* Note: this is a backdated post from something I took notes on in the past. If you like this, you’ll like my monthly finance and tech newsletter
I like the concepts reblogged on Farnam Street regarding James March here, particularly the following points:
Most original ideas are bad ones. Those that are good, moreover, are only seen as such after a long learning period; they rarely are impressive when first tried out. As a result, an organization is likely to discourage both experimentation with deviant ideas and the people who come up with them, thereby depriving itself, in the name of efficient operation, of its main source of innovation.
I think the oft-cited examples of Xerox, Kodak, Blockbuster etc serve to illustrate the point. Xerox famously had prototypes of the mouse, graphic user interface, and the PC, but didn’t want to pursue them for fear of cannibalising its photocopying business. Kodak similarly invented the digital camera and was then ignored it. It’s hard to incentivise innovation and to know what to pursue.
Truthfully, genius is always recognized in hindsight, with the benefit of positive results in mind. We “cherrypick” the good results of divergent thinkers, but forget that we use the results to decide who’s a genius and who isn’t. Thus, tolerating divergent, genius-level thinking requires an ability to tolerate failure, loss, and change if it’s to be applied prospectively.
The difference between being outcome vs process focused. Companies and people like to say they’re willing to tolerate failure, but everyone has a threshold, and usually that’s lower than what is needed.
In a simple model, a tortoise advances with a constant speed of 1 mile/hour while a hare runs at 5 miles/hour, but in each given 5-minute period a hare has a 90 percent chance of sleeping rather than running.
A tortoise will cover the mile of the test in one hour exactly and a hare will have only about an 11 percent chance of arriving faster (the probability that he will be awake for at least three of the 5-minute periods [since he needs 12 minutes to run a mile])
If there is a race between the tortoise and one hare, the probability that the hare will win is only 0.11. However, if there are 100 tortoises and 100 hares in the race, the probability that at least one hare will arrive before any tortoise (and thus the race will be won by a hare) is 1– ((0.89)^100), or greater than 0.9999.
I like the analogy here, but it implies that you need a large tolerance for failure. That may not be palatable in most organisations, so how should we structure incentives correctly?
2019-02-03 update: This twitter thread by Jensen Harris on the problems of having a ‘startup’ within a big company is worth reading through as a supplement to the above point.
There’s no such thing as a “startup inside of a big company.” This misnomer actively misleads both big company employees working in such teams as well as people toiling in actual startups. Despite all best efforts to create megacorp “startups”, they can never exist.
1) The most fundamental, pervasive background thread of an early-stage startup is that when it fails, everyone has find a new job […] On the other hand, early-stage work that any 20-person “startup” team does inside of a 50,000 person company can’t cause that entire company to fail.
The existential threat of the startup helps align incentives. That’s why you see people willing to do things that don’t scale, since the alternative is not eating dinner.
2) In the startup community, early-stage failure is often tolerated and even celebrated […] In many big companies, on the other hand, taking a risk and failing often puts the stench of failure on the people who tried
I’m less certain of this. I think failure is neither tolerated nor celebrated in startups; people just like to talk about failing fast but nobody actually wants to do so. However, it’s even worse for people in larger companies
3) Big company “startups” start off with the existing infrastructure of a megacorp. This can actually be a fun part of startup life; it teaches you to take less for granted and creates a tangible sense of ownership in the company.
4) A big company “startup” product is sold and promoted with the resources of the big company behind it […] In the startup world, you have to hustle for every story.
Both points 3 and 4 relate back to having more ownership and aligned incentives to hustle and get things done
5) Hiring in a big company “startup” is often more like a draft, where you get to pick the “best & brightest” from other teams […] Real startups naturally attract people willing to embrace the risk/ambiguity in return for bigger challenges, autonomy, faster learning, and more ownership/upside
If you liked this, you’ll like my monthly finance and tech newsletter