Ideas that create or kill your business

Loonshots differentiate between the good ad the best in a competitive market

Many people have ideas that seem either too crazy or look impossible. These ideas either die or remain stagnant unless they get implemented by people who dare to do the impossible.

Science and technology keep coming up with new innovations that seemed impossible years ago. This shows that only the brave will take hold of the market and dominate for years to come.

Loonshots are ideas that do not look plausible to weak minds. If you plan on moving from the slow lane to the fast lane, you have to adopt a different mentality entirely.

You can’t actualize your full potential as long as you remain scared of the unknown. The world’s greatest minds do not get afraid of failure; they also learn from it and take advantage of it.

In this tidbit, you’ll see how great minds have been able to build great things, and you’ll see from the many examples in this summary how you can also make use of loonshots.

 

Phase transition is the reason legendary teams suddenly experience change

Nokia was an industrial conglomerate In the 1970s. It was famous mostly for its toilet paper and rubber boots. Over the next two decades, it pioneered the first car phone, the first cellular network, the first GSM phone, and the first all-network analog phone. In the early 2000s, it was selling half the smartphones being purchased on earth. It became the most valuable company in Europe.

Fortune Magazine revealed Nokia’s secret: it was “the least hierarchical big company in the world.” According to the CEO, the key was the culture: “You are allowed to have a bit of fun, to think unlike the norm … to make a mistake.”

In 2004, some excited Nokia engineers created a new phone: internet-ready, with a big color touchscreen display and a high-resolution camera. The leadership team — the same widely admired, cover-story leadership team — shot down the project. These engineers saw their crazy ideas materialize on stage in San Francisco as Steve Jobs unveiled the iPhone three years later. 4, 5 years later, Nokia became irrelevant. The company sold its mobile business in 2013. Nokia’s value dropped by about a quarter-trillion dollars between its peak and exit. A wildly innovative team had turned.

Phase transitions happen as a result of two competing forces, like the tug-of-war between binding and entropy in water. When people organize themselves into any kind of group, a team, a company, with a mission, they create two competing forces. Think of the two competing incentives as stake and rank.

When groups started as small companies, everyone’s stake in the outcome of the group project was very high. For instance, in a small biotech, if the drug works, everyone will be a millionaire and a hero. If it fails, they will all be looking for a job. The perks of rank — job titles or the increase in salary from being promoted — are small compared to those high stakes. When the two cross, the system snaps. Incentives begin encouraging behavior no one wants. Those same groups — with the same people — begin rejecting loonshots. Unfortunately, phase transitions are inevitable. Fortunately, the understanding of the forces allows us to manage the transition.

Victors don’t just write history – they rewrite history

Akira Endo, a scientist, arrived in the U.S. just as the idea that diet could affect heart disease was taking off. A Time cover story described results from a new study by “the man most firmly at grips with the problem” of diet and health, Ancel Keys, a scientist at the University of Minnesota. His famous study of 10,000 people across seven countries confirmed that elevated blood cholesterol correlated with heart disease. But Keys went further and implicated diet. Consuming fat, specifically saturated fat, he said, was the problem.

Endo finally began examining fungi in 1971. He examined over 6000 different species. In the year 1972, one sample caught his attention. A blue-green mold was discovered growing on rice in a grain store in Kyoto, a city in Japan. This mold blocked a key enzyme needed to make cholesterol. The mold was later identified as Penicillium citrinum, which was the genus that produced penicillin. Within some months, Endo extracted the molecule that reduced cholesterol levels. He called it ML-236B — Mevastatin.

Mevastatin soon reached a crucial stage: testing on live animals. The team gave the drug to rats and saw nothing. No cholesterol-lowering. In the world of drug discovery, failure in standard animal studies nearly always kills a project. With those results, Endo recalled years later, there was no hope of convincing biologists at Sankyo to continue evaluating the drug. In drug discovery, failure in standard animal studies could end a project.

The results were spectacular. Mevastatin decreased cholesterol by nearly half and triglycerides by even more, with no ill effects. Endo’s story is more than a wild anecdote.

Endo’s journey, from start to ultimate validation with the FDA approval of the first statin, lasted sixteen years.

Did you know? In 1964, Konrad Bloch and Feodor Lynen were awarded the Nobel Prize for explaining how cholesterol is created and processed inside cells.

 

Learning about the two types of loonshots can help you defeat bigger, stronger competitors

Let’s call a surprising breakthrough in a product — a technology that was widely dismissed before ultimately triumphing — a P-type loonshot. “To the business world, the telephone was just a toy,” read a biography of Theodore Vail in 1921. Investors “smiled or made some facetious remarks when invited to invest in the stock.” That would be the Bell Telephone Company. It would grow into the most valuable company in the country, more dominant at its peak than Apple, Microsoft, and G.E., at their respective peaks combined.

With the P-type loonshots, people say, “There’s no way that could ever work” or “There’s no way that will ever catch on.” And then it does. Let’s call a surprising breakthrough in strategy — a new way of doing business, or a new application of an existing product, which involves no new technologies — an S-type loonshot.

With the S-type loonshots, people say, “There’s no way that could ever make money.” And then, it does. Facebook didn’t create social networks, and Google didn’t invent search. Early investors passed on Facebook because everyone knew there was no money to be made in social networks. They passed on Google because everyone knew there was no money to be made in search. Both organizations succeeded because of small strategic changes in strategy; no one thought it would amount to much. Both succeeded because of S-type loonshots.

Deaths from P-type loonshots are always quick and dramatic. A flashy new technology appears, it quickly displaces what came before (rentals), champions emerge (Netflix, Amazon), and the old guard crumbles (Blockbuster).

Deaths from S-type loonshots are always more gradual and less obvious.

It took about three decades for Walmart to dominate retail and for a variety of stores to bow to their competitiveness. Yet no one could quite figure out what Walmart was doing or why it kept winning. S-type loonshots are very difficult to spot and understand because they are so often masked by the complex behaviors of sellers, buyers, and markets.

 

In science, complex ideas are often mistaken for deep truths

We design experiments in labs to strip away those complexities and reveal hidden truths. But occasionally, rare events in nature do the job for us.

This is why learning to nurture the more subtle S-type loonshots — not just the shiny P-type loonshots — matters. Most people, like most teams and companies, have a blindside. And the subtle is much easier to miss than the shiny.

Google, for example, broke into the internet market by coming up with a unique algorithm for ranking internet search results. This is a good example of a P-type loonshot. But it was the 18th search engine. It added several clever S-type loonshots to attract advertisers. Those S-type loonshots helped it grow into the dominant website in the world. And if you are an astonishingly successful innovator, if you have built a wondrous empire, you need to learn how to watch your blindside — how to spot the loonshots blazing right toward you.

 

Phase transitions are triggered when there are small shifts in system properties which causes the balance between two forces to change

You’re driving home from work on the highway, you’re anxious, maybe speeding a bit, but the traffic is flowing well. Suddenly, the highway turns into a parking lot of stopped cars. There’s no visible cause. There are no accidents in sight. You set aside thoughts of a cold dinner and angry spouse and wonder: where did this traffic jam come from? Answer: You have just experienced a phase transition — a sudden change between two emergent behaviors — smooth flow and jammed flow.

In the early 1990s, a pair of physicists showed that below a critical density of cars on the highway, traffic flow is stable. Small disruptions — drivers tapping their brakes when squirrels run by — have no effect.

Traffic engineers call that a smooth flow state. But above that threshold, traffic flow suddenly becomes unstable. Small disruptions grow exponentially. That’s a jammed flow state. The sudden change between smooth and jammed flow is a phase transition.

The stalls that mysteriously appear with no apparent cause are called phantom jams. They have been confirmed not only by careful observation on highways but by experiment. In 2013, a group of researchers in Japan tracked cars circling inside the Nagoya Dome, an indoor baseball field. They found, as predicted, that when the density of cars exceeded a critical threshold, spontaneous jams suddenly appeared.

To understand what phase transitions tell us about nurturing loonshots more effectively, we need to know more about them

At the heart of all phase transitions is a war between two forces. Phase transitions are triggered when tiny shifts in system properties — for example, density or temperature — cause the balance between those two forces to change.

The system property that we gradually change to trigger a phase transition is called a control parameter. In the traffic flow example, the density of cars on the highway is the control parameter. In this marble-solid to marble-liquid transition, the vigor of our shaking is the control parameter.

Shaking vigor can be measured on a scale. We can call that scale “temperature.” The hotter the temperature, the more the entropy term dominates (the urge to roam all over). The colder the temperature, the more the binding energy dominates (the attraction to the bottom of the egg well). When the temperature crosses a threshold — a breakeven point between entropy and binding energy — the system suddenly changes behavior. That’s a phase transition.

In real solids, the binding energy arises from the forces between molecules rather than a fixed landscape of small wells. But otherwise, the model gets it right. This microscopic tug-of-war between entropy and binding energy is behind every liquid-to-solid phase transition. The science of phase transitions, as we can see from the traffic flow example, has expanded far beyond an academic curiosity.

This is exactly what we will do with teams and companies: identify what we can adjust to design organizations that are better at nurturing loonshots. Some of the most creative ideas for adjusting control parameters, as we will see, come from the connections between systems that appear to be unrelated but turn out to share the same category of phase transition.

Always be critical about trying to get the phase transition right. Whenever you have identified your potential phase transition keys, conduct a proper survey, asking whether this is true. We would recommend using Survey Sparrow a survey platform that provides everything you need to solidify your understanding, and you could analyse further to another testing.

 

The sudden emergence of an idea is an integral phase of transition for great leaders

Imagine you are a middle manager at Pfizer. You attend a committee meeting to evaluate a project, an early-stage new drug. Like every early-stage project, it has warts. Some important experiments haven’t been done or have been done poorly. Science isn’t really in fashion. Keynote speakers at big conferences dismiss the entire field, but you like the idea.

Something about it captures your imagination. What do you do?

  • Option 1. You could pound the table, make the case, and begin the long slog up the ladder of committees, making the same case, pounding the same table, at each committee meeting. You might be turned down. But suppose you win that battle and the next few. You make it all the way to the top of the ladder and win the green light to go ahead. The next seven years will be spent struggling to survive.
  • Option 2. You can underrate the loonshot project by emphasizing its flaws. However, you also need to explain why you mentioned the negative parts, and why it would be a mistake to make such mistakes. That way, you can showcase your wit, knowledge, and good judgment to everyone present.

If you own a piece of the business — hard equity — the financial rewards could be worth millions. And there would be other kinds of rewards, too — the recognition from your peers, friends, and family. We can call that nonfinancial stake in the outcome of soft equity. You gambled, and you won. You made a difference. Just you and a small team of underdogs. You own that win forever.

As the small startup’s size gradually increases, it will eventually reach a breakeven point where the two incentives, pulling in opposing directions, are equal. Above that size, a behavior appears across the organization that favors killing loonshots and supporting franchisees. Let’s call that behavior the Invisible Axe. The sudden emergence of that Invisible Axe is a phase transition.

The ability to innovate is connected to employee skills

Project–skill fit measures employee skills against currently assigned projects. If an employee spends a bit more time on a project, do they increase its value not at all, by a modest amount, or by a great deal? If this value is low across your team or your company, one obvious possibility is that you have weak employees. If you have a kitchen appliance company and no one can design a good coffee machine, you may be doing a poor job at attracting talent, or a poor job in training your people, or both.

Another possibility, however, is that skill levels are fine, but your company is doing a poor job at matching employees and projects. Safi Bachall’s first or second year working as a consultant at McKinsey, he was part of a 4-man team working with a consumer-goods company. Having no experience in marketing, and because his project manager didn’t take an interest in showing him the new field and helping nurture skills he needed, the project was a disaster. He added little value, felt terrible, and considered leaving.

However, McKinsey dedicated a full-time team to manage the project–skill fit. The person in charge pulled him off that project and away from that manager and placed him where his skills were better suited. His back straightened, and he did find the rest of his time at the company.

Poor project–skill fit can be a result of an overmatch: skills much more than the project needs, such that the employee has maxed out what he or she can contribute.

The importance of the project–skill fit also changes how we should think about training. Managers usually invest in training employees with the end goal of better products or higher sales. Send a coffee machine designer to a workshop on product design, and you will get better coffee machines. Send a sales manager to a marketing workshop, and your sales may improve. But training employees has another benefit. A designer who has learned new techniques wants to practice them.

 

Conclusion

Training encourages a person to spend time on projects, which reduces the time spent on lobbying and networking and boosts their marketing skills. In other words, it improves organizational fitness. The same principle applies all the way up the leadership ladder. Leaders well-coached on group dynamics are likely to spend more time with their teams. It’s fun working with high-performing teams who appreciate you. It’s less fun to spend time with dysfunctional teams who hate your guts.

The most important breakthroughs do come from loonshots, which are widely dismissed. Those ideas whose champions are written off as crazy. People need to translate those breakthroughs into products that save lives, technologies that win wars, or strategies that can change industries. Applying the science of phase transitions to the behavior of companies, teams, or any group with a mission provides practical rules for nurturing loonshots faster and better. Learn to be good at both types of loonshots. If you are a creative or an entrepreneur, you need to pay attention to how you can effectively balance both types of loonshots. It is important to do this because it helps you expand your idea. It can also help you change something good into something extraordinary. If you are the type that loves to challenge the status quo in an organizational setting, learning how to be good at both loonshots can help you defeat bigger, stronger competitors, like a middleweight firing off a surprising left hook to knock out a heavyweight.

Try this

Pay attention to your thoughts and control how you react to them. Loonshots are guides that help you navigate life and balance your thoughts. Embrace them and learn more about life using your loonshots. Be open-minded about learning, and always remember to know when to switch between a leader and a follower.