Simply that going global demands meticulous weighing of factors. Does your firm have the practical resources to expand overseas? Does your staff have the personal flexibility and willingness to meld company culture with that of a different milieu? It's a truism that major overseas expansions require money and heavy lifting. Less obviously, managers of successful companies must thread a very fine needle: ensuring they have the material resources to get their business overseas physically, while confirming that company culture is light enough on its feet to thrive in day-to-day life in a new place.

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This article originally ran on Rice Business Wisdom and is based on research from Yan Anthea Zhang, a professor and the Fayez Sarofim Vanguard Chair of Strategy in the Jones Graduate School of Business at Rice University.
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Houston health tech startup using AI in palliative care scores $256,000 grant to test its product

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A new Houston-based digital advanced care planning company is streamlining some of the most difficult conversations in the health care industry around palliative care.

Founded by Tatiana Fafanova, Dr. Desh Mohan, and Katelin Cherry, Koda Health uses AI to help patients create advance medical care directives and documents—such as a living will—through an easy to use web-based interface.

Koda Health uses a conversational platform where users can enter information about their values, living situations, quality of life wishes, and more while learning about different care options at their own speed. It also uses a proprietary machine learning approach that personalizes audio-video guided dialogue based on the patient's individual and cultural preferences.

The app then autogenerates legal and medical documents, which patients can notarize or electronically witness the forms through the app or on their own.

According to Fafanova, who earned her PhD in in Molecular Medicine at Baylor College of Medicine in Houston and now acts as the company's CEO, what historically has been a time consuming and expensive process, through Koda Health, takes an average of 17 minutes and is completely free of charge to the end user.

"We hope to reduce any outstanding barriers to access that might exist," Fafanova says. "It is very frequently the oldest and the poorest that are the highest utilizers of health care that don't have access to these solutions."

The app is also projected to save health care systems roughly $9,500 per patient per year, as it allows for hospitals and organizations to better plan for what their patient population is seeking in end-of-life-care.

The B2B platform was born out of the TMC's Biodesign Fellowship, which tasked Koda's founding members with finding solutions to issues surrounding geriatric care in the medical center. In March 2020, Koda incorporated. Not long after ICU beds began to fill with COVID-19 patients, "galvanizing" the team's mission, Fafanova says.

"It was no longer this conceptual thing that we needed to address and write a report on. Now it was that people were winding up in the hospital at alarming rates and none of those individuals had advanced care planning in place," she says.

After accelerating the development of the product, Koda Health is now being used by health care systems in Houston, Texas, and Virginia.

The company recently received a Phase I grant of $256,000 from the National Science Foundation, which will allow Koda to deploy the platform at Atrium Health Wake Forest Baptist and test it against phone conversations with 900 patients. Fafanova says the company will also use the funds to continue to develop personalization algorithms to improve Kona's interface for users.

"We want to make this a platform that mimics a high quality conversation," she says.

After Koda completes the Phase I pilot program it will then be eligible to apply for a Phase II award of up to $1 million in about a year.

Koda Health was founded by Tatiana Fafanova, Dr. Desh Mohan, and Katelin Cherry. Photos via kodahealthcare.com

Research: 5 mistakes Houston entrepreneurs should be making

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We all have heard "you learn from your mistakes," so, why do a lot of startup blogs warn entrepreneurs of the mistakes they shouldn't make when starting a business, but not very many tell them what mistakes they should be making? Some mistakes teach us more than our successes and some of those mistakes are bound to happen anyway, so why not embrace them?

Ben Wiener, a startup founder and managing partner of a Jerusalem-based micro-fund that invests in early-stage startups, provides a list of five mistakes startup founders should be making as early as possible during their entrepreneurial journey in an OnStartups blog post.

Ben Wiener’s Top  Mistakes When Starting a Business 

1. Get Screwed

"It's inevitable. Anyone – your partner, co-founder, employee, investor, or any other character in your unfolding plot – will mess you over. Someone will break your trust, violate a verbal or even written agreement, cut your compensation, or try to steal your equity or destroy your whole company (or all of the above, if you're me). Someone will do something stupid to scuttle your grand plan."

Wiener said to accept the inevitable. Power struggles are real, and the vision you have, someone else on your team may not see it the same way, causing friction. Prepare yourself for this problem and hope it doesn't cause too much damage.

"Upon reflection, you'll likely find that what enabled your misfortune was something you did or didn't do. The screwer-screwee relationship requires at least two people, and there are two sides to every story. Even if you clearly weren't "at fault" – you encountered a terrible, crooked person who did you in – you still need to ask yourself how you allowed yourself to do business with that person," Wiener said.

2. Seek Revenge

"This is an adjunct to the above mistake. Once bitten, your natural impulse may be to bite back. You've lost something – tangible, emotional, some future upside or all of the above – and you want to deny the perpetrator those same things or at least the satisfaction of having caused you that loss."

Wiener recommends trying this at least once. "I predict that not only won't you be successful, but most likely nothing will happen at all, or worse, it will bounce back at you. You'll just feel immature, cheap and dirty and the lingering recollection of that bad feeling probably will be enough to prevent you from playing the revenge card again," he said.

Beyonce said it best, "always stay gracious, best revenge is your paper." Translation: remain cordial, your success will be the best revenge.

3. Tell People Your Venture is in "Stealth Mode"

"It's natural to want to keep your cards close to your vest. Perhaps you're afraid someone will steal your idea, or you lack confidence that you've developed it well enough to convincingly describe it to others. The tech industry has even provided you the gift of a cool-sounding cover: "Stealth Mode," which makes you sound more like a covert spy shrouded in secrecy than an unsure rookie plagued by insecurity. Saying you're in "Stealth Mode" is almost certainly a mistake, for many reasons. First of all, it can easily be interpreted as either pompousness or insecurity, which is bad for your credibility. You're also signaling that you don't trust that person, creating a negative feeling that will likely persist even after you're able to elaborate later on."

You never know who a potential investor or costumer could be, so don't keep everything a secret. Pique people's curiosity. You may even know a potential investor or costumer personally, so "switch to 'Get Out There' mode" as Wiener recommends.

4. Believe that "If You Build It, They Will Come"

"The popularity of the phrase leads some founders to believe, and predict to investors, that they, too, need only to build their amazing new thingy, and the users will come running until the rest looks like a hockey stick. I can assure you that if you just build "it", "they" will almost certainly not come. In startup theory the "coming" of "they" is called "Market Pull" which almost never happens by itself, even among early adopters. Market Pull needs to follow an intense and iterative period of product design, customer development, Product/Market Fit and hands-on "Technology Push" into the target market, which only if successful begets the glorious Market Pull. You'll have to work hard to make the market notice and care, and probably personally engage your early users individually, and that's fine."

5. "Wiener's Favorite Mistake"

"My favorite founder mistake is not appropriately balancing confidence and humility. There's a yin/yang relationship between the two and as you pilot your rocketship forward, you will occasionally find that you've leaned too hard to one side or the other. As a startup founder you need to have a healthy dose of self-confidence. Ok, maybe an unhealthy dose. An overdose. You need to passionately believe that your solution is The Next Big Thing. But overconfidence can be extremely dangerous, for many reasons. It can be misinterpreted by others as arrogance, which can cause damaging interpersonal consequences. If overconfidence morphs into false confidence, it can cloud your vision or your analysis. A great founder must have just as healthy a dose of humility, an understanding of his or her relatively small place in the world. But being too humble can hold you and your venture back."

Wiener said that balancing your self-confidence and humility is something you will have to do every day. You will need to choose which situations require which trait.

What’s The Big Idea? 

When starting your own company, do you want other entrepreneurs to only tell you about their successes? Or, do you want to know their failures as well and what they learned?

"A good entrepreneur wants to talk about their mistakes as well as their successes, and a good investor wants to hear about those mistake and lessons without penalizing the pitch, Wiener said."

If you had a young child or teen in the early 2000s, maybe you heard Hannah Montana sing "Nobody's Perfect." That mantra always has and will remain true. Wiener said to expect mistakes to happen. Embrace them, and then analyze them "as those lessons learned will become important, lasting building blocks in your personal development and the development of your company."

Don't be afraid to make mistakes when starting a business. It would be weird if you didn't, actually. Learn from them and go succeed.

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This article originally appeared on the University of Houston's The Big Idea. Cory Thaxton, the author of this piece, is the communications coordinator for The Division of Research.

Real estate giant to open another downtown Houston coworking hub

going up

A new downtown Houston skyscraper that's on the rise and expected to be completed by the end of the year will offer flexible office space.

Texas Tower will feature The Square, Hines' flexible office product, the international real estate firm announced with Ivanhoé Cambridge. The 18,000-square-foot space will provide "elevated level of service and amenitization akin to a hospitality environment," according to a news release from Hines.

"We recognize the way our tenants conduct business is rapidly changing. The Square at Texas Tower will provide the highest quality flexible work experience in the market supported by an unparalleled dedication to service and integrity. Its offerings accommodate tenants' temporary teams, task forces, and expansions, and welcomes collaboration and variability," says Hines Senior Managing Director John Mooz in the release.

The Square is scheduled to open in early 2022 in the LEED Platinum office building that's being designed by Pelli Clarke Pelli. The flexible space is a result of a collaboration between Hines and Montreal-based firm, Ivanhoé Cambridge.

"We are thrilled to offer this signature workplace service in Texas Tower," says Jonathan Pearce, executive vice president of leasing and development, office and industrial at Ivanhoé Cambridge. "We have listened to our tenants and understand their need for flexibility of service, duration and built environment. As owner of Texas Tower and long-standing partners with Hines, we thrive to put forward innovative solutions such as The Square, to elevate and support the user experience of our customers and their employees' engagement, attraction, retention, and development."

Hines introduced its coworking concept — Hines² — a few years ago. Hines² already is up and running at two locations: 717 Texas, a 33-story Class A office tower in Houston, and The Kearns Building, a 10-story office building in Salt Lake City. As Hines looks to continued expansion, future cities may include Atlanta, Chicago, San Francisco, Washington, DC, and London, per the release.

The Square's first Houston location opened in 2020 at 717 Texas Ave. Image courtesy of Hines

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