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Your Playbook for Going Big,

Creating Wealth and Impacting the World

Session 8.1: Driving Innovation Part 1

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Session 8.1: Driving Innovation Part 1

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If you want to do any innovation, anything new, you’re going to

have failures because you need to experiment. – Peter Diamandis

Innovation is the act or process of introducing new ideas, devices, or methods. In business, this could
mean implementing ideas, creating dynamic products, or improving your existing services. Driving
innovation is an act of leadership, and it is especially important if you’re the CEO of a company, a
manager of a division, or an entrepreneur building a team.
By driving innovation, you also drive maximum performance. This means more creative ideas and
more new business models, which are key to your success. Let’s take a look at a few different
approaches to drive innovation.
8 Mechanisms for Driving Innovation
1 The Frequent Exchange of Ideas
2 Constraints & Clear, Objective, Measurable Goals
3 Team Composition & Team Mashups
4 5-5-5-5 Mindset
5 The 4 Key Motivators
6 Born Above the Line of Supercredibility
7 Team Isolation
8 Fear of Failure, Failing Often, Failing Early, Failing Forward.
We’ll cover the first four in this session.

MECHANISM #1: THE FREQUENT EXCHANGE OF IDEAS

The first approach to innovation is the exchange of ideas—this is what creates a real “stone soup.”
True innovation happens when ideas come together and recombine in different ways. As Matt
Ridley famously described in The Rational Optimist, it’s important for “ideas to have sex.”
Our old economy was a material economy, where we traded what we had to offer for desired
items. For example, we could trade a watch for a hunk of gold, and each party leaves with a
valuable item. Today, our economy is an idea economy where, if we trade ideas, then we both have
two valuable ideas after our exchange.
The World is My Coffee House
In his excellent book Where Good Ideas Come From: The Natural History of Innovation,
author Steven Johnson explores the impact of coffeehouses on the Enlightenment
culture of the 18th century.

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Coffee shops stimulated our minds in many ways. Until the 18th century, westerners drank beer
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continuously throughout the day. With the emergence of coffee, people suddenly preferred being
jittery to being drunk. Coffee houses began to pop up as a hub for information sharing, drawing
people from all walks of life. They created a density of conversation, thought, and the exchange
of ideas.
YEAR % POP. In CITIES
We’re living in a world where this human-to-human connection 1950 7%
and exchange of ideas is now skyrocketing. The world’s 1970 13%
population is exploding. The number of people who live in 1990 23%
high-density cities is similarly increasing. Considering these 2010 35%
2030 50%
factors, it’s no wonder the rate of innovation is also increasing.
2050 70%

• In the 1950s, 7% of the population lived in cities.

• Today, a little over 38% of people live in cities.
• By 2050, 70% of the world’s population will live in cities.
We are entering a period where 3 billion new minds
are coming online. This is the ultimate coffee house.
With more people talking, exchanging ideas, and
building ideas, the more innovation there is, the more
discoveries there are, and the more business models
that come into existence.
In this near future, anyone around the world can plug
in to the global conversation, and as a result, we’re
going to see latent genius emerge where it would
previously have gone undiscovered. And as history
tells us, just one genius can make all the difference in the world.
Takeaway: Idea Exchange in Your Company
1 Office physical layout—open vs. closed
Tear down the physical walls of your office space. It frees up the room for convenient
interactions that drive a level of conversation you don’t normally have in a traditional office.
2 Physical “mashup” locations: bathroom, lunch room
When Steve Jobs was creating Pixar, he designed it so it had one major men’s room and
women’s room at one end and another pair of bathrooms at the other end. That kind of
physical layout forces you to interact with colleagues and exchange ideas.
3 Concept “mashup” events: cross discipline events, ‘unconferences,’ and cross-topic conferences
Hold “unconferences,” or spontaneous conferences where people volunteer to speak about
topics in their passion areas. When scheduled within a large conference, an unconference
creates altogether new conversations and experiences.
4 Small, cross-discipline, passion-driven working groups
This is called a 5-5-5-5 group, which we will go over in further detail in a moment.

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5 Allowing ideas to come from all levels in your organization
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Breakthrough ideas can come from unexpected places. Make sure you have a communication
outlet that allows ideas to bubble up from anywhere, across disciplines and layers of the
organization.

XPONENTIAL ADVANTAGE EXERCISE

Idea Exchange: List three concrete ways in which you can increase the rate of idea exchange in
your startup, company, workgroup or family. Be as concrete as possible—for example, “Monday
Innovation Dinners” or “Monthly Team Unconferences.”
1.

2.

3.

MECHANISM #2: CONSTRAINTS & CLEAR, OBJECTIVE,

MEASURABLE GOALS
“Thinking outside the box” is a metaphor that means to think in an original or creative way. It’s a
phrase we have all heard over and over. The truth is that innovation isn’t about thinking outside of
the box: it’s about thinking inside a small box.
Thinking Outside the Box
When you give people all of the time, the money, and the resources to solve a
problem, we humans will inherently use it all. We will also take the safest route
available, because it’s the smartest way to minimize downside.
Thinking in a Small Box
When you put constraints on people to solve a problem—less time, less resources,
less money—they either take themselves out of the game or come up with a crazy,
novel way to solve it. Even if 99.9% of the “crazy ideas” fail, the 0.01% could be
a breakthrough.

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Constraints drive people to think differently, which enables true innovation. Consider the laws below
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when creating constraints.

PETER’S LAW #24

Without a target, you’ll miss it every time.
Make your target clear, objective and measurable. When we have a clear
goal, a target to shoot for, on a subconscious level, our brains process all kinds
of data on ways to problem-solve and assess progress towards the goal. By
giving people a target, they will subconsciously—during shower time, during
their morning walk—think about how they can hit the target or get closer to doing so.

PETER’S LAW #26

If you can’t measure it, you can’t improve it.
Make sure the target you set is clearly measurable. Only then can you really start
focusing on that goal.

MECHANISM #3: TEAM COMPOSITION & MASHUP

A youthful mindset drives innovation. Many of the qualities we attribute to youth are about wanting
to make a mark: young people are willing to take bigger risks because they have less to lose. If
you want true innovation, give the hardest, craziest challenges to the youth (or at least youthfully
minded) in your company.

CASE STUDY:
GOING TO THE MOON
In 1961, when John F. Kennedy announced, “We’re going to the moon,” it was
an insane proclamation. We had no right to make the claim that we were
going to go to the moon by the end of the decade.
When JFK said that, 400,000 people left school or their job to become an
engineer. The engineers who built the Apollo program were, on average, 26 to 30 years
old, and no one could tell them what could not be done. They had to invent everything from
scratch. There was no legacy to pull out of the past into the future. It was extraordinary. Today,
the average age at NASA is in the mid 50s, and if you’re 26, too bad – you have to work your
way up.

More recently, with the dotcom revolution, the average age of those entrepreneurs was even younger
– 20 to 25 years old. The Internet was a brand new playing field with no preconceived notions. Youth
– at least, youth from a mindset standpoint – truly drives innovation in extraordinary ways.

The young do not know enough to be prudent, and therefore they attempt
the impossible and achieve it generation after generation. – Pearl Buck

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A few examples of accomplishments made during the individual’s mid to late 20s follow.
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• Albert Einstein was 26 when he published the Special Theory of Relativity.
• Jonas Salk was 30 when the March of Dimes funded his polio research.
• James Watson was 25 when he co-published his breakthrough scientific paper on DNA.
• Isaac Newton was 23 when he began inventing calculus.
• Marie Curie began investigating radioactivity at age 30 and earned two Nobel Prizes by
age 45.
• Galileo published his first piece at age 22, and began experimenting with falling objects in his
late 20s.
Youth as a mindset is about not knowing what can’t be done. Be careful of your age bias. Consider
these stats from the National Institute of Health (NIH), which show that funding increasingly goes to
older researchers.

NIH Funding Increasingly Goes to Older Researchers

• In 1980, 10% of all NIH grants went to ‘young researchers’—between age 31 and 33.
• In 2006, only 1% went to ‘young researchers.’
• In 2007, more grants were given to 70-year-old researchers than those under age 30.

It’s hard to back the crazy new ideas compared to your peers, who are the established players.
Make sure to provide an open environment where your youngest (both physically and mentally)
aren’t afraid to share their ideas and test their assumptions.

Never doubt that a small group of thoughtful, committed citizens can

change the world; indeed, it’s the only thing that ever has. – Margaret Mead

Takeaways:
• Interaction and exchange of ideas is critical.
• Small, youthful, risk-philic teams drive new ideas.
• Constraints with bold, clear objective targets are key.
Key Questions:
• Where do you allow for youthful naiveté to generate breakthrough ideas in your company?
• Do you create small, creative, diverse teams that have the authority and resources to
attack problems?

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MECHANISM #4: 5-5-5-5 MINDSET
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The day before something is truly a breakhrough, it’s a crazy idea. But few companies
actually try crazy ideas—especially the most successful ones. Fear of failure paralyzes
creativity, stops risk-taking, and ultimately slows innovation down to a halt.
Why do People Fear Failure?
1 Reputation It’s so important to kill your ideas early: if you do,
you aren’t married to the idea, and you also won’t
2 Time feel like you are wasting your time and money.
3 Money
You can minimize the fear of failure with the right environment and the right incentives.
Creating 5-5-5-5 Teams
Michael Schrage, a researcher at MIT, created the 5-5-5-5 program to create an innovation
environment and to maximize innovation in a company. Create five-person teams, give them a
$5,000 budget, five weeks to complete, and five experiments to run.
Here’s Peter’s variation of that concept:
1 Create Groups of Five People: Break your organization into groups of five people. Try to
maximize diversity in the group (e.g. skill sets, ages, background).
2 Give Them a Budget (e.g. $500 or $5K) to Experiment: Allocate money to each of the
teams—it could be a $500-$5,000 budget.
3 Give Them Five Weeks to Experiment: Give the teams a fixed (short) amount of time to run a
number of experiments to see if their idea has merit and gets traction.
4 Give Them a Clear Focus: The goal is to try new ideas—big experiments that could give birth to
new business ideas and a direction of where a moonshot might be.
5-5-5-5 Principles
• Most Exciting Results: Make it clear that you are looking for the most exciting
results. This encourages teams to test crazy ideas.
• Failure is Okay: Remind teams that failure is okay. Communicate that small
ideas will not get attention.
• The Best Idea Wins: This is a competition, and the best idea gets rewarded.
• Collaboration is Key: If any one team succeeds in reaching the target, everyone gets rewarded.
You may be shocked by the results—the creativity and originality of your own employees is
astonishing. In each group where there’s no CEO, those five individuals get to come together, and
many of them have never worked together. Their ability to communicate is great due to the group
size, the time crunch and excitement of the challenge might encourage them to meet on weekends,
and they’re completely enthused because they’re able to take big shots. They’ve got the autonomy,
the authority and the budget to control their experiments the way they want, and as a result, they’re
going to start brainstorming crazy ideas.

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With this program in your organization, all of a sudden, you have hundreds of ideas being tried
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in five weeks. This can lead to a brand new product, a new service, and even if you don’t get a
business idea, you still get tremendous value because you’ve gotten your team together in new
combinations to work in new and exciting ways.

XPONENTIAL ADVANTAGE EXERCISE

5-5-5-5 Teams: Outline a plan to experiment with 5-5-5 teams. (This usually works best with
organizations or departments that are at least 20 people in size and no larger than 150.)
1 How many groups can you create? Set up diverse groups of five people each.

2 How much money will you give them as a budget? ($500? $5,000?)

3 How much time will you give them? (5 weeks?)

4 What is the focus? (Five experiments? To solve what problems? To create what business
breakthroughs? To support which moonshot idea?)

Exchanging ideas drives innovation and empowers people.

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