[MUSIC PLAYING]
DAVID ROWAN: Thank you for
giving up some of your time.
One of the things
that "Wired" led me to
was an awful lot
of corporates that
were having their off-site
that we're trying to teach
their team to be innovative.
And these were
manufacturing companies,
financial services companies,
medical device companies.
And they were all looking for
this mystical thing called
innovation.
And often they thought
we'll create somebody
with a job title, the
head of innovation,
or if we're really creative,
chief disruptive growth
officer, or digital sherpa.
That's going to do it.
Or we'll have another
building with a few startups.
That's going to
change the culture.
And I'd often ask, so
what have you changed?
What have you learned?
How has the culture
become more innovative?
And the answer tended to be,
well, it's early, nothing yet.
And I saw a huge
amount of resources
being thrown at something
that was never going to work.
And it made me
start thinking, we
kind of get innovation wrong.
To me, real innovation is, I
guess, using the emergent tech
tools to create future revenue
streams for whatever kind
of business.
It's not mystical.
And yet, the media-- and you
know, I'm partly to blame--
get very hung up on the
gimmicky innovations,
the little incremental
change that is cool
but doesn't really
have much use.
Every year at the
Consumer Electronics Show
in Las Vegas in January, we
get these amazing innovations
celebrated that maybe the
world hasn't been waiting for.
This year at CES, it was
the smart bottle opener
that every time you have
a new bottle of beer,
it informs your
whole social network.
And if you are the sort of
person who likes notifications
every time your cat
does its business,
this was one of the
great innovations.
And the problem is
sometimes there's
real money going into some
of these big innovations.
And I'm not going
to mention GV as one
of the investors
in this company.
But Juicero raised, I
think, $120 million.
And it was the most innovative
juicing machine in the world.
The juicer originally
cost about $700.
It had Bluetooth.
It had sensors.
It had internet connectivity.
And you had to buy these
very expensive sachets
to make the perfect smoothie,
which was brilliant,
until some journalist
at Bloomberg
realized you could squeeze
the sachets with your hand
and get just as good
juice but actually faster.
So sadly, Juicero is
no longer with us,
having burned
through $120 million.
Quirky burned
through $180 million.
And this was innovation
suggested by the crowd.
And they went and tested
it and did Kickstarters.
And these were
hardware innovations.
I don't know if you were
one of the lucky owners
of the Milkmaid, the
smart, sensing milk
jug that they put to market,
that every time your milk
starts to go sour, they send
you an urgent notification,
so you cancel your
business meetings.
You don't get on the aeroplane.
Before Quirky went bust, having
burned through $180 million,
they put out the
$50 smart egg tray,
which is an amazing innovation
for the people among us
who are obsessed with how
fresh our eggs are at home,
with push
notifications and LEDs.
The problem is, every
day, I'm seeing resources
going into innovations
that nobody has actually
thought through.
So you know, you see a
lot happening in drones.
Prodrone is the first
drone with robot arms.
And I'm thinking,
is this now meant
to be the way you take
your kids to school?
Or because tech always
has a dark side,
is this now the way to
abduct kids from school?
And it's got to
the stage where I
can't tell the difference
between real innovation
that somebody has put to market
and a spurious, fake one.
Last year, I saw the combined
fork and spoon, the sfoon,
that was for people
too busy catching up
on their messaging and their
Gmail to actually have lunch.
And I thought,
this can't be true.
And I traced it to
a marketing agency.
So I think it was
pretty spurious.
But then, of course,
we've got to look to China
for the real innovation.
So you know those health
insurance products
that give you a discount
if you collect data
from your accelerometer?
They've solved this in China.
[MUSIC PLAYING]
So I guess the
context of all this--
there's some real
transition happening.
And I don't need to talk to you
about the exponential curves
and the changes in
consumer behavior.
And just look at Mary Meeker's
"Internet Trends" report
every year just
to see how we are
spending more time than ever in
front of our digital screens.
So the 10 years from 2008,
we went from 2.7 hours a day
on our digital screens--
the blue is kind of all
sorts of connected devices.
The middle there is
the laptops, desktop.
The green at the
top is the mobile.
So it's more than doubled,
almost three times as much
now with 6.3.
And if you are in a
conventional, profit-making,
quarter by quarter
reporting business,
this has kind of crept up
on how your customers are.
This is time you're not spending
talking to your colleagues,
talking to your kids.
This is time you're
spending here.
And combined with falling
barriers to entry,
it's hitting all sorts of
industries-- in energy,
in motoring.
You know, the
electric car battery
that was $1,000 at the
start of the decade
is forecast to be $70 by 2030.
The falling cost of sequencing
and the changing behavior
patterns--
This is how couples have met.
The black line is introductions
by the family since 1940.
The brown line is
meeting through school.
But look at the red line--
meeting online.
And these are kind of
fundamental social changes
led by these smart devices.
It's changing the way you can
create a multibillion dollar
business.
The youngest
billionaire in the world
created a cosmetics company
to take on Chanel, Dior.
And Kylie Cosmetics has
pretty much no staff.
It outsources the
manufacture and the packaging
to a company called Seed Beauty.
It outsources the sales
and fulfillment to Shopify.
Her mum does the finance.
She does the
marketing because she
has a new type of influence.
And she's now showing
the big companies
that you're moving too slowly.
So what do you do if
you're an existing
successful big company?
You think you need to innovate.
So you create a building
somewhere with some startups.
A yogurt company's doing it.
An airline is doing it.
But without a cultural shift,
without really understanding
how to experiment, and
iterate, and work out
what the customers want,
it's innovation theater.
And I got very kind of bored
seeing nothing come out
of all this investment.
And I was thinking, these
companies, quarter by quarter,
the revenue streams
are still steady,
but long term, they're
fundamentally missing
out on the way the
world is moving.
It's like Wile E. Coyote
being chased by Road Runner
off the cliff.
Still runs for a bit,
and then realizes,
actually, gravity is
going to pull you down,
which is why I decided
to look for really
exciting examples
of transformation
in successful existing
organizations.
And as a journalist,
you get used
to asking lots of
people for leads.
So I started asking
my friends who
were consultants,
who were working
at IDEO, who were investors.
And their leads took me to 20
countries from Peru to China.
And I'll whiz through some of
the things I learned because it
turns out there are
ways to innovate
that are not
bullshit-type ways, that
create future-facing value.
But it takes a different
way of looking at things.
And if there are 10 quick
takeaways from the book,
I guess the one I kept
noticing is the companies that
were most likely to discover
future-facing business models
didn't have hierarchies.
They allowed talent to do
what the talent does best.
This is the most successful
games entrepreneur,
I think, in Europe--
Ilkka Paananen from Supercell,
whose games you've played.
He's obsessed with what he
calls being the world's least
powerful CEO.
It's about hiring
really good people,
creating flexible structure so
they can decide how they work,
what they work on.
So Supercell is so
cool because it's
cells, typically, of
10 to 18 people, who
don't have to go to the
boss for permission.
I went to see a guy
called Jonathan Downey who
led a team of 10 really
good games developers
and designers for about
a year on a project.
And they were testing it
in the Canadian app store.
And it wasn't getting the
engagement that they want.
And they kept iterating it.
They were getting frustrated.
And in Helsinki,
when this happens,
you go to a sauna, a team sauna.
So they went to the
local sauna island.
And they realized
they were getting
more excited in
the conversations
they were sweating
about other games.
So he comes back to the office,
sends an all-hands email
to the whole team, says,
we're killing this project.
Sorry, it's taken
a lot of resources.
But we're all going to
work on other things.
And he didn't ask
Ilkka for permission
because Ilkka wasn't in
the office at that moment.
So the idea of the boss at the
top sometimes gets in the way.
There was a project about
2 miles southeast of here.
For 10 years, Claridge's wanted
to build five basement floors
because they didn't
have enough space.
They couldn't build upwards.
They couldn't buy
neighboring properties.
And they had two conditions.
One, they had to keep the
hotel open during this build.
They didn't want to lose the
loyalty of their customers.
And two, all staff
from the builders
had to come in and
go out from one
window at the back on the muse
that was 2 meters by 2 meters.
And for 10 years,
consulting engineers,
building firms said, well,
you can't do this whilst
keeping the hotel open.
Structurally, it's impossible.
It's too dangerous.
It was known as the
impossible basement project
until they called in a bunch
of consulting engineers
from a London-based global
company called Arup,
which doesn't have a hierarchy.
It's a collective.
Every member of staff owns
a share in the company--
15,000 people
based in Fitzrovia.
But they take on the Burj
Khalifa, the Channel Tunnel
Rail Link.
And the structure of Arup,
Tristram Carfrae, the Deputy
Chairman, said, I may be
called the deputy chairman,
but I don't have
a say in anything.
And I don't want to.
I want to get really good
20-somethings deciding
how to work.
So Arup sent a few
people to go and see
this impossible project.
And they got quite
intellectually excited.
And they said, yeah, we can
take this project on, we think,
if we can get a few people
internally to work with us.
And they came up with
a way of solving this
by importing a bunch
of Irish miners, who
are thinking laterally.
They asked to hand dig
30-meter-deep vertical tunnels,
take all the mud through the
2 meter by 2 meter window.
And then when they had
62 of these tunnels,
they filled them with concrete,
and then suspended the hotel
on top of them.
Then they started digging.
And in February, they
completed the five
impossible underground floors
because there was nobody
telling them how to do this.
And I see a lot of
organizations where there's
fear of coming up with an idea
that somebody upstairs will
disapprove of.
That's hopeless.
So we're in a world
where commodification
is hitting lots of products.
You can differentiate by framing
what you're doing increasingly
as a service.
There's a bookshop that's
been in Mayfair since 1936.
And it's a rented bookshop.
It's competing with
the big online sellers.
Heywood Hill Books
was not doing well.
It was losing money.
And then Nicky Dunne, who
took over not very long ago,
realized you're not
going to compete
as experts in selling books.
But what about experts in
curating collections of books?
So they started offering bespoke
library-building services.
The first customer was
a wealthy Swiss lady
who wanted 3,000
books on modernist art
for her mountain chalet.
And they charged half
a million pounds.
So that became increasingly
a popular revenue stream.
And then they thought we've
got these very wealthy,
well-educated, international
people coming in
off the street.
They don't spend
much money here.
But we have the chance
to get to know them.
Why don't we offer them a
personalized subscription
service?
So there's about six
ladies in the basement
who are reading a couple
of hundred books each year.
They're now choosing
books for the subscribers.
Each month, they get
a gift wrapped book.
Maybe it's 500, 600 pound
for an annual subscription.
And they've now got thousands
of people subscribing,
so they're making lots of money.
And they found a
new way to innovate,
while staying pure to
what they're doing.
There's a 100-year-old
bank in Finland.
It's the biggest retail bank.
It's called OP.
And they realized
they were being
commodified by the startups.
So all the ways they
were making money,
startups were doing
more efficiently--
foreign currency transactions,
business insurance,
lending money for buying cars.
So they decided they
were going to go
for a radical transformation.
They were going to go
back to first principles.
What service could the bank
offer that the startups
couldn't?
And over 100 years, OP
was known in Finland
for helping people get
through tough bits of life--
starting a business, going
to buy your first house.
And they thought, OK,
what do people need?
Well, they want to stay healthy.
Why don't we start
opening hospitals
and performing surgery?
So they've now got five
private hospitals in Finland--
very, very efficient.
If you need a scan, an MRI,
you can get it that afternoon.
If you need an operation, you
can get it the next morning.
And because they are
starting from zero,
they have no assumptions
about how to create
an efficient hospital.
They keep the costs
really quite low.
And they've created a health
insurance product alongside it
that is cheap and is
growing like anything
because the costs are low.
And they've kind of
found a new purpose.
Innovation is increasingly
about realizing
you can't do it alone.
Can you find useful
ways to partner
where there's mutual benefit?
So in China, Lei
Jun set up a company
called Xiaomi, which makes
high end smartphones,
but there's no
profit margin on them
because it's so
ruthlessly competitive.
And he's often been
mocked for saying he wants
to be a bit like Steve Jobs.
He once did a keynote where
he wore a black turtleneck,
and unfortunately, used the
phrase "one more thing."
And I'm not going
to comment on what
the Xiaomi stores look like.
But they have a really
clever business model.
They don't make
money on the devices.
But they have invested in
about 400 hardware companies,
small investments, typically
$100,000, that make devices.
And they say to the
hardware companies,
we will give you access
to our supply chain,
our 300 million customers.
In exchange, we want our
logo on your product,
plus a chunk of your profits.
So the best selling air purifier
in China, the best selling
battery pack in China
have the Xiaomi logo.
And it's brilliant in that it
keeps customers coming back
to see what's new.
And they've pushed the
risk to the startups.
So I talked to the guy
leading the team of engineers,
not finance people
deciding where to invest.
And I said, why don't
you make these gadgets,
these accessories yourself?
And he said, well, first of
all, we'd become a bureaucracy.
We'd have twice the headcount.
We'd never get decisions made.
Plus, we'd also rather
have these companies
survive on the streets everyday
by knowing what the customer
wants today, not last week.
We want to have
an ecosystem where
we can feed off each other.
So we put him on the
cover of "Wired," saying
"It's Time to Copy China."
And it's not just companies
that can build an ecosystem.
Estonia has rethought
what a nation
state is in a world where
we're all online connected.
So this is the
capital of Estonia,
where I went to see this man--
Kaspar Korjus, who was running a
project called e-Residency that
allows anybody who's not
physically in Estonia to go
online--
you can do it now--
spend 20 minutes
filling in a form--
I think it's 100 euros.
And then a couple
of weeks later, you
get your digital identity card.
And it allows you,
without going to Estonia,
to set up a business
in Estonia, to be
a virtual resident of Estonia.
And that means you are
benefiting the local economy.
And you have a stake
in this little country
of 1.3 million
people that's never
going to be super rich through
its own natural resources.
And I was in Dubai yesterday.
And I just saw,
they're copying this.
They've created the
ability for people
who don't live in the
UAE to create what
they call a virtual company.
So they've realized,
both of these countries,
that the physical
constraints of nation states
are less relevant when we're
all living a borderless life
through our networks.
And if you create an ecosystem
where you tap into the value--
Kaspar talks about
wanting e-Residency
to be like an app store.
He wants other governments
to sell services
to their e-residents.
He even thinks it
will be a subscription
service eventually, which
means they won't have to charge
income tax in Estonia.
It's kind of a
radical way to think.
So every business
clearly needs to work out
what people need that other
companies aren't providing.
But it gets very interesting
when you find real unmet needs.
I went to Peru to meet
this gentleman, Carlos
Rodriguez-Pastor,
whose dad used to run
the central bank in Mexico.
And then the military came
in, and they had to flee.
They went to the US.
They lost everything there.
And he came back in
the '90s with his dad.
And they bought a bank.
And that bank became a big
conglomerate called Intercorp,
with supermarkets, and
pharmacies, and hotels.
And now it's 4% of the GDP
of Peru, 80,000 people,
I think $8 billion turnover.
But he has a problem in
that Peru is in a mess.
I think of the last five
presidents, all of them
have either been jailed,
are waiting to go to jail,
or have taken their own life.
There were decades of terrorism.
There was hyper inflation.
Even now, if you go to
Lima, houses and shops
all have bars on the window.
And it's really kind
of a threatening place
in parts of the city.
And Intercorp's problem was
they couldn't hire talent
because the education
system was broken--
15 education
ministers in 15 years.
And also, the lower
middle class customers
were not entering
that middle class
so they would buy more
of Intercorp's products
because they weren't
getting educated.
So he thought,
this is a real need
that the government
is failing to meet.
We're going to have to step in.
We're going to have to
create a school system.
Now, because they're
a commercial company,
it has to be a
for-profit school system,
but it's got to be suitable for
the local lower middle class.
So they went to see the best
educationists in the world.
They went to Oxford, and
Harvard, and Berkeley.
They went to IDEO.
And they decided if you were
starting from scratch now,
for age three to 18,
designing blended online
plus offline courses,
where you could
put the lessons in
the cloud and rethink
the role of the teacher,
what could it be?
They've now got 55 of what they
call Innova schools in Peru,
getting twice the national
attainment levels.
And they're exporting
them to Panama and Mexico.
And after seeing this
work-- because they
make a tiny margin.
It's about 120, 125
dollars a month--
they start at a technical
university in Peru.
They didn't have an MIT there.
And they're now
thinking, OK, what else
is broken that the
government's not fixing?
Health care-- we've
got 2,000 pharmacies.
Why not create a national
chain of health clinics
in the villages, in
the neighborhoods
where people don't have access?
And so they're stepping
in where government's
failing, but for profit.
And they've actually put on
their home page, the mission
statement now they
have at Intercorp.
It's not about banks.
It's not about supermarkets.
It's about making Peru
the best place to raise
a family in Latin America.
And it means they're
attracting talent
from around the world
who want to work there.
And the profits are booming.
Innovation, from
what I discovered,
tends to happen when you get
different types of people
putting their heads
together to solve a problem.
And I got to spend some time
where Jack works, in X, where
they've come up with some pretty
interesting businesses-- you
know, the autonomous cars,
the stratosphere level
balloons, the delivery
drones, each of which
is being spun off into
a very big business.
And the obsessions
they have in X
are all about how you
optimize talented people
with diverse ways of
thinking and seeing,
with diverse backgrounds,
to come together
to ignore the rules, to do bold
things that could affect maybe
a billion people.
And I talked to
Kathy Hannun, who
was working in
marketing at X. But she
was a bit obsessed
with sustainable fuels.
And she'd seen a paper
written by a professor
at Xerox PARC that
suggested, in theory, it
should be possible to take
seawater, extract the carbon
and hydrogen, and turn them
into a carbon neutral fuel.
And so she went to
the boss and said,
I'd like to look into this.
And at X, everything is
kind of metric-based.
When you start a
project, you get
a little bit of resources and
one person to work with you.
And as you make
targets, you get more.
And you also have to come
up with a kill criterion,
something at which, if you
don't make this target,
you will kill the project.
And the kill criterion
for this project
was if you can
make this fuel, it
has to be no more expensive
than the per gallon equivalent
of petrol at the
American petrol station.
And they spent two
years on the project.
First of all, they
proved the science.
They hired the guy
from Xerox PARC.
They created their little
ethanol equivalent.
It was $1,000 per
gallon equivalent.
That was too much.
They took it down to $100,
to $50, to $15, to maybe $10.
And then she goes to the boss
after two years, and says,
I think we're going to
have to kill the project.
It's going to take
longer and cost more
to get to four or five gallons--
$4 or $5 a gallon.
And the boss was surprised.
But they all got a cash bonus
because that's the culture.
You want to create
these incentives.
And getting diverse people, not
just the theoretical physicist
and the engineer but the
origami expert together
to solve these problems--
and also giving them what they
call psychological safety,
a culture where
nobody's laughed at,
where you're given space to
propose something unreasonable,
it's led to some things that,
initially, on a consumer level,
didn't necessarily work.
But I don't know.
What's this business going
to be worth? $100 billion?
So one of the
things that startups
can do that big organizations
tend not to be able to do
is move quickly and
change directions.
What if you are a
3 million person
bureaucracy with the biggest
office building in the world,
and ISIS, who you're up
against, is a startup that
can take a DJI drone,
put a grenade on it,
send it over the line
to kill your people?
And yet the Pentagon, when it
does a procurement process,
it usually comes back really
late, hugely over budget,
and not really what the
soldiers on the ground need.
And they realized
they had a problem.
And so, three years
ago, they hired a guy
from startups, Chris
Lynch, who curses a lot.
He wears hoodies that say
things like "Hack the Pentagon."
He does not respect authority.
And they said to him, bring
in some startup people
for short terms, for
six months, for a year,
and come and help us solve
these technical challenges
that we're failing to solve.
And the unit's called
Defense Digital Service,
although they've created
a kind of counter-culture
where "Star Wars" iconography
throughout the office.
They call themselves
the Rebel Alliance.
It even says that on their door.
And the first thing
that the team did
was propose a bug
bounty competition
because all the public-facing
defense.gov type
websites were vulnerable
to beheading videos being
uploaded.
And they were told it's illegal.
You can't do this.
They found a legal way.
They used lawyers,
which they kind of see
as bureaucracy hackers.
And they did it.
And 10 minutes into the
first bug bounty competition,
they found vulnerabilities.
It became a huge thing.
And now, it's mandatory
across US government
to have bug bounty competitions.
Then they went to the front
line in the Middle East
to help solve the
problem of the DJI drones
being sent over with grenades.
And they hacked together
a radio signal jammer
with some soldiers.
And after a few
weeks, they managed
to block those radio signals.
And gradually, they're earning
the respect of the military.
And eventually,
they're put on stage
with the Secretary of Defense as
the little team of agile rebels
who can solve the problems.
I'm thinking every
big organization
needs a team like this.
Some organizations put
aside quite a large part
of their budget to look for
things that they're not really
looking for--
R&D, where there's no
immediate expectation
of financial return.
So Autodesk became a
success 30 years ago
by coming up with a
software that product
designers, architects use--
AutoCAD.
But that was at the
beginning of the desktop era.
What happens when
software is in the cloud?
What happens when AI
determines how people work?
So one of the things
that Autodesk does
is allow people to play with
no necessary hope of creating
products.
They have a pier
in San Francisco
full of 3D printers,
and robots, and artists
on paid fellowships.
And one of the
goals of this pier
is to observe how people
are using design tools.
And maybe we'll learn a bit
that will help us find products
that we're not looking for.
About three years
ago, they started
playing with something they
called generative design, which
is, if the product
designer has put
some constraints
into the software,
I want to build an airplane
seat no more than this weight,
no more than this dimension,
with these kinds of materials.
The generative
design will use AI
to come up with thousands
of iterations in real time
to suggest things to
the human designer.
And it's generative
because it's like nature.
It generates alternatives
as conditions change.
This wasn't designed to
be turned into a product.
They bought a company--
actually, a London
company-- called Within
that allowed them to do this.
But very quickly,
they realized, this
changes the whole
nature of design.
And this gives you an unfair
advantage as a designer.
And they've started
shipping it in products,
this thing they
weren't looking for.
And now, I think
it's likely to be
a bit of a moat around Autodesk
for the next few years.
A couple more quick thoughts.
Physical workplace design can
contribute to fresh thinking,
that is, innovation.
So right next door
to where we are now
is the Crick Institute, the
biggest biomedical research
center in Europe.
If you haven't been
there, go for a tour.
What's really
interesting is they're
trying to solve cancer and
genomic illness by having
no walls on the inside.
It's designed with lots
of collaboration spaces.
The staircase is extra
wide, and the lift
is hard to find because they
want you to have conversations
on the staircase.
If we're going to crack
some of these big illnesses,
it's not going to be by
the scientist in the lab.
It's going to be the
bioinformatics specialists
meeting the genomics expert
meeting the organization design
and meeting the
visualization person.
They all come together.
And Paul Nurse, who is
leading it at the Crick,
when they were applying
for planning permission,
he wanted a very big canteen
for everybody to come together.
And Camden Council
preferred they
didn't have a big
canteen, so people would
use the local restaurants.
And a comparison was made
with Crick and Watson,
who used to gather at lunchtime
in the Eagle Pub in Cambridge.
And over beer and sandwiches
everyday, colleagues
would come, and drop
by, and make suggestions
on their research.
And Paul Nurse could say that if
you don't allow us our canteen,
you know, the Crick and
Watson ability to find
that double helix
may be impeded,
and maybe you'll slow
down the progress
towards discovering a way to
treat cancer or even prevent
cancer.
So they got their
canteen in the end.
But I guess it's
why so many Bay Area
people go to this temporary
city in the Nevada desert called
Burning Man every year,
which is a way of bringing
different types of thinking
together, creative expression.
It's why coworking spaces
are growing in demand
because people don't
want to be isolated.
So this one's pretty obvious.
There are emerging technologies.
If you don't use them,
somebody else will.
But it's interesting to
see how they can be used.
So in the book, I went to
a field in Napa Valley,
where there was a barn,
a converted barn, that's
home to a bunch of
Michelin-starred chefs.
And they're paid for by a
company in Hong Kong that
makes saucepans.
So Meyer is not a
well-known brand
because its sauce pans are
made for department stores'
secondary brands.
And it's one of the
world's biggest producers
of pods and pans.
Started in the '60s by
Stanley Cheng, billionaire
from knocking aluminum around.
And then Stanley's son Vincent,
who's in his 30s, says,
Dad, you know, the internet
is coming for the kitchen to.
This thing called
connected cooking
is going to use the oven
to download recipes.
What are we going to do?
Stanley says, I don't
really understand all this.
I'll give you a bit of money
to do an internal startup.
They hired the Michelin
chefs, who cooked and videoed
as they were cooking and
put their recipe making
into an app that now connects
to a new kind of sauce pan
that they've designed, which
has a very sensitive temperature
sensor in the
middle of the metal.
And it sits on top of a
conductive heater that
is connected via
Bluetooth to the app
so that when you're following
the recipes on the iPad,
it cooks exactly to the
right temperature for exactly
the right number of
seconds alongside you.
And the goal is, it will
become a subscription
service, a bit like Netflix,
and like a music service.
You will subscribe to 50
new recipes every month.
And you will be as good as
the Michelin-starred chefs.
And I said to Stanley,
that's kind of bold.
How do you know this
is going to work?
And he said, well,
it's either going
to be a billion dollar
business or zero.
But if we don't
do it, our rivals
are looking at this
space, so we'll be zero.
So we have to use it.
And finally, even
when stuff goes wrong,
that's an opportunity to
innovate because it forces
you to solve a real problem.
So I went to Mumbai to
see another extraordinary
successful, big,
industrial manufacturing
company that makes one in
five towels and bedsheets sold
in the West.
It's called Welspun.
And it's a family business.
Three years ago, on a
Friday evening in August,
Target, the American
retailer, puts out
a statement saying, the
high-quality, luxury, 100%
Egyptian cotton towels
we've been selling
from this Indian company
called Welspun, we checked,
and it's not Egyptian cotton.
It's cheap cotton claiming
to be Egyptian cotton.
So the share price
of Welspun collapses.
The viability of the
company is in question.
Walmart, Bed, Bath
and Beyond, they're
all questioning whether they
deal with this company anymore.
Welspun spent a weekend
kind of sweating,
offering to underwrite the costs
as these companies give refunds
to the customers,
but also thinking,
the only way we're going to
survive this is by owning
the problem, accepting that
there is no transparency
in the supply chain for cotton.
It's like 17 stages from
the field to the final item.
And let's come up
with a tech solution.
So they spent six months putting
RFID tags in cotton bales,
creating a scanner
network, finding a way
to create complete transparency.
And in fact, now, on the
final items, many of the items
have a QR code that the
customer can scan and see
exactly where their
cotton came from.
And they announced
this just a year ago.
Suddenly, lots of
big luxury brands
call them up and say, hey, our
younger consumers are demanding
supply chain transparency too.
Can we pay you to use your
Weltrack supply network?
So it's turning into
what could potentially
be really quite a useful
future-facing business line.
So I will leave you,
before we talk with Jack
and take some questions,
with, I guess,
the human bias that gets in
the way of looking for stuff
you're not looking
for, of trying
to find business
models that don't
exist because we're all quite
flawed, irrational people.
Somebody posted on Reddit a
couple of years ago a question.
If somebody from the
1950s suddenly came back,
what would be the
hardest thing to explain
to them about modern life?
And my favorite answer was,
"I have a device in my pocket
capable of accessing the
entirety of information
known to man.
And I use it to look
at pictures of cats
and to get into
arguments with strangers.
So I celebrate
your irrationality.
May we innovate collectively.
Thank you.
[APPLAUSE]
JACK HIDARY: Thank you, David.
Thank you, David.
That was a wonderful talk.
And your 10 points, I think
are well-deserved in terms
of highlighting
for this audience
and for innovators, both true
and vaporware, in the future.
I want to jump in first
to the OP case study
that you have in the book.
You mentioned it
briefly in the talk.
But I think it
deserves a deeper dive.
And there's really a
lot to unpack there.
I want to first read
a quote that you have
from one of the heads of OP.
And he says, "we've
chosen the other path.
We want to stay
with the customer.
They don't need mortgages.
They need accommodation.
They need housing.
They don't want to borrow
money to buy a car.
They need mobility.
We sold health
insurance, but people
don't need health insurance.
They need health."
So I think that's
really telling in terms
of their philosophy of how to
think of themselves not just
as a bank, as a
financial institution,
but an organization,
that it's within scope
to offer hospitals, as you
pointed out in your talk.
But then in the book, you go on
to describe how they partnered
with BMW to then
launch Drive Now,
which is a mobility
as a service offering.
So maybe talk about that.
What allowed OP to see
that as all within scope
when all the banks I know
don't see that within scope?
DAVID ROWAN: First
of all, it started
with a couple of
bad years, where
there was financial pressure.
Then it started with the
enlightened board saying,
we're going to give a couple
of billion euros to invest
in real transformation.
And then they started creating
semi-independent units.
There was a design unit.
There was an AI unit.
They hired a woman who'd
just done her PhD on mobility
as a service.
And they said, come work and
rethink mobility with us.
And these units, all
based in head office,
had freedom to explore
through the whole company,
to rethink product lines.
And then they started
looking at the startups.
So the bank is a
very regular presence
at Slush, the big
tech conference
in November for the Nordics.
And they were
listening to people,
to movements that banks
don't usually listen to.
And they were trying to absorb
these foreign languages,
these foreign approaches
to what a bank product is.
And it came together.
I think since I wrote
the book, the guy who was
leading the project has left.
And I'm not sure if
it's slowed down.
So it does need a backer.
Those guys in the Pentagon
that were causing offense
among the military
types had what
they called a letter of mark
from the Secretary of Defense,
which was literally a letter.
If anybody was
obstructing them, they
could get the
letter out and say,
we've got backing
from the very top.
JACK HIDARY: Yeah.
So one of the things that
OP, I think, understood
is that if they jumped over
the initial product they
have to the ultimate goal of the
consumer, they can get there.
They're also quite mindful,
I assume, of Nokia,
a fellow Finnish company
that did not fare as well.
Do you have a sense of
where Nokia went wrong?
DAVID ROWAN: One of
the things about Nokia
is when it kind
of almost died, it
released enormous talent, highly
educated talent, on the market.
And it was one of the
dominant employers
in that part of Finland.
And that's given a
massive advantage
to unrelated companies,
like games companies,
like banks to tap that talent.
Nokia's problem was
it was too successful.
So it started in the 1860s.
And it was a leading
rubber manufacturer.
So it made car tires.
It made Wellington boots.
It was a paper company.
It evolved.
In the 20th century, the
middle of the 20th century,
it made big household
products, fridge-type products.
Then it made smaller,
electronic products.
Then it became a
feature phone maker.
And then became the world's
best feature phone maker
and was on the top of the world
and started thinking nothing
will ever change.
And that's where things
get a bit dangerous.
We've seen the same with the
Blockbusters and the Kodaks.
And comfort is the
enemy of business.
Once you think you
deserve that position,
you're going to get overtaken.
JACK HIDARY: So
let's now jump from
the late-stage mature companies
back to the startups now.
Venture capital, seed capital,
growth capital, all this
is going through major
transformation now.
You yourself have
been a very active
and are an active seed investor
now after leaving "Wired UK."
But what is the future right
now of venture capital?
People keep predicting the
demise of venture capital.
Yet we keep seeing headlines
of [INAUDIBLE] has just
raised a billion dollars.
And this fund raised a billion
dollars and so on and so forth.
So are these super angels taking
the role of the early stage?
Is that supplanting the
role that the VCs had?
Are they moving upstream now?
What kind of trends you
see here now in VC land?
DAVID ROWAN: There's a
really interesting debate
at the moment about how
we innovate liquidity
for early stage tech companies.
So the VC model has
benefited from a lot of cash
looking for a home.
The financial markets have
not been paying returns.
A lot of family offices are
suddenly excited by tech.
They want part of this.
SoftBank has taken a large
amount of Saudi money
to redistribute to big
ego Israeli entrepreneurs.
The incentive system--
JACK HIDARY: What are
you talking about here?
DAVID ROWAN: The
incentive system of VC
is increasingly misaligned
with the needs of the talent.
So typically, the VC will charge
quite high management fees, 2%
or 3%, to manage the money, and
then quite a lot of the upside.
And you hold your money in a
VC fund for maybe a decade,
maybe more.
You don't know at the
beginning how good they are.
And the Kauffman studies show
that most VC underperforms.
You'd be better off keeping
the money under your pillow.
There's only a few really
effective funds that outperform
.
JACK HIDARY: And
those are usually
because of just a handful
of investments they made.
DAVID ROWAN: Yeah.
JACK HIDARY: So if you were
in those few investments
that took off, and you
were some of those VCs,
and you were an LP in
that VC, then you're OK.
But everyone else is below par.
DAVID ROWAN: And
when you're a VC,
you start raising your second
fund a year or two after you
launch your first fund, before
you've got any results anyway.
Small entrepreneurs I
know are increasingly
wary of taking VC
money because they see
a misalignment of incentives.
The VC wants growth, growth,
growth, and then an exit.
And sometimes, the
entrepreneur wants
to build something which
the market wants and maybe
even makes, unfashionable
word, "profit"
and so they keep control
of the direction.
A lot of London
entrepreneurs who
I'm talking to are much more
interested when they can raise
VC in having what they call
value add super angels,
people who can help
them with specific skill
sets-- hiring talent, designing
products that the market wants,
growth hacking, these
sorts of skills.
And we made a mistake in media
of celebrating fundraising.
It's like a pornography of how
much money these people have
raised.
And we're going to see more
and more very highly funded
companies collapse because
that's not the goal.
The goal is to build a
sustainable business, where
your income every
month will be slightly
more than your outgoing.
JACK HIDARY: Hmm.
Related to the VC
question, the question
of the inability of most VCs,
It seems, to actually invest in
deeper technology.
They seem to be
completely obsessed
with these shallow ideas
that they run with,
be it the spoon-fork,
the possible idea,
or other less-than-deep
technologies.
And so deeper ideas,
even deeper AI,
often go unnoticed by most VCs.
There's a handful of VCs
that have taken the plunge,
invested in Tesla,
invested in SpaceX,
invested in kind of a
deeper sense, that is, a 10
to 20-year time horizon.
And when it came
crunch time, when
Tesla was about to go under, and
you looked at the likes of Ira
Ehrenpreis, for example,
who was an early investor
in the company, stuck
with the company,
doubled down with Elon at
the moment when they were
about to go under,
and then said,
I'm not here for the short term,
I'm here for the long term--
why is it so
difficult for most--
both VS but also
corporate venture
and corporate internal
decision-making
to go for that
deeper technology?
DAVID ROWAN: Because the
people in the corporate making
those investment decisions
have a career to worry about.
And they want to show
they're having results.
They want exits as their metric.
And deep tech is
quite long term.
So I met [INAUDIBLE]
and the team
not long after they'd
become part of Alphabet.
And when he was
talking about building
the artificial
general intelligence,
that was not going
to come in 10 years.
If technically it
was feasible, this
was going to be a
multi-decade project.
And talking to [INAUDIBLE],,
one of the reasons he became
part of this organization
was he didn't
want to be scrambling to raise
funds for his amazing research
lab for decades because
product market fit comes
after designing the product that
has been impossible until now.
JACK HIDARY: Cool.
Let's talk about universities.
Universities,
traditionally, were
supposed to be the
cauldrons of innovation
and tremendous things
coming out of that.
And many things have
obviously come out
of the university setting.
But what is your
current assessment
of the ability
for the university
to translate those
innovations to the market?
DAVID ROWAN: Again,
there's a series
of poor financial incentives
for the universities.
Many of them are
optimizing for attracting
students who will pay fees.
And if you're a parent, are you
going to encourage your child
to study a course where there
is an obvious consultancy,
Goldman-Sachs-type output
at the end, or deep tech,
which may not have--
JACK HIDARY: Yeah, I know.
DAVID ROWAN: --success but also
the revenue to invest further.
China is fascinating
at the moment
because, in China,
decision-making is centralized.
And the state has
decided China is
going to be the world's leading
AI power within a decade or so.
And so they are not
just pushing investment
into a select
group of companies,
where there isn't going
to be competition diluting
the impact.
They're also keeping
the universities
focused on the
emerging skill set
so that the engineers coming
out of the universities
in two, three years are what
the market is forecast to need.
I spend quite a lot of time
going to technical universities
like ETH in Zurich,
where they're
much more geared to creating
applied use of the hardcore
tech.
And I think you're going
to get more startup
clusters around those technical
universities-- you know,
the Technion in Israel,
Imperial in London.
If I was in government,
trying to protect my economy
for the next couple
of decades, I
would invest heavily but
also create collaboration
between those technical
universities and the emerging
businesses so that the skill
set was being prepared.
JACK HIDARY: Just
to build on that,
universities themselves
are being out-innovated
in many cases by, for example,
these bootcamps, these coding
bootcamps, where the
universities were not
quick enough on the uptake
to realize that they needed
to offer skills in Python,
Python-based ML, the kind
of skills that we, in this
company, are looking for.
And Google, Apple, many others
have announced publicly,
we're no longer looking
at specific pedigrees
in the CV, specific
imprimaturs of certain brands.
We're looking for skill sets,
portfolios, Github repos,
things like that.
Enter General Assembly,
enter Flatiron School,
enter these various
bootcamps that said,
you know what, we're going to
fulfill that particular need.
Universities are too slow.
So kind of put that
in context of what
you see as the innovator's
game and challenge
for the universities.
DAVID ROWAN: The beautiful
thing about education
is it's no longer centralized
under the umbrella
of the state.
You have entrepreneurs,
Xavier Niel in France,
who were self-funding
a coding school that
has become a franchise model.
And the last time
I looked, I think
there were 20 versions of Ecole
42 in Fremont, in Amsterdam.
And these are merit-based
online application.
They don't care who your family
was, which part of Paris,
if you're in the [FRENCH],, where
there are barriers to entry
to the traditional schools.
If you have a skill, the
online test will validate you.
Then you're called to do a
week, maybe longer testing.
And then they give
free courses to those,
typically 100 at a time.
And it's peer learning.
There's no teachers.
It's online learning.
And they've gamefied it.
So if I mark your
work, I will get points
that I can use against my marks.
And what I think is
exciting at the moment
is those experiments
are proving valuable.
Big businesses in France
are hiring those graduates.
There's a London-based
team I'm personally
involved with called Faculty
that runs a fellowship for data
science postgrads.
It trains them in
some markets skills.
And it makes them available
to companies as kind
of three-month project people.
Many of them get hired
by these companies.
A massively high proportion
of all data science students
are applying for
that because they
can go from the
academic way of thinking
to the market way of thinking.
And of course, the
clients at the end,
the big supermarkets,
the big banks,
have access to real talent.
And talent is the
scarce commodity.
JACK HIDARY: Yeah.
And School 42, I think, merits
even further study, maybe
a further book on your part.
One interesting statistic--
I was just there last week
visiting with the team there.
40% of the students at
School 42 do not have,
nor will ever have a
secondary high school degree.
And so it's really
fascinating, taking individuals
who, quote, "are not
part of the system"
and bringing them in a
very accelerated way.
So with that, let me open it up
for questions to the audience.
AUDIENCE: I was curious what
your take is on innovation
in the climate change space.
I've seen this not
very well-represented
in your samples.
And I wonder if you
think that there is hope
or that we move away
from this consumerism
and tackle that properly.
Do you see anything
happening there?
DAVID ROWAN: I looked at
what some of the big energy
companies are doing.
And at the time,
I was researching,
I thought quite a lot of
it was the bullshit side
of innovation.
They weren't serious about
investing real amounts of money
in changing how their
companies are thinking.
What's happening now is really
getting quite interesting.
So climate tech is
becoming an investment goal
for a lot of investors
now in itself
because you get purpose-driven
entrepreneurs who
have come from
building businesses
in other sectors, who
see it as a mission.
And they are bringing
together the hybrid skill
sets, the people from the
technical universities,
with the regulators,
and with the NGOs.
And I'm starting to get quite
excited about where this is
going to take the real world.
And if I was launching
a fund at the moment,
I would think very
carefully about
whether you can create both
impact and financial value
from investing in
new kinds of biofuels
in variations of
what is generically
called geoengineering, in
ways to create alternatives
to plastics because
each of these
is a huge market opportunity.
And government regulators
tend to come in
quite late and quite heavily.
And I think you
have to be prepared
for those sorts of
behavior changes.
If you think about the way
plastic bags became something
that you don't use, if you think
about the way a 16-year-old
Swedish girl called Greta has
helped popularize a new word,
which means flight-shaming--
I'm not going to tell you
now how many flights I've
taken this month, whereas
last year, it would've
been a badge of, look at me,
I've been on so many flights.
And these attitudes
lead to market impact.
You are going to get increasing
government sanctioned taxes
on that sort of
behavior, on flying.
The frequent flyer programs
will be made illegal.
So if you can get entrepreneurs
with a technical background who
are devising solutions even
before the market is ready,
this is a really
interesting time for that.
JACK HIDARY: David, let me
ask you a final question.
Many of the people
watching this video
will be not only CEOs of
companies, not necessarily
on the boards of
companies, but in
or leading teams of 10 to
50 people in tech companies,
in other kinds of companies.
What do you have for
those individuals
as they want to think about
the kind of innovations
you talk about in the book
and the kind of strategies,
specifically, you talk
about in the book?
They're not at the board level.
They're not at the CEO level.
They can't necessarily
say, the whole company
is moving in this direction.
So what is your message
for those folks?
DAVID ROWAN: So Astro
Teller, who runs X,
was talking to me about this.
And I quote him in the book.
And essentially, he
says, if you feel
constrained because your
leadership is not supporting
you to make the transformation
that the business needs,
why are you still there?
Why aren't you getting
together with other people who
see where the future
lies and building
the business for that future?
JACK HIDARY: Well, on
that note, let's thank
David Rowan for coming.
And please check out,
"Non-Bullshit Innovation."
Thank you, David.
[APPLAUSE]
