Great By Choice Chapter 4: Fire Bullets, Then Cannonballs

1. Great By Choice Chapter 4:Fire Bullets, Then Cannonballs QuintenKrzysko Garrett Mize Jonathan Schneider Allison Scott Alex Steakley

2. “Fire Bullet, Then Cannonballs” Approach Explains the success of 10X companies than big-leap innovations and predictive genius • Pacific Southwest Airlines (innovator) • Southwest Airlines (10X company) “Anticipated that innovations might be a primary distinguishing factor for 10X success in unstable environments characterized by rapid change.”

3. The Big Surprise • 66 wide-ranging markets, from chewing gum to the Internet • Only 9% of pioneers end up as the final winners in the market • 64% of Pioneers failed outright • Pioneering Innovation: • Good for society • Statistically lethal for the individual pioneer

4. Pioneer? 10X were innovative enough to be successful but generally not the most innovative Saftey Razor Instant Camera Personal Computer Spreasheet Star Gillette Dubroni Polaroid VisiCorp Microsoft

5. Threshold Innovation

6. Creativity and Discipline Advanced Memory System created the 1000-bit-memory-chip barrier a few months before Intel By 1973 had taken over the market place The motto “Intel Delivers” is what set them apart from their competitors With their ability to deliver on their innovations is why they are a 10x company

7. Creativity and Discipline • Innovation without discipline leads to disaster. “This business lives on the brink of Disaster” • Gordon Moore • After 1103’s success Intel rearticulated its core values placing discipline #1 • However you must have both discipline and creativity to truly be great • Obsessive focus on innovation by itself does not make for great success might even lead to demise

8. Bullets, Then Cannonballs William K. Bowes and a group of scientist started a biotechnology company with no direction (Amgen) This team fired many bullets on many different experiments from Hepatitis- B vaccine to Bioengineered indigo to dye jeans After these many bullets finally fired a cannon ball with EPO the first super blockbuster bioengineered product in history.

9. What Makes a Bullet? Low Cost- Size of bullet grows as the enterprise grows Low Risk- minimal consequences if the bullet goes awry or hits nothing Low Distraction- for the company as a whole but very distraction for a few employees

10. Uncalibrated Cannonballs • Embracing the “fire bullets, then cannonballs” principle requires • Fire bullets • Assess: Did your bullets hit anything? • Consider: Successful bullets to cannonballs? • Don’t fire uncalibrated cannonballs • Terminate bullets that show no evidence of eventual success

11. 10xers (69% calibration rate) • fired cannonballs • Had an intended target • Comparison companies (22% calibration rate) • Fired uncalibrated cannonballs • Cannonballs flying all over the place • Calibrated cannonballs have an 83% success rate over the 23% success rate of uncalibrated cannonballs

12. PSA • Cannonball: “Fly-Drive-Sleep” • Fail • Generated losses every year • Then fired another to by big jets • Bought big jets and then plane fuel went up • Fail again • Economy fell into recession

13. Calibrated Cannonballs • Higher rate of success • Uncalibrated Cannonballs • Can be successful, but that can be more dangerous • Ex: Tell your friend to go gamble and they win

14. 10Xers learn from their Follies When 10Xers fire un-calibrated cannonballs, they quickly learn from mistakes Progressive: limit any new business to 5% of total corporate revenue until fine-tuned for sustained profitability Broke this rule in mid 80s when they moved into selling insurance to trucking companies and transit bus systems

15. 10Xers learn from their Follies They took a huge loss on the venture, but learned from their mistake Later moved into standard insurance, first by firing bullets then firing a cannonball Then wanted to move into homeowner’s insurance, but found bullets hit nothing

16. Empirical Validation not Predictive Genius Be creative but validate your ideas with empirical experience, figure out what works 1987 Bill Gates had to choose between DOS/Windows or OS/2 Gates worked on OS/2 but kept firing bullets on DOS/Windows development Gates was smart enough to know he could not predict the future DOS/Windows controlled the market by 1989

17. Discipline Increased discipline resulted in improved liability ratios All the major improvements came before any major break through product Must be efficient within to afford creativity and innovation

18. Apple’s Bullets Fired • Initial product success came with a revamp of Apple’s first success; Macintosh Computer • Made the most of what Apple already had • I Pod • MP3 players already existed, but not with large data storage capabilities • All the parts necessary existed, just needed to be pieced together • Small leap forward; Extension of MP3 player

19. Apple’s Bullets Fired • iTunes • People would rather buy music at ease and a reasonable price than steal (i.e. Napster, Limewire) • iTunes created easy access to a music store with cheap prices for the music

20. Apple’s Cannonball • Once iPods, and iTunes had proven to be successful, owner’s of PCs wanted in • Apple infiltrated 20 times the market they were previously selling to by making iPod and iTunes software compatible with PC computers • Took over the music market

21. Chapter 4 Key Points A"fire bullets, then cannonballs" approach better explains the success of 10X companies as opposed to big-leap innovations and predictive genius A bullet is a low-cost, low-risk, and low-distraction test or experiment 10X cases fired a significant number of bullets that never hit anything

22. Chapter 4 Key Points • Two types of cannonballs, calibrated and uncalibrated • Calibrated cannonballs have confirmation based on actual experience • uncalibratedcannonballs place big bets without empirical validation

23. Unexpected Findings In some matched pairs, the 10X cases proved to be less innovative than their comparison cases 10Xers have no better ability to predict changes and events than the comparisons The combination of creativity anddiscipline, translates to the ability to scale innovation with great consistency