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Stefani H  0:06  
Welcome to another episode of Creative Distillation. Your hosts Jeff and Brad from the ºù«ÍÞÊÓƵ is Leeds School of Business discuss entrepreneurship research while enjoying fine craft beverages. Previously on Creative Distillation, Jeff and special guest host conducted field research at , a soda distributor based in the Los Angeles area, speaking with founder Danny Ginsburg, about his passion for soft drinks and how he got into the distribution business. This time we're still at Real Soda and still joined by Shon Hiatt, business professor at USC, discussing his lifelong passion for soda and his paper from "." His entertaining stories reveal an expansive knowledge of the industry’s fascinating history. Enjoy and cheers!

Jeff  1:07  

Welcome to Creative distillation or to steal entrepreneurship research into actionable insights. I'm your host Jeff York, research director at the Deming Center for Entrepreneurship at the elite School of Business at the ºù«ÍÞÊÓƵ, and I'm here today without my co host Brad Warner. We are still hanging out at real soda and real bottles here in Los Angeles. And I am however, joined by one of my very favorite academics, somebody whose writing I greatly admire and who has been a friend of mine for many years. Professor Sean Hiatt.

Shon Hiatt  1:38  
Hello, Jeff.

Jeff  1:39  
Hello, Sean. So Sean is a professor of strategy at the Marshall School of Business University of Southern California. And Sean and I graduated with our PhDs right around the same time. So that's right. We knew each other as doctoral students at conferences. Yeah, so we well, in fact, you remember how we met? Was it in Charlottesville? No. Was it at Cornell? No, no, tell me. Okay. So I was getting ready to write my dissertation. And I knew that I really wanted to write about entrepreneurship and an industry that has some environmental impacts. And at the time, biodiesel was like a really big topic. I had a friend who was a biodiesel entrepreneur. And you know, people had written one of Sean's colleagues in his PhD program had published a paper on wind energy, other people had published on solar energy. And so I was like, Oh, I can write about this biodiesel. This is just this fascinating thing. And so I happened to meet West sign is professor at Cornell was John's advisor. And Wes was like, Oh, that's a really interesting idea. You probably would want to talk to Sean Hiatt about that, though. I think he's doing some work in that area, which was was his very, very nice way of letting me know that I should probably not do that. And so so then I'm like, oh, Shawn Hyatt. So I spent the next two days like Googling, Hyatt, the hotel chain, and never ever figuring out the spelling, I think assuming your name was spelled that way, could never find so that was trying to Google Shan SHA U N. Find you like, so Sean's name is SHON HIATT, which makes it really hard to find someone named Shon Hiatt, when you just don't do anything about them, eventually, somehow found you I think I called Westpac like this guy doesn't seem to exist. He's like, Oh, it's spelled this way. Called Shon. He's very nice guy to call as I can think about standing the biodiesel industry. And Shawn being the lovely person he is, oh, that's really interesting. I've been studying it for about two and a half years. And if Ken collected all these data that everything across the country of every biodiesel producer, and at that moment, I said, Oh, well, I guess I won't do that, because this guy has got it. So but actually, it was enormously helpful to me, because had I tried to study biodiesel, I wouldn't have done nearly as good of a job as you and your co authors have done a study that and I never would have gone and learned about green building and the LEED building standard, which is why I ended up doing my dissertation on that anyway, without talking about my own work got me a lot of things published. And I think it's just a fascinating area. And John is of course now published much of his work about biodiesel. That's right. Yeah. And so most of my research focuses on the two sectors of energy and agribusiness. Yep. And also the confluence of the two which would be like biofuels. Exactly. And so what I love about your workshop is that you do so many different sectors. I mean, you said that like like you only do like he says energy and agribusiness like Shawn does two things but no, no, no Shawn studies so many industries. And you know, sitting here of course, I can't help but think about your your first paper that think you ever published which is an in my opinion, a classic. I really love that paper. I love all your work. But from Pabst to Pepsi, and I can't remember the second half of the title because I can you remember it like deinstitutionalization of social practices in the creation of entrepreneurial opportunity. So if Brad was here, he'd be like it's always the stuff after the colon that upsets Brad, you know, it's always like the catchy part. But But, but we're sitting here. If you haven't heard the previous episode, we're here at Real soda in real bottles. We just talked to Danny Ginsburg, the founder here, and Sean and I are sitting here in this 50s, soda shop kind of setting are surrounded by paraphernalia I just, this is the perfect setting to talk to you. I was felt like you and Danny, were brothers by another mother or something. Yes. Is your love of this industry? I mean, tell us tell us a little bit about that paper because I think ya know, there's subscribe.

Shon Hiatt  5:45  
There's actually like a family history component to that paper. And this is what I actually tell many doctoral students when they think about, well, what should I study and I said, we got to do stuff that you know, you're passionate about. And, you know, for me, most of my topics come about just through my experiences, living life, right? I'm growing up on a farm in Idaho, working on our family's dairy farms, hence, they do a lot of the agribusiness. But then also I do as a lot of energy, hydropower, natural resources. So, but anyway, this came about actually, right after I married my wife, so we had some time before I started my graduate program at Cornell. So for that summer, I got really into genealogy. And I'm still actually to this day a genealogical hobbyist. Yeah, absolutely, yes. And so, when you get tired of like, your day job doing awesome research, you go do some more research for fun, exactly. Perfect. Right? Just go. That's right. And, you know, building out my family's not just mine, but other people's, you know, figuring out and then seeing how we're all related. Well, in the process of doing like this genealogical work, I found out that my wife and I were actually cousins. Oh, actually, ninth cousins, twice. Ninth cousins twice removed as far as the 1500's. I think it sounds like that for the shock factor.

Jeff  7:09  
I've just been watching the Game of Thrones series, you got me a little nervous?

Shon Hiatt  7:15  
Well, anyway, so in that process, I found out that, you know, my great grandparents and I know a little bit about it, but not much, but they were entrepreneurs, right. First, they started out as like, automobile dealers in Montana. I like homes, automobiles. And then when that went bust, they started up a new dealership of a new automobile company, because they were, you know, remember many automobile companies that in the 1910s and 1920s are? Well, in the process of doing this, they realize, you know, automobiles is kind of hit and miss the manufacturers on that good. But we believe cars are going to be a big thing. And so there were four brothers. And they said, you know, we think that there's a future for Drive ins. And mind you this is like in the late 1920s 1930s.

Jeff  7:56  
I mean, was there even like a movie industry? Then?

Shon Hiatt  7:59  
I guess there was a drive in restaurants, restaurants, okay.

Jeff  8:02  
I'm sorry. That's right. I was just at Quentin Tarantino is theater last night. I've got movies on the

Shon Hiatt  8:07  
mind. Yeah. So try that in restaurants.

Jeff  8:09  
And so they said, 20 If you think about that, it's 2030s. That was just like, a totally outrageous

Shon Hiatt  8:15  
show. That's right. But the automobile was like they were really big anatomy with a lot of enthusiasm at the time. Right, right. And so they said, Well, if we're going to do that, we need to have something to anchor, you know, we need a theme. And there was this company called triple x root beer triple, which was a company based out of Galveston, Texas. And it had started in 1912, as a brewery, it was the Galveston beer company, but because of prohibition, it had to convert or shut down. And so they converted to triple x root beer and barely making it. So they contacted this company, and said, Look, we'll give you a lifeline. You give us all the rights to this triple x root beer, everything to distribute it to sell it to us the naming on everything right west of the Mississippi. And, and they bought it at Galveston, Texas said sure you got the weekend. And so they took that triple x root beer, the drink as well as the brand and set up a bunch of these drive in triple x root beer restaurants throughout the Pacific Northwest and in Northern California. And Aw, I guess that's exactly right. They were a precursor ended up being like a competitor also in W but that's like the night you know, happy days is end up being a big thing in the 50s

Jeff  9:32  
rollerskating, waitresses and all that stuff. That's

Shon Hiatt  9:36  
exactly right. In fact, that's my grandfather who end up working in the Great Grandpa. That's how he met my grandmother because she was actually a roller skating wage. And one of the restaurants that's awesome that you know, yeah, so anyway, but in the process of learning about this and the family history, I was like, wow, so that's interesting. This Triple X Trooper used to be a brewery company. I mean, how common was that? And I did a little bit more digging and I realized

Jeff  10:00  
While the soft drink industry really came about because of the temperance movement, there's a story here, who knew that social movements could actually create entrepreneurial opportunities? I gotta stop for a second. This is one of the first times we've had actionable insight for PhD students on the show, we usually focus on on entrepreneurial actual insights. I think there's actually some actionable insights here for entrepreneurs as well. I wanted to see if you agree with this, Shawn, that like, looking for a way to create a product, you don't necessarily have to come up with a brand. You just got to figure out where's there a brand I can license and leverage that somebody else has already developed that has some cachet that appeals to me, and I think will appeal to my customers and licensing that brand, and then bringing it to a different, a different vertical is a really effective strategy, actually, and geographic location, geographic location. So our students are often like, I don't have a great idea. I'm not Elon Musk, I'm like, No, you're not. Thank goodness. And so it's fine. You don't have to you can be an entrepreneur without creating brand new innovations from scratch. So there's an actionable insight for people to think about as a story. Now, why want to talk about though? Yes, Brad's not here is PhD students. So you were saying doing something you're passionate about? Like, I'm just imagining you giving I assume Pepsi Pepsi? Was your job talk? Or no, it wasn't? No, it wasn't. It was a paper I developed in, in my courses as a doctoral student. And, and because we were so jealous of you, everyone else, everyone else was just like, Oh, my God, Hey, Sean published this paper like before he even came out anyway. Suffice to say, Shawn is an amazing academic amazing writer, it's third thing I love is your your papers are written in an interesting manner, where I can just read them and just enjoy them for the writing. But when you go out and you're giving job talks, and people are asking you about this paper, of course, like your ability to tell this paper and why you're interested in it, I think it's super important. Like you were saying, doing something you're passionate about. But it's not just like, hey, I'm passionate about electric vehicles. Because you know, that's changing the whole industry. You're actually passionate about this, because it's linked to your family. That's right, where you come from? Yeah, that's right. There's a there's a personal attachment aspect to it. Yeah. And I think that's really important. I think PhD students often miss it. I think a lot of people miss that research overall. I mean, I think of a time and we were interviewing somebody, right? And he was studying the hotel industry. And he was saying something, I don't even remember what he was saying was so boring. But anyway, somebody was like, Well, you know, I used to work in the hotel industry. And I just don't think that's true, necessarily. That's not how we would run things. And I was at, you know, Marriott for several years. And that's not what would happen. Like, why do you think that is? The case is like, well, these data show it? And what have you talked to anyone in  the hotel industry? And this guy is like, No. And we're like, well, you're staying in right now. Right? This is not like trying to get access to like, you know, NASA scientist or something. This is like, literally walk into a hotel, they have to talk to you.

Shon Hiatt  12:59  
That is, that's another thing that I have to and I do reviews of papers. I'm like, so what evidence do you have? I mean, it's nice. You've collected some data. Yeah, but analyses. But I'd love to hear some stories. I want to see some qualitative evidence. And yeah, and then of course, that's been a thing and all my papers, I dive in I interview 20 to 3040 people in every context within these large verticals of agribusiness or energy, to try to understand what's going on, what do you think are driving the factors? And why are you in any of your

Jeff  13:28  
papers, even though they're done with econometric research? Usually, not always, but statistical analysis? The story behind it is clear. And it's clear that you know what you're talking about. I mean, anybody that just listened to the first 10 minutes of this podcast? Probably, you know, I think other than Danny, I've never may want to do more about the soft drink industry than you. And he may not know more, I don't know. But okay. All right. So your grandfather had done I'm sorry to interrupt you. But I will do that periodically. Oh, yeah, no problem. I really think like, this is a problem not just with PhD students in our field of people doing research, not on topics that if you don't care about what you're studying, for some sense of it being like, actionable real, or at least interesting, then why would anyone else and I've really feel like our field has suffered from that. I think that's what drives a lot of the why management and you know, broadly is in a little bit of a crisis, because we tend to study things that we can publish rather than things were actually are interesting

Shon Hiatt  14:30  
or useful. Yes. So that's kind of led then I guess we could pivot on to my dissertation topic, which you mentioned already, the biodiesel paper, right. So I mentioned that I grew up, you know, working on our family's dairy farm in the summertime and work for the wheat farmers and you know, drive the combines and harvest the wheat. And I said, Man, you guys got the easiest job. You plant in the spring or the winter, you take the winter off, and then during harvest time, you just sit in a tractor and you harvest it. I mean, that is the type of farmer I always said if I'm going to be a farmer, I'd be a wheat farmer. All right. Well, you see, there are a lot of other dairy farmer. It's 24 hours, seven days a week. That's right. Animals and yeah, so anyway, but with that, like we were never organic, right, certified organic, but everything that we did was organic, right? If we spent the money knew anything about it, we would have been organic every time. Sure. So that's kind of led to the research on the biodiesel as well as my organic certification research. Because just having lived it, the farmers themselves trying to find new avenues of revenue, which is what pushed the biodiesel. And then they of course, the organic, the farmers who really believed in it. Right and wanted to get the value for their growing techniques. Yeah, right. That's what led to this organic certification. Right. Right. So anyway, yeah, that's, that's sort of like the food aspect. And it kind of moved also over to the energy. Right. And I grew up in you know, same Idaho.

Jeff  15:51  
So go ahead and list off the things I knew you studied. Yes. Because I know there's a lot of other ones. So soft drink industry. Correct. We talked about biodiesel, GMOs, GMOs, genetically modified organisms. That's right. The organic foods certification. Yeah, I know you've done things also in wind energy and about social movements. Now we're on the energy side, right? You hydropower, hydropower? You said you were doing something on cheese now?

Shon Hiatt  16:18  
Yes. So I've got it. I got one other project on geothermal that Oh, I forgot. I'm going to get. Yeah, but yeah, now I've got this new one on back to the craft industry, like soft drink on cheese. And don't forget what pellets? Oh, yes. The window industry. Okay. I totally forgot about that. No, I mean, it's

Jeff  16:37  
just amazing. I mean, I'm not I'm really I mean, you're my friend. I'm not trying to suck up to you. But there's very few scholars that study this many different industries.

Shon Hiatt  16:45  
Yeah, that's one of the problems. I don't have the economies of scale. Like other students, they'll take one topic and they'll publish five papers using the same data 2030. That's the unfortunate thing is that I am not very efficient with my data. But I'm trying to become more efficient.

Jeff  17:01  
Interesting. Yes. I mean, so anyway, so I just want to mention this one paper, because I think this is the latest paper you published. I'll make sure we mentioned your latest paper. We'll come back to the cheese. More about that shared fate and entrepreneurial collective action, the US wooden pellet market. Wow, that's a brad would like that title. That's a very straightforward title. There's no colon in it. Organization science. I think it's impressed still is actually come out. It just came out in issue just came out twice. This is with Shawn as the first author, that's high H. I ATT, this organization science. And it's co authored with his frequent co author, I think,

Shon Hiatt  17:36  
yeah, Sunshine Park. He and I were both in the doctoral program together at Cornell,

Jeff  17:40  
I didn't know that. And he is at the Korea Advanced Institute of Science and Technology and seal. Yeah. So tell us a little bit about this guy. No, there's this this string in your work of not just studying entrepreneurs, but industries, and particularly how movements, meaning social movements, nonprofit organizations, social change, drives opportunity, or drives entrepreneurs to take different kinds of actions they might otherwise

Shon Hiatt  18:08  
That's right. That's where most of the the research is, in fact, it's pretty clear in almost all the papers that I published so far, there is some sort of social movement aspect of it that's either creating the opportunity or like you said, forcing them to change their strategy. Right. Right.

Jeff  18:22  
And well, I mean, that that's the Pepsi paper is all about how the women's temperance movement, I believe that's right, actually, almost completely unintentionally, at least as far as I read and what you talked about the paper created the soft drink industry, that was not their goal.

Shon Hiatt  18:37  
No, it was. They knew what they you know that the kids would get addicted on soldering. So they probably would have never done that. Right.

Jeff  18:43  
It's actually you know, it's one thing we're sitting here real soda and talking to Danny about. He's like fun products. I mean, I probably drank way too much. So this one, because I'm just that kind of person. But I mean, this is meant to be like a fun treat, right? It's like, and it's like you were talking about who you are. But now, the industry has evolved to such a point where I think almost it's predatory. And these I mean, this is not soft drinks or energy drinks. I just look at the way that energy drinks are marketed. And bang, for example, my kids have told me how bang is like, you know, it costs half as much and has twice as much caffeine. I'm like, so you're basically encouraging children to look for bargains to intoxicating things. I mean, that's not good, right? That's not what these folks were intending.

Shon Hiatt  19:27  
Yeah, no, it's interesting if you look at the evolution of it, but yeah, and what I love about that papers that I was able to identify two types of entrepreneurs, right. They were the entrepreneurs who were completely kind of bought in on to the ideology, like hires root beer, right, who you know at first called it hires root ale or something like they were trying to loot t sorry, route T. He was a teetotaller just like so he was an idealized trying to create this. He wanted to create an alternative for the coal miners in Pennsylvania Wow. For them to Get off a beer. And so yeah, so he created this, this drink and they're still around. He named it root tea. But then other people were like, you know, if you've really that's not going to sell it, but if you if you change it to root beer, right, then people might actually buy it. Yeah. And then you have at the other extreme, which I use an example of Coca Cola. Right, right. So these were the basically they were pharmacists, most of them, right. And they just saw the economic opportunity. They didn't buy into the Temperance ideology. Right. None of them. As far as I knew, were actually teetotallers. Yeah, but they saw an opportunity that they could take their pharmaceutical products that they were selling, and market them as a substitute for hard drinks. Yeah. And hence, the the term soft drink came about to distinguish between a hard drink.

Jeff  20:47  
Yep. So soft drink, meaning just a drink. That is not hard.

Shon Hiatt  20:51  
That's right. No alcohol. Yeah, it's

Jeff  20:53  
a totally different thing. But then they weren't. They're off to entrepreneurs that just sort of said, well, there's all these resources laying around. As the alcohol industry was basically driven out of business. Maybe I can just pick those up. But that's

Shon Hiatt  21:06  
right. It was those and you saw that some of them would bought up some of these old brewery plants just on the cheap, right, right, and reconverted them to pretty soft drinks. Right,

Jeff  21:14  
right, right. So you've got all these different things. And so this actually reminds me of a thing. MAGALIE del moss at UCLA has recently written a book called The Green bundle, where she talks about, I know, you've done tons of things in like organics, environmental products, and she talks about this idea of like, you can't package a product based on non self interest, what you can, and some people will buy it, but then you're kind of if you think about the adoption curve, and you have early adopters, you sort of get stuck there, which means your product never gets to scale, which means you never grow the industry, which means you never have the impact you have. So it's sort of like what you're talking about even back then, like people had to market the product based on. I mean, it's not in their self interest, obviously, to consume beer, despite the name of this podcast, despite what we do on the podcast. We're well aware that's not necessarily healthy or good choice to make.

Shon Hiatt  22:09  
But they had the market as such as ginger ale, gin, birch beer, in ginger beer right

Jeff  22:15  
there, things like that. So they had to make it sound like that. So maybe people would first would buy it by accident. For now you're drinking cheer wine. We actually were talking about that earlier, which is non alcoholic brand out in North Carolina. And Danny was just telling us earlier, this is actually came out of a wine producers started to make this cherry beverages and to use their equipment for something during Prohibition. Yeah. And then you've done work also in the organic foods industry.

Shon Hiatt  22:41  
Yes, they faced the same situation in Jack, right? They either they had to scale up or they would become really they could never grow. So they had I mean, the papers about the difficult trade offs, they had to make

Jeff  22:52  
market mediators and the trade offs of legitimacy seeking behaviors and decent category. This one's also an organization science, with Brandon Lee, who's at the Melbourne School of Business, and my quads. Were at university Alberta, to other people that write really great paper.

Shon Hiatt  23:06  
That's right. Yeah. So yeah, that's the thing the entrepreneurs had to make a trade off, do we stay pure, ideologically pure? Or do we start changing our metrics? In this case? What does it mean to be organic, so that we could grow because guess what the retailer's? Yeah, they want something measurable. And they don't like they need also more quantity. So we need more farmers to enter the market. But if we make it too pure, that's right. If it's too pure, no one's gonna want to enter. So this is what led to the dilution of what many people would say what organic meant during this period in order to grow the market.

Jeff  23:39  
All right, I think that's an actual insight. And this actually is gonna bring us to your wood pellet paper. I want to talk a little bit about that, because I think I really like that paper a lot. And I think it actually brings a lot of the ideas from your other work to the forefront of how this plays out, which is what we're all trying to do. I mean, despite on my usual co host Brad's intentions, we are trying to actually do things that are useful to entrepreneurs, at least you are I know. So it's really interesting, like this idea of like you're in a market. These people, at least the beginning of the market in organics are driven by their desire to move to a more ecologically sustainable way of agriculture. But if you make it too pure, you can never get the scale. No. And do you ever have students that face this kind of dilemma? Like, do you teach entrepreneurship? Now

Shon Hiatt  24:25  
I am teaching right now our strategy class. Oh, yeah.

Jeff  24:29  
That's that's a shame you should be teaching.

Shon Hiatt  24:32  
Speak to the dean.

Jeff  24:34  
Send a word to the dean Marshall School of Business. Once people hear this podcast, that's what's gonna. Your schedule is gonna completely change. Yeah. So I read this all the time with young entrepreneurs. I'm sure you've seen it to where it's like, because of your knowledge and and things you've done. People like want advice on starting these environmentally relevant organizations, but they want to be so pure.

Shon Hiatt  24:55  
That's right. And then this goes back to this idea of you've written on this the hybrid logic Right. There's this one logic where yeah, we want to make good and but that the hybridity is like there's a market based if you're not making money, you will not be able to actually have a positive impact. And so they focus so much on leader, the social environmental logic, this aspect of having a positive societal impact, right to the expense of actually making money that they'll never be able to do anything. Right. So that's why you have to have you know, that market base, you have to be profitable. Right? And that's unfortunately, they don't think about that very often. Well, and you know, it's even not those that really want to make a dime. Right,

Jeff  25:32  
right. Yeah, they have to. So we're getting ready to go to the social entrepreneurship conference at USC, and I know you're, you're teaching and have other things, too, you're probably not gonna be able to that much. But I gotta say, my experience in the past with the conference, and I don't know, because first time it's been in person since before COVID. So yeah, it's quite different. Who knows, things have changed. It's almost like we went through a little time warp here where, you know, we just four years went away. And now here we are in the future. I've noticed that conferences is not a phenomenon that is limited to practitioners. We often see at least I often see my colleagues in academia who are interested in staying social entrepreneurship, focusing much more on the social impact, which is important. And obviously the reason to study these things to some extent, rather than the business models that actually enable it. And that's why I really like about your work, because you are looking at the societal impact. But you're also looking at how and why do these industries actually make it or not? That's right. Because if they don't make it, there is no impact. Yes. So that brings me I want to talk about your latest paper. I'm sorry, we're going kind of circular. Sean's written a lot of papers. I like all of them. So I want to make sure I hit a bunch of them. But I've never I'm on the podcast. Definitely want to have you back. Tell us about shared fate and entrepreneurial collective action in the US wood pellet market. So

Shon Hiatt  26:51  
this is also an idea I had growing up because it was a timber and agricultural community where I grew up, right. When I was a kid, that people worked in the mills or they they had farms. And one of the byproducts of Mills is sawdust. And so this sawdust The thing is, well, what do you do with all that? Don't know? Well, that's the thing. In the 1930s, the Potlatch Lumber Company came up with the idea. They said, we've got all this sawdust in Lewiston, Idaho, what are we going to do with it? Well, we believe we could probably maybe compress it and make these like Presto logs that can burn and they did a bunch of experiments. And for about five years, they finally figured out the type of pure sawdust they needed, the type of dryness and the pressure, they need to compress it, where you can stick these presta logs say in like a fireplace. Yeah. And they burn without any smoke. Right? They burn very clean in a way they make cleaner than normal wood right there. No sparks and anything like that. Cool. So he sold those for a while then the patents expired. And when the patents expired in the late 1970s, when we had our energy crisis, entrepreneurs are looking around what can we do? We don't enough oil to heat people's homes and the oil prices is super expensive, is happening in the UK. Right, man? That's right. And so they saw these patents from the Potlatch that were now expired. So you know, we can miniaturize this. Yeah, we can take what they've done and what like what grain producers do for animal feed, bring these together. And we can produce wood pellets similar to like grain pellets. But at a much higher pressure, like Potlatch did right to expunge all of the moisture out, use the lignin, natural wood lignin to keep it together. And then we could sell this as fuel. Okay, they then work together with some people who made stoves, because you need to have a special stove for wood pellets, meaning you need to have a lot of air and oxygen blowing in. If not, you get a little bit of smoke. And they wanted to be able to produce a product that had basically zero emissions, except for just like carbon dioxide. And so the two of them came together, the wood pellet stoves built it based on the product. And then you see this market starting to grow. Right. And the whole purpose of the market, they believed is that they were going to be a sustainable energy producer. We're getting off of fossil fuels, we're getting off where we have all this sawdust everywhere. From the mills, we could take this waste and make it right. And so the paper is about Alright, so this is how the industry emerged. But how well did they actually stay together? And keep on this message, right? Because we know that framing and like how you market your products matter for growth

Jeff  29:24  
and for new industries is absolutely critical. Exactly. Industry frame and because it's going to face headwinds, not from just incumbents, but also from other stakeholders and incumbents are going to try to recruit people and helping them suppress that new industry. I mean, this is just the story of entrepreneurial industry emerge.

Shon Hiatt  29:40  
That's right happens over and over. And so in the 1990s we had a huge environmental movement particularly focused on forestry and trees right, where they didn't want any type of trees to be cut or milled, nor did they want any type of wood products to be produced even waste products like sawdust. Right and so they begin attacking not only the upstream supply chain but actually directly the wood pellet producers themselves notwithstanding, they said, no, no, wait a minute, we're using wood waste, right? But they're like, no, no, you're bad. You're evil, right? We don't believe what you're saying we don't believe you're renewable. Right? In our eyes. You're not renewable. Yeah. And so in this paper, we're looking at the competitive strategy, the framing, do they stick together? Or to create a collective identity to grow the market? Or do they actually start competing with each other, right, which can be detrimental when you want to grow a big market? Oftentimes, the argument at least, is that you want to have a few dozen or so kind of work together. So like an industry association to grow it, because there's like a common cause for growth. Oh,

Jeff  30:39  
my goodness, this is like, in this podcast, we have yet to meet a brewery founder and the craft brewing industry that thought they actually competed. I mean, they really they to a person, talk about how the industry collaborates to grow the industry. We just haven't ever had

Shon Hiatt  30:56  
That's right. growing industries collaborate with each other, right? Unless they face these threats. And that's what this paper is about. It's like, what happens if you throw them these threats? And we look at two different threats like individual versus common. How does it affected the degree to which they work together? Right. And what we find is that when they're the common individual

Jeff  31:12  
versus common combat, so you mean, like a threat against an individual company versus a threat against the industry,

Shon Hiatt  31:19  
correct? Okay. Yes. So

Jeff  31:20  
industry wide threat and companies being threatened with a lawsuit versus people are mounting a movement to ban the industry.

Shon Hiatt  31:27  
That's right. Okay. The more common threat against the industry peep, they continue to work with 90 that enhances their ability to work together. Sure. They fight back as a group. Oh, yeah. But when they start picking off one or another, right, the ones that get targeted are like, oh, gosh, I know what you're not coming to support me. Right, right. All right. Well, I'm not gonna support you run a differentiated product solution of trust. That's right. That's exactly what's happening in the industry where you had the individual targeting, right. And then other ones seem to want to capitalize on it like, hey, you know, Bob's pellet mill down the roads getting targeted right now, protests, we might be able to pick up some of his customers, man,

Jeff  32:03  
we could go pick up his equipment if he could. Bob goes under business here. Yeah. So that's, it's interesting. It's almost like the suit, you're actually challenging some pretty deeply held ideas from economics here, actually.

Shon Hiatt  32:19  
Yeah, because it's tight Elinor Ostrom 's work on price action. I

Jeff  32:22  
think you also cite Mansur Olson in this I mean, and the idea that like, because also no strong really, you know, without getting too well, yeah, there's an academic podcast, let's get pretty nerdy. Yes. I mean, it's like, and Brad's not here so we can get super nerdy, like, okay, but but Olsen's like Insight was, the larger the number impacted, the more difficult it is for individuals to collaborate to solve the problem. And I mean, he didn't talk about climate change. But that's the ultimate example. It's like him because everyone contributes to work contributing to climate change. Right now, there are multiple actions we've taken this morning. No intent to do. So everyone is so it's really hard for us to coordinate and solve the problem. But you're saying at the industry level, that this? And so if Brad was here, he'd be like, well, of course that's occurs. So door, he's not here. So that's my brand impression. That's what Brad actually sounds like, to me, in case anyone's wondering. I think it's probably way sounds like to our listeners, too, if I think about, you know, oh, you're sorry, like that. So that's my brand impression. But what you're saying is actually, I'm cracking Joel up, at least the the threat affecting more people in the industry actually pushes them to gather to work against that threat. Whereas when one or two get picked off, it just sort of collapses, it begins

Shon Hiatt  33:41  
to collapse, not only from those that are being targeted, but also their immediate peers. But that's

Jeff  33:46  
bad news for everybody.

Shon Hiatt  33:47  
Yes,

Jeff  33:48  
everyone's rushing towards like, was Olsen's phrase mutually assured destruction? Correct race to the bottom? Hmm, that's really interesting. Yeah, that's important that okay, so I can't get my chime up quick enough here, but alright, here we go. Alright, so that's an actionable insight, I think for sure and not. And I think it does matter for individuals. For Shawn, you tell me if I've got this, right. So let's say you're in an emerging industry, and you start to see like, you know, there's only like five people in the industry, five companies and you start to see like, alright, Sean's company is getting attacked. Awesome. That means I'm gonna dominate this industry. Well, it's actually probably not such a hot idea. Because you're gonna get painted with the same brush.

Shon Hiatt  34:30  
You can be targeted next, but they don't think about that.

Jeff  34:32  
Right. Right. I think it's taking I think this actually low, more actual insights. Jobs are always out of control. I'm sorry. Oh, God, awesome. No. Okay. This is really important considering what we teach our MBAs in strategy, right? Because we teach them about well, I bet they asked you this in your classes on strategy. Do you teach some of your research? I hope so. But yes, I do because This is not what normal strategy people would say. They say, Oh look, your, your your competitive dynamics for example, you say, Oh, well, your competitor is in trouble. That's a good time for you to make investments double down and attack right. But in fact, that's totally wrong in an emerging industry. Agree

Shon Hiatt  35:16  
that is that is absolutely right. And they don't consider the fact that especially because your appear meaning that you don't that competitor set meaning you're likely to be geographically kind of located near that is how we measure because that's how competitions Okay, so yeah, that you can be targeted next. So remember, it's not like these stakeholders are gonna go away. Right, right. To make goal is to get rid of an industry,

Jeff  35:39  
it'd be like, well, we got rid of Sean's company. Now Jeff's company, we like it. That's a great company, I was doing the exact same thing. By definition, they're doing something similar enough, because they're defined as competitors. Is that indeed what happens here? Like when people go after the whip, because I know this, this industry has been under a lot of attack, especially actually, I know, more recently, in the UK, there's been a lot of criticism. Yes, they've moved into burning wood.

Shon Hiatt  36:02  
That's true. Yeah, necessarily. I'll tell you right now, the wood pellet industry is what's keeping the lights on in the UK. Right. Right, exactly as they've lost the natural gas, right, from Russia. And so the UK actually is the number one importer of us wood pellets. And they are they're using that to fuel their boilers to produce electricity. So without this, this infrastructure kind of already in place, the UK be in much worse situation. Right,

Jeff  36:26  
but still faces a lot of headwinds from environmental groups. That is correct.

Shon Hiatt  36:29  
But I mean, what would you rather burn wood pellets or coal? Yeah, I think

Jeff  36:33  
wood belts are I mean, if you have a choice and less co2 emissions less dirty, and plus,

Shon Hiatt  36:40  
they're a waste product. They're renewable. Where else do they go to the landfill? I suppose.

Jeff  36:43  
Yeah. All right. So we're Yeah, yeah, it's a great point. So sometimes things are not as simple as they seem. When you look at these emerging industries, I think this happens a lot with EVs too, like people, people, either unrealistically, tout electric vehicles as solving all our problems,

Shon Hiatt  36:59  
will have enough like metals to build. Everyone can go electric. And,

Jeff  37:03  
yeah, I mean, you're getting by the way, you won't have any choice about it. That's right. But on the other hand, we also have people that try to paint electric vehicles as they make no progress at all, they're actually worse in the footprint, which is also not true. Like it's somewhere in the middle. And it really depends on the source of your energy.

Shon Hiatt  37:21  
There are trade offs and every energy source. I mean, that's what my conclusion is, is what I tell all my students as well, when we study energy industries is that there's no silver bullet, right, you have to make a trade off, which is

Jeff  37:32  
why entrepreneurs are so important, because we need those experiments. We need people to take those risky bets. We need them to try things so that eventually we can get to a dominant design, which is exactly what you and I are hoping to do some study I won't I won't get ideas, but hopefully we're gonna collaborate on something that's forever looking at that how that actually happens. If I can ever stop being a department chair and actually write something again, which would be really nice. Especially because you guys have told me now that department chairs are evil, which I agree with. I don't want to become evil, shall we? You stop me if I get to evil.

Shon Hiatt  38:03  
Yes, I will. Also I prefer your side of the conference. Well,

Jeff  38:07  
yeah. You actually pulled me this give me great advice throughout my career and many conferences. I appreciate my friend. And if you do see me getting evil, please let me know. Unfortunately, you didn't meet my evil podcast co hosts so you don't have to worry about. That's good. Well, anything else you want to add from your work? Like

Shon Hiatt  38:25  
the latest stuff I'll tell you about this recent project. I just started up with Chad Carlson, Ben Lewis at Brigham Young University. And it's on artisan cheesemakers,

Jeff  38:35  
and enough that you studied all these things.

Shon Hiatt  38:40  
From energy, we're now moving

Jeff  38:41  
artisan vegan cheese. That's a whole thing. You know, they're

Shon Hiatt  38:45  
they're in our dataset.

Jeff  38:46  
Okay, awesome. Artists. vegan cheese party. Shockingly, in ºù«ÍÞÊÓƵ. There was an artisan vegan cheese party I attended. It was quite good. Actually. Some of them were delicious. I'm sorry. I just got excited.

Shon Hiatt  38:56  
Yeah, so we're moving back from my energy vertical to the aggregate. Passionate about energy and food right? Yeah, sure. But anyway, in this this is like a dataset I've been collecting for about five, six years now looking at every artisanal cheese maker in United States. And just recently we received the data 10 years of longitudinal data on the the biggest cheese judging competition in the United States. So now we've got the data itself the cheesemakers as well as those that enter their products whether they win yeah and information on the judges. And they're a couple of questions but one we also obviously want to know for the entrepreneur is how much of a difference does it make to win one of these products? Does anybody even care Yeah, at the end of the day, and if you win one can you go off and win say like the world cheese award later right because there's actually that's the tightest one the American cheese society's the biggest thing in North America. Sure, but the you could always go to the world cheese awards. Wow. And then things existed that's all yes, there's a whole market if that makes sense. Of course. Chad Carlos and I, we went to the judging competition this last summer in Minneapolis. Nice.

Jeff  39:58  
Just bet You You Did you know that cheese competition happened in there?

Shon Hiatt  40:03  
So it was quite an eye opening experience yet everybody in these like lab coats, right? And there are two judges at each table one's judging on the technical ones judging on the marketing aspect of it. So how will the sell How will consumers like it? The technical actually takes points away in the marketing ads the point. So it's interesting how they do it two different ways. We've got all their judging their comments, which are going to be going through and coding all of it. But why we're there, we sat down and I listened to and I kind of listen in. And I say, so why did you mark that? And they say, well here and it gave me a taste of the cheese. I try it. Notice it on the back of your mouth. Wait five seconds. There. You got it. And I was like, I think so. Oh, yeah. It was just eye opening. I'm still waiting

Jeff  40:49  
for the bacon flavor from the chocolate cover. maple bacon. So do we had earlier

Shon Hiatt  40:57  
but it's it that's the thing, right. And there are just so many cheesemakers, artisans who want to enter this because they believe that this is how they, you know, they can get some big media coverage. And they have a big conference afterwards, where they announce all the winners this year is like tobacco market. And that's also what we're going to look at. We also want to look at the judges. And in

Jeff  41:14  
no one's does a beer with beer has become like, you know, there's like untarred on tap Tom, forgetting the name. But there's so many websites now where you go look at beer ratings by people, right?

Shon Hiatt  41:24  
That's right. They have ratings, right? So yes, this is kind of similar, except their awards, which I think is really cool. So you only can win. Gold, Silver, Bronze. That's it. Oh, that's any category up three or nothing? Yeah, in any category. But interesting thing we can look at two is the categories have been growing over time. Yeah. And we asked them why? They said, Well, we're just seeing that there's a change of taste preference. We get a ton of people maybe going on this mozzarella, but this month was very different than the normal farmstead. Why? Well, this is this should be this is now seems to become a new category. So the next year, they'll create a new category. Right? Right. So the kind of following this artisan cheese as they're developing new products and creating new categories for cool these cheese. Well, anyway, that's, that's going there. That should be you

Jeff  42:05  
know, we should do once you guys get that done. Once you go grab the data from the Great American Beer Festival in Denver, because they do a similar thing in every beer category. They do bronze silver award. Yeah. So that actually happens in the craft brewing industry, too.

Shon Hiatt  42:20  
I didn't know that I Yeah, and actually the Okay, this is this is cool. I'm just giving you a research.

Jeff  42:26  
Yeah, no, I just gave it away. So go ahead.

Shon Hiatt  42:29  
You know that Ben Chad and I don't drink alcohol. So what oh, no, no,

Jeff  42:32  
but that doesn't mean you can't look at data we

Shon Hiatt  42:35  
can actually actually totally right.

Jeff  42:37  
No, that could be totally cool, actually. And you could be interesting is I wonder to what extent, the category itself cheese being like, this food that does not have the neither ethical negative connotation of containing alcohol for many people, nor the positive connotation of which is also true for many people. You know, I mean, there's there's people that care more about that they're very passionate about it, and they, you know, oh, thank you craft beer for excuse for my alcoholism. You know, that kind of thing. I had to be interesting to look at how that how the differences are in those two. So

Shon Hiatt  43:12  
you can think that cheese for your high cholesterol, I guess, oh, my God, she's,

Jeff  43:16  
like, earlier days, like if I sit close to it, we're all like, what? artichoke hearts artichoke hearts artichoke hearts give it Sam's not Costco. So another last actionable insight. Get your two cards at Sam's not Costco. Shawn, it has been such a pleasure hanging out with you, my friend. It's so great. We haven't seen each other in quite some time. Exactly. It is awesome to hang out with you. Thank you so much for telling tell us about your research. We're gonna put we're gonna put links in the little thing on the on the podcast so that everybody can look at these papers. And they can just go to your faculty website. I know. USC puts a lot of these papers out. Yeah. The latest one is shared fate and entrepreneurial collective action, the US wood pellet market. We just scratched the surface of this paper, actually, I mean, we got to the main thing. So there's a lot going on this paper that's really interesting. It's an organization science just came out. And Shawn, again, is a professor of strategy at the Marshall School of Business at USC. Thank you again for joining us. Thank you, Jeff. It's been a pleasure. I'm Jeff York. I'm the Research Director at the Deming Center for Entrepreneurship in the Leeds School of Business at the ºù«ÍÞÊÓƵ, and this was creative distillation. If you enjoy the podcast, if you don't like the podcast, if you really want to talk about how much you enjoy it without Brad, please send us an email at CD podcast@colorado.edu that C and D is in creative distillation that CD is in well this spread is CD and I was like thanks. Yeah, send us that. And you know, hit the subscribe button that actually does help us out quite a lot. I know you know that because you've probably heard a podcast at some point in your life and heard people say things like this, but we would very much appreciate and thank you again and if stay tuned, we're gonna have a whole series of coverage. Coming up here in Southern California, as we cover the social entrepreneurship conference at the University of Southern California. Thanks we'll see you next time.

Stefani H  45:10  
We hope you enjoyed this episode of Creative Distillation recorded live on location at Real Soda In Real Bottles in Los Angeles. Learn more and order merch and soda at . Learn more about our research guest Shon Hiatt on his His paper "" was published in administrative Science Quarterly, check the show notes for a link. We'd love to hear your feedback and ideas email us at cdpodcast@colorado.edu, and please be sure to Subscribe to Creative distillation wherever you get your podcasts. TCreative Distillation podcast is made possible by the Deming Center for Entrepreneurship at the ºù«ÍÞÊÓƵ's Leeds School of BusinessFor more information, please visit deming.colorado.edu. That's d-e-m-ing and click the Creative Distillation link. Creative Distillation is produced by Joel Davis at Analog Digital Arts. Our theme music is "Whiskey Before Breakfast" performed by your humble host, Brad and Jeff. Thanks for listening. We'll see you back here for the next round of Creative Distillation. If you've enjoyed this episode, you may also enjoy Leeds Business Insights, check them out at .