Introduction: The Golden Age of Innovation Is Now – From Incremental to Exponential

INTRODUCTION

The Golden Age of Innovation Is Now

On April 11, 2019, a Falcon Heavy rocket, as it rose in the early-morning light from its launchpad at Cape Canaveral, Florida, made history.1 This windswept spaceport on the Atlantic Coast has served as the launchpad for innovation in space since the 1960s—the Apollo moon missions and the Space Shuttle missions all blasted off from here.

But the Falcon Heavy was designed not only to transport cargo into space but also to recover all three of its primary rocket boosters. Each booster would pilot itself back to touchdown, the twin side boosters on launchpads at Canaveral and the larger center booster upright on a bobbing barge in the middle of the ocean.2 SpaceX also caught discarded rocket fairings (nose cones) before they hit the Atlantic. All of these components were to be re-used in future launches.

The company behind the FalconX was not one of the legacy giants of spaceflight—Boeing or Arianespace or Roscosmos. The FalconX was designed and manufactured by SpaceX, a relative newcomer founded by billionaire Elon Musk.

Upon hearing about SpaceX’s intention to build reusable rockets, the aerospace world collectively concluded that Musk and his engineers were crazy to attempt such a difficult feat. For the team at SpaceX, though, the calculus was straightforward. Rocket launches cost too much, making the market for rocket launches and everything else in space smaller and less attractive. The cost of access to space made it the sole province of large multinationals and governments that could afford to pay hundreds of millions of dollars to put satellites into orbit. Reusing key rocket components would reduce that price tag by 20 percent to 40 percent, depending on how much of the savings SpaceX passed on to customers.3

By creating a cheaper way to launch rockets and put cargo into space, SpaceX could take on the incumbents and radically expand the market for launches, satellites, and everything else space related. Its technology and cost advantage would create opportunities for thousands of other companies. Such platforms give technology companies such as Apple, Facebook, and Google an enormous strategic and financial advantage. The challenge the SpaceX engineers aimed to surmount was ludicrously difficult: to guide three multi-ton rockets back to a gentle Earth landing with pinpoint accuracy.

But, on April 11, 2019, SpaceX did just that.

SpaceX’s success leads to two obvious questions:

How was a young and relatively small company able to achieve such a feat?

Why hadn’t the larger, well-capitalized aerospace companies attempted and succeeded with something similar?

To answer the first question, let’s consider what factors made SpaceX possible. Before the Internet era, the skepticism that would have greeted an upstart company attempting to build a reusable rocket would have made a struggle of the attempt to raise the billions of dollars in funding necessary for building prototypes and performing research. Funding on that scale at that time was largely reserved for drug and medical-device development. In fact, such large capital funding for startups has generally been rare other than at the dawn of the aviation and automobile ages in the 1920s and 1930s, when a host of smaller companies raised significant capital. Once in a blue moon, a startup has attempted to crack a capital-intensive industry. DeLorean Motors, the maker of elegant gull-winged stainless steel sports cars, briefly succeeded; but it was a clear exception.

In its short eighteen-year existence, SpaceX has found many ways to raise capital from a vast and growing pool of investors eager to back risky but potentially lucrative ventures. The capital has sufficed because companies such as SpaceX can now stretch it farther than was possible earlier.

For example, SpaceX was easily able to acquire technological infrastructure sufficient to undercut incumbents in the conception, testing, and production of complicated rockets. It benefited from cloud computing, open-source software, and many other technology innovations that have slashed the cost of starting a company to which advanced technologies are so central. Because SpaceX was not restrained by legacy biases or by the established behaviors common to incumbents, the upstart was able to ingest and deploy many of the acceleration mechanisms that fast-growing technology companies have used to leapfrog older competitors.

At the same time, SpaceX had far less trouble in recruiting the talent necessary to undertake its quest than it might have decades ago, when taking a large risk on a startup was perceived as career suicide. Today, legacy companies prize startup experience—and that minimizes the employee’s risk of becoming unemployable should the startup fizzle.

To sum up, SpaceX benefited from a confluence of capital-market changes, technology changes, and changes in employer culture. These changes allowed it to launch and fly fast.

The second question is why none of the larger, well-capitalized aerospace companies have attempted something similar.

Engineers at Boeing were no less intelligent and accomplished than the team at SpaceX, and Boeing lacked neither resources nor ambition. In fact, the company remains a leader in numerous manufacturing and process technologies, such as using augmented reality to reduce complexity and errors in the assembly of increasingly complex airplanes.4 And surely Boeing or one of the other aerospace giants has considered the concept of reusable rockets. More broadly, every company of any size would argue that it prizes and strives for innovation, particularly since the term came into vogue in the past 40 years. Yet a chasm separates companies such as SpaceX from Boeing, Airbus, and Lockheed Martin, and it is unclear whether companies such as Boeing even understand that they have to innovate more rapidly in order to survive. Something has prevented these companies from unleashing their mighty potential to transform their business quickly, to respond to new threats, and to adopt the tactics and ideas of fast-growing younger companies.

The obstacles are hiding in plain sight, and they all share the same mindset: a mindset of “No” as opposed to “Grow!” All too often, employees in the legacy companies struggle to embrace the new—and so helplessly look on as upstarts blaze new paths that capture their markets by offering greater value.

The technology for men’s razor blades (despite hyperbolic advertising claims) has remained unchanged for 50 years: thin blades are placed in plastic or steel cartridges, sent in shrink-wrapped packages or plastic boxes to a store. They have been licenses to print money. Many a business school use the “razors and razor blades” case studies to illustrate seeding lucrative markets by giving away the tool and banking on the purchase of refills.

Yet, with one cheeky video and an in-your-face marketing campaign, Dollar Shave Club made razor blades exciting again—or at least somewhat convenient—once the company caught your attention (with its hilarious CEO striding briskly through his warehouse, tie askew, drolly extolling the virtues of his blades).

Dollar Shave Club didn’t innovate in razor blades. In fact, according to third-party review sites such as Wirecutter (owned by The New York Times), its blades are no higher in quality than Gillette’s or other blade makers’.5 Rather, its innovation lay in its bold and brassy go-to-market strategy that a confluence of modern developments made possible: YouTube, as one of the world’s largest video publishers and advertising platforms; the preference of millennials (and increasingly others) to subscribe to delivery services rather than buy in the store; and the emergence of Google AdWords and other online advertising platforms that democratized marketing channels and proved a fast and economical way to drive business.

A decade earlier, getting a new razor blade into major distribution channels would have entailed paying massive slotting fees to supermarkets and pharmacies and going toe-to-toe with giant consumer packaged-goods brands on their home turf, with no clear advantage. But a smart YouTube video that cost Dollar Shave Club $4,500 to make received millions of views,6 vaulting Dollar Shave Club into the broad consumer consciousness overnight.7 And, in less than five years, from 2012 to 2017, Dollar Shave Club’s U.S. market share in shaving products rose to 7 percent of sales overall and 30 percent in e-commerce, with nearly $200 million in annual sales, reducing the market share of the market leader, Procter & Gamble’s Gillette, from 70 percent to less than 50 percent.8 This terrified the incumbents, who had put little energy into converting their casual sales into regular subscriptions. Yet Gillette could have mounted a tongue-in-check effort to capture e-commerce and disrupt its own cozy market for men’s shaving products.

Dollar Shave Club’s campaign was an example of exponentially effective innovation in marketing through new consumer sales and communication channels. Though less technologically impressive than SpaceX’s achievements, Dollar Shave Club’s was an amazing feat in its own right: creating a billion-dollar company in five short years in a legacy space with an unremarkable product. In 2017, consumer goods giant Unilever purchased the company for $1 billion.9

Gillette woke up just in time and launched a subscription business that recognized Amazon’s growing preference for subscriptions to consumer products. (Amazon conveniently adds a “Subscribe to” option for most consumer product purchases.) Gillette now competes on a nearly even footing with Dollar Shave Club and will not lose everything in the market for men’s shaving products. It may even regain its dominance and crush Dollar Shave Club—but we would not bet on that, for reasons you’ll read about later on in this book. We would imagine instead that Gillette will apply the lesson to the creation of more brands and smarter go-to-market strategies—competing on an even footing with the upstarts by appropriating their methods. (At least, we hope it will if its executives read this book.)

During our exploration, we will look to SpaceX, Dollar Shave Club, and other upstarts whose breakthrough innovation and growth have taken advantage of the new realities in technology, society, and business. We will see how a legacy U.S. energy-generation company, NextEra Energy, managed to significantly improve its growth prospects and to future-proof itself by taking note of exponential developments and resolutely turning its focus to renewables, all without disrupting its legacy business. We will study how a legacy technology company, Microsoft, rebooted innovation by transforming its culture. And we will look at the compounding effects of multiple changes in the way the world works and at how these changes fundamentally alter how companies interact with customers and consumers.

It is in these very changes that the roots of rapid transformation and the keys to breakthrough innovation lie. From the printing press to the internal-combustion engine to transistors and electricity to computer chips and all the ensuing advancements, the pace of change is accelerating—not only because the technology is becoming more effective, but also because startups are more effectively executing their visions, and because a growing number of larger corporations are now adopting their tactics and strategies and achieving similar or even better results.

Realistically, although we are seeking to use timeless examples in this book, many of our illustrations may seem dated within 18 months of printing; that is, in part, the nature of the beast, and of our perceptions too. What remains timeless, however, is a logical approach to applying the best tools of change and innovation inside older organizations: those whose established processes and products may be their very vulnerabilities.

Along these lines, we also want to show that all too many legacy companies’ views of innovation have been colored by a dilemma in which competing with the newcomers and growing will require disrupting themselves. The dilemma is illusory. Legacy companies have tremendous advantages in scale, knowledge, data, sales channels, marketing machines, brand, and relationships. They can disrupt by using those advantages.

In this book, we aim not only to cover many examples and delve into what works and what does not, but also to provide you with an innovation tool kit that you can apply to your organization. We will cover some of the new techniques that “platform” companies such as Google, Facebook, and Apple use. We will look at how large organizations can think and act like startups. We will take you on a whirlwind tour of some of the most engaging means by which the smartest companies are succeeding at innovating, from internal science fairs to design sprints to innovation prizes.

None of this book’s messages apply only to the for-profit sector. The book is designed to help any organization that wants to hone its innovation chops. We hope you and your organization find the book useful in effecting greater innovation—and greater success.