Innovation at Scale, #5: Dinosaurs, Birds, and Black Swans

Innovation means being ready for big changes in your environment

Let's talk about Dinosaurs, DNA, and the stock market. 

Dinosaurs and Extinction

Dinosaurs dominated Earth's environment for 180 million years. That's 36,000 times as long as recorded human history so far. They set a pretty high bar for ecological success. 

But 66 Million Years Ago something major happened to change the environment on Earth. An asteroid collided with Earth, on the Yucatan peninsula, pumping dust into the air around the entire planet and dimming the sun's rays. These radically changed conditions led to a sudden mass extinction of three-quarters of the plant and animal species on Earth, including all of the non-avian dinosaurs.

The ones that survived, the avian dinosaurs, are still around in various forms today. We call them "birds." But why did these proto-birds survive one of Earth's most cataclysmic environmental events?

Why birds?

Two of the largest reasons why birds survived this extinction event: birds are small, and can fly. 

Small animals have two key advantages when resources are scarce. First, they don't need much to eat, which is helpful when most of a planet's vegetation disappears. There's another surprising advantage, which is even more important: small animals breed faster, which means that the species can adapt more quickly to changing conditions and new ecological niches.

Flying makes it easier to navigate conditions of scarce resources as well; you can travel further faster, using less energy, than it takes to walk — and you can access hard-to-reach places where walking might not allow. 

What is DNA?

To focus on the advantages of faster adaptation, let's first think about what DNA is. One way to think about DNA is that it encodes information about how an organism can best fit its environment. In that case, a mutation is a hypothesis about how better to fit that environment in the present or the future. 

Selection mechanisms are experiments. Successful selection means that the new (mutational) hypothesis is an improvement over the previous state of knowledge, for the current environment.

Birds and Black Swans

There's a catch, though: If an organism's DNA is a perfectly optimized information system about a static environment (e.g., dinosaur DNA after 180 million years), it is left vulnerable to a black swan that radically changes the environment that the organism has optimized for.

So those dino-birds have two categories of genetic advantage: 

First, they are lucky that their traits are a competitive advantage in a new environment. This new environment couldn't be predicted, but they have advantages based on pre-existing traits.

Second, because they breed more quickly, they can deploy new hypotheses into the environment more often, and can adapt to best fit their new environment more quickly

Darwin's finches, evolving beak shapes to fit their environment

Stock Markets and Information

DNA is one type of information; stock market prices are another. 

Stock prices represent the aggregate guess of all investors of the value of a company. There's lots of noise relative to the signal, of course, but in the long run prices tend to converge on intrinsic value. This is what Warren Buffet means when he paraphrases Benjamin Graham: "In the short-run, the market is a voting machine, but in the long-run, the market is a weighing machine."

Diversification

But most investors — like most large companies — don't only invest in a single asset. They allocate across multiple different investments, to construct a diversified portfolio. This is true financially, and across your product portfolio, but it's also true in how you allocate marketing spend, or which features you build in your product. Your company probably aims to build effective processes and systems, which help make you resilient to the departure of a brilliant employee. The diversified company is prepared for the environment to change

A Dinosaur Portfolio

So, let's try a thought experiment. Let's say it's the late Cretaceous, and you need to invest in a portfolio of dinosaurs that will survive over the next few million years. If you don't know there's a big extinction event coming, you might stick to the safe, already dominant ones. Tyrannosaurus is an apex predator with an apparently high population; Triceratops looks resilient and strong, with rugged horns and thick armor. They are very well adapted to their environment, and it looks like they could stay dominant forever.

If you knew that some big change to the environment was coming — would you place the same bets? Or would you dedicate some resources to finding a broader array of dinosaurs that might offer upside if the environment changes?

Innovation is a bet that things will change

A large organization is a portfolio of bets on already-successful, non-avian dinosaurs.

Innovation is a way to spread your bets. It allows you to find and nurture the small, nimble, fast-moving projects that can learn more quickly than most large organizations. It is, in short, a way of placing bets on different possible futures, and building resilience against black swans

Innovation, as a skill set, allows an organization to place more bets, or place them more quickly, or with lesser required resources; this requires skills specific to Innovation that are hard to find in a large, successful organization. It’s hard for a T-Rex to learn to fly. New skills, and faster speeds of adaption, are required when environments change.

...and things will change

Comparing the Coronavirus epidemic to a major extinction event might sound melodramatic, but it has changed the current environment in major ways, and for the foreseeable future. Do you have the right bets in place to survive?

It's a tall order to allocate resources to the future when surviving the present seems uncertain. But Innovation doesn't just need to be a long-dated option; it can help you respond now to a changing environment. In this changing environment, only organizations that know how to learn will survive.

The best time to plant a tree was 20 years ago. The second best time is now.

Reading List

Each week, I'll include links to articles, books, or podcasts related to corporate innovation, that can help you accelerate the knowledge and progress of your teams. 

  • A cautionary tale about how systems designed for known environments can stifle innovation’s capability to deliver value, and how making the innovations play by the established rules can close the window for delivering change: ‘It’s Just Everywhere Already’: How Delays in Testing Set Back the U.S. Coronavirus Response. There are innovators in this story breaking the rules — they’ll be the heroes in the movie version.

  • I mentioned briefly the idea of the “black swan” above; whether you’ve read Taleb’s book or just clicked through to Wikipedia, it’s worth thinking not just about the rarity of black swan events, or their fundamental unpredictability, but about the scale of their impact. So, instead of an article or podcast, here’s a thought experiment: if you knew that something was going to cut your revenues by 25% in the next quarter, who would you ask to solve it? What guardrails would you set on their approach? In March of 2020, asking this question should feel like a take-home exam — if you’re not asking those questions today, you should be.

A programming note:

Readers may have noticed that I didn't publish an article last week. The recent escalation of COVID-19 around the world has had a significant effect on my consulting business, and I’ve focused my efforts over the last two weeks on resetting my strategy for the new environment.

I’m currently exploring new projects; if there’s anything I can do to help your business, please do reach out.

I'm going to keep up the weekly pace going forward. 

An additional caveat on this essay: biologists and others might notice that I’ve been a bit reductive in talking about DNA, evolution, information theory, extinction, dinosaurs, and birds in this post. I promise to be more rigorous in this chapter of the book :)

Thanks to Zhan Li, Bryan Kam, and Zarina Mazitova for helping me work through some of the ideas utilized above.