Features | From Pivot Magazine

What’s the secret behind rags-to-riches innovations?

Entrepreneur Safi Bahcall praises company structure, not company culture, in his new book, Loonshots

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Safi Bahcall Loonshots book coverBahcall believes structure, like other physical laws, can be managed. Corporations and governments can continuously nurture “loonshots,” the against-all-odds concepts that are the main source of future success (and profits).

Most Canadians will remember Nokia, the Finnish tech giant that ruled the mobile market in the 1990s. But they won’t recall it the way Safi Bahcall does. For the American physicist turned biotech entrepreneur, Nokia is exactly what he’s writing about—in a negative sense—in Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries. Back when Nokia was selling half the cellphones on the planet, a Fortune story celebrated the innovative, “winning culture” of “the least hierarchical big company in the world.” True enough, right up to 2004, when the same management team shot down a crazy idea from Nokia engineers: an internet-ready, colour-screen, camera-equipped phone. 

Nine years later, that idea—in the form of the iPhone—had taken over the market and Nokia sold its mobile division, after watching a quarter of a trillion dollars evaporate from its market cap. So much for the “it’s the culture, stupid” catch-all explanation offered for innovative organizations, says Bahcall in an interview with Pivot. The “squishy” favourite premise of social scientists, he adds, leaves them at a loss when the same organizations ossify, because it misses the fact that culture describes behaviour far more than determining it. Bahcall’s book is a hard-data scientist’s analysis of what really drives the rags-to-riches innovation cycle—new idea, commercial success, full stop—and how to keep the virtuous innovation circle spinning in perpetuity. Step one: realize culture is not the engine.

Physicist turned biotech entrepreneur Safi Bahcall (Gonzaga Gómez-Cortázar Romero)

“Structure drives culture,” Bahcall says, and structure follows natural laws, just as H20 “is water when warm, and its molecules run around in a randomly chaotic way—call it a pattern of behaviour—and solid ice when it’s cold, with its molecules locked rigidly into place.” 

Human organizations have their phase transitions, too: once they reach a certain size, usually about 150 people, they will need more formalized structures and will inevitably become hierarchical, status-focused and hostile to change. But Bahcall believes structure, like other physical laws, can be managed. Corporations and governments can continuously nurture “loonshots,” the against-all-odds concepts that are the main source of future success (and profits). They just have to keep their organizational water hovering near freezing, at a point where slush, open water and solid ice all coexist. They need to love their “artists” and “soldiers” equally: the former are the thinkers who come up with the loonshots, the latter the workers who maintain the group’s “franchises” (yesterday’s loonshots monetized), and thereby provide the funding for what will become tomorrow’s franchises. 

Bahcall offers a host of historical examples to buttress his case. None is as instructive as the story of statins, the class of drugs credited with saving millions of lives from heart disease over the last 50 years. Statins began as a blue-green mould found on some rice in a Kyoto store in 1972. Akira Endo, a young Japanese food scientist, was convinced fungi, which have a bewildering array of antibacterial defences, held the key to lowering LDL—the “bad” cholesterol that elevates the risk of heart attacks. The Kyoto mould delivered what Endo was looking for: a molecule that blocked LDL production, the precursor to Lipitor and Crestor. 

But his wonder drug was almost buried before it could save a single life. It was only Endo’s off-the-grid perseverance—his trials with chickens, undertaken with a letter of resignation in his pocket, began without authorization from his employer—and his willingness to share his research with outsiders that allowed pharma giant Merck & Co. to pick up the torch. 

Even with the best intentions, Bahcall says, “good teams kill great ideas.” 

Bahcall extracts a lot of lessons from the statins saga. Foremost is that the best ideas are not necessarily fated to triumph: loonshots arrive “covered in warts” and teeter on the edge of extinction more than once. They need champions, financial resources and large workforces to succeed, and no human structure naturally provides all three simultaneously. Small startups are loonshots’ natural habitat, but they lack resources. Larger companies are inherently rigid and biased to the tried and true. Even with the best intentions, he says, “good teams kill great ideas.” 

With that, Bahcall moves to solutions: empower a Chief Incentive Officer (CIO). “Ultimately, what does a leader want?” asks Bahcall. “Motivated people. Why isn’t there somebody at a high level whose sole job is to figure out how to motivate Joe Smith, 17 layers below the CEO?” Only part of that involves money. Even for people weighed down with daycare and mortgage costs, “soft equity” matters as much or more, Bahcall notes. For designers and programmers, “it’s a huge motivation to win the respect of their peers, and win an industry award.” CIOs with a broad overview of the organizational workforce can offer low-cost help there, by ensuring good work is entered in industry competitions. Or a CIO can identify the number of employees burdened by lengthy commutes from the same geographical area, and ask: how would the benefits in employee loyalty and retention stack up against the costs of opening a satellite office nearer to their homes?

The position Bahcall contemplates would require a sophisticated, innovative financial officer, someone who understands budgets and “both the quantitative and the less quantitative aspects of what motivates people.” That is to say, half accountant and half cognitive psychologist. Is this Bahcall’s own loonshot idea? Not quite, laughs the author, who has seen a few executives who fit the description in place already. But they’re still rare and, partly for that reason, well worth the investment.

Bahcall notes that in the battle with competitors for talent, loyalty and new ideas, having a good CIO is like “bringing a gun to a knife fight.”