metacool

Using Option Value to Win the X Prize

Yesterday Burt Rutan and the entire cast and crew of Scaled Composites won the Ansari X Prize. Why them? Do they have better engineers than any other contender? Perhaps, but not likely. More funding? Nope. Better equipment? I doubt they have anything which couldn’t be bought by another contender. More wisdom and tacit knowledge, gained by years of knowing by doing? Check.

If you were to design a venture with sole purpose of winning the X Prize, you couldn’t do much better than Scaled Composites. Looking back on their history of bringing lightweight, high-performance, low-cost solutions to market, you might even think that Rutan had the X Prize in his head all along. He didn’t, of course, but on the other hand, he did.

Scaled Composites is a classic example of creating option value by using iteration to get into the flow of the opportunity stream. By option value, I don’t mean the value of a share of stock. Instead, I mean the value of future opportunities that open up by doing something today – creating options to do the things you want to do in the future. By creating the first VariEze, Scaled Composites opened up the possibility to someday create a round-the-world plane. Why? Because in meeting the challenges of building the VariEze, they forged a culture that values having a 50ft x 20ft x 8ft axis CNC mill on site (that’s it above), whose massive potentiality can’t help but spark the imagination of their staff! And by doing that round-the-world plane, they created the potential to build a space place, and so on and so forth… by actually doing things, you gain deep experience and the kind of tacit organizational knowledge which helps make you a prime contender for things like the X Prize.

Through conscious iteration, the people in a venture can position themselves to take advantage of any opportunity that may come their way, and the sky is the limit.

Some Cool Blogs on metacool

I added a couple entries to the metacool blogroll today. As always, this list is carefully edited for your viewing pleasure, and each blog in some way touches on metacool's theme of creating cool stuff. Here they are:

Christian Lindholm: an eclectic blog from a Nokia designer. I particularly like his posts on The quest for Authenticity, The SUV of shoes, and Gourmet Junk.

Relevant History: The personal blog of Alex Pang, a Research Director at IFTF. Sounds like he and I made up the majority of the non-D&D crowd at Neal Stephenson's recent reading at Kepler's.

Proto Bowling

Rob Glaser's approach to restructuring the Professional Bowler's Association (PBA) is proof positive that you can prototype anything, and that we should design ventures to have the let's-learn-as-we-go flexibility of a good prototype.  In this Wired article, Glaser's business partner Chris Peters describes how they restructured the league to take advantage of the iterative product development process they knew so well from working in the software industry:

"You launch version 1, put it out there, see what you did wrong, and you come out with version 2. It's a process I understood well. You don't spend 10 years on a grand plan and then finally put something out there; that's just stupid. You've got to have a constant product cycle."

Among the lessons learned by getting out there and doing something: emotion rules, and there are players willing to take on the challenge of adding NASCAR-type theatrics to formerly staid bowling lanes.  There's no way a group of smart people talking to a whiteboard could have come up with that nugget. 
If you set up your venture as a prototype, you can focus your energy on discovering a golden framework so that the right implementation recipe emerges organically.

Show High Interest, Then Stall

SOL. AFU. WTF. WFO. POS. All valuable and versatile acronyms guaranteed to add value to any business conversation. Amaze your colleagues with this new (to me, at least) addition to your business phrasebook!:

Show High Interest, Then Stall = SHITS

Defined in Kawasaki’s Art of the Start as a tactic commonly employed by the people holding the purse strings. A precursor to the Mushroom Treatment, where caca of another kind functions as an information substitute.

Venture Design: The Art of the Start

Download 1.01.ArtOfTheStart.pdf

I’m happy to be hosting Guy Kawasaki’s The Art of the Start manifesto on behalf of my friends at ChangeThis. It’s a great essay on the process of creating cool stuff, and is a snappy piece of thinking and writing. I particularly like Kawasaki’s emphasis on building a successful venture via iterative problem solving – right NOW:

What you should is (a) rein in your anal tendency to craft a document and (b) implement. This means building a prototype, writing software, launching your Web site, or offering your services. The hardest thing about getting started is getting started. Remember: No one ever achieved success by planning for gold.

I’m looking forward to reading the complete book. I think it will be like a tasty mix of The Knowing-Doing Gap, Innovator’s Solution, and Free Prize Inside.

How to Be Creative, from gapingvoid

Hugh Macleod at gapingvoid has assembled a nice How to Be Creative tip list. I've pulled his headers into a list below, but it's definitely worth clicking through to his site for the full commentary. I especially like his "Keep Your Day Job" dictum, which is great advice for all those investment bankers out there who plan to quit and become painters. Not that they shouldn't, but if you've got a good job you can afford to buy paint. And healthcare. But I digress:

1. Ignore everybody.
2. Creativity is its own reward.
3. Put the hours in.
4. If your biz plan depends on you suddenly being "discovered" by some big shot, your plan will probably fail.
5. You are responsible for your own experience.
6. Everyone is born creative; everyone is given a box of crayons in kindergarten.
7. Keep your day job.
8. Companies that squelch creativity can no longer compete with companies that champion creativity.
9. Everybody has their own private Mount Everest they were put on this earth to climb.
10. The more talented somebody is, the less they need the props.
11. Don't try to stand out from the crowd; avoid crowds altogether.
12. If you accept the pain, it cannot hurt you.

via Joi Ito

metacool Thought of the Day

"The perfect state of creative bliss is having power (you are 50) and knowing nothing (you are 9).  This assures an interesting and successful outcome."

-- Tibor Kalman

Jerry Garcia on Strategy

Brian Camelio, President of ArtistShare, came up with a radical new business model for musicians by asking himself the fundamental question of any strategy generation exercise: what will make me unique and desirable? As he told the New York Times:

I got to thinking: what's the one thing you can't download, the one thing that the artist can hold onto? The answer: the creative process. That's the product I'm offering: the creative process.

What he come up with is ArtistShare, a collection of tools to help artists move from a product-centric business model to one built around continuous, interactive relationships with their audience. In his new approach, recorded music is allowed to do what it does best – be an idea virus that sells the artist – and value is claimed for the artist instead by charging for access to the rest of the creative process. Kaplan says it well:

The creative process is a timeline. It is a living, breathing thing. An artistic product… is just a quick snapshot of that timeline. The moments of brilliance an audience hopes to experience when purchasing that artistic product exist throughout the entire process.

I applaud ArtistShare’s determination to build a thriving venture off of a business model innovation (check out their patent here – respek!). It is a wonderful answer to the strategic question posed at the top of this post. As that notable musician/business guy Jerry Garcia once said (thanks to Tom Peters for the quote):

We do not merely want to be the best of the best, we want to be the only ones who do what we do.

The d.school at Stanford

Wonderful things are brewing at Stanford University in the form of the d.school.  You're undoubtedbly familiar with "B Schools" (business schools), but the d.school is something entirely different:  its goal is to help people learn to use the process of design to solve problems beyond the traditional domains of industrial design, product design or architecture.

Simply put, the d.school will train leaders who are able to think and do.  And we'll all be better off for it.

When the Prototype Becomes the Product

The June 18th edition of The Economist discusses using the rapid prototyping technique of building plastic and metal parts layer by layer – someday –  to “print” replacement organs one cell at a time.  Living cells grown in a culture would be loaded into the hopper and then mechanically spit out to create a new liver, tongue or eyeball.

In my mechanical engineering days, I employed this layer-by-layer technology to create prototypes of my designs.  The purpose of these prototypes was to fine-tune the metadesign before releasing it to production, where it would be churned out in the thousands, millions, or billions.  Designers love the ability to print out parts, as it enables a high level of fidelity with quick turnarounds, on the cheap. 

In fact, some designers (for example, Karim Rashid talks about this) go so far as to envision a future where everyone could design, modify, and print out their own special products.  In reality, for most arenas of material culture, allowing anyone to customize and print out products doesn’t quite jive, for a multitude of reasons ranging from safety to performance to IP to aesthetics.  For example, would you really want to mess with the professional design expertise embedded in your iPod just to have a personalized shape or interface?  Myself, I’d gladly pay for Mr. Ive’s aesthetic values over my own.

In contrast, there’s an obvious and compelling value proposition in using rapid prototyping to create custom versions of anything that becomes part of the body.  In some ways this degree of customization is already being achieved today, albeit with ancient casting techniques, in the domain of custom replacement dentures.  But just imagine what happens when we get new organs designed, built and delivered expressly for a market of one. 

Strongly-Held Beliefs of Lutz

I consider Bob Lutz to be the epitome of the designer/product guy as business person.  He gets great product at an elemental, instinctive level, and couples that facility with deep execution skills in the business arena.  As evidenced by the changes he's wrought at GM (400 horsepower, 6-speed Cadillacs!), he's a walking, talking example of what happens when you smash Knowing-Doing gaps to oblivion.

And how can you resist the dissonant charm of a Cohiba-puffing, Cobra-driving, jet-flying ardent vegetarian?

Lutz's "Strong-Held Beliefs" memo, published upon his arrival at GM, is a classic piece of product development wisdom.  Here are the big ideas:

Strongly-Held Beliefs, by Bob Lutz
1. The best corporate culture is the one that produces, over time, the best results for shareholders.
2. Product portfolio creation is partly disciplined planning, but partly spontaneous, inspired all-new thinking.
3. There are no significant unfilled "Consumer Needs" in the U.S. car and truck market (except in the commercial arena).
4. The VLEs (vehicle line executives) must be the tough gatekeepers on program cost, content, and investment levels.
5. Much of today's content is useless in terms of triggering purchase decisions.
6. Design's Role Needs to be Greater.
7. Complexity-reduction is a noble goal, but it is not an overriding corporate goal.
8. We all need to question things that inhibit our drive for exceptional, "turn-on" products.
9. It's better to have Manufacturing lose ground in the Harbour Report, building high net-margin vehicles with many more hours, than being best in the world building low-hour vehicles that we make a loss on.
10. We need to recognize that everything is a trade-off, that we can't maximize the performance of any one function to the detriment of overall profit maximization.
11. Remember the Bob Lutz motto: "Often wrong, but seldom in doubt."

See the full memo here

Venture Design, continued

I’ve been writing about how anything can be designed and prototyped, even a venture or a business.  Nailing a concept design is critical to long-term success, as both flaws and strong points telescope out far into the future.  A rich example of how very critical concept design is can be seen in this thought from Dr. Mario Theissen, Director of BMW Motorsport.  Here he’s talking about the design of their Formula 1 car:

"If you look at this small line between success and failure - the big difference there is whether your concept is right or not. If the concept of the car or the engine is not right, you won't be able to fix it in the running season, you'll have to come up with a new concept and that takes time and it requires total focus. If the concept is right - and that's what we found out last year after a few races - and you just have not been able to exploit the potential of the concept, then you can make it."

Imagine if BMW Motorsport didn’t have to wait until the Formula 1 season started to know – really know – whether or not their fundamental car concept was quick enough to be a winner.  The payoff would be tremendous, as it takes about $300 million to campaign a season of Formula 1, and for that kind of money, you might as well win a few races.  You can prototype anything, and should.  But doing it is quite another thing.

Knowing by Doing at Pixar

“I used to say for years that story was the most important thing to us.  Then I realized that all the other studios were saying the same thing.  They say that and then they go and produce crap.  What you say doesn’t mean a damn thing.  It’s what you do that matters.”
                                                                                        -- Dr. Ed Catmull, President, Pixar

(Pixar gets things done using a “fail early to succeed sooner” rapid prototyping process where story concepts go to the big screen early so that bad ideas get surfaced fast)

Why not innovate NOW?

Innovation is a big word in business these days, but the phrase "let's be innovative" can trigger a flood of procrastination and fear which does anything but encourage innovative behavior. 

The good news is that you can become more innovative just by taking some action, however small, today.  My favorite book on this subject is The Knowing-Doing Gap.  In one section of the book, 49ers coach Steve Mariucci explains how he stamps out inaction by not sporting a watch:

I always know what time it is. It is always NOW. And NOW is when you should do it.

Go on!  Go innovate!  Just do something, no matter how small it may seem to you.  Worlds will open up. 

Catch my review of The Knowing-Doing Gap at 800-CEO-Read-Blog

Venture Design, continued

Cereality is a new venture which seeks to Krispy-Kreme-ize that great American breakfast staple, cereal.  I’m more of a plain oatmeal kind of dude, but on the road I’d much rather slurp up some Lucky Charms than a greasy Egg McMuffin, eh?  It’s a cool idea.

I think these guys are going to make it, largely because they’re employing a prototype-driven process to figure out what their offering should be (as opposed to what they think it should be).  As mentioned in USA Today, Cereality has been running a prototype shop at Arizona State University for the past eight months, and are going to try and roll the concept out to more locations later this year.

By prototyping their concept in a financially lean way, and in a low-exposure setting (i.e. Arizona vs. Times Square), Cereality has undoubtedly gotten deep learning on the cheap, without a lot of drama.  Future iterations will be more and more dialed in, and customers will find it really groovy.  It’s a smart way to go about building a venture – you can truly prototype anything, even sugar pops.

You can prototype with anything

A few days ago I was explaining the art of prototyping to some formally-trained businesspeople, and when I mentioned that Lego made a good prototyping tool, their eyes glazed over. I knew I had lost them. “Surely you can’t spur innovation with a stupid plastic toy,” their inner investment banker asserted. “Innovation has to be expensive and exotic.”

Not only can you prototype anything (see my Steve McQueen riff below for that discussion), you can prototype with anything.

While the CubeSolver isn’t a prototype of anything, it is an existence proof of how seemingly simple (but not simplistic) tools can be used to prototype quite complex systems on the cheap. How cheap? Well, if I asked a crack team of engineers from HP Labs to make me a Rubik’s Cube solver, I’m sure they would create something brilliant, but I’m equally confident that, compared to this Lego wonder, their solution would be complex, expensive, and require many, many man hours to complete. Those of you who’ve ever worked at HP will note that I made no mention of multiple project cancellations and restarts, as well as a crew of waffling middle managers with bad shoes. But I digress.

If you’re prototyping things right, you’re cheating and stealing. Cheating, because you use things like Lego to better focus your energy on solving high-payoff issues instead of the mundane. Notice how the CubeSolver doesn’t use any custom parts – that would have been a waste when so many off the shelf Lego pieces are there for the taking. Stealing, because you’re borrowing forms and ideas from other designers. For example, there’s nothing innovative about the grabber mechanisms – they’re a pretty basic, tried-and-true design. No, all the design energy went into solving the “big idea” problems.

You can prototype with anything.

Iridium, Steve McQueen, and Venture Design

Iridium. It was the ill-fated venture which placed 66 (out of a planned 77) communication satellites into orbit before finding out that the value proposition was fundamentally flawed. Millions of dollars were lost along the way. Could this fate have been avoided?

I think so. Had the Iridium venture been staged using a prototype-driven, do-and-learn go to market philosophy, its deep flaws would have surfaced well before the big bucks were spent. Much to the dismay of their users, Iridium handsets didn’t work under bridges or inside buildings – a showstopper? Imagine if Iridium had run a prototype service just in Australia; they would have learned all the killer handset lessons in time to correct course before running aground, and for less money.

You can prototype anything. Before filming his epic movie Le Mans, Steve McQueen actually took an entire film crew to the French race a year early, shot an entire movie, and then threw most of the exposed stock away. Why? Because he knew that they best way to learn how to shoot a great movie at Le Mans was to first shoot a crappy movie there. His camera people gleaned deep insights into camera placements, mounts, and techniques which put them in good stead when it came time to shoot the real movie. And the value of the tacit knowledge transfer involved cannot be underestimated: rather than try to explain to new camera people what he wanted, McQueen could point to actual film clips and say, “This is good.”

Prototypes aren’t just for physical products. Even ventures can be prototyped.

Seeking variance

"Six Sigma does not create innovation.  Six Sigma is not a solution for new products or a break-through strategy." -  Jay Desai, GE Six Sigma expert

Six sigma doesn't drive breakthrough innovation. New market innovation from divergence, while six sigma is all about convergence. 

Want to be innovative?  Fool around with a lot of ideas, quickly.  Only then should you employ six-sigma to drive variance out of the processes needed to bring something to market.

Venture Design

In his recent profile of Steve Jobs and the iPod revolution, the NYT's John Markoff makes the following point:

It has become apparent that the way Mr. Jobs designs products has changed fundamentally during his second tour of duty. In creating the iPod, the iTunes Macintosh and Windows software and the iTunes music store, Apple has not just designed products; it has also designed a business system.

I'm a firm believer that a good product design process -- one that is user-centric, iterative, and prototype-driven -- can also be used to design winning "business systems" like the iPod.  The point is to apply a "design" point of view across the activities of the entire venture, rather than just within the product development department.  By doing this, you're much more likely to come up with a business offering which users actually want.

That pesky "S" Word

A great thought from Seth Godin on segmentation, differentiation and their relevance to the process of creating remarkable things.

In my experience, many marketers are so hung up on crafting intricate (and basically irrelevant) segmentation schemes and buying mailing lists that they don't spend time thinking about how to make their offering so distinctive and valuable that users go out and spread the word on their own.

Teamwork & Creativity

One of the great disappointments of my post-MBA working life was being told that I would only be evaluated on projects where I was the sole "owner" of process and content.  In other words, if I had contributed to an initiative run by another person, well, that contribution would count for zip, zilch, nada. 

This flew in the face of everything I've ever learned about getting great stuff done.  And it baffled me.  I'd rather work with a group of people to do something really cool (and run the risk of losing the trail of authorship) than structure my approach to a problem in order to satisfy the needs of a backward performance evaluation process.

What's that saying -- "two heads are better than one"?  The architect Renzo Piano said it best:

Teamwork is when you throw out an idea, and it comes back at you, like a game of Ping-Pong -- four can play it, or six, or eight, with the balls moving back and forth at such a speed that they are flying in both directions at once.  Everything gets mixed up.  When the project finally takes shape, you can no longer tell who put what into it.

In any endeavor which requires creative output, evaluating people as if they were social islands, capable of existing without interactions with other people, is not only silly, it fundamentally misses the opportunity to align incentives around the ultimate performance goal -- doing remarkable things.

The Prince on Innovation

Am reading Larry Lessig's delightful book The Future of Ideas.  In it he provides a nice quote from Machiavelli on the topic of innovative ideas and how they are treated by the environment around you:

Innovation make enemies of all those who prospered under the old regime, and only lukewarm support is forthcoming from those who would prosper under the new.  Their support is indifferent partly from fear and partly because they are generally incredulous, never really trusting new things unless they have tested them by experience.

This notion of limited capacity to accept the new really rings true for me -- further proof that the organizational dynamics of the modern technology firms that I've worked in aren't so far removed from the Italian political scene of 1513.