How Employees Can Innovate Like Entrepreneurs, With David Kidder

Hello everyone, my name is Adeo Ressi. I am CEO of the Founder Institute, and I am very excited to have a special guest with us today, David Kidder. And we're going to be talking about how employees can innovate like entrepreneurs. Now, intrapreneurship, as it's sometimes referred to, is one of the hottest topics in the world today, and David is definitely one of the greatest thinkers on that subject. Before I introduce David and bring him on screen, let me tell you a little bit about the Founder Institute. So we help people who have day jobs in over 125 cities around the world launch meaningful and enduring technology companies. At this very moment, we're enrolling in close to 50 cities in every continent. And so if you're thinking of starting a business, please go to fi.co/join and come be part of our program, and we'll help you make that leap from employee to entrepreneur. Now, Also, we have a lot of people on the call that might be saying, hey, you know, I'd like to help my ecosystem grow. And if you want to launch a chapter in your city, you can go to fi.co/lead. We have amazing people every week come in around the world interested in helping their city create great companies, and we'd love to have you do that as well. So as I was saying about the topic today, More and more employees in more and more companies are saying, how do we be more entrepreneurial? How do we innovate? How do we create new business units, new business lines that will fuel the growth today and tomorrow that is needed in order for companies to remain competitive? There's a huge movement about, you know, entrepreneurship and empowering employees from frontline innovation, you know, making new ideas at the beginning of the business through to just coming up with bigger ideas that can change the business overall. And again, we have one of the best people in the world today to discuss that here. Let me introduce our speaker and then pull him on screen. David Kidder, good friend of mine, super smart guy, has been a serial entrepreneur, so he knows how to build technology businesses and businesses from the ground up. He's written books on entrepreneurship such as The Startup Playbook, which I recommend you all read. He interviewed hundreds of great entrepreneurs and compiled their wisdom into one book. I believe I am one of those people he interviewed. But there's a lot better people in the book than me. And in addition to that, he's running something called BIONIC today, which is one of the leading organizations that really helps big companies think through intrapreneurship and creating more entrepreneurial cultures within their businesses. So let me bring David on screen and allow him to add anything that I might have forgotten. Did I get everything, David? David, are you there? Hopefully he'll join us in a second. Okay. Ah, there you are. Hi, David. Is sound working okay? I'm having trouble hearing you. Hopefully you can hear me. Technical problems. Can everyone hear David okay? Uh-oh. We'll be back with David in a moment. All right, let me go through what we're going to cover today, and we just tested with David a minute ago. Sometimes this happens. He'll be back on screen in a minute. He looks good though. So we'll go through— in Can we try again, Dave?

Do you want to say something? How about now? Are we good? Perfect, perfect.

So did I forget anything in your introduction that you might want to—

No, you are a big part of the Startup Playbook, and you're a big part of our connection to Elon and other great entrepreneurs, so very grateful for that. And it's exciting to collaborate with you. Here from different coasts. I'm based in New York, I'm here at Bionic at our office and you're in Palo Alto, so good stuff.

Yeah, we literally have the world of business and technology united on this webinar, and again, thanks for everyone turning in. So we're going to go through the 5 main tactics or lenses that you discuss in the Startup Playbook, David, and I want to go through these with you and really see how employees can put them into practice and how company leaders can build them into culture. And you know, that might lead to changes in organizations or even people spinning out and starting things that roll back in. Can you just give us a quick introduction on the five lenses to get started?

Yeah, I think, you know, just at the very highest level of this, so there's two parts of our talk today. One is obviously talking about lenses. In that context, where that came from was the effort as you described, the Startup Playbook, where we interviewed 45 entrepreneurs, some of the best in the world. And we asked them really fundamentally two questions, which were one is, how do you pick your ideas? What are the qualities of your ideas before you bet your life on them? What do they have to be? What has to be true about them? And secondly is, what do you do the first 5 years not to die, which is part of the goal of building things. And so what's amazing is that in those 300 hours and the synthesis of these beautiful minds, these fantastic people, they basically all said the same 5 selection criteria. And I'm going to share those in a second. As it relates to doing this in large companies, we've now been doing this for 3 years, going into our 4th year. We work with the CEOs directly and the leadership teams of some of the biggest companies in the world, GE, Nike, Boeing, Citicorp, Tyco, Exelon, and others. And what they have realized, and this is when you're in a big company, is that fundamentally big companies are big to bigger organizations. They are efficiency machines that are designed to operate and administrate, super administrate existing assets. And so much so that they have advanced degrees in this. This is why we have Masters of Business Administration. Of existing things. It makes sense, right? And they have a great deal of success, but the primary tool of creating success in the big to bigger view of the world is efficiency. And the very nature of efficiency in processes like lean manufacturing and Six Sigma and TQM and all McKinsey stuff is to lower variation. And the result of that for 30 years is you have low variation low-risk, incremental, total addressable marketplace, share-based thinking machines. And the problem with this is that they're so good at it is that they don't grow anymore. They literally don't grow. It's ironic in sort of a twisted way that the entire shareholder value concept has destroyed the bones of these companies because of EPS. And the idea that EPS is measured in pennies of efficiency as opposed to the customer value, which is typically done on a compounding basis and a top-line value. So new to big is actually the complete opposite of new to big. So big to bigger is different than new to big. New to big, where we have MBAs who manage big to bigger and big organizations, in new to big we actually have a form of management. That creates growth as opposed to efficiency, creative design, right? And it's called venture capital and entrepreneurship. They are actually forms of management. And so it's a completely different decision architecture and a way to work, right, that creates growth focusing on total addressable problem versus total addressable marketplace. They are radically different. And so when you have organizations that try to do innovation we actually never use the word innovation because we think it's like success theater inside of a company. When it's inside that big to bigger engine, it's fundamentally at war with all the things the efficiency machine is designed to do, which is defeat risk. And so a low variation, low risk efficiency incremental culture, nothing that's actually high risk, high variation, compounding risk incremental is the opposite skill, and it's just not strong enough to be able to inside a large company. So we were going to say the companies to separate that.

Right, okay, let me just give some Robert's rules of order, and not for you but for everyone listening in. If you'd like an agenda to follow along, please visit the handout section of the control panel, and we are taking your questions as well, so there's a questions panel, you can type your question in I have a group of very smart people that will read them and put them in the right place in the agenda so that we'll try and get to everyone's questions that you have for either me or David. So I want to go back to something that you just said. You know, we kind of dove right in, right? So let's dive right in.

Yeah, sorry, I used to speak Spanish.

No, no, no, it's great. So you talked about like these efficiency machines that can't really innovate, they have to sort of break out a little bit in order to do that. And I want to dive into that, so are you saying like you need to almost like have a different building, a different area, sort of like a skunkworks where it happens, or are there other more subtle ways that you can allow innovation to happen within these efficiency machines?

So we believe that you have to create, we call it a growth operating system. It's the way you adopt the models and mindset mechanics of venture capitalists and entrepreneurs in the way that they deploy capital, the way they frame marketplaces, and the way they do work to be able to do this successfully. So for example, what I'm sharing with you is that this can actually be done in large companies. If it's set up correctly. There's companies, big companies have amazing, first of all, the amazing thing is they have awesome people who are incredibly bright and smart, who are unbelievably committed, and the ones that create the big disruptors are typically in the wrong operating system to create the growth. They're in the efficient operation. So when you create a new environment, you can actually deploy money and capital and time and attention and talent into marketplaces that are new versus that exist. It's like new economic oxygen if they're funded and learning differently. And what's amazing about this is that it's sort of a shift of mindset shift, because I want to answer your question like what entrepreneurs do instead of large companies. They can fundamentally shift from a total addressable marketplace view of the world to a total addressable problem. So for example, that's the difference between an inside-out thinker versus an outside-in thinker.

So a total addressable marketplace view of the world would be like the number of cell phones in the world today is X, right? And the total addressable problem would be— can you give an example of that?

So here's a good— here's one that's practical, that's right in your backyard. I mean, a total addressable marketplace view of the world. So for example, in San Francisco, the taxi marketplace is a $140 million business a year. It's actually quite small. So the total addressable marketplace view of the world in a big to bigger mindset is that. But in the last 6 months alone, Uber has done $300 million in revenue, going to $500 million in revenue in San Francisco alone. That's a total addressable problem view of the world, which is it's not about the taxis. It's not even about transportation. It's about time, right? It's about creating on-demand products that buy back time. So I think understanding the problem of what you're solving for is radically different than solving what exists today. And here's why this is so critical, because it solves for this very famous saying which is like Steve Jobs always said, "I don't ask my customers what they want because they don't know." It's like they would ask for a faster buggy or a buggy whip. It's because in new marketplaces, customers can't tell you, they can only show you. It's what they do versus what they say. So new marketplaces have to be built up on evidence, first principles logic. This is why Lean Startup matters, because it's that cheap experimentation that builds up new behavior that's based on a problem, a solution, and a model that can be economically built like a tower of new matter to build new marketplaces in the total addressable problem. It's also why these companies get built so fast.

I like this show me versus tell me. So your principle there is like, and this is going into large companies tend to be like, okay, they'll do surveys and they'll speak to customers and try and figure out But what you are really saying is in order to innovate, you need to go and actually get feedback directly from— by putting something out there, see if they use it. And this plays into your lens 3, which is solve an actual problem, I would imagine. Is that accurate?

Yeah, I mean, what we are saying is that it's what What customers do versus what they say. The only way to determine what a customer does is to see how they act. It's their— what they say is much— behaviors don't lie. So like, what they say doesn't really matter. That's why the classic total addressable marketplace view of the world, all those things literally don't matter because they can only tell you what someone says, which is a low fidelity, and this is a high fidelity action, or capital commitment, or economic commitment, or behavioral addiction. And that's in what exists today. But new, and it's never done before, we only can look at their behaviors. And that's why experimentation and iteration, cheap failure, productive failure, is so vital to discovery. So I want to— go ahead.

Ron was asking a question.

Oh, I was going to say—

about efficiency, and he was saying— you're saying larger companies urge their employees to branch out and spread their wings in order to make things more efficient, and are efficiency and cost-effective almost symbiotic, right? So these large companies focus— you know, they are challenging their employees, but they just have them focused on efficiency versus growth.

Yeah, a lot of innovation in the core business is really making the current machine work better, right? It's really, it's how do we get more of the economic oxygen that we have, or that's available to us, how do we get more of it? They say, how do we get more share? So you hear that a lot, share, share, share, share. It's usually measured in percentages or basis points, The marketplace is so mature. Or they're saying, how do we make our machine work better to get more share? So it's about share on the marketing side, acquisition, or it's about efficiency of the machine. That's really what big company innovation is. What we're driving is to say, and I think this is where most employees want to go, is we want new economic oxygen. We need to go after things that we should do and must do. Model innovation, new marketplaces, where the customers are going, because our customers are moving not only faster than we are, but they're moving faster than our competitors are. We have to get to the speed of the customer behavior to win. That's a very different structure mindset to be able to go into and create growth.

So let me drill into that for a minute, because there are some big companies that have managed to do that, you know, Apple being one of them.

Google?

And Google. Maybe we can use those two case studies. So obviously, the tablet market didn't exist, and then Apple made it, right? And that could be said for about many other devices that they've invented over the years. So why does a company like Apple continue to do it? Is it the leader, Steve Jobs, that's the person driving it, or is there a cultural thing that happens? Because everyone always thinks Steve Jobs, but if you drill in a little bit, you see that actually a lot of the things that Steve championed were not invented by him. They were invented by people within the company, and he just was like, oh, that's cool, let's focus on that.

Yeah. I mean, you could make an argument that Apple was the best— is the best product development company in the world. And as a result of product, the best product development company in the world, or product execution, they earn the right to build ecosystems that create monopolies. So you could argue iTunes doesn't matter unless you make a great phone, in the same way that if you don't have iTunes, you don't keep people using your phone. So those two forcing things actually, factors work together. I mean, there was a great tweet yesterday, or this last week, by Chris Dixon of Andreessen Horowitz that said, about GoPro, it happens to be an extreme filmmaking community that happens to make a camera. And Marc Andreessen's response to that was, that's the excuse of all companies that fail to make great products that go mainstream. And the point is like, are you a community or are you a great product company? If you fail at the product, you lose the community. But if the community is the monopolies— so Apple's innovation is that they are the best design thinking, design-making culture in the world of creating the best products. They knew that that's the monopoly they had. Whereas Google, you know, both— here's the irony about Apple is that they have such unlimited capital. When they make a laptop that you actually see in the marketplace, they basically spend unlimited money making 10 versions of that, or 5 to 10, that are actually market-ready. Before they choose the one that goes to market. So they'll invest in those 5 streams in the same way they launch the whole product, the whole company. So they spend and iterate inside to build complete things. So it's not that they're not iterating. It's not that they're not innovating. It's that they're spending that money in getting to whole solutions before they launch something. Google is different in that they are much more experiment-based culture. They are obviously into moonshots as they talk about. It's what the whole Google X things were. But I think I'll just say this, which is I look at Apple as saying they are a fantastic innovator in creating products that exist. Google is really into moonshots, and they are building— they know that to build moonshots, it's really a ladder to the moon type of outcome. I think Elon thinks the same way, which is before I get to Mars, I got to build a rocket that doesn't blow up, and one that can actually be cost-effective, and return a fuselage, and carry a payload. They know that those are the rungs getting there.

Right, so let's go over this a little bit and how it might apply to other large companies. So to your point, it's a ladder to the moon. So Google has a great search engine, and that search engine allows it to get lots of users. Well, on top of that user acquisition machine, they can add an email system. Then with email, they can add AI that allows you to get better ads, and then they can do this and that. So they're like, They're building these rungs of the ladder that allow them to do increasing— you know, they have a great mapping business and they have a great data business, and that allows them to do the self-driving car because they have the maps, the most accurate maps to do this. I mean, it's not like— they're probably the only company that could really do a very good self-driving car because of the quality of the maps, right?

Yeah, I mean, this is almost like— to circle back to your very first question about what are the 5 lenses, what's the selection criteria of entrepreneurs and now great companies like Google is, the third lens, the criteria of proprietary giftedness. Like what is your unfair advantage that you can leverage that no one else in the world has? And so like your example of Google Maps, Maps lead to navigation that leads to models like on-demand models that lead to making cars, or disrupting transportation. The car is not as important as the map, right? So like those things, that's the unfair advantage is that these ecosystems are the hammer they can take to a marketplace, and that's important. So the first lens is, Do you have a proprietary gift to win a marketplace? What is your unfair advantage and is it true? And this is where you have to have a very intellectually honest conversation is, what is my giftedness? And you need to quit your weaknesses to focus on that one thing.

Right, now let's use a company that's not like Google, maybe Nike who you work with. What would you say that Nike's unfair advantage/giftedness is? And are they honest with themselves that that's it?

Yeah, I mean, I often tell companies, the CEOs, they have to sort of like hold their brand and their balance sheet behind their back. You know, like tie that one arm, otherwise like money is going to be the one— like those are both advantages and disadvantages. In the case of Nike, you know, their brand is really strong, not unlike GE's. It is a trusted brand, and while there is disruption happening with Under Armour and those sort of things, They're in a unique case that they just have a tremendous amount of global understanding and reach, which is not unlike Apple-like in its quality, especially now with a lot of—

Right, but it's based off of quality, right? If they start producing crappy stuff, their brand would suffer very quickly. So I mean, you could argue that—

That's an unfair standard.

Is it the quality of their manufacturing and distribution that keeps reinforcing the brand promise, or is it the brand itself? I'm just interested in what your view is.

[Speaker:ROBB BOYD] So the other part of— I think it's the Nike machine that allows them to take bets and risk is very strong. They actually are in a unique position, which is even though they have a tremendous breadth of brand in the marketplace, they make a lot of bets. They try a lot of different things, which is very important. I mean, if you look at the number of SKUs they have, the tens of thousands of SKUs, products they have, there's a tremendous amount of model innovation, material science, technology innovation that's happening. And they're actually okay with failure. They actually can do short runs of things. They're used to that iteration.

[Speaker:ROBERT] Right, I'm assuming that they had that— different technologies that they sort of cancelled that they released, and they weren't even that bad, but I guess they judged them as not as good as they wanted, so they got rid of them.

Well, you can make an argument that through the first lens, right, you know, the proprietary unfair advantage, they're trying to discover that. That's something that needs to be learned. It's unknowable in the beginning. So you think you are until you go compete. The question is, what is the unfair advantage and the proprietary gets that lead to that? That's the first one. The second lens selection criteria comes from Reid Hoffman, who wrote the foreword of the Startup Playbook, the founder of LinkedIn, partner at Greylock, great guy. He said you need to have extreme focus on a single big idea. Like everything hangs off of that. If that single big idea and its focus is not strong or not focused enough, then you'll fail, because optionality is your enemy. Doing too many things, you know, just distributing— It takes the greatest courage to do fewer things. The question is, how do you know which thing to focus on? So you have to have a culture that experiments and tests with things very cheaply, to run down dark alleys to experiment, to know. But ultimately they're focusing on where the light is, where the economic oxygen is, where the problem is and the solution that they have unfair advantage to win. So you don't want to do too many things, you want to do a lot of testing, and that's part of culture now.

Irfan was asking that, listen, hey, we're getting great ideas on the companies, right, so this is if you're a manager at a company, how do you think about innovation. But let's say I'm an employee at a company, let's say I have a pretty good sense of what the strengths of the business are, I think they're somewhat obvious, they're probably more obvious to an employee than even to an outsider, and you know, talking about focus. But how do you take this down now to a personal level? What can I do?

Yeah, so one of the big questions we always get, which is like, hey, why do companies not take more risks, or why are we not more innovative? And the simple answer to this is failure is too expensive, politically and economically. To get an idea into a big company, you basically have to pass this thing called rack and stack ROI, which is effectively a trick. It's sort of like a classic management tool which is for you to get funding you basically have to know the future. And that's— a lot of history, great predictor of future outcomes because you have an operating history to draw from. So in a total addressable marketplace view of the world which is today, you can actually make credible plans that predict the future when you're doing incremental things. When you're doing things that are actually new, or focusing on new problems, new oxygen, they're actually unknowable. So how can you predict a future that's knowable? It's like going to a VC and the VC saying, well, I'll give you $5 million, or $1 million, or $500,000 if you guarantee that this outcome is going to happen, which is basically success theater. That's what rack and stack ROI does. It's the wrong tool to be able to go capture an unknowable future. So once you sell the dream of a big company, you can't unsell it, right?

So back to Irfan's question quickly, so you're saying it's very hard to sell internally, which means that there's no incentive for an employee to bother, right, because they know it's like— unsellable thing. The 20% time of Google seems like a solution, you know, because it's like, okay, you can spend some of your time working on these nutty things, and in theory, then you get the data to make a more defensible argument because you spent some time on it. But if you go and just present an idea and it always gets shot down, you don't have the time even to spend on it, so you don't have any data. I don't know, so back to—

Yeah, so the answer to the question is you have to solve for two things. One is expensive failure, and two is rack and stack ROI. And there is an answer to this, which is the way to get innovation done at a large company is to lower the price of failure. You have to make failure cheap. So you have to do experiments and testing, and I encourage you to read The Playbook, sorry, The Playbook, I encourage you to read Lean Startup. Steve Blank's book. There is methodologies and tools of experimentation that entrepreneurs do. That's how they manage. They create experimentation to create the ladder to the moon. They go in and do discovery, they validate things, they do lean experimentation so they don't die. They go in and test things to see what customers actually do versus they say, and then they build into those problems solutions that are actually commercially true. Not the inside-out view of the world, but outside-in actually true. So if you can lower the price of experimentation or failure, you can actually get this work done. The second element is you've got to get it out of the rack and stack model. You need to create boundaries around this, which is it's a pilot, it's an experiment. To the extent you get Google's 20% time, there's sort of a misconception about that, which is people live at Google. Their 20% time is like, 6 to 10 PM. We all have our 20, it's just you're not going to be an entrepreneur, a New2Big person if you have a 9 to 5 mentality. We're looking for people who are really passionate about it.

One second, so if you really want to be an employee that does this, you're not, I mean step one, you can't be 9 to 5. You're going to have to think a little bit outside the box, put some extra time in. Position it like a pilot so that it doesn't fall into that rack and stack situation, and try and get some learnings through market testing before you even bother to present it. Right, those would be 3 pieces of advice to sort of look at.

But not traditional big company market testing, we're talking about classic— no, we're talking about lean startups. Startup type of innovation. Like, we're going to go out there and we're going to build—

Eric Ries. If we have a lot of corporate people on the call, they might not know it. The other book that deals with a similar concept is something called Customer Development by Steve Blank. The Four Steps to the Epiphany is the book name. Bob Dorf. I think we're going to be doing a webinar with Bob. In a few weeks' time. Ezra was asking, you know, hey, as an intrapreneur, how do you combat the eternal refrain, this is not our core competency? And I would even add one more. Imagine if you go to your boss and say, oh, I got this idea, I've done some market testing in the lean way, it's a pilot project, it's $1 million. They're like, $1 million? Like, whatever, we may be able to make $1 million, you know, So that's not even a rounding error on the person's budget. So you have these issues, hey, it's not our core competency, hey, it's not large enough. What do you say, what are some tips for the intrapreneurs working with those challenges?

Yeah, I mean, the not big enough question is very often when you have cultures that are just not learning cultures that influence a business, they reject ideas because they are too small. And if you, my answer to that is if you value growth, which all leaders value growth, then you don't value things that are small on a bottom line basis. You value them on a top line basis, just like a VC. So in Big to Bigger it's an EPS base, really every penny is equal to a penny of EPS, right? In the world of new to big, as in a venture capital mindset, they're not a million-dollar company, they're worth $10 million. A penny is a dime. They're not $50 million in revenue, it's worth $500 million to me, because I'm positioning capital, time, and attention where the puck is going. And the only way to capture these marketplaces is to be there when they happen. And so the argument you would make to your bosses is like, we are not moving as fast as our our customers are going. Those who learn the fastest win, and the only way to work, the only way to go faster is to do less work. So I'm going to use a bunch of experiments in the way an entrepreneur would go find out customer behavior, customer action, belief, and transact in a faster good enough answer architecture that helps us be more competitive in the core. So they aren't little things, you're like deploying an investigative Navy SEAL boat to go take a beach of where the customer lives before you take the continent.

You're going to customer's island.

Yeah, we got to go.

Off the coast of like customer country.

Yeah, I'm getting the Zodiac and we're going. That's competitiveness, that's growth, that's discovery. Boss sold on that, no matter how skeptical he is, has a fiduciary responsibility to cover it.

Someone was asking quickly, and then we should jump on to the third lens, what's EPS? Sorry, can you define EPS, someone was asking?

Yeah, earnings per share can be done on gross margin or revenue divided by number of shares. So in the public markets they look at how What is the return on capital of a company on an earnings per share basis? Because you know, that's sort of like the MRI in the health of the cap table of a company is measured that way. If it's a low EPS, that means the capital efficiency is bad or it's not being deployed well. If it's high, that means there's a lot of cash in the machine that's flowing to shareholders and the company and its employees and its competitiveness.

Right, and okay, let's go on to the third lens quickly, solve an actual problem, which is based on your sending the Navy SEALs to the island of your customer, and on the island of the customer you realize, hey, they are doing this and we don't really know that organizationally, right? So talk to me a little bit about what you are thinking there is, solving an actual painkiller versus vitamin as well.

Yeah, exactly. So the third lens is the is the painkiller versus vitamin lens. And this, you know, Adèle, you're a VC, you've raised a lot of venture capital, you know this is part of the venture capital vernacular, and it's really not outside that world, which is you've got to be selling a lifelong chronic malignant, and vitamins are things that customers use once, and they like it, but they don't use it again. There's no adoption, there's no addiction, there's no there's really no pain behind it. It's sort of like saying, "Wow, I wish my customers read my business model and just behaved like I planned." Like, you have a vitamin when they don't. But when you have a painkiller, something they cannot live without, not only does it create focus on the customers that actually have pain, it also takes you to the bottom of the problem to solve it. So when you're sort of like trying to like get your arms around a new behavior or marketplace that you just wish was there, As Elon says, wishful thinking is the enemy. Why don't they love what I have? Why don't they behave in a way that I expected? It's they're basically both politely saying no. I like it, it's interesting, but it's not solving a real problem for me as a customer.

If I'm a trucking company and I can't ship a load across country because I don't have software to interface with my broker, That's a painkiller. Need the software or can't do business, right? So they apply that all day long. If a vitamin, on the other hand, is like my truck will maybe get there a little faster, I could, you know, like, ah, like I don't really know if I need this, but if I can't get the actual load, that's a painkiller. Making the load a little more efficient, maybe that's a vitamin. And yeah, I mean, it's there are a lot of vitamin businesses. The biggest mistake, as you indicated, is people think a vitamin business is actually a painkiller, right?

And that's fatal. So, yeah. So, I just want to cover one more ground there. Good job keeping us on, is that some people think like, well, my iPhone's not a painkiller. You know, it's a vitamin. I love it. I use it, but like, I could use a lot of different types of phones. So this is the point, which is when behavioral adoption and addiction happens, it becomes I can't live without it outcome. So they might not say that it is, but my behavior is experience. And so like that can become those things. So the fourth lens, so whatever survives your proprietary gift-ness that leads to unfair advantage with extreme focus on a single big idea, that's a painkiller not a vitamin, you have to be, the fourth lens is, you have to have a credible and true path to being an order of magnitude better than anybody else in the world, 10x. And that's not revenue, its impact. Like, and this is so critical because, you know, 90% of all venture capital investments go to an asset sale or zero. So if I— and I'm guilty of this, I've had 3 successful exits, 1 soul-crushing failure. And if everything in your company is good, but everything is equal in its value, when it fails, because it will eventually go the kiss of death, it's all worth zero. But the point is you need to asymmetrically fund the one thing that creates the unfair advantage, the proprietary gift that's 10 times better, because in the act, the entire value of the company sits at that level, the one thing. So if you go to an asset sale, that one thing carries the entire asset value of the company, because that's the hammer, that's the unfair advantage. That's the 10x impact in the world that you've created, and you've funded it, and you're the only one to do it. Does that make sense?

Right, so you know, whatever your business is, you probably do more than one thing, right? You might have a customer outreach unit, you might have a product development unit, blah blah blah, but there's one thing you do better than the others, right? Maybe it's In the case of Nike, their brand is reinforced by product. In the case of Apple, it's their product innovation. In the case of Google, it's their building the stairway, right. And so whatever you do best, and in fact, you know, let's tangent on Google quickly on that point. I mean, their recent reorg with Alphabet and Google basically demonstrates that they realize that their ladder business is in fact what they're doing. Because whenever a business gets really big and becomes the market leader, they put it into Google, and whatever they're screwing around with to look at getting really big is in Alphabet. So, and that's how they become 10x better. But let's go back to sort of Irfan's question, which is like, now I'm a guy in a company, or a woman in a company, and I'm thinking, you know, okay, I got my boss to agree that we're going to take this Navy SEAL boat to the island and start experimenting. How do I know what I'm 10x better at? That's especially in a big company. In a small company, you have very little resources, so when something moves, you spot it right away. In a big company, it's very easy to miss something that's moving, right, because it's a padded environment.

Yeah, and also, I mean, big companies have sort of the addiction to being right, so they think that within the laws of physics they can do anything, and it leads to ideas that over 2 or 3 years are sort of going nowhere. They turn into these big expensive zombies in the company. Like dead deals in a way. But that happens, and you should go zombie hunting and kill them and use that capital to create new things. But honestly, it's in the experimentation and in the solutions, in that sort of like entanglement of the experimentation that you discover the answer of the 10x thing. And I'll tell you honestly, and I think you've probably experienced this as well, it takes a long time to figure this out. Both for yourself but also for the customer. Honestly, it's taken— this is almost like a universal law. It's hard, no matter how much skill you have as an entrepreneur. This is just my opinion, you can answer this yourself. I think it typically takes 3 years to figure out what business you're really in. The level of investment, like for some reason at the third year you're like, "Oh, now I get it. Now I understand like what I'm really solving for and what the one thing is we are—" And what are unfair advantages and where are we going to invest to be 10 times better? Everything else doesn't matter. When you obsess with that, it becomes clear, but it's a function of staying in experimentation and elastic understanding of what's possible with your problem. It's the solution that you care about, it's not what it is, it's how to solve it that matters. What is the truth?

What I would say to go further on that, I usually say you don't know if you have a business for 2 to 3 years, and then you don't know if it's a good business for 5 years. So there are lots of examples of these billion-dollar companies that are under 5 years old, but it's not clear that they are a good business, right? I mean, and that's why some of them are getting dinged right now. Evernote got dinged. I use it religiously, and the founder is a very good friend of mine. Is this subscription note-taking business a good business? It's now about 5 years old, probably. Then you've got Theranos and all these other companies that are up and down, up and down. You really don't know for about 5 years if it's a good business or not. And sort of playing on that, because it's like shooting for monopolies is lens 5, you know, if you've got this 2 years to know what you're really, or 3 years to know what you're really good at, and 5 years to know if it's a good business and you're shooting for a monopoly. You know, how, and you just talked about killing zombies as well. How do you, like, there's so many things, you know, so do you kill a zombie in year 3 or do you give it a little extra time? Yeah, these are tricky issues, right?

Yeah, I mean, it's, you know, big companies are typically, they prematurely kill things because the cost is high. I mean, listen, you need to have— we work with the CEOs of companies to change the mindset mechanics so they can build new to big because it's radically different than big to bigger. However, when you lower the cost of failure and you allow experimentation to happen, that has to be true with you and your boss to go do this, or your sponsor. And so when you have that mindset mechanic set up, and there's a venture entrepreneur lens on this stuff, like the filter, it's going to have these qualities to it in our discovery, in our experimentation, it will produce new growth. It will actually produce engagement with customers that actually create new economic oxygen, new out of new budgets, out of new behavior that leads to a competitive aspect that was not in the company before. So, you know, I've dealt with some pretty skeptical C-level people, and within 6 to 12 months of actually doing this and discovering with modest permissions, it's transformative. And so my point is that it can be done by lowering the cost of failure, setting a framework, mindset, and using the tools that are in the marketplace as a form of management. And I'll share the last lens because we're getting there, we've got 14 minutes left, which is the fifth lens is that you have to build monopolies. You need to be able to put hooks and barbs in customers so they literally can never leave. This is the thing, my last company was backed by Peter Thiel and Union Square Ventures and some of the best VCs in the world. And I remember they had two— Peter had two very critical things he kind of drove it in the companies. One was the concept of super customers and power law, which is if you can solve a problem for a rich and paying customer all the way to the bottom, you can solve it for anyone. So would you rather have 10,000 customers where you solve most of the problem, or one you sell the whole thing? So if I get one huge customer, I can run the table with the entire marketplace, because I'm so obsessed all the way to the bottom, and there's so much oxygen that can flow through that one partner, it leads to unfair advantage. That's number one. Secondly was the idea of creating permanence in the life of a customer. Implicitly and explicitly building a painkiller that once they get in, it's very, very hard to get out. And this isn't a negative consequence, it's a positive consequence in two ways. One, it creates engendered life for the startup to stay around long enough to solve the whole problem. Because big customers are fickle and impatient, so if they can just dump you and your outcome within a year or two, you're never really going to solve it for them, or you're never going to solve it for yourself. So after 2 or 3 years of going to the bottom, you actually can go with them, sometimes against their will, all the way to the whole solution. So you have to design that permanence in, And that's why it's good for you, and it's good for them because they need to have partners who are so obsessed and committed that don't want to leave and design impermanence that they actually can fix them. So that's a very important mindset to grow.

So let's talk about the how, right? Because I get the what, of course. I would never want anyone to leave, but you know, if you're— so you know, one stupid easy how. I love the new iPhone subscription model by Apple. It's like, you love our phone so much, you can subscribe and we'll just give you the new one when it comes out. I was like, oh, well, that's interesting. But like, so that's an obvious one, subscribe to the phone. What are some other less, or other hows to make these monopolies happen that might be more subtle?

Well, other hooks and barbs can become like your data of course is an obvious one.

By the way, hook and barb is a classic term. It's not that you can actually Google hook and barb and it refers to these customer lock-in techniques.

So what are our other classic hooks and bars? In the digital world it's my data. It's my friend network in Facebook. You own all my relationships. Contact. You have my email. Yeah. Let's say it's a car brand. That might be— the monopoly of that would be, you know, maybe it's the brand is the monopoly, or maybe it's the design experience, or maybe it's, you know, you can see cars are going further and further and further into that data world because that user behavior is super sticky. So once someone knows how to use a navigation or an experience, they typically don't switch. There's actually— there's a fantastic article about this called "Eager Sellers and Stony Buyers" in February of 2006 that talks about behavioral adoption. I won't go into detail right now, but the point is that behavioral adoption, once someone starts using something, they almost never statistically switch. So it's remarkable that when you create experiences that people behaviorally, cognitively, digitally, physically use, if they start using it for 90 days, you pretty much have them forever. Unless you violate trust or do something that's really substantial, you change the experience in a way that harms them. So you can even see this, Apple gets this. They change things very incrementally, and then they use their monopoly to create moats around it. So for example, You know, we went from USB to USB-C on my MacBooks. So now I got— now I go out and spend another couple hundred dollars on a dozen of these adapters because I lose them or I leave them. And now I have this one new connection that only works with Apple and it doesn't work with anything else. And it's going to dominate my whole life. In fact, it's going to be on the iPhone next. It's going to be a USB-C adapter. And then they're going to get rid of this other threat to them which is this headphone jack, right? Because they want to own every in and out of this thing, which is going to be strictly Bluetooth to create fluidity around the device that they can monopolize. All that stuff is designed in permanence. It's intentional, very intentional. Not just standard driven, but it's standardizing yourself. So you should be aware, have a standardization awareness in your life. You would not be surprised after you see it that when you open systems that are nonstandard, devices and experiences flow with churn through them, which is bad for companies, i.e., Android and micro USB.

Right, well, let's go, we've got a few minutes left, I want to jump on a really important topic here, which is let's flip it around from the leader perspective and say, alright, I'm leading a group in my company, maybe it's a team, maybe it's a department, maybe it's a division, whatever. And how do I give, you know, okay, staff meeting everyone, everyone has permission to fail. I mean, what does that mean? So how do you as a leader implement some of these concepts, which might also help some of the employees on the webinar understand it from the other side?

So, okay, so to be very provocative, If you're a leader in an organization and your company is not growing, it's your fault. You're the problem. You have the addiction to being right. You're driving a company to an inside-out view of the world. You don't have the permission for yourself or your teams to actually go fail, because success is a bad educator. So if you can only succeed, you'll never learn anything. You're working off of your past precedence of your experience as the reason why you're in your seat, because you haven't allowed net new learning to be restored. You've created law, you've used rack and stack ROI as a model to make good decisions. You've allowed cognitive bias to permeate the knowable, the fallacy bias, the permanent bias. The mindset of the leader is actually the wrong filter, that needs to change first and foremost.

So change your mindset, I changed my mindset, I'm like alright, I've been like pinching pennies, trying to squeeze up value, get more sales from existing customers, but okay, boom, mindset's gone, now what? What do you do?

Okay, so here's the mindset you need to install. One, outside in, the truth is outside the walls of the building. We don't know the answer. The only way to know the answer is to go after the total addressable problems in the world that we have unfair advantage in solving for. New oxygen. 3 is, you need to create a net new learning culture. That means that we expire data sets that are a year older, a year or older, because they literally don't matter anymore. It's the question Eric Schmidt asks the employees about marketplaces. What's new? Our competitors are moving so fast that every year it matters to ask that question. So how do I go in and get the truth, the commercial truth on what's new in that marketplace? And that is through this next lens, or next skill, which is the role of high variation, cheap failure, experimentation, allowing the test to take root, validating ideas very quickly and cheap to go as sensors about—

But you can't give that to everybody, right? Because you've got a group of people who have a goal. So do you say— do you center on a group that says, OK, you're the experimentation guys or people, and you're the keep the machine running people. Do you divide, or is it 20% time? Tactically speaking, you can't have everyone go run experiments, and then they're not selling the to the shoes anymore.

[Speaker:MICHAEL_SEIBEL] OK, so here's two ways to solve for that. One is you recognize big to bigger talent versus me to big. One is a super administration skill set, and they love doing that. One's like a gangster commercialization skill. And so you've got to create an environment where— it's like art school. You put 100 kids in art class, you can tell in 5 minutes who can draw. You've got to find those people who have that commercial gangster skill and put them in a new-to-big-box to go experiment. Likewise, you can create lures in your big organization to find them. You know, steal the X Prize model. Like, take a $100,000 reward for anybody who can disrupt by an order of magnitude our NPS score for a key product. Like, literally, restricted stock, here's the reward, whoever can solve it gets it. Like, and then take that group, that top 3 players, and have them go after the big new-to-big problems in the world. So you don't need everybody, you just need your Navy SEALs.

Right, so that's like a— so either you pick the Navy SEALs deliberately and send them on the mission, or you can create some incentives for the Navy SEALs, so to speak, to self-identify and say there's a prize or some sort of award And that's more skunkworky in that don't interrupt your day-to-day job, but if you solve this problem, we're going to give you whatever, a new car or some sort of incentive.

Yeah, I mean, the BUD/S model, if you look at the BUD/S model, which is the Navy SEAL school, the 6-month underground demolition, whatever, seaborne tasks, they have Hell Week and they have lots of tests throughout that. It becomes such a huge reward reputationally and in the world to be a SEAL that it's its lure in itself. So being an entrepreneur in a big company today is like a fool's errand sometimes. It's like, who would ever want to do that? Because you're in the machine, you're just going to get punched in the face every day. So if you can create an environment as a leader that says, this is my SEALs for growth, they're both equally important. The ability to discover marketplace is important to execute on it. Ironically, they call this double-loop learning. The better we are at discovery, the better we are at execution. They work together. It's the ambidextrous leader. You have to be an operator and you have to be a VC. That is the new skill set of the CEOs in the 21st century. You have to be able to do both.

So can I just tangent? We've got a couple minutes left on that very statement. Because that alludes to, do you find it internally or externally, and I was having a talk with some founders this morning about that very point. You know, it's possible that you could try and do this internally, or a lot of times companies also just go buy stuff on the outside to get that innovation and growth because they can't do it internally. So it's just your thoughts on that, is that a solution to the problem, internal versus external? I've also seen some people spin out teams, I mean Cisco is notorious for this. Cisco has its own incubator for its employees to quit and leave, and then it buys the companies back for like hundreds of millions to billions of dollars when they succeed. Because they know they can't do it internally.

Yeah, that's definitely a form of innovation, I agree with that. There's a lot of analysis that has gone into the return on capital of those acquisitions, so I don't want to go down that road, but the point is that it's suspicious. But I'll just tell you that if you want to create a growth capability, it's not a beat-the-quarter outcome you're looking for. You have to say, I am going to create permanent growth capability in the company. It's going to be a forever journey. I'm restoring this new to big capability as opposed to big to bigger. And I'm going to start it in the big to bigger engine knowing it's going to take time to get it out, either physically or by team or capability. But here's what I've discovered doing this for 3 years is that very often the leaders are very open to this with the context, lower the price of failure, take a couple opportunity areas and not focus down. But once they start doing it, they're like, I should be thinking of running my whole company this way. I should be asking this question about all of our new products. Like a technology in search of a problem is not a problem. Like, inside out, when we're doing Hail Marys, you know, super expensive, deeply analytical, this is what's going to happen, and we throw a $50 million bet. They almost all statistically fail. How do you even know what to make if you don't know what problem you're solving in its simplest form? You know, so like—

You're saying inside or outside, at a minimum it needs to be inside, and then if it's inside, it might also then be outside, because back to your point of what problem you're solving, you might not even know what type of company to buy if you don't really even know what the customer wants.

Yeah, I was at Techonomy like 2 years ago, which you probably know David Kirkpatrick and the whole gang. So Reid Hoffman and Peter Thiel were on the stage and they basically said this, and I'm paraphrasing, it wasn't exact but it was the intent. They said if big companies figure out how to do this, this whole like Valley shtick, like a third of the VCs in the world would go away. Like, we exist because that entire capability has been eradicated in the efficiency model. We're actually an inefficient model of discovery, but the reward is so high for that discovery that you would be crazy not to try it, right? In the whole venture entrepreneurship world. It's actually a super bad lottery ticket. Like, when you think about loss aversion, if you ask a real entrepreneur, do you want the $5 million lottery ticket with like, you know, 1 in 1,000 odds, or do you want the 100— a billion-dollar exit, which is 1 in 10 million, which one are you going to take? An entrepreneur takes the billion-dollar outcome like every single time, which is sort of dumb, right? So the odds are you're going to fail, so how do you fail well in all this? You want to create a model that you can actually de-risk. I think there's this belief that entrepreneurs are sort of pathologically optimistic or irrationally optimistic, and the truth is they're really not. They're actually quite quite scientific and rational and first principles logic in building up their businesses. Every company can benefit from that, whether it's inside or outside. But in the journey of the leader who launches this, they will figure out whether it's to be separate and far away, or should be close because the influence is too valuable for the core business, or should be inside. There's lots of versions of this.

Right, so how close it is is really important. David, this was literally fantastic. We've had a few hundred people watching all along. It's been really amazing. I want to give a big round of applause to our guest, David Kidder from Biondri. Thank you for having me. Yeah, yeah, yeah. And if anyone's interested in learning more, you have the notes on the side under the handouts. You have the Scrum Playbook.

You're welcome to read that.

It's always good. I strongly recommend it. It's one of my favorite books to read and designed as a— a helper. So with that said, thank you everyone, have a lovely day, and again, thanks to David Kidder for coming out today.

Thank you, Adair, always grateful for you and your friendship. Thank you.