Safi Bahcall on the necessity of nurturing innovation

In the early-1990s, Nokia was untouchable. It sold hundreds of millions of cell phones, dominating one-third of the market. To this day, its iconic budget handset, the Nokia 1100, remains the best-selling phone of all time, shipping 250 million units.

That success was predicated on Nokia’s relentless innovation. It launched the world’s first international cellular network and the first car phone in the 1980s. In 1994, the tech firm launched the Nokia 2100 with a sales target of 400,000. It sold more than 20 million units worldwide. Nokia pioneered music ringtones, phones with cameras, and mobile browsing.

But in 2004, everything changed.

Nokia’s engineers came up with a bold idea: an internet-ready, touchscreen, camera-equipped cell phone. That describes just about every phone on the market today. But back then, it was a radical idea. Executives balked at the idea and scrapped the project.

Three years later, at Apple’s Macworld conference, Steve Jobs unveiled the iPhone, an internet-ready, touchscreen, camera-equipped cell phone. When it went on sale, consumers queued for days to buy one.

Nowadays, Apple competes with Google, Amazon, and Microsoft for the title of world’s most valuable company. In 2014, Nokia sold its cell phone division to Microsoft for $7.6 billion—just 2.5% of its peak value.

Most people have never heard of Nokia’s fateful decision in 2004. But physicist and former biotech entrepreneur and CEO Safi Bahcall is fascinated by it.

The pitch from Nokia’s engineers is something Bahcall dubbed a loonshot: an idea that seems downright crazy—right up to the moment it becomes unthinkable that anyone ever lived without it. These sorts of ideas change the world. They can be boon or bust for companies.

In his book Loonshots, Bahcall unpacks a new way of thinking about behavior, culture, and structures to nurture radical breakthroughs. Dropbox caught up with Bahcall to ask how businesses can borrow from science to become the initiators, rather than the victims, of innovative surprise.

Loonshot probably isn't a term that everyone is familiar with, so could you explain what a loonshot is?
Sure. It's a wild, crazy idea that is initially dismissed—a champion written off as crazy. Since there wasn't a good word in the English language for that, I made one up. 

What compelled you to fill in that gap in the English language?
If you look at the course of history, the ideas that often had the biggest impact, the ones that changed the course of science, or business, or history, rarely arrived with blaring trumpets, dazzling everybody with their brilliance. They were usually dismissed, ridiculed for many years before they finally arrived and broke through. And there are many examples in the business, political, or military worlds. It's very easy, for instance, to declare something a “moonshot.” That's become a popular thing to say, which traces back to Kennedy. President John Kennedy in 1962 said, "Let's put a man on the moon." That's a big goal, something that everybody gets behind. And you can think of a moonshot as a destination, but nurturing those crazy ideas, those ones that everybody dismissed is how you get to that destination. 

So it's easy to talk about a big destination, but how you actually get there is you need to nurture those small crazy ideas. A moonshot is announcing a big goal. But a loonshot is those crazy ideas that end up getting you to that goal. And if you're a team or a company or a nation, it's incredibly important to pay attention to those loonshots. And you asked why did I use that term or invent that term, because there wasn't a good phrase or term that captured that concept. So I struggled around for a while and just said, "Ah, what the hell." The publisher didn't like it but I was like, "Yeah, I'm just going to go with it," and so that's that.

Were there any other terms on a short list?
No. There were phrases to describe the concept, but it's not as good as if you have a single word just to capture the idea. And I think quite a few people in the publishing industry said to me, "No, you shouldn't use it because you see, here's what's going to happen. Your book is going to come out and then we have this thing called a sales force and they're going to call up book stores and they're going to say, 'We have this new title.' And they'll say, 'Well, what's the title?' They'll say, 'It's Loonshots.' 'Oh you mean, Moonshots?' 'No, it's Loonshots.' 'What?' 'It's got an L not an M.' 'What?' And it'll take them at least 20 seconds to explain and you don't want that 20 seconds." I'm like, "Really? That's the answer because your sales force is going to need another couple of seconds to explain there's an L not an M, and you think that's the big problem? Ha, I'm not so sure that's such a big problem." So we had those kinds of discussions a few times. It ended up being fine. 

But no, actually I didn't know at the time. In and of itself, it's a crazy idea to make up a random word and make it your title. So I wasn't sure, but I thought it was worth a chance.

If loonshots are so impactful, why have we ignored them for so long?
Well, I don't think I'm the first guy to say that a lot of important ideas were neglected for a while. But what I do in the book is a combination of physics, business, and history, and I think that is kind of unusual. I'm a theoretical physicist by training and then I entered into the business world maybe 20 some years ago. I don't think it’s a new idea that important projects get neglected or things that end up changing the world get neglected. In hindsight, that is quite easy to see, because as I ... I think I called it the “three deaths of the loonshot.” 

It was Nobel Laureate, Jim Black, who told me one night when I was really depressed about a drug discovery project of ours in the lab that wasn't working. He's an 82-year-old guy who's invented two of the most important drug categories of the 20th century. And he leaned over to me and he said, “Ah, Safi, it's not a good drug unless it's been killed three times.” And that applies much more broadly to technologies. Google was the 18th search engine. There'd been two dozen social networks that didn't work before Facebook. There were many storage companies that didn't work before Dropbox. If it was easy and important, we wouldn't be having the conversation, because somebody had already done it. So typically, that's why those projects fail. 

What do you think it was about this book that resonated with people if this concept has been out there for so long?

What I think is new is applying the mathematical principles of complex system theory to understand why groups suddenly change behavior. Why is it that good teams will kill great ideas? If you have 20 people, all of whom are excited individually about a new project, and you put them around a conference table … why will they ultimately kill that idea? Not for any irrational reasons, it is exactly in their rational interest to kill that same idea, even if they would have individually supported it. That’s the concept that is new. And that's what links all the funny underlying stories like the rise and fall of Pan Am, and hunting submarines in World War II and Steve Jobs and missiles, and even the birth of modern science, and why the world speaks English. They're all connected by this one idea, underlying that is a novel economic theory, which is new.

So I think it was fortunate that I am a border dweller. I have been in the hot seat as a public company CEO. I have been an academic as a theorist and had the ability to see across industries. And then, it just happens that my training was in many-body physics, which is, you study the properties of systems. There was just an opportunity because nobody in economics had done that before, to create an underlying theory that you could apply. I could bridge the gap between pure academic stuff, which isn't really interesting if you're a head of HR at a 500 or 1,000, or 10,000 person organization. You're not going to be reading differential equations and doing integrals and saying, "Let me apply that differential and partial differential equation in three variables to why Judy is really pissed off about her stock option grant." That's not going to help you very much. So you need to be able to translate. And so, I think what has resonated for people is that it's new and that it comes from dwelling across borders. 

You co-founded Synta and then you stayed there for 13 years. Did you experience some of these problems firsthand? Did you see that tipping point where suddenly ideas stopped getting picked up?
I think every entrepreneur starts to see this. So many of the calls I've gotten over the last year, two years, are from some very well-known CEOs. Essentially the question was the same: A small team — maybe three or four people — start a company. Then it starts to grow. They go from 10 people to 20, then 50, then 100, then 200, then 500. And then, it's the same founding team and they're used to, "Oh, when we have a new idea, we get around the table and people are excited about it.” Sure, every new idea stumbles at first — the three deaths of the loonshot. Version one, version two, never works very well. It isn't until several iterations that it really takes off. But everybody would roll up their sleeves and they would figure out the problems and they'd come up with some solution to make it work. And everybody would get around the table and we'd figure it out together. But now, the company has grown to 5,000 people and we're all over the globe. The CEOs all want to ask me, “What happened? It's the same people!” But now, they're fighting. The people doing the core stuff hate the people who are doing the new stuff. They're fighting and they're at each other's throats and they can't wait to kill each other's ideas. But it's the same people, what happened? And that's why they ended up calling me. They say, “I finally have a language for articulating the stuff that I just haven't been able to communicate about how to get our team to get along.” 

So how do they get along?
You've got the same goals but the artists are doing it through taking risks and the soldiers are doing through reducing risk. Now, we have a shared language for discussing that, that we are on the same page, we just have different approaches. And you need both. You want that tension. For the artists — the chemists who have invented this beautiful, elegant molecule; the biologist who discovers a pathway into the cell and it cures cancer; the engineer who came up with this unbelievably elegant code nobody’s ever seen before — I call it the “beautiful baby problem.” You want them viewing their work like like it’s their beautiful baby. 

On the other side, there’s the soldier, whose job is to make stuff on time, on budget, on spec. They will look at that same thing and they will see a shriveled-up raisin, covered in vomit and poop instead of a beautiful baby. Look at the poop and look at the barf and look at all the squealing and all the things that are wrong with it. And you want them doing that, because if they're not doing it, they're not doing their job. You need them de-risking it.

People often rely on culture to increase innovation. But you say this doesn’t always work. Why do people reach for culture instead of building structures to coordinate soldiers and artists?
Well, culture is what you want at the end of the day. It's what you see on the surface. Culture is in the patterns of behavior. So it's the people who are killing good ideas or they're embracing them. The idea that you can change culture by yelling at people to innovate more is about as valid as the idea that you can go to a block of ice and just start yelling at the molecules, “Hey everybody, loosen up a little bit.” They're not going to do anything. But if you change the temperature by a small amount you can melt ice. A small change of temperature can melt steel. So the point is that structure can drive culture, if you find the right parameters to change the right things about your organizational design that you can change, you can achieve the changes in pattern of behavior that you want to see. 

What happens when loonshots don't go well? Is there a risk that companies or organizations will invest money into bad ideas instead of the next iPad? 
Well, they should be failing and Apple failed a ton, Amazon failed a ton. Do you remember the Amazon Fire Phone, probably not, but I do. I remember getting a zillion packages covered with advertisements for the Fire Phone. It was roughly a billion dollar failure. And what you're asking is actually the real secret sauce. Take Amazon's — whatever it is — $2 trillion market cap. The key for them was always understanding and managing and embracing failure. But not just stupid failures, smart failures done in the right way. So in many ways, that's the key, is to set up your system, so to manage failure well, so that you fail smart and fail often. To nurture loonshots, you should expect failure nine out of ten times. So there are ways you want to set up your system and your structures to separate — quarantine the areas where you expect and want to fail; where you want to fail smart and fail often. But you also need to identify the areas where you don’t want to fail. That’s what I'm talking about with risk. When you're nurturing loonshots, you want risk, you want it to try nine things that fail to get to that tenth thing that changes the world. 

It must feel very liberating to think that way because we are conditioned not to fail. We’re programmed to want to avoid failure, to kind of be ashamed of it.
Right. And that ends up again being the job of the leadership team, if you want innovation, make it safe to fail. But the key is differentiation. It's not okay to fail with your sales guys. You don't want them knocking on a customer's door and say, “Hi, here's your toaster.” “Toaster? I ordered a television.” “Oh whatever, I'm just failing." No, in your core areas, you need to reduce failure, and in your experiments, you need to increase risk taking and intelligent failures, where you're learning that each experiment has a hypothesis and the end of each experiment is a learning. You want to increase the rate of those experiments and measure the rate of those experiments. That’s the job of the leadership team is to create that structure. When you create that structure, then you'll get the culture that you're looking for.