How Innovation Works.

A thread summarizing the latest @naval podcast with @mattwridley

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Naval: I don't have heroes. But Matt Ridley's body of work had an early and formative influence on me.

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N: His first book I read was Genome. I have 6-7 copies of that book lying around. It helped me define what life is, how it works, and placed evolution as a common unifying principle at the center of my worldview.

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N: The Red Queen laid out the age-old competition between bacteria and viruses and humans.

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N: The Rational Optimist taught me why it is rational to be an optimist because of the technological and scientific advancement we've had since the early discoveries such as fire.

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@mattwridley: I'm someone who has enjoyed writing all his life. I became a journalist after my Ph.D. in Biology. I do a book every 5 years but only when I'm interested in a topic enough to do that book.

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N: Your latest book, How Innovation Works has been your most impacting work for me since The Genome.

Two reasons –

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1) It corrected a long-standing misunderstanding of innovation I had about Silicon Valley. I'm steeped in SV, have invested in 100s of companies and I thought I knew this game inside out.

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2) It was actionable. If you're an entrepreneur in SV, Shanghai, or Bangalore, you must read this book.

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N: You must also read this book if you're in the government. Govts often pay lip service to "creating another Silicon Valley" but they don't quite know how. This book has that actionable playbook.

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M: Yes, most of my books are about ideas but in this one, I wanted to zero in on the practicalities of innovation.

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My one-sentence summary of this book - "Innovation is the child of freedom and the parent of prosperity."

- @naval

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N: Another profound theme in the book - "Is history a product of a few great men, a few great inventions, discoveries, battles moments? Or is it an inevitable and evolved process."

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N: You conclusively lay out the evidence that it's the latter. You specifically call it Innovation and not Invention.

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M: Invention is coming up with a new device, while innovation is the slow iterative process to make it practical, affordable, and reliable such that people would want to use it.

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M: Thomas Edison exemplifies this. He is not coming up with new ideas but taking something and making it work. He himself said that this is "1% inspiration and 99% perspiration."

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M: In this book, I'm trying to rescue the perspirators while slightly relegating the inspirators who always think they deserve the credit.

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M: A beaver tells the rabbit while looking at the Hoover Dam, "No I didn't build it, but it was based on an idea of mine."

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N: You learn this very quickly in Silicon Valley that the ideas are a dime a dozen.

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M: I'm downplaying the importance of "Disruption" in this book. Most innovation is iterative and gradual. The first version of the second thing looks a lot like the last version of the first thing.

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N: This is the misconception you fixed for me about innovation in Silicon Valley. I wanted to be a scientist but was never really good at it. I came to SV thinking that a genius inventor comes up with the idea and drives progress.

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N: When I came to Silicon Valley, I didn't see that here. I saw lots of people tinkering and playing but no individual geniuses like that. I took that to think that maybe there was not much innovation in SV anymore.

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N: Your book showed me that The Lone Inventor was a myth. It was never there. Now I've realized that it's an evolutionary process, not a breakthrough process.

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M: Norman Borlaug, one of my heroes, who discovered high yield crops that resulted in the world being able to provide food for billions of people, he got his idea at a bar in Buenos Aires who got the idea somewhere else and so on.

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N: This also explains why Innovation is geographically concentrated. If it were the lone geniuses you'd expect to see innovation highly distributed.

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M: Innovation has long been highly geographically concentrated. Currently, it is SV, but at some point, it was Britain, or The Renaissance Italy, or Ancient Greece, or Anges Valley, and so on.

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N: In SV, that network is even tighter. Not only you find your talent and skill base, but also your customer base since the other innovative companies/people adopt your product earlier than anybody else.

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N: The local politicians exploit it by constantly attacking tech and levying high taxes. It works because SV has turned into an oil-reservoir that would always be gushing.

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@mattwridley: Until it no longer is gushing. Innovation moves. It has moved from place to place in the past. A lot of innovators had to move out to keep creating. America is the exception that proves this rule.

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M: Elon Musk recently voiced his concern that he may leave California like a 15th century innovator threatening to leave one part of Germany for another part of Germany.

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@naval: I thought Silicon Valley was impregnable. But the pandemic has revealed the cracks. The next Silicon Valley will be built in the cloud.

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(Yes, this is the core thesis that @balajis has been famously and actively championing for a while now. Interesting to see Naval echo similar thoughts)

N: This happens in crypto – the innovation is truly distributed across the world. More than half of my crypto investments are outside SV which is not true for any other class of my investments.

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N: The Holy Grail in crypto is the "Distributed Autonomous Organization". These are companies that function as smart contracts on the blockchain completely sovereign from the state.

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N: I wouldn't be surprised if the tech industry 10 years from now is just as distributed as crypto is today.

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N: The innovators are the most leveraged people and therefore highest of the earners. They won't be priced out of California. But they will leave if the Govt makes it impossible for them to create and build.

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(my favorite moment from the podcast)

@mattwridley: Innovators are often stymied by some combinations of "Chiefs, Thieves, or Priests."

@naval: Chiefs, Thiefs, or Priests - what's the difference?

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M: There have been periods when the flame of innovation was all but extinguished. At least in the old days, there was somewhere else to go. But in today's globalist world, there could be a cult-takeover that kills innovation.

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M: But, this time, Innovation can exit into the cloud - where the Chiefs, Priests, and Thieves can't get to them.

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N: That said, physical Innovation is in danger. We can exit to cloud in the digital domain but I'm pessimistic for the physical domain, which is unfortunate because a lot of our consequential problems are physical.

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"Maybe India can act as an innovation-haven with all its order and chaos. But it has ways to go. There is a boom in places like Bangalore, but it will need the right policies and infrastructure to support it."

- @naval

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N: The global cult of killing innovation is very scary and possible. The modern environmental movement is an example of that. It has that strain of "We must stop all progress and innovation because you're destroying the environment" somewhere in there.

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N: One of the themes of progress is doing more with less. We can't stop China and India from progressing. What we can and should do is what @elonmusk does - provide alternative options that work.

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So that was the summary of the latest @naval podcast. It was an information-dense episode and I have tried to cover the key takeaways.

Will do another one when part 2 of the episode drops.