entrepreneurship on the edge of chaos: black swans, new socialism and bull fighting

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P I O T R P ŁO S Z A J S K I

MANAGEMENT ON THE EDGE OF CHAOS: BLACK SWANS, NEW SOCIALISM

AND BULL FIGHTING

REED HASTINGS, CEO, NETFLIX (THE VIDEO-STREAMING SERVICE):

'ENTREPRENEURSHIP IS AN ACT OF STUPIDITY'

•  as an entrepreneur you have to feel like you can jump out of an aeroplane because you're confident that you'll catch a bird flying by

•  It's an act of stupidity, and most entrepreneurs go splat because the bird doesn't come by

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… BUT A FEW TIMES IT DOES!

Most entrepreneurial ideas will sound crazy, stupid and uneconomic, and then… they'll turn out to be right

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When everybody says your idea is right

it’s definitely too late!

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BUT, HOW TO SPOT A BIRD FLYING BY?!

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TODAY: LOOK AT THE FINE PRINT

AND TINY ANNOUNCEMENTS!

THE IMPORTANCE OF WEAK SIGNALS

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LOOK AT THE EDGES (AND NOT THE CENTER)

Today, dealing with complex economic, social and organizational systems operating on the edge of chaos, entrepreneurs need the ability to pick up subtle changes, even without knowing quite where to look for them… … by looking everywhere at once

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IN CHAOTIC SYSTEMS THE FUTURE MANIFESTS ITSELF

ON THE EDGES!

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Today, most risks

come from outside of the center of attention

When a risk appears in the center - it’s usually too late!

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In the new economy, your biggest competitor will, in most cases, come from outside of ‘your box’

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THE TECH WAR: NEW COMPETITORS FROM OUTSIDE

•  These four companies are increasingly crossing into each others’ business •  all creating mobile devices, •  all trying to exploit the social groups •  all hope for making money in advertising •  all want to sell stuff

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“HOW DOMINANT COMPANIES LOSE THEIR POSITION?

TWO-THIRDS OF THE TIME, THEY PICK

THE WRONG COMPETITOR TO WORRY ABOUT.”

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IN THE NEW ECONOMY, SOURCES OF INNOVATIONS

ARE ALSO MOSTLY OUTSIDE OF OWN SECTOR!

THE MAJOR TECHNOLOGY THAT WILL CHANGE YOUR BUSINESS WILL MOST PROBABLY COME

FROM OUTSIDE.

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The main threat to an entrepreneur is an inability to see the connection

between today’s fiction and tomorrow’s reality

SQUARE: DISRUPTING THE CREDIT CARD BUSINESS

•  Gives anyone the ability to accept credit card payments through a reader plugging into iPads and smartphones

•  It tracks each sale, allowing the company to calculate everything from the busiest sales day of the week to the average price of a cappuccino

•  Creating a vast powerful database of financial information that its customers can tap into

•  Visa joined in April, 2011

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PEER-TO-PEER INSURANCE?

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•  “It’s absolutely the perfect arbitrage between countless frustrated low-yield investors and countless desperate small business owners hungry for financial survival and growth”

•  E.g.: Landing Club: $718mln loans in 2012, $1.5mld in 2013, return for inwestors: 5.8–12.4%!

•  In China, more than 2,000 such websites set up nationwide since 2007, with the value of their loans increasing 300-fold, to 6 billion yuan, by mid-2011

PEER-TO-PEER LANDING?

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BITCOIN

•  The digital currency invented by Satoshi Nakamoto in 2009

•  Not based on trust for any central eminent

•  Peer-to-peer topology of Bitcoin network and the nonexistence of any central administration make the bit-currency immune to any governmental or institutional manipulation of its value

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THE GOOGLE GLASS REVOLUTION?

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GROWING IMPORTANCE OF PATTERN RECOGNITION

IN BUSINESS

•  In mushroom picking, if you focus you won’t spot them

•  You need splattered vision to be able to learn patterns

•  Knowing the patterns makes mushroom hunting (and economic forecasting) a lot more successful

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THE MANAGERIAL UMWELT (NATURAL ENVIRONMENT)

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BIOLOGIST JAKOB VON UEXKÜLL, 1909:

•  A simple (but often overlooked) observation: different animals in the same ecosystem pick up on different environmental signals •  In the blind and deaf world of the tick, the important signals are

temperature and the odor of butyric acid

•  For the black ghost knifefish, it's electrical fields

•  For the echolocating bat, it's air-compression waves

•  The small part of the world that an animal is able to detect is its umwelt

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EACH ORGANISM (PEOPLE INCLUDED) PRESUMABLY ASSUMES ITS UMWELT TO BE THE ENTIRE OBJECTIVE REALITY

"OUT THERE”

•  Why would any of us stop to think that there is more beyond what we can sense?

•  Remember The Truman Show movie? •  Why do you think Truman has never discovered the true

nature of his world? •  Because we accept the reality of the world with which

we're presented •  We accept our umwelt and, in most cases, stop

there!

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THIS WAY, A GREAT AMOUNT OF THE WORLD

GOES UNDETECTED IN OUR LIFE AND BUSINESS…

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HISTORY OF BUSINESS IS FULL OF SPECTACULAR EXAMPLES OF

COMPANIES THAT MISSED IMPORTANT TRENDS

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COMPANIES ARE LIKE PEOPLE – THEY ALL WILL EVENTUALLY SUFFER

FROM SCLEROSIS AND OSTEOPOROSIS.

FOR HUMANS, THOSE ILLNESSES ARE USUALLY NOT DEADLY.

BUT FOR COMPANIES THEY ARE.

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The high-spirited visionaries in their garages

should keep it on mind from the very beginning

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The concept of umwelt applied to management

captures the idea of limited knowledge,

of unobtainable information, and of unimagined possibilities –

all three being the biggest sins in business now days

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ALL THIS IS A WONDERFUL MESSAGE FOR NEW ENTREPRENEURIAL FIRMS:

the big market dominators can be bitten!

…despite the depressive results of SWOT analysis

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WHAT MAKES GREAT ENTREPRENEURS AND BUSINESS VISIONARIES

IS THEIR ABILITY:

•  to create a unique umwelt that is based on picking up on environmental signals that are different and more significant than the ones typically identified by other market players

•  to never stop expanding the frontiers of their umwelt (looking for new potentially meaningful environmental signals)

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October 2006

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„THE FORECAST FOR MOST COMPANIES IS CONTINUED CHAOS

WITH A CHANCE OF DISASTER.

THE CHALLENGE IS GETTING COMFORTABLE WITH IT”

(FORTUNE, OCTOBER ’06)

ALWAYS EXPECT THE UNEXPECTED

•  Nassim Taleb: History dominated not by the predictable but by the highly unprobable - the destructive, unpredictable developments - the Black Swans

•  The effects of wars, stock market crisis and radical technologies are multiplied just because they disturb our expectations toward the world as an ordered place

•  In the world of Black Swans the first step is to understand how much we will never understand •  “any system sensitive to a Black Swan will eventually blow up”

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STRATEGY FOR COMPETING ON THE EDGE OF COMPLEXITY

AND CHAOS:

q  mostly unpredictible q  basically uncontrollable q  frequently uneffective

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Thus, we are doomed to

unpredictible uncontrollable

uneffective strategies

beacause, today, nothing better is possible!

KEY CHALLENGES:

q  react (destroy) quickly! §  Zara and Madonna’s dresses at European tour

§  3 weeks reaction time to new designes

§  Toyota: 48 hours

q  anticipate, if possible (eg. Dell)

q  and lead the change when it makes sense!

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COMPANIES HAVE DEFINED SO MUCH ‘BEST PRACTICE’ THAT THEY ARE NOW MORE OR LESS

IDENTICAL

“The ‘surplus society’ has a surplus of similar companies, employing similar people, with similar educational backgrounds, coming up with similar ideas, producing similar things, with similar prices and similar quality.” K. Nordström, J. Ridderstråle, Funky Business

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IN THE COPY-CAT ECONOMY THE ONLY COMPETITIVE ADVANTAGES

ARE THE ONES THAT CANNOT BE COPIED!

QURENCIA – THE BULL’S COMFORT ZONE

•  in bull fighting: the spot in the ring to which the bull returns because it is ‘safer’ (home)

•  each bull has a different querencia •  as the animal becomes more threatened, it returns

more and more often to his spot •  but, as he returns to his querencia, he becomes more

predictable •  and so the matador kills the bull because instead of

trying something new, the bull returns to what is familiar - his comfort zone

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EXCESSIVE RELYING ON BEST PRACTICES, BENCHMARKING AND RIGID PROCEDURES

CREATES FALSE, DANGEROUS ’MENTAL QUERECIAS’

IN PEOPLE AND ORGANIZATIONS

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DEFINING WHAT IS “PERFECT” IT’S USUALLY THE BEGINNING

OF THE END TO BEING PERFECT

THE BIG ENTREPRENEURIAL QUESTION: “AM I RIGHT AND EARLY, OR AM I JUST WRONG?

•  “Wealth in this new regime flows directly from innovation, not optimization. That is, wealth is not gained by perfecting the known, but by imperfectly seizing the unknown.” —Kevin Kelly, New Rules for the New Economy

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“IMPERFECTLY SEIZING THE UNKNOWN”

– WOULDN’T THAT BE THE BEST DEFINITION OF ENTREPRENEURSHIP?

ENTREPRENEURSHIP IS ALL ABOUT EMBRACING

IMPERFECTION!

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CHAOS REWARDS BRAVERY!

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THE CHANCE PARADOX:

•  New chances degrade with time if not used •  Time allows for better understanding •  Thus: chances are vanishing with growing

understanding! •  Big companies tend to catch chances too late because

they are reluctant to take risk in vague situations •  Small, nimble, entrepreneurial companies are braver!

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THE NEW EDGES TO BE WATCHED

OPEN SOURCE

PRINCIPLES OF OPEN SOURCE:

§ Common goal § Common effort § Common sharing of

results

Does it remind you of something? J

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G L O B A L C O L L E C T I V I S T S O C I E T Y I S C O M I N G O N L I N E

THE NEW SOCIALISM

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“When masses of people who own the means of production

work toward a common goal and share their products in common,

when they contribute labor without wages and enjoy the fruits free of charge,

it's not unreasonable to call that socialism”

IT’S NOT OUR GRANDFATHERS’ SOCIALISM:

•  Instead of gathering on collective farms, we gather in collective worlds

•  Instead of state companies, we have “desktop companies” connected to virtual co-ops

•  Instead of sharing tractors, hammers, and shovels, we share applications, scripts, and files

•  Instead of national production, we have peer production

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THE OPTIMISTIC PRINCIPLE OF HYPERARCHY (WE TEND TO DISPAIR IN ORGANIZATIONAL/MANAGEMENT LIFE):

THE MORE FREEDOM IN SELF-ORGANIZATION THE MORE ORDER

ORDER FOR FREE!

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CROWDSOURCING AND

OPEN INNOVATION IN COMPANIES

T H E Y E T N E W E R E D G E S

THE DIY-POWERED SECOND INDUSTRIAL REVOLUTION

IS HERE!

DIY: THE SECOND INDUSTRIAL REVOLUTION

IN THE MAKING

•  Sophisticated DIY movement supported by 3D printers, drastic cut in DIY laboratory equipment’s prices and global communities of science-crazy kids

•  DNA cracking, making drones •  Fifteen-year-old Jack Andraka just patented a pancreatic cancer

sensor

•  Watch them closely: they are real edges!

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NEW PHASE OF SOCIAL INNOVATION

•  An initiative doesn’t have to be on the company’s side nor a single innovator

• …Today, innovations may „emerge” from mass actions

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DO YOU KNOW THE HISTORY OF MOUNTAIN BIKE? WAS IT INVENTED BY CORPORATE

MARKETING PEOPLE?

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…AND WHAT ABOUT RAP MUSIC?

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TODAY, WE DO NOT NEED ORGANIZATION TO OPERATE IN AN ORGANIZED WAY

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QUANTUM LEAP IN SOCIAL INNOVATION

• Ancient innovator had to be rich • Yesterday innovator had to work in a big

corporate laboratory • Today, the distance between an invention and

the production is (may be) minimal

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THE DIY-POWERED SECOND INDUSTRIAL REVOLUTION

IS HERE!

•  The digital revolution has dramatically change the World of Bits

•  Now, it starts to transform the World of Atoms using the same Principle of Connecting and Sharing •  Ideas shared turn into even bigger ideas •  Projects shared become group project •  And these projects can become the seeds of products,

movements, even industries

DIY BIO-RESEARCH

•  Thousands of ‘garage’ bio laboratories and bio-research communities emerging

•  DNA cracking and brain research •  June 2012: a 15yo kid (?) patents a test for early

detection of pancreatic cancer doubling the survival rate

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THE PATH FROM “INVENTOR” TO “ENTREPRENEUR” HARDLY EXISTS

ANY MORE

•  The history of the last 20 years is one of an extraordinary explosion of innovation

•  It’s now time to apply that to the real world

•  The Web has liberated Bits

•  Now it is starting to liberate Atoms

THE NEW INVENTORS/ENTREPRENEURS SUPPORTED BY:

•  CAD/CAM software •  3D scanning •  3D printing •  Laser cutting •  Personal CNC (Computer Numerical Control) machines •  The growing market for laboratory/DIY equipment for

DIY projects

3D SCANNING

3D PRINTERS: WEAPONS OF MASS CREATION

WHAT YOU CAN MAKE WITH 3D PRINTER

WHAT YOU CAN MAKE WITH 3D LASER CUTTER

INCREDIBLE $100 ARDUINO-BASED CNC MACHINE

THESE ARE THE NEW EDGES!

YOU HAVE TO LEARN HOW TO TRACE THEM

AND USE

“EMERGENT TECHNOLOGY” will be a great source of technological progress

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TODAY, PREDICTING THE FUTURE BECOMES USELESS

•  Yesterday, we needed armies of people and tons of money to do something substantial

•  Today, kids with OS software, a laptop and the Internet can create biggies like Google, Facebook or Yahoo and make it work even before they have raised any money

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CORY DOCTOROW IN HIS NEW BOOK, MAKERS:

•  “The days of companies with names like ‘General Electric’ and ‘General Mills’ and ‘General Motors’ are over.

•  The money on the table is like krill: a billion little entrepreneurial opportunities that can be discovered and exploited by smart, creative people.”

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PRESERVING THE ‘GARAGE MIND’

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In the contemporary marketplace, most bigger, new businesses start as a result of years of market research, planning and strategic investments Venture capitalists and big-money consultants get together with ideas that are based on years of experience and expertise, and they work in order to maximize profits

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While, there are still millions of individual entrepreneurs that start successful companies on their own, single-handedly, out of impulse and based on a single bright idea They are typically small to medium-sized at best, and they reach their growth (maximum?) capacity within several years

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AND THEN… THEY STOP GROWING, OR DROP DEAD

OR UNEXPECTEDLY TURN BIG,

FREQUENTLY WITH NO APPARENT REASON

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WHY DOES IT HAPPEN? - IS A POWERFUL QUESTION

LOOK WHO STARTED IN A GARAGE (OR OTHER OBSCURE PLACE)

•  HP •  Apple •  Microsoft •  Wrigley •  Google •  Starbucks •  eBay •  Facebook (dorm) •  Threadless (studio appt.) •  YouTube (office) •  LinkedIn (living room) •  Nike (car trunk) •  Lotus Cars •  Motorola •  Harley Davidson •  …and many more

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IT IS IMPORTANT TO STUDY THAT PHENOMENA

AS EVEN THE „GROWN UP” FIRMS (MAYBE EVEN THEM, SPECIALLY)

NEED THE „GARAGE MIND” TODAY

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THE CHALLENGE FOR EVERY BIG COMPANY TODAY, INCLUDING THOSE WHO STARTED IN A GARAGE,

IS RE-INVENTING ITSELF INTO A FERTILE PLATFORM

FOR SETTING UP, FINDING AND/OR SUPPORTING “INNER GARAGES”

- IN ORDER TO BECOME

A GARAGE-MINDED COMPANY

„IMPLANTING” THE GARAGE ELEMENTS IN A GROWN UP COMPANY

•  Google: 20% time for new projects, excessive new products (in Beta), company restaurants as incubators

•  IBM: open source, •  3M: innovation culture •  Cisco: „growing” start-ups •  P&G: open innovation •  etc.

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BEING BIG OR SMALL DOESN’T MATTER. BEING GREAT AT WHAT YOU DO - MATTERS

•  The only way you can make a large system that works is to evolve it from a small system that works

•  Unfortunately, it is not enough, though!

•  It takes much more than a perfect small company to become eventually a successful big company

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A SUPERFICIAL CONTRADICTION: CREATIVE, DISORDERED PASSION (A GARAGE) OR “HARD,

CLASSIC MANAGEMENT” (GROW UP COMPANY)

The main problem of garage entrepreneurs and grown up companies is how to maintain the flow of fresh ideas and high level of adrenaline AFTER the company becomes big and enjoys success (so far)?

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Management is (almost) never about 0-1: good-or-bad, yes-or-no, wise-or-stupid, short time-or-long

time, people-or-profit, tradition-or-novelty, etc.

MANAGEMENT IS ABOUT FINE LINES!

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FINDING THE FINE LINE AND THE BALANCE BETWEEN:

•  hierarchy and spontaneity •  necessary control and tendency for experimentation •  benefits of standardization and leaving a space for

“deviations” •  ‘closed’ and ‘open’ innovation •  useful employee integration and protecting the creative

“unadjusted” •  Most companies clearly have problem with it

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TOMORROW, ONLY THE HYBRID COMPANIES,

WILL SURVIVE, ABLE TO COMBINE THE TWO SEEMINGLY CONTRADICTIVE

ORGANIZATIONAL FORMULAS:

CORPORATE RIGOR AND GARAGE VIGOR

STARTUPS ARE THE NATURAL EVOLUTIONARY ANSWER TO THIS NEW ENVIRONMENT OF BUSINESS

•  The advent of business chaos is the main reason why you should work for startups

•  Most corporations are defined by the quality of their planning processes,

•  Which in turn become the objectives against which achievements are measured

•  Corporate dinosaurs, faced with change, stumble and fall

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One of the things that makes a great company today

is realizing that somewhere on the planet Earth,

in some lousy garage, there’s a kid who’s going to do it better!

NEVER UNDERESTIMATE A POWER OF A ‘GARAGE MIND’

“GOOGLE’S NOT A REAL COMPANY. IT’S A HOUSE OF CARDS.” * STEVE BALMER, MICROSOFT’S CEO, IN 2005

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*and then he continued: ”F*ing Eric Schmidt is a f*ing p*ssy. I'm going to fu*ing bury that guy, I have done it before, and I will do it again. I'm

going to fu*ing kill Google." ....

MIHALY CSIKSZENTMIHALYI: "COMPLETELY FOCUSED MOTIVATION”

•  He defined the notion of "flow” •  The key conditions under which flow is achieved:

•  the activity has to be inherently rewarding •  with ambitious but attainable and measurable goals •  one has to have a sense of personal control •  feedback has to be direct and immediate

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COMPARE THE LARGE CORPORATION WITH THE STARTUP:

•  The small and nimble environment of the entrepreneurial growth companies generate the conditions for the flow

•  Large corporations are designed for the industrial revolution; work has to fit industrial processes

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THE CORPORATION BENDS THE INDIVIDUAL TO ITS REQUIREMENTS

No wonder the work there makes us unhappy

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IN FLUID MARKETS WHERE EVERYTHING CAN BE PRICED AND EXCHANGED DYNAMICALLY,

STARTUPS THRIVE:

•  They are elemental units of the new economy •  They are highly adaptable •  They are good at one thing only but they are

insanely good in it!

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LARGE CORPORATIONS CANNOT ADAPT AT THE SPEED NECESSARY

TO REMAIN BEST IN ALL ASPECTS OF THEIR BUSINESS

•  The same is true for the individuals that work for them

•  In startups, skills may evolve fast; adaptability is a core skill

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WE NEED TO MODIFY OUR LONGING FOR ORDER AND EMBRACE CHAOS

We need work environments adjusted to this new world that will help us towards achieving the flow and purpose

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BECAUSE STATUS AND CAREER

MAY COME AND GO BUT

INSPIRATION AND MEANING STAY

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2.

JAMES RHODES, PIANIST: “THE 0.2 SEC RULE”

• For most people 0.2 sec has no meaning • But for F1 driver or a sprinter, it’s the difference

between being a champion or a looser • Most pianists can pretty quickly get to a place

where they’re playing well enough for concerts or recordings

• Then, they spend the rest of their lives trying to gain that 0.2 sec to reach the top of their game

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THE 0.2 SEC RULE:

the concept of something seemingly tiny and inconsequential that separates the man from the boy or the fantastic piano player from the virtuoso or the good manager from the visionary game-changer

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“The 0.2 sec rule is a devotion to detail so intense and concentrated that it makes us mad, suicidal, depressed and sometimes, on a good day, satisfied”

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In today’s business full of millions of ‘educated clones’…

…entrepreneurs need everyday awareness of ‘the 0.2 sec rule’

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3.

A BUSINESS LEADER HAS TO DO THREE THINGS WELL:

•  driving design, •  driving technology •  and thinking strategically by looking at the edges

Some people who are really good at one can build a pretty good company People who are very successful - are good at any two The true business visionaries are good at all three

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TODAY’S ENTREPRENEURSHIP ON THE EDGE OF CHAOS NEEDS

LEADERS

AND HERETICS

- PEOPLE WHO QUESTION THE STATUS QUO,

LEAD THEIR CLANS AND GENERATE CHANGE

I WISH YOU TO FIND HERETICS

IN YOU

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