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Making moves, shaking things up - How to be a great business leader, according to economics theorists - Blog

Making moves, shaking things up - How to be a great business leader, according to economics theorists

Making moves, shaking things up - How to be a great business leader, according to economics theorists

Is there a way to evaluate whether a person is going to succeed as a business leader before they have the opportunity to prove themselves in the field?

New research suggests that there are a few measureable attributes that can provide a reasonable indication of whether a leader is going to succeed or fail.

Is there a way to evaluate whether a person is going to succeed as a business leader before they have the opportunity to prove themselves in the field?

New research suggests that there are a few measureable attributes that can provide a reasonable indication of whether a leader is going to succeed or fail. Whether these traits are innate, or developable, is not debated in the paper – so if you find yourself wanting to be a great leader, but don’t see these attributes present in your person, perhaps consider this as a touchpoint from which you can develop yourself.

 

Connected is key

 

The key trait that Robert Akerlof and Richard Holden identified for a great leader is connectedness. This is the ability to bring people together. Getting diverse people to unite for a common task is the skill that defines a leader. Without this quality, people will be distracted, and individualised. A leader changes this – they get people to identify the best expression of their self-interest with that of the group.

In their paper, they create a model with two sets of people: managers and investors. The managers are the group from which a leader will emerge. Managers exist to bid for control of an investment project. Once a manager has control, through a successful bid, they must then use their connections with investors to get them to invest.

 

The top dog

 

What Akerlof and Holden discovered was that in each group of managers, a central leader emerged – they called this person a ‘mover and shaker’. This leader gets the highest pay-off, due to the effectiveness in getting a project going, and getting investors to buy into the project.

In the analysis, it comes to light that the ‘mover and shaker’ was the actor who had the best network. Establishing and maintaining these connections meant, in the model, that the top manager ended up taking control of other projects. While connections determined success to a very large degree, secondary attributes also played a role – skill at running a project, communication ability, and personal capital all contributed too.

The insight that should be drawn for the small business owner is that establishing and maintaining a network with high-quality connections is essential for success. In the model used in Akerlof and Holden’s paper, the presence of a strong network was a strong signal for the investors that the project was going to be a success.

 

Capital for the capitalist

 

The work that it takes to establish a network of quality should, therefore, be seen by the aspirant entrepreneur as of equal importance to getting employees to do their jobs. Securing capital is at the heart of an entrepreneur’s work – without it, growth of your business becomes a Sisyphean task.

What Akerlof and Holden show is that very often, those with money to invest have a herd mentality – they follow one or more other investors’ opinions of a manager. To illustrate this point, Akerlof and Holden recount the story of the origin of The Blackstone Group, a private equity fund. After being turned down by 488 potential investors, they had a stroke of massively good fortune, when Garnett Keith, Prudential Insurance Company’s vice-chairman, invested in their fund. Almost immediately afterwards, a raft of other investors followed. The fund now controls $30 billion in funds.

Blackstone’s story is one of determination, but it is mostly one which highlights how important it is to leverage every node in your network in order to make your dreams reality.