00:00hi everyone welcome to the a 6nz podcast
00:03I am sonal today we have one of our book
00:05launch episodes what Safi book call
00:07author of lune shots the subtitle is how
00:10to nurture the crazy ideas that win wars
00:12cure diseases and transform industries
00:15so joining me to co-host this episode is
00:18a 6nz General Partner for bio Vijay
00:20Pandey who also happened to be a miller
00:22fellow with the author back in their
00:24speaking of Safi has an academic
00:26background in theoretical physics
00:28co-founded a biotech startup developing
00:30new drugs for cancer and then led its
00:33IPO and served as its CEO for over a
00:35decade so he has a really interesting
00:36vantage point that unites perspectives
00:38from academia startups and big company
00:41innovation by the way you can find other
00:43episodes touching on some of these
00:44themes from different angles including
00:46with former Stanford president John
00:48Hennessy on the transition of ideas from
00:50academia to startups and with CEO of
00:52Novartis Varney Watson on R&D and
00:55innovation inside big pharma as well as
00:57an episode on what disruption theory is
00:59and isn't by searching for those on our
01:01website but in this interview we cover
01:04what is a loon shot versus a moon shot
01:07and how do or don't those connect to the
01:09concept of disruption and given that
01:11those are some buzzy buzz words after
01:13briefly defining them and considering
01:14how companies can innovate regardless of
01:16what we call it we then go into some
01:18deep scientific concepts and analogies
01:21to share a very different framework than
01:23in typical management literature with
01:25practical advice for teams and companies
01:27of all sizes to nurture new ideas and
01:30initiatives and we even dismantle some
01:33common dogma around culture product and
01:35market along the way but first Safi
01:38begins briefly with an analogy to
01:40historical empires and why new ideas
01:42didn't take off there for thousands and
01:45thousands of years truth was established
01:48by the divine rule or the tribal leader
01:51and in the 17th century plus or minus a
01:55few years in Western Europe this kind of
01:59new idea spread but instead of asking
02:02what was true and false there was a
02:06universal truth but anybody could figure
02:09out through measurement and experiment
02:13now called the scientific method change
02:15the world more than any other idea
02:17it essentially democratized truth if you
02:20got rid of all the previous books you
02:22destroy them they should all be able to
02:23come back yes is extended that they were
02:27right yeah and in some sense you ask me
02:29Madeleine shot is this idea that there
02:32are natural laws in the universe and we
02:34can access them through measurement and
02:37experiment we take that for granted
02:39today but it was really controversial at
02:41the time not only was it controversial
02:43it was subversive it was threatening it
02:47didn't just suddenly appear it was a two
02:50thousand year story of it that same idea
02:52appearing and being quashed and
02:54appearing and being quashed and
02:55appearing you know for hundreds if not
02:57thousands of years so why did that idea
03:00appear there and in fact so much of the
03:03stuff that we take for granted and fed
03:05into that revolution came from China
03:08Islam in India the astronomy the
03:10medicine Mathi the mathematics which
03:12came out many of the technologies paper
03:17and printing had been used in China
03:19developed in China and not for 50 years
03:22or 100 years but for a thousand years
03:24China - the paper printing compass
03:27currencies scholar elites a agricultural
03:31mining that was unheard that was not
03:33seen in Europe until many centuries
03:36so why Western Europe what was spending
03:39I just kept getting stuck on this
03:40question especially when you grow up and
03:43you know Western culture you're told
03:45well basically there was the Greeks that
03:51was like basically 30-second history of
03:55science Greeks nothing Newton done
03:56history and we're modern and maybe
03:58Einstein right but the more I started to
04:01think about it and the more I realize
04:03like there's something in the question
04:06of why did these big empires did so well
04:08for so long but why do they have trouble
04:12innovating and I realized there was a
04:15close parallel to my industry so I was
04:17in the drug discovery industry so the
04:20parallel China India in Islamic empires
04:23were a lot like the Merck Pfizer and
04:26fascinating mobile everywhere dominant
04:29they're phenomenal at franchises so in
04:32India you've had the Taj Mahal you know
04:34in China they built the Great Wall and
04:35just in credit the Grand Canal he had a
04:38series equals but the little tiny ideas
04:41got quashed and where did the incredibly
04:44innovative revolutionary new drugs come
04:46from from them teeming market of
04:48hundreds and hundreds of small biotech
04:50like the one that I was at essentially
04:52what you're pointing to is that if you
04:53think about how we parallel that now
04:55biotechs are just a great example of
04:56startups in general you know and that
04:58startups are maybe the ultimate loon
04:59shot right especially the reason why
05:01often you have to do in a start-up is
05:03that if you try to do it in the big
05:04established Empire you know that you'd
05:06be either going against what the Empire
05:08does or you'd be heretical it'll be
05:10crazy right so a moonshot is a big
05:12exciting goal like you're in cancer
05:14eliminating poverty but it's a
05:16destination to go to the moon yeah like
05:19in 1961 when President Kennedy said
05:22let's put a man on the moon that was the
05:25original moonshot I mean if we rewind
05:27the tape forty years earlier there was a
05:31guy named Robert Goddard who explained
05:33how we might get there with jet
05:35propulsion and liquid fuel rockets
05:37Kennedy when he announced his moonshot
05:40was widely applauded Goddard when he
05:43explained that crazy idea that when my
05:45kid there was ridiculed in fact there
05:46was an editorial in The Times when he
05:48was talking about his idea that said
05:50well obviously this guy who you know has
05:52this cortical chair in physics at Clark
05:54University or wherever you know he
05:56doesn't understand the basic principles
05:58of physics that we teach in high school
06:00every day about 49 years after The Times
06:03printed that the day after the
06:05successful Apollo 11 launch to the moon
06:09The Times printed a retraction and said
06:11apparently rocket flight does not
06:13violate the laws of physics and quote
06:15The Times regrets the error such a
06:17victory lap but that doesn't happen all
06:19the fundamental question for anyone
06:21listening to this episode who kind of
06:23has a lot of understanding of the
06:24history of innovations is how do you go
06:27from being a Goddard to a Kennedy
06:29there's a fine balance Submarine between
06:31them you don't want to be the person
06:32completely ridiculous
06:33you don't also want to get there so late
06:35that it's already an accepted idea to
06:36succeed so when do you know
06:38a loon shot becomes a moon shot Kenny's
06:41was a moon shot because it worked here
06:43right I mean if we if NASA was not able
06:45to get to the moon moon shot right
06:47presumably right on this idea of loon
06:48shots I do want to talk briefly about
06:50Google X which is in some ways given
06:52both a good name and a bad rap to the
06:54concept of loon shots and multiple
06:56levels one because they talk about what
06:57they do as moon shots two because they
06:59actually of a project called loon which
07:01has been mixed we received and so that's
07:04another context but three I think what
07:06is really interesting here is when you
07:07think about a moon shot as this
07:09destination as you've described it a
07:11desire to go somewhere I think a lot of
07:13people have a hard time in organizations
07:15in terms of teasing apart
07:17what is a shot that's worth further
07:20nurturing regardless of the destination
07:22whether it fails or not because I agree
07:24there's no shortage of ideas but it's
07:26precisely because there's no shortage of
07:27ideas that I want to know when can we
07:29like pick which ones to invest in
07:32because there's still limited resources
07:33yeah you're right a moon shot is a
07:35destination and we get there by
07:37nurturing loon shots which of these
07:38crazy ideas and your question is how do
07:40you prioritize exactly how do you win oh
07:43those ideas as well I think you want to
07:45find the ones that challenge your belief
07:48system because those are the ones which
07:51are most dangerous to you you and your
07:53business so the reason you nurture loon
07:56shots is you when there's some new crazy
07:59idea that appears it's gonna kill one of
08:02your business lines or take away your
08:04customers or even open a completely new
08:07business line where would you rather
08:08find out about it by reading about it in
08:10the press release from one of your large
08:13customers who's gonna move all their
08:14business away or would you rather find
08:17out about it from one of your people who
08:20presents you one morning with this crazy
08:22idea that you were sure was not true and
08:25all of a sudden he or she shows you this
08:27great proof of concept that there's some
08:29traction to it I love that you said
08:31proof of concept in traction actually
08:33I'm so glad you said that because when
08:35Astro teller who heads up Google acts
08:37wrote an op-ed for me at Wired he made
08:39the argument that it's identifying a big
08:40problem articulating a solution that can
08:43actually solve the problem if it existed
08:44even if it does not already exist which
08:46is to your point that it is dangerous
08:49but more precisely when you mention the
08:51proof-of-concept that there is an
08:53indicator right now that this thing can
08:55become a reality and that I think is
08:57like the key so I spent a while talking
08:59about this with Astro who actually I
09:01knew well before Google X and one of the
09:03things that Astro pointed out which we
09:04both agree on is that using the wordt
09:06moonshot unless you really know what
09:09you're doing and they obviously really
09:11know what they're doing and X can be
09:13very misleading and it comes back to why
09:16there are a few phrases in the English
09:18language that give me more gas pain than
09:21the phrase disruptive innovation here's
09:23the problem when people talk about
09:25disruption they're talking about a
09:26market mmm-hmm and if you look across
09:29history if you look across the the ideas
09:33that change a field of science or a
09:35field of business or even world history
09:38none of the champions knew anything
09:41about where their idea would end up I'll
09:43give you an example the transistor it
09:45was developed at Bell Labs although it
09:48was based on a lot of federal research
09:50but it was developed at Bell Labs why
09:52they were looking for better switches by
09:54every definition it was an incremental
09:56innovation yet not a quote disruptive
09:59once they figured it out they didn't
10:00know what they could do it wasn't it
10:02wasn't usable in the phone system
10:03initially because it was too expensive
10:05and too unreliable so after a bunch of
10:07years of trying to figure out what they
10:09could do with this damn thing they came
10:10up with hearing aids so do you think the
10:13scientists working on semiconductor
10:16junctions in 1946 and 1947 told their
10:19bosses we're working on it on disrupting
10:22the hearing aid market the word
10:23disruptive innovation makes sense
10:25in hindsight if you're a history
10:27professor right but not for predicting
10:29and knowing juries and using the word
10:31disruptive innovation or moonshot unless
10:33you know what you're doing can be bare
10:34mostly and is it it causes you to
10:36overlook the small things that end up
10:39having a tremendous difference because
10:42they challenge accepted belief but you
10:43thought maybe it'll just be for hearing
10:45aids in fact it's not so much an
10:46accident but it's this emergent kind of
10:50building block that's created that has
10:52so much like second third order effects
10:55we had Brian Arthur on this podcast and
10:57he's like the father of complexity
10:59theory and economics and one of it's
11:01he's the one who sort of studied when
11:02network effects tip when these systems
11:04sort of it's a for a sudden and they're
11:06always like small tiny tips there's
11:08never some big specific iPhone moment
11:11that is a you know discreet thing it's
11:13actually this continuum of things what
11:15you want to do is you want to fund a
11:17portfolio of loon shots irrespective of
11:19market nothing kills a great idea faster
11:22and has been more of a disaster to
11:24innovation so in my industry and drug
11:26discovery then the idea of market
11:29projections forget the market
11:31protections does it challenge accepted
11:33beliefs if so let's go try it hmm that's
11:36what it's all about well then let me
11:37push it some more than because then I
11:39want to really understand then what
11:41distinguishes a good loon shot from a
11:43really bad one because when you are a
11:45company you have limited resources when
11:48you're an entrepreneur you have limited
11:49time and energy to devote into what
11:51product you're gonna build and you want
11:53to nurture them but which ones do you
11:55nurture exactly how do you think about
11:56that here I mean this is huge yeah so
11:58first off you know it's it's interesting
11:59from the point of view of venture
12:01capital that we're looking for things
12:02that have that huge disruptive potential
12:04that's very much our business and it's
12:06usually the things that in has I think
12:08it's been or Chris Dick's and talk about
12:10how often really great companies look
12:12like bad companies yeah they were
12:13talking about energy quoting Peter Thiel
12:15okay for example like you know going on
12:18the web and meeting strangers to ride in
12:20cars with you these things at one time
12:22seem like Razia now it's a good idea
12:23only because in part it what made it
12:25seem like a bad idea was also what
12:28opened the door for a team to come in
12:30and have that opportunity so you know
12:33for what we're looking for especially on
12:35the bio side I'm looking for things were
12:36they're right at that cusp between where
12:38the science has largely been done where
12:40we're not investing in science projects
12:42and that it's about to scale into
12:44engineering and small crazy ideas that
12:46changed the course of science business
12:47or history they always stumble I had the
12:51story about Jim Black mr. James Black
12:53was a Nobel laureate very famous
12:55actually chemist pharmacologist
12:58originally was advising us I was in cod
13:00you know this this asked me why I was
13:02looking kind of dim you know we would
13:03work in this really promising drug
13:05program in the lab and it just didn't
13:07you know we just had these bad results
13:08and he's like leaned over you know
13:11patted me on the knee and this like 10
13:12o'clock a couple of whiskey's in and
13:15can't do a Scottish Safi it's not a good
13:19drug unless it's been killed three times
13:22and so I've always thought of that is
13:24the three deaths of the longshot and
13:25that's actually a little different than
13:28some of the philosophy here especially
13:30in Silicon Valley of you know fail fast
13:33and pivot because in many cases the
13:35really good ideas is that completely
13:38transform industries they fail the first
13:40future and it's a false feeling and it's
13:42a false fail what do you mean by false
13:43fail I mean I think about in the context
13:45of false positives false negatives false
13:46fail is it's a failure that's due to a
13:49flaw in the experiment rather than a
13:52fundamental flaw of the idea I mean just
13:54as a simple example Peter TL and Ken
13:56Howry who I remember Ken Harry was
13:58telling me this story you know a couple
14:00years ago that when they were first
14:02looking at Facebook everybody was
14:04passing on social networks because it
14:07was like the 15th or 16th or whatever in
14:09social network and right around that
14:11time Friendster was just sort of going
14:13down the toilet and I remember what Ken
14:15and Peter did was they got access to
14:17they were like really is it the K maybe
14:19that's the case but why don't we just
14:21probe and get a little more background
14:24and they asked where they knew the CTO
14:27and the team behind that they knew that
14:29the website was having a lot of problems
14:31so they got that user retention data and
14:33they looked at and they're like holy
14:35 you know people are staying on this
14:38fricking website even though it's
14:39crashing their sting on it for hours and
14:42they're like wait a minute maybe it's
14:44not a bad business model maybe actually
14:46it's a really good business model and
14:47people are leaving because the website
14:49sucks that's when the lesson is to false
14:52fill within an org if the false fill
14:54takes down your org then the other
14:56startups that come after you get to
14:58benefit from your failure but if you can
15:00sort of understand the false felt
15:01internally that's your best bet to keep
15:03on moving right yeah and I think that
15:05these false failures it really wasn't a
15:06failure as if failures of executions not
15:09a failure of the Loon shop and Theresa
15:11get your take on the software because
15:12you've lived this off for a lot of drug
15:14design projects when they get canceled
15:15farman never has the time or the
15:18interest sometimes it seems to go back
15:19and understand why I remember the head
15:21of R&D of a very large one of the top
15:24few farmer one time we were having
15:26dinner we were discussing doing a large
15:28ship together and we were talking about
15:31killing projects and your people say are
15:33you got to have balls to kill a project
15:34and they said killing a project is the
15:36easiest thing in the world it never
15:39and that's one of the reasons it's so
15:41difficult to innovate inside let's say
15:43in my field in our field inside a large
15:45drug discovery or research organization
15:47is because it's so hard to keep a
15:50project going what's fascinating cuz I
15:52would have argued I would have thought
15:53it's actually much harder to kill
15:54something than to actually keep
15:56something going that shouldn't be killed
15:58no it's the easiest thing in the world
15:59to kill a project it's much harder when
16:02because of the three deaths of the loon
16:04shot because really good ideas often
16:06seem really stupid in the beginning as
16:08soon as they hit that first stumble it's
16:10much harder to justify to your cause
16:12that's true in a big company doing
16:14history in a small company in a small
16:15company if this is your thing killing
16:17something is actually the dreaded pivot
16:19right and so maybe in a small company is
16:21it is it less likely that people want to
16:23kill it well this comes down to the
16:24incentives the underlying theme of this
16:27book is let's look at structure rather
16:30than culture you know I would became a
16:31first time CEO I think I was thirty two
16:34or three and probably like a lot of
16:36first time CEOs and entrepreneurs I read
16:39everything I could find about management
16:41how to be a better leader how to build a
16:44great company and I empower my employees
16:46who didn't get great returns for my
16:48stakeholders and achieve our big mission
16:50and almost everything I read about was
16:53about building a great culture yeah and
16:55as a physicist that felt kind of squishy
16:58to me and there's also that sort of
17:01after the fact core you know let's say
17:03somebody wins a lottery and you say well
17:05that's fantastic what color socks was he
17:07let's all go where I did want to see if
17:10there was a little more of a scientific
17:12underpinning let's do the behavioral
17:15economics but of groups and as soon as
17:17you arrange people into groups what are
17:19these sort of hidden incentives that's
17:21the kind of thing that I didn't think
17:22about for 10 years and kind of none of
17:24the traditional management literature
17:26has really looked at so it's interesting
17:28you bring up behavioral economics
17:30because you know prospect theory itself
17:32is a very dangerous idea to the
17:33establishment at the time and yes
17:35there's a lot of debates right now in
17:37the literature about how
17:38robust those findings are you know so
17:40many years later but that aside it was a
17:42very important contribution I'm curious
17:44for how that connects into your
17:46worldview sure not in fact that's kind
17:48of the most fun things for me because
17:50what Kahneman and first we did was a
17:53found a new Venn diagram intersection of
17:55psychology and economics and this is a
17:58new Venn diagram intersection of physics
18:00I'm saying I love that so you take you
18:03simply look at the incentives for
18:06whenever you organize into a group it's
18:09only relevant inside a group and then
18:11you borrow an idea from physics which is
18:14a phase transition how does this phase
18:17transition idea come into play I mean
18:18you're a physicist by training so I get
18:20that there's a physics aspect to this
18:21but how does this play in the innovation
18:23organizational context every phase
18:25transition in nature is a result of two
18:27competing forces a tug-of-war and the
18:30phase transition is as you adjust the
18:32balance you change certain parameters of
18:35design or the environment you adjust the
18:39balance between those two forces and
18:41boom at some point they cross and the
18:43system snaps I'll give you an example
18:45with water there's a glass of water
18:47right here what your audience can't
18:49quite see I'll take you could imagine
18:50when I stick my finger in the glass of
18:53I can swish it around right except as I
18:57gradually lower the temperature all of a
19:00sudden at a critical temperature boom
19:02the behavior completely changes so when
19:05it freezes exactly why how did those
19:08molecules know to go from sloshing
19:12around and being fluid to being
19:14completely rigid it's the same molecules
19:16and it's the exact same molecules
19:19there's no c-e-o molecule with a
19:22bullhorn and that's sort of the other
19:23counterintuitive thing about this is it
19:25doesn't matter what the CEO does okay
19:28it's not about the culture no it's about
19:30understanding those two forces and what
19:32are the balance so here's the two forces
19:35in a glass of water there's one force
19:37entropy which wants to makes water
19:40molecules run around and be free right
19:42the creative force one could argue if
19:44one wants to do that
19:46it's actually a hard physical quantity
19:50that molecules have to competing for so
19:53one of which is entropy which wants to
19:55make them run around and be free and the
19:57other is binding energy it wants to lock
20:00every molecule of water
20:02exactly 2.8 angstroms from its neighbor
20:05when the temperature is high entropy
20:08now as you gradually lower the
20:11temperature the entropy force gets
20:13weaker and weaker and weaker and the
20:15binding energy gets more and more
20:17important and then what happens boom
20:19at 32 fahrenheit those two things cross
20:22below 32 it becomes totally rigid so it
20:25has nothing to do with the CEO molecule
20:27yelling be rigid be fluid let's adopt a
20:30fluid culture and all slush around the
20:32CEO can set the temperature that's
20:33exactly right control parameter is the
20:36equivalent of temperature it controls
20:38the behavior of the system it turns out
20:40when you work out the mathematics of
20:42this of the incentives the two forces
20:44there are four control parameters inside
20:46organizations elements of organizational
20:48design and that the CEO the executive
20:51team the board has control over just
20:53like you have control over a glass of
20:55water in classic innovation parlance it
20:57is sort of disruptive versus non
20:58disruptive core versus non core these
21:00two forces would however you describe
21:01them the point is that organizations
21:04clearly have these two competing forces
21:05so back to not being you know the
21:08cultural stuff that management
21:09literature gives us what structurally
21:12needs to happen to make organizations
21:14know how to navigate these two forces
21:16okay so when you bring a group of people
21:19together and you organize them and you
21:22set a mission and you tie a reward
21:25system incentives tied to that mission
21:27all of a sudden you create two forces
21:31and here's what they are
21:32the first one is staking outcome I think
21:37of that as equity so let's say to stick
21:40with our industry you have a small
21:43biotech company and you're developing a
21:44new cancer drug your stake and outcome
21:46is your stake in that drug success does
21:48it work or not now when you're a small
21:50company or stake an outcome is enormous
21:53everybody's a hero and a millionaire if
21:56the drug fails everybody is unemployed
21:59right what's the second course its perks
22:03of rank mmm interesting so you can think
22:06of this almost as equity in cash or
22:08equity in base salary when you're a tiny
22:10small company stakes and outcome are so
22:13much bigger than perks of rank now let's
22:16flip it let's say you sonal are a
22:19manager at Pfizer so now let's look at
22:23what's the stake in outcome well if you
22:25make a good drug let's say it sells five
22:27hundred million a year that's a pretty
22:29good drug plus you're gonna be fighting
22:31for the next seven or ten years
22:33everybody wants your budget and there's
22:35gonna be the three desks with a lone
22:36shot you're gonna have to try to defend
22:38so your state can act in this pretty
22:39tiny what's the perks of rank well if
22:43there's a committee meeting and you sit
22:44around the table and keep you know
22:46thrashing these loon shots and doing it
22:48in a very thoughtful wise and maybe your
22:50very funny and kind of witty and they're
22:51like well this young person she's got a
22:54great head she's aligned with our vision
22:56right what might you get promoted
22:58exactly and then what happens they're
23:01promoted 30% bump in salary it's not
23:04much changing stick inequity actually
23:05exactly so we just went from small we're
23:10a small company stake in outcome was
23:11much bigger perks of ranks were
23:13irrelevant to large where stakes and
23:16outcome is very small and perks of rank
23:18of it so that's very much opposed to
23:21forces that you're just right right and
23:23instead of temperature its size so
23:25somewhere between small and large as you
23:28grow and you grow and you grow all of a
23:29sudden the balance of incentives
23:31suddenly shift and the same person the
23:34same song would go from pounding the
23:37table this is the most awesome idea to
23:39kind of making fun of it at committee
23:41meetings you know I think this makes a
23:43ton of sense and we see it in big
23:44companies anything the challenge then is
23:45you know as your company is growing what
23:48so let me ask you a question when it
23:50snows overnight what do you sprinkle on
23:53your sidewalk salt why because it blocks
23:56the snow from hardening and the reason
23:59it does that is because adding salt to
24:00water lowers the freezing temperature
24:03this is a control parameter it is
24:04another so the really interesting thing
24:07about complex systems which is what
24:09we're talking about whether it's a glass
24:12understanding incentives when you bring
24:13people together in group is that they
24:15have more than one control parameter
24:17there are four other control parameters
24:19and that to what Vijay was saying
24:21earlier that's what a manager or a
24:23leader an executive team or a board can
24:26control you may not control size you may
24:28need a hundred people you may need five
24:30hundred people you may need ten thousand
24:31people and that you can't control but
24:34you can have a little it's interesting
24:35to think about how far the analogy goes
24:37and where it breaks down so I think one
24:38most powerful things about it is the
24:40fact that you can take the same person
24:42from one face to the other I agree the
24:44molecule yes that part is really
24:46interesting and also just for your armor
24:48you can imagine doping you know and
24:50putting in certain types into given
24:52phases to change their behavior and I
24:54think we've seen that in various groups
24:55right you can put a certain type of
24:56person to the team and so some people
24:58are will change with phases some people
25:00are just intrinsically different I I
25:02thought where you're going with this was
25:03doping and in semiconductors well you
25:07know but they're doping either one
25:08you're doing about alloys or
25:09semiconductors is the same concept it's
25:11exactly if you take an insulator like
25:12silicon and you might dope it a little
25:14bit interpret boom yeah and it's a phase
25:16transition I called it that's what Phil
25:18Anderson when is Nobel Prize for is the
25:20localization transition in the in the
25:23metal in the metal insulator transition
25:25but to get to your question yes this is
25:27a phase transition that's kind of the
25:29theme of the book CEOs at the end of the
25:31day they're sort of lamenting no one
25:33cares well that's because they don't own
25:35half the equity of the company like you
25:37do but when you were a small start-up of
25:39course everybody their incentives were
25:41aligned and of course they rushed out
25:43because they were going to be unemployed
25:45if the lune shot failed I find this a
25:46very hopeful idea quite honestly because
25:48you're saying that you can you
25:50essentially can be a big company that
25:52can figure out how to innovate you can
25:53be a small company that doesn't innovate
25:55that actually sometimes goes into the
25:57frozen zone without figuring out how to
25:59keep the entropy moving and the old the
26:01creativity in the excitement moving and
26:03that you can more precisely be both at
26:06the same time and you can dial up or
26:08down various parameters to make that
26:11happen so I find that's a very hopeful
26:12message a question I have and when you
26:14think about the history of innovation
26:16kind of going back full circle to what
26:19makes something a loon shot versus a
26:21moon shot and yes I heard you a moon
26:24could be a false fail along the way I
26:27still want to understand how you know
26:30when a field an area becomes more ready
26:35to be optimized a certain way this
26:38reminds me a lot of just the general
26:40topic of how biology right now is
26:42shifting from science engineering and
26:44there's lots of different trends and
26:46reasons why we talked about these two
26:48different groups these sort of creative
26:50types the inventors the artists versus
26:52the fellow genius soldiers and people
26:54get things done we're seeing that shift
26:55in biology as one can finally engineer
26:57biology in many ways so in that field
26:59then when you move from say artistry to
27:04phrase the way I've heard you describe
27:06this is like the bespoke to that yeah
27:08she not amazing yes yes how do you in
27:10this particular example know yeah I mean
27:12that's the billion dollar or trillion
27:14dollar question right literally and so
27:16we're you know when it comes down to
27:17when at least for me what I'm looking
27:20for is both in Saffy's language that
27:22there is a destination that we see where
27:24you had land and that at each step of
27:26the way that there is a way to do it
27:28through engineering like execution
27:30there's all these different places where
27:32bio plays a role either with consumer or
27:34with healthcare or their industries and
27:37in each one it's just not enough that
27:40there's a technology and our product
27:41that they're really this probably market
27:43fit and that's always unavoidable and
27:45probably market fit is one of the
27:46hardest things for anyone to sort of
27:48just theorize you know because you can
27:50very easily be wrong you can or you can
27:52be wrong could be three years too early
27:54not wrong it's when it's when and so
27:57some of that also you have to have the
27:58intuition that it's now you can have
28:00theses for why it's now in the end the
28:03market will tell you whether you're
28:04right like the classic example is York's
28:06is a great example of a disruptor in
28:08earlier days with just the copying
28:10machine people are like well I don't
28:11need copies what I want copies for you
28:13know it just wasn't part of the workflow
28:14you wouldn't think to use a machine that
28:16doesn't exist and that only after people
28:18start to understand how actually really
28:20useful to have this did you create a
28:22market and so in a sense that device had
28:26product market fit before the market was
28:28there and so I think I grew this off in
28:31the sense that just because the market
28:32isn't there now isn't a reason to kill
28:34it but obviously there has to become
28:37get otherwise there's no one to buy it I
28:39would then argue just to reconcile all
28:40these different views it basically is
28:43how you the word market just might be
28:44over indexed because we're really
28:46talking about is a pool a draw and need
28:48yes but some might even say a want
28:51because sometimes you don't need
28:52something you might just want something
28:54but not know that you want it yeah in
28:55the classic jobs inside in the sense of
28:58some I mean I can bring it to vary nuts
29:01and bolts someone's got to pay for it
29:02and this is one of the mistakes I see
29:04over and over again with startup
29:05founders is that then when they're small
29:06it feels like they're all artists they
29:09do a great job of building an org and
29:11then suddenly the org is not what
29:13they're comfortable with are familiar
29:14with again they've built an army and
29:16they actually never want to join the
29:17army right they want to be Navy actually
29:19in that context right so when you think
29:21of like artist versus soldiers this idea
29:23that there's a creatives and the
29:24builders and the people have to sort of
29:26fight the war on the ground another way
29:27to think about it is Jobs famous quote
29:29about pirates versus Navy I mean there's
29:31so many different variations of this
29:32over time and innovation history I think
29:34our companies have both too but
29:36hopefully there's something for the
29:37soldiers to start working on you know to
29:40go to war on even though you know you
29:41constantly have to continue innovate so
29:43you need both but so when I think about
29:45how we're I'm gonna find them I want to
29:47find things that are just at that
29:48transition if it's only artists it's not
29:50gonna work but once they're there we
29:52have to think about which ones have the
29:54opportunity to become the moonshot so
29:55eventually and which ones also frankly
29:57that can continue to innovate and so one
29:59of the things I thought was interesting
30:00about the book was that phase transition
30:02interplay between the two and how it's
30:04not a bad thing to have that phase
30:06transition that is and that was maybe
30:07one of the more surprising mix two
30:09things that I find very helpful I know a
30:11lot of people have found very helpful
30:12one is and they're both a little bit
30:16against the grain of what you often hear
30:18I love things that are against the grain
30:20more against the grain the better
30:21especially what I hear from my tech
30:22friends in Silicon Valley so one is
30:24don't hire people from big companies or
30:27become people from big companies or a
30:28terrible fit and I thought that as well
30:32we're doing the great stuff because
30:33we're the risk takers were the
30:34innovators and all those big corporate
30:36guys they're risk-averse and that's why
30:39and then you know as you grow up you
30:41start doing these partnerships with
30:42large farmers so you're spending a lot
30:44of time with these people you get to
30:46know them well and then you're these
30:48people are just like us if their advisor
30:50and they have no stake and outcome and
30:52the thomas stake and getting promoted
30:54what do you think they're gonna do
30:55they're gonna work on being promoted and
30:56if they're at a 50-person startup and
30:59being promoted or title is totally
31:01irrelevant but whether the project works
31:03on that means whether they're unemployed
31:05or not what are they gonna do they're
31:06gonna pound the table and save the thing
31:08if it stumbles so it's about the subtle
31:10influence of incentives and when you
31:12really peel back the layers on that you
31:14tease out all these things that you can
31:16do to balance the incentives better for
31:20what you're trying to achieve so that's
31:21one hopeful thing it's not really about
31:23they're these two kinds of people you
31:25should never hire a big-name person in
31:27different environments exactly it's the
31:28molecule that lands on the block of ice
31:30versus the molecule that drops in a
31:32glass of water so okay now you say these
31:35organizations have these phase
31:36transitions when they grow they go from
31:39being totally fluid and embracing wild
31:41new ideas to being very quite rigid so
31:45what do we do if we are a 500,000 or
31:4810,000 person company and so the point
31:50is that innovating well is a phase of
31:53organization just like being solid or
31:55liquid is a phase of matter it's a
31:58property of the whole that doesn't
32:00depend so much from the details the
32:02parts that's what it means in science or
32:04physics of an emergent behavior and
32:06actually it's just sort of
32:07straightforward mathematics and the book
32:09that innovating well and a focus on
32:11politics or not is is a phase of human
32:13organization I love that you actually
32:15have an equation that you outline in the
32:16appendix which is awesome you've never
32:18seen that in management but that took a
32:22that's another step elliegator but
32:27anyways it's a phase of organization
32:29there are operationally excellent high
32:33execution or you are innovating well
32:36larger companies today or startups that
32:38have grown need to do both yeah mark
32:41talks about how startups are on this
32:42sort of five-year cycle theory and i
32:44think of this a little bit like growing
32:46versus sustaining organizations that
32:48even startups by definition after a
32:50certain amount of time have this
32:51inevitable gravity that begins to hit
32:53because there are other startups coming
32:55out they're sort of doing things faster
32:57part of is that it also these
32:59environments keep on changing you know
33:00as we were talking about and and so as
33:02the environment changes they're
33:04Christians how we can sort of push back
33:06on the environment and maybe to abuse
33:07the analogy in physics with phase
33:09transitions you can have hysteresis you
33:11know you can push the environment past
33:14where something so there's a really fun
33:16thing to do and then so kids you could
33:18do this at home for the beer I put in
33:19the freezer you take it out and it looks
33:22like water but it's already below the
33:23freezing temperature and you just knock
33:25it and they'll suddenly it'll freeze
33:27right in front of it and so it's this a
33:33hysteretic effect that it really should
33:35have been a solid but that it was
33:37lingering in the old face for a little
33:39bit what's the pain of that so the point
33:40is like you may think you have
33:42innovation in your org and you may think
33:44that you have the environment but it is
33:45just a vestige of the past in an instant
33:49you can lose it yeah just like the burek
33:51and so you can't really understand what
33:54your environment is and as a CEO as a
33:56leader or something you have to
33:58understand your org you have to look to
34:00see do you have this face aggregation do
34:02you have two healthy phases they're the
34:04pirates in the Navy the artists and the
34:06soldiers yeah and then what do you need
34:07to do to sort of affect the balance and
34:09it can be the hysteretic argument is
34:12that it can be misleading sometimes too
34:13hmm I love that bear example so it is
34:15absolutely true that matter can't be in
34:18two phases at the same time you can't be
34:21solid and liquid at the same time so if
34:23complex systems can never be in two
34:25phases at the same time you can't be
34:28solid and liquid you can't be water and
34:30ice how can you do both there's one
34:33exception to the rule that
34:35you can't be in two phases at the same
34:37time and that's right on the edge of a
34:40phase transition life at 32 fahrenheit
34:43what happens is matter separates you get
34:48blocks of ice and pools of liquid so you
34:50get phase separation and they coexist at
34:53the same time the second thing that
34:55happens is you get something called
34:57dynamic equilibrium which the molecules
34:59go back and forth and back and forth
35:01little molecule swimming in the pool of
35:02liquid hits on the block of ice and
35:04freezes a molecule on the surface so
35:06that I start shaking loose and then goes
35:08into that rain it's bad it's just
35:10continuous cycle but I mean if you think
35:12about the word dynamic equilibrium
35:13itself is a seeming contradiction but
35:15it's not in this context because it's
35:16dynamic and in equilibrium at the same
35:18time exactly it's a balanced cycle of
35:21exchanging back and forth with neither
35:23side dominating the other and that's
35:26during World War two Vannevar Bush came
35:28in told FDR he said we're going to lose
35:31this war at the 10-minute meeting in the
35:33summer of 1914 is said we are far behind
35:36the technologies that are going to be
35:39crucial to winning this war the culture
35:42the military not only is it resistant to
35:46new technologies like any military
35:47culture but it should be it is the right
35:50culture for their job their needs and
35:52this gives there are literally soldiers
35:54soldiers and he said I want you to give
35:58me a group of people give me the
35:59authority to mobilize the nation
36:01scientists for war and we'll develop the
36:03radical new technologies and I'll report
36:05just to you so he created phase
36:08separation within the federal government
36:10and that's to this day that really is
36:12the origin of the National research
36:13infrastructure of the United States the
36:15National Science Foundation the NIH
36:17DARPA yeah exactly out of Vannevar
36:21Bush's idea during the Second World War
36:22but he made sure where most where this
36:26fails so often so many years so many
36:30times across companies I mean Xerox PARC
36:32is a great example of that because it
36:34was overly siloed they missed the second
36:36part which is the dynamic equilibrium
36:38constantly moving back and forth here is
36:40the the message for entrepreneurs or
36:43leaders or managers which is also a
36:45little different than what you get
36:48in Silicon Valley and is different than
36:50the model of a great manager a great
36:52leader and that is there is this myth
36:56that you know the great manager the
36:58great leader of a technology company is
37:00this product product product person and
37:02they build their you're really fighting
37:05some major dogma right now this is gonna
37:08be blasphemous I'm gonna hear it they
37:09build the company this great company on
37:12the back of their inventions mm-hmm
37:15so all the companies across history that
37:18have done that have failed spectacularly
37:20they may survive for a while you know
37:24when there's a Moses on the mountain
37:25with a staff anointing the next holy
37:27lune shot they may survive for a while
37:30that's the hysteresis effect but
37:33eventually they'll turn that's exactly
37:35what happened with Polaroid when Edwin
37:37land who certainly deserved Nobel Prizes
37:40for some of his breakthroughs stood on
37:42top of that mountain and anointed the
37:43next holy loon shop and that was the end
37:46of Polaroid so the difference the ones
37:49who have really succeeded let's say
37:51Vannevar bush a theatre veil at 18 t the
37:54ones who really succeeded didn't have
37:56Vannevar bush was a brilliant inventor
37:59he invented the first analogue computer
38:01he anticipated much of the personal
38:03computer industry and certainly the
38:04internet in - yeah you wrote that Memex
38:06memo right I remember reading it the
38:08famous essay published in the Atlantic
38:09which entire angle borrowed a lot of
38:12that traces back to venom for Bush but
38:14as he likes to say I made no original
38:17contribution to the war none of my
38:19inventions ever amounted to anything
38:20what he did rather than lead as a Moses
38:23he led as a gardener and he saw his job
38:26as maintaining life at 32 fahrenheit
38:29setting up the structure the scaffolding
38:31that allowed that dynamic equilibrium
38:33that living at the edge he mapped the
38:36balance the treehouse group and the
38:38military and so if there's a lesson
38:40there it's not about your ideas your job
38:43is to maintain life at 32 Fahrenheit
38:46your job is to maintain the exchange
38:48right because where innovation fails is
38:51not in the supply of new idea it's in
38:54the transfer of those new ideas to the
38:56field especially like Xerox the exact
38:57same thing they were giving these
38:59computers to people selling type right
39:01and what were they being commissioned on
39:02typewriter exactly it was a very sales
39:04driven organization it was a subtle
39:06influence of incentives Bush recognized
39:09that the dynamic you who I mean it's not
39:11just transfer one way from the scientist
39:14or the artist or the creative engineers
39:16to the salespeople or the soldiers in
39:18the field but the other way because most
39:20ideas suck when they first come out of
39:23the lab there's a huge jump from a
39:25technology to a product you know like a
39:27really beautiful product and then even
39:29if you have a really beautiful product
39:30but you still have to create a market
39:31and sell to sell it those outside my
39:33Stanford office I've ever been at a CSUN
39:36is you for a while and like a founder at
39:38Stanford came by and he's like you
39:39present this whole new tech and he's
39:42like oh my god the sounds like well you
39:43know this is really interesting I'm not
39:45sure you could build a company and he's
39:46like you know the physics was so hard
39:48building a company will be easy but
39:49actually the tech is not enough and this
39:51goes back to the Steve Jobs story is
39:54learn to love your artists and soldiers
39:56equally so when Steve Jobs started his
39:59first time at Apple he was exactly like
40:02that I only love artists right and you
40:05know people who know the history know
40:07this work well it was a disaster so that
40:09Lisa that he tried to earn was a flop
40:11the Apple 3 they when it was a flop and
40:13when he developed the Macintosh although
40:15it was a you know phenomenal ad that
40:17goes down in the history of advertising
40:18it was a disaster as a product it just
40:20the sails completely plummeted he loved
40:24his artists and he ridiculed the
40:26soldiers and it caused enormous
40:28dysfunction and it almost made Apple go
40:30bankrupt and then he did this the same
40:33thing it next when his next computer
40:35company was product product product it's
40:36all about the product out of it and that
40:39was that product flopped and then he
40:41bought this little company this
40:42Lucasfilm group because they had a
40:44computer and he thought this is an even
40:45bigger faster computer that Pixar image
40:47computer called pic and that product
40:49flop but eventually over 10 year when he
40:52came back to Apple the second time he
40:55had journey Eve that was his artist and
40:57he had Tim Cook Tim Cook was known as
40:59the Attila the Hun of inventory before
41:01and the myth around him Oh is all his
41:03ideas and he champions but that's not
41:05really what happened in fact when he did
41:08that it was a disaster and only by
41:10evolving and learning to love his
41:12artists and shoulders
41:14when things really took off and that's
41:16why Vannevar Bush succeeded and so many
41:19scientists before him failed because
41:21soldiers loved soldiers artists loved
41:23artists he not only worked well with the
41:26military he loved them and respected
41:28them and that's why he was able to
41:30bridge it yeah I would argue just to
41:32Vijay's point to though that this is why
41:34there's such a resurgence and modern
41:36tech management literature and startups
41:38in particular around the important role
41:40of product managers and product
41:42management because traditionally there
41:44was so much discussion on engineering
41:45and sales and design all being sort of
41:48separated in siloed but now through this
41:50and it's not a new role it's been around
41:52but in a sense that product manager role
41:54is to connect the engineers to set the
41:58temperature exactly they're sort of like
41:59this person who maintains a dynamic
42:00igloo Librium between orgs they move and
42:02travel I just think it's actually one of
42:04the most important schools of thought
42:06for the future of the firm and in the
42:08startup to a company environment which
42:10is the evolving role of product
42:11management in this because that is the
42:13the concrete instantiation of exactly
42:15what you're describing
42:15Safiye well you know there's all these
42:17different threads going on here and Bush
42:19in his famous memo right after World War
42:21two to find what basic research is and
42:24you know in sathyas concept of dynamic
42:26dynamic equilibrium by I think
42:29inadvertently talking about the
42:30separation between science and
42:32engineering he kind of pulled
42:34engineering away from scientists oh yeah
42:36and that now there was these two
42:38different disciplines and science is
42:40done by scientists and engineering is
42:42done by engineers and that actually took
42:45a little bit about that equilibrium that
42:47was there our way and so what we're
42:49seeing now is something different where
42:51scientists are doing translational work
42:53which is another name for engineering
42:55yeah and in biology in particular this
42:57shift from science engineering is
42:59becoming very powerful and one things I
43:00think is always a topic very germane I
43:02think to our listeners and to me is you
43:05know more things that we can do that -
43:08practically learn from this because I
43:10think the analysis is very compelling
43:12but if you're a CEO right now what can
43:14you do I mean what are the knobs you
43:16know and so in the book you talk about
43:18one of the classic things being a magic
43:20number you know basically a number of
43:22people at which beyond that it's hard to
43:24you have to start to create an org and
43:26hierarchical structure too often the
43:28magic number is canonically 150 but
43:30often I see the magic number being 30 in
43:33when it's not built right and so how can
43:35you push it such that you can try to
43:37maintain what we loved about to start
43:39from the beginning right so this idea of
43:41a magic number you know like the Dunbar
43:42number comes from the idea that the
43:44number of neurons in your brain is fixed
43:46so sometimes as you know in science or
43:48in physics you might have a good
43:50observation but the wrong theory so if
43:52you just look at the hidden influence of
43:54incentives out pops a size but it's not
43:57a fixed number I have a little fun with
43:59it because show how if you plug in
44:01certain things it can be 150 but it can
44:04be as low as 30 or as high as 5,000
44:07because it depends on these four
44:09parameters so when you adjust these four
44:11parameters you make those numbers bigger
44:13your certificate what are the four
44:14parameters you don't actually think we
44:15listed them there's equity fraction for
44:18example to what extent is a person being
44:21incentivized by base salary in which
44:23case there'll be a ton more focus on
44:25politics right versus to what extent are
44:27they being rewarded on their project
44:30great another parameter is you might
44:31call it return on politics to what
44:34extent is the system's design so that
44:38individuals can lobby their managers for
44:41promotion and that has an impact
44:43obviously the more impact lobbying has
44:46the more political and the more careers
44:48matter but some companies actually
44:50google it does this McKinsey does this
44:52and others they take the promotion
44:54decisions completely away from the
44:56manager so that's another example right
44:59and then the third a third one is
45:00project skill fit so if you're very
45:03talented and working more on your
45:06project moves the project but if you're
45:08a coffee machine designer you're good at
45:10coffee machine design then you're likely
45:12to spend more time on your coffee
45:13machine love that idea it's like founder
45:15market fit it's like writer topic fit
45:17it's this idea that you really match the
45:19skills and passion of the person so well
45:21what the thing they're working on this
45:23is project so fit now if you somebody
45:24put you on coffee machine design and
45:26you're like me not a very good designer
45:28with very little aesthetic sense then it
45:30doesn't matter if you spend an extra
45:32hour or ten hours or a hundred hours on
45:34your project it's going to be still the
45:35same lousy coffee machine you might as
45:37well spend your time on politics and
45:40so project skill fit is another
45:42parameter and the fourth parameter
45:44management spin so there's a lot of
45:47literature on management spam but they
45:49kind of missed the point there isn't a
45:51right management spin there's the right
45:53span for your goal so for example if you
45:56are building planes but you don't want
45:58to assemble ten planes and see which
46:00eight fall out of the sky you don't want
46:02a very innovative risk-taking right you
46:06know what any doing that's like
46:07autonomous cars for instance right so
46:09there you actually want to narrow span
46:11because that encourages quality control
46:13and redundancy checking because you
46:15don't want those eight points on the
46:17other hand if you want to do a ton of
46:19experiments and have groups work
46:21together well you actually want a very
46:23wide span so there's no right answer for
46:25a company and that's what like all these
46:26things that average across the company
46:28make no sense at all
46:29right if the group that's assembling
46:31planes you want one kind of system one
46:33kind of metric you want narrow spans you
46:35want high quality controls the group
46:38that's creating crazy new technologies
46:39for those planes you want those spins as
46:41wide as possible with very different
46:44metrics so there's a handful of these
46:46parameters and those are what you adjust
46:49to tune for the goals that you want to
46:52achieve yeah so many of the world's
46:54problems that can be addressed through
46:56by engineering health care comes off
46:58naturally into many different sub parts
46:59about health care but just the world
47:01around us is created by biology whether
47:03we're talking about you know the food we
47:05eat the air we breathe that you know
47:06just about everything and so that that
47:08is a huge opportunity for companies to
47:10come in and become huge companies
47:12because of the potential of the problems
47:13they can address it's just fascinating
47:14to think about how the dynamics of human
47:17nature comes into play here and that
47:19there really are these knobs a CEO can
47:21turn and now I think the question is can
47:24you really read your organization right
47:25and understand what the temperature is
47:27finding the thermometer or the
47:29equivalent starts to become I think
47:30really critical and if you can find that
47:32and know where these knobs are I think
47:33you could have a huge impact on your org
47:35yeah that's great thank you for joining
47:37the 86th and Z podcast thank you so much
47:39thanks it was a lot of fun to be here
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