20160420 LES Scalable Innovation

Scale Matters: Creating High-Value Innovations From Raw Ideas

LES-SVC 2016 Annual Conference

April 20, 2016

Eugene Shteyn [pronounced Stein] [email protected]

Not for distribution without consent of Eugene Shteyn Genrikh Altshuller (1926 – 1998)

Since 1940s - analyzed tens of thousands of inventions » Discovered that strong solutions repeat » Extracted 40 Invention Principles » Invented TRIZ (ТРИЗ) and ARIZ (АРИЗ) » Created an “Open Source” invention community in the USSR » Followers around the world, including the US

http://www.pri.org/stories/2016-03-10/science-fiction-writer-soviet-union-found-secret- time-travel

2 Not for distribution without consent of Eugene Shteyn 3 Not for distribution without consent of Eugene Shteyn Innovation is the source of extraordinary value – e.g. top most valuable brands in 2015 • Apple, Samsung Group, Google

4 Not for distribution without consent of Eugene Shteyn https://www.youtube.com/watch?v=XAEPqUtra6E WWDC 2013 - Intro Video - Apple's Product Strategy 5 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn https://www.youtube.com/watch?v=XAEPqUtra6E WWDC 2013 - Intro Video - Apple's Product Strategy 6 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn The reality of a typical corporate innovation process 3,000 raw ideas = 1 successful product

Source: Greg A Stevens; James Burley. 3000 Raw Ideas = 1 Commercial Success. Research Technology Management; May/Jun 1997; 40, 3; pg. 16

7 Not for distribution without consent of Eugene Shteyn Failure is the norm

• About three-quarters of venture-backed firms in the US don’t return investors’ capital

• If failure is defined as failing to see the projected return on investment—say, a specific revenue growth rate or date to break even on cash flow— then more than 95% of start-ups fail • -- WSJ, 9/20/2012

• Most optimistic industry estimates: less than 5% of patents are commercially valuable

8 Not for distribution without consent of Eugene Shteyn Agenda: three simple questions

• How can we successfully imagine the next important innovation?

• How can we successfully create extraordinary value through innovation?

• How can we successfully capture a portion of this value?

9 Not for distribution without consent of Eugene Shteyn The best way to predict the future is to invent it

- Alan Curtis Kay

- John Doerr

source: http://techcrunch.com/2010/04/05/john-doerr-the-next-big-thing/

- Peter Thiel

source: http://www.wsj.com/articles/peter-thiel-competition-is-for-losers-1410535536

Source: Dave Gray, et. al. Gamestorming.

13 Not for distribution without consent of Eugene Shteyn 14 Not for distribution without consent of Eugene Shteyn http://www.levistrauss.com/ accessed on 1/25/2012

15 Not for distribution without consent of Eugene Shteyn Invention vs Innovation:

similar words for totally different processes

against

old new

Invention and innovation are lumped together as part of the “new”

17 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn Zooming into the “new”

“it works”

everybody

nobody

concept

Source: Shteyn & Shtein. Scalable Innovation. 2013 18 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn Zooming into the “new”

“it works”

everybody

nobody

concept

Source: Shteyn & Shtein. Scalable Innovation. 2013 19 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn Zooming into the “new”

“it works”

everybody

nobody

concept

Source: Shteyn & Shtein. Scalable Innovation. 2013 20 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn From Invention to Innovation

“it works”

everybody

nobody

concept

Source: Shteyn & Shtein. Scalable Innovation. 2013 21 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn Invention is a personal or a small group event

Innovation is a large network of social events

Not for distribution without consent of Eugene Shteyn Inventor’s challenge

Jacob W. Davis to Levi Strauss & Co

Reno, Nevada. July 5, 1877

23 Not for distribution without consent of Eugene Shteyn An innovation deal of the century

Jacob W. Davis to Levi Strauss & Co

July 5, 1877

24 Not for distribution without consent of Eugene Shteyn 25 Not for distribution without consent of Eugene Shteyn http://www.levistrauss.com/ accessed on 1/25/2012

26 Not for distribution without consent of Eugene Shteyn GE IP advertisement and licensing program, ca 1914

Source: The Smithsonian

27 Not for distribution without consent of Eugene Shteyn Thomas Alva Edison US Patent 438,310.

Source: Electrical World, Volume 64, Part 2. October 1914

28 Not for distribution without consent of Eugene Shteyn Nicola Tesla & George Westinghouse

29 Not for distribution without consent of Eugene Shteyn Do you recognize the object in the picture?

Clue: the picture was taken in 1958

30 Not for distribution without consent of Eugene Shteyn Jack St. Clair Kilby (1923 - 2005)

1958. Texas Instruments. Invention of the Integrated Circuit.

1961. First computer with IC.

1963. Pocket calculator.

1978. Professor at Texas A&M.

2000. Nobel Prize in Physics.

31 Not for distribution without consent of Eugene Shteyn 1953. PhD from MIT. Robert Noyce (1927 - 1990) 1956. Joined Shockley Semiconductor. Moved to California.

1957. A reluctant member of the “Traitorous Eight”, the founders of Fairchild Semiconductors. General Manager.

1959. Invention of the Integrated Circuit.

1968. Co-founder of Intel.

I did not see it as a very unusual day. I just went in and probably had a discussion with Gordon Moore or Vic Grenich or somebody like that initially. I said something like, "Hey, here's a way to do the whole job of making some logic circuits instead of making individual transistors."

32 Not for distribution without consent of Eugene Shteyn Gordon Moore ( born Jan 3, 1929 )

1956. Joined Shockley Semiconductor. Moved to California.

1957. Co-founded Fairchild Semiconductors.

1965. The Moore’s Law.

1968. Co-founded Intel.

…at the time the first microprocessors were shipped, the total annual market for computers in the world was something like 10,000 units. The microprocessor would have been a commercial disaster if all we did was to replace those 10,000 units with cheaper processors. I remember going to a conference and speaking before a group that was more involved in applications than devices and explaining to them that we had to ask big questions, like, ‘ How are we going to develop markets that can use 100,000 of these a month?’

33 Not for distribution without consent of Eugene Shteyn One of the key breakthroughs came when [Google engineers] Veach and Kamangar decided to use auctions to sell ads. It made perfect sense. In a dynamic marketplace, auctions allow you to find the sweet spot where buyers and sellers both win.

The source of their idea was the business model of one of Google’s competitors. GoTo was the brainchild of one of the most fecund minds of the Internet age, an energetic Caltech grad named Bill Gross.

Source: “In the Plex,” by Steven Levy.

34 Not for distribution without consent of Eugene Shteyn More Examples

• Steve Jobs – GUI, the mouse, etc. • Larry Ellison – Relational Databases • Microsoft – DOS, Office, browser • Google – relevant text ads, maps, video, auto auto, etc. • Facebook – chat, instagram, VR, etc.

35 Not for distribution without consent of Eugene Shteyn Innovation is not enough. It has to be a Scalable Innovation • Technology has become a winner-takes-all market – Prone to Natural Monopolies – Huge gaps between #1 and #2 and #3

- Social Networking: Facebook, G+ $ - Search: Google, Yahoo, Microsoft - Online Video: YouTube, Netflix - Smart Phones: Apple, Google, Samsung …. - Books: Amazon, Barnes and Noble, ? - PC Processors: Intel, AMD, - Mobile: ARM,… - etc. industry rank Industry rank 36 Not for distribution without consent of Eugene Shteyn Innovation creates its own Space-Time

“Insanely Great Product”

The “Big Bang”

37 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn Source: http://www.eetimes.com/electronics-blogs/social-mania-blog/4214882/Requiem-for-an-era

38 Not for distribution without consent of Eugene Shteyn How do we create or take advantage of opportunities for Scalable Innovations?

39 Not for distribution without consent of Eugene Shteyn Creativity is difficult, wonderful and confusing. It’s subject to hype and large doses of misunderstanding

40 Not for distribution without consent of Eugene Shteyn Creativity is wonderful and confusing; subject to hype and misunderstanding

“Inspiring creativity!” 41 Not for distribution without consent of Eugene Shteyn The 2,500-year-old paradox

"[A] man cannot search either for what he knows or for what he does not know[.]

He cannot search for what he knows -- since he knows it, there is no need to search -- nor for what he does not know, for he does not know what to look for."

Source: Plato, Meno, 80e.

42 Not for distribution without consent of Eugene Shteyn I once knew a little boy in England who asked his father, “Do fathers always know more than sons?” and the father said, “Yes.”

The next question was, “Daddy, who invented the steam engine?” and the father said, “James Watt.”

And then son came back with “ – but why didn’t James Watt’s father invent it?”

Source: Gregory Bateson. The Ecology of Mind.

43 Not for distribution without consent of Eugene Shteyn Horse Carriage Before

44 Not for distribution without consent of Eugene Shteyn Horseless Carriage After

45 Not for distribution without consent of Eugene Shteyn 46 Not for distribution without consent of Eugene Shteyn Phone

iPhone

47 Not for distribution without consent of Eugene Shteyn The Web

“Web 2.0”

48 Not for distribution without consent of Eugene Shteyn Beware of Skeuomorphs !

49 Not for distribution without consent of Eugene Shteyn Stages of Innovation how to recognize and leverage them

50 Not for distribution without consent of Eugene Shteyn Dominant design and Dominant process

dominant design

52 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn Dominant Design is an implementation of a new functionality that the market adopts as the exemplar for future implementations.

dominant design

53 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn The problem: The seams are usually ripped or started by the placing of the hands in the pockets and the consequent pressure or strain upon them.

The solution: To strengthen this part I employ a rivet, eyelet, or other equivalent metal stud, &, which I pass through a hole at the end of the seam, so as to bind the two parts of cloth together, and then head it down upon both sides so as to firmly unite the two parts.

54 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn 55 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn Product, Process and Use Innovation

dominant process and use

57 Not for distribution without consent of Eugene Shteyn Other examples

• Google+ vs Facebook

• Wal-mart vs Amazon.com

• HP vs Apple iPhone/iPad

• Innovation centers vs Silicon Valley

58 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn How can we capture and retain a portion of this extraordinary value?

Using IP assets in an investor economy

Our lawsuit is saying, “Google, you f*cking ripped off the iPhone, wholesale ripped us off.” Grand theft. I will spend my last dying breath if I need to, and I will spend every penny of Apple’s $40 billion in the bank, to right this wrong. I’m going to destroy Android, because it’s a stolen product. I’m willing to go to thermonuclear war on this. quoted from “Steve Jobs”, by Walter Issacson. 2011

60 Not for distribution without consent of Eugene Shteyn 61 Not for distribution without consent of Eugene Shteyn 62 Not for distribution without consent of Eugene Shteyn Radio – a Revolution in Technology, Business, Military

63 Not for distribution without consent of Eugene Shteyn The danger of being ripped off is imminent, especially early in the innovation cycle

64 Not for distribution without consent of Eugene Shteyn Jacob W. Davis to Levi Strauss & Co

July 5, 1877

65 Not for distribution without consent of Eugene Shteyn 66 Not for distribution without consent of Eugene Shteyn Other important patent wars

• The Cotton Gin • Sewing Machines • Railroads • Electricity • Telephone • Automobile • Radio • Television • The Integrated Circuit • PC Graphical User Interface • Recombinant DNA 67 Not for distribution without consent of Eugene Shteyn Intellectual Property

70 Not for distribution without consent of Eugene Shteyn Real-life inventor experience

71 Not for distribution without consent of Eugene Shteyn November, 2014

72 Not for distribution without consent of Eugene Shteyn November, 2014

73 Not for distribution without consent of Eugene Shteyn November, 2014

74 Not for distribution without consent of Eugene Shteyn 75 Not for distribution without consent of Eugene Shteyn Source: Zvi Bodie et. al. Essentials of Investments, 9th ed. 2013. 76 Not for distribution without consent of Eugene Shteyn Source: Zvi Bodie et. al. Essentials of Investments, 9th ed. 2013. 77 Not for distribution without consent of Eugene Shteyn IP-related assets and instruments (a “divergent” investor perspective)

1. Novel ideas in people’s heads 2. Tacit knowledge, i.e. the learning curve 3. Business social, i.e. the network 4. Trade secrets 5. Patents and patent applications 6. Copyrights 7. Trademarks 8. Other

78 © Eugene Shteyn Not for distribution without consent of Eugene Shteyn http://www.levistrauss.com/ accessed on 1/25/2012

79 Not for distribution without consent of Eugene Shteyn Industry S-curves

80 Not for distribution without consent of Eugene Shteyn …at the time the first microprocessors were shipped, the total annual market for computers in the world was something like 10,000 units. The microprocessor would have been a commercial disaster if all we did was to replace those 10,000 units with cheaper processors. I remember going to a conference and speaking before a group that was more involved in applications than devices and explaining to them that we had to ask big questions, like, ‘ How are we going to develop markets that can use 100,000 of these a month?’

- Gordon Moore

- Peter Thiel

source: http://www.wsj.com/articles/peter-thiel-competition-is-for-losers-1410535536

© Eugene Shteyn Not for distribution without consent of Eugene Shteyn Goal: a hedged innovation portfolio built to scale • Help the right ideas in people’s heads • Make sure innovation happens • Beware of skeuomorphs! • Create or contribute to Dominant Design, Process and Use • Manage risks through IP • IP instruments as derivatives on Scalable Innovations • “Option” execution

83 Not for distribution without consent of Eugene Shteyn Q&A

84 Not for distribution without consent of Eugene Shteyn