Capital Matters

How to Foster Innovation and Create Value

Guests arrive for at the Steve Jobs Theater for an Apple event at company’s headquarters in Cupertino, Calif., September 10, 2019. (Stephen Lam/Reuters)
The disruptive ideas that fuel prosperity come from places where experimentation can take place free of restrictive oversight.

Editor’s Note: The following is an excerpt from Conscious Leadership: Elevating Humanity Through Business by John Mackey, Steve McIntosh, and Carter Phipps, published by Portfolio, an imprint of Penguin Publishing Group, a division of Penguin Random House LLC. Copyright © 2020 by Whole Foods Market Services Inc., Steve McIntosh, and Carter Phipps.

‘Innovation” is a term on the lips of many pundits these days. We hear it everywhere — in old and new media; in talk shows, podcasts, and panel discussions; at global summits and academic symposia; on broadcast news and social newsfeeds.

Could such ubiquity really be deserved? Well, consider this. University of Illinois economist Deirdre McCloskey credits this single human virtue as being largely responsible for what she calls “the Great Enrichment” — the exponential increase in societal wealth that has occurred over the past 250 years, in tandem with a dramatic fall in poverty rates. (In 1800, 85 percent of humanity lived on the equivalent of less than $2 a day. Today it’s less than 9 percent.) After tens of thousands of years of grinding, relentless poverty (with only a few rare, brief exceptions), humanity has undergone massive economic growth and global trade, with billions of people lifted into the middle class, and some beyond that. There is much talk today about inequality and distribution of wealth, and these are important issues. But the larger question here is: How was so much wealth created in the first place? “Our riches did not come from piling brick on brick,” McCloskey claims, “or bachelor’s degree on bachelor’s degree, or bank balance on bank balance, but from piling idea on idea.” Ideas. Creativity. Resourcefulness. Imagination. Innovation. That is the real secret of our collective success. So how do innovative ideas result in a historically unprecedented upsurge in overall wealth? It comes down to a tacit agreement that would-be entrepreneurs make with society that allows breakthrough ideas to take root and thrive.

It goes something like this: Let me be entrepreneurial, let me innovate, let me create value, let me do it without too much interference from the government, let me disrupt established industries in the process, let me keep the profit from it, and, yes, I may (hopefully) get rich in the short run. Entrenched interests may temporarily suffer. Wealth will initially flow to me and to the capital invested in my idea. But as the “deal” plays itself out over time, and others rush in to capitalize on this new innovation, the benefits will start to expand rapidly. The innovation reaches more and more while becoming cheaper and cheaper. The benefits flow out, impacting and improving lives. Little by little, innovation after innovation, life improves, wealth is created, and society moves forward. In the long run, I and millions like me will help you prosper — meaning that we will help make all of us more prosperous — and immeasurably improve all of our lives in the process.

In some respects, “innovationism” would really be a better name for “capitalism.” In our opinion, capitalism is at its best when we deeply appreciate that it’s more about the application of human creativity than about the allocation of financial capital. That’s why the successful innovator, entrepreneur, and even executive needs to focus on creating value rather than simply creating profits. By “value” we simply mean the quality of product or service that encourages someone else to want to do business with you. Yes, value is tested in the marketplace, in the crucible of actual trade. But always remember that profits are downstream from created value, not the other way around.

Most of the world’s great companies started with some new, game-changing form of value creation. It can be dramatic and revolutionary — like the steam engine, electricity, or the internet. It can be unheralded but transformational, like better plumbing or the washing machine. It can be unexpected but timely, like Ray Kroc inventing a new way of selling hamburgers and franchising stores, or Whole Foods providing natural and organic food to a nation that hadn’t yet realized there was a massive new business opportunity in healthier eating. Fast-forward a few decades and those innovations have changed the entire food industry.

Few leaders are ever going to personally have the creative chops of great innovators like Thomas Edison, Steve Jobs, Bill Gates, Jeff Bezos, or Elon Musk. We can certainly learn from their examples, and develop our own creative powers to their fullest extent, but for the conscious leader it is equally if not more important to ask: What can I do to help foster a creative spirit in the people around me? How can I create and nurture a culture of innovation?

Embrace the EdgesIf you’re looking for innovation, you probably won’t find it at the heart of the establishment. Genuine evolution and novelty creation often happens on the borders, at the boundaries, in the in-between zones. It thrives in those places where different cultural patterns can mix and mingle, where established rules and conventions hold less sway, and where experimentation and invention can take place free of restrictive oversight. That is true for the evolution of life, culture, and business. There is a reason why one of the great American art forms, jazz music, was developed in New Orleans, a city of multiple intermixing cultures and musical styles. Urban environments have always played host to some of the most remarkable innovations in history as cultures, people, and ideas intersect and overlap in a creative and dynamic cauldron of engagement.

As sports fans, one of our favorite examples of “evolution at the edges” is the profound change in NBA basketball over the past several decades to an up-tempo, shoot-the-three, pace-and-space style of play. This innovation didn’t emerge fully formed in the heart of basketball orthodoxy, in the locker room of the L.A. Lakers, or on the practice courts of the Boston Celtics. It was first nurtured, cultivated, and developed in the Italian league, where coach Mike D’Antoni experimented with up-tempo styles, far from the center of the basketball universe. Eventually, it came across the pond with D’Antoni to the “seven seconds or less” Phoenix Suns, and finally found its full maturity in the success of teams like the Houston Rockets and the Golden State Warriors. Today, it’s become the defining style of the league.

The same principle explains why the peninsula south of San Francisco became such a center of innovation, beginning in the late sixties and early seventies. It was far enough removed from the more staid business institutions of the East Coast, less caught up in the existing traditions, customs, and social hierarchies of the American corporate establishment, but still well positioned to benefit from investment dollars and from Stanford and Berkeley’s intellectual capital. On the sunny southwest corner of the Bay, there was room to think more freely, experiment more openly, embrace new organizational attitudes, and reimagine business in a context of technology. Garages, basements, and dorm rooms became the birthplaces of HP, Intel, Google, Apple, and so many others. Almost five decades later, after trillions of dollars has flowed out of a few initial startups, Silicon Valley has become the biggest engine of economic wealth creation in history. The outsiders have become the establishment, the barbarians have stormed the gates and set up shop inside the castle.

Today, money, power, and status flow through the Bay Area like a gusher of never-ending cash. Happy millennials from top colleges stroll through futuristic campuses, stumble upon serendipity, enjoy abundant food courts, and play after-hours Ping-Pong while fellow engineers doodle inspired ideas on wall-size whiteboards. Are the resulting cultures more innovative? Maybe. But looking for innovation in the places where we most expect it has generally been a fool’s errand. “The story of innovation has not changed,” claims former Google CEO Eric Schmidt. “It has always been a small team of people who have a new idea typically not understood by people around them and their executives.” One wonders where the next great innovative business ecosystem will find its own apocryphal garages, basements, and dorm rooms in which to incubate the future. At the center of institutions— in C-suites, executive offices, or boardrooms— conservatism more naturally reigns. That is not necessarily a bad thing. There are times when institutionalization is critical, periods when centralization should be the primary goal for any business or organization. Just don’t expect innovation to thrive in such circumstances.

Innovation starts on the edges and moves inward. Institutionalization starts at the center and moves outward. Both are important. But leaders must understand the difference. It’s not enough for conscious leaders to wish, hope, and pray for regular visitation from the muses of novelty; they must actively pay attention to the borders and boundaries of their own business ecosystems, where tomorrow’s disruptive ideas, processes, and technologies are incubating the next revolution.

John Mackey is the co-founder and CEO of Whole Foods Market. Steve McIntosh J.D. and Carter Phipps are co-founders of the Institute for Cultural Evolution think tank, which focuses on the cultural roots of America’s political problems.

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