Innovation is dangerous. It can be especially risky if your competitors do things that don't make sense to you, but make sense to them.
Talk to your grandmother before creating your company
Sometimes when entrepreneurs come to me with a proposal, it goes something like this:
- Everyone is doing this wrong.
- What they do doesn't make sense. It's crazy; We have no idea why they keep doing it like this.
- We have a much better way of doing it.
Often their idea is brilliant. And sometimes, the team is incredibly talented.
But I know they will fail. And the brighter the idea, the more certain it is that they will fail.
How do I know?
If you allow me, I will start with a story.
«A girl was watching her mother prepare fish for dinner. Her mother cut off the head and tail of the fish and placed it on a baking sheet. The girl asked her mother why she had cut off her head and tail. Her mother was thoughtful and answered: “I've always done it like this, that's how the babička (grandmother in Czech) did it.”
«Not happy with the answer, the girl went to visit her grandmother to find out why she cut off the head and tail of the fish before baking it. The grandmother replied: 'I don't know. “My mother always did it like that.”
«So the girl and the grandmother went to visit the great-grandmother to see if she knew the answer. Great-grandmother laughed and said, 'Because my mold was too small to fit all the fish.'”
Ack M Hamanova
Many entrepreneurs love this story, and so do I. But there are two different possible lessons from this story. Some draw the lesson that the world is full of unnecessary and illogical nonsense. And if something doesn't make sense or you don't understand the logic, it's an opportunity to break conventions and improve it.
That's not exactly the right lesson.
What if grandma had said “that's the poisonous part of the fish” either «Luca, do we turn into sea monsters if we eat a fish tail?» (If you have children, you will understand this reference to Luca).
There are those who think that if no one knows why something is done in a certain way, especially inefficiently and slowly, it is foolish to continue doing it that way, especially if you are an entrepreneur.
The real conclusion of the story is that you first have to find out why.
Let me illustrate it with another story.
Years ago, an anthropologist went to study a town in Southeast Asia. There he realized that the rice fields on the hills were spread out in illogical terraces. They were irregular, spaced and randomly shaped, making it difficult for farmers to tend to them effectively.
He asked the farmers: “Look, there is a much better way to arrange the terraces. Why do you do it this way?”
Nobody had an answer. So, together, they re-laid the terraces, with great effort, and made them efficient and regular. And they were beautiful.
And in the following annual monsoons, all the terraces were washed away.
The irregular terraces stopped the water, but the regular ones did not.
Just because no one knows why something is done a certain way doesn't mean there isn't a good reason. There are many things we do that someone knew at one time, but forgot.
We also do a lot of things that evolved over time for reasons no one ever knew, but that are still important. For example, Peruvians mix clay with potatoes before eating them, which eliminates the high levels of toxins they contain.
Similarly, Native Americans washed corn with lime water (the mineral, not the fruit), which reduced mycotoxins and improved absorption of vitamin B precursors. When Europeans began eating corn, pellagra It spread because they didn't understand the benefits of washing it with lime water: it seemed silly. (For an insightful analysis of how our tendency to follow traditions we don't understand may have led to civilization, I recommend “The Secret of Our Success,” by Henrich).
One of JFK's favorite quotes was from the polymath Chesterson, who said,
«There exists in such a case a certain institution or law; say, for the sake of simplicity, a fence or gate erected across a road. The more modern reformer comes up cheerfully and says, “I don't see the use of this; Let's eliminate it.” To which the most intelligent reformer will do well to reply: “If you don't see the use of this, I certainly won't let you eliminate it. Go away and think. Then, when you can come back and tell me that you do see use in it, I may allow you to destroy it.
Chesterton's fence is especially important in entrepreneurship. Remember that if there is a great, obvious way to improve the way you do something and it isn't being done, you first have to understand why.
This is especially true when entering an industry you are not familiar with. For example, if you are a programmer and you work in healthcare, or if you have an MBA and you work in rocketry.
There is often inertia against change because people generally don't like change (and because change is often dangerous). It may be reasonable to say “This is such a radically new way of doing things that people are afraid to try it”. But without understanding the industry, it's hard to distinguish between that reason and “because if we did it the new way we would lose all our money because we would upset our customers” either “If we did it that way we would violate government regulations.”
For example, I often hear founders of digital health startups talk about how they are going to reduce the cost of healthcare or the cost of drug development. These founders skip the why.
They don't understand that much of healthcare and pharmaceuticals is driven by cost plus or commissions. Many actors, such as sales representatives and doctors (in some cases), make money as a percentage of drug prices.
Others, such as pharmaceutical companies, justify their prices by the high cost of drug development. Many or most of the customers these new companies target are not interested in reducing costs, but rather in increasing them. (I will do another in-depth post on this).
Building a startup is like remodeling a house. On very rare occasions, you may find yourself in such a pristine space that you are building a new home from scratch, but that is not usually the case. Facebook competes against in-person meetings, emails, letters, listservs, etc. Netflix competes against movie theaters, television and DVDs.
In a house there are load-bearing walls, non-load-bearing walls, and, most importantly, walls that were once load-bearing, but are no longer load-bearing. When starting a company, you have to find that third category of walls. Walls that everyone thinks are load-bearing, but they are not.
Here's an example, illustrating why talking to your grandmother literally, as well as figuratively, can pay off. When Brian Chesky was starting Airbnb, everyone he talked to thought he was crazy. That no one in his right mind would stay in a stranger's house. “People would never do that.”.
Except his grandfather. That he said: “Hey, that's what everyone did when I was a kid, before there were hotels everywhere.”
Hotels became the norm versus staying with strangers because you knew what to expect from a hotel and it was convenient. That was a retaining wall for many decades. But with rating systems and the Internet, staying in a stranger's house became so comfortable and predictable that the load-bearing wall was no longer so.
So when a startup comes to me, I want founders who know what walls are load-bearing. What I want to hear is,
- Everyone is doing this wrong.
- We know exactly why they keep doing it this way.
- Things have changed, and it no longer makes sense/they are disincentivized to change because of the opposition/they don't know how to change, but we do.
- We have a much better way of doing it.
The number 3 can be “the regulations have changed” (Schwab), or “there is a new technology” (Uber), or «there is an oil crisis and interest rates are at 20%» (Fidelity). But understanding why traditional operators don't, won't, or can't do what you propose is often the most important part of your business plan.
Innovation is dangerous. It can be especially risky if your competitors do things that don't make sense to you, but make sense to them.
