21st March, 2021
š§ Predict
This time last year economists predicted that house prices would fall 5-10% because of the pandemic.
According to recent reports they actually increased 12.7%. And thatās just an overall average. In some regions itās much more than that, e.g. average prices in Gisborne were up nearly 40%. And the data is a couple of weeks old, so probably now an underestimate.
I especially loved this quote from Arthur Grimes from Motu Research:
āItās possible house prices could ease, level off, or even fall. It's also possible they could keep rising.ā1
I reckon heās right! š¤Ŗ
The most interesting part of this, I think, is that we will continue to ask economists what they predict will happen next.
š· Define (part 4)
Ideas are not something you have, ideas are something you do
Being creative is not something you do for a living. What you do for a living is ship.
Time to innovateā¦
This is the next instalment in our occasional series on building an ecosystem of innovative technology startups in New Zealand.
To catch up: Part 1: "Startups", Part 2: "New Zealand" and Part 3: "Technology".
One of the things that nearly everybody thinking about this question seems to agree on is that we need to be innovative. The reason that this sentiment is so common is because each of us means entirely different things when we say it.
Q: What is innovation? What is an innovative company?
In simple terms, innovation means: āFresh thinking, applied to create valueā. But when you reach for anything more specific than that it is elusive2.
Often we get stuck on the "fresh thinking" part of that definition and never actually get to the "creating value" part.
That is to say we nearly always conflate innovation and invention.
But here is the thing about inventions and inventing:
"Often the people who invent something and the people who work out what that thing is for are different people".
ā Kevin Kelly
Q: Which do we want to be?
In other words, given the choice, is it better to invent something new or to work out who might want it, how to package it in a way that is attractive to them, convince them to buy it, and support it once itās sold?
An innovative idea is like a computer program that has never been run on an actual machine. What actually matters is how well it executes.
The likelihood that any non-trivial software works first time as intended is infinitesimally small. That is the art of software development. And, if we extend the metaphor, the challenge of creating a successful business. We need to get beyond ideas.
Ideas require getting one new thing right. Execution requires getting thousands of little things right, and repeating them over and over.
Ideas appear in the "a ha" moment of inspiration, when the lightbulb goes on. Execution is perspiration - putting your head down and doing the mahi.
Ideas are new and shiny and exciting and recognised with awards. Execution is exhausting and mostly unrecognised, (until companies that execute consistently are sold and then everybody scratches their head and wonders how a business that didnāt seem very innovative managed to become so valuable).
Ideas are R&D (usually more R than D) and so are often eligible for generous government support. Execution is operating expenses, and so needs to be funded entirely by investors or customers.
Ideas are smiling people in stock photos wearing white lab coats. Execution is rent and payroll, distribution, logistics and sales.
Ideas require us to dream big. Execution insists that we find the right size - the scale of the business that can be maintained.
Ideas ask ācan we make it?ā Execution asks āshould we?ā
Ideas are about being the first. Execution is about being the best.
Q: To be a successful company, do you need to be innovative or great at execution? Or both?
The noise about innovation is mostly focussed on "new and different", but what about those that do "familiar but better" - i.e. take an existing idea and deliver it in a way that means many more people will be enticed to buy it?
When we look at the most successful companies we see that pattern repeated again and again:
Apple was not the first to produce any of the products they are most famous for (they didnāt invent desktop or laptop computers, they didnāt invent portable music players, they didnāt invent smart phones ... etc)
Google was not the first search engine.
Facebook was not the first social network.
Amazon was not the first online store.
Netflix was not the first streaming video service (in fact, in the beginning Netflix wasn't even itself a streaming video service, but that's another post).
Zoom was not the first video conferencing tool, by a LONG way
Etc etc.
The thing all of those companies do have in common though is that they were massively successful in convincing people to use and buy the products and services they make and sell.
All of them now spend millions of dollars each year on R&D, but that's not necessarily what got them there.
Sometimes the innovative thing isnāt the product at all, but the distribution channel and/or revenue model. For example, Xero took the existing and familiar (and, letās be honest, pretty low-tech) software category of accounting software and built a massive company by providing free tools (and a lot of love!) to accountants; using them to reach a large potential market of small business customers; and charging a small monthly subscription rather than an up-front fee. In the process they proved there was still a lot of value to be captured in that exisiting category.
So, is product innovation actually a distraction? No, not at all. There are plenty of start-ups that have invented something and then executed well, and in the process created a big success. In other words, occasionally the people who invent things and the people who work out what they are for are the same people.
But the invention isnāt the multiplier in that equation, itās the ticket to the game. Itās a sometimes ingredient, not a leading indicator or pre-requisite. To quote Reid Hoffman: āA great product is important, but great product distribution is more importantā.
This means itās not enough to say that a company is innovative. Or not3. When weāre screening for individual companies that could be successful what weāre really looking for is something much less common, much more difficult and unfortunately much more boring: who can execute well, and do it repeatedly?
Q: What are we optimising for - one of the inputs, or all of the output?
Perhaps we should have called it Callaghan Execution? š¤
Where does this leave us?
So far in this series weāve considered what we mean by start-up companies, technology companies, New Zealand companies, and now innovative companies and in each case weāve found that those terms are a bit like a cloud of dust: our hand goes right through when we try and grab them.
Unfortunately this doesnāt leave us much closer to an answer to the underlying question we have (although be assured we will get there):
Q: What do we want?
Next, weāre going to lift up a level from thinking about individual companies to focus on the āecosystemā of companies we hear so much about. Stay tuned...
BONUS: Ali G on innovation: āThatās where you lot come inā.
š« Foil
Iām a sucker for a good sporting quote. Especially one that succinctly and elegantly captures a complicated idea that can be applied more generally.
Over the years the Americaās Cup has been a great source of these for me, so in recognising the success of Emirates Team New Zealand in defending the cup this week, here are some that have stuck in my brainā¦
1983
āThey were a crew of champions that became a champion crew.ā
ā Alan Bond
Iām too young to really remember the 1983 challenge, but I love this quote from controversial Australian team boss, that I came across recently. Itās a good reminder that itās never enough to just āhire Aāsā.
1987
āYouāre a loser, now get off the stageā
ā Dennis Conner
1987 was the first time New Zealand challenged for the cup, and I was by then exactly the right age to care. Deeply. Those of a similar vintage may recall that KZ7 (the NZ boat) was the first fibreglass entry in the Americaās Cup. That was a challenge to the tradition of the event so some other teams tried, unsuccessfully, to have it disqualified: āWhy would you [build in fibreglass] if you didn't want to [cheat]ā etc. Now all of the boats are fibreglass. I guess that's innovation for you?!
1995
āDoes it make the boat go faster?ā
ā Peter Blake
1995 was the year that Team NZ eventually won the Americaās Cup for the first time, in San Diego. And in the process they coined an expression that has been widely adopted by business people.
I actually think itās been mostly misused over the years since. The original intent was about focus and removing distractions - i.e. if it isnāt something that might make the boat go faster why are we spending any time on it? These days itās more often used to inspire people to start than to stop.
Actually an even better quote from Peter Blake from this campaign was at the press conference he did with skipper Russell Coutts and tactician Brad Butterworth immediately after they had won the final race. The first question asked them to confirm the details of the next challenge. They were all already looking a little under the weather from the celebrations and his immediate response was: āI canāt [comment] at the moment Iām sorry. Iām not really fit to tell you anything right nowā
2003
āYou canāt steer a boat that isnāt movingā
This is the perfect addendum to "Does it make the boat go faster?".
In the Team NZ highlights reel, the defence in 2003 often gets skipped entirely (remember the hula hull appendage? or the bailing? or the ripped sails? or the broken mast? it was a lot for a team that only completed five races!)
As always, there are probably more lessons from the failure that year than from any of their victories before or since.
2013
āI think the question is: imagine if these guys lost from here. What an upset that would be. Theyāve almost got it in the bag. So, thatās my motivation. That would be one hell of a story, one hell of a comeback. And thatās the kind of thing that Iād like to be a part of. Iāve been involved in some big fight backs, with some big challenges, facing a lot of adversity. That would be the kind of thing Iād love to be involved in.ā
ā Jimmy Spithill
In 2013 the racing was dramatic and spectacular, but the press conferences were brutal and memorable. This response, under huge pressure, from Jimmy Spithill was either an amazing premonition ahead of the greatest comeback in sports4, or a key part in the strategy to engineer that comeback?
2017
āThrow the ball as far away as you can and then run to try and get to where it landsā
ā Glenn Ashby
While we call them Team NZ, we conveniently overlook that they are also significantly funded by an Italian billionaire and one of the most influential team members over the last few cycles of the event is š¤ ... Australian!5
In this quote Glenn Ashby perfectly describes the challenge of development within an environment of uncertainty - the limits are never obvious in advance, and you only get to judge the results in retrospect. Lucky for them, in the 2017 campaign they tried a bunch of things that would have looked absolutely silly if they didnāt work (e.g. cyclors rather than grinders) but which looked like genius because they did.
For me this is a much better metaphor than the more common āskate to where the puck is going to beā because it also captures the effort required in taking those risks in the first place (the āthrow the ballā) rather than just assuming a steady-state environment.
2021
āLike trying to drown a fish in waterā
ā Francesco Bruni
In my opinion the star of the show this time around was the Italian co-helmsman, who spent a big chunk of each press conference describing their āelbows outā method of defence. After the penultimate day of racing he was asked what it was like trying to hold off Team NZās faster boat, and came up with this great line.
I plan to use this a lot. Grazie Francesco!
BONUS: (via Tim Kong) of course, the key to the successful defence was ā¦ (checks notes) ā¦ AI and Machine Learning #innovation.
Top Three is a weekly collection of things I notice in 2021. Iām writing it for myself, and will include a lot of half-formed work-in-progress, but please feel free to follow along and share it if itās interesting to you.
The OECD uses the Oslo Manual, which has a particular definition of innovation used to ensure consistency of Government data collection between countries in the group. One of their criteria for being an innovative company is having >5 FTEs. The reasons why are not explained, but perhaps itās a reflection of a steady-state mindset (i.e. small companies are likely to stay small). Either way, thatās bad news for nearly every early-stage company who likes to consider themselves āinnovativeā. Youāre not counted!
I think one of the reasons why innovation is given so much prominence is that itās easier to measure. Itās simple to calculate the amount youāve spent on R&D. Itās much more difficult to determine the ROI. Plus, you can see the investment up-front where as you often have to wait a long time to understand the potential returns, and the milestones along the way can be subtle if you donāt know what youāre looking for.
Yes, I realise that's a huge claim, but I can't think of any team that has come back from a negative score, to face match point and then still win. If you can please let me know.
Iāve seen it said that the reason the US āwonā the space race against the Soviets was that āour Germans are better than their Germansā - so when we think of Team NZ featuring Glenn Ashby vs Prada featuring Jimmy Spithill, maybe the Americaās Cup this time around was āour Australian was better than your Australianā?
good job , keep doing