Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries

by Safi Bahcall

Let’s call a surprising breakthrough in product—a technology that was widely dismissed before ultimately triumphing—a P-type loonshot.

FAST Agile

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 S-type loonshots, people say, “There’s no way that could ever make money.” And then it does.

Kennedy also contributed one more unusual idea: recruiting Smith College art history majors. Few companies hired women for technical positions in the 1940s and 1950s. Fewer still recruited art history majors and trained them. Kennedy encouraged Land to break both taboos, which became a great advantage for the company; decades before the idea became popular, both Kennedy and Land understood that diversity enhanced creativity. One of Polaroid’s most critical technology breakthroughs came from a harpsichord-playing art history graduate from Smith named Meroë Morse, who rose to lead a major research lab for Land.

Diversity

In rescuing Apple, Jobs demonstrated how to escape the Moses Trap. He had learned to nurture both types of loonshots: P-type and S-type. He had separated his phases: the studio of Jony Ive, Apple’s chief product designer, who reported only to Jobs, became “as off-limits as Los Alamos during the Manhattan Project.” He had learned to love both artists and soldiers: it was Tim Cook who was groomed to succeed him as CEO. Jobs tailored the tools to the phase and balanced the tensions between new products and existing franchises in ways that have been described in many books and articles written about Apple. He had learned to be a gardener nurturing loonshots, rather than a Moses commanding them.

“The whole notion of how you build a company is fascinating,” Jobs told his biographer, Walter Isaacson. “I discovered that the best innovation is sometimes the company, the way you organize.” Jobs arrived at the same conclusion that the military historian James Phinney Baxter did half a century earlier, reflecting on the success of Bush’s system in turning the course of World War II: “If a miracle had been accomplished anywhere along the line,” Baxter wrote, “it was in the field of organization, where conditions had been created under which success was more likely to be achieved in time.”

Structure is an innovation itself - FAST Agile!!!

One of the Alto project leaders at PARC gradually realized it was the company’s “structure, not cost estimates or technological visions,” that was driving apart the loonshot group at PARC

Silos will kill innovation

The Texas group “had to sandbag the Alto III, because with it they wouldn’t make their numbers and therefore wouldn’t get their bonuses. It would have been an absolutely impossible burden on them to be successful in making typewriters and also introduce the world’s first personal computer. And they should never have been asked to do it that way. So it was shot down.” In other words, as mentioned earlier, the weak link is not the supply of ideas. It is the transfer to the field. And underlying that weak link is structure—the design of the system—

A poor system will kill innovation

Young led the first company of 149 people. Their thousand-mile trek past the Rocky Mountains ended when he saw an empty flat of land surrounded by mountains and streams and announced, “This is the right place” (now Salt Lake City). Fourteen more companies followed over the next twelve months. The average size of those companies: 150.

Organize by Dunbar's number - FAST Agile!!!

in 2000, Malcolm Gladwell published The Tipping Point, a blockbuster that included a chapter titled “The Magic Number 150.” The chapter summarized Dunbar’s monkey brain vs. group size results, as well as Dunbar’s observations that mean group sizes in some hunter-gatherer societies and the “smallest independent units” of professional armies cluster around this number. Gladwell added the interesting example of W. L. Gore Associates, the maker of Gore-Tex fabric, which limits how many people work together in one building. “We put a hundred and fifty parking spaces in the lot,” the president, Bill Gore, said. “When people start parking on the grass, we know it’s time to build a new plant.”

FAST Agile scales by Dunbar's number!

Well before Dunbar’s theory and other social models, Bill Gore and Brigham Young limited groups to 150 people. We intuitively understand that something changes inside teams and companies as they cross a certain threshold in size. But the volume of our neocortex might have nothing to do with it.

Let’s say you work an eight-hour day, from 9 to 5, and it’s 4 p.m. You need to decide if you will spend the final hour of the day on (a) work that might increase the value of your projects (polishing up the client presentation; researching coffee machine designs), or (b) networking and promoting yourself within the company (currying favor with your boss, your boss’s boss, or other influential managers).

People are motivated by more than just take-home pay: a passion for a higher purpose, the desire to be recognized and appreciated, the ambition to grow one’s skills. The hard and the soft are not mutually exclusive. They are complementary. But focusing just on one and ignoring the other can be a mistake.

In flatter organizations, all other things being equal, managers have a greater equity stake in the company’s overall success. They own a greater piece of the pie. Which encourages focusing more on project outcomes and less on politics.

Flatter organizations. Teal.

Suppose, on the other hand, you’re not very skilled on the projects you have been assigned. One more hour doesn’t matter—you’d design the same lousy coffee machine. In which case, you might as well invest that extra hour in politics and lobbying. The extra effort might help win you a promotion. The greater your skill on the projects to which you have been assigned, which we can call project–skill fit, the more likely you are to choose project work. The lower your project–skill fit, the more likely you are to choose politics.

Office politics. Promoted to your highest level of incompetence.

Some managers are more susceptible to schmoozing and lobbying; some are less so. But just as height varies among individuals, yet every country has an average level, the importance of politics will vary among managers, but every company will have some average level. When we casually speak of one company being more “political” than another, this is what we mean.

In high-fitness organizations, reward systems discourage politics and employees are well matched to their roles. As a result, they are eager to spend time on their projects—building the best coffee machine. In low-fitness organizations, politics strongly influence promotion decisions and employees are poorly matched to their assignments. As a result, they are inclined to spend time on politics.

Lower politics is associated with higher innovation. Teal.

When we examine the combined salary and equity incentives for individuals, we find that there is a critical size of organization, a magic number M, above which the balance flips from favoring project work to politics. Below this threshold, incentives encourage employees to unite around making loonshots successful. Above this threshold, career considerations become more important and politics suddenly appears.

M = 150. Dunbar's Number! FAST Agile.

Brigham Young, Bill Gore, Malcolm Gladwell, and Robin Dunbar may have been onto something. For typical real-world values of the control parameters there is, in fact, a sudden change in incentives around the magic number 150.

Below the critical threshold, the magic number in the equation above, incentives encourage individuals to unite around loonshots. When group size crosses that magic number, incentives shift toward favoring a focus on careers: the politics of promotion

This is why (most) big companies suck. They don't know how to work in org sizes of 150 the way WL Gore do. Teal.

Another way to say the same thing: groups much larger than 150 people, which are stuck in the career politics phase (#2 in the diagram), can restore the focus on loonshots by adjusting their structure (#2 → #3).

In traditional structures, the career ladder is the ultimate carrot. Meet this goal, get a bigger office, a higher salary, more staff, and so on. That same career-ladder carrot, of course, encourages the weed of politics to spread.

Teal removes the career ladder from orgs.

One of the reasons that crazy projects like the Red Balloon Challenge can succeed inside DARPA is that there is no career ladder.

DARPA’s structure has eliminated the benefit of spending any time on politics,

Recognition from peers is a form of intangible or soft equity. It can’t be measured through stock price or cash flows. But it can be just as strong a motivator, or even stronger, as both a carrot and a stick. “A soldier,” Napoleon said, “will fight long and hard for a bit of colored ribbon.” In the case of mid-level corporate soldiers given visibility and autonomy, the colored ribbon is recognition from respected peers. Imagine a computer graphics pioneer called to the podium at a graphics conference, presented a trophy, basking in the admiration of his colleagues.

Teal.

Partnerships reduce the return-on-politics in still another way. External peers are more likely to be impartial judges, not susceptible to politicking. That impartial view, of both successes and failures, is crucial for a strong system mindset,

Teal.

every organization can find opportunities to increase autonomy, visibility, and soft equity.

Teal

Leaders who order their employees to be more innovative without first investing in organizational fitness are like casual joggers who order their bodies to run a marathon. It won’t happen, and the experience is likely to cause a great deal of pain.

If you invest in the process, in gradually building fitness, even if you begin well below average, you will cross the finish line with a smile. (I trained with a group for a long-distance triathlon. The coach used that phrase all the time. We all finished. What he didn’t explain was that the smile would be one part joy, one part masochistic agony. Which also sounds about right for a large organization that radically transforms.)

Continuous improvement. The aggregation of marginal gains.

The DARPA model is extreme: reduce career politics by el...

Most large or midsized companies not only rarely tap into the power of soft equity but they do a bad job of using ordinary (hard) equity: stock options or bonuses.

Steep equity grant curves—big bonuses at the highest levels, tiny ones at the lowest levels—just raise the stakes of those battles. The big bonuses are just one or two steps up the ladder for middle managers like A, B, C, and D—so close they can taste them. The steep curve creates a middle-manager version of Survivor: a giant jackpot for those who succeed in crushing their colleagues and staying alive.

if project success earned you the jackpot of your dreams, and promotion earned you no more than a used tissue—then the battles would not be as fierce. People would spend a lot more time creating great products or nurturing loonshots, and a lot less time stabbing each other in the back.

Get rid of bonuses based on product shipping.

Tilting the rewards more toward projects and away from promotion means celebrating results, not rank. Examples of celebrating rank include not just big increases in base salary, but any kind of special privilege: parking spots, a special ...

Recent academic studies have come to a similar conclusion. One group noted that “increased [wage] dispersion is associated with lower productivity, less cooperation, and increased turnover.”

the most difficult job in redesigning incentives may be the business-world equivalent of the Hippocratic Oath: first do no harm. It is surprisingly easy to unintentionally create perverse incentives.

Pay contractors by the hour, and problems may multiply. Reward sales, and profits may disappear (customers can be bought). Reward the number of products launched, or the number of drugs that enter clinical trials, and recalls and failed trials may balloon. It sounds like a good idea to put big bonuses at the top levels and tiny ones at the lower levels. But it turns the vulnerable middle into a scene from Lord of the Flies.

There’s no such thing as a perfect incentive system, but it’s easy to stumble into a terrible system,

Rewarding one person for designing one coffee machine is a simple example. Somewhere between simple one-person rewards and wasteful free-rider rewards given to everyone lies a valuable and critical sweet spot: rewarding teams for collective outcomes.

For the last word on why compensation is not all about cash, even at the highest levels, and why understanding the subtleties of incentives is important, we have the CEO of a successful European company responding to scholars conducting a compensation survey. He explained why, for him, certain intangibles are more important than cash: I’d rather be worth 100 million euros, have fun now, and enjoy people’s respect when I am the senile chairman of my firm than be worth a billion and get paid fat dividends by a little **** with a Harvard MBA, who runs my firm and lectures me at board meetings.

creative talent responds best to feedback from other creative talent. Peers, rather than authority.

Use soft equity: Identify and apply the nonfinancial rewards that make a big difference. For example: peer recognition, intrinsic motivators.

encourage looser controls, more experiments, and peer-to-peer problem solving.

Teal

There is no way to understand why teams and companies suddenly change from innovating well to innovating poorly just by analyzing individual behaviors in isolation. The ability to innovate well is a collective behavior.

Intervene only as needed, with a gentle hand. In other words, be a gardener, not a Moses.

Spread a system mindset • Keep asking why:

analyze the quality of decisions, not just the quality of outcomes.

Keep asking how decision-making processes can be improved:

Reduce return-on-politics: Make lobbying for compensation and promotion decisions difficult. Find ways to make those decisions less dependent on an employee’s manager and more independently assessed and fairly calibrated across the company.

Use soft equity: Identify and apply the nonfinancial rewards that make a big difference. For example: peer recognition, intrinsic motivators.